Newsletter Turkey July 2019

Business

Japanese corporations continue to acquire Turkish companies
A major Turkish plastics manufacturer, Emaş, has been acquired by London-based Sumika Polymer Compounds, which is actually owned by a consortium of 3 large Japanese corporations led by Sumitomo. Bursa-headquartered Emaş, founded as Akçe Plastik in 1978, employs 150 people in 3 production facilities. Its products cater to a wide variety of industries, in particular the automotive and white goods sectors.
June 10, 2019

Another huge biotechnology investment in Turkey
Iranian CinnaGen, the biggest biopharma company of the MENA region, is investing USD 100 mn in the new production facility and R&D centre of its Turkish subsidiary located in Çerkezköy. The factory will produce remedies for rare diseases, among them Turkey’s first orphan drugs, aiming to export USD 150 mn worth of its products in the first year, and to replace billions of dollars in imports. According to CinnaGen’s country director, Ferhat Farşi, Turkey’s growth in this strategically important sector is the fastest among the emerging economies, at 14% annually.
June 11, 2019

European Union gives record grant for Turkish railway project
The contract has been signed for construction of the final 155-kilometre Çerkezköy-Kapıkule section of the continuous, high-standard railway line to connect London with Turkey as part of the New Silk Road stretching as far as Beijing. The Turkish government has invested TRY 600 bn into the country’s railway system over the past 16 years, and for this part of the project, a EUR 275 mn grant from the European Union has been received. According to Ambassador Christian Berger, Head of the EU Delegation to Turkey, this is the largest single grant ever allotted to any project outside the EU.
June 12, 2019

Dual measures to spur domestic demand
Turkey’s Banking Regulation and Supervision Agency (BDDK) has introduced two new measures to promote private consumption, domestic demand, and ultimately economic growth. Firstly, the time limit for instalment payments of certain purchases such as furniture, electronic appliances and TV sets, as well as tax payments, was extended. Secondly, the agency lowered the minimum amount payable to 30% of the monthly turnover for all credit card limits.
June 14, 2019

Turkish-made combat aircraft to be showcased in Paris
At the Paris Air Show, Turkey’s national aerospace manufacturer TUSAŞ shall present a one-on-one model of its National Combat Aircraft, which was developed for the needs of the Turkish Armed Forces. The jet, advertised as “Europe’s best combat aircraft”, is to have its maiden flight in 2025. Another TUSAŞ product, the TK129 helicopter, shall perform demo flights throughout the show. This attack helicopter has been designed for tough conditions such as hot weather and high altitude.
June 18, 2019

TANAP project ready to go Europe
As of July 1, 2019, the Trans-Anatolian Natural Gas Pipeline (TANAP), running from the Georgian border all the way to the Greek border, has been completed. This 1,850 km long pipeline is the centrepiece of the Southern Gas Corridor, a supply route from the Caspian Sea to Europe. TANAP, which is already carrying Azerbaijani gas to Turkey, is now waiting to be connected to the Trans-Adriatic Pipeline (TAP) once it is ready. The project cost was under USD 7 bn, 40% less than the initial cost estimate.
July 2, 2019

 

Politics

Iraq bans import of more food products from Turkey
Counter to efforts by the Turkish government to boost its exports to Iraq, the import of more food products from Turkey has been prohibited. Following eggs, soft drinks, and ice cream, this now also applies to table salt, noodles, and pasta. The reasons for this step are seen as tensions in the mutual relations, the Iraqi central government’s policy emphasis on home production, and improved trade relations with Iran. While the ban has been enacted for only one year, it is feared to inflict permanent damage, forcing factories to shut down, and pushing up regional unemployment.
July 2, 2019

EU sanctions Turkey for Cyprus offshore gas exploration, Turkey rebuts
At their meeting in Brussels, the foreign ministers of the European Union announced the suspension of high-level talks and around USD 164 mn in financial aid, as well as other possible sanctions in response to Turkey’s persistence in the matter of gas exploration off the shore of Cyprus. The Republic of Cyprus regards the area as their national waters whereas Turkey contends the jurisdiction of the Turkish Republic of Northern Cyprus on whose behalf it claims to act. The Foreign Ministry issued a strongly-worded rebuttal, touching on the unsolved problems in partitioned Cyprus.
July 15 – 16, 2019

Economy

Inflation decelerates
In June 2019, consumer prices in Turkey increased by 0.03% in comparison to the previous month. The CPI went up by 15.72% over the same month of the previous year (YOY). The highest monthly increase was registered in hotels, cafes and restaurants (2.65%), ahead of miscellaneous goods and services (1.86%). The highest monthly decreases took place in food and non-alcoholic beverages (-1.65%), followed by clothing and footwear (-1.57%). The biggest annual increases were in miscellaneous goods and services (26.88%), and furnishing and household equipment (22.51%). The domestic producer price index (D-PPI) increased by 0.09% monthly, and by 25.04% YOY.
July 3, 2019

