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Turkey

Executive Summary

Turkey experienced strong economic growth on the back of the many positive economic and banking reforms it implemented between 2002 and 2007, and it weathered the global economic crisis of 2008-2009 better than most countries, establishing itself as a relatively stable emerging market with a promising trajectory of reforms and a strong banking system. However, over the last several years, economic and democratic reforms have stalled and by some measures regressed. GDP growth was 2.6 percent in 2018 as the economy entered a recession in the second half of the year. Challenged by the continuing currency crisis, particularly in the first half of 2019, the Turkish economy grew by only 0.9 percent in 2019. Turkey’s expansionist monetary policy pushed Turkey’s economy to grow by 1.8 percent in 2020 despite the pandemic, though high inflation and persistently high unemployment have been exacerbated. In 2021, Turkey’s GDP grew 11 percent year-over-year (YOY), the highest growth rate in ten years. However, this year growth is expected to be around 3.3 percent, but with significant downside risks. The spending of over USD 100 billion in foreign reserves in a vain attempt to stop the lira’s devaluation, and unorthodox monetary policies that have fueled inflation have left Turkey vulnerable to external shocks.

Despite recent growth, the government’s economic policymaking remains opaque, erratic, and politicized, contributing to long-term and sometimes acute depreciation of the Turkish lira. In September 2021, the Central Bank of Turkey embarked on a series of rate cuts that lowered the key interest rate by 500 basis points, leaving real rates deeply negative. Inflation in 2021 was 48.7 percent and unemployment 11.2 percent, with a slight recovery in labor force participation (52.9 percent).

Macroeconomic instability and the government’s push to require manufacturing and data localization in many sectors have negatively impacted foreign investment into the country. Turkey has maintained its 2020 digital service taxes but agreed to a plan to rescind the tax once pillar one of the OECD Inclusive Framework on a global minimum tax is implemented. Other issues of importance include tax reform and the decreasing independence of the judiciary and the Central Bank.

Laws targeting the Information and Communication Technology (ICT) sector have increased regulations on data, social media platforms, online marketing, online broadcasting, tax collection, and payment platforms. ICT and other companies report Government of Turkey (GOT) pressure to localize data, which the GOT views as a precursor to greater access to user information and source code. Law No. 6493 on Payment and Security Systems, Payment Services, and E-money Institutions also requires financial institutions to establish servers in Turkey to localize data. The Turkish Banking Regulation and Supervision Agency (BDDK) is the authority that issues business licenses if companies localize their IT systems in Turkey and keep the original data (not copies) in Turkey.

Regulations on data localization, internet content, and taxation/licensing have chilled investment by other possible entrants to the e-commerce and e-payments sectors. The laws affect all companies that collect private user data, such as payment information provided online for a consumer purchase.

In 2020, a law requiring social network providers (SNPs) that serve more than one million users in Turkey to appoint a domestic representative entered into force. The SNPs in-country representatives are obliged to accept service of documents from the Information and Communication Technologies Authority (ICTA), which mainly requests removal of content on the grounds of articles 9 and 9/A of local Law No. 5651. The SNP’s country representative must be a Turkish citizen or a legal person registered in Turkey, and easily accessible to local users.

The immediate impact of the COVID-19 pandemic on the economy was sharp, but Turkey managed to contain the number of COVID-19 cases relatively effectively with targeted lockdowns and thanks to its strong health-services infrastructure. The tourism sector, which generates demand for products and various service sectors, was particularly affected. The GOT provided support to protect corporate liquidity, employment, and household incomes. Government investment incentives were refined during the pandemic to attract FDI and encourage green investments. The pandemic exacerbated structural challenges related to high unemployment and the country’s widespread informal economy, which hit the informal sector workers and the self-employed the hardest. While there has been progress in creating quality jobs over the past 15 years, the number of jobs decreased after both the 2018 financial turmoil and because of COVID-19.

Turkey ratified the Paris Agreement in 2021 and continues to make progress on its green initiatives. Turkey’s FDI incentive packages are updated regularly, and in 2021 they were altered to include more incentives targeted at green projects as identified by the Ministry of Industry and Technology.

