Besides China, Turkey is the only G20 country to report GDP growth for 2020. This is mainly due to the stimulation of domestic demand by loose monetary policy, which enabled a boom in consumer loans provided by state-owned commercial banks. However, the consequence is also rising inflation or a deepening of the negative balance of the trade balance, when exports fell significantly year-on-year, in contrast to imports.
Turkey’s economic growth has also been far from even and inclusive, as evidenced by the continued decline in GDP per capita (permanently since 2013) and raises the question of the ever-increasing economic division of society and the growing poverty of a significant part of the population. Turkey’s big plus point remains its young population, which, however, has to deal with unemployment as high as 25%. The main declared goal of the Turkish government in the field of economy currently remains the fight against high inflation and the effort to attract much-needed foreign investment.
According to data from the Ministry of Finance, the financial aid allocated by the state to fight the coronavirus reached 10% of Turkey’s GDP (approx. EUR 5billion). Government support had a wide focus, from one-off cash payments for the poorest to efforts to support exporters with favorable loans through the state-owned Turk Eximbank or SME’s through the Association of Small and Medium Enterprises KOSGEB. The latest package of economic reforms was presented by President Erdogan in March 2021.
It builds on four basic pillars (investment, production, export and employment) and contains a number of measures with the aim of strengthening macroeconomic stability (this includes, for example: the fight against high inflation, the negative development of the trade balance or strengthening the stability of the banking sector) and eliminate structural deficiencies (strengthening institutional structure and attracting more foreign investment). Thanks to this package, the government, according to its statements, is trying to improve the competitiveness and productivity of the economy, to strengthen the transparency and predictability of the entire economy.
Post-COVID-19 opportunities for foreign exporters
According to allcountrylist, Turkey became the only country in Europe to see a year-on-year increase in car sales in 2020, maintaining the 6th place in the ranking of the number of cars sold in the old continent. The government plans for the country to become one of the top five producers of electric cars in the world in the next ten years. To fulfill this ambitious goal, Turkey has prepared a number of incentives and reliefs for foreign investors.
The system of government incentives has already attracted large global producers to the local market, who locate their production here (Renault, FIAT, Mercedes and others). There are currently 16 automotive production lines operating in Turkey, and more than 900,000 vehicles were exported from the country to 180 countries in 2020. Despite the economic instability of Turkey, further significant development of this sector can be assumed, whose market represents opportunities for Czech exporters in the subcontracting structure.
According to the latest OECD assessment report, Turkey lags significantly in the area of citizens’ digital skills and the spread of high-speed Internet connections. This then has a negative effect mainly in the possibilities of SMEs and their insufficient use of digital means leading to low labor productivity. The Turkish Association of Small and Medium Enterprises (KOSGEB) therefore came up with the KOGIBEL program, within which Turkish entities can apply for grants aimed at their greater digitization. The very existence of this program is an opportunity for Czech companies as well.
In the field of ICT and opportunities for the application of Czech companies, it is worth mentioning the gaming industry, whose exports in the last two years, according to the local Association of the Gaming Industry (TOGED), have always reached more than 1 billion USD. The Turkish market, where according to most estimates there are currently slightly over 30 million active players, offers room for cooperation and development in the field of PC games, mobile applications and e-sports, where Turkey is one of the most promising global markets.
Software and other technological solutions in the area of urban infrastructure, smart cities, remain another important area. Turkey has by far the largest number of million-dollar cities in Europe (23) and impressive volumes of state and municipal investments, but it still does not receive enough high-quality software solutions, especially in the field of smart traffic management. There is therefore great potential for Czech entities here as well.
Turkey has the second largest armed forces within NATO and currently conducts several military operations at home and abroad. This is also reflected in defense spending, which has been around USD 20 billion per year for the last three years, so in 2021 this spending will make up 5.9% of state spending (+1% compared to 2020). It is also important to draw attention to the role of the Presidential Office for Defense Industry (SSB), which has a budget that is not subject to parliamentary approval procedures. This institution, which serves as a de facto “acquisition agency” in the field of military and security technology (not only for the army, but also for the increasingly strong police and gendarmerie), is thus a key partner for defense exports, production cooperation and imports.
Czech companies have also successfully used Turkey’s growing defense needs in recent years, military exports to the country increased to approximately USD 20 million in 2020 and reached a historical maximum, but far from the ceiling of possibilities. At the moment, the potential for Czech companies is mainly in the supply of ammunition, in the field of military aviation – a share in supplies and design solutions for Hurjet and Hurkus aircraft or subcontracts for Turkish companies involved in the construction of the Turkish national Altay tank. Dynamically developing research and development in the areas of electronic warfare or anti-aircraft defense can be another potential target for Czech exporters.
Considering Turkey’s intention to achieve 75% independence of its industry by 2023 and further increase it, it is possible to expect pressure to localize production or transfer know-how in negotiations with the Turkish side. Due to the sensitivity of such negotiations and the importance of state guarantees, which play a large role in Turkey, we recommend making contacts through regular meetings of the intergovernmental Defense-Industrial Cooperation Mechanism (DICM).
In this area, there is still a very good potential for the export of machine tools to Turkey given the rapid growth of domestic production in the field of defense, automotive or transport-engineering industry as well as the “white goods” sector. The selected segments have high export ambitions, and therefore also demands for quality. In the individual sectors, it is a question of complementarity, where Czech companies excel in the field of machine tools, while Turkish companies are more competitive and better at pressing, cutting material with plasma or punching sheet metal.
Currently, based on the incentives of the Turkish government, the modernization process of traditional engineering companies is starting, where interest in projects and products from the field of automation and robotization of engineering production is growing significantly.
Due to the strengthening of defense industry projects (mainly the ground forces and the navy), but also projects focused on aviation and the production of electric cars, we see a significant opportunity for the export of Czech high-precision machining, turning and milling technologies, as well as in the modernization of existing engineering operations in Turkey.
Embassy of the Czech Republic in Ankara
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