Unemployment realized as 13.0% in April
In April 2019, around 4,202,000 people in Turkey aged 15 and older were officially out of work, 1,116,000 more than in the same month of 2018. The unemployment rate was 13.0% with a 3.4-point increase YOY. The youth unemployment rate in the 15-24 age bracket increased to 23.2%. The labour force participation rate slightly decreased to 52.9% in total, and increased to 34.5% for females. Of those with employment in this period, 56.9% were employed in the service sector, 19.7% in industry, 17.6% in agriculture, and 5.7% in construction.
July 16, 2019

Foreign trade deficit decreases 76.5% in May
In May 2019, Turkey’s exports increased by 12.1%, while imports went down 19.3%, YOY. With exports increasing to USD 16.0 bn and imports decreasing to USD 17.8 bn, the trade deficit dropped by 76.5%, down to USD 1.8 bn. In May, the main partner for exports continued to be Germany (USD 1.5 bn), ahead of Italy (USD 857 mn), and the UK (USD 853 mn). Russia was the country where the most imports to Turkey came from (USD 1.9 bn), followed by China (USD 1.6 bn), and Germany (USD 1.6 bn).
June 28, 2019

Central Bank governor replaced
President Erdoğan has dismissed the governor of the country‘s Central Bank, Murat Çetinkaya, replacing him with his former deputy, Murat Uysal. Erdoğan argued that Çetinkaya had failed to carry out instructions to lower the interest base rate, which he said would also bring down inflation. Another point of disagreement seems to have been Çetinkaya’s refusal to transfer the Central Bank’s contingency reserve to the Treasury. Critics objected to the President’s decision, saying that it compromises the requisite independence of the Central Bank.
July 8, 2019

Fitch has revised Turkey’s ratings downwards
The rating agency Fitch has cut Turkey’s Long-Term Foreign Currency Issuer Default Rating to non-investment grade BB- due to the firing of the central bank governor, the delay in the improvement of economic growth and inflation, and possible U.S. sanctions because of Turkey’s purchase of Russian missile systems. The agency kept the country’s outlook as negative.
July 12, 2019

Overview of Monthly Data

Growth Rates

Inflation

Newsletter Turkey July 2019

Economy

Overview of Monthly Data

Growth Rates

Inflation

 

 

Inflation continues to decelerate
In January 2018, consumer prices in Turkey increased by 1.02% in comparison to the previous month, and by 10.35% over the same month of the previous year (YOY). The highest monthly increase was registered in miscellaneous goods and services (2.96%), followed by furnishing and household equipment (2.44%). The highest monthly decrease took place in clothing and footwear (-6.02%). The highest annual increase was in transportation (16.02%). The domestic producer price index (D-PPI) increased by 12.14% YOY, and 0.99% monthly.
Feb. 5, 2018

10.3% unemployed in November
In November 2017, 3.3 million people in Turkey aged 15 and older were officially out of work, 440,000 less than in the same month of 2016. The unemployment rate was 10.3% with a 1.8-point decrease YOY. The youth unemployment rate in the 15-24 age bracket decreased to 19.3%. The labour force participation rate rose to 52.8% in total, and to 33.8% for females. Of those with employment in this period, 54.6% were employed in the services sector, 19.2% in industry, 18.6% in agriculture, and 7.6% in construction.
Feb. 15, 2018

Foreign trade deficit soars 36.8% in 2017
In December 2017, Turkey’s exports increased by 8.6%, while imports increased by 25.4%, YOY. With exports increasing to USD 13.9 bn and imports increasing to USD 23.1 bn, the trade deficit soared 63.5%, up to USD 9.2 bn. Accordingly, the annual volume of exports increased by 10.2% to USD 157.1 bn, imports increased by 17.7% to USD 233.8 bn, and the foreign trade deficit increased by 36.8% to USD 76.7 bn. The rise in exports was thanks to the increase in exports of motor vehicles, steel and machinery, whereas rise in imports was due to the rise in imports of gold, metals, mineral fuels and oils. In December, the main partner for exports continued to be Germany (USD 1.3 bn), trailed by the UK (USD 827 mn), Italy (USD 771 mn), and Iraq (USD 771 mn). Germany was also the country most of Turkey’s imports came from (USD 2.2 bn), slightly ahead of China (USD 2.1 bn), and followed by Russia (USD 1.9 bn) and the USA (USD 1.2 bn).
Jan. 31, 2018