The opacity and inconsistency of government economic decision making, and concerns about the government’s commitment to the rule of law, have led to historically low levels of foreign direct investment (FDI). While there are still an estimated 1,700 U.S. businesses active in Turkey, many with long-standing ties to the country, the share of American activity is relatively low given the size of the Turkish economy. Investment inflows in 2021 were USD 14.1 billion, an increase of 19 percent from 2019 and the highest rate in the last five years. However, real estate acquisition by foreign nationals accounted for 41 percent of the total inflows in 2021 with USD 5.8 billion, and equity capital inflows were the biggest slice of the FDI pie with USD 7.6 billion. Increased protectionist measures continue to add to the challenges of investing in Turkey. Progress in combatting corruption is also necessary for many of the GOT’s current and future policies to work effectively.

Turkey’s investment climate is positively influenced by its favorable demographics and prime geographical position, providing access to multiple regional markets. Turkey is an island of relative stability in a turbulent region, making it a popular hub for regional operations. Turkey has a relatively educated work force, well-developed infrastructure, and a consumption-based economy.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perception Index 2021 96 of 180 http://www.transparency.org/research/cpi/overview
Global Innovation Index 2021 41 of 132 https://www.globalinnovationindex.org/analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2020 $5,814 https://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2020 $9,050 https://data.worldbank.org/indicator/NY.GNP.PCAP.CD

 

1. Openness To, and Restrictions Upon, Foreign Investment

3. Legal Regime

4. Industrial Policies

5. Protection of Property Rights

6. Financial Sector

8. Responsible Business Conduct

In Turkey, responsible business conduct (RBC) is gaining traction. Reforms carried out as part of the EU harmonization process have had a positive effect on laws governing Turkish associations, especially non-governmental organizations (NGOs). However, recent democratic backsliding has reversed some of these gains, and there has been increasing pressure on civil society since the coup attempt.

Turkey has a National Contact Point (NCP), or central coordinating office, to assist companies in their efforts to adopt a due-diligence approach to responsible conduct. The NCP performs informative activities for the introduction of the Economic Cooperation and Development Organization (OECD)’s Guidelines for Multinational Enterprises and finalize the applications of alleged violations regarding the implementation of the Guidelines in an impartial, predictable, and fair manner and in accordance with the principles and standards included in the Guidelines. The Ministry of Industry and Technology’s General Directorate of Incentive Implementation and Foreign Investments is designated as the NCP of Turkey to promote the Guidelines, to examine and resolve complaints.Contact Information for the NCP:

Dr. Mehmet Yurdal ŞahinDirector General of Incentive Implementation and Foreign InvestmentMinistry of Industry and Technology turkeyncp@sanayi.gov.tr  Tel: +90 312 201 6702

NGOs and business associations are active in the economic sector; the Turkish Union of Chambers and Commodity Exchanges (TOBB) and the Turkish Industrialists’ and Businessmen’s Association (TÜSIAD) issue regular reports and studies, and hold events aimed at encouraging Turkish companies to become involved in policy issues. In addition to influencing the political process, these two NGOs also assist their members with civic engagement. The Business Council for Sustainable Development Turkey (http://www.skdturkiye.org/en ) and the Corporate Social Responsibility Association in Turkey (www.csrturkey.org ), founded in 2005, are two NGOs devoted exclusively to issues of responsible business conduct. The Turkish Ethical Values Center Foundation, the Private Sector Volunteers Association (www.osgd.org ) and the Third Sector Foundation of Turkey (www.tusev.org.tr ) also play an important role.

Additional Resources

Department of State

Department of the Treasury

Department of Labor

Climate Issues

Turkey has a Climate Change Action Plan 2011-2023, which can be found at https://webdosya.csb.gov.tr/db/iklim/editordosya/iklim_degisikligi_stratejisi_EN(2).pdf . In addition, the GOT signed the Paris Agreement in 2015 and ratified it on October 6, 2021. Turkey has registered its first non-binding Nationally Determined Contributions (NDCs) within the UN Framework Convention on Climate Change (UNFCCC). The NDC targets announced a 21 percent reduction target in greenhouse gases by 2030. Turkey is on its way to becoming a green energy leader, with 52 percent of installed electricity capacity from renewables and official goals to increase this number, but still lacks a plan to phase out coal power generation. In February 2022, the GOT held its first Climate Council. Coal currently accounts for over 30 percent of Turkey’s electricity production. The EU is Turkey’s biggest external market, and Turkish exporters will be subject to the EU’s carbon border tax, which could be as high as USD 1.8 billion annually, according to the Turkish Industry and Business Association. In August 2021, Turkey adopted a “Green Deal Action Plan” to comply with the European Green Deal. Turkey lacks an emissions trading system.

