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Successfully investing in Turkey

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​​​​last updated on 7 June 2024 | reading time approx. 4 minutes

 

    

   

How do you assess the current economic situation in Turkey?

The Turkish economy continues to show a complex course with the depreciation of the Turkish Lira and inflation on the one hand and the consumer-friendly, young society on the other. In 2023, the Turkish Lira depreciated by almost 63 percent against the Euro and 58 percent against the US dollar (both compared to the previous year). The inflation rate has risen to over 64 percent in 2023, while it shows a declining trend in the first two quarters of 2023. The inflation rate in April 2024 has increased to 69,80 percent year-on-year. The key interest rate of the Central Bank of Turkey was 41 percent in 2023. After several increases, a key interest rate of 50 percent has been set by the Central Bank of Turkey since March 2024. GDP increased to 1.118.593 US dollar in 2023 (2022: 905,53 million US dollar). This means that the GDP is also growing steadily compared to the previous year.

  

How would you describe the investment climate in Turkey? Which sectors offer the largest potential?

Turkey as a growth country continues to be attractive for foreign investors and is broadly positioned with various industries and resources. The investment decision of large corporations in the past confirms the attractive investment climate in Turkey.

The production and manufacturing sector with vehicles, automotive parts and machinery as pioneers shows large capacities and good experience with mainly foreign manufacturers and joint ventures. In addition, the electrical engineering, household goods and consumer goods sectors are considered popular and profitable investments. Moreover, despite local and global challenges, the construction industry has gained increasing importance in recent years due to numerous major projects in the fields of transportation, infrastructure and energy.

Due to its advantageous geographic location and climate, the agricultural and farming sector, as well as seed and fertilizer technology, which is still largely undiscovered, offers considerable investment potential. 
In the energy sector, Turkey offers enormous potential, especially in the area of renewable energies, and is considered a large growth market.

The iron and steel industry, along with other raw materials and minerals, holds additional development and expansion potential. The same applies to the textile industry, mechanical engineering, chemical and service sectors as well as logistics, the entire high-tech sector, telecommunications technology, and electronics.

In addition, Turkey offers further opportunities for the shortage of skilled workers in the IT market in Europe. By expanding existing or establishing new locations in Turkey as well as creative recruiting methods, the shortage of skilled workers can be effectively counteracted. Foreign investors also see very good, in many respects profitable opportunities in Turkey for the global supply chain changes after the pandemic.
  

What challenges do German companies face during their business ventures into Turkey?

German companies have to face the following challenges in particular:
  • building trustful partnerships
  • country specific legal and tax aspects
  • assessment and strategy development regarding many funding incentives, especially for manufacturing companies and start-up’s 
  • high demands on flexibility and willingness to embrace changes
  • fast-paced environment requires appropriate speed of reaction
  • language barriers and cultural features
  
Expert advice in advance of a planned investment is always highly recommended. High inflation and significant depreciation of the Turkish Lira against foreign currencies are particularly burdening companies focused on the domestic market. The difficult conditions of the domestic market are being countered with structural measures to combat inflation and strengthen the currency. It can be observed that currency development and movements are lower compared to inflation. Also, as a result of the pandemic, companies are rethinking their business models and opening up to innovation in connection with corresponding strategic adjustments, which also includes increasing local value creation depth.
  
Due to the economic fluctuations and high inflation rate in recent years and the accompanying measures (such as multiple increases in the minimum wage), employers felt compelled to increase wages/salaries multiple times, in some cases adjusting salary agreements and in other cases introducing new allowances, which has generally increased personal costs.
  
In addition, topics such as the Supply Chain Duty of Care Act and ESG, which are not directly affected by the scope of application in Turkey (especially as a non- EU country), can have indirect impacts on subsidiaries in Turkey.
  

How sustainable is success in Turkey?​

Turkey proved to be highly adaptable, especially in the pandemic year, responding to the changing conditions of the economy with rapid action and restructuring. The steady expansion of digitalization, its integration into everyday working life, and digital administration also represent a relevant key to success. The large potential of qualified and competitive labour, good infrastructure and the central location between Europe and Asia continue to be sustainable growth factors. The government's orientation towards increased investment, especially in the regional production and manufacturing industry as well as in the energy and environmental sector (e.g., sustainable and renewable energies), points to a good basis for further development.

  

In your opinion, how will Turkey develop?

The rapid adaptability in a fast-moving economic and social environment as well as the continued growth of the economy maintain the positive outlook for the future. The medium- to long-term opportunities for companies continue to be assessed as good. The country has good growth rates compared to Europe, a young, well-educated population and, above all, entrepreneurial people. Measures to counter the current decline in the value of the Turkish Lira and the accompanying inflation are various stabilization packages related to, among other things, losses from exchange rate. 
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The Turkish economy can grow strongly in the coming years while containing inflation. The first quarter of 2024 also indicates this for the time being. It is now important to curb inflation and thus exchange rate fluctuations, rebalance the current account and boost investor confidence. The exchange rate has remained remarkably constant since mid- March 2024.
 
Due to various experiences with crises, Turkey brings with it a certain resistance to crises and the associated ability of the population to act and adapt. This is a significant difference to other countries. 
As a link between East and West, Turkey remains competitive and an important economic partner.​​

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