Turkey

Originally published: Oct-25-2005

View More Country Risk Reports

Government

Turkey is a republic parliamentary democracy with executive, legislative and judicial branches. The legislative branch is comprised of a Grand National Assembly of 550 members chosen by national elections held at least every 5 years. The country is comprised of 81 provinces; capitol is Ankara.

The 1982 Constitution, drafted by the military in the wake of the 1980 coup, proclaims Turkey’s system of government as democratic, secular, and parliamentary. The presidency’s powers are not precisely defined in practice, and the president’s influence depends on his personality and political weight. The president and the Council of Ministers led by the prime minister share executive powers. The president, who has broad powers of appointment and supervision, is chosen by Parliament for a term of 7 years and cannot be reelected. The prime minister administers the government, and both the prime minister and the Council of Ministers is responsible to Parliament.

Population

Turkey’s population in July 2005 was estimated at 69,660,559 with an annual growth rate of 1.09%. Ethnic groups include Turkish, Kurdish and other. Primary languages include Turkish (official), Kurdish, Zaza, Arabic, Armenian, Greek. 86.5% of the population is considered literate.

Turkey has been officially secular since 1924, although 99% of the population is Muslim. Most Turkish Muslims belong to the Sunni branch of Islam, but a significant number are Alevi Muslims.

Legal System

The Parliament carries out legislative functions. The president enacts laws within 15 days of their passage by Parliament. With the exception of budgetary laws, the president may return a law to the Parliament for reconsideration. If Parliament reenacts the law, it is binding, although the president may then apply to the Constitutional Court for a reversal of the law.

The judiciary is declared to be independent, but the need for judicial reform and confirmation of its independence are subjects of open debate. Internationally recognized human rights are officially enshrined in the Constitution but have at times been narrowly interpreted, can be limited in times of emergency, and cannot be used to violate what the Constitution and the courts consider the integrity of the state or to impose a system of government based on religion, ethnicity, or the domination of one social class. Labor rights, including the right to strike, are recognized in the Constitution but can be restricted.

Turkey accepts compulsory International Court of Justice (ICJ) jurisdiction, with reservations.

Economy

Currency: Turkish lira (YTL) – Note: on January 1, 2005 the old Turkish Lira (TRL) was converted to New Turkish Lira (YTL) at a rate of 1,000,000 old to 1 New Turkish Lira

YTL to USD: 1.362 (10/18/2005)

Economic Indicators

(e) estimate (f) forecast
**Converted to YTL (see above)

Leading Markets (2004): Germany 13.9%, UK 8.8%, USA 7.7%, Italy 7.4%, France 5.8%

Leading Exports: textiles and apparel, iron and steel, electronics, tobacco, motor vehicles

Leading Suppliers (2004): Germany 12.8%, Russian Federation 9.3%, Italy 7%, France 6.4%, USA 4.9%

Leading Imports: petroleum, machinery, motor vehicles, electronics, iron and steel, plastics

Top Industries: automotive, electronics, food processing, textiles, basic metals, chemicals, petrochemicals

General Economic Situation

Turkey’s economy is a complex mix of the modern and the traditional. Turkey today includes bustling cosmopolitan centers, pastoral farming villages, barren wastelands, peaceful Aegean coastlines, and steep mountain regions. More than half of Turkey's population lives in urban areas that juxtapose Western lifestyles with traditional-style mosques and markets. The country has a strong and rapidly growing private sector, yet the state continues to play a major role in basic industry, banking, transport and communication.

In the last decade, Turkey’s economic situation has been marked by erratic growth and serious imbalances. In the 1980s, Turkey began a series of reforms designed to shift the economy to a more private-sector, market-based model. While the reforms spurred growth, that growth has been punctuated by sharp recessions and financial crises in 1994, 1999 and 2001. Large IMF loans – tied to implementation of ambitious economic reforms – began to show results in 2002 and 2003. By 2004, inflation and interest rates fell significantly, the currency stabilized, and GDP growth shot up to an unprecedented 8.9%, the highest rate posted in forty years. In 2005, the economy has been in a moderate growth slowdown, which is actually welcome after it almost overheated last year.

Nonetheless, the economy remains fragile, and continuing reforms are essential to sustaining growth and stability, with Turkey’s principal economic problems continuing to be inflation and public sector indebtedness.

A major economic (and political) issue that will have a huge impact on its future is Turkey’s acceptance into the European Union. Negotiations started on October 4, 2005 and should be conducive to continuing the efforts on economic reform. Turkey's goal of full membership in the EU is expected to take at least a decade.

Business Climate

Turkey’s primary political, security and economic ties are with the West, although some call for a more “Eurasian” orientation. Turkey and the European Union formed a customs union in 1996 covering industrial and processed agricultural goods. The country is currently in the process of harmonizing its laws and regulations with EU standards.