9. Corruption

Corruption remains a concern, a reality reflected in Turkey’s sliding score in recent years in Transparency International’s annual Corruption Perceptions Index, where it ranked 96 of 180 countries and territories around the world in 2021. Government mechanisms to investigate and punish alleged abuse and corruption by state officials remained inadequate, and impunity remained a problem. Though independent in principle, the judiciary remained subject to government, and particularly executive branch, interference, including with respect to the investigation and prosecution of major corruption cases. (See the Department of State’s annual Country Reports on Human Rights Practices for more details: https://www.state.gov/reports-bureau-of-democracy-human-rights-and-labor/country-reports-on-human-rights-practices/). Turkey is a participant in regional anti-corruption initiatives such as the G20 Anti-Corruption working group. The Presidential State Supervisory Council is responsible for combating corruption.

Public procurement reforms were designed in Turkey to make procurement more transparent and less susceptible to political interference, including through the establishment of an independent public procurement board with the power to void contracts. Critics claim that government officials have continued to award large contracts to firms friendly with the ruling Justice and Development Party (AKP), especially for large public construction projects.

Turkish legislation prohibits bribery, but enforcement is uneven. Turkey’s Criminal Code makes it unlawful to promise or to give any advantage to foreign government officials in exchange for their assistance in providing improper advantage in the conduct of international business. The Financial Action Task Force (“FATF”) placed Turkey in October 2021 onto its list of countries subject to increased monitoring. Turkey was added alongside 22 other jurisdictions, for strategic deficiencies in its regime to counter money laundering, terrorist financing, and proliferation financing.

The provisions of the criminal law regarding bribing of foreign government officials are consistent with the provisions of the Foreign Corrupt Practices Act of 1977 of the United States (FCPA). There are, however, several differences between Turkish law and the FCPA. For example, there is no exception under Turkish law for payments to facilitate or expedite performance of a “routine governmental action” in terms of the FCPA. Another difference is that the FCPA does not provide for punishment by imprisonment, while Turkish law provides for punishment by imprisonment from 4 to 12 years. The Presidential State Supervisory Council, which advises the Corruption Investigations Committee, is responsible for investigating major corruption cases brought to its attention by the Committee. Nearly every state agency has its own inspector corps responsible for investigating internal corruption. The Parliament can establish investigative commissions to examine corruption allegations concerning cabinet ministers; a majority vote is needed to send these cases to the Supreme Court for further action.

Turkey ratified the OECD Convention on Combating Bribery of Public Officials and passed implementing legislation in 2003 to make bribing foreign, as well as domestic, officials illegal. In 2006, Turkey’s Parliament ratified the UN Convention against Corruption.

Resources to Report Corruption

Contact at government agency or agencies are responsible for combating corruption:

Organization: Presidential State Supervisory Council
Address: Beştepe Mahallesi, Alparslan Türkeş Caddesi, Devlet Denetleme Kurulu, Yenimahalle
Telephone number: Phone: +90 312 470 25 00
Fax: +90 312 470 13 03

Name: Seref Malkoc
Title: Chief Ombudsman
Organization: The Ombudsman Institution
Address: Kavaklidere Mah. Zeytin Dali Caddesi No:4 Cankaya ANKARA
Telephone number: +90 312 465 22 00
Email address: iletisim@ombudsman.gov.tr 

10. Political and Security Environment

The period between 2015 and 2016 was one of the more violent times in Turkey since the 1970s. However, since January 2017, Turkey has experienced historically low levels of violence even when compared to past periods of calm, and the country has greatly ramped up internal security measures. Turkey can experience politically motivated violence, generally at the level of aggression against opposition politicians and political parties. A July 2016 attempted coup resulted in the death of more than 240 people and injured over 2,100 others. Since the July 2015 collapse of the cessation of hostilities between the government and the terrorist Kurdistan Workers’ Party (PKK), along with sister organizations like the Kurdistan Freedom Hawks (TAK), have regularly targeted security forces, with civilians often getting injured or killed by PKK and TAK attacks. (Both the PKK and TAK have been designated as terrorist organizations by the United States.)

