Turkey

Turkey is located between Europe and Asia, with the western side located in the Balkan Peninsula and the eastern part in Asia Minor. Covering an area of 783,356 km², it ranks as the 37th largest country globally and the 6th largest in Europe.

As of January 1, 2024, Turkey’s resident population is 86.5 million. This marks an increase from 2023, when the population was 85.5 million. The capital, Ankara, has a population of 5.7 million, while Istanbul, the largest city, has 15.5 million residents, representing 18% of the total population. Other significant cities include Izmir (approximately 4.4 million), Bursa (3.1 million), and Adana (2.2 million).

Economic Situation

Turkey’s estimated gross GDP for 2023 is around 31 trillion Turkish lira, marking a real increase of 3.6% from 2022. The GDP value in USD was approximately $1.29 trillion, at the 2023 average exchange rate.

In 2023, Turkish exports totaled $285 billion, while imports reached $335 billion. Compared to the previous year, exports increased by 3.5%, and imports grew by 5.8%. The trade balance showed a deficit of about $50 billion. The current account in the balance of payments recorded a deficit of $20 billion from January to December 2023, compared to a $23 billion deficit in 2022.

The public deficit for 2023 was approximately 660 billion lira (about $30 billion), representing 5.4% of GDP. According to the Ministry of Finance, public debt as of December 31, 2023, stood at 1.225 trillion lira (about $55 billion), or 40% of GDP. External public debt was 300 billion lira (about $14 billion), representing 25% of total public debt. The average exchange rate in 2023 was 24 Turkish lira per dollar and 26 lira per euro. The consumer price index (CPI) in December 2023 was up by +47.5% from December 2022, with inflation reflecting rising energy and food costs.

The unemployment rate in December 2023 was 9.8%, an increase from the previous month. The number of unemployed people (aged 15-64) was around 3.3 million, up from the previous month. In December 2023, the average gross monthly salary per employee was 15,000 lira (approximately $625), while the average net monthly salary was 12,500 lira (about $520). Turkey has a poverty risk rate of 21.6%, up from previous years, reflecting the economic difficulties caused by inflation and unemployment.

Forecasts

Turkey’s National Forecasting Commission predicts economic growth of 4.1% for 2024, with an estimated growth of 4.5% in 2025 and 4.7% in 2026. Moody’s rating agency maintained Turkey’s rating at B2 with a negative outlook. Key challenges include high inflation and the budget deficit. Turkey’s economy is supported by strong private consumption and public investments but remains vulnerable to external factors.

Country Risk

Turkey’s country risk is considered moderate, with vulnerabilities linked to inflation, political stability, and international relations. Geopolitical tensions may impact investor confidence and economic stability.

Foreign Direct Investments

In 2023, Foreign Direct Investment (FDI) in Turkey reached a value of $12 billion, up from $11 billion in 2022. The main sectors attracting FDI include manufacturing (40% of the total), trade (25%), and services (20%).

FDI Distribution by Country of Origin:

The main countries of origin for FDI in Turkey are:
1. Netherlands: $2.5 billion
2. United States: $2 billion
3. United Kingdom: $1.5 billion
4. Germany: $1 billion
5. Italy: $0.8 billion

Geopolitical Analysis

Turkey’s geopolitical position is unique and crucial, spanning Europe and Asia with access to the Black Sea, the Mediterranean, and the Aegean Sea. This location makes Turkey a natural bridge between the West and the East, a role that has significantly shaped and continues to influence its foreign and domestic policies. Turkey is a key player in multiple regional and global issues, including energy security, migration, and regional conflicts. Here are some of the primary geopolitical themes related to Turkey:

Geostrategic Role Between East and West

Turkey has a central position in the geopolitical dynamics of three regions: the Middle East, the Balkans, and the Caucasus. For this reason, it is crucial to both NATO, of which it has been a member since 1952, and to Russia, with which it has established a complex relationship in recent years despite historical tensions. Ankara seeks to balance its ties with the West (USA, EU) and the East (Russia, China), often adopting an independent foreign policy that sometimes conflicts with Western allies’ interests.

