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TURKEY’S FOREIGN TRADE 1990-2007
I-MAIN DEVELOPMENTS IN TURKEY’S FOREIGN TRADE
After 1980, Turkey has changed its economic development policy from “import substitution for industrialization” to an “export-oriented growth” strategy. Its economy opened up to world trade, export-promotion incentives were initiated (including tax exemptions, rebates and favorable credit terms), direct import controls were eliminated, and quantity restrictions were dismantled. State intervention in the economy was reduced gradually. As a result of these efforts, Turkey has increased its share in the world exports from 0.15% in 1980 to 0.79% in 2007.
In the 1980-2007 period, Turkey’s exports rose from $2.9 billion to $107.2 billion. Not only was there a quantitative shift in exports, but the composition of exported goods also changed substantially. Whereas the previously dominant products in exports were mainly agricultural products and raw materials, high-value added industrial products are now gaining share. Transformation still continues with rising exports of machinery and transport equipment. The integration of the Turkish economy to global markets has been gradually escalating. The graph above shows the share of foreign trade in Turkey’s gross national product (GNP).
The share of foreign trade in the whole economy has risen significantly since the 1980s. The volume of foreign trade consisted of 8.3% of GNP in 1970 while this share rose to 15.3, 23.2 and 30.8% in 1980, 1990 and 2000, respectively. In 2007, the volume of foreign trade in GNP rose to 42.1%.
In 2000, foreign trade volume rose to $82.2 billion while the export/import ratio was 51% and the share of foreign trade volume in GNP was 41.1%. In the first nine months of 2007, foreign trade made up 56.7% of GNP, while the export/import ratio was 63%. Hence, the ratio of foreign trade to GNP and the export/import ratio of Turkey in 2007 are better off compared to 2000. Exports of $12.9 billion in 1990 rose to $21.6 billion in 1995 and $27.7 billion in 2000. The average annual growth rate of exports was 10.8% during 1990-1995 and 5.1% in 1995-2000. The primary reason for the high growth rate of exports during 1990-1995 was a considerable increase in the import demand of the European Union. Moreover, the devaluation of TL in 1994 gave a substantial competitive edge to Turkish exporters. However, in 1997 and 1998, as a result of the economic crises in Newly Industrialized Asian Countries (NICs) and the Russian Federation, the rate of increase in the world trade and the world demand shrank. Consequently, Turkish exports fell by 1.4% in 1999 but Turkey’s export growth rate started to accelerate at an important pace after 2000. Turkey’s exports grew by 15.1, 31.0, 33.7, 16.3, 16.1%, 25.7 and 25.6% respectively over the last seven years. Hence, the average annual growth rate of exports of 2000-2007 was 21.2% or more than 2.5 times the rate in 1990-2000. Imports of Turkey, which were $22.3 billion in 1990, grew by 9.9% annually between 1990 and 1995 to reach $35.7 billion in the latter year. The average annual growth rate between 1995 and 2000 was 8.8%. Turkey’s joining the World Trade Organization in 1995, its entrance to the final stage of Customs Union with the European Union in 1996 and economic growth all worked to accelerate imports. However, imports shrank by 24% in 2001 due to the economic crisis and the devaluation of the domestic currency. In the following period, the increasing input needs of the growing domestic manufacturing sector led to a rising imports of intermediate and capital goods, while postponed purchases started to be realized and imports of consumer goods rose as well. As a result, in 2004 total imports shot up 40.7%. As demand for automobiles and other consumer goods settled down, the share of consumer goods in total imports decreased to 11.6% in 2006 and 11% in 2007. As a result, the rate of increase for total imports was 19.5 and 21.8% in these two years. The share of intermediate and capital goods in total imports last year was 88.6%. After the 9.5% contraction of the economy in 2001, Turkey experienced high growth rates continuously. Real GNP rose by approximately 7.9, 5.8, 8.9 and 7.4% in the next four years. 2006 indicates a 6.1% increase in real GNP. The spectacular GNP growth pushed the import demand for intermediate and capital goods up. The escalation in oil prices acted as another factor driving imports, especially in 2005, when Turkey’s oil imports by 42% and its share in total imports rose from 6.2% to 7.4%. The escalation in energy prices continued in 2006 but was not as strong as in the previous year. As a result, imports of oil rose by 23.9% and reached $10.7 billion. In 2007, oil imports increased 10% and reached $11.7 billion. The export/import ratio records the highest levels following important devaluations and declines in the aftermath. The ratio jumped from 51% in 2000 to 75.7% in 2001 and started to decline afterwards until it reached 63% last year. Although declining, the ratio is adequately high compared to its level in 2000. The average annual increase in the volume of trade fell from 10.2% in 1990-1995 to 7.5% in 1995-2000 and rose to 18% in 2000-2006. The share of trade volume in GNP, which has continued to increase since 1990, reached a value of 42.1% in 2007. Turkey's foreign trade balance has been negative since 1947. Foreign trade deficit (CIF imports – FOB exports) shrank by $16.7 billion to $10.1 billion in 2001 due to the effects of the devaluation of the Turkish Lira. The deficit started to increase in 2002 and reached $62 billion in 2007 with an average annual rising rate of 16.3% in 2007. Despite the continuing increase, the rate of increase has recently slowed down.
