In 2010, the Turkish automotive industry celebrated a record sales year, and one of its best ever annual vehicle production results. The Turkish market hit a record total of 793,172 cars and commercial vehicles, and vehicle production totalled 1,094,557 units.
That record sales total was made possible by a combination of new, attractive consumer credit terms, the strength of the Turkish lira against the dollar and Euro, and a finance and banking system under strong independent leadership. The production result is thanks to foreign OEMs investing in their local manufacturing operations, and ensuring a specialization at those plants. For example, Ford Otosan at Kocaeli builds the Transit family; the Tofas plant at Bursa is Turkey’s most productive plant, and plays a key role in Fiat‘s manufacturing network, building amongst others the Fiat Doblo and the Minicargo range, which is sold as the Fiat Fiorino, Peugeot Bipper and Citroen Nemo in passenger and LCV variants; and Renault is banking on its OYAK-Renault joint venture, also at Bursa, as one of the key manufacturing locations for its electrification programme.
The question many investors have in mind is how Turkey’s EU prospects will shape future economic policy.
These conditions have been brought about by a government which encourages foreign direct investment (FDI) and acknowledges the importance of export trade. The question many investors have in mind is how Turkey’s EU prospects will shape future economic policy.
Turkey is currently in the midst of election fever. Recep Tayyip Erdogan, prime minister and leader of Turkey’s moderate Islamist Justice and Development Party looks set to win an unprecedented third majority in parliament. If Erdogan wins the election on 12 June, he says he will reform the constitution and bring it into line with European norms – good news perhaps for investors who believe that EU membership, or at least the EU accession process, will provide stability and growth.
EU membership in doubt
However, Turkey’s EU membership now appears increasingly unlikely, with opposition within Turkey as well as in the EU itself. Furthermore, Erdogan’s reformist zeal seems to have a lost its edge.
Where does all this leave outside investors? “The prospect of EU accession has provided an anchor for foreign investors. It has not been the only thing, but it has certainly reassured them, contributing to Turkey’s economic and political stability,” says Piotr Zalewski, Political Tours’ Turkey analyst.
Turkey’s EU membership now appears increasingly unlikely, with opposition within Turkey as well as in the EU itself.
But Zalewski also says despite the medium term uncertainty over the EU accession process, most analysts and investors with assets in Turkey are no longer as worried as before about the ramifications of non-membership.
“Initially when you talked about the relationship between FDI and Turkey’s EU perspective, people would say that if the EU bid were to fall apart, there would be this giant sucking sound. That no longer seems to be the case,” says Zalewski, who is also an editor at European Stability Initiative, a think tank that monitors Turkey’s accession process.
Turkey – the stealth super power
The consensus shows that backed by significant growth, Turkey is highly unlikely to return to the pattern of political instability of the 1980s and 1990s. John Feffer, co-director of the think tank Foreign Policy in Focus, has spoken notably about Turkey as a “stealth super-power”, whose economic growth puts it close on the tails of China. “Take population out of the equation… and Turkey promptly becomes a likely candidate for future superpower (status),” Feffer wrote last year. Turkey possesses the 17th largest economy in the world and, according to Goldman Sachs, he added, has a good shot at breaking into the top 10 by 2050.
Growth has been steered by a series of economic reforms implemented by the government since the banking crisis of 2001. GDP per capita has doubled at least since 2002, according to Turkstat, the official Turkish statistical office, and has recently passed the US$10,000 threshold, representing a huge leap in purchasing power.
Turkey possesses the 17th largest economy in the world and…has a good shot at breaking into the top 10 by 2050.
But alongside a growing middle class there are also huge disparities of income. Istanbul is now home to the fourth highest number of billionaires after New York, Moscow and London, according to Forbes magazine.
Turkey as a springboard to other markets
The possibility of a shift away from the EU has been mirrored by closer political and diplomatic ties with Turkey’s immediate neighbours. The so called “zero problems with neighbours policy” adopted by Turkey’s foreign minister, Ahmet Davutoglu, has made Turkey a significant springboard into other markets.
“The Turkish economy is becoming increasingly dependent on trade,” says Zalewski. “In 2010 it reached US$300bn, or 46% of GDP.”
The so called “zero problems with neighbours policy” adopted by Turkey’s foreign minister, Ahmet Davutoglu, has made Turkey a significant springboard into other markets.
“Turkish policymakers, Davutoglu chief among them, are betting on the fact that trade and soft power is the key to interdependence and regional stability,” says Zalewski, explaining that Turkey is looking outside Europe for new markets. “While Turkey’s exports to Europe – as a share of total exports – have dropped by about 10 percentage points between 2002 and 2010 (to about 45%), its exports to the Middle East – again, as a share of total trade – have more than doubled (to 20%).”
In or out of the EU, it seems that Turkey is highly unlikely to steer away from its economic reforms and its commitment to growth.
The opinions expressed here are those of the author and do not necessarily reflect the positions of Automotive World Ltd.
Nicholas Wood is Director, Political Tours.
Political Tours conducts organised and bespoke political and economic study tours in Turkey and other countries.
www.politicaltours.com Tel: +44 843 289 2349
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