Other U.S.-designated terrorist organizations such as the Islamic State of Iraq and Greater Syria (ISIS) and the leftist Revolutionary People’s Liberation Party/Front (DHKP/C) are present in Turkey and have conducted attacks in 2013, 2015, 2016, and early 2017. The indigenous Marxist-Leninist insurgent group, DHKP/C, for example, which was established in the 1970s and designated a terrorist organization by the U.S. in 1997, is responsible for several attacks against the U.S. Embassy in Ankara and the U.S. Consulate General Istanbul in recent years, including a suicide bombing at the embassy in 2013 that killed one local employee. The DHKP/C has stated its intention to commit further attacks against the United States, NATO, and Turkey. Still, widespread internal security measures, especially following the failed July 2016 coup attempt, seem to have hobbled its success. In addition, violent extremists associated with ISIS and other groups transited Turkey enroute to Syria in the past, though increased scrutiny by government officials and a general emphasis on increased security – including a newly constructed 911 km wall along Turkey’s border with Syria – has significantly curtailed this access route, especially when compared to the earlier years of the conflict.

There have been past instances of violence against religious missionaries and others perceived as proselytizing for a non-Islamic religion in Turkey, though none in recent years. On past occasions, perpetrators have threatened and assaulted Christian and Jewish individuals, groups, and places of worship, many of which receive specially assigned police protection, both for institutions and leadership. Anti-Semitic discourse periodically features in both popular rhetoric and public media, and evangelizing activities by foreigners tend to be viewed suspiciously by the country’s security apparatus. However, government officials support religious freedom as policy and points to Turkey’s religious minorities as a sign of the country’s diversity. Religious minority figures periodically meet with the country’s president and other senior members of national political leadership.

11. Labor Policies and Practices

Turkey has a population of 84.7 million, with 22.4 percent under the age of 14 as of 2021. Ninety-three percent of the population lives in urban areas. Official figures put the labor force at 30.9 million in December 2020. Approximately one-fifth of the labor force works in agriculture (17.6 percent) while another fifth works in industrial sectors (20.5 percent). The country retains a significant informal sector at 30.6 percent. In 2021, the official unemployment rate stayed at 12 percent, with 22.6 percent unemployment among those 15-24 years old. Turkey provides twelve years of free, compulsory education to children of both sexes in state schools. Authorities continue to grapple with facilitating legal employment for working-age Syrians, a major subset of the 3.6 million displaced Syrian men, women, and children—unknown numbers of which were working informally.

Women constitute more than half of Turkey’s population, but their labor participation rate stands at 34.5 percent, while male labor participation is 71.8 percent. While most women remain out of the labor market, many are working in the informal economy, which presents unfavorable working conditions that are far from the four pillars of decent work definition of the International Labor Organization (ILO). The EU Delegation, various UN organizations, World Bank, the European Bank for Reconstruction and Development (EBRD), and other international financial institutions (IFIs) in Turkey are working together with multiple stakeholders including the GOT and its related public institutions, on projects related to women. Some provide entrepreneurship funds and vocational-education support, and some initiatives advocate for heightened expectations of local and foreign investors and loan recipients to including a female labor workforce agenda into their business proposals.

Turkey has an abundance of unskilled and semi-skilled labor, and vocational training schools exist at the high school level. There remains a shortage of high-tech workers. Individual high-tech firms, both local and foreign owned, typically conduct their own training programs. Within the scope of employment mobilization, the Ministry of Family, Labor, and Social Services, Turkish Employment Agency (ISKUR) and Turkey Union of Chambers and Commodity Exchanges (TOBB) has launched the Vocational Education and Skills Development Cooperation Protocol (MEGIP). Turkey has also undertaken a significant expansion of university programs, building dozens of new colleges and universities over the last decade.

The use of subcontracted workers for jobs not temporary in nature remained common, including by firms executing contracts for the state. Generally ineligible for equal benefits or collective bargaining rights, subcontracted workers—often hired via revolving contracts of less than a year duration— remained vulnerable to sudden termination by employers and, in some cases, poor working conditions. Employers typically utilized subcontracted workers to minimize salary/benefit expenditures and, according to critics, to prevent unionization of employees.