II-MAIN DEVELOPMENTS IN EXPORTS
When exports are examined by sectors, we see that in 2007 agricultural products comprised 9.1%, mining products made up 8.4% and manufactures accounted for 81.1% of total exports. The main change in the period from 1990 to 2007 is the shift from agricultural products to manufactured goods. Between 1990-2007, the average annual rate of increase for exports of agricultural products was 6.6% while that of manufactured goods was 14.4%. As a result, the share of manufactured goods rose by 13.4 points and the share of agricultural products fell by 16.4 points. Despite the low growth in agricultural exports in the long term, agricultural products showed a high increase at 27.8% in 2005. However, the growth of the agricultural exports slowed down to 2.8% in 2006. In 2007 agricultural products exports increased by 13.1%. In recent years, the trend of agricultural exports has been mostly dependent on the exports of hazelnuts, which fell by 24.6% in 2006 after rising by 77.4 and 63.7% in 2004 and 2005, respectively. Accordingly, the share of hazelnuts in agricultural exports reached 10.6% in 2006 and reached 14.6% in 2007. In 2006, export performance of hazelnuts was not at a desirable level because the increase in the quantity exported did not compensate for a large drop in prices. Olive oil, production and exports of which move up and down in two-year cycles, is another dominant product in Turkish agricultural exports. The share of olive oil in agricultural exports which was 2% in 2006, decreased to 1.4% in 2007. Turkish agricultural exports depend largely on food rather than agricultural raw materials. The main agricultural raw material that Turkey exports is textile fibers, whose exports barely equal 30% of its imports. The share of mining products fell from 6.8% in the 1990s to 4.2% in 2000. However, exports of mining products have been in a surge in the new millennium and their share in exports reached 8.4% in 2007. Manufactured goods exports, which totaled nearly $70 billion last year, saw average annual increases of 10.0% in the 1990s and 21.1% over the last seven years. The composition of the exports of manufactured goods has undergone important changes as well. Exports of textiles and clothing, which had a share of 36.8% in 1990 and 40.0% in 1995, have not kept pace, especially with exports of machinery and transportation equipment, so their share fell to 21.3% last year. On the other hand, the share of machinery and transportation equipment rose from 6.6 to 31.8% between 1990 and 2007. The change in the composition has moved Turkey closer to international norms. The machinery and transportation equipment sector, among others, is worth noting here for its contributions to the rise in exports of manufactured goods. A total of 39.2% of the exports in this product group stems from transportation equipment, and 17.9% due to automotive products alone. In 2007, exports of automotive products, electrical machinery and non-electrical machinery exports rose by 33.3, 35.3 and 38.4%, and reached to 15.6, 6 and 4.8 billion dollars, respectively. Textiles and clothing, despite the decline in their share in total exports, continues to be an important component of Turkish exports. Global competition in the sector has intensified after the removal of quotas. While Turkish textiles and clothing exports to the EU market rose by 14.8 and 17.5% respectively, textiles exports to the US rose only 2% and clothing exports to USA fell 27.9% in 2007. This is because price competition has been tougher in the US and particularly in clothing. Exports of iron and steel rose by 81% in 2004 parallel to the price movements in global markets. The jump in the exports of iron and steel was followed by a slump in 2005, succeeded by another rise of 24.1% in 2006. Exports of iron and steel to the EU and the US, which experienced drops of 14.5 and 34.5% respectively in 2005, staged a quick recovery in 2006 to rise by 46.4 and 33.8% respectively. In 2007 iron and steel export increased by 32%. Chinese demand and supply has become one of the major factors determining global prices in the sector. China is supplying one-third of global demand in iron and steel and has become a net exporter despite its growing need for the product.