Relations with NATO and the United States

Turkey is a key NATO member, but its relations with the United States have been variable in recent years. The decision to purchase the S-400 missile defense system from Russia in 2019 caused tensions with Washington and NATO, as this acquisition is seen as incompatible with the Alliance’s defense systems. Moreover, Turkey’s management of the Syrian crisis and its approach toward Kurdish militias (US allies in the fight against ISIS but considered terrorists by Ankara) have further complicated relations. Nonetheless, Turkey remains a critical NATO pillar, with the Alliance’s second-largest armed forces and a strategic base at Incirlik, essential for military operations in the region.

Regional Conflicts: Syria and Iraq

The Syrian conflict has significantly impacted Turkey, which has hosted over 3.6 million Syrian refugees, one of the highest numbers worldwide. The Kurdish issue, which extends into Syria and Iraq, is a key factor in Ankara’s foreign policy, as the Turkish government views Syrian Kurdish forces (YPG) as an extension of the PKK (Kurdistan Workers’ Party), designated as a terrorist organization. Turkish military operations in northern Syria, such as the “Peace Spring” operation in 2019, have raised international concerns but are seen by Ankara as necessary to secure its borders.

Relations with Russia

The relationship between Turkey and Russia is complex and pragmatic, with both nations cooperating on some issues (such as the Syrian conflict, where they coordinate actions despite being on opposite sides) while remaining rivals in other areas. The construction of the TurkStream pipeline, linking Russia to Turkey under the Black Sea, and the project for Turkey’s first nuclear power plant, built with Russian collaboration, reflect the growing economic interdependence between the two countries, especially in energy.

At the same time, Turkey is concerned about Russian influence in the Balkans and the Caucasus, as well as the situation in Ukraine and Crimea, with which Ankara maintains delicate relations.

Turkey’s Role in Energy

Turkey is a key energy corridor between the oil and gas reserves of the Middle East, the Caspian Sea, and Russia, and European markets. The Trans-Anatolian Pipeline (TANAP), which transports natural gas from Azerbaijan to Europe, is one of Ankara’s most important initiatives to reduce dependence on Russian energy and establish itself as a regional energy hub. Furthermore, the discovery of natural gas reserves in the Black Sea could transform Turkey from a consumer to a potential energy exporter, strengthening its geopolitical influence and reducing import dependency.

Relations with the European Union

Relations between Turkey and the European Union have gone through various critical phases. Turkey has been an official candidate for EU membership since 1999, but the accession process is effectively stalled due to issues related to human rights, rule of law, and press freedom, as well as tensions over government control under Erdoğan.

However, Turkey remains a key partner for the EU, particularly in managing the migration crisis. The EU-Turkey deal in 2016 played a crucial role in curbing migrant flows to Europe, though Ankara’s threat to reconsider the agreement gives it significant leverage with Brussels.

Eastern Mediterranean and Resource Disputes

Tensions in the Eastern Mediterranean have risen in recent years due to Turkey’s claims to offshore energy resources and territorial disputes with Greece and Cyprus. Turkey does not recognize Cyprus’ claims to oil and gas exploration rights in its exclusive economic zone and has sent its own ships for exploration, creating friction with the EU and other regional countries, such as Egypt and Israel. This situation has led to an increased militarization of the Eastern Mediterranean, with Greece strengthening its defenses, raising the risk of direct military clashes.

Internal Politics and Stability

Domestically, Turkey has experienced a period of increasing authoritarianism under President Recep Tayyip Erdoğan, with government power consolidation and a weakening of democratic institutions, such as the judiciary and press. This has drawn international criticism, particularly from the EU, and has strained relations with some Western countries. However, Erdoğan has retained strong popular support, especially in rural and conservative areas, leveraging political divisions and nationalism to consolidate his power, despite an ongoing economic crisis that has significantly impacted the Turkish lira and increased inflation.