Turkish Economy

Turkey is a dynamic emerging market equipped with a network of developed infrastructure and a globally competitive work force. Its unique position at the crossroads of the world trade routes and its proximity to the developing energy producing regions in the Caspian and Central Asia are factors that further raise its potential for the coming years.

Turkey's civilian labor force is 24.3 million people as of end of 2004. Agricultural sector still employs around 1/3 of the labor force although share of agriculture in GNP is just above 10%. Nearly half of the employed are in the services sector and the ratio employed in the industrial sector is 18%.The unemployment rate of the country is around 9.7%.

Current account deficit almost doubled in 2004 and reached USD 15.6 billion USD corresponding to a historical high of 5.2% of GNP. In 2004, foreign trade deficit was 23.9 billion USD widening 84% compared to the previous year. Thus, the main factor in the rise of the current account deficit was the increase in imports and deteriorating trade balance. Growing economy activity fuelled imports through capital and intermediate goods imports. Exports were also strong however they increased at a lower pace compared to imports. Tourism revenues helped compensating by generating a revenue over 15 billion USD. In the capital and financial accounts, 16.8 billion USD inflow was recorded. FDI (Foreign Direct Investment) remained still at an insignificant level of 2.6 billion USD against the 1.7 billion USD in 2003. Current account deficit was financed mainly by portfolio investments amounting to 8.1 billion USD.

Main economic indicators in Turkey have been recovering and stability has been achieved in many areas especially in the last two years. Structural reforms within the framework of the IMF program, EU Harmonization Laws and sector regulations along with improvements in the investment environment have provided a more favorable business environment. The new Turkish Lira (6 zeros removed) has been launched as of the beginning of 2005. This is expected to further contribute to the monetary stability.

As a consequence of the customs union with the EU since 1995 and the ongoing EU pre-accession process and IMF (International Monetary Fund) Stand-by Agreement, the economic legislative environment is in progressive alignment with the main policies and standards of the EU.

The resolute implementation of the economic program not only heals the short-term imbalances in the economy, but also rapidly improves the business environment via constructing a sound premise for sustainable growth. Turkish economy has recorded a very high growth rate in 2004 with GNP increasing 9.9% and GDP 8.9%. Per capita GNP has increased from 3,383 USD in 2003 to 4,172 USD in 2004 while PPP adjusted GNP has reached to 7,736 USD.

GNP: 460 billion Euro (PPP) (+ by far the highest volume of unregistered economy among the OECD countries)
GNP growth rate: +6.3 in 2000, -9.5 in 2001, +7.9% in 2002, +5.9% in 2003, +9.9 in 2004
Major trade partners: EU: 52% (Turkey is the EU's 7th partner) USA: 8% Russia: 9%
Turkey's exports to the EU25 - 2003: 23.3 billion Euro
Turkey's imports from the EU25 - 2003: 28.3 billion Euro
Trade deficit with the EU25 - 2003: 5 billion Euro
6311 foreign investment companies operate in Turkey
Approximately one third of Turkey's banks are foreign
Turkish direct investments in 50 countries amount to 50 billion Euro
Industrial production: 25% of the GNP (services: 60%; agriculture: 11.5%)
Industrial goods: 89% of the exports clothing, automotive, textile, electronics, home appliances, steel, glass, etc.
Manufacturing industry gained a 79.3% increase in 2004 particularly in office and computing machinery
Motor vehicles grow at a rate of 53.3% in 2004

Turkey, in the World, is the:
16th largest economy
6th cement producer
2nd flat glass producer
6th clothing exporter

Turkey, in the Europe, is the:
1st artificial fertilizer producer
7th iron and steel producer
largest emerging market



Bilateral Free Trade Agreements

Under the Customs Union (CU), Turkey is applying the same common commercial policy measures with the European Union. Together with the Common Customs Tariff, the preferential trade regime constitutes the most important part of the trade policy applied towards third countries. Article 16 of the Turkey � EU Association Council Decision No. 1/95 dated 6 March 1995 and its Annex 10 set the rules and modalities of the alignment, where it is provided that Turkey will take the necessary measures and negotiate agreements on a mutually advantageous basis with the countries concerned.

Taking into account its responsibilities stemming from the CU and its commercial priorities, Turkey concluded 19 preferential trade agreements until today. Currently, only 9 of these preferential agreements are in force: EFTA, Israel, Bulgaria, Romania, Macedonia, Croatia, Bosnia-Herzegovina Palestine and Tunisia.