The graph above shows the makeup of Turkey’s exports in comparison to the world in 2006. According to the graph, 9.1% of Turkish exports are agricultural goods, 8.4% are mining products and 81% are manufactured goods. The share of agricultural and mining products in Turkish exports fell and the breakdown of exports into main sectors resembled those of world over the last 20 years. The share of manufactured goods in Turkish exports is now higher than the world average, indicating a high level of industrialization. On the other hand, the share of agricultural products was 2.9 points above the world average in 2005, which is a natural result of the geographical advantages of Turkey in this respect. It must be noted that the share of mining products in exports is about one-third of the world average, resulting from the fact that Turkey is an energy importer country. At least as important as the share of manufactured goods in total exports is the composition of manufactured goods, which indicates that the share of the traditional industrial sectors (clothing, textiles, iron and steel, semi-manufactured goods) in the exports of manufactured goods is still higher than that of the world. Turkey stands to have a greater share compared to the world average in automotive products as well. Also, the share of other machinery including office and telecommunications equipment has risen, getting closer to the world average. Although the composition of its manufactured goods exports implies challenges for Turkey, it is also understood that Turkey will keep its export potential in traditional sectors while it expands into more technology-intensive sectors.
II-A Exports By Country Groups
The European Union (EU-27) has been the destination for more than half of total exports. Among these countries, Germany has been the largest market for Turkish exporters. However, Turkish exports are not as dependent as they were in 1990s on this specific market. While exports to Germany was 3 billion $ in 1990, last year it reached to $11.9 billion. On the other hand, some other European countries such as Britain, Spain and Romania increased their share in total exports. In addition, exports to non-EU European countries moved in a faster pace than aggregate exports, with their share of total exports rising from 6.7 to 10.1% in 2000-2007. Approximately 50% of exports to the region are destined for the Russian Federation. Although exports to the Russian Federation fell during the 1998 economic crisis, the share of Russian Federation in Turkish exports have risen since 2000 and approached the level of 1990, before the fall of the Soviet Union. Exports to Africa are mainly directed towards northern countries. Free trade agreements recently signed with Morocco, Tunisia and Egypt would further push Turkish exports to North Africa up. On the other hand, the share of other African countries in total exports advanced as a result of the high rates of increase. The rise in the share of other African countries can be attributed to the regional strategy that was put into effect in 2003 to promote trade and economic relations. Exports to North American countries and especially the US had a larger rate of increase than aggregate exports during the period 1995-2000. However, the pace of exports to the region lost pace during the 2000s. Last year, iron and steel and clothing exports declined –67.4 and 27.9% respectively. Exports to USA decreased 17.6% in 2007. The Near and Middle East has been an important export destination for Turkey due to a number of reasons, such as geographical proximity, cultural links and complementarity in needs. Exports to the region performed particularly high during the period from 2000 to 2007. Exports to the region in 2007 had a rate of increase 32.8%. Exports to other Asian (Far Eastern) countries rose fast after 2000, particularly in 2006 and 2007. The region constituted 4.9% of total exports last year, with Kazakhstan and China making up a large part of this share. Free zones, which provide vital financial, warehousing and distributional facilities to firms, performed highly regarding the rate of increase in 2000s. However, exports to free zones fell by 0.2% in 2006 and 0.8% in 2007. On the other hand, imports from free zones rose by 24.2 in 2006 following a decline in 2005, and increased 29.7% in 2007. The total trade volume of free zones rose by 4.8 and 6.5% in 2006 and 2007, respectively. The slowdown in the performance of free zones is attributable to the changes in legal and fiscal arrangements relating to the zones.
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