Our comprehensive assessment of Turkey's operating environment and the outlook for its leading sectors are formed by bringing together a wealth of data on global markets that affect Turkey, as well as the latest industry developments that could impact Turkey's industries. This unique integrated approach has given us an impeccable track-record for predicting important shifts in the markets, ensuring you’re aware of the latest market opportunities and risks in Turkey before your competitors.

Country Risk

Turkey Country Risk

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Core Views

  • Although we view positively Turkey's long-term growth outlook, our real GDP growth forecasts reflect an expectation for below-potential growth in the years ahead. This will result from less abundant foreign capital inflows and slowing domestic credit growth, both key drivers of Turkey's economy.

  • Political instability and social tensions will remain elevated in the run up to general elections in 2015, further weighing on business and consumer confidence.

  • With relatively healthy budget and debt dynamics, the government will provide a more pronounced fiscal boost to the economy. However, recent populist policy initiatives lead us to question the government's commitment to conservative fiscal management.

  • While the government's debt load is low by regional standards, the private sector's rampant external borrowing in...

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Turkey Operational Risk Coverage (9)

Turkey Operational Risk

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BMI View: Turkey's labour market inhibits the business environment due to a general lack of education among the workforce and low levels of participation in the formal labour market, particularly female participation. In addition, labour force participation is yet to recover its pre-2008 crisis peak. This means that Turkey is currently unable to harness its favourable demographic situation by turning its large, young population into skilled-workers. Consequently, businesses face a heightened need to import foreign professionals, which increases risks of additional costs and bureaucratic obstacles. Considering these factors, BMI awards Turkey a score of 55.8 out of 100 for overall Labour Market Risk. This equates to 17th place in emerging Europe.

Risks associated with the availability of labour are pronounced in Turkey. At 29.4%, Turkey has the lowest rate of female participation in the labour...

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Turkey Crime & Security

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BMI View: Turkey is generally a safe place for foreign business travellers, tourists and expatriates. Although Turkey's overall Crime And Security Risk score is depressed by a relatively high terrorism threat and tense relations with its neighbours, these do not threaten foreign businesses. Turkey scores 39.4 out of 100 in our overall Crime and Security Risk index, placing it 21st out of 30 countries in the Emerging Europe region.

The most pronounced crime and security risk to business operations in Turkey is from terrorism. Turkey's domestic terror groups are relatively large in number, and capable of carrying out sophisticated attacks on high-profile targets. Turkey's attractiveness as a terror target for Islamist militant groups is likely to have waned since Prime Minister Recep Erdogan came to power, given his pro-Palestinian and anti-Israeli rhetoric. On the other hand, Turkey faces a terror threat from radical...

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Turkey Labour Market

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Turkey's labour market inhibits the business environment due to a general lack of education among the workforce and low levels of participation in the formal labour market, particularly female participation. In addition, labour force participation is yet to recover its pre-2008 crisis peak. This means that Turkey is currently unable to harness its favourable demographic situation by turning its large, young population into skilled-workers. Consequently, businesses face a heightened need to import foreign professionals, which increases risks of additional costs and bureaucratic obstacles. Considering these factors, BMI awards Turkey a score of 55.3 out of 100 for overall Labour Market Risk. This equates to 18 th place out of the 30 countries in Emerging Europe, between Azerbaijan and Croatia.

Risks associated with the availability of labour are pronounced in Turkey. At 29.4%, Turkey has the lowest rate of...

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Turkey Logistics

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BMI View: Turkey offers investors a more highly developed logistics network than most of its peers in the Emerging Europe region. The country's international trade links and port facilities are highly developed, facilitating efficient supply chains for the country's key manufactured goods exports. Investment in inland transportation options will enable the network to cope with growing trade volumes. Consequently, Turkey is ranked third out of 30 states in Emerging Europe in the BMI Logistics Risk Index, with a score of 63.1 out of 100. Although the utilities network offers relatively good reliability, the reliance on fuel imports exposes electricity and diesel supplies to disruption due to geopolitical risks. In addition, water scarcity is becoming an increasingly pressing issue, and will deter investment in water-intensive industries.

Investor sentiment towards Turkey has improved...

