World

COUNTRY ANALYSIS REPORT
Turkey
In-depth PESTLE Insights
Publication Date: September 2008
OVERVIEW
Catalyst
This profile analyzes the political, economic, social, technological, legal and environmental structure in Turkey. Each of the
PESTLE factors is explored on four parameters: current strengths, current challenges, future prospects and future risks.
Summary
Key findings
The government has implemented various policies on liberalization, but corruption still poses a problem
Turkey is a strong proponent of liberal trade and investment policies. It has an open trading system, especially with
countries in the EU, with which it forged a customs union agreement in 1996. The agreement led to a positive shift in the
country's trade policy, allowing many Turkish firms to successfully extend their presence in the global economy. However,
Turkey faces widespread corruption in its political and bureaucratic machinery. Corruption remains a disincentive for foreign
investors and negatively affects economic development. Corrupt practices have not been effectively uncovered and
prevented by the government, and are proving to be major impediments for the efficient implementation of government
policies in Turkey.
While Turkey is witnessing a high flow of foreign investments, labor market issues remain a concern
Foreign investment plays a strong role in Turkeys rapid expansion and has been a driving force of its economic growth
engine. The country received foreign direct investment (FDI) worth $20 billion in 2006, compared to $2.7 billion in 2004.
The significant increase in the inflow of foreign investment to Turkey proves the countrys considerable economic size and
the quality of its workforce. However, the Turkish labor market remains relatively rigid by international standards. According
to the World Bank's Doing Business report of 2007, Turkey is ranked 146 among 178 countries with regard to the difficulties
faced by businesses in hiring and firing workers. The current inflexibility of the labor market is also due to the business
sector finding it difficult to respond to competitive pressures and create an adequate number of jobs.
Turkey: Country Analysis Report In-depth PESTLE Insights
Published 09/2008
Datamonitor. This brief is a licensed product and is not to be photocopied
Page 1
Overview
Implementation of several social reforms initiated; inadequate education infrastructure remains a setback
The government of Turkey has taken several steps to implement policies with the objective of improving the social benefits
provided to its people. The country initiated an Instrument for Pre-Accession Assistance for Rural Development (IPARD)
program in December 2007 to improve social conditions in settlements and regional centers. The government intends to
allocate funds to improve agricultural holdings and the overall performance and competitiveness of the food processing
industry along with the role of manufacturer groups in agricultural markets. However, the government needs to focus on
improving the infrastructure and the quality of education provided in the country's schools. Turkeys education system has
been held responsible for the mismatch between labor demand and supply. For instance, more than 80% of primary and
secondary schools suffer from a shortage of teachers, and more than 87% have limited space and infrastructure.
The government is encouraging R&D efforts in the country, which is lagging behind in innovation and patents
The government has given considerable encouragement to foreign entities, prominent universities and research
organizations to increase R&D spending. It has established science and technology centers and is promoting the
development of the country's e-commerce network, with an aim to originating and formulating new national science and
technology policies. Nevertheless, Turkey still suffers from a low level of innovation, reflected by the low number of patents
registered in the country. The number of patents registered is on the rise, but is still far behind the levels seen in the EU
nations.
Although the country has favorable laws for encouraging foreign investment, the loopholes in the taxation system
continue to be a significant risk for the country
The government has been taking several initiatives to make Turkey an attractive destination for foreign money by
encouraging investments in infrastructure. The recent increase in foreign investment is mainly due to the introduction and
implementation of law number 4875, or the Foreign Direct Investment Law, in 2003. The establishment of this law removed
almost all of the restrictions and requirements previously imposed on foreign investors and provided them with the same
legal status as Turkish-owned companies under the Turkish Commercial Code. However, the country has had difficulties in
trying to enforce regulations, a situation likely to continue into the future. The problem primarily lies with the loopholes
available for those looking to evade the system. If stringent action is not taken very soon, these loopholes could lead to a
huge revenue loss for the government and diminish investments and consumption in the long run.
Turkey has a rich natural resource base, but its inability to tackle huge environmental problems continues to be a
challenge
Turkish is renowned for its plentiful natural resources and is home to many wild and domestic species, including wheat,
chickpeas, lentils, apples, pears, apricots, chestnuts and pistachios. However, the biggest challenge facing the Turkish
government is its inability to tackle the huge environmental problems that may arise due to an increase in chemical and
detergent effluents and air pollution, particularly in urban areas. Turkey has high levels of industrial air pollution from power,
cement, fertilizer, and sugar facilities, a large percentage of which lack filtration equipment. Turkey also faces land
degradation due to the inappropriate use of agricultural areas, overgrazing and deforestation, along with soil erosion in
more than half of its land surface.
Published 09/2008
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Overview
PESTLE highlights
Political landscape
The government of Turkey is based on the principle of democratic representation, and divides power between
several ruling bodies.
Turkey has been pursuing a stable foreign policy in recent years, and has played a significant role in the
formulation and implementation of many global initiatives. The current foreign policy of Turkey includes assessing
the national security implications of the political turmoil in Iraq.
Economic landscape
Turkey's business environment and economic competitiveness have improved over the years. In 2007, the
service sector was the major contributor to the Turkish economy, constituting around 66% of GDP. The industrial
sector produced about 27% of GDP, with the remainder coming from the agricultural sector.
The government has set an objective of reducing public debt from approximately 40% of GDP to 30% of GDP by
2012. In addition, the government intends to increase national savings, which would facilitate the reduction of the
current account deficit, public debt and borrowing costs, and help curb inflation.
Social landscape
The Turkish government has taken several initiatives to implement policies aimed at improving the social benefits
and quality of life in the country.
The healthcare system in Turkey lags behind other European countries. For instance, total health spending
accounted for approximately 6.3% of its GDP in 2006, below the average of 8.9% for the member countries of
the Organisation for Economic Co-operation and Development (OECD).
Technological landscape
Turkey has witnessed significant growth in R&D over the years by implementing several related policies,
including a national innovation strategy that emphasizes high-value products and increasing employment levels
through increased competitiveness.
Turkey has seen double-digit growth in the information and communication technology (ICT) market between
2002 and 2007, and an increased number of skilled scientists are currently returning to the country to benefit
from opportunities offered to them by the EU.
Legal landscape
The judicial system of Turkey is a tripartite system. The supreme courts of Turkey include the Constitutional
Court; the Military High Court of Appeals and High Military Administrative Court; the Council of State; and the
Court of Jurisdictional Conflicts.
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Overview
The business environment in Turkey has improved following the recently undertaken tax reforms. The corporate
tax rate was reduced from 30% in 2006 to 20% in 2007. Employment regulations, however, are rigid, and have
been a cause of decline in the overall productivity growth.
Environmental landscape
Turkey is faced with increasing pollution levels, due to chemical and detergent contamination of water sources
and a concurrent increase in air pollution, mainly in urban areas.
The volume of carbon dioxide emitted increased from 204.4 million metric tons in 2003 to 249.5 million metric
tons in 2007. Greenhouse gas (GHG) emissions per person were approximately equivalent to 4.1 tons of carbon
dioxide in 2004, which amounts to about one third of the average level in the EU/OECD countries.
Key fundamentals
Table 1: Turkey key fundamentals
GDP, constant 2000 prices ($ billion)

GDP growth rate (%)
GDP, constant 2000 prices per capita ($)
Inflation (%)
2006
2007
2008
2009
2010
2011
2012
267.59
281.26
294.97
308.68
322.38
336.04
349.64
5.99
5.11
4.87
4.65
4.44
4.24
4.05
3,800
3,953
4,103
4,251
4,397
4,540
4,680
9.60
8.50
5.88
4.25
3.74
3.43
3.23
Exports, total as % of GDP
22.81
22.42
22.16
22.02
21.95
21.92
21.96
Imports, total as % of GDP
31.13
30.79
30.50
30.25
30.04
29.86
29.70
Mid-year population, total (million)
70.41
71.16
71.89
72.61
73.32
74.02
74.70
9.72
9.47
9.43
9.38
9.33
9.20
9.14
Unemployment rate (%)

Doctors per 1000 people
Mobile penetration per 100 people
Source: Datamonitor
1.41
1.43
1.50
1.52
1.55
75.00
83.00
86.00
88.00
90.00
92.00
93.00
DATAMONITOR
Published 09/2008
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Table of Contents
TABLE OF CONTENTS
Overview
Catalyst
Summary
Key facts and geographic location
10
Key facts
10
Geographic location
10
PESTLE analysis
12
Summary
12
Political analysis
13
Economic analysis
15
Social analysis
17
Technological analysis
20
Legal analysis
23
Environmental analysis
26
Political landscape
28
Summary
28
Evolution
28
Structure and policies
30
Performance
34
Outlook
35
Economic landscape
36
Summary
36
Evolution
36
37
Performance
40
Outlook
53
Social landscape
54
Summary
54
Evolution
54
54
Performance
57
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Table of Contents
Outlook
59
60
Summary
60
Evolution
60
60
Performance
61
Outlook
64
Legal landscape
65
Summary
65
Evolution
65
65
Performance
67
Outlook
68
69
Summary
69
Evolution
69
69
Performance
69
Outlook
70
APPENDIX
71
Ask the analyst
71
Datamonitor consulting
71
Disclaimer
71
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Table of Contents
TABLE OF FIGURES
Figure 1: Map of Turkey
11
Figure 2: Turkey key political events timeline
29
Figure 3: Turkey key political figures
30
Figure 4: Composition of the parliament of Turkey
32
Figure 5: Evolution of the Turkish economy, 19702007
37
Figure 6: Market capitalization of the Turkey stock exchange, 200007
39
Figure 7: GDP and GDP growth rate in Turkey, 200212 (Real GDP at constant 2000 prices)
41
Figure 8: GDP composition by sectors, 2006
42
Figure 9: Agricultural output of Turkey, 200107
43
Figure 10: Industrial output of Turkey, 200107
44
Figure 11: Services output of Turkey, 200107
45
Figure 12: Current account balance of Turkey, 200007
46
Figure 13: External trade of Turkey, 200206
47
Figure 14: Balance of trade of Turkey, 200007
48
Figure 15:
Total foreign investment in Turkey, 200206
49
Figure 16:
New Turkish liraUS dollar exchange rate, 200007
50
Figure 17:
CPI and CPI-based inflation in Turkey, 200212
51
Figure 18:
Total assets of commercial banks in Turkey, 200007
52
Figure 19:
Employment and growth rate in Turkey, 200212
53
Figure 20:
Expenditure on healthcare in Turkey, 200212
58
Figure 21:
Governments expenditure on education in Turkey, 200204
59
Figure 22:
Growth rate of mobile and fixed-line subscribers in Turkey, 200212
62
Figure 23:
Expenditure on R&D in Turkey, 200006
63
Figure 24:
Number of R&D personnel in Turkey, 200006
64
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Table of Contents
Figure 25: Carbon dioxide emissions in Turkey, 200007
70
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Table of Contents
TABLES
Table 1: Turkey key fundamentals
Table 2: Turkey - key facts
10
Table 3: Analysis of Turkeys political landscape
13
Table 4: Analysis of Turkeys economy
15
Table 5: Analysis of Turkeys social system
17
Table 6: Analysis of Turkeys technology landscape
20
Table 7: Patents received from USPTO
22
Table 8: Analysis of Turkeys legal landscape
23
Table 9: Analysis of Turkeys environmental landscape
26
Table 10: Mid-year population by age, 2006
55
Published 09/2008
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KEY FACTS AND GEOGRAPHIC LOCATION

Key facts
Table 2: Turkey - key facts
Country and capital

Full name
Republic of Turkey
Capital city
Ankara
Government
Government type
Republican parliamentary democracy
Head of state
President Abdullah Gul
Head of government
Prime Minister Recep Tayyip Erdogan
Population
71.9 million
Currency
Turkish lira (TRY)
GDP per capita
$12,900
Internet domain
.tr
Demographic details
Life expectancy
73.1 years (total population)

70.7 years (men)
75.7 years (women)
Ethnic composition (2001 data)
Turkish 80%
Kurdish 20%
Major religions (2001 census)
Muslim 99.8% (mostly Sunni)

other 0.2% (mostly Christians and Jews)
Country area
780,580 sq km (total)
770,760 sq km (land)
9,820 sq km (water)
Languages
Turkish
Exports
Apparel, foodstuffs, textiles, metal products, transport equipment
Imports
Machinery, chemicals, semi-finished goods, fuels, transport

equipment
Source: CIA
Published 09/2008
Page 10
Geographic location
Turkey is located between Asia and Europe, and is surrounded by the Mediterranean Sea, Aegean Sea, Sea of Marmara
and the Black Sea. It shares its borders with Greece, Bulgaria, Iran, Iraq, Syria, Armenia, Russia and Georgia.
Figure 1: Map of Turkey
Source: CIA The World Factbook
DATAMONITOR
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PESTLE analysis
PESTLE ANALYSIS
Summary
The Turkish government is made up of democratically-elected representatives of the people, divided into several ruling
bodies. In 1997, the military forced the resignation of the Erbakan government to end the increasing social and political
power of Islamic institutions. Instability continued to increase, with the implementation of policies which secularized
education, and political leaders implicated in corruption charges. Soon Turkey witnessed a series of cabinet changes and
the year 2001 ended with acute economic crisis. On the international front, in 2002 and 2004, the Turkish parliament
passed certain human rights laws with the aim of strengthening the countrys association with the EU.
Turkey experienced a series of economic disruptions after the 1950s, which resulted in a balance-of-payments crisis by the
1970s. With ineffective structural reforms, Turkey had witnessed current account deficits, which it financed by external
borrowing that led to an increase in the country's external debt. The Turkish government failed to take sufficient measures
to tackle the increase in world oil prices during the 1970s, and borrowed short-term loans from foreign lenders; with rising
inflation and unemployment, the government found it increasingly difficult to repay the interest on these loans. After 2000,
however, Turkeys economy gradually benefited from prudent fiscal and monetary policies coupled with a significant
reduction of expenditure on public infrastructure development.
On the social front, Turkey has been faring well on various social parameters, mainly because of the manifold programs
that the government initiated for fiscal sustainability in the areas of healthcare and pensions. Some of the most important
social welfare schemes that the government provides are unemployment insurance, medical insurance, insurance for workrelated injuries, maternity insurance and housing security. Turkey aims to make radical changes in the public service sector
by introducing advanced technologies; the country also intends to increase productivity in the long run by allocating more
resources to R&D activities in both the public and private sectors. The government has been trying to make the country an
attractive destination for foreign money by encouraging more infrastructure investment, which contributes significantly to
the economic growth of the country through the diffusion of technology, positive externalities and capital inflows. Turkey
has an independent judicial system responsible for the maintenance of law and order. As for ecological concerns, Turkey is
involved in global environmental conservation programs and has linked its development aid to environmental objectives
and policies focusing on air pollution, biodiversity, chemical substances, environmental health and issues such as climate
change. However, Turkey suffers from industrial air pollution from power plants and the cement, fertilizer and sugar
industries, which continues to be an area of concern.
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PESTLE analysis
Political analysis
Overview
Turkey has been a strong promoter of liberal trade and investment policies and the recent governments have shown a
sustained commitment to focus on improving economic policies. Turkey became a candidate for EU membership at the
Helsinki Summit in 1999. Nevertheless, increasing corruption and a perceived lack of political commitment continue to
discourage prospective international investors.
Table 3: Analysis of Turkeys political landscape
Current strengths
Current challenges
Government policies on liberalization
Terrorist attacks
Rampant political and bureaucratic corruption
Future prospects
Future risks
Membership of the EU
Troubled relations with neighbors
Source: Datamonitor
DATAMONITOR
Current strengths
Government policies on liberalization
Turkey is a strong proponent of liberal trade and investment policies. It has an open trading system, especially with the
countries in the EU, with which it forged a customs union agreement in 1996. The agreement led to a positive shift in
Turkeys trade policy, allowing many Turkish firms to successfully extend their presence in the global economy. Exports
have increased at an average of rate of 10% every year in real terms over the past decade. The automobile sector in
Turkey has benefited from the trade agreement; automotive exports as a percentage of GDP have grown significantly. In
effect, these policies have stabilized inflation rates and have led to higher levels of investment and trade.
Current challenges
Terrorist attacks
Turkey has witnessed a sporadic series of violent terrorist acts in the past, and it is believed that there are terrorist groups
in the country. It has historically been under threat from widely disparate terrorist groups, including left-wing and Kurdish
radicals, indigenous Islamic extremists, and Turkish militants with suspected links to Al-Qaeda. Furthermore, in 2006, the
state police in Ankara informed the press about the involvement of a group of military officers in a plot to weaken the Adalet
ve Kalknma Partisi (AKP) government.
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PESTLE analysis
Most of the terrorist organizations in Turkey have targeted foreign tourists or assets in the country. Since 2004, the
Kurdistan Workers Party (PKK) has been working to damage the Turkish tourism industry by targeting foreign tourists. Over
the years, radical Turkish Islamists have plotted several attacks in Turkey, the majority of which have been prevented. The
intention behind these schemes has been to hamper the foreign interests in the country, including institutions, businesses
and personnel associated with the US and the UK. These repeated terrorist attempts will inevitably increase the security
risk in the country and hamper its growth prospects.
Rampant political and bureaucratic corruption

