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Turkey Overview

Turkey is one of the largest middle-income partners of the World Bank Group (WBG).  With a Gross Domestic Product (GDP) of $786 billion, Turkey is the 18th largest economy in the world. In less than a decade, per capita income in the country has nearly tripled and now exceeds $10,000. Although economic growth was slowed by the onset of the global economic crisis in 2008, it has nonetheless remained resilient—making Turkey an example from which other countries in the region can learn. Labor markets have recovered fast after the crisis and both the seasonally-adjusted unemployment and employment rates have also improved on their pre-crisis levels.

Turkey has made considerable advances in competitiveness over the past decade, moving ahead 16 spots to number 43 in the World Economic Forum’s Global Competitiveness Index, for example. During this time Foreign Direct Investment (FDI) has grown from just over $1 billion to an average of $13 billion in the past five years.

Furthermore, fundamental reforms carried out after 2001 have allowed Turkey’s financial sector to remain relatively strong in spite of the global economic crisis. Turkey was the only country in the Organization for Economic Cooperation and Development (OECD) which did not provide public sector support to the banking sector in the wake of the crisis.

While Turkey’s economic outlook remains favorable compared to the rest of Europe or indeed the MENA region, the country’s medium-term challenge is to increase productivity and competitiveness while simultaneously reducing its reliance on foreign savings to make growth less volatile and more sustainable throughout the country.

Turkey has a deep-rooted, albeit complex relationship with the European Union (EU). The EU remains Turkey’s largest economic partner, accounting for 46% of Turkish trade in 2011. Turkey became a candidate for full membership in the EU at the Helsinki summit in 1999. Accession negotiations began in October 2005 and continue to progress, despite a number of political obstacles (including relations with Cyprus). Following the June 2011 elections, the Government upgraded the institution that oversees EU accession into the new Ministry for EU Affairs. Negotiations on 13 chapters of the acquis communautaire, the legal order of the EU, are currently open.

Turkey is a member of the OECD and the G20, and an increasingly important donor to bilateral Official Development Assistance (ODA). 

The World Bank Group continues to support the government of Turkey in achieving its development goals through the implementation of a program that is highly focused on results, through lending and the provision of technical advisory services. Strategic areas of engagement include private sector development, public finances, energy, climate change, health, education, environmental management and municipal services.

Turkey has been a member of the World Bank Group for more than 60 years, first joining in 1947. The most recent Country Partnership Strategy (CPS) for Turkey 2012—2015 envisages financing levels of up to $4.45 billion and the increased provision of analytical and advisory services, as well as new services and instruments, including fee-based services. This latest CPS has three main strategic objectives and pillars:

i)   Enhanced Competiveness and Employment

ii)   Improved Equity and Public Services

iii)   Deepened Sustainable Development

This portfolio includes 10 lending projects focusing on financial and private sector development, urban development, energy, transport, and health. This work is supplemented by an additional $109 million from the Turkey Trust Fund Portfolio, most of which ($100 million) is from the Clean Technology Fund (CTF). The World Bank Group also carries out an Analytical and Advisory Program with the Government of Turkey and a broad range of stakeholders. These services focus on long term structural and institutional issues, including improvement in the investment climate, boosting domestic savings, promoting skills and job creation with a particular focus on female employment, and diversifying the country’s exports.

The International Finance Corporation maintains an active partnership with Turkey. Turkey has been a member of the IFC since 1956 and is now the second largest IFC client. From 2008—2011 the IFC invested $3.7 billion in Turkey through 47 projects, and in 2010, the IFC established the first IFC Operations Center in Istanbul. During FY2012—2015, IFC’s own account investment program in Turkey will be up to $2.0 billion. 

The IFC aims its support toward under-served segments of the economy, including female entrepreneurs and micro, small, and medium enterprises (MSMEs).  The IFC is also planning to invest in energy efficiency, renewable energy, municipalities, and poorer regions of Turkey and has a growing partnership with Turkish companies to implement investments in third markets.

Turkey’s development achievements are impressive, and the country is on track to meet its Millennium Development Goals. The World Bank Group has supported these achievements in selected areas, such as competitiveness, employment, health, education, and the energy sector.

Enhancing Competitiveness and Employment: Turkey has advanced considerably in global competitiveness rankings during the past decade, and in 2012, Turkey advanced 16 ranks to 43rd place in the World Economic Forum’s Global Competitiveness Index.

Foreign Direct Investment rose from just over $1 billion in the early 2000s to an average of $13 billion in the past five years. A new incentive scheme launched in April 2012 and a series of legal initiatives, including the introduction of a new commercial code, contribute to making Turkey a globally competitive place to do business. Turkey’s efforts to promote investment and competitiveness also focused on deepening and broadening financial markets, and to expand medium and long-term access to finance for Small and Medium Enterprises (SMEs). World Bank support includes the ongoing $900 million Fourth Export Finance Intermediary Loan, which is the last in a series that provided financing to medium-sized exporters in Turkey amounting to $1.7 billion. The First and Second Access to Finance for SMEs credit lines provided financing to SMEs amounting to $1.2 billion. Advisory work and technical assistance focus on investment climate, including access to finance, financial market diversification and innovation, employment policies, and gender.