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Turkey Trade & Investment

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BMI View: Despite having a relatively open trade and investment environment, and welcoming foreign direct investment (FDI) in almost all sectors of the domestic economy, Turkey underperforms in the BMI Trade and Investment Risk Index. This is largely due to high levels of corporation tax, declining exports and curtailed press freedom. These are the principal drags on Turkey's score of 58.2 out of 100 for Trade and Investment Risk, which places the country 16th in emerging Europe, between Romania and Serbia.

Turkey performs most strongly on the Legal Risks pillar of our Trade and Investment Risk Index. The country's score here is boosted by comprehensive intellectual property rights (IPR) legislation for financial assets, which increases the country's attractiveness as a destination for portfolio investment. Turkey's laws pertaining to information and communications technology are also strong,...

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Turkey Industry Coverage (25)

Agribusiness

Turkey Agribusiness

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BMI View:   We favour the sugar sector in Turkey because of the strong growth potential of the country's confectionery industry, and our belief that large changes to the country's sugar production quotas will occur in the coming years. We see upside potential in the livestock sector, as the government's supply of discounted credit has aided growth in recent years. However, we see little growth potential for the grain, dairy and rice sectors, as we believe the country's production growth in these segments will be hampered by high domestic production and input costs. In line with these views, we believe domestic confectionery companies will outperform, as they will benefit from growing domestic sugar production capacity as well as a strong consumer story. We highlight domestic confectionary company Ü...

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Autos

Turkey Autos

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A sharp decline in commercial vehicle (CV) manufacturing resulted in a decline in Turkish vehicle production of 1% year-on-year (y-o-y) in the first eight months of 2014, to 719,501 units. A surge in passenger car output during this period was not enough to arrest this decline. BMI forecasts a 0.5% increase in total vehicle output in 2014 due to sustained growth in the passenger car segment and a modest recovery in CV production.

BMI maintains a bullish view on the country's autos exports outlook following an increase in vehicle exports in 2014 to date of 5% y-o-y, to 569,973. This reflects the European passenger car market's resurgence from a period of marked declines, and sustained currency weakness which makes Turkish exports more competitive. Furthermore, a number of auto manufacturers have invested in the country for export.

Despite the growth in passenger car...

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Commercial Banking

Turkey Commercial Banking

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...
Commercial Banking Sector Indicators 
Date Total assets Client loans Bond portfolio Other Liabilities and capital Capital Client deposits

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Consumer Electronics

Turkey Consumer Electronics

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BMI View: Although we hold a positive view on Turkey's Consumer Electronics Market's long-term growth outlook, our real GDP forecasts reflect a downside in the next few years.   This is the result of less abundant foreign capital inflows and slowing domestic credit growth, both key drivers of Turkey's economy.   Despite an expected short-term moderation therefore, Turkey's consumer electronics market is well positioned to outperform most other emerging Europe markets. Demand is expected to increase at 5.8 % CAGR through to 2018 , driven by the growing popularity of digital lifestyle devices such as flat-panel TV sets,...

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Defence & Security

Turkey Defence & Security

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BMI View: On the whole, Turkey is one of the more stable countries in the Near East region. That said, the instability in its surrounding neighbourhood is affecting Turkey's regional interests. We believe that international dynamics are bringing Turkey to roll back somewhat its Syrian policy, notably through modification of its previous support of extremist groups in the region. Turkey is continuing its efforts to boost its indigenous defence production capacity are continuing via investments, joint ventures with international companies. From our perspective, Turkey could serve as a potential market to opt for cheaper offshore production processes, although caution is necessary.

In 2014, we forecast that Ankara will spend up to USD14.5bn on defence, which is a noticeable reduction from the USD15.6bn that it spent on defence in 2013. On 1 August, Turkey's Defence Minister...

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Food & Drink

Turkey Food & Drink

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BMI View:   We hold a below-consensus view on the Turkish consumer and Turkish economic growth. We believe that growth will slow sharply over the next several quarters, spearheaded by the decline in consumption expenditure. We forecast private consumption growth to stagnate in 2014, from 4.6% growth in 2013, and to be the primary driver of weak headline GDP growth. The main factor behind this decline will be the dramatic slowdown currently underway in all segments of consumer credit growth, a trend that shows few signs of abating anytime soon.