Turkey faces widespread corruption in its political and bureaucratic machinery. The 2008 Global Corruption Report,
th
published by anti-corruption organization Transparency International (TI), ranked Turkey 64 in its corruption perception
index. According to both TI and the World Bank, corruption at the institutional level has traditionally been a cause of
hesitancy among prospective investors.
According to the 2007 activity report of the Turkish Police Department's Anti-Smuggling and Organized Crime
Administration (KOM), several bureaucrats have been found to be involved in corrupt activities during various operations
carried out by the police. The officials who were embroiled in these scandals were sacked from their jobs. Turkeys outlook
for the future looks dismal as a result of increasing corruption cases and a perceived lack of political commitment.
Future prospects
Membership of the EU
In the 1999 Helsinki Summit, Turkey became a candidate for EU membership. This was a follow-up from the customs union
signed with the EU in 1995. This initiative has lead to the implementation of several political and economic reforms in the
country. For instance: after 2001, Turkey entered a period of high growth and significant structural transformation, with an
average annual growth of 7.5%. Turkey has been able to sustain this position due to the government's continued
commitment to improve its economic policies. The prospect of EU accession has helped Turkey increase its exports and
draw large capital inflows.
Future risks
Troubled relations with neighbors
Turkeys relations with its neighbors, especially Greece, have been showing signs of improvement. Nevertheless, the
progress in its business relations does not change the fact that territorial disputes with its neighbors, in particular with
Greece over Cyprus, continue to cause political tension. Furthermore, a rift between Turkey and its ally the US, over
Ankara's intention to send troops into northern Iraq to fight Kurdish rebels, could further weaken its relations with the
international community and damage its investment climate.
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PESTLE analysis
Economic analysis
Overview
The economic structure of Turkey is well supported by the fiscal and monetary policies of the government. Moreover, the
healthy flow of FDI into the country is boosting its economic development. The Turkish government also plans to implement
free trade agreements (FTAs) with the intention of encouraging foreign and domestic investors and thereby improving
competitiveness. Despite recent initiatives, such as the easing of overtime restrictions, the Turkish labor market remains
relatively rigid compared to international standards.
Table 4: Analysis of Turkeys economy
Current strengths
Current challenges
High inflow of foreign investment
Current account deficit
Prudent fiscal and monetary policies
Future prospects
Future risks
Implementation of free trade agreements
Rigid labor market
Source: Datamonitor
DATAMONITOR
Current strengths
High inflow of foreign investment
Foreign investment plays a strong role in Turkeys rapid expansion and has been a driving force of its economic growth
engine. The country received FDI worth $20 billion in 2006 compared to $2.7 billion in 2004, and it is anticipated that this
will surpass $20 billion in 2008. The privatization program, scheduled to be implemented in 2008, includes the sale of major
bridges, highways, electricity grids and a stake in the partly privatized commercial bank, Halkbank. The money inflow
through foreign investment in Turkey will be useful for expanding the infrastructure of the country.
The significant increase in the inflow of foreign investment to Turkey proves the countrys considerable economic size and
quality of labor force.
Prudent fiscal and monetary policies

Turkeys economy has significantly benefited from prudent fiscal and monetary policies. The government has sought to
tighten fiscal policies through the significant reduction of expenditure on public infrastructure development. Furthermore,
the government significantly increased the prime lending rates for commercial banks to extract excess liquidity out of the
market. Inflation in Turkey has witnessed a significant drop, as private investments have been increasing since 2003. The
inflation rate of Turkey declined from 25.3% in 2003 to 8.5% in 2007, remaining in single digits during 2006 despite the
depreciation of the Turkish lira. The Turkish central bank has been successful in lowering inflation since 2001, keeping it
down by tightening fiscal policies and implementing structural reforms that resulted in high productivity growth.
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PESTLE analysis
Current challenges
Current account deficit
Turkey's declining current account balance has been hindering its economic stability. The current account deficit was $37.5
billion in 2007, compared to $8 billion in 2003. Imports have witnessed a sharp rise as a result of increased global
commodity prices and a strong Turkish lira. The current account deficit makes the country even more susceptible during
times of global financial uncertainty.
Future prospects
Implementation of free trade agreements
The Turkish government plans to implement FTAs to encourage foreign and domestic investors and boost competitiveness.
As part of this, the country entered into several trade agreements with various countries, including Jordan, Lebanon, the
Faeroe Islands, Albania, South Africa and Mexico. During April 2008, Turkey entered into an agreement with Albania to
boost economic and commercial relations between the two countries and promote joint investments between Turkish and
Albanian businessmen. Moreover, Turkey wants to forge a FTA with India by increasing the annual bilateral trade between
the two countries to $10 billion by 2012. Turkey also aims to broaden its business relations with India so as to narrow its
trade deficits. These FTAs will greatly improve the prospects of economic expansion in Turkey.
Future risks
Rigid labor market
Despite initiatives such as the easing of overtime restrictions, the Turkish labor market remains relatively rigid by
th
international standards. According to the World Bank's Doing Business report 2007, Turkey is ranked 146 among 178
countries in regard to the difficulties faced by businesses in hiring and firing workers. The current labor market scenario is
also stiff because the business sector in the country is finding it difficult to respond to competitive pressures and create an
adequate number of jobs. To tackle this situation, governments need to take initiatives that would make Turkish laws and
regulations more flexible. An overhaul of labor markets is essential to regain lost competitiveness and reduce the
unemployment rate.
In addition, high taxes on wages also contribute to Turkey's rigid labor market. The tax wedge, which is the share of
employee earnings taken by the government, is equivalent to the difference between labor costs to the employer and the
net take-home pay of the employee, including any cash benefits received from government welfare programs. For a family
of four, Turkey's tax wedge was significantly higher than other OECD countries at 42.7%, and 15 percentage points higher
than the OECD average wedge of 27.7% as of 2005. The rate of the tax wedge on wages has not kept pace with
productivity, making the economy uncompetitive.
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PESTLE analysis
Social analysis
Overview
Turkey has been grappling with the problems of high unemployment levels and the lack of a proper educational system.
Turkeys infant mortality rate is six to seven times higher than that of the members of the EU. The government has initiated
programs for fiscal sustainability, and reforms are expected to be undertaken in the areas of healthcare and the pension
system. Some of the most important social welfare schemes that the government has been providing are unemployment
insurance, medical insurance, insurance for work-related injuries, maternity insurance and housing security. The system is
financed primarily by contributions made by employers and through the payroll deductions of employees. With the recent
reforms in the education system, it can be expected that the tertiary education scenario will improve and the growing
mismatch between academic and industrial needs will be rectified.
Table 5: Analysis of Turkeys social system
Current strengths
Current challenges
Growing percentage of young population
Low human development index

Increasing infant mortality
High level of unemployment
Future prospects
Future risks
Overhaul of social policies
Ineffective social security system

Inadequate education system and infrastructure
Source: Datamonitor
DATAMONITOR
Current strengths
Growing percentage of young population
More than half the population of Turkey is aged below 30. With the rest of Europe facing the problem of an increase in the
average age of its population, Turkey has an opportunity to increase the employment rate within the country by capitalizing
on its young labor force. In addition, European small and medium enterprises (SMEs), as well as countries such as Austria,
Italy and Spain, have been showing an interest in investing in Turkey.
Current challenges
Low human development index
Turkey has historically shown weak performances on various social parameters, mainly because of its policies on such
th
matters. The human development index (HDI) of Turkey is 0.775 and the country is ranked 84 among the 177 countries
rated. Life expectancy at birth is 71.4 years, while the combined primary, secondary and tertiary gross enrolment ratio is at
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PESTLE analysis
68.7%. Turkey also fares low in terms of gender equality. Turkeys gender-related development index (GDI) value is 0.763.
GDI measures achievements by using the HDI indicators, but captures also inequalities in achievements between women
and men. The index indicates Turkeys inability to create a positive social climate for women.
Increasing infant mortality

Turkey has a dismal infant mortality rate. The countrys infant mortality rate is six to seven times higher than that of the
members of the EU. For instance, the total number of deaths per 1000 live births during 2006 was approximately 37 in
Turkey, making it the country with the worst infant mortality rate in Europe. Among males the rate was 40 deaths per 1,000
live births, while among females it was 33 per 1,000 live births. The insufficiency of several of Turkey's preventive and
protective health services is the major cause for the high infant mortality rate in the country.
High level of unemployment

Turkeys highly regulated labor market has led to high employment costs and increasing levels of unemployment.
According to the report released by the Turkish Statistics Institute, the number of unemployed people in 2007 increased by
approximately 38,000 to reach 2.3 million.
In early 2008, Turkeys population consisted of around 49.7 million people aged over 15 years: an increase of 737,000
people compared to the previous year. This rise has made it difficult for Turkey to create sufficient jobs for its population. In
the first quarter of 2008, the unemployment rate in Turkey was 11.6%, compared to 11.4% during the same period in 2007.
The unemployment rates in cities and rural areas were 13.4% and 8.5%, respectively, in the same period. In the first
quarter of 2008, more than 73% of the population who were unemployed comprised males, approximately 56% did not
have a high school education, and 30% had been jobless for a year.
Future prospects
Overhaul of social policies
The Turkish government has undertaken several initiatives to implement policies aimed at improving the social benefits it
provides to its people. The country initiated an IPARD in December 2007 to improve social conditions in settlements and
regional centers. The program, which will run until 2020, aims to improve the social conditions of people living in rural areas
by building hospitals, cultural centers, apartment buildings, roads, power-transmission lines and schools. The program's
objective also includes the modernization of the agricultural sector.
Furthermore, the government intends to allocate funds to improve agricultural holdings and the overall performance and
competitiveness of the food processing industry along with the role of manufacturer groups in agricultural markets. This
initiative would hence contribute to the development of the rural economy, and would promote the formation of microenterprises which would create employment opportunities in the rural areas.
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PESTLE analysis
Future risks
Ineffective social security system
The social security system in Turkey needs some serious enhancements, despite Turkey being the only country in the
world that has made three reforms in social security in two years. The retirement age is currently 44 for women and 48 for
men. The government has also made it clear that it has no plans to increase the retirement age to 65. As a result of both
this and the country's inadequate pension system, the Turkish people are finding it difficult to lead a proper social life after
their early retirement. Moreover, the current security system of Turkey is unsustainable due to low rates of registration
among workers, the underreporting of incomes and drifts in spending, which are causing growing imbalances in the system.
Inadequate education system and infrastructure

To a great extent, Turkeys education system has been held responsible for the mismatch between labor demand and
supply. In the future, economic growth will be led by the knowledge economy, and Turkeys educational system may not be
capable of meeting the attendant needs. Furthermore, the primary and secondary schools in Turkey have inadequate
infrastructure and resources. For instance, more than 80% of the primary and secondary schools suffer from a shortage of
teachers, and 87.3% have limited infrastructure and physical space. Along with this, approximately 42% of the schools do
not have a library, while 71.5% have inadequate library facilities. The outmoded education system and lack of infrastructure
facilities in schools are seen as some of the primary reasons for the prevailing unemployment scenario.
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PESTLE analysis
Technological analysis
Overview
Turkey has been slower in adopting technological advances than the EU countries, although policy measures have been
undertaken to expedite this. Total expenditure on R&D in 2006 as a percentage of GDP was 0.6%, compared to 2.3% in
the OECD countries. Nevertheless, over the past decade, Turkeys telecommunications industry has been booming due to
the liberalization of the market. The number of mobile telephone subscribers increased at a CAGR of 22%, from
approximately 23 million in 2002 to 62 million in 2007. However, the levels of patenting remain extremely low, despite a
rapid increase in recent years. The R&D climate is expected to improve, as the government has been taking several
initiatives towards developing the technological landscape of the country by encouraging foreign entities, prominent
universities and research organizations to foster a culture of innovation.
Table 6: Analysis of Turkeys technology landscape
Current strengths
Current challenges
Significant development in the ICT sector
Low expenditure on R&D
Future prospects
Future risks
Government encouragement to improve R&D
Lack of innovation and low number of patents
Prospects of joining the EU reversing brain drain
Source: Datamonitor
DATAMONITOR
Current strengths
Significant development in the ICT sector
Turkey witnessed double-digit growth in the ICT market during 200107. Turkeys ICT market reached approximately $24
billion in 2007, compared to $21 billion in 2006. The ICT sector contributed approximately 4% of GNP in 2006, and the
growth rate of this market was about 11% at the end of that year. The number of internet users in Turkey increased from
approximately 10 million in 2004 to 19 million users in 2007, at a CAGR of 23%. The number of mobile telephone
subscribers also increased at a CAGR of 22%, from approximately 23 million in 2002 to 62 million in 2007. The increase in
the ICT sector has been due to the privatization of the Turkish telecommunications sector by the government, which has
provided more scope for employment and attracted new foreign investment projects to Turkey.
Published 09/2008
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PESTLE analysis
Current challenges
Low expenditure on R&D
Total expenditure on R&D in 2006, as a percentage of GDP, was around 0.6%: well below the overall 2.3% in the OECD
countries. In comparison, Frances expenditure for the same year was 2.13% of GDP, the US's 2.68%, Japan's 3.18% and
Canada's 1.8%. This huge asymmetry points towards the gross inadequacy of investments by both the private and public
sectors in R&D. In the long run, low R&D spending would erode the competitiveness of industries in Turkey.
Future prospects
Government encouragement to improve R&D
The Turkish government is inclined towards developing the technological landscape of the country, and has given
considerable encouragement to foreign entities, prominent universities and research organizations to foster a culture of
innovation. The government initiated a project on science and technology called Vision 2023 for the period 200323 under
the co-ordination of the Scientific and Technical Research Council (TUBITAK) and the Supreme Council of Science and
Technology (BTYK). The project mainly covers the implementation of the national Technology Foresight study and seeks to
gather and study information on the technological levels of industrial sectors. Other initiatives undertaken by the
government in this regard include establishing science and technology centers and encouraging the e-commerce network
in the country. The aim of these projects is to originate and formulate new national science and technology policies with the
intention of promoting and encouraging innovation.
Prospects of joining the EU reversing brain drain

