Turkish economy boasts a dynamic that melds elements of traditional agriculture, modern industry, and a thriving services sector, firmly establishing itself as one of Europe’s and the Middle East and North Africa (MENA) region’s economic powerhouses.
With its Gross Domestic Product (GDP) currently ranked 19th globally according to the World Bank database, Turkish economy is a significant player in the international arena, measuring its wealth in current US dollars.
Labor Force and Skill Set
Investors often perceive Turkey as a reservoir of skilled and cost-effective labor. According to the Organization for Economic Co-operation and Development (OECD), Turkey is home to the world’s 7th largest labor pool and ranks as the 3rd largest among European countries. This labor force is a crucial asset for both domestic and foreign businesses.
Key Economic Sectors
The Turkish economy draws strength from three main sectors: agriculture, industry, and services, which contribute approximately 5.65 percent, 31.07 percent, and 52.74 percent, respectively, to the GDP. Manufacturing, fueled by robust industries like automotive, textiles, and consumer goods, plays a pivotal role. Turkey’s automotive sector, for instance, stands as the 13th largest in the world. The services sector, encompassing financial services, telecommunications, construction, tourism, and healthcare, has also flourished, with particular interest from foreign investors in real estate assets.
Growth and surging energy of Turkish economy demands have led to a reliance on energy imports, primarily oil and gas. A significant portion, up to 93 percent of oil resources and 99 percent of gas resources, is imported, according to the International Energy Agency. In response, Turkey has shifted focus towards renewable energy sources such as wind, solar, and geothermal, as well as the integration of nuclear power into its energy mix. Construction of the Akkuyu nuclear power plant, the first of three planned facilities, began in 2015, underlining Turkey’s commitment to energy security.
Liberalization of the energy market, through privatization and deregulation, has opened doors for investments across the electricity, natural gas, oil, and coal value chains. Turkey also serves as a vital energy corridor connecting Western Asia’s suppliers to Europe’s vast consumer market, with major pipeline projects like the Baku-Tbilisi-Ceyhan (BTC) crude oil pipeline, TurkStream, and the Trans-Anatolian Natural Gas Pipeline (TANAP) playing critical roles.
Turkey employs a comprehensive tax system categorized into income taxes, taxes on wealth, and taxes on expenditure. Both individuals and corporations are subject to income taxes, with progressive rates for personal income tax, reaching up to 40 percent. Corporate income tax rates were set at 25 percent for 2021 and 23 percent for 2022, reducing to 20 percent from January 1, 2023.
Wealth-related taxes include real property tax, motor vehicles tax, inheritance tax, and gift tax, each with varying rates based on specific criteria. Taxes on expenditure encompass value-added tax (KDV), special consumption tax, stamp tax, and banking and insurance transaction tax (BSMV), applied to goods and services. Social security contributions are obligatory for both employers and employees and are calculated as percentages of monthly wages.
Investment incentives are available through various programs, depending on factors such as investment scale, geographical location, and strategic importance.
Turkey operates under a floating exchange rate regime, where exchange rates are determined by market supply and demand. Daily foreign exchange bid prices are publicly available on the Central Bank’s website, offering transparency to market participants.
In summary, Turkey’s diverse economic landscape, skilled labor force, strategic energy initiatives, and tax policies make it an attractive destination for both domestic and international investors, offering numerous opportunities across various sectors.