Many have hailed Turkey’s notable development performance over the past decade, and for good reason. The country averaged 5.4% growth between 2003 and 2013, one of the highest rates in the world. This was accompanied by drops in joblessness and poverty, as well as gains in school enrolment, home-ownership and life expectancy.
Furthermore, in November 2012, the republic received its first investment-grade rating since 1994 – a testament to the success that policymakers have had in reducing sovereign debt and external imbalances. As part of the statement, Fitch also cited the country’s strong sovereign, bank and household balance sheets as influencing the upgrade decision.
Due to weak economic conditions and tight monetary policies adopted by the central bank, the country’s GDP growth rate was 2.9% in 2014, which was lower than the 3.3% predicted for the year as borrowing costs curtailed domestic demand. More worrying, perhaps, was the continuing drop in net foreign direct investment (FDI) inflow, from $12.7bn in 2013 to $12.14bn in 2014, and the highest unemployment rate in five years at 11.3%, which cast a shadow over hopes of generating growth.
Declines in the current account deficit notwithstanding, the downtrend in FDI also means that Turkey is still heavily dependent on foreign portfolio inflows to meet its funding needs. Yet the government is taking the long view, confident that progress will continue if the country can maintain political stability and leverage its competitive advantages. These include a large domestic market, young population, resilient financial system and strategic geographic location. Buoyed by these strengths, Turkey aims to become one of the world’s 10 largest economies by the year 2023, when the republic will mark the centennial of its founding.
Infrastructure & Technology
A key pillar of Vision 2023, as the long-term national development plan is called, is infrastructure development. Over the last decade public expenditure on transportation infrastructure as a percentage of GDP has nearly doubled, allowing for the construction of new ports, airports, tunnels, railway lines and divided highways nationwide. This upward spending trajectory is set to continue, with the 2015 budget estimated to be TL473bn (€166.54bn) as various infrastructure projects are planned or under way. Much of this capital will need to come from the private sector, which means that the state must improve the tendering process for public works.
The quality of Turkey’s information and communications technology infrastructure has improved markedly in recent years, with the domestic fibre network reaching roughly 245,000 km as of end-2014. According to the Information and Communication Technology Authority, total broadband subscribers reached 40m in the third quarter of 2014, more than tripling since 2008, when the total was only 6m.
Given Turkey’s young demographic profile, it is perhaps not surprising that the country is a leader in mobile phone, internet and social media use. Average per person mobile phone talking time was 370 minutes per month in the third quarter of 2014, which was well above Europe’s average of 170.
Continued socioeconomic progress will also require meaningful education reforms. More students are entering the system, but Turkey still lags behind similarly developed nations in enrolment. Further, Turkish pupils achieved relatively low scores on the 2012 International Student Assessment (PISA), which revealed performance gaps between male and female test-takers, and between test-takers in urban and rural areas. Skills gaps are also an issue, with many local employers reporting that college graduates are unqualified for entry-level jobs.
To address these and other challenges, education officials made big changes to the sector in 2012, when the ruling Justice and Development Party (AK Party) introduced a new “4 + 4 + 4” educational model dividing the school system into three four-year segments: primary school, middle school and secondary school. Equally important, the model increased the mandatory enrolment period from eight to 12 years. Though many welcomed this development, especially the extension of the mandatory enrolment period, others criticised the move as a disguised attempt to increase student enrolment at the religiously oriented imam hatip schools.
Another challenge is the country’s lack of energy resources. Turkey ranks among the top 25 nations globally for energy consumption, and domestic electricity demand is rising by 6% per year. Yet Turkey produces only small amounts of oil and natural gas, which has led to severe import dependence. The national energy import bill reached $56bn in 2014, and is expected to hit $64bn by 2017.
In response, the state is implementing an all-of-the-above energy strategy calling for more on and offshore drilling, greater use of coal, additional development of renewable sources, and the construction of the country’s first nuclear power facilities. Efforts are also under way to further liberalise the gas market, which is dominated by the loss-making state operator, BOTAŞ. Yet many have questioned why liberalisation is proceeding so slowly; whether foreign partners can be found to assist in exploration; how a nuclear programme will be funded; and if regulators can create market conditions that attract genuine renewable investments.
To achieve its goal of becoming an energy transit state, Turkey also aims to build regional gas pipeline projects. According to officials from Turkey and Azerbaijan, the Trans-Anatolian Pipeline (TANAP), which will deliver 16bn cu metres of gas per year from the Shah Deniz II field, will be operational in 2017. Turkey itself will receive 6bn of the gas volume, and collect handsome transit fees.
Turkey’s favourable geography – it is surrounded by four bodies of water and sits at the intersection of the Middle East, Central Asia and Europe – also makes it a trading hub. From 2002 to 2014 the volume of Turkish exports rose more than four-fold, jumping from $36bn to $157.6bn. By 2023, Turkey aims to achieve an annual export volume of $500bn. Reaching this target will largely depend on the performance of the manufacturing sector, especially the automotive, chemicals, textiles and metals industries.
Turkey’s central location, combined with its sunny climate, plethora of famous historical sites and welcoming culture, also makes it an attractive tourism destination. The 2023 development target for the tourism sector is 50m annual visitors, up from an estimated 31.78m visitors in 2012. Some industry stakeholders are concerned that the rapid growth in the tourism sector is threatening the integrity of some sensitive areas; however, tourism has had an undeniably positive impact on the economy through multiplier effects. In 2014 the sector contributed 580,000 jobs, which accounts for 2.2% of total employment.
As more foreigners come to Turkey, more Turks are also leaving their footprint abroad. The country now has the second-highest number of major international contractors in the world, with firms especially active in MENA, where infrastructure demand is rising fast. While competing in nearby states, Turkish contractors typically benefit from an understanding of local market conditions and cultural ties dating back to Ottoman times.
Indeed, Turkey’s history as the last seat of the Islamic caliphate, along with its current status as a secular Muslim democracy, gives it a unique role in global affairs. It is the only country, for example, to hold membership in both NATO and the Organisation of Islamic Cooperation (OIC). However, some regard Turkey’s Islamic identity as a barrier in its EU accession negotiations, which remain stalled.
When the AK Party came to power in 2002, then-Foreign Minister Ahmet Davutoğlu, who is now prime minister, signalled that the new administration would adopt a “zero problems with neighbours” policy that prioritised greater regional cooperation. To some, this vision has been challenged by the outbreak of the Arab Spring, and by the Syrian conflict in particular. In light of the unrest, the AK Party, which has repeatedly called for Syrian President Bashar Al Assad to step down, maintains that the “zero problems” approach has simply been adjusted to account for other considerations, including the need to protect human rights and new regional conflicts.
Indeed, Turkey’s soft power may have grown under a more principled foreign policy, especially in the Arab world. The Turkish International Cooperation and Development Agency, which is building hospitals and schools in some of the most impoverished places on earth, is also playing a key role in establishing and enhancing the country’s image internationally. Yet, given the rising number of journalists in Turkish jail cells, as well as restrictive legislation on publishing, more progress could still be beneficial at home.