There has been an increase in the number of skilled scientists who are returning to Turkey to gain from the opportunities
offered to them by the prospect of joining the EU. A total of 40 scientists left foreign universities and returned to Turkey
during 200507. The European Commission has also allocated E4.7 billion to support researchers and institutions during
200713. The increase in the number of skilled scientists will provide a boost to the development of technology in the
country.
Future risks
Lack of innovation and low number of patents
The low level of innovation in Turkey is reflected by the low number of patents registered in the country. Although the
number of patents registered is on the rise, it is still far behind the levels seen in EU nations. It compares very poorly to
some EU and developed countries, as illustrated in the table below. A continuation of the trend is likely to hamper the
scientific prospects of the country.
Published 09/2008
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PESTLE analysis
Table 7: Patents received from the US Patent and Trademark Office by country
Year
Turkey
France
Germany
Japan
US
2000
4,173
10,824
32,922
97,011
2001
14
4,456
11,894
34,890
98,655
2002
18
4,421
11,957
36,339
97,125
2003
32
4,126
12,140
37,248
98,590
2004
19
3,686
11,367
37,032
94,129
2005
10
3,106
9,575
31,834
82,586
2006
23
3,856
10,889
39,411
102,267
Source: Datamonitor
DATAMONITOR
Published 09/2008
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PESTLE analysis
Legal analysis
Overview
Turkey has an independent judicial system responsible for the maintenance of law and order. The Constitutional Court, the
highest constitutional body in Turkey with respect to legislation, determines the constitutionality of legislation prior to the
enactment of new laws. The judicial system is divided into the judicial and administrative orders of courts, and a clear
hierarchy of courts at different levels of states and center exists. The government has been trying to make Turkey an
attractive destination for investment by encouraging more infrastructure investment, which contributes significantly to the
economic growth of the countrys economy through diffusion of technology, positive externalities and capital inflows. Along
with this, the government has reduced the basic rate of corporation tax, with the intention of drawing FDI in Turkey.
However, there exist a lot of loopholes available for those looking to evade the tax system, which is leading to huge
revenue losses for the government.
Table 8: Analysis of Turkeys legal landscape
Current strengths
Current challenges
Comprehensive legal structure
Judicial inefficiencies
Robust framework for business entities

Future prospects
Future risks
Reduction in tax rates
Existing loopholes in the taxation system
Favorable laws for foreign investment
Source: Datamonitor
DATAMONITOR
Current strengths
Comprehensive legal structure
The judicial system is composed of general law courts, heavy penal courts, military courts, the Constitutional Court and
three high courts. The High Court of Appeals handles criminal cases, the Council of State handles administrative cases,
and the Audit Court inspects the accounts of state institutions. Other courts include the civil, administrative, and criminal
courts. The comprehensive legal structure of the country has the capability to address various bottlenecks and structural
issues in the system and gives foundational strength to the investment climate of the country.
Robust framework for business entities

An entrepreneur in Turkey does not face any lengthy business registration processes for commencing a business. The
overall freedom to start, operate, and close a business is protected by Turkeys regulatory environment. Starting a business
in Turkey takes an average of six days, compared to the world average of 43 days. Gaining a business license requires
Published 09/2008
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PESTLE analysis
more than the world average of 19 procedures but less than the world average of 234 days, with costs relatively low. The
robust framework for business entities hence creates a successful commercial environment and drives business growth in
Turkey.
Current challenges
Judicial inefficiencies
Delays in the Turkish judicial system are a serious issue, and have become the subject of debate in recent times.
Furthermore, the political bias of judges has affected legal outcomes. The High Council of Judges and Prosecutors controls
the careers of prosecutors and judges, and thus can sway their decisions. Long pretrial detention and excessively
protracted trials are major concerns. Turkish commercial courts are overloaded with cases, and on average it takes over a
year to resolve each one. In criminal trials, the judicial process have been slow owing to the backlog of cases and court
decisions which are often arbitrary and have been subject to political interference in high-profile cases, which leads to
biased verdicts.
Future prospects
Reduction in tax rates
Turkey has one of the lowest corporate tax rates in the world, with further reductions expected in the coming years. During
2007, the government reduced the basic rate of corporation tax from 30% to 20%. It also introduced and implemented
online filing in an attempt to reduce the time required for preparing trade documentation, with the intention of drawing FDI
into Turkey, and lowered personal income tax from 40% to 37%. This reduction in the tax rates is expected to stimulate the
economic growth of the country.
Favorable laws for foreign investment

Turkey has been a hub for foreign investment over the years. According to the treasury, total foreign investment (including
real property purchases) increased from $2.8 billion in 2004 to approximately $20.1 billion in 2006. The treasury's official
figures for June 2007 reveal that about $10 billion in foreign capital entered the country during the first four months of 2007.
This increase in foreign investment was mainly due to the introduction of law number 4875, or the Foreign Direct
Investment Law, in June 2003 and the Directive for the Implementation of the Foreign Direct Investment Law in August
2003. The implementation of these laws removed almost all of the restrictions and requirements which were imposed on
foreign investors and provided them with the same legal status as Turkish-owned companies under the Turkish
Commercial Code.
The government has been trying to make Turkey an attractive destination for business ventures by encouraging
infrastructure investments. Foreign investment contributes to the economic growth of the countrys economy through the
diffusion of technology, positive externalities and capital inflows.
Published 09/2008
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PESTLE analysis
Future risks
Existing loopholes in the taxation system
Enforcing regulations has been a challenge for the country and will continue to be the case in the future. The problem
primarily lies with the loopholes available for those looking to evade the system. Furthermore, personal income, company
sales and real-estate prices are frequently under-declared. According to a recent study, 30% of value-added tax (VAT)
revenue in Turkey is never collected. Levels of employment are often concealed in order to avoid the payment of income
tax and social security premiums on employees' salaries. If stringent action is not initiated very soon, the loopholes could
lead to a huge revenue loss for the government.
Published 09/2008
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PESTLE analysis
Environmental analysis
Overview
Turkey has been a leader with respect to environmental legislation and ranks ninth in terms of biodiversity compared to
other European countries, with over 33% of its flora being endemic. The country is strongly involved in global environmental
issues and has linked its development aid to environmental objectives and policies focusing on air pollution, biodiversity,
chemical substances, environmental health, and global issues such as climate change. Despite the presence of a strong
framework, environmental pollution in Turkey is high due to an increase in the amount of chemicals and detergents being
dumped. There has also been a rise in air pollution, particularly in urban areas.
Table 9: Analysis of Turkeys environmental landscape
Current strengths
Current challenges
Rich biodiversity
High pollution levels
Future prospects
Future risks
Kyoto Protocol
Increasing levels of hazardous waste

Rising emission levels
Source: Datamonitor
DATAMONITOR
Current strengths
Rich biodiversity
Turkey is acclaimed for its rich natural resource base and ranks ninth in terms of biodiversity compared to other European
countries, with over 33% of its flora being endemic. Turkish flora boasts of many wild species and important domestic
species like wheat, chickpeas, lentils, apples, pears, apricots, chestnuts and pistachios. The Turkish landscape is also
dotted with ornamental flowers like the tulip. The distinctive biodiversity of the country has immense potential for
sustainable development or ecotourism.
Current challenges
High pollution levels
There is an urgent requirement for water treatment plants, wastewater treatment equipment and solid waste management
facilities in Turkey. The main reasons for the current high levels of environmental pollution in Turkey are: the increase in
chemical and detergent effluents; and the rise in air pollution, particularly in urban areas. Furthermore, the discharge of
pollutants by neighboring countries has contaminated the Black Sea.
Published 09/2008
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PESTLE analysis
Air pollution has increased significantly in Turkey since the mid-1990s, and is especially severe in Istanbul, Ankara,
Erzurum, and Bursa. In Istanbul, for instance, the increasing number of cars in urban areas is resulting in smog. Turkey
also faces high industrial air pollution from power plants and facilities used by the cement, fertilizer, and sugar industries, a
large percentage of which lack filtration equipment. Moreover, the country has witnessed soil erosion in more than half of its
land surface. Turkey loses approximately one billion tons of topsoil annually. The increasing level of environmental pollution
could harm the health of the people and the economy.
Future prospects
Kyoto Protocol
Turkey intends to become a signatory to the Kyoto Protocol to benefit from the promotion and implementation of the Clean
Development Mechanism (CDM). Experts have opined that international co-operation as part of the Kyoto Protocol will
continue to benefit ecological conservation in Turkey. In June 2008, the Turkish government decided to approve the Kyoto
Protocol. It aims to share the position of the treaty's European signatories in considering the Kyoto Protocol as the basis of
effective international action to reduce the pollutants causing climate change.
Future risks
Increasing levels of hazardous waste
Turkeys environmental condition is constantly under threat due to the amount of hazardous waste that is being generated
in the country. It is estimated that only 29% of the waste collected is disposed of in sanitary landfills. Municipal and
industrial dump sites, along with their illegal equivalents, comprise approximately 80% of contaminated sites in the country.
Sites which are contaminated constitute a significant problem for public health, the environment and economic
development. Currently, the manufacturing sector contributes significantly to environmental pollution. Although the costs to
implement anti-pollution measures would be high, they would provide long-term benefits for Turkish industries.
Rising emission levels

