Turkey

Las relaciones comerciales de Euskadi con Turquía vienen aumentando sensiblemente en los últimos años a medida que el país se ha ido posicionando como un mercado clave en el suministro de bienes y equipos a la Unión Europea. Con una población con unos perfiles técnicos cada vez más sofisticados, Turquía es ya un país relevante para Euskadi en sectores como la automoción, la máquina-herramienta y la siderurgia despertando interés por sus planes también en el sector de energías renovables. Por este motivo, las relaciones institucionales y comerciales con este país se han incrementado considerablemente en los últimos años, especialmente gracias a la apertura de una nueva oficina de Basque Trade & Investment.

The Basque Country, gateway to Europe

Turkey is usually considered as a good market due to its size, its political stability, and the sophistication of its industry, which has benefitted from being on the same page as European regulations. The government has expressed its interest in improving its intellectual property legislation, after which it is hoped that foreign investment in the country will increase significantly. Turkey has become an important political actor, a leading member of NATO and key in the relations with Middle Eastern countries. In terms of trade, it is building on its geostrategic vantage point to be the gateway to the former Soviet republics, Central Asia and also North Africa. The new government measures are expected to include the stabilisation of the Turkish lira, its Achilles heel in the last decade.

Even if its economic growth is going to suffer slightly, Turkey continues to be way ahead of the OECD average, with estimated growth of 5.1% of its GDP. Its domestic consumption will continue to take off due to the rise in pensions and salaries, but will slow down slightly as the result of the rise in taxes and interest rates.

Growth is forecast to rebound slightly in 2025, as inflation and the nominal interest rates drop; growth is predicted to continue to strengthen from 2026 to 2029, in keeping with the recovery of the global outlook. The country’s main risks are changes to the current relationship with the USA and the EU and new geopolitical disturbances in the region.

The diversification of the Turkish economy has been a strategic goal in recent decades, driven by the desire to lower dependency on traditional sectors such as agriculture and textiles. Turkey has focused its policies on developing more complex sectors, such as the automotive industry, electronics and technology, with a focus on innovation and investment in infrastructure. Furthermore, it has encouraged foreign direct investment and has improved its international trade network, drawing on its strategic location between Europe and Asia. However, the country is facing challenges, such as the volatility of the Turkish lira and the need to shore up its economic institutions to ensure diversified and sustained growth in the long term. Turkey is positioned as a long-term promising economy, due to its geographical position, its sectoral diversity and stable demographic growth. The promise of a better and increasingly more investor friendly public administration will underpin this growth.

Turkey’s external sector has undergone significant growth and is consolidated as a cornerstone in its economy. Thanks to its strategic location, Turkey has strengthened its role as a trade link between Europe, Asia and the Middle East, by increasing its exports in sectors such as the automotive industry, textiles, electronic products and processed food. However, the country is facing challenges to its trade balance, as its dependency on importing energy and advanced technology is generating a persistent trade deficit. Turkey has tried to diversify its trade partners and has signed free trade agreements, particularly with the European Union, but is still facing challenges in reducing its vulnerability to currency fluctuations and regional conflicts.

The market in Turkey is dynamic and diverse, driven by a growing and young population that demands a variety of goods and services. Given its strategic geographical location, the country has become a lure for foreign investment, particularly in sectors such as manufacturing, technology, tourism and construction. Even though Turkey has a strong domestic market, fluctuations of the Turkish lira and inflation has hit purchasing power and the market stability in recent years. Despite those challenges, the adaptation ability and the government focus on structural reforms have kept the Turkish market attractive, and it continues to offer opportunities for foreign and local companies interested in benefitting from its position as a bridge between Europe, Asia and the Middle East. The fiscal stimuli called for by Erdoğan in his 2023 electoral campaign has led to a boom in the automotive industry that is still being felt in 2024.

Turkey offers multiple incentives for foreign investment, particularly in the manufacturing and financial sectors. Turkey is a market with hardly any restrictions and with a very diverse economy, which makes it a highly interesting market for investors. The Turkish banking sector is large, stable and profitable, as is its stock market. Inflation has caused the government to increase the tax burden, which makes the market slightly less attractive. Furthermore, the bureaucracy is inefficient and the legal system is inconsistent.

There has been significant public intervention in the market by the Turkish State, particularly in times of economic crisis or volatility of the currency. The Turkish government has implemented monetary and fiscal policies to stimulate growth, control inflation and stabilise the lira, along with supporting strategic sectors by means of investment incentives and subsidies. In recent years, the Central Bank of Turkey has intervened to influence interest rates and control inflation, even though its decisions have led to debate and controversy due to the political influence in its policies. Furthermore, the State has promoted industrial development and infrastructure programmes to strengthen the domestic economy and reduce dependency on imports. However, these interventions have also triggered concerns about long-term sustainability and the balance between state regulation and market freedom.

Turkey’s trade openness has been a key favour of its economic growth during recent decades. As a member of the World Trade Organisation (WTO) and thanks to its customs union with the European Union since 1996, Turkey has adopted policies to liberalise its international trade and attract foreign investment. The country has signed numerous free trade agreements with different nations and economic blocks, which has facilitated the flow of goods and services and has expanded its export markets. Turkey has diversified its exports, particularly in sectors such as the automotive industry, textiles, electronic products and processed foods. However, the country is facing challenges related to its trade deficit, stemming from its dependency on advanced technology and energy imports. In order to mitigate such imbalances, Turkey has signed free trade agreements and has sought to strengthen its trade relations with different regions, which has consolidated its position as a strategic bridge between Europe, Asia and the Middle East.

Turkey has one of the lowest tariff rates in the world, mainly due to it many free trade agreements. The tariffs are much higher for the not countries not covered by those agreements. Furthermore, Turkey has the option of significantly increasing the tariffs in order to protect the industries that it deems strategic, such as agriculture or manufacturing. Certain sectors likewise continue to have non-tariff barriers that are difficult to manage.

Legal certainty in Turkey for investors and companies is a fundamental aspect that has evolved over time, driven by the country’s interest to attract foreign investment and to strengthen its position as a reliable partner. Turkey has implemented legal reforms and has modernised its regulatory framework to protect property rights and offer investors legal guarantees, particularly since it has gained EU candidate status. However, some investors express concern about the independency of the judiciary and transparency in decision making, aspects that can affect the perception of stability. Despite these challenges, the Turkish government continues to drive investment by means of incentives and programmes to protect the investor; it is continuing to work on improving the administrative and legal conditions to ensure a more predictable and reliable business landscape.