Turkey is a member of the Word Trade Organization (WTO) and has signed a number of bilateral investment and tax treaties -- with the European Free Trade Association (EFTA), Israel, the United States and many other countries -- that guarantee free repatriation of capital and eliminate double taxation. However, foreign direct investment remains relatively low reflecting concerns about political and economic stability, burdensome regulation, and the large state role in the economy.

Openness to Foreign Investment: Most sectors open to the Turkish private sector are also open to foreign participation. However, all companies, regardless of the nationality of ownership, face a number of obstacles. These include excessive bureaucracy, weaknesses in the judicial system, high and inconsistently collected taxes, sometimes unpredictable decisions at the municipal level, and frequent and often unclear changes in the legal and regulatory environment.

Conversion and Transfer Policies: Turkish law guarantees free transfer of profits, fees and royalties, and repatriation of capital, except for oil companies. There is generally no difficulty in obtaining foreign exchange.

Dispute System: Turkey’s legal system provides means for enforcing property and contractual rights, and there are written commercial and bankruptcy laws. However, the court system is overburdened and is perceived to be susceptible to external influence and biases against outsiders.

Right to Private Ownership and Establishment: With the exception of oil companies, private entities may freely establish, acquire and dispose of interests in business enterprises. Foreign participation is permitted up to 100%.

Protection of Property Rights: Secured interests in movable and real property are recognized and enforced. Turkey’s intellectual property rights regime has improved in recent years, but still presents serious problems including continued high levels of piracy and counterfeiting of copyrighted and trademarked materials.

Transparency of the Regulatory System: The government has adopted policies and laws that, in principle, should foster competition and transparency. However, foreign companies in several sectors claim that regulations are sometimes applied in a nontransparent manner. Bureaucratic red tape has been a significant barrier to companies, although the government has taken, and is considering further measures to streamline business procedures and to improve the business climate.

Political Violence: Terrorist bombings over the past two years have struck religious, political, and business targets. Westerners (American, Canadian and European) are encouraged to exercise caution if traveling in Southeastern Turkey.

Corruption: Corruption is perceived to be a major problem in Turkey, particularly in government procurement. Turkish legislation outlaws bribery and some government officials have been prosecuted for corruption, but enforcement is uneven.

Foreign Trade Zones/Free Ports: Turkey has 21 free zones open to foreign companies with a wide range of activities, including manufacturing, storage, packaging, trading, banking and insurance. Foreign products enter and leave the free zones without payment of any customs or duties. Sales to the Turkish domestic market are allowed, with goods and revenues transported from the zones into Turkey subject to all relevant import regulations.

Credit and Collections

• Collection Experience: Fair-Good
• Exchange Delays: 3+ months
• Preferred Credit Terms: Unconfirmed letter of credit
• Minimum Credit Terms: Sight draft

See the article “Overview of Turkish Legal System” for detailed information on collections in Turkey.

Risk Assessment

Country Risk Rating (Coface): B - An unsteady political and economic environment is likely to further affect an already poor payment record. Rating watchlisted with positive implications since January 2005.

Country Risk Rating (Ducroire Delcredere): Political Risk = 3 (with 7 being highly risky); Commercial Risk = C (high risk)

According to Coface, company payment behavior is still satisfactory with the number of payment incidents remaining stable and below the world average. However, due to increased short-term debt loads of Turkish companies, they are particularly vulnerable to the risk of a sharp depreciation in the lira.

Coface assigned a positive watchlist rating in January 2005 due to Turkey’s robust economic conditions, the quality of company payment behavior, and the confidence of market operators.
Seven types of risk are considered by Coface in its country analysis:

1. Companies’ payment behavior – rated a low risk.
2. Growth vulnerability rated low risk as overheating of the economy in 2004 was averted, and disinflation has been a policy success in 2005.
3. Political and institutional instability is rated as a manageable risk.
4. Banking sector fragilities fated a significant risk as, despite substantial progress on banking system reform since 2001, there are still significant challenges.
5. Foreign currency liquidity crisis rated a critical risk.
6. External over indebtedness rated a significant risk. Despite export dynamism, the current account balance deteriorated markedly in 2004, and foreign currency financing needs have been among the largest of emerging countries.
7. Sovereign financial vulnerability rated a significant risk.

Sources for further information on doing business in Turkey

Doing Business in Turkey: 2008 Country Commercial Guide, U.S. Department of Commerce

*****

Subscribe to the Credit-to-Cash Advisor
Monthly e-Newsletter -- It's Free

This information is provided by ABC-Amega Inc. Providing international receivable management and debt collection services for exporters to more than 200 countries including Turkey. For further information, contact info@abc-amega.com.

This report represents a compilation of information from a wide variety of reputable sources including: the U.S. Department of State, U.S. Commercial Service, CIA World Factbook, Federation of International Trade Associations, and Economist Country Briefings.

Risk Assessment information: Provided with permission by Coface Country Rating. Also Belgian credit insurance company Ducroire Delcredere.

Information on credit terms and the probability of prompt payment are provided, with permission, from Overseas Press and Consultants (OP&C) as published in IOMA's Report on "Managing Credit, Receivables & Collections," September 2005.