Turkey has a significant location advantage as an export partner
Turkey’s strategic positioning as a manufacturing hub, combined with its location advantage, makes it an integral export partner to the EU.
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Turkey’s exports grew at a CAGR of 10% from 2001- 2021, with fuels having the highest CAGR amongst all sectors during this period.
Although Turkey’s exports dropped by nearly 6% year-on-year in 2020, when the pandemic ravaged many countries around the world, Turkey’s exports rebounded to USD 225bn in 2021. There was an annual growth of 33% as COVID-19-related measures were gradually relaxed across the world, and Turkish authorities also loosened their monetary policy.
Germany, the USA, and the UK were Turkey’s top 3 export markets in 2021, and together they accounted for nearly 21% of the share of total exports. The following sectors made up the largest share of Turkish exports in 2021:
- Metals & minerals (25%)
- Textiles, hides & skins (16%)
- Machinery & electronics (14%)
Trends: Turkey’s exports reached a record high in 2021. This can be attributed to the country being a reliable sourcing partner for multinational companies. Due to higher freight charges and supply chain disruptions, many multinationals sourced more goods from Turkey, rather than from distant and less reliable exporters.
A World Bank report highlighted that, on average, a 10-percentage-point decrease in shipping reliability led to a 5% increase in Turkey’s exports. The Turkish Lira also depreciated by 26.9% from 2020 to 2021, and the weaker local currency made its exports relatively less expensive for international buyers
- Turkey’s share in global exports have increased from 0.5% in 2001 to 1.0% in 2021. This represents a CAGR of 10% in its exports during this period, and shows strong and sustained growth of its export capacity
- While almost half of Turkey’s exports go to countries within the European Union, Germany was the top recipient of its exports in 2021. The value of exports to Germany was USD 19.3bn and made up a share of 8.6% of its total exports. This was followed by the USA in second place, importing goods to the value of USD 14.7bn (6.5%), and the UK with USD 13.7bn (6.1%)
- By stage of processing, capital goods, intermediate goods and consumer goods made up 21%, 24% and 48% of Turkey’s exports respectively in 2019, proving that Turkey is indeed a major manufacturing hub
- The metals & minerals and machinery & electronics sectors together made up almost 40% of Turkey’s exports of USD 225bn in 2021. However, other sectors, such as fuels and chemicals & plastics, have also grown at a CAGR of 15.9% and 13% between 2001 and 2021
- The fuels sector has seen a massive year-on-year (YoY) growth of 80.6% during 2021
- Turkey’s top 20 exports contributed USD 74bn, or 33% to its total exports in 2021, with the top 3 export goods being cars (USD 10bn), jewellery (USD 7bn), and refined petroleum (USD 7bn)
- A Tax Treaty Agreement between the United States and Turkey for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol, was signed in 1996, and became effective on 1 January 1998. This led to the USA becoming the second highest recipient of Turkey’s exports. The Turkey-EU Customs Union has also eliminated custom duties and quantitative restrictions, and incorporated measures to ensure the free movement of goods
- The Istanbul Chamber of Industry Turkey Manufacturing PMI (Purchasing Managers’ Index) ticked up to 47.4 in August of 2022 from 46.9 in the previous month. In line with this, manufacturing output moderated to a lesser degree. That said, production still slowed, amid challenging market conditions and high prices. New orders also slowed at a sharper pace in August, with the rate of moderation the fastest since May 2020.
- However, Turkey will continue to remain a strong exporter, especially to the EU, in the medium to long term
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Upshot: Turkey’s manufacturing capabilities have increased strongly in recent times, making it one of the main competitors among developing nations. Turkey’s economy had a downturn in 2020 due to the pandemic, inflation, lower investments and private consumption, as well as uncertainty in the markets; but with the opening of its economy, there has been a rapid recovery in manufacturing activities.
Turkey showed dynamic recovery from Covid-19 and, coupled with the relaxing of measures by the government, this led to a surge in exports in 2021. Due to its strong export performance having far exceeded Turkey’s ‘medium-term program goal’, the President of Turkey announced an upward revision of its export goal to achieve USD 250bn in exports in 2022.
- The ongoing war in Ukraine could complicate matters for Turkey since it has close ties with both Russia and the Ukraine. The war could, therefore, affect Turkey’s energy and agricultural trade
- Turkey’s inflation is at an all-time high, and it hit 80% in August 2022, with a record low exchange rate against the US dollar. These factors can affect domestic consumption and the export market
- Lower inflation rates, higher demand and supply, and tourism can act as a catalyst to boost Turkey’s economy
- Turkey’s majority exports of metals & minerals and machinery & electronics goods, along with its aim to boost its manufacturing share of GDP to 21% by 2023, show Turkey as a sizeable emerging export market, armed with strong manufacturing capability
- Turkey has also updated and deepened the scope of its existing free trade agreements (FTAs) recently with the European Free Trade Association (EFTA), Bosnia and Herzegovina, Serbia and South Korea.
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Imperatives: Turkey has put into effect measures to keep the economy growing, to maintain uninterrupted production, and to protect employment, despite the global economic disruptions.
- Growth in 2022 is expected to be largely driven by robust growth in exports to the European Union (EU)
- Take advantage of Turkey’s strong export growth and the government’s focus on increasing exports, by seriously considering it as a supply base of metals & minerals and machinery & electronics goods
- Leverage Turkey’s central position in Europe, and its proximity to Asia, the Middle East, and Africa to be a resilient supplier, despite volatility among its European partners due to the Russia-Ukraine war
- Turkey should also be able to expand its reach to newer and faster-growing markets in Asia and Africa
- Develop a deeper understanding of macroeconomic challenges in the medium term, due to high and persistent inflation for procurement teams to drive procurement and supply
- The category options are expanding, and more opportunities are developing for Turkey to integrate its supply in the global supply chains across industries, due to its dynamic growth in exports. Therefore, procurement managers should reorient their attention towards realizing and seizing the opportunity of Turkey’s growth potential in the long term
