Turkey is among the world’s developing countries and the IMF defines its economy as an ‘emerging market’ economy. The country is one of the world’s leading producers of agricultural products, textiles, motor vehicles, ships and other transportation equipment, construction materials and consumer electronics. Besides that, the banking sector plays an active role in the Turkish finance sector. There are six participation banks, 34 deposit banks and 13 development and investment banks in the country and 21 of these banks are foreign capitalized.
The private sector has a significant place in Turkey, therefore the privatization process has been expedited in recent years. Turkey also has a geopolitical advantage since it is located in the middle of the rich oil-producing area and the consumer markets in Europe. Additionally, as well as its strategic geopolitical position, being at the crossroads of Europe, Asia and the Middle East makes it a prime gateway. Turkey provides a big opportunity to investors through its geographical location, tax advantages, financial incentives and its extensive internal market.
Review of 2016
Turkey has a massive role in the Islamic finance world by virtue of the fact that it has issued a massive amount of Sukuk in recent years. Islamic finance has a remarkable place in Turkey therefore it is continuously developing and expanding in the country. The government emphasizes the importance of Islamic finance at every turn. In fact, new Islamic participation banks were established in 2016 and in the same year, Turkey actualized many reforms in the economic field. These reforms have been implemented in financial markets as well as in sectors such as agriculture, social security, energy and communication. By means of these reforms, Turkey receives many investments from Europe, the Middle East and North Africa in the field of energy, banking and the services sector. According to data from the general Directorate of Budget and Fiscal Control, Turkey will reach a 5% growth rate in 2017 and 2018.
Turkey struggled with challenging political issues after it experienced a failed coup attempt on the 15th July. The economic stability of Turkey was damaged by the event and as a result, credit rating agencies decreased Turkey’s credit note due to the failed attempted coup and its expected effects. However, contrary to expectations, Turkey managed to shake off the negative effects of the attempted coup. And despite these problems, Turkey remains attractive to foreign investors. The failed coup seems to have strengthened Turkey’s economy rather than weakening it.
Following these developments, credit note agencies increased Turkey’s credit rating due to the efficient reforms. Usually, an attempted coup would have negative effects on any country. However, Turkey sorted out these problems in a very short time, proving that it has a solid and developing economy and political structure.
Preview of 2017 and conclusion
The Turkish government aims to improve more economical and financial reforms in the Islamic finance sector. Even though new participation banks have been established in 2016, the Turkish government should pave the way for investors to increase the number of Islamic banks since it has not reached a sufficient number. The government should support and encourage the banking sector and make necessary amendments to current regulations.
Ali Ceylan is a partner at Baspinar & Partners. He can be contacted at [email protected].