TURKISH BUSINESS ENVIRONMENT

TAKE-HOME EXAM 1

SUBMITTED BY: Ashna Fauzan Khan (115604037)

SUBMITTED TO: Teacher Talat z
DEPARTMENT: Business Administration
CLASS: BilgiMBA
DATE: 3rd December 2016

PART I
US PRESIDENT TRUMPS ELECTION - EFFECTS ON TURKISH ECONOMY
Most of the world including Europe is not happy with the results of the US presidential elections mainly
because it has made the real estate tycoon Donald Trump one of the worlds most powerful person. On
the other side, Ankara is celebrating his win because they think Mr. Trump is likely to cause changes in
the US power structures. The Turkish government also disliked Mrs. Clinton, Trumps rival because of his
unfavorable involvement in the Turkish political issues.
However, in reality, Trumps presidency will have negative effects on Turkish economy mainly because
of following reasons:
If the US interest rates continue to speed up then it will have an effect on dollar making it more
powerful which will cause problems in emerging and poor economic countries. This makes goods
cheaper for US buyers but because of their debts in the US dollars it will cost more in their own
currencies. As Turkey has a lot of foreign debt in dollars it would become more sensitive to the further
strengthening of dollar. This has already started to have an effect on Turkish Lira which started to shake
even before the US election as the coup caused capital investments to flee from Turkey. As the effects
in the Turkish Lira continue to rise they may come with more problems.

Although Turkey has achieved average annual growth rates of about 3 to 3.5 per cent since the 2007s
global financial crisis took place but the growth is not exceptional because:

There was a 6 per cent annual productivity growth in between 2002-2006 but after that period there
has been almost no growth showing that there have been no technological improvements or
changes in the capital and labor utilization.
The growth has been triggered mainly by consumption, fed by an unsustainable rise in private
credit, which has increased from around 30 per cent of GDP before 2007 to almost 80 per cent now.
When emerging economies face such drastic credit growth it is often a sign of looming economic
crisis.
Finally, economic institutions have been weakened since 2007. Public perceptions of corruption
have risen and political interference in economic affairs has become a common practice.

Turkish growth has however been ongoing even despite of its low quality. The global liquidity has played
a part by extremely low world interest rates due to actions taken by US Federal Reserve and European
Central Bank.
These situations are expected to change under President Trump as his economic policy surrounds drastic
tax cuts and spending on infrastructure for which markets are starting to prepare. With such policies the
US fiscal deficits will increase, increasing US inflation. Such developments will force Fed to raise federal
funds rate and as they increase the global liquidity will end.

Emerging economies in general, and Turkey in particular, have little time to adjust to such a shift in the
global environment. Economic growth had begun to slow even before the coup attempt, increasing
uncertainty for foreign investors. The latest indicators show that the economy has shrunk in the third
quarter of 2016, leaving Turkey with insufficient growth of about 1 per cent year on year, the lowest
level in almost a decade. Meanwhile, the unemployment rate has risen by 1.5 percentage points to 11.4
per cent over the past four months.
Turkey has a limited capacity to combat a sharp slowdown. The weakness of the lira; the Turkish central
banks aggressive rate cutting since March; a large external financing requirement amounting to almost
30 per cent of GDP, due to the stubbornly high current account deficit and short-term debt obligations;
and limited central bank reserves leave little room for action on monetary policy.
On the fiscal side, Turkey has some options, thanks to relatively low government debt-to-GDP ratios
(around 35 per cent) and moderate headline deficits (around 1.5 to 2 per cent), but the underlying
situation is a lot weaker than it first appears, with primary expenditure growth visibly overtaking tax
revenue growth.
It is never too late to respond for Turkey especially after its renewed growth after 2001 crisis. An
economic overhaul requires hard political choices, restarting the process of economic reforms, reversing
the control of the government over the judiciary and economic agencies, and starting a reunion with
Europe and the US. These are tough choices but are required if Turkey needs to survive in the world that
has Trump order.