That said, we do not believe food consumption growth in Turkey will be drastically affected. We hold this view due to the fact that the slowdown in private final consumption in Turkey will be fuelled by the decline in credit purchases, which typically does not affect non-cyclical household expenditure.

...

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Freight Transport

Turkey Freight Transport

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Following a year in which BMI saw increasing volumes across Turkey's freight transport sector, 2014 will signal further growth in line with our macroeconomic forecasts for the country. 

Total trade is projected to pick up with our Country Risk desk forecasting a year-on-year (y-o-y) increase of 4.0% in 2014 following a growth of 4.33% in 2013.

Road freight is to continue to dominate the sector and is projected to grow by 4% in 2014. The mode has made a prompt recovery from the downturn and enjoys the benefits of not having to make any reductions in road haulage volumes, such as those pledged by the neighbouring EU.

Growth in rail freight volumes will be helped by the Marmaray rail tunnel under the Bosphorus Strait, which was opened in 2013.

The throughput at the Port of Ambarli, one of Turkey's largest ports, is set to continue strong growth in terms...

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Information Technology

Turkey Information Technology

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BMI View: Turkey has seen foreign investment in ICT rise over the last three years and it is increasingly viewed as a regional hub, with a strategic geographical location. Our medium-term outlook is therefore positive, as economic growth continues amid favourable demographic profile advantage s of a large, young population . Consumers will therefore be among the largest drivers of IT spending over our forecast period. The government too, will also be crucial, in meeting its goals for Vision 2023, the ICT industry is expected to grow from 2.9% of GDP to 8%. We also see long-term opportunities for ICT growth in finance, transport, communications and utilities sectors.   However, there...

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Infrastructure

Turkey Infrastructure

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BMI View : We forecast Turkey's construction industry should continue to perform well over 2015, after our 2014 forecasts were supported by official data of real growth at 5.2% in Q114 . A government guarantee and a buoyant pipeline of projects already under construction bode well for growth. However, political and financing risks have grown over the past year , which we believe will dent investor interest in the market, will lead to mor e moderate growth over the long term.

There continues to be downside risks to Turkey's healthy construction sector outlook, stemming from the major depreciation in the lira making the cost of foreign...

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Insurance

Turkey Insurance

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BMI View: As of late 2013, almost all trends in Turkey's insurance sector are positive. In essence, a market that is large in absolute terms, but underdeveloped by many metrics, has the capacity to sustain superior (and probably double-digit) growth for years. This is true of no other national market for insurance in Central and Eastern Europe and of few others in the rest of the world.

The overall economic environment is germane, with steady and moderate growth and reasonably low inflation. Both major segments are open to competition by major multi-nationals, meaning that world best practice is being brought to Turkey. In any event, the leading indigenous companies are substantial organisations that generally have the advantage of being affiliated with one or other of Turkey's leading banking/financial services groups.

The changes are most...

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Medical Devices

Turkey Medical Devices

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Espicom Industry View: The Turkish medical device market is expected to grow by a CAGR of 3.4 % over the 2013-2018 period, driven by import growth, the expansion of healthcare facilities , including the large city hospital complexes, and rising health expenditure. The market is largely supplied by imports but its reliance on medical devices manufactured outside of the country should reduce if the government is successful in implementing a project that is intended to boost the domestic production of diagnostic medical devices and other medical equipment.

Headline Industry Forecasts

  • In 2013, the Turkish medical device market was estimated at US$2,421.6mn, or US$32 per capita. This total was almost twice the size of the Czech market; in per capita...

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Metals

Turkey Metals

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BMI View: Despite relatively weak growth to be expected over coming months , the medium-term outlook for Turkey's metals sector remains promising due to strong demand from the domestic construction and autos sectors. Near-term headwinds are likely to include currency weakness making imports of materials more expensive and weak global steel prices sq ueezing steel-makers' margins. An uptick in political risk in Turkey also presents a key downside risk.

Over the medium-term we forecast Turkey's total steel production to grow from 34.7mnt in 2013 to 44.6mnt in 2018. We expect growth to average 5.2% y-o-y over 2014-2018, as we predict a recovery from the negative growth seen during 2013, which was a result of weak global steel prices and a weak lira pushing up the cost of imports...