The GHG emissions per person in Turkey were equivalent to approximately 4.1 tons of carbon dioxide in 2004; this
amounts to about one third of the average rates in the EU and the OECD countries. Turkey is party to the United Nations
Framework Convention on Climate Change, but is not a signatory to the Kyoto Protocol and hence does not have a target
for GHG emission reductions. However, the government has announced its intention to sign the Kyoto Protocol at some
point in the future, and the increasing emissions levels in Turkey could make it fail to meet the attendant GHG target.
Furthermore, the increasing quantities of GHGs could soon lead to international pressure to reduce emissions levels.
Published 09/2008
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Political landscape
POLITICAL LANDSCAPE
Summary
The government of Turkey is based on the principle of democratic representation, and divides power between several
ruling bodies. In 1923, Turkey was established as a republic and since then has maintained strong secular credentials. The
constitution of Turkey administers the legal framework of the country. The legislative power of Turkey is enshrined in the
550-seat Grand National Assembly of Turkey (Turkiye Buyuk Millet Meclisi), which represents the 81 provinces of the
country. The president is the head of state, and is elected every seven years by the Grand National Assembly.
Evolution
Pre 1975
th
Turkey was dominated by the Ottoman Empire from the Middle Ages to the 20 century. The imperial reign began to
th
deteriorate in the 19 century when the Ottoman Empire, under pressure from the West, implemented a series of reforms
called Tanzimat during 183976. The dissatisfaction created by the resulting bureaucratic absolutism led the Young
Ottoman movement to turn towards the creation of a more liberal, Western-style, secular government and improve the
country's relations with Europe, although these changes were later stifled by Sultan Abdulhamid II in the 1870s.
In 1876, Turkey formed a parliamentary constitution under the leadership of Abdulhamid, who was later forced to summon
a parliament in 1908 by the Young Turks movement. He planned a counter revolution in 1909, but failed and on account of
this was banished to Salonika. Abdulhamid was succeeded by Enver Pasha, who emerged as the new leader of the
country. During 190912, the European powers took advantage of the weak Ottoman government to occupy most of the
empires remaining territory in southeastern Europe. During World War I, Enver Pashas coalition with Germany caused
Britain, France, and Russia to declare war on the Ottoman Empire.
During the 1950s, conflicts between different political parties of the country increased, as Prime Minister Adnan Menderes's
government was perceived as rigid by his opponents. Moreover, the economy suffered from inflation and heavy debt during
this period. In 1960, Menderes responded to the mounting protests by implementing martial law and suspending political
activities. Later, under the leadership of Suleyman Demirel of the Justice Party, which gained a majority of seats in the
election of 1965, a single party government was formed. Turkey witnessed a series of weak coalition governments during
the 1970s. The countrys economic and political condition also worsened during World War II and, in early 1945, Turkey
declared war on Germany. In 1952, Turkey became a member of the North Atlantic Treaty Organization (NATO).
Published 09/2008
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Political landscape
Figure 2: Turkey key political events timeline
Pre 1940
In
In1876,
1876,Turkey
Turkey
formed
formedaa
parliamentary
parliamentary
constitution,
constitution,under
underthe
the
leadership
leadershipof
ofAbdul
Abdul
Hamid,
Hamid,who
whowas
waslater
later
forced
forcedto
tosummon
summonaa
parliament
parliamentinin1908
1908by
by
the
Young
the YoungTurks
Turks
movement.
movement.
In
In1923,
1923,Turkey
Turkey
became
becameaarepublic
republic
under
the
under theleadership
leadership
of
Kemal
Ataturk,
of Kemal Ataturk,who
who
was
waselected
electedthe
the
president.
president.
Turkey
Turkeybecame
became
secular
secularinin1928.
1928.
194090
19912000
In
In1952,
1952,Turkey
Turkey
abandoned
abandonedAtaturk's
Ataturk's
neutralist
neutralistpolicy
policyand
and
joined
the
NATO.
joined the NATO.
In
In1993,
1993,Tansu
TansuCiller
Ciller
was
waselected
electedas
as
Turkey's
Turkey'sfirst
firstwoman
woman
prime
primeminister.
minister.
In
Inthe
the1960s,
1960s,Turkey
Turkey
and
andGreece
Greecehad
had
several
severalconflicts
conflictsover
over
Cyprus,
Cyprus,and
andinin1974
1974
armed
conflict
resulted
armed conflict resulted
ininthe
thepartition
partitionof
ofthe
the
island.
island.
In
In1965,
1965,Suleyman
Suleyman
Demirel
Demirelwas
waselecetd
elecetd
as
the
prime
as the primeminister,
minister,
who
wholater
laterresigned
resigneddue
due
to
topressure
pressurefrom
fromthe
the
army
due
to
a
series
army due to a seriesof
of
political
politicalviolence.
violence.
In
In1995,
1995,the
theCiller
Ciller
coalition
coalitioncollapsed,
collapsed,and
and
also
during
the
also during thesame
same
year,
pro-Islamist
year, pro-Islamist
Welfare
WelfareParty
Partywon
wonthe
the
elections
electionsbut
butlacked
lacked
support
to
form
a
new
support to form a new
government.
government.
In
In1990,
1990,Turkey
Turkey
permitted
permittedthe
theUS
USled
led
coalition
against
coalition againstIraq
Iraqto
to
launch
air
strikes
from
launch air strikes from
Turkish
bases.
Turkish bases.
In
In1998,
1998,the
theWelfare
Welfare
Party,
Party,the
thelargest
largestinin
parliament
was
parliament was
banned.
banned.Mesut
MesutYilmaz
Yilmaz
resigned
resignedamid
amid
corruption
allegations,
corruption allegations,
and
andreplaced
replacedby
byBulent
Bulent
Ecevit.
Ecevit.
In
In2000,
2000,Ahmet
Ahmet
Necdet
NecdetSezer
Sezer
succeeded
succeededSuleyman
Suleyman
Demirel
Demireland
andwas
was
elected
as
the
elected as the
president.
president.
200104
In
In2001,
2001,the
theEuropean
European
Court
Courtof
ofHuman
HumanRights
Rights
held
heldTurkey
Turkeyguilty
guiltyfor
for
violation
of
the
rights
violation of the rightsof
of
Greek
Cypriots
during
Greek Cypriots during
its
itsoccupation
occupationof
of
northern
northernCyprus.
Cyprus.
In
In2002,
2002,the
theparliament
parliament
approved
approvedreforms
reforms
which
whichwere
wereaimed
aimedat
at
securing
securingthe
theEU
EU
membership.
membership.
In
Inthe
the2002
2002
parliamentary
parliamentary
elections,
elections,the
thesecular
secular
Islamist
IslamistJustice
Justiceand
and
Development
Party
Development Party
gained
majority
of
gained majority of
votes.
votes.
In
In2004,
2004,PKK
PKKagreed
agreed
to
toend
endto
toits
itsterrorist
terrorist
activities.
activities.
Source: Datamonitor
2005 Onwards
AAnew
newlira
liracurrency
currency
was
wasintroduced
introduced
wherein
whereinthe
thebanknotes
banknotes
were
weredenominated
denominatedinin
millions.
millions.
In
In2006,
2006,Kurdish
Kurdish
separatist
separatistgroup,
group,the
the
PKK,
announced
PKK, announcedaa
unilateral
ceasefire
unilateral ceasefireinin
operations
operationsagainst
againstthe
the
military.
military.
In
Inthe
thesame
sameyear,
year,the
the
EU
EUpartially
partiallyfroze
froze
Turkey's
membership
Turkey's membership
talks
talksbecause
becauseof
ofthe
the
formers
formersfailure
failureto
toopen
open
its
ports
and
airports
its ports and airportsto
to
Cypriot
traffic.
Cypriot traffic.
Abdullah
AbdullahGul
Gulwas
was
elected
electedas
asthe
the
president
in
August
president in August
2007.
2007.
DATAMONITOR
19752000
During 197879, the military took over the administration of the country due to increasing political violence, which had
started to affect Turkeys fragile economic structure. This improved the economic conditions of the country significantly and
in the early 1980s civil order began to be restored, albeit at the cost of a flawed human rights environment. A new
constitution was approved in 1982 to curtail mounting international pressure. In the 1980s, the government of General
Kenan Evren, seventh president of Turkey, provided political stability to the country; Evren was succeeded by his former
minister of state, Turgut Ozal, in 1989. However, political instability rose again in Turkey during the mid-1990s, when the
Kurdistan Workers Party (Partiya Karkeren Kurdistan, or PKK) intensified its violent acts in the country with the aim of
gaining Kurdish autonomy in southeastern Turkey.
With the increasing social and political power of Islamic institutions, the military forced the resignation of the Erbakan
government in 1997. Political instability continued to increase with the development of policies which secularized education,
and when several political leaders were charged with corruption. During 1998, the Welfare Party was suspended by the
Constitutional Court following allegations of an anti-secular stance. In the following year, PKK leader Abdullah Ocalan was
arrested with the aim of suppressing the Kurdish revolution in southeastern Turkey.
Published 09/2008
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Political landscape
In the late 1990s, Turkeys troubled relations with Greece, caused by issues related to oil drilling rights and the air space
over the Aegean Sea, were seen to improve. Following the 1999 elections, Bulent Ecevit established a new coalition
government, which gained stability in 2000.
200107
In 2001, Turkey witnessed a series of cabinet changes and ended the year in an acute economic crisis. During 200204,
the parliament implemented a series of human rights reforms, with an aim to solidifying Turkeys association with the EU. In
the 2002 parliamentary elections, the Islamist Justice and Development Party (Adalet ve Kalknma Partisi, or AKP) gained
a majority in the parliament with a landslide victory in the elections and, following a constitutional reform, party leader
Tayyip Erdogan was elected as prime minister in 2003. In 2007, the AKP again won the parliamentary elections and
Abdullah Gul was elected as president. In the same year, the parliament permitted military operations in Iraq in pursuit of
Kurdish rebels, and during the end of the year, launched a series of air strikes on fighters from the Kurdish PKK movement
in Iraq.

Key political figures
The key political figures in Turkey include:
President Abdullah Gul
Prime Minister Recep Tayyip Erdogan
Figure 3: Turkey key political figures
Abdullah Gul has been the president of Turkey since August 2007, prior to which he served for five months as
the prime minister during 200203. He was the foreign minister from 2003 to 2007, and played a key role in
improving Turkey's relations with Syria and other Turkic-speaking countries in Central Asia and the Caucasus.
Recep Tayyip Erdogan has been the prime minister of Turkey since 2003. He is the current leader of the AKP,
and one of the major representatives of the moderate Islamist movement in Turkey. In 1985, he was elected as
the party's chairman for the Istanbul province and served as the mayor of the Beyoglu district. He was nominated
as a candidate for the parliament for the central Istanbul area in the late 1980s.
Source: Datamonitor
DATAMONITOR
Published 09/2008
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Political landscape
Structure of government
Structure of legislature
The legislative power of Turkey is enshrined in the 550-seat Grand National Assembly of Turkey, and the members of the
parliament are elected for a five-year term. To gain representation in the parliament, a party must gain at least 10% of the
total votes in the national parliamentary elections. Turkey has a multi-party system, with several different political ideologies
represented across the various factions.
Executive branch
The president is the head of state, and is elected every seven years by the Grand National Assembly. Executive power lies
with the prime minister, who is selected by the parliament through a vote of confidence.
Key political parties

Justice and Development Party
The AKP is the ruling political party of Turkey, and is a moderate, pro-Western party which promotes a liberal market
economy. During the elections conducted in July 2007, the AKP won 46.6% of the votes and gained more than 340 seats in
the parliament.
Republican People's Party
The Republican People's Party (Cumhuriyet Halk Partisi, or CHP) was formed during the Congress of Sivas, an assembly
of the Turkish National Movement held in 1919 in the city of Sivas. The current structure of the party was created during the
time when the Republic of Turkey was moving towards a multi-party system. The CHP has ties with the middle and uppermiddle class constituency of Turkey. During the 2007 general elections, the CHP entered into an alliance with the
Democratic Left Party and suffered a heavy defeat, gaining just 7.3 million votes. The party was in a leading position only in
Thrace and two other provinces on the Aegean coast.
Nationalist Movement Party
The Nationalist Movement Party, (Milliyeti Hareket Partisi, or MHP) is a nationalist conservative party in Turkey. In the
2007 legislative elections, the party won over 14% of the national vote and more than 70 seats in the parliament. It enjoys
considerable support from the electorate.
Democratic Party
The Democratic Party (Demokrat Parti, or DP) was established by Suleyman Demirel in 1983 as the True Path Party
(Dogru Yol Partisi, or DYP). The party has been in power four times since its establishment, with the government led by
Demirel on one occasion and by Turkey's first woman prime minister, Tansu Ciller, in the other three instances. The party
currently has just four seats in the parliament following a disastrous performance in the recent elections, in which it was
only able to win 6% of the total vote.
Published 09/2008
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Political landscape
Young Party
The Young Party (Genc Parti, or GP) is a secular, liberal political party in Turkey. In the 2007 elections, the party won just
3.3% of the votes and none of its candidates gained a place in the Grand National Assembly of Turkey.
Composition of government
In the 2007 elections, the AKP won 341 seats, followed by the CHP (112) and the MHP (71). Independent candidates took
a total of 26 seats.
Figure 4: Composition of the parliament of Turkey
Other
13%
Independents
5%
AKP
47%
MHP
14%
CHP
21%
Source: Datamonitor
DATAMONITOR
Key policies
Over the past two decades, Turkey has operated a growth plan based on competitive markets to foster the private business
sector. The high levels of FDI and other capital flowing into the country over this period have resulted in the appreciation of
the countrys local currency in real terms, except during periods of international capital market turbulence or internal
political tensions. This appreciation has in turn helped the country to deal with inflation. The government is also trying hard
Published 09/2008
Page 32
Political landscape
to enhance its economic and political relations with its neighbors. However, this can only be achieved by strengthening the
macroeconomic policy framework and providing its business sector with an employment-friendly environment, and this
strategy is susceptible to regular macroeconomic imbalances.
Economic
Turkey has increased its government expenditure over the years, and the attendant increase in debt remains a concern.
There has also been a significant improvement in the fiscal discipline of the country ever since the 2001 financial crisis.
However, Turkey still needs to increase its expenditure and invest in areas which can contribute towards future economic
growth. The country also aims to improve its political stability in the long run and expects to be among the 10 largest
economies of the world by 2023. However, an increase in inflation rates and strict monetary tightening by the central bank
in 2006 has dampened domestic demand growth, compared with the rapid rates of increase witnessed during 200406. To
deal with the situation, the Turkish government has allocated more than 25% of its national income for investments, and
expects the country to grow at a rate of 7% during 201015.
Social
Turkeys social welfare system is healthy in terms of the benefits it provides to its citizens. The system provides health,
welfare and pension payments. Turkey is among the countries which have the highest per capita social welfare services
expenditures in the world. The ministries of education, youth, family and health, regional planning and urban development,
and labor and social affairs are responsible for a range of public services offered by the state.
A new law on social security and general health insurance took effect on May 2008 in Turkey, wherein the retirement age
was raised to 65 for both women and men from the current respective ages of 58 and 60. The law also increased the
minimum number of working days required to qualify for retirement benefits from 7,000 to 7,200, and mandated that the
updating co-efficient used to calculate pensions will henceforth be determined according to the consumer price index (CPI)
and GDP figures. In addition, the government aims to place special focus on factors related to aging and unemployment
when providing social benefits such as pensions and unemployment insurance.
Foreign
Turkey has been pursuing a stable foreign policy in recent years, and has played a significant role in the formulation and
implementation of many global initiatives. The current foreign policy of Turkey includes assessing the national security
implications of the political turmoil in Iraq. Turkey also intends to provide the necessary impetus to Iraq to develop policies
that would facilitate stability across the whole region.
Since 2005, Turkey has improved its relationship with Greece, with whom it has had an uneasy relationship over the years.
Disputes over the Aegean Sea and issues related to the island of Cyprus have caused hostility between the two countries,
but the recent improvement in business connections may ultimately usher in some stability to the region. Surprisingly,
Greece is a strong backer of Turkeys bid to become a member of the EU, although it has also criticized Turkey for failing to
comply with the basic reforms required to facilitate EU membership. The issue of Cyprus has continued to remain a critical
aspect in GrecoTurkish relations, as all attempts to reunify the island's Greek-dominated south with its Turkish-controlled
north have failed. Greece has traditionally maintained close relationships with Serbia, primarily because both countries
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Political landscape
belong to Orthodox branches of Christianity and have had troubled relations with their Catholic and Muslim neighbors
historically.
Turkey's trade volume with nearby countries has been steadily increasing; this is demonstrated by the fact that it has
th
signed FTAs with 11 countries since 1996. In 2006, Turkey was ranked the 17 largest economy of the world, and the
country aims to become the sixth biggest economy in the world after gaining EU membership.
Defense
Turkeys military expenditure has remained steady in recent years, constituting 5.3% of the GDP as of 2005. The Turkish
defense industry is among the world's top defense industries in terms of rapid development and expansion to overseas
markets, with its exports expected to touch around $1.5 billion annually within the next three years. The sector has
customers from Europe, the Middle East, the Far East and Africa. The provenance of the growth of Turkeys defense
industry can be traced back to the weapons ban imposed on the country by the US, in 2007. The ban, which was issued as
a result of the Turkish military's intervention in Cyprus, emphasized the need for a self-sufficient defense infrastructure.
As part of the development program, the Undersecretariat of Defense Industries (SSM) intends to increase the share of the
defense industry in the North Atlantic Treaty Organization (NATO) from the current 4% to 20% by the end of 2011. The total
share of all the other countries that are included in the NATO defense investment projects currently constitutes only around
18%. To beef up its defense infrastructure, the government intends to invest around $10 billion annually in the sector.
Turkey ranks fourth among 10 Middle East countries and fifth among the European countries in terms of defense
expenditure. Iran tops the list among the Middle East countries in defense expenditure, followed by Saudi Arabia and Israel;
and in Europe, Britain tops the list, followed by France, Germany and Italy.
To protect itself from possible aerial threats, Turkey intends to launch long-range missile and air defense systems and has
entered into agreements with various defense companies in the US, Russia, China and Israel. It also aims to develop
Azerbaijan's armed forces and modernize their training and education process.
Performance
Governance indicators
The World Bank report on levels of governance uses factors such as voice and accountability, political stability and
absence of violence, government effectiveness, regulatory quality, rule of law, and control of corruption as indicators for
212 countries and territories over the period 19982007. The study was conducted by Daniel Kaufmann and Massimo
Mastruzzi of the World Bank Institute, and Aart Kraay of the World Bank Development Economics Research Group. For
any country, a percentile rank of 0 corresponds to the lowest rank, and 100 to the highest.
Turkey ranked in the 41.8 percentile in terms of voice and accountability in 2007, much lower than Greece's rank of 81.3
during the same period. Voice and accountability measures the extent to which a country's citizens are able to participate in
selecting their government, along with freedom of expression, freedom of association and the availability of free media.
Turkey ranked in the 20.7 percentile on the political stability and absence of violence indicator in 2007, again much lower
than Greece, which had a percentile rank of 63.0 during the same period. This indicator measures perceptions of the
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likelihood of destabilization of the government by unconstitutional or violent means, including domestic violence and
terrorism.
Turkey ranked in the 63.5 percentile on the government effectiveness indicator in 2007. Turkeys rank was lower than
Greece, which scored a percentile of 71.1. Government effectiveness measures the quality of public services, the quality of
the civil service and the degree of its independence from political pressures, the quality of policy formulation and
implementation, and the credibility of the government's commitment to such policies.
Turkey ranked in the 59.7 percentile in terms of regulatory quality in 2007. In comparison, Greece had a percentile rank of
73.2 during the same period. Regulatory quality measures the ability of the government to formulate and implement sound
policies and regulations that permit and promote private sector development.
Turkey ranked in the 53.3 percentile on the rule of law indicator in 2007. Turkeys rank was lower than Greece, which had a
score of 67.6 during the same period. Rule of law measures the extent to which agents have confidence in and abide by
the rules of society. It also looks at the quality of contract enforcement, the police and the courts, as well as the likelihood of
crime and violence.
Turkey ranked in the 59.4 percentile in terms of control of corruption in 2007. Turkeys percentile is considerably lower than
Greece, which had a percentile rank of 68.9. Control of corruption measures the extent to which public power is exercised
for private gain, including both petty and grand forms of corruption, as well as the appropriation of the state by elites and
private interests.
Outlook
The government has been trying hard to maintain fiscal discipline as well as economic freedom, and has achieved a certain
degree of success as far as political stability and continuation of reforms are concerned. Turkey has been a strong
proponent of liberal trade and investment policies. It has an open trading system, especially with the countries in the EU,
with which it signed a customs union agreement in 1996. Turkey needs to maintain good relations with its neighboring
countries: for instance, Turkeys relations with Greece have been showing signs of improvement but remain far from
healthy. While disputes over the Aegean Sea and the island of Cyprus have caused hostility between the two countries
over the years, the recent improvement in business connections may ultimately usher in some stability to the region. Over
the years, Turkish radicals have plotted several attacksthe majority of which have been preventedmainly targeted at
institutions, businesses and personnel associated with the US and the UK. These terrorist attacks, if not prevented, can
only hamper the investment and political climate of the country.
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ECONOMIC LANDSCAPE
Summary
There has been a significant decline in the GDP growth of Turkey over the period 20042007. The GDP growth dropped
from 9% in 2004 to 5.1% in 2007and is expected to further decline to 4% by 2012. The expected slowdown in GDP is due
to the increase in commercial bank interest rates in March 2008, itself caused by the weakening of financial conditions
globally and growing domestic political uncertainty. The service sector dominates the economy, making a contribution to
the GDP of more than 66%. This is followed by the industrial and agricultural sectors, with contributions of 27% and 7%,
respectively. There has been an improvement in the business environment and competitiveness of the economy over the
years. Turkey, with its prudent fiscal policy and rising tax revenue, is well on course to attaining a favorable fiscal position.
Evolution
192390
The Turkish economy lagged during World War I, primarily due to the underdeveloped agricultural sector and poor-quality
livestock that the country possessed. Turkey was dependent on very few factories for certain provisions like sugar and
flour, and these were under foreign control. Prior to 1923, the economy was disordered to a large extent, with the
agricultural output reaching a nadir. During 192385, the economy grew at an average annual rate of 6%, due to the
implementation of proactive government policies which gave a boost to agricultural, industrial, and service production. Post1950, the country experienced economic disruptions, and in the 1970s witnessed a balance-of-payments crisis. Following
inadequate structural reforms, Turkey was left with current account deficits, which it financed by international borrowings
that led to an increase in the country's external debt. The Turkish government failed to take sufficient measures to tackle
the increase in world oil prices during the 1970s and accepted short-term loans from foreign lenders. With the rise in
inflation and unemployment, the government found it difficult to repay the interest on these loans. During the 1980s, the
government initiated a liberalized program which helped overcome Turkeys balance-of-payments crisis.
19902007
The Turkish economy faced a crisis in the 1990s, primarily due to a significant increase in inflation. The surge in inflation
was followed by an increase in imports and a slowdown in the expansion of exports. The trade deficit and the current
account deficit both grew in 1993. Inflation was around 54% during 2001 as Turkey's currency, the lira, continued to receive
a hammering at the hands of international investors. With little social protection and the presence of a large informal sector
which absorbed millions of workers into marginal and low-paid jobs, the real rate of unemployment was probably far higher.
As the falling domestic demand helped to contain import growth, the current account balance surged from a deficit
equivalent to some 5% of GNP in 2000 to a surplus of more than 2% in 2001. Public finances witnessed an improvement
during the period 200004, as the International Monetary Fund (IMF)-supported program of fiscal and structural reforms
started to bear fruit. The central government's primary budget balance (ignoring debt repayments) increased from around
1.5% of GDP in 1999 to 6.5% by 2004.
During 2002, the real output growth was around 11%, and in line with the central bank's targets. A growing confidence in
the lira was demonstrated by a gradual drop in the share of foreign currency deposits in the country's banking system.
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Economic landscape
Turkey's economic performance continued to improve during 2003, and maintained a decent run during 2005 as well,
reaching a growth rate of 7.3%. Inflation rate touched 6.2% in the same year.
Figure 5: Evolution of the Turkish economy, 19702007
10.0
8.0
Growth rate (%)
6.0
4.0
2.0
0.0
1971
1980
1990
2000
2002
2004
2005
2006
2007
-2.0
-4.0
Year
Source: Datamonitor
DATAMONITOR