PART II
TURKISH ENERGY SECTOR

TURKEYS ENERGY PROFILE:

Turkeys economy is rapidly growing and so is its energy demand. In the last decade Turkey has become
the second country after China in terms of energy demand growth and future predictions show that the
demand will continue to rise. Economic expansion, rising per capita income, positive demographic
trends and the rapid pace of urbanization have propelled energy demand in Turkey to an all-time high.
The country's energy demand is estimated to increase by around 4% a year until 2023, with the current
70 GW of installed capacity expected to hit 100 GW by that time.
Turkeys increasingly energy demands have made the country to be dependent on energy import,
mainly oil and gas. 25% of total energy demand is met by local resources and rest is being covered by
imports of various types. After years of relying on gas from countries such as Russia and Azerbaijan for
its power, Turkey has taken steps to become independent and go on a new drive for plants and
renewables. The primary aim of Turkey is to realize its own energy security. Turkey is working towards
its energy supply routes and source countries, increase the share of renewables and include the nuclear
in its energy mix and take significant steps to increase energy efficiency
Currently, primary energy demand is met by natural gas (35%), coal (28,5%), oil (27%), hydro (7%), and
other renewables (2,5%). Turkeys total electricity demand has been increasing rapidly and it reached
264 TWh in 2015. According to the projections of the Ministry of Energy and Natural Resources, final
electricity demand of Turkey is expected to reach at 416 TWh in 2023.
Source: EMRA
Turkey imports nearly 99% of the natural gas it consumes. In 2015, Turkey imported around 48,4 bcm of
gas. 55,3% of the natural gas is imported from Russia, followed by Iran (16,2%), Azerbaijan (12,7%),
Algeria (8,1%) and Nigeria (2,6%).

TURKEYS NATIONAL ENERGY PORTFOLIO:

Turkey continues to work towards renewable energy resources and to introduce nuclear power. It wants
to maximize its use of local resources and fight climate change
Renewable Energy:
Thanks to its huge potential of renewable energy, Turkey is ranked 7th in the world in terms of
geothermal potential. Alongside its geothermal power capacity, Turkey also places emphasis on
developing wind and solar energy. In this context, as enshrined in the National Renewable Energy Action
Plan for Turkey released in December 2014 by Ministry of Energy and Natural Resources, the share of
renewables is planned to increase to 30% of electricity generation by increasing the installed capacity of
hydroelectric power to 34.000 MW, wind energy to 20.000 MW, solar energy to 3.000 MW and
geothermal energy to 1.000 MW.

 Nuclear Energy:
By 2023, Turkey plans to generate 10% of the total electricity supplies from two nuclear power plants
(NPP) which are to be built in Mersin/Akkuyu and Sinop.
Akkuyu and Sinop NPPs are Generation III+ plants which are to be designed and equipped with the most
advanced safety systems. Their safety measures are in accordance with the International Atomic Energy
Agency (IAEA) standards. Recently developed Generation III+ reactors are designed to be 600 times safer
than the Generation I reactors.

POLITICS AND ENERGY:

Of Turkey's annual gas imports, Russia accounts for 55 per cent, Iran 19 per cent, Azerbaijan 13 per cent,
Algeria 9 per cent and Nigeria 4 per cent. And natural gas is the source of 48 per cent of total energy
production. Turkey needs to strengthen its political and economic relationship especially with natural
gas exporter countries. Although there is no risk in supply of natural gas currently, the price level of
imported gas should be optimized to produce profitable electricity and ongoing CCPP investment in
Turkey.
In a largely unanticipated move, Turkey made proposals to repair international relations with both Israel
and Russia that could pave the way to secure greater supplies of natural gas. The timing and coincidence
of the diplomatic break-through is the possibility for Israel to sell natural gas to Turkey. Turkey also
seems to be working towards its relationship with Russia as Turkish President Erdogan apologized to
Russia for downing of its Russian bomber. Russian news agencies reported that Russian gas giant
Gazprom said it was still open to negotiations on the suspended Turk-Stream natural gas pipeline
project. According to Gazprom, Turkey is Gazproms second-largest sales market behind Germany. Over
the last 10 years, gas consumption in Turkey has more than doubled and the Turkish market is
interested in further boosting the gas export from Russia.
Any kind of energy crisis is the last thing Turkey needs right now. These diplomatic moves toward Israel
and Russia instead seem to be aimed at Turkey's medium to long-term energy future. There are no
immediate signs of an energy crisis, which allows the Turkish economy to meet growth expectations.