The Free Trade Agreement between Turkey and the EFTA States, which entered into force in April 1992, was the first step on the way to the adoption of the preferential regimes of the EU even before the entry into force of the CU. During the period between 1996 � 2000, priority was given to the countries in Europe that were not then the members of the EU. FTAs were signed with Lithuania, Hungary, Estonia, Czech Republic, Slovakia, Poland, Slovenia and Latvia. When they became member of the EU in May 2004, the FTAs with these countries ceased to apply. The FTAs signed with Israel, Romania and Bulgaria entered into force in May 1997, February 1998 and January 1999 respectively.

Balkans was another priority area for Turkey. FTA with Macedonia entered into force in September 2000. It was followed by the entry into force of FTAs with Croatia and Bosnia-Herzegovina in July 2003. With the impetus of the Barcelona Process, the Mediterranean Basin gained importance in Turkey's priority list. In 2004 FTAs was signed with Tunisia and Palestine. The Association Agreements establishing Free Trade Areas with Tunisia and Syria were concluded in the same year. Preferential Agreements signed with Palestine and Tunisia are in force as of 1 June 2005 and 1 July 2005 respectively.

Turkey continues to negotiate FTAs with Jordan, Egypt, Lebanon, Faeroe Islands, Albania, South Africa and Mexico.


Free Trade Zones

Free Zones are defined as special sites within the country but deemed to be outside of the customs territory and they are the regions where the valid regulations related to foreign trade and other financial and economic areas are not applicable, are partly applicable or new regulations are tested in. Free Zones are also the regions where more convenient business climate is offered in order to increase trade volume and export for some industrial and commercial activities as compared to the other parts of country.

In general all kind of activities can be performed in Turkish Free Zones such as manufacturing, storing, packing, general trading, banking and insurance. Investors are free to construct their own premises, while zones have also available office spaces, workshops, or warehouses on rental basis with attractive terms. All field of activities open to Turkish private sector are also open to joint-venture of foreign companies.

Turkish Free Zones are tax free zones. Income generated through activities in the Zones are exempted from all kinds of taxes including income, corporate and value-added tax. Free Zones earnings and revenues can be transferred to any country, including Turkey, freely without any prior permission and are not subject to any kind of taxes, duties and fees. Currencies used in the zone are convertible foreign currencies accepted by the Central Bank of Turkey.

The validity period of an operation license is maximum 10 years for tenant users, and 20 years for users who wish to make their own offices in the zone; If the operating license is for production, these terms are 15 and 30 years for tenant users and investors, respectively. The requested operation license period can be prolonged to 99 years according to the type of investment. There is no limitation on the proportion of foreign capital participation in investment within the Free Zones.

In contrary to most Free Zones of the world, sales into the domestic market are allowed in Turkish Free Zones (sales to the domestic market is subject to a fee of 0.5 % of the transaction value). Infrastructure of the Turkish Free Zones is comparable with international standards. Red tape and bureaucracy have been minimized during application and operation phases by authorizing only one agency in charge of these procedures. There is no procedural restrictions regarding price, standards or quality of goods in the Turkish Free Zones.

The geographical location of Turkey provides significant advantages to the Turkish Free Zones. They are usually adjacent to the major Turkish Ports on the Mediterranean, Aegean and Black Seas. In addition, they were established within easy access from international airports and highways. These are:

* Adana-Yumurtalik Free Zone (Ceyhan-Adana) 1999
* Aegean Free Zone (Gaziemir-Izmir) 1990
* Antalya Free Zone (New Port-Antalya) 1987
* Bursa Free Zone (Gemlik-Bursa) 2001
* Denizli Free Zone (Cardak-Denizli) 2001
* Eastern Anatolian Free Zone (Fair area-Erzurum) 1995
* European Free Zone (Corlu-Tekirdag) 1999
* Gaziantep Free Zone (Baspinar-Gaziantep) 1999
* Istanbul Ataturk Airport Free Zone (Yesilkoy-Istanbul) 1990
* Istanbul Leather and Industry Free Zone (Tuzla-Istanbul) 1995
* Istanbul Stock Exchange Free Zone (Emirgan-Istanbul) 1997
* Istanbul Thrace Free Zone (Catalca-Istanbul) 1998
* Izmir Menemen Free Zone (Menemen-Izmir) 1998
* Kayseri Free Zone (Kayseri) 1998
* Kocaeli Free Zone (Golcuk-Kocaeli) 2001
* Mardin Free Zone (Mardin) 1995
* Mersin Free Zone (Mersin) 1987
* Rize Free Zone (Rize) 1998
* Samsun Free Zone (Port-Samsun) 1998
* Trabzon Free Zone (Port-Trabzon) 1992
* Tubitak Marmara Research Center Technology Free Zone (Gebze-Kocaeli) 2002