Financial system
Financial authorities/regulators
Central Bank of the Republic of Turkey
The Central Bank of the Republic of Turkey (CBRT) issues banknotes in the country, and is responsible for the
implementation of monetary policy with the aim of achieving and maintaining price stability. It follows the directives of the
CBRT Law framed on January 14, 1970. According to the law, the objective of the bank is to maintain the economic
development of the country by regulating money markets, implementing treasury operations and safeguarding the value of
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Economic landscape
Turkish currency. Among other things, the bank determines the reserve and liquidity requirements, handles the gold and
foreign exchange reserves of the country, regulates the volume and circulation of Turkish lira, ensures stability in the
financial system, and monitors financial markets.
Capital Markets Board of Turkey
The securities and institutions markets in Turkey are regulated and supervised by the Capital Markets Board (CMB). The
market primarily consists of organized market participants and institutions such as: public and listed companies;
exchanges; financial intermediaries; mutual, closed-ended and pension funds; the Settlement and Custody Bank
(Takasbank); and the Central Registry Agency (CRA). Other market participants and institutions include the Association of
Capital Market Intermediary Institutions of Turkey (TSPAKB) and organizations operating in the capital markets under the
CMB's regulations.
Stock exchange regulator
The Istanbul Stock Exchange (ISE) is the primary securities exchange in Turkey, formed to provide trading in equities,
bonds and bills, and foreign securities and real estate certificates (among other international securities) to all domestic and
foreign participants. The ISE works to ensure a transparent and fair trading environment in the country.
Insurance regulator
The domestic and foreign insurance and reinsurance companies are regulated by the Association of the Insurance and
Reinsurance Companies of Turkey (AIRCT).
Turkish stock markets

Securities are traded in Turkey through three exchanges. Equities and fixed income securities are traded in the ISE, futures
contracts are traded at the Turkish Derivatives Exchange and precious metals at the Istanbul Gold Exchange. The ISE,
founded in 1985, is the only official market for shares, rights, global depositary receipts, derivatives and bonds trading in
Turkey for retail and institutional investors. The ISE seeks to provide a transparent and fair trading environment for
domestic participants as well as foreign issuers and investors. The securities traded on the ISE markets include equities,
exchange traded funds, government bonds and treasury bills, corporate bonds, and repo and reverse repo. The securities
traded in the equity market include rights coupons and exchange-traded funds. Government bonds and treasury bills are
traded in the bonds and bills market. Furthermore, there exist two sub-markets within the bonds and bills sector: purchases
and sales and repo/reverse repo markets.
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Figure 6: Market capitalization of the Turkey stock exchange, 200007
350.0
300.0
286.6
$ billion
250.0
200.0
161.5
162.4
2005
2006
150.0
98.3
100.0
69.7
68.4
47.1
50.0
34.2
0.0
2000
2001
2002
2003
2004
2007
Year
Source: Datamonitor
DATAMONITOR
Asset management
Brokerage firms and portfolio management companies generally provide asset management services. Portfolio
management companies have more than a 90% share in the market, in terms of the size of assets under management,
with approximately 95% of the portfolios held by institutional investors. The assets managed by these companies increased
at a CAGR of 17% during 200407.
The mutual fund industry in Turkey is relatively small compared to the members of the EU. For instance, Turkeys mutual
fund portfolio as a percentage of GDP was only around 3% as of 2007, compared to 11% for Poland, 10% for Greece and
9% for Hungary.
Key policies
The Turkish government aims to bring the economy back to a growth path by freeing the labor market and reducing fiscal
deficit. Along with this, the government has initiated reform measures that will translate into strong fiscal adjustments,
improve government finances and lower unemployment, and is also seeking to stiffen fiscal policies through a significant
reduction of expenditure on public infrastructure development. Furthermore, the government has reduced the primary
surplus target for 2008 from over 4% of GDP to around 3.5%, so as to tighten monetary policy towards stemming
inflationary pressures. Interest rate hikes made by the central bank would allow the government to strike a balance
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Economic landscape
between growth and disinflation. The government aims to fund initiatives aimed at supporting growth by investing in
infrastructure, especially in the underdeveloped southeastern region. It also intends to increase employment by reducing
labor taxes.
The government has recently increased the prime lending rates for commercial banks to extract excess liquidity out of the
market. Since 2003, after the increase in private investment, inflation in Turkey has witnessed a significant drop. The
government intends to implement FTAs to encourage foreign and domestic investors and provide the impetus needed to
improve competitiveness; it also intends to ease the stringent labor market and create space for an adequate number of
jobs by making Turkey's labor laws and regulations more flexible.
Performance
GDP and growth rate
Overview
There was a significant decline in the GDP of Turkey between 2004 and 2007. The GDP dropped from 9% in 2004 to 5.1%
in 2007, and is further expected to decline to 4% by 2012. Furthermore, the GDP is expected to slowdown with the increase
in commercial bank interest rates in March 2008, which resulted from weakening global financial conditions and growing
domestic political uncertainties. Weakening global financial conditions could reduce capital inflows to Turkey, which has
large external imbalances, resulting in the depreciation of lira. It could also increase inflation and lead to an increase in
domestic interest rates.
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Figure 7: GDP and GDP growth rate in Turkey, 200212 (Real GDP at constant 2000 prices)
400.0
10.0
9.0
350.0
8.0
300.0
6.0
200.0
5.0
4.0
150.0
Growth rate (%)
Value ($ billion)
7.0
250.0
3.0
100.0
2.0
50.0
1.0
0.0
0.0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year
Value
Source: Datamonitor
Growth rate
DATAMONITOR
GDP composition by sector

The service sector was the largest contributor to the Turkish economy in 2007, constituting around 66% of GDP. It was also
the fastest growing segment, followed by industry and agriculture. The industry sector generates around 27% of GDP and
the remainder is contributed by the agricultural sector.
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Economic landscape
Figure 8: GDP composition by sectors, 2006
Agriculture
7%
Industry
27%
Services
66%
Source: Datamonitor
DATAMONITOR
Agriculture
Agricultural output in Turkey has grown significantly since 1990. The sector remains one of the fastest growing across the
OECD countries, in terms of production and use of purchased variable inputs, due to an increase of 1% in the country's
cultivated land area during the period 19902004. The volume of agricultural production increased by 16% across 1990
92. During the period 200204, crop production and livestock production increased by 19% and 11%, respectively. A major
share of the agricultural output comes from the arable farming sub-sector, which accounts for approximately 75% of the
total output value.
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Figure 9: Agricultural output of Turkey, 200107
60.0%
70.0
50.0%
50.0
40.0%
40.0
30.0%
30.0
20.0%
Growth rate (%)
Agriculture output (TRL billion)
60.0
20.0
10.0%
10.0
0.0
0.0%
2001
2002
2003
2004
2005
2006
2007
Year
Agricultural output
Source: Datamonitor
Growth rate
DATAMONITOR
Note: the sectoral breakdown is given in local currency due to the

impact of foreign exchange fluctuations on the growth figures
Industry
The industrial sector accounts for 27% of GDP as of 2007. During April 2008, more than 80% of Turkey's total
manufacturing capacity was fully utilized. However, the industrial sector witnessed a decline in 2008 compared to
2007 in terms of capacity usage in the textiles, clothing, food and machinery sectors. The usage of available
production capacities in the metals, food, automobile, and clothing industries increased during 200607. The
modest gains in production capacity usage suggest that industry will continue to grow. The annual average growth
of industrial production in Turkey during 200107 was more than 30%. Furthermore, industrial production increased
by 3.4% in July 2008 compared to July 2007. This increase in industrial production was primarily due to, among
other growth, an increase of 9.1% in the mining sector, 3.1% in the manufacturing industry and 4% in the power,
gas and water industries.
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Economic landscape
Figure 10: Industrial output of Turkey, 200107
250.0
70.00
60.00
200.0
150.0
40.00
30.00
100.0
Growth rate (%)
Industrial output
50.00
20.00
50.0
10.00
0.0
0.00
2001
2002
2003
2004
2005
2006
2007
Year
Industrial output
Source: Datamonitor
Growth rate
DATAMONITOR
Note: the sectoral breakdown is given in local currency due to the

impact of foreign exchange fluctuations on the growth figures
Services
The services segment in Turkey contributes 66% of the GDP. Tourism is a significant industry within this sector, and an
important revenue generator for the country's economy. The country intends to attract approximately 50 million foreign
visitors per year in 2008, providing employment to about five million people in the tourism sector. The annual average
growth of service output in Turkey during 200107 was around 34%.
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Economic landscape
600.0
60.00%
500.0
50.00%
400.0
40.00%
300.0
30.00%
200.0
20.00%
100.0
10.00%
0.0
Growth rate (%)
Service output
Figure 11: Services output of Turkey, 200107
0.00%
2001
2002
2003
2004
2005
2006
2007
Year
Services output
Source: Datamonitor
Growth rate
DATAMONITOR
Note: The sectoral breakdown is given in local currency due to

the impact of foreign exchange fluctuations on the growth figures
Fiscal situation
Turkey's overall central government budget minus interest payments stood at a surplus of $18.4 billion in the first half of
2008, compared to $15.3 billion in the first half of 2007. In the first half of 2008, Turkeys budgetary revenues and noninterest expenditures increased by 8.1% and 8.2%, respectively, compared to 2007. The government has set an objective
of reducing public debt from approximately 40% of GDP to 30% by 2012. Apart from this, the government intends to
increase national savings, which would in turn facilitate the reduction of the current account deficit, public debt and
borrowing costs, and help curb inflation. These fiscal and monetary policies are required to ensure the right balance
between the growth and inflation objectives.
Current account
Turkeys current account balance has been facing a deficit over recent years. The deficit was $37.5 billion in 2007,
compared to $8 billion in 2003. This increase in the current account deficit is indicative of an adverse balance of payments,
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Economic landscape
and is the result of the private sectors significant reliance on external financing. The deficit is expected to further increase
due to unfavorable terms of trade movements with uncertain prospects for growth. This could pose a significant risk for the
export and economic stability of Turkey.
Figure 12: Current account balance of Turkey, 200007
8.0
10.0
5.0
7.0
0.0
2000
2001
2002
2003
2004
2005
2006
2007
6.0
5.0
-10.0
4.0
-15.0
-20.0
3.0
Percentage (%)
Value ($ billion)
-5.0
-25.0
2.0
-30.0
1.0
-35.0
-40.0
0.0
Year
Current account balance
Current account balance as % of GDP
Source: Datamonitor
DATAMONITOR
Exports and imports