The law provides for the right of workers to form and join independent unions, bargain collectively, and conduct legal strikes. A minimum of seven workers is required to establish a trade union without prior approval. To become a bargaining agent, a union must represent 40 percent of the employees at a given work site and one percent of all workers in that industry. Certain public employees, such as senior officials, magistrates, members of the armed forces, and police, cannot form unions. Nonunionized workers, such as migrant seasonal agricultural laborers, domestic servants, and those in the informal economy, are also not covered by collective bargaining laws.

Unionization rates generally remain low. Independent labor unions—distinct from their government-friendly counterpart unions—reported that employers continued to use threats, violence, and layoffs in unionized workplaces across sectors. Service-sector union organizers report that private sector employers sometimes ignore the law and dismiss workers to discourage union activity. Turkish law provides for the right to strike but prohibits strikes by public workers engaged in safeguarding life and property and by workers in the coal mining and petroleum industries, hospitals and funeral industries, urban transportation, and national defense. The law explicitly allows the government to deny the right to strike for any situation it determines a threat to national security. Turkey has labor-dispute resolution mechanisms, including the Supreme Arbitration Board, which addresses disputes between employers and employees pursuant to collective bargaining agreements. Labor courts function effectively and relatively efficiently. Appeals, however, can last for years. If a court rules that an employer unfairly dismissed a worker and should either reinstate or compensate him or her, the employer generally pays compensation to the employee along with a fine.

Turkey has ratified key International Labor Organization (ILO) conventions protecting workers’ rights, including conventions on Freedom of Association and Protection of the Right to Organize; Rights to Organize and to Bargain Collectively; Abolition of Forced Labor; Minimum Age; Occupational Health and Safety; Termination of Employment; and Elimination of the Worst Forms of Child Labor. Implementation of a number of these, including ILO Convention 87 (Convention Concerning Freedom of Association and Protection of the Right to Organize) and Convention 98 (Convention Concerning the Application of the Principles of the Right to Organize and to Bargain Collectively), remained uneven. Implementation of legislation related to workplace health and safety likewise remained uneven. Child labor continued, including in its worst forms and particularly in the seasonal agricultural sector, despite ongoing government efforts to address the issue. See the Department of State’s annual Country Reports on Human Rights Practices for more details on Turkey’s labor sector and the challenges it continues to face.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount  
Host Country Gross Domestic Product (GDP) ($M USD) 2021 $795,950 2020 $719,920 * www.turkstat.gov.tr
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2021 $1,430 2020 $5,814 BEA data available athttps://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data 

*https://evds2.tcmb.gov.tr/index.php?/evds/dashboard/4944

Host country’s FDI in the United States ($M USD, stock positions) 2020 $1,557 2020 $2,578 BEA data available at https://www.bea.gov/international/
direct-investment-and-multinational-
enterprises-comprehensive-data
Total inbound stock of FDI as % host GDP 2019 19.9% 2019 21.9% UNCTAD data available at

https://unctad.org/en/Pages/DIAE/World percent20Investment percent20Report/Country-Fact-Sheets.aspx   

* www.tcmb.gov.tr

The IMF’s Coordinated Direct Investment Survey (CDIS) data is not consistent with Turkey’s data as reported by the Central Bank of the Republic of Turkey, which can be found at: https://www.tcmb.gov.tr/wps/wcm/connect/TR/TCMB+TR/Main+Menu/Istatistikler/Odemeler+Dengesi+ve+Ilgili+Istatistikler/Uluslararasi+Yatirim+Pozisyonu/

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data (through 2020)
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward 124923 100% Total Outward 50,726 100%
Qatar 32,445 26% North Macedonia 19,668 39%
North Macedonia 17,994 4% United Kingdom 5,211 10%
United Kingdom 13,083 10% Germany 2,561 5%
Germany 9,360 7% Austria 2,286 .5%
Luxembourg 5,291 4% Jersey 2,285 4.5%
“0” reflects amounts rounded to +/- USD 500,000.

IMF’s Coordinated Direct Investment Survey (CDIS) data available at: http://data.imf.org/?sk=40313609-F037-48C1-84B1-E1F1CE54D6D5&sId=1482331048410

14. Contact for More Information:

Economic Specialist
American Embassy Ankara
110 Atatürk Blvd.
Kavaklıdere, 06100 Ankara – Turkey
Phone: +90 (312) 455-5555
Email: Ankara-ECON-MB@state.gov

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