Turkey is a founding member of the OECD and the G20 industrial nations.For most of its republican history,Turkey has adhered to a quasi-statist approach with strict government controls over private sector participation, foreign trade, and foreign direct investment.However, during the 1980s,Turkey began a series of reforms,initiated by Prime Minister Turgut Özal and designed to shift the economy from a statist,insulated system to a more private-sector,market-based model.The reforms spurred rapid growth, but this growth was punctuated by sharp recessions and financial crises in 1994, 1999 (following the earthquake of that year),and 2001,resulting in an average of 4% GDP growth per annum between 1981 and 2003.Lack of additional reforms,combined with large and growing public sector deficits and widespread corruption, resulted in high inflation, a weak banking sector and increased macroeconomic volatility.
Photo: Levent financial district in İstanbul
Since the economic crisis of 2001 and the reforms initiated by the finance minister of the time, Kemal Derviş, inflation has fallen to single-digit numbers, investor confidence and foreign investment have soared, and unemployment has fallen.Turkey has gradually opened up its markets through economic reforms by reducing government controls on foreign trade and investment and the privatisation of publicly-owned industries,and the liberalisation of many sectors to private and foreign participation has continued amid political debate.
Photo: İstanbul Sabancı Towers
The GDP growth rate from 2002 to 2007 averaged 7.4%,which made Turkey one of the fastest growing economies in the world during that period.Turkey's economy is no longer dominated by traditional agricultural activities in the rural areas, but more so by a highly dynamic industrial complex in the major cities, mostly concentrated in the western provinces of the country, along with a developed services sector.The agricultural sector accounts for 11.9% of GDP, whereas industrial and service sectors make up 23.7% and 64.5%, respectively.The tourism sector has experienced rapid growth in the last twenty years, and constitutes an important part of the economy.In 2007, there were 27,214,988 visitors to the country, who contributed 18.5 billion USD to Turkey's revenues.Other key sectors of the Turkish economy are banking, construction, automotive, home appliances, electronics, textiles, oil refining, petrochemistry, food, mining, iron and steel, and machine industry.
Photo: İstanbul Akmerkez Shopping Center
In recent years,the chronically high inflation has been brought under control and this has led to the launch of a new currency to cement the acquisition of the economic reforms and erase the vestiges of an unstable economy.On January 1, 2005, the old Turkish Lira was replaced by the New Turkish Lira by dropping off six zeroes (1 YTL= 1,000,000 TL).As a result of continuing economic reforms, inflation has dropped to 8.2% in 2005, and the unemployment rate to 10.3%.With a per capita GDP (Nominal) of 5,062 USD,Turkey ranked 69th in the world in 2005. In 2004, it was estimated that 46.2% of total disposable income was received by the top 20% income earners, while the lowest 20% received 6%.
Turkey has taken advantage of a customs union with the European Union, signed in 1995, to increase its industrial production destined for exports,while at the same time benefiting from EU-origin foreign investment into the country.In 2005, exports amounted to 73.5 billion USD while the imports stood at 116.8 billion USD, with increases of 16.3% and 19.7% compared to 2004, respectively.For 2006, the exports amounted to 85.8 billion USD, representing an increase of 16,8% over 2005.The most recent figure for exports is 106 billion USD in 2007 (main export partners: Germany 11.2%, UK 8%, Italy 6.95%, France 5.6%,Spain 4.3%, USA 3.88%, Total EU exports 56.5%.) However, larger imports amounting to about 170 billion USD threaten the balance of trade (main import partners: Russia 13.8%, Germany 10.3%, China 7.8%, Italy 6%, USA 4.8%, France 4.6%, Iran 3.9%, UK 3.2%, EU Total 40.4%, Asia Total 27%).
After years of low levels of foreign direct investment (FDI),Turkey succeeded in attracting 21.9 billion USD in FDI in 2007 and is expected to attract a higher figure in following years. A series of large privatizations,the stability fostered by the start of Turkey's EU accession negotiations, strong and stable growth, and structural changes in the banking, retail, and telecommunications sectors have all contributed to a rise in foreign investment.