Key achievements supported by the World Bank include:

  • SMEs and exporting firms had access to medium-term access to finance through SME credit lines, amounting to some $4 billion over the past 10 years.
  • During 2011, nine IFC client companies issued more than 465,000 micro loans and almost 460,000 SME loans, and held outstanding MSME portfolio exceeding of $35.1 billion (end of 2011).
  • More than 17,500 jobs were saved in SMEs which benefitted from medium-term financing under World Bank-financed credit lines.
  • As of January 2012, IFC’s portfolio companies in Turkey provided more than 90,000 jobs (29 companies reported employment figures).
  • A new commercial code was introduced in 2012.
  • An Investment Advisory Council was established in 2004.  On an annual basis, the Council brings together top private sector executives, Government policy makers and international financial institutions to discuss and agree on measures to improve Turkey’s investment climate.
  • IFC invested over $500 million in 20 projects with Turkish companies investing outside Turkey.

Improved Equity and Public Services: Turkey’s rapid growth and development over the past decade is one of the success stories of the global economy.  After a banking crisis in 2001, the country embarked on a concerted path of structural reform.  Per-capita income almost tripled in less than a decade and Turkey, with a population of 75 million, is now an upper middle-income country and the world’s 18th largest economy.  Social outcomes have also improved considerably as a result of economic growth and improved public service delivery, with increased access to education (and virtually universal enrollment at the primary level as well as rapidly increasing secondary enrolment) and health services (linked to the Health Transformation Program).

1. Supporting Turkey’s Health Transformation Program: Turkey’s Health Transformation Program is an inspiration and example to others of how health performance can be turned around quickly. Turkey introduced the Health Transformation Program in 2003 to reform the way health care was financed, delivered, organized, and managed. Turkey has since then considerably reduced maternal mortality, which fell from 28.5 deaths per 100,000 live births in 2005 to 15.5 deaths in 2011. It has therefore already met its Millennium Development Goal on this indicator. There has also been a sharp decline in infant mortality, from 20.3 deaths per 1,000 live births in 2005 to 12.2 in 2012. The World Bank supported Turkey’s Health Transformation Program in two phases. The first phase, through the Health Transition Project, supported the introduction of the family medicine model, and helped build the capacity of the Ministry of Health and the Social Security Institute to expand health insurance coverage and improve family medicine service delivery. The second phase, through the ongoing Project in Support of Restructuring of Health Sector, supports reforms aimed at increasing hospital autonomy, expanding family medicine services, and further strengthening performance management and pay-for-performance initiatives. 

Key achievements supported by the World Bank include:

  • An increase in coverage of health insurance, from 71% of the population in 2003, to 99% in 2011. Starting from 2012, the entire population is covered by the Universal Health Insurance by law.
  • An increase in population enrolled with family medicine from zero in 15 pilot provinces in 2003, to the entire population by 2010.
  • An increase in the utilization of primary care services to 3.3 outpatient visits per capita in 2011 compared with 2.1 in 2008.
  • An increase in patient satisfaction with primary care services in provinces where family medicine was introduced, from 69% in 2004 to 89.8% in 2012.
  • An increase in patient satisfaction with health services in public hospitals from 41% in 2003 to 76% in 2011.
  • Unification of social security systems, and transfer of all hospitals to the Ministry of Health, giving people the possibility to choose where to be treated.

2. Better Quality and Equity of Education: Turkey has made remarkable progress in improving education in the last two decades.  Turkey has achieved almost universal primary education (net enrollment rate of 98 percent) and has significantly increased net secondary school enrollment (70 percent). Results from the 2012 Program for International Student Assessment (PISA), which measures learning outcomes of 15 year olds, show remarkable progress since 2003. This progress represents more than a half  year of schooling in each of the tested subjects. At the same time, inequalities in results have decreased substantially. The World Bank continues its engagement with the Ministry of National Education, through a series of analytical studies that draw from international best practices, in the areas of early childhood education and quality and efficiency of education. Proposed future work will assess issues around school autonomy and school financing.

Key achievements supported by the World Bank include:

  • Revision of 66 secondary education curricula.
  • Development of 1,151 modules for vocational education.
  • Revision of 50 secondary education textbooks.
  • Introduction of a web-based career guidance system in 2010.
  • School grants made available to 3,671 schools in 60 sub-provinces with low enrollment rates to finance school-level needs.

Deepened Sustainable Development:   Turkey’s comprehensive energy reforms over the past decade have transformed the sector, achieving more effective management and regulation, mobilizing substantial levels of private investment, increasing energy security and reliability of energy supply to households and firms, developing significant renewable energy capacity and investments, and beginning to increase energy efficiency and reducing greenhouse gas emissions to mitigate climate change.  Sustainable management of natural resources are growing in importance, as Turkey’s natural resources face increasing pressures, and cities are at the forefront of Turkey’s sustainable development agenda. World Bank financing and technical assistance supports reforms in the energy sector, climate change, as well as measures to strengthen environmental management at the national and municipal level.

1. Increased Energy Efficiency and Reliability, Increased Use of Renewable Energy: Electricity demand has been growing between 7% and 8% annually on average, driven by Turkey’s rapid economic growth, industrialization and steady population growth. Energy efficiency has emerged as a policy priority due to the relative high energy intensity of the economy and its need to maintain its competitiveness. Although total primary energy supply per capita in Turkey is still low - 1.44 tons of oil equivalent (toe)/capita in 2010, compared to the OECD average of 4.39 toe/capita - the Turkish economy is comparatively energy intensive. The energy sector represents one of the largest portions of the World Bank’s financing portfolio in Turkey, at about 35% of total net commitments.  World Bank-financed projects range from electricity transmission to private sector financing for renewable energy and energy efficiency. During the last five years, IFC significantly increased its financing in the renewable energy projects and has invested $2.3 billion in 5 projects in the power generation sector. Also, IFC has invested about $700 million in 17 energy efficiency projects, of which more than half was channeled through commercial banks for on-lending to energy efficiency projects. Turkey was the first country to benefit from the Clean Technology