Overseas Business Risk – Turkey
Political and Economic
Trade and Economic Relations
Turkey is the world’s 18th largest economy (and Europe’s 7th). It is forecast to be in the world’s top 10 by 2023.
Turkey has the youngest and fastest growing population in Europe (700,000 graduates per year).
Istanbul economy alone is larger than the collective economies of 12 EU countries
Turkey will be the second fastest growing country in the World by 2018 (OECD figures)
World’s second largest construction and contracting sector
Trade between the UK and Turkey is growing rapidly and increased by almost 40% since 2009. The current value of UK-Turkey trade is worth over $11 billion a year.
There are a significant number of large business links between the UK and Turkey. Over 2,500 UK companies are currently operating here including BP, Shell, Vodafone, Unilever (UK), BAE, HSBC, Aviva and Diageo. Several retail giants/high street names such as TESCO, Harvey Nichols, M&S, and Laura Ashley also have significant operations in Turkey.
Turkey is a large rapidly developing country and the ongoing EU accession talks are also a key driver for the modernisation of Turkey’s economy and business environment. With a large domestic consumer market of 74 million, Turkey is also a springboard to the markets of central Asia and the Middle East.
Given the existence of the Customs Union, a pre-requisite for EU accession, EU companies do not experience the same volume of obstacles they face in other high growth markets. However challenges such as, regulatory hurdles, decision making paralysis and sudden changes to legislation and regulations, without warning and consultation, can be frustrating.
Investors have expressed concern at frequent regulatory changes that occur with short implementation timeframes and insufficient evaluation of the wider consequences for industry.
Feedback from some Turkish companies implies that British companies are perceived as risk-adverse, over cautious and slow to make decisions. Although requisite due diligence is advised UK business does need to demonstrate a commitment to the market, either by having a visible presence here or building and maintaining strong relationships. This means regular visits to the market; and a willingness to commit to projects or business opportunities early on – by demonstrating a key products/skills set and capability to fulfil Turkish requirements with an indication that they are prepared to discuss and tailor the final solution to Turkish needs. That way British companies will be in a position to react to very short tender timelines in Turkey and will be well placed to provide defined specifics later.
Turkey’s Competitiveness and Transparency
Turkey is ranked as 71 out of 185 in the World Bank’s “Doing Business 2012 Report”, placed above other high growth markets. Key indicators this year include ease of starting a business. “Turkey made starting a business less costly by eliminating notarization fees” and paying taxes “Turkey lowered the social security contribution rate for companies by offering them a 5% rebate”.
Turkey ranks 59 out of 142 in the Global Competitiveness index compiled by the World Economic Forum.
New Turkish Commercial Code
The New Turkish Commercial Code (which came into force on 1 July 2012) goes some way to addressing the need for greater transparency and reduced bureaucracy in Turkish business as well as flexibility in directorship. Increasingly more Turkish companies have strong corporate governance and social responsibility structures in place. Turkish companies are now subject to Corporate Governance Compliance legislation and in due course conformity to international financial reporting standards (IFRS) which should ensure increased international confidence in the market.
While the New Code has been praised by all stakeholders for increasing transparency and access to commercial information, the extent of effectiveness will be in execution and implementation. SMEs, which account for the majority of Turkish business, are the most likely to find the new requirements challenging.
The main motivators behind this major overhaul are:
To increase transparency, auditing, corporate governance and accountability
To harmonize the Commercial Code with the new corporate income, civil and penal codes
To ease the bureaucratic procedures, end disputes over intellectual property, increase shareholder rights and encourage FDI
Business and human rights
Turkey is a member of the Council of Europe and subject to the European Convention on Human Rights, and has signed and ratified the International Covenant on Civil and Political Rights. As a participating State of the OSCE, it has also signed up to a wide body of commitments on human rights and democracy, and has ratified the 8 core ILO Conventions on Labour standards.
The law provides for freedom of assembly and association. However, the government required significant prior notification for gatherings and in some cases restricted meetings to designated sites. The law provides most but not all workers (certain public employees such as military and police) with the right to form and join unions of their choice, to conduct their activities without interference, and to bargain collectively. There are no restrictions on membership or participation of people or unions in regional, national, or international labour organizations, but such participation must be certified by a notary public and reported to the government.
The law protects children from exploitation in the workplace, and prohibits children under 18 from working in certain professions or under hazardous conditions. The government effectively implements the law, but child labour continues to exist. The constitution permits measures, including positive discrimination, to advance gender equality. While women enjoy the same rights as men under the law, societal and official discrimination continues in employment and are generally under-represented in managerial-level positions in business and government. LGBT individuals continue to suffer discrimination and intimidation.
The government has taken several steps in recent years to improve the rights of its Kurdish citizens, including through provision of Kurdish language media, and a gradual increase of its use in education. However large-scale arrests of Kurdish activists and politicians under anti-terrorist laws, regular legal action against parties standing on a Kurdish platform, and the impact of the security response to the PKK terrorist threat remains a significant source of tension.
There are increasing concerns about freedom of expression in Turkey. While a pluralistic and vibrant media exists across print and broadcast outlets, there is an increasing environment of self-censorship. Turkey was judged to be 148th out of 179 countries in the Reporters without Borders Press Freedom Index for 2011/12.
Bribery and Corruption
Bribery is illegal. It is an offence for British nationals or someone who is ordinarily resident in the UK, a body incorporated in the UK or a Scottish partnership, to bribe anywhere in the world.
In addition, a commercial organisation carrying on a business in the UK can be liable for the conduct of a person who is neither a UK national or resident in the UK or a body incorporated or formed in the UK. In this case it does not matter whether the acts or omissions which form part of the offence take place in the UK or elsewhere.
The OECD (Organisation for Economic Co-operation & Development) has assessed Turkey to have made significant progress since 2007 in its efforts to combat bribery in international business deals by fully implementing all but one of the recommendations of the OECD’s Working Group on Bribery. However, the Turkish media has reported that a significant number of Turks believe bribery & fraud to be common in Turkey.
There is a threat from terrorism in Turkey and a number of terrorist groups remain active in the country. The main terrorist group operating in Turkey is the separatist Kurdistan Workers Party (PKK). The PKK have been known to carry out attacks in the south east of the country including the provinces of Hakkari, Sirnak, Siirt and Tunceli. Other areas that can be affected are Van, Bitlis, Bingol, Elazig, Mus, Batman, Erzincan, Diyarbakir, Mardin and Agri).
Some PKK attacks have known to be focussed on government and civilian targets, including military targets in major cities Istanbul, Ankara and Adana, Izmir, Mersin and tourist resorts on the Mediterranean and Aegean coasts (these have included Kusadasi, Cesme, Marmaris and Antalya, Manavgat).
Protective Security Advice
Crime levels in Turkey are generally quite low. The main issues are:
Street robbery and pick pocketing are common.
Demonstrations can occur regularly in major cities
IP rights are territorial, that is they only give protection in the countries where they are granted or registered. If you are thinking about trading internationally, they you should consider registering your IP rights in your export markets.
The main organised crime threat in Turkey relates to the trade in narcotics. Turkey remains a key transit country for heroin destined for Western Europe from Afghanistan. However, Turkish law enforcement continues to make significant efforts to tackle this issue. The United Nations Office of Drugs and Crime (UNODC) World Drug Report 2010 noted that Turkey seized 15.4 metric tonnes in 2008 which represents more seizures than the whole of the European Union combined in 2008.
With the growth of the Turkish economy, Turkey may also find itself becoming more attractive as a destination country for Organised Immigration Crime.
UK Trade & Investment Contact:
Topics: Insurance & Risk