Turkey outperforms most Emerging European countries for creditworthiness, business climate, growth and per capita income. That said growth has slowed in recent years as a strained balance of payments is currently handicapping growth and forcing the economy to improve its international competitiveness.
Economic growth has slowed from a bustling 5.2% p.a. pre-global financial crisis to 3.8% over the last five years. Speculation about rising US interest rates in mid-2013 put the spotlight on Turkey’s large current account deficits (8% of GDP), prompting capital flight and a sizeable depreciation of the lira. Policymakers responded by tightening macroeconomic policies. This has caused growth to slow to 3%, a trend likely to persist in 2015.
Tighter US monetary policy raises the threat of capital flight and further lira weakness. Favourable demographics will drive long term growth, but the economy is hampered by poor international competiveness. The IMF expects annual growth to plateau at 3.5%.
Strong growth in the lead-up to the 2008 global financial crisis lifted Turkey to upper-middle-income status. Per capita income is forecast to reach US$13,000 by the end of the decade. Yet a deteriorating growth outlook will probably prevent Turkey from becoming a high income economy over the next five years.
Turkey has an OECD country credit grade of 4 and speculative grade sovereign debt ratings from all three major ratings agencies. These ratings underline Turkey’s vulnerability to business, financial and economic setbacks.
Turkey’s business climate is above the regional average, ranking 55 out of 189 economies on the World Bank’s ease of doing business gauge — which measures regulation and red tape relevant to a domestic small to mid-sized firm. It outperforms the regional average on most metrics, although obtaining credit and resolving insolvency are below par.
Turkey scores in the top half on most of the World Bank’s governance gauges, but performs poorly on ‘voice and accountability’ and ‘absence of violence’. Its low ranking probably reflects power struggles and constitutional crises that have occurred since the Islamist Justice and Development Party (AKP) came to power in 2002 under the leadership of current president, Tayyip Erdogan. These power struggles and crises have their origins in the AKP’s attempts to use its popular support to weaken the country’s traditional secular elite: the armed forces, judiciary and media.
The recent corruption probe against the ruling AKP and accusations of a government cover- up has rekindled tensions as other political parties accuse the government of influencing the judiciary and police.
Turkey is Australia’s 33rd largest trading partner. Export receipts from Turkey were worth US$890m in 2013 mainly comprised of gold, coal and medicaments. Australian firms are also exporting manufactured goods to Turkey, with the likes of Bronx International shipping colour coating and galvanising lines for steel and aluminium companies. Australia imported US$625m of goods from Turkey in 2013, consisting of metal tubes and pipes, ships and boats.
Service exports to Turkey are minuscule, at A$92m. Turkish student enrolments in Australia numbered 1800 (0.3% of total overseas enrolments) in 2013. However, Turkey’s budding mining industry has attracted Australian firms specialising in mining equipment, technology and software solutions—GHD, Ausenco, Coffey Mining, Minecom and Immersive Technologies to name a few.
Bilateral investment between Turkey and Australia is meagre. Australian investment in Turkey was worth A$1b in 2013 (0.1% of Australia’s total foreign investment portfolio). But this is rising as the mining industry has attracted several Australian companies, including Alacer Gold, Invictus Gold and Chesser Resources.