Central Bank keeps policy rate stable
The Central Bank of the Republic of Turkey has left the overnight lending rate at 9.25%, the one-week repo rate (policy rate) at 8.0%, and the late liquidity window lending rate at 12.75%. The bank reported that the economic activity maintains its strength, domestic demand keeps improving, and external demand contributes positively to exports. The high inflation and inflation expectations create a risk on pricing behaviour; hence, the bank has decided to maintain the tight monetary policy.
Jan. 18, 2018

 

Politics

Turkey launches operation in Syria
Turkey has launched a military action dubbed “Operation Olive Branch” to clear the Afrin border region in northwest Syria of the predominantly Kurdish YPG militia, which Ankara considers to be the Syrian branch of the PKK and a threat to its national security. Turkish President Recep Tayyip Erdoğan stated that after Afrin, the operation will be extended to the Manbij region further eastward. Turkey’s Prime Minister Binali Yıldırım has assured that the aim of the operation is to clean the region from terrorists and that Turkey has no intention of an invasion. Heather Nauert, spokeswoman for the United States Department of State, stated that Turkey’s concerns about PKK are legitimate, but Turkey should focus on fighting against ISIS instead of other groups. Turkey has demanded that the USA stops its training and armament support to YPG, publicly threatening force even against U.S. troops.
Jan. 20 – 31, 2018

Former Halkbank manager found guilty by U.S. court
In his trial in the U.S., Hakan Atilla, former Deputy General Manager of Turkish state-owned bank Halkbank, has been found guilty of five counts, including breaching international and U.S. sanctions against Iran, and committing bank fraud. According to Bekir Bozdağ, the Turkish government’s spokesman, the ruling is contrary to international law, and evidence of the collaboration between the U.S. justice system and the so-called Fethullah Terror Organisation (FETÖ).
Jan. 4 – 5, 2018

State of emergency extended for the sixth time
The majority of the Turkish parliament has granted the government’s request to extend the state of emergency for another three months as from January 19, 2018. Accordingly, the total duration of this ostensibly temporary measure, which had been introduced as from July 21, 2016 following the coup attempt, which grants the government extraordinary powers not only in the fight against terrorism, will reach 21 months.
Jan. 18, 2018

Netherlands withdraws ambassador to Ankara
The Dutch government has now officially withdrawn its ambassador to Ankara after the diplomat was barred from the country following the incidents that happened last year. It has been also stated that the Netherlands will not issue permission for the appointment of a new Turkish ambassador. In March 2017, permission for a rally to be held in Rotterdam by a Turkish Minister had been denied, and Dutch police blocking off the Turkish consulate clashed violently with protesters of Turkish origin. Following the incidents, Turkey sent two diplomatic notes to the Netherlands, requesting an official apology. The diplomatic ties between two countries shall remain intact at the level of chargé d’affaires.
Feb. 5, 2018

Other topics

Deloitte has reported that the volume of M&As in Turkey has reached USD 10.3 bn in 2017, growing by 41%. There have been 298 mergers and acquisitions, and the transaction volume of foreign investors was 45% higher compared to 2016, reaching USD 5.5 bn. Europeans have been the main actors among foreign investors, and the leading transactions have been Vitol–OMV Petrol Ofisi, BBVA–Garanti Bank, and IFM Investors–Mersin Port. Jan. 9, 2018

Ahmet Arslan, Turkish Minister of Transport, Maritime Affairs and Communications, has announced the route of Canal Istanbul, which is designed as an alternative to Bosporus to connect the Black Sea and the Sea of Marmara on the European side of Istanbul. The 45 km long canal is planned to go through the route of Küçükçekmece-Sazlıdere-Durusu. The minister stated that the canal will decrease the ship traffic in Bosporus and create the possibility of urban transformation in the region. Nevertheless, the project faces strong criticism because of the potential environmental risks. Jan. 16, 2018

The European Bank for Reconstruction and Development (EBRD) is expecting to make a EUR 1.5 bn investment in Turkey in 2018. Suma Chakrabarti, President of EBRD, has stated that Turkey is the bank’s top investment destination, having invested EUR 5.4 bn in the last three years. The bank has supported not only large-scale companies, but also almost 80,000 SMEs in Turkey. Jan. 18, 2018

Qatar-based Al Sraiya Holding Group and its subcontractor in Bahrain, Venture Capital Bank, have acquired 42.7% of the Turkish patisserie and ice-cream franchise MADO for USD 150 mn. The deal includes the expansion of MADO in the GCC region. Abdullatif Janahi, CEO of VCBank, stated that this has been VCBank’s third major investment in Turkey, which is one of the fastest growing markets in Europe and provides a strategic position for global growth. MADO is Turkey’s largest patisserie and ice-cream franchise with more than 310 stores across Turkey and 48 locations worldwide. Jan. 26, 2018