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Mining

Turkey Mining

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BMI View: Turkey's mining industry is set to be on the radar of foreign investors in the years to come as the government has undertaken efforts to open up the sector , paving the way for forthcoming investment. The gold sector will attract the largest share of investment as several companies bring their projects into production. Nevertheless, Turkey's extremely poor mining safety record and weak global commodity prices will limit the industry's otherwise healthy growth.

We believe investment into Turkey's mining sector will be forthcoming over the coming years as Prime Minister Tayyip Erdogan pledged to transform the country into one of the 10 biggest economies by 2023. With more...

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Turkey Mining

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We expect to see strong growth in the mining sector of the Middle East and North Africa over the coming years. With low base effects, governmental will to increase non-oil revenues and significant resources it appears the region is set for strong growth. We highlight Turkey and Northern Iraq as key areas for growth. That said, the region will remain peripheral in the global mining sector as it continues to underperform due to political instability in much of the region.

The key issue in the Middle East's mining sector presently is Iran's ongoing negotiations with Western powers. Our core scenario is for negotiations to continue and for limited sanctions relief to be rolled over until 2015. This will benefit the mining sector as it is one of the beneficiaries of an easing of sanctions. On the upside, if negotiations are successful (which we currently give a likelihood of 25%), it will be a game changer for the country's beleaguered mining...

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Oil & Gas

Turkey Oil & Gas

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BMI View: Turkey will remain heavily dependent upon oil and gas imports for the foreseeable future. Phase II of Shah Deniz and t he decision to proceed with the TAP and TANAP natural gas pipelines will cement Turkey's position as a critical transit country , and also secure 6bcm of new supplies for Turkey's domestic market. There is upside potential to domestic energy production   from the Black Sea and unconventional development s , although it remains too...

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Petrochemicals

Turkey Petrochemicals

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The short-term outlook for the Turkish petrochemicals industry is challenging, with the depreciation of the lira and the rising cost of credit dampening domestic demand, but export growth and low stocks should help lift demand going forward, according to BMI's latest Turkey Petrochemicals Report.

Buying demand for polymers appeared to decrease going into Q314 amid increased production and slower than expected market growth. Turkish petrochemicals demand will be robust in the coming years after a temporary slowdown in 2013. The key drivers will be strong construction and autos industry growth. However, in the short-term the pressures Turkey has felt over 2013 and the first half of 2014 will dampen the growth of the local petrochemicals market. The Turkish lira has suffered a major depreciation. In the face of mounting policy uncertainty and rising US bond yields, project financing from domestic banks will subsequently...

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Pharmaceuticals & Healthcare

Turkey Pharmaceuticals & Healthcare

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BMI View:   Despite a challenging pricing and reimbursement situation compounded by currency uncertainty, BMI still believes the Turkish pharmaceutical market is attractive in the long term as higher y-o-y growth rates return from 2013/14. In contrast to European markets where manufacturers can expect to achieve higher prices, but with a stagnant growth outlook, Turkey offers strong growth potential if drugmakers are able to accept prices that are considerably below the European average and turn a profit on the low margins available .

Headline Expenditure Projections

  • Pharmaceuticals: TRY17.16bn (USD9.00bn) in 2013 to TRY18.89bn (USD8.42bn) in 2014; +10.1% in local currency and -6.5% US dollar terms.

  • ...

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Power

Turkey Power

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BMI View: This quarter our fundamental assumptions for Turkey remain virtually unchanged. . Ove rall, we maintain our view that Turkey set to emerge as a key power market over the coming decade, accounting for nearly one- fifth of t he CEE's total capacity by 2023 , T he power sector continues to attract interest from a host of international companies as the country moves to position itself as an energy hub in the south-east Mediterranean. T here is also considerable political backing for power sector ...

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Real Estate

Turkey Real Estate

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BMI View:   Turkey's commercial real estate market has upheld its reputation as of the strongest perform er in Europe , with growth following an upward trajectory spurred on in particular by a blossoming retail sector. The industrial segment continues to underperform in terms of rent, yields and construction growth ,   but with growth expected in exports there is hope that the sub-sector can return to growth.

With a focus on the two principal cities of Istanbul and Ankara, this report covers the commercial real estate market's performance in terms of rates and yields, with a focus on office, retail and industrial real estate.