TURKEYS ENERGY VISION:

Turkeys geographical location puts it close to 75% of the worlds oil and gas reserves. With
opportunities comes responsibilities for Turkey to ensure regional energy security. The goals of
strengthening its position between East-West and South-North Energy Corridors and becoming an
energy trade hub is thus duly reflected in its energy strategy.
Efforts for increasing the national gas storage capacity are also underway. As part of their strategy
government has sold off many of its state-owned plants to private investors which resulted in many
newcomers in the Turkeys power sector. Many of international investors think of Turkey as an
attractive market. More of them focus on gas turbines, steam turbines and renewable technology.
Five years ago Turkey was much more attractive for new business because government saw an energy
crisis but now it has a more established market. As capacity has been increased electricity prices have
come down. As economy tries to get better, the population growth makes the Kwh per person in Turkey
still lower than the average in Europe. International energy firms agree that Turkey has become a fast
growing energy market and governments efforts to privatize the power assets has created a highly
competitive and dynamic market creating many opportunities. In order to help fuel the countrys

development Turkey has attracted a large number of foreign investors who have brought their
innovation and experience to Turkey. Turkeys biggest energy asset is its location which puts in in the
middle of three continents putting it closer to energy reserves particularly those in the Middle East and
the Caspian Basin
Turkey offers investors favorable incentives, such as feed-in tariffs, purchase guarantees, connection
priorities and license exemptions to the foreign firms however the return-on-investment period in
Turkey's energy market is little longer than in other investment areas such as construction. The Turkish
power market was driven by governmental companies, therefore it was controlled as monopoly for a
long time. As a fast-growing market, it became evident that the ever-increasing demand for electricity
could not be met solely by public resources and the additional resources needed to meet this demand
required extensive investments.
Turkey is exploiting only 20-30 per cent of the renewable resources such as wind, solar, geothermal and
hydro. This number is expected to increase, as the Turkish government has made it a priority to bring
the share of renewables in the country's energy mix up to 30 per cent by 2023. Turkey ranks seventh in
the world and first in Europe in terms of geothermal energy however as important as renewables are for
Turkey's energy strategy in the coming years, technologies in such fields as waste processing and
greenhouse gas reduction are also critically important.
Another step taken by the Turkish government towards a more competitive energy sector is the
establishment of an energy stock exchange. It is assumed to enhance the privatization of the energy
market and also ensure transparency with a supply-demand balance.
Predictions show growth in solar and wind together with coal as there are already structured
comprehensive incentives for wind, hydro and local coal. Structuring a solar policy with special solarrelated incentives may ramp up the solar market. According to estimations of the German Foreign Trade
and Inward Investment Agency, potential for the utilization of wind power in Turkey is up to 30 per cent
higher compared to Europe.
Despite the government support and regulations some private investors might still get stuck in
bureaucratic matters such as getting a license can be a time-consuming process and to meet the 2023
targets government should speed up the procedures. Also constant upgrades to allow for more capacity
are needed.

BIBLIOGRAPHY:
https://www.ft.com/content/62b8e1e2-ad80-11e6-ba7d-76378e4fef24
http://www.bbc.com/news/business-38010223
http://www.powerengineeringint.com/articles/print/volume-24/issue-3/features/dynamicmarket-offers-plentiful-opportunities.html
http://www.investopedia.com/articles/investing/062816/turkey-facing-energycrisis.asp#ixzz4RJO2kwb7
http://www.mfa.gov.tr/turkeys-energy-strategy.en.mfa