During 2006, Germany was the largest single exports market for Turkey with a share of 11.2%, followed by the UK (8.1%),
Italy (7.0%), France (5.6%), Spain (4.3%) and Russia (4.4%). The average annual growth rates of exports and imports
during 200206 were 21.7% and 28.4%, respectively. Exports to the US market, meanwhile, have been declining over
recent years. In 2007, for instance, Turkeys exports to the US market represented 6%, compared to more than 7% in 2004.
Turkey also participates in significant trade-related activities with the member nations of the European Free Trade
Association (Iceland, Liechtenstein, Norway, and Switzerland), along with countries including Albania, Bosnia and
Herzegovina, Croatia, Egypt, Israel, Macedonia, Morocco, the Palestinian territories and Syria.
Russia is Turkeys key importer, accounting for 13.8% of the market in 2006. Germany accounted for 10.3%, China 7.8%,
Italy 5.9%, the US 4.8% and France 4.6%. Turkey imports oil from Russia, Saudi Arabia, Iran, Syria and Iraq. During 2007,
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Economic landscape
Turkeys imports and exports were valued at $156.9 billion and $110.5 billion, respectively. A significant increase in the
value of imports was witnessed in 2007, largely due to high global commodity prices.
Figure 13: External trade of Turkey, 200206
300.0
257.8
250.0
226.5
192.6
$ billion
200.0
107.1
100.0
148.8
141.2
150.0
50.0
57.1
127.5
85.9 106.7
65.2
99.0
109.0
76.0
50.0
0.0
2002
2003
2004
2005
2006
Year
Exports
Source:
Imports
Total trade
DATAMONITOR
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Economic landscape
Figure 14: Balance of trade of Turkey, 200007
0.0
0.0
2000
2001
2002
2003
2004
2005
2006
2007
-1.0
-10.0
-3.0
-20.0
-4.0
-30.0
-5.0
Percentage (%)
Balance of trade ($ billion)
-2.0
-6.0
-40.0
-7.0
-50.0
-8.0
-60.0
-9.0
Year
Balance of trade
Balance of trade as % of GDP
Source: Datamonitor
DATAMONITOR
External debt
Turkey's overall foreign debt, including public and private sector debt, was $247.2 billion during 2007. Private sector debt
accounted for $158 billion, and public sector debt amounted to $73.4 billion plus the balance owed by the central bank of
the country.
International investment position

Foreign direct and portfolio investments
Turkey has witnessed growth in the inflow of FDI. By the end of 2006, the total foreign investment in Turkey stood at $31.4
billion, an increase of nearly 27.1% over the previous year. A large portion of this investment, $20 billion, came from FDI.
Furthermore, it is anticipated that FDI will exceed this in 2008, excluding privatizations. The privatizations scheduled during
2008 include the sale of major bridges, highways and electricity grids, and a stake in partly privatized commercial bank
Halkbank. Worldwide, the country ranked second in terms of FDI in the sheet glass industry, seventh in the iron and steel
th
industry; and 17 and eighth in the motor vehicle and shipbuilding industries, respectively.
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Economic landscape
Figure 15:
Total foreign investment in Turkey, 200206
35.0
31.4
30.0
24.6
$ billion
25.0
20.0
20.0
14.6
15.0
12.1
9.4
10.0
10.0
11.4
5.6
5.0
1.0 1.5
2.5
3.9
1.7
2.7
0.0
2002
2003
2004
2005
2006
Year
Foreign direct investments
Source: Datamonitor
Portfolio investments
Total foreign investments
DATAMONITOR
Foreign exchange position and exchange rate

Turkeys foreign exchange reserves grew from $59.2 billion in 2006 to $76.5 billion in 2007, representing an increase of
29.2%. This was primarily due to a rise in the gold reserves. Turkey intends to increase its foreign exchange reserve to
$130 billion over the years and strengthen the exports of the country. During the first quarter of 2008, for example, Turkey
recorded approximately $58 billion of foreign exchange earnings of which exports accounted for $47.4 billion.
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Figure 16:
New Turkish liraUS dollar exchange rate, 200007
1.60
1.40
Turkish lira per US$
1.20
1.00
0.80
0.60
0.40
0.20
0.00
2000
2001
2002
2003
2004
2005
2006
2007
Year
Source: Datamonitor
DATAMONITOR
Credit rating
Standard & Poors has given a long-term sovereign credit rating of BB- for Turkey and rates the country's outlook as
stable. However, the increasing current account deficit could bring the economy under pressure in the medium term.
Monetary situation
Key monetary indicators
The CBRT is the central bank of the country and is responsible for the implementation of monetary policies. One of the
main objectives of the current policy is maintaining price stability.
Inflation
Turkey has traditionally witnessed high inflation levels, although these have gradually come under control over the past few
years. In the 1990s, the annual inflation rate varied between 6090%. However, restrictive monetary policies and high
interest rates helped in lowering the average inflation rate to 11.4% during the period 200206. Turkeys inflation increased
from 6.2% in 2005 to 8.5% in 2007; this was due to a significant increase in energy and food prices, along with the
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Economic landscape
depreciation of the Turkish lira. The tightening of global liquidity conditions will increase Turkeys exposure to external
shocks.
Figure 17:
CPI and CPI-based inflation in Turkey, 200212
600.0
50.0
45.0
40.0
35.0
400.0
30.0
300.0
25.0
20.0
200.0
Inflation (%)
Consumer price index
500.0
15.0
10.0
100.0
5.0
0.0
0.0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year
Consumer price index
Inflation
Source: Datamonitor
DATAMONITOR
Money supply
Turkey has witnessed strong monetary and credit growth over the years. This strength was reflected in the continued high
growth rates of the monetary aggregate M1, which increased from 10.7% in 2001 to 41.6% in 2005. The monetary
aggregate M2 also increased, from 107.7% in 2001 to 239.5% in 2005. A gradual rise in the key CBRT interest rates
started in 2005 from low levels in previous years; this has led to an increase in the short-term bank rates in Turkey,
although these rates are also influenced by competition between credit institutions.
Banking sector
As of January 2008, Turkey had 46 banks operating through 7,480 national branches and 50 branches abroad. Prior to
1980, there existed only four foreign banks in Turkey; however, liberalization in the 1990s led to an increase in the number
of foreign banks. For instance, as on January 2008, Turkey had approximately 50 foreign banks. Over the years, Turkey
has implemented several reforms to encourage financial market development. The liberalization of interest and foreign
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Economic landscape
exchange rates provided scope for several new participants in the banking sector, and several foreign banks were
encouraged to operate in Turkey. The assets of the commercial banks have increased from $52.4 billion in 2004 to $80.8
billion in 2007.
Figure 18:
Total assets of commercial banks in Turkey, 200007
90.0
80.8
80.0
73.0
67.0
70.0
$ billion
60.0
50.0
49.0
49.1
2001
2002
51.0
52.4
2003
2004
40.0
30.0
27.0
20.0
10.0
0.0
2000
2005
2006
2007
Year
Source: Datamonitor
DATAMONITOR
Employment
The tertiary sector employs 41% of the population, followed by the secondary and primary sectors with a share of 23% and
36%, respectively. The average annual growth in employment stood at around 23.7% during 200207: relatively moderate
compared to the growth of the economy. Although Turkey witnessed a substantial increase in wages in the 1990s and the
early 2000s, the real value of wages has been low due to rising inflation. There also exist wage disparities between eastern
and western Turkey.
The number of unemployed people increased by approximately 38,000 to reach 2.3 million in 2007, and the noninstitutional civilian population reached 68.9 million.
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Economic landscape
In the first quarter of 2008, the unemployment rates in the cities and rural areas were 13.4% and 8.5%, respectively,
making the overall unemployment rate 11.6% compared to 11.4% during the same period in 2007. During the same period,
among the unemployed, more than 70% of the male population was unemployed, of which 30% had been jobless for a year
and 56% had less than a high school education.
Employment and growth rate in Turkey, 200212
30.0
10.0
25.0
8.0
20.0
6.0
15.0
4.0
10.0
2.0
5.0
0.0
0.0
Growth rate (%)
Employment (million)
Figure 19:
-2.0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year
Total employment
Growth rate
Source: Datamonitor
DATAMONITOR
Outlook
The labor market is currently stiff, finding it difficult to respond to competitive pressures and to create an adequate number
of jobs. Turkey's labor laws and regulations should be made more flexible so that the labor market can function smoothly.
Despite recent initiatives, such as the easing of overtime restrictions, the Turkey labor market remains relatively rigid by
international standards. Moreover, the current account balance of Turkey has been declining, which could hinder the
economic stability of the country. The government has sought to tighten fiscal policies through a significant reduction of
expenditure on public infrastructure development. Furthermore, the government has significantly increased the prime
lending rates for commercial banks to extract the excess liquidity out of the market.
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Social landscape
SOCIAL LANDSCAPE
Summary
More than half of Turkey's population are below the age of 30, which is attracting significant European SMEs to invest in
the country. However, Turkey's highly regulated labor market has led to high employment costs and soaring levels of
unemployment, which has made it difficult to provide sufficient jobs to the increasing population.
The Turkish government has taken several initiatives to implement policies aimed at improving the social benefits and
quality of life experienced by its citizens. However, the healthcare system in Turkey lags behind those of other European
countries. For instance, while Turkey has been home to an increasing number of doctors over recent years, it continues to
have a low number of physicians per capita compared to the other members of the OECD.
Turkeys educational system consists of two categories: formal education and non-formal education. Formal education
refers to the standard tuition provided within schools for individuals of a certain age group; these schools are divided into
pre-primary, primary, secondary and higher education institutions. Non-formal education is provided for people with no
educational background and those who discontinued their education after a certain period.
Evolution
The social landscape in Turkey has undergone various alterations with the changing political, economic and social order. In
the post-war years, the priority for the government was the resettlement of its population. For instance, Turkey witnessed
an increase in emigrants to Western Europe after World War II due to excess demand for labor; after the fall of the Berlin
Wall, it also became a target for numerous immigrants, who migrated from the former Soviet Union countries and other
Muslim states. The Turkish government has implemented a number of social security policies involving issues such as
healthcare, pensions and education. However, economic growth has not led to an equitable society. The income disparity
has been widening over the years, with the higher income group benefiting the most. The increase in the infant mortality
rate needs to be resolved as early as possible by the initiation of economic reforms and alterations to the methods of
healthcare, or it could slow down the pace of population growth substantially.

Demographic composition
Composition by age and gender
The age structure shows that 25.5% of the population belonged to 014 age group, 67.7% of the population is in the 1564
age group and 6.8% of the population is aged 65 or over. Females comprise 49.5% and males account for 50.5% of the
total population. In 2008, the birth rate was 16.2 per 1,000 people, and the fertility rate was 1.9 children born per woman. In
2008, the infant mortality rate was high at 37 per 1,000 live births and the death rate was relatively low at six per 1,000
people. The gender ratio at birth is 1.05 males per female. Life expectancy for the total population is 73 years; 70 years for
males and 75 years for females.
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Social landscape
Table 10: Mid-year population by age, 2006

Mid-year population by age
Female
Male
04
2.8
2.9
59
2.9
3.0
1014
3.1
3.2
1519
3.2
3.3
2024
3.3
3.4
2529
3.2
3.3
3034
2.9
3.0
3539
2.7
2.8
4044
2.4
2.5
4549
2.0
2.0
5054
1.6
1.6
5559
1.3
1.2
6064
1.0
1.0
6569
0.9
0.8
7074
0.7
0.6
7579
0.5
0.4
80+
0.5
Source: Datamonitor
0.3
DATAMONITOR
Urban/rural composition and migration