...

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Renewables

Turkey Renewables

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BMI View: Turkey's renewables expansion is progressing well; as the country's relatively attractive renewable energy policy environment has helped drive investment into the sector. Unlike many of its regional neighbours, Turkey's renewables policy has remained fairly stable and the country's subsidy scheme has grown comparatively more attractive as cash-strapped European governments have reduced their tariffs.

Despite the dominance of thermal generated electricity, Turkey's renewables sector presents significant growth potential across most technologies, including wind, geothermal and solar power. Turkey has made impressive progress with its renewable energy expansion over the last decade, and across both Western Europe and Central and Eastern Europe (CEE), we see Turkey emerging as a key market; with strong project pipelines, robust growth potential and relatively...

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Retail

Turkey Retail

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BMI View: BMI maintains a positive outlook on the future of the Turkish retail sector . The country's rising household spending and incomes combined with increasing urbanization create prime opportunities for retailers to meet the demand of an increasing ly wealthy and growing population. 

Istanbul remains the preferred destination for investors in Turkey. Several multinational companies have set up regional headquarters or operating offices in the city due to its easy accessibility, potential for growth and expatriate culture. Izmir and Ankara, the capital, are two other promising cities and recipients of foreign investment in Turkey. However, there are prime opportunities for growth outside of the major cities because of the...

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Shipping

Turkey Shipping

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Late last year we outlined nine key themes for Emerging Europe in 2014, two thirds of which have already played out (or are currently playing out). Of the remaining views, we believe one - Turkey's growth slowdown - is still likely to occur by year-end, while the other two - populism in EU elections and modest attempts at liberalisation of the Russian economy - appear wrong.

The Turkish economy has proved more resilient than we initially anticipated, with real GDP growth coming in at 4.3% y-o-y in Q114. However, the trends we expected are playing out, and with substantial headwinds still facing the Turkish economy we still expect a more pronounced slowdown in the coming quarters. Domestic demand growth was very weak in Q114, with net exports and a substantial contribution from government expenditure propping up the headline figure. Private consumption growth fell to its lowest level since 2012, and we see further downside as consumer credit...

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Telecommunications

Turkey Telecommunications

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BMI View: The Turkish telecommunications market is a relative outperformer compared with its regional peer s, however there is downside arising from the interference of the government with bans on both Twitter and YouTube in early 2014 in response to political criticism . Despite this challenge the market remains in good health with strong growth in fixed and mobile broadband subscriptions, as well as pay-TV subscriptions in 2013. The mobile market is more volatile, with IP voice and messaging substitution beginning to take hold and putting pressure on revenues. The largest operators - Türk Telekom and Turkcell - are responding with an increased emphasis on fixed-mobile service bundles, with TV central to...

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Tourism

Turkey Tourism

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BMI expects healthy growth in Turkey's tourism industry, as we forecast positive developments across all of the country's key indicators for tourism between 2014 and 2018. Some domestic and regional risks remain around security issues, but our confidence in the future of the market is reinforced by a swathe of new hotel developments across the country.

We expect to see a boost to arrival numbers of about 5mn between 2014 and 2018, taking the number of journeys to Turkey in 2018 to 39.3mn. This will be due to economic growth and increased consumer spending across most of Turkey's key source markets for arrivals, as well as continued investment in tourism and transport infrastructure in the country and the prospect of the effective marketing of Turkey's many tourism assets. Arrivals may also be boosted by travellers avoiding other unstable destinations in the Middle East and North Africa due to security concerns, as well...

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Water

Turkey Water

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BMI View: We believe the ongoing drought, the reduction of the water resources, and the rising demand for thermal electricity generation pose serious risks to the Turkish water sector. Moreover, continued regional tensions between Turkey and its neighbours concerning the former's extensive dam construction and the latter ' s calls to slow or even halt construction of many of Turkey's water infrastructure projects will have a long-term impact on the sector.

Overall, Turkey has an open trade and investment environment and actively encourages foreign investment however waning investor interest is acting as a drag on FDI levels Turkey has seen a sharp drop-off in FDI into the water sector since 2012. In 2010 it had the third largest level of FDI into water collection, distribution...

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