The urban population comprises more than half of Turkey's population. Although the percentage of the population in urban
areas is low compared to other European countries, congestion around metropolitan centers has now become a serious
issue. Moreover, Turkey has witnessed an increasing number of immigrants from countries such as Armenia, Georgia,
Azerbaijan, Iran, Afghanistan, Pakistan and Central Asia in general.
Religious composition
The majority of the population are Muslims. In 2006, 99.8% of Turks were Muslims and the remaining 0.2% were Christians
and Jews.
Education
Turkeys educational system consists of two categories: formal education and non-formal education. Formal education
refers to the standard tuition provided within schools for individuals of a certain age group; these schools are divided into
pre-primary, primary, secondary and higher education institutions.
Pre-primary education is voluntary, and is provided for children that are not yet old enough for compulsory primary
education, generally those between the ages of 36 and 72 months. The intention behind the pre-primary system is to
ensure the physical, mental and emotional development of the children, and to train them for primary education. For the
academic year 200405, there were 434,771 students and 22,030 teachers in 16,016 pre-primary institutions. Primary
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Social landscape
education is provided to children in the age group six to 14 years, with the aim of teaching them the basic knowledge, skills
and habits required to become a good citizen.
Regional primary boarding schools are built in villages wherein the population is low and scattered that have a central
location in a group of villages, and regional boarding primary schools are envisage for villages where such grouping is not
possible. During the academic year 200405, there were 299 regional primary boarding schools with 142,788 students and
280 primary boarding schools with 147,632 students. Secondary education is provided in general, vocational and technical
high schools and runs for a minimum of three years. During the academic year 200405, three million students were taught
by approximately 168,000 teachers across 6,861 secondary schools. Higher education institutions are attended after
secondary education; they provide courses that run for at least two years and train students in various fields. Non-formal
education is provided for people with no educational background and those who discontinued their education after a certain
period.
Healthcare
Healthcare services
The healthcare system in Turkey lags behind other European countries. For instance, while Turkey has been home to an
increasing number of doctors over recent years, it continues to have a low number of physicians per capita compared to the
other members of the OECD. In 2006, Turkey had 1.6 physicians per 1,000 people, while the OECD average was 3.1.
Similarly, the country had only 2.1 nurses per 1,000 people that year, compared to an average of 9.7 across the OECD
countries. Also in 2006, the number of acute care hospital beds in Turkey was 2.5 per 1,000 people, below the OECD
average of 3.9. The private sector in Turkey contributes 26% of the total health expenditure, which is significantly lower
than the OECD average of 38%. Moreover, a major portion of the healthcare services are provided by the public sector. For
instance, the Ministry of Health runs 769 of Turkeys 1,225 hospitals, with 133,000 of the 197,000 total beds.
Turkey has improved the healthcare services provided by hospitals by importing large quantities of modern machinery and
equipment. In 2006, the Ministry of Health initiated a project wherein several medical centers would be built in three major
cities to provide health facilities in 13 regions throughout the country. The Turkish government is encouraging foreign
companies to invest in the healthcare industry. The private hospitals in Turkey, which have been improving their medical
equipment in recent years and charge less than rivals in other European countries, have witnessed an increasing number
of patients from the European and the Middle Eastern countries.
Social welfare
Social welfare policies
A large number of social security organizations exist in Turkey, with a great variety of benefits and provisions. Some of the
most important social welfare schemes that the government provides are unemployment insurance, medical insurance,
insurance for work-related injuries, maternity insurance and housing security. The system is financed primarily by
contributions made by employers and through deductions from employees' wages. Apart from all these, the Turkish
government also provides social welfare funding for vulnerable sections of society such as disabled, orphaned and
abandoned children.
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Social landscape
The government introduced a social security reform law in 2006 in order to encourage more sustainability in the social
security system of Turkey. The law aims to determine the eligibility criteria for retirement, and offer state pensions that are
designed to be affordable. Government subsidies also support health coverage for certain types of workers. Access to such
programs is principally determined by a person's occupational group and industry. The law also addresses the fact that
workers contributing lower social security contribution rates are bound to end up with much lower pensions. With a view to
ensuring incentives for the poor to participate in the formal labor market, policies have been introduced to make a social
safety net available for low income workers in the formal sector.
The government has introduced reforms in Turkey with an aim to increasing the pension eligibility age and has
implemented health sector reforms in the hope of catering to the key health issues of all citizens. The government has also
implemented several policies with the objective of improving the social benefits and quality of life experienced by its
citizens. It initiated an IPARD program in December 2007, with the intention of improving the social conditions in
settlements and regional centers for the period up until the year 2020. Turkeys state welfare and pension system provides
health, welfare, and pension payments to its people. The social insurance law of Turkey offers maternity, illness, retirement
and death insurance for all employees, excluding those in agriculture and the self-employed.
Performance
Healthcare
The healthcare system in Turkey lags behind other European countries. For instance, total health spending accounted for
approximately 6.3% of GDP in Turkey in 2006, below the average of 8.9% in the OECD countries. By comparison, the US's
total health spending for that year accounted for 15.3% of its GDP, followed by Switzerland (11.3%), France (11.1%) and
Germany (10.6%).
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Social landscape
Figure 20:
Expenditure on healthcare in Turkey, 200212
9.00
60.00
8.00
50.00
40.00
6.00
5.00
30.00
4.00
20.00
3.00
Percentage (%)
Expenditure ($ billion)
7.00
2.00
10.00
1.00
0.00
0.00
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
Year
Healthcare expenditure
Healthcare expenditure as % of GDP
Source: Datamonitor
DATAMONITOR
Income distribution
Turkey has a very inequitable society, with disparities in household incomes and high concentrations of poverty.
Furthermore, the absence of economic growth in the east could encourage migration to the large cities of the west, which
could lead to urban congestion. There are wide income discrepancies in Turkish society, with the income per family varying
tremendously between the major urban areas, Istanbul, Ankara and Izmir, and the provincial towns and rural areas. In
2006, the percentage of the population in the income bracket above $20,000 was 39%, 24% were in the $5,000$10,000
bracket, and the remaining 37% of the population earned below $5,000.
Education
Turkey has a literacy rate of 88% for the total population. While the male literacy rate is at 96.1%, the female literacy rate is
slightly lower at 81.5%. The relatively low literacy rate for women is the result of feudal attitudes which currently prevail in
the rural areas of the country.
Turkey has a more centralized and less flexible system of education than most EU countries. The government intends to
provide education for the children of primary school age living in less populated and sparsely settled areas. It has also
reduced the number of schools with combined classes and offers more qualified education and training services. The
government provides free textbooks to the primary education students of lower income groups or rural families. According
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Social landscape
to the latest report available, during 2002 Turkey spent 7% of its GDP towards education, of which 4.3% of GDP was spent
by the government and the remainder by the private sector.
Figure 21:
Governments expenditure on education in Turkey, 200204
25.00
7.6
7.5
7.4
7.3
15.00
7.2
7.1
10.00
7.0
Percentage (%)
Expenditure ($ billion)
20.00
6.9
5.00
6.8
6.7
0.00
6.6
2002
2003
2004
Year
Expenditure
Source: Datamonitor
Expenditure as % of GDP
DATAMONITOR
Outlook
A large number of structural changes need to be implemented to improve the quality of healthcare and education in the
country and reduce the prevailing inequality in society. Unemployment is also an area of concern, and has been
aggravated by labor inflexibility. The Turkish government has implemented several policies with an aim to improving the
social benefits and quality of life experience by its citizens. To a great extent, Turkeys education system has been held
responsible for the mismatch between labor demand and supply. In the future, economic growth will be led by the
knowledge economy and Turkeys educational system may not be capable of meeting the attendant needs. Reforms are
also expected to be undertaken in the areas of healthcare and the pension system. With the recent reforms to the
education system, it can be expected that the tertiary education scenario will improve and that the growing mismatch
between academic and industrial needs will diminish. Turkey needs to initiate economic reforms so as to alter the methods
of healthcare used in the country.
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TECHNOLOGICAL LANDSCAPE
Summary
Turkey aims to implement radical changes in the public service sector by introducing advanced technologies, and is also
focusing on increasing productivity in the long run by allocating more resources to R&D activities both in the public and the
private sectors. Turkey needs to increase its R&D expenditure, which at around 0.6% of GDP is currently well below the
overall 2.3% in the OECD countries. Turkey has taken several initiatives towards liberalizing the telecoms market.
Evolution
The R&D activities in Turkey were financed by the government until 1991. Legislation on state support for R&D investments
was implemented in 2000, with a view to providing loans for the procurement of equipment for R&D activities by industrial
companies. The consecutive year witnessed the legislative development of the Technology Development Zones
(Technology Parks) Law, which encourages the establishment of technoparks by universities with the aim of promoting
industrial R&D by universities and research centers. In 2002, Turkey became a member of the Sixth Framework
Programme of the EU. During 200105, Turkey initiated the Eighth Five-Year Development Plan with the intention of
increasing the share and quality of services provided in the IT sector, investing in innovation and R&D, and decreasing
costs and prices to make them affordable.

The government of Turkey is placing emphasis on restructuring the economy to be more focused on the production of high
quality, value-added products and services, while at the same time making the transition to a knowledge-based economy
and society. With this view, Turkey aims to implement radical changes in the public service sector by introducing advanced
technologies. It is also focusing on increasing productivity in the long run, by allocating more resources to R&D activities
both in the public and the private sectors. The government has set the objective of utilizing its labor force efficiently so as to
improve productivity, and is increasing its investment in infrastructure to achieve this in the long run.
In 1994, several initiatives were taken towards liberalizing the telecoms market by the enactment of laws. Turkey formed
Turk Telekom (a state economic enterprise) by implementing a new law, with the intention of disconnecting
telecommunications services from the government. The implementation of this law has enabled it to privatize the telecoms
companies. Internet service providers have also entered into service contracts with Turk Telekom.
Intellectual property
Turkey is recognized as one of the countries where intellectual property rights (IPR) protection and enforcement is a key
issue. In 2007, the International Intellectual Property Alliance (IIPA) placed Turkey on its watch list due to the high level of
copyright piracy in the country, which placed it among the poor performers. According to IIPA estimates in 2007, piracy was
highest in the business software industry, which lost $193 million as a result, and the percentage of business software in
use made up by illegal copies reached a high of 64%. During the same period, sound recording and entertainment software
also experienced losses as a result of the extensive piracy in the country.
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There have also been inconsistencies between the verdicts given by the Turkish Patent Institute (TPI), the entity legally
responsible for supporting the technological development and protection of IPR in Turkey, and IPR court decisions; this has
led to certain large and medium-sized companies in Turkey infringing well-known trademarks. During 2005 and 2006, more
than 8,000 raids were carried out over IPR, and pirated materials with a market value of E600m were seized.
Consequently, over 10,000 suspected offenders were referred to the judicial authorities, with the majority of the violations
being from the music and publishing sectors.
Research and development

Turkey has generated significant growth in R&D over the years by implementing several related policies, which include a
national innovation strategy that emphasizes products of high value and the development of employment levels through
increased competitiveness. The government has also introduced various programs with an aim to encouraging foreign
participants, prominent universities and research organizations to promote a culture of innovation. With this view, it entered
into an agreement with Joint Research Centre, the EU's scientific and technical research laboratory. The agreement
focused on cooperation in the key areas of environment and health; security; energy; agriculture; and chemicals. It also
initiated a science and technology project called Vision 2023 for the period 200323 under the co-ordination of the
Scientific and Technical Research Council (TUBITAK) and the Supreme Council of Science and Technology (BTYK).
Turkey has improved its relations with the EU countries, and the changing market conditions due to globalization have
forced the companies in the country to invest in R&D and innovation. The government has promoted several programs for
R&D projects by providing monetary support and raising awareness of industrial R&D and innovation through
supplementary activities. Turkey has also entered into the Sixth Framework Programme for Research and Technological
Development, a strategy initiated by the EU to fund and promote research. Furthermore, the European Investment Bank
has agreed to provide a loan of E400m to promote R&D activities in Turkey.
Performance
Telecoms
The telecoms sector has witnessed increasing growth over the years with the expansion of the mobile market, which has
been the driving force behind the development of the telecommunications services in Turkey. The number of mobile
telephone subscribers has increased at a CAGR of 22%, from approximately 23 million in 2002 to 62 million in 2007. The
broadband market has also experienced a significant increase, mainly through the current digital subscriber lines (DSL).
Turkey has introduced several regulations with regards to inspecting band frequency use, reviewing significant market
power operators (SMP) and managing price caps. It also implemented regulations on new licenses for fixed telephone
services to market mobile virtual operator services and broadband wireless access services.
The government intends to promote the usage of ICT by increasing its expenditure from $533m in 2006 to $555m in 2007.
The telecoms industry has more than five million Asymmetric Digital Subscriber Line (ADSL) users and expects to reach 10
million by 2010. The number of fixed telephone subscribers in 2007 was around 19 million, with the number of GSM
subscribers that year at 62.5 million.
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Figure 22:
Growth rate of mobile and fixed-line subscribers in Turkey, 200212
40.0
35.0
30.0
Growth rate (%)
25.0
20.0
15.0
10.0
5.0
0.0
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
-5.0
Year
Mobile phones growth
Source: Datamonitor
Fixed line growth

DATAMONITOR
Information and communication technology

Turkey remains a hub for various IT vendors, due to its large market size and the fact that its ICT sector witnessed strong
growth during 200207. During 2006, the ICT sector contributed approximately 4% of GNP and posted a growth rate of
11%. Turkeys ICT market is expected to reach approximately $24 billion in 2007 compared to $21 billion for 2006, an
increase of 20%. The number of internet users in Turkey increased from approximately 10 million in 2004 to 19 million
users in 2007, at a CAGR of 23%. In addition, it is anticipated that the country's IT market will reach $5.5 billion by 2006,
compared to $2.6 billion in 2002. Turkeys software market, meanwhile, has been projected to reach $1 billion in 2007,
compared to $880m in 2006.
Research and development

R&D expenditure
The R&D expenditure in Turkey is 0.6% of GDP, and the governments target is to reach 2% by 2013. The government also
intends to increase its investment in the field of innovation by implementing a law that would make firms in Turkey more
competitive from labor-intensive sectors like textiles, which could lose out against increasing competition from China and
India.
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During 2005, the higher education sector contributed approximately 54.6% of R&D expenditure; business enterprises,
which include state economic enterprises and the private sector, generated 33.8%; and the government produced 11.6%.
The total number of R&D personnel (full-time equivalent) in 2005 was approximately 50,000, of which 51.6% were
employed in higher education institutions, 30.4% in businesses, and 17.9% by the government. The total number of R&D
personnel (full-time equivalent) amounted to 2.2% of the labor force in 2005.
Expenditure on R&D in Turkey, 200006
3.5
0.72
3.0
0.70
0.68
2.5
0.66
2.0
0.64
1.5
0.62
1.0
Percentage (%)
R&D expenditure ($ billion)
Figure 23:
0.60
0.5
0.58
0.0
0.56
2000
2001
2002
2003
2004
2005
2006
Year
R&D investment
Source: Datamonitor
R&D Expenditure as % of GDP
DATAMONITOR
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Figure 24:
Number of R&D personnel in Turkey, 200006
120
105
97
Number of R&D personnel ('000)
100
80
76
76
2000
2001
80
83
87
60
40
20
0
2002
2003
2004
2005
2006
Year
Source: Datamonitor
DATAMONITOR
Outlook
Turkey has seen double-digit growth in the ICT market from 2002 to 2007, and there has been an increase in the number of
skilled scientists who are currently returning to the country to gain from the opportunities offered to them by the EU. The
growth in the ICT market is due to the privatization of the Turkish telecommunications sector that was initiated by the
government. The telecoms sector has witnessed increasing growth over the years with the expansion of the mobile market,
which has been the driving force behind the development of the telecommunications services in Turkey. Though the
government has given considerable encouragement to foreign entities, prominent universities and research organizations
to foster a culture of innovation, its own contribution towards R&D has been very small. The level of patenting also remains
extremely low, although there has been an increase in recent years.
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Legal landscape
LEGAL LANDSCAPE
Summary
Turkey has a tripartite judicial system that is responsible for the maintenance of law and order. The supreme courts of
Turkey include the Constitutional Court, the Military High Court of Appeals and High Military Administrative Court, the
Council of State and the Court of Jurisdictional Conflicts. It also comprises the law courts, penal courts and military courts,
along with three high courts.
The overall freedom to start, operate, and close a business is protected by Turkeys regulatory environment. In addition, the
business tax scheme and the reforms to the availability of grants and incentives have resulted in an increase in foreign
investment in the country.
Evolution
In 1926, the Islamic law of the Ottoman Empire was substituted with a secular system similar to that of the Italian legal
system. Since 2002, Turkey has witnessed significant developments in the area of judicial reforms. In that year, Turkey
abolished the death penalty law and modified some of the laws in the legal system. This was primarily achieved with the
implementation of several new laws related to the criminal, criminal procedural and civil legal systems. Laws regarding the
establishment of the regional courts of appeal and the Justice Academy were also brought into effect. With these revisions,
several specialized courts were introduced for resolving disputes in the areas of family, IPR and consumer protection. The
Ministry of Justice implemented an advanced information technology system, the National Judicial Network Project, which
focuses on improving the judiciarys ability to collect information and communicate with other governmental institutions.

Judicial system
Structure of the system
The judicial system of Turkey is a tripartite system. The supreme courts of Turkey include the Constitutional Court; the
Military High Court of Appeals and High Military Administrative Court; the Council of State; and the Court of Jurisdictional
Conflicts. It also comprises law courts, penal courts and military courts, along with three other high courts.
The Constitutional Court was established in the 1961 constitution, and is the highest court in Turkey. It solves cases that
involve the president of the country, members of the Council of Ministers, or presidents and members of the high courts.
The Constitutional Court comprises eleven regular members, and has the right to choose a president and deputy president
for a term of four years by a majority vote via secret ballot. The president of Turkey selects two regular members from the
Court of Cassation and the Council of State, and one member each from the Military Court of Cassation, the Military High
Court of Appeals, the High Military Administrative Court and the Court of Accounts. He or she also chooses one member
from a list of three candidates selected by the Higher Education Council, and three members from the senior administrative
officers. Three further candidates are selected through a majority vote of the members.
Military courts have the authority to charge members of the armed forces for crimes committed against other military
personnel or for offenses committed in military settings. The Military High Court of Appeals gives the final verdict; this is
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Legal landscape
generally made by a president, who has powers equal to a brigadier general and a chief prosecutor. The High Military
Administration Court has authority over military personnel in administrative cases and has functions similar to the Military
High Court of Appeals.
The cases handled in the general law courts include civil, administrative and criminal cases. Penal courts handle cases
related to offenses that can result in more than five years of imprisonment. These courts are located in most cities, and
involve only one judge for minor cases. The high courts handle criminal cases and the Council of State is invoked to
resolve disputes between government entities or administrative cases.
Tax regulations
Income tax
Personal income tax is generally levied by the central government. The base rate on wages is 15%, and can increase to a
marginal rate of 35%. Due to the fluctuations of the foreign exchange value of the lira, the tax rate on the salary of a
foreigner cannot be predicted. However, if the lira remains relatively constant, a foreigner earning approximately $60,000
annually would be subject to a tax rate of approximately 26%. An individual who resides in Turkey for more than six months
should pay taxes based on their worldwide income for that fiscal year. However, an emigrant who is on an assignment in
Turkey for a business trip and individuals who are in Turkey for holiday or educational purposes are not regarded as
citizens, even if their stay exceeds more than the stipulated six months.
Corporate tax
Corporate tax is charged on income and earnings derived by public and private limited companies, including foreign and
other joint venture companies. The tax rate currently imposed is 20% and the withholding tax charged in the case of profits
being distributed is 15%. Resident companies are levied tax on both their national income and income from other countries.
Value-added tax (VAT)

Goods that are imported into Turkey are subjected to VAT. The VAT rate in Turkey is 18% for most goods and services and
8% for foodstuffs, books, natural gas and pharmaceuticals imported with permission from the Ministry of Health. The VAT
rate for journals, newspapers, certain farm products, used cars and most financial-leasing transactions is 1%. The
government recently reduced the VAT rate on textile and leather products from 18% to 8%.
Legislation affecting business

Establishing operations as a foreign enterprise
Foreign and domestic entities have the right to establish and own business enterprises. They are allowed to engage in all
forms of remunerative activities, including the right to establish, acquire and dispose of interests in business. Private
enterprises enjoy the same treatment as public enterprises with respect to access to markets and other business
operations. Foreign investors are entitled to start any company included in the Turkish Commercial Code, and can employ
a foreign workforce in Turkey after obtaining the necessary work permit from the Ministry of Labor and Social Security.
Foreigners who intend to set up a liaison office, which carries out market research on the investment opportunities in the
Turkish market on behalf of their head office in Turkey, have to obtain permission from the General Directorate of Foreign
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Legal landscape
Investment. Initially, permission is granted for three years and can be extended later based on the performance over the
preceding three years and the future plans of the company.
Business enterprises can be formed on the basis of various formats such as commercial partnerships, co-operatives and so
forth.
Labor laws
Turkey has introduced several reforms over the years and has formulated various measures to combat unemployment. In
2003, the country implemented provisions for unemployment insurance and a new labor code (Act 4857) aimed at providing
social security for workers. Unemployment insurance was further strengthened by the improvement of the employment
opportunities offered by the Turkish Employment Agency (ISKUR), public employment institution, and other private
providers. An initiative has been taken by the government to improve incentives for employment creation, and widen the
coverage of formal social protection for workers.
Labor market regulations have been implemented in Turkey to encourage job opportunities and increase the productivity of
the workers. Flexible working hours, which make it easier to arrange work schedules in accordance with company needs,
are common in Turkey. Organizations have also encouraged part-time employment in the country. Female employees have
the option of taking paid maternity leave for 16 weeks, which can be extended to six months without pay.
Moreover, employment organizations in Turkey such as the ISKUR have initiated several reforms to encourage and
promote employment. These reforms include job brokering (matching job seekers with vacancies), improving the
employment prospects of the disabled, and monitoring the unemployment insurance program and private employment
agencies. To provide support for the ISKURs initiatives, the EU has implemented an active labor market program (ALMP)
in Turkey, which focuses on institution building through policy development.
Corporate governance
The regulatory framework for corporate governance in Turkey is strong. There have been considerable improvements in
disclosure practices by listed companies, and several international standards for accounting and auditing have been
initiated. However, there exist risks in terms of control over the shareholders who take an active role in the management
and strategic direction of company groups, many of which are listed on the Istanbul Stock Exchange. Although
improvements in corporate governance have occurred and corporate houses are following international disclosure norms,
these practices are only confined to very large listed companies.
Performance
Effectiveness of the legal system
The business environment in Turkey has improved following the recently undertaken tax reforms. The corporate tax rate
was reduced from 30% in 2006 to 20% in 2007. The employment regulations are rigid, however, and have been a cause of
th
decline in the overall productivity growth. Turkey has been ranked as the 74 freest economy by the Wall Street Journal's
Index of Economic Freedom. Turkeys index score of 60.8% is more than the Asia Pacific average of 58.7%, and is higher
than the world average of 60.3%. This score indicates a highly conducive environment for business.
Published 09/2008
Page 67
However, the judiciary system in Turkey is subject to influences and political interference in high-profile cases, and hence
there exists a need to revise judicial reforms to introduce qualified judges and improve the infrastructure of the legal
system. Moreover, the commercial courts in Turkey are overloaded with cases, and on an average it takes over a year to
resolve each one. The judicial reforms implemented, therefore, should be in a position to handle key structural issues in the
system and resolve it through specialized courts or different appeal structures.
Turkey ranks highly in various indexes such as business freedom, trade freedom, fiscal freedom, freedom from government
intervention, investment freedom and property rights freedom, but does not score highly in indexes like financial freedom,
monetary freedom, freedom from labor and freedom from corruption. In Doing Business 2008, compiled by the World Bank,
th
th
th
Turkey is ranked 57 in the starting a business index, 136 in the employing workers index, 64 in the protecting investors
th
st
th
index, 128 in the simplifying licenses index, 31 in the registering property index, 68 in the getting credit index, and 112
th
in the closing a business index. According to Doing Business 2008, starting a business takes an average of six days. In
contrast, the OECD average is 14.9 days, and costs 5.1% of per capita GNI.
Outlook
Turkey does not require any lengthy business registration processes to establish a company. The overall freedom to start,
operate and close a business is protected by Turkeys regulatory environment. Moreover, business taxes are low compared
to other developed countries. Several labor reforms have been initiated and implemented to overhaul public sector
pensions and the system of job protection given for indefinite labor contracts. Turkey has strong labor regulations to
safeguard workers from unemployment and other labor market risks. In addition, Turkey has also introduced several laws
to boost foreign investment. The introduction of the Foreign Direct Investment Law and the Directive for the Implementation
of the Foreign Direct Investment Law in 2003 has provided foreign investors with the same legal status as Turkish-owned
companies under the Turkish Commercial Code. This also eliminated almost all restrictions and requirements which were
hitherto imposed on them. However, there exist several loopholes available for people looking to evade the tax system, and
hence implementing regulations has been a significant challenge for Turkey and is expected to continue to be so in the
near future.
Published 09/2008
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ENVIRONMENTAL LANDSCAPE
Summary
Turkeys government has been at the forefront in meeting various environmental challenges. The country has introduced
several policies to increase the production of renewable power by compelling the national transmission companies to
provide grid connection to all renewable power projects. It is strongly involved in global environmental issues and has
linked its development aid to environmental objectives and the policies focusing on air pollution, biodiversity, chemical
substances, environmental health and global issues like climate change. Nevertheless, the discharge of chemicals and
detergents into water has led to an increase in environmental pollution, mainly in urban areas.
Evolution
Since the 1990s, ecological policies in Turkey have been undergoing reforms as they are driven by the environmental
legislation of the EU. The Ministry of Environment was formed in 1991 with a view to monitoring environmental issues such
as urban air pollution, which has been a major threat to Turkey. During the current decade, the EU ensured that the
environmental legislation in Turkey was updated. In 2003, however, the merger of the Ministry of Environment with the
Ministry of Forestry reduced the authority of environmental officials in policy making and enforcement procedures.

Environmental regulations
Policy
In 2005, Turkey initiated a law which emphasized the usage of renewable energy resources for the generation of electrical
energy by introducing tariff support for electricity produced by renewable sources. Turkey also introduced several policies
to increase the production of renewable energy by compelling national transmission companies to provide grid connection
to all renewable power projects. Furthermore, it has undertaken initiatives to improve transmission links with the EU to
stabilize its power system, and has removed the ban on several restrictions which could hamper foreign investment in the
power sector. The energy policies in Turkey are aimed at encouraging private capital and the development of international
cooperation. For instance, Turkey has implemented several projects to increase energy efficiencies in the industry,
transport and residential sectors.
Performance
Environmental impact
Turkey is faced with increasing pollution levels due to chemicals and detergent released into water sources and an
attendant increase in air pollution, mainly in urban areas. Furthermore, the discharge of pollutants by neighboring countries
has polluted the Black Sea. The country has been facing the problem of air pollution, which is acute in areas such as
Istanbul, Ankara, Erzurum and Bursa. Moreover, increased car ownership and the slow growth of public transportation have
significantly increased the urban pollution in Istanbul. Air pollution is also caused by energy plants and fertilizer facilities,
since the majority of these lack filtration equipment. Turkey also faces land degradation due to the inappropriate use of
agricultural land, overgrazing and deforestation, along with soil erosion in more than half of its land surface. The volume of
Published 09/2008
Page 69
carbon dioxide emitted increased from 204.4 million metric tons in 2003 to 249.5 million metric tons in 2007. The GHG
emissions per person in Turkey were approximately equivalent to 4.1 tons of carbon dioxide in 2004: this amounts to about
one third of the average values in the EU/OECD countries.
Figure 25: Carbon dioxide emissions in Turkey, 200007
15.0
300.0
10.0
200.0
5.0
Growth (%)
Volume (million metric tons)
250.0
150.0
0.0
100.0
-5.0
50.0
0.0
-10.0
2000
2001
2002
2003
2004
2005
2006
2007
Year
Volume
Source: Datamonitor
Growth rate
DATAMONITOR
Outlook
th
Turkey is ranked 75 in terms of per capita carbon emissions. GHGs emitted per person in Turkey were approximately
equivalent to 4.1 tons of carbon dioxide as of 2004, which amounts to about one third of the average values in EU/OECD
countries. To annually reduce the menace of carbon emissions, Turkey intends to encourage sustainable energy
development projects by involving itself in carbon trading, which would result in a GHG reduction of approximately five
million tons. The government has decided to ratify the Kyoto Protocol, which binds 37 industrialized countries to limit their
GHG emissions. However, Turkey has been facing high pollution levels over the years due to water and air pollution,
mainly in urban areas. Municipal and industrial landfills and their illegal equivalents comprise approximately 80% of
contaminated sites. Currently, the manufacturing sector contributes significantly to environmental pollution.
Published 09/2008
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APPENDIX
APPENDIX
Ask the analyst
DATAMONITORs Country Analysis Practice consists of a team of economists, analysts and researchers, all with expertise
in their given fields. For any questions or comments about this report you can contact the author directly.
countryanalysis@datamonitor.com
Datamonitor consulting
We hope that the data and analysis in this brief will help you make informed and imaginative business decisions. If you
have further requirements, Datamonitors consulting team may be able to help you. For more information about
Datamonitors consulting capabilities, please contact us directly at consulting@datamonitor.com.
Disclaimer
All Rights Reserved.
No part of this publication may be reproduced, stored in a retrieval system or transmitted in any form by any means,
electronic, mechanical, photocopying, recording or otherwise, without the prior permission of the publisher, Datamonitor.
The facts of this report are believed to be correct at the time of publication but cannot be guaranteed. Please note that the
findings, conclusions and recommendations that Datamonitor delivers will be based on information gathered in good faith
from both primary and secondary sources, whose accuracy we are not always in a position to guarantee. As such
Datamonitor can accept no liability whatever for actions taken based on any information that may subsequently prove to be
incorrect.
Published 09/2008
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COUNTRY ANALYSIS REPORT

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied

GDP, constant 2000 prices ($ billion)

Exports, total as % of GDP

Imports, total as % of GDP

Mid-year population, total (million)

Unemployment rate (%)

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied

Key facts and geographic location

Structure and policies

Structure and policies

Structure and policies

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied

Structure and policies

Structure and policies

Structure and policies

Ask the analyst

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied

Figure 2: Turkey key political events timeline

Figure 3: Turkey key political figures

Figure 4: Composition of the parliament of Turkey

Figure 5: Evolution of the Turkish economy, 19702007

Figure 6: Market capitalization of the Turkey stock exchange, 200007

Figure 8: GDP composition by sectors, 2006

Figure 9: Agricultural output of Turkey, 200107

Figure 10: Industrial output of Turkey, 200107

Figure 11: Services output of Turkey, 200107

Figure 12: Current account balance of Turkey, 200007

Figure 13: External trade of Turkey, 200206

Figure 14: Balance of trade of Turkey, 200007

Total foreign investment in Turkey, 200206

New Turkish liraUS dollar exchange rate, 200007

CPI and CPI-based inflation in Turkey, 200212

Total assets of commercial banks in Turkey, 200007

Employment and growth rate in Turkey, 200212

Expenditure on healthcare in Turkey, 200212

Governments expenditure on education in Turkey, 200204

Growth rate of mobile and fixed-line subscribers in Turkey, 200212

Expenditure on R&D in Turkey, 200006

Number of R&D personnel in Turkey, 200006

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied

Figure 25: Carbon dioxide emissions in Turkey, 200007

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied

Table 2: Turkey - key facts

Table 3: Analysis of Turkeys political landscape

Table 4: Analysis of Turkeys economy

Table 5: Analysis of Turkeys social system

Table 6: Analysis of Turkeys technology landscape

Table 7: Patents received from USPTO

Table 8: Analysis of Turkeys legal landscape

Table 9: Analysis of Turkeys environmental landscape

Table 10: Mid-year population by age, 2006

Turkey: Country Analysis Report In-depth PESTLE Insights

Datamonitor. This brief is a licensed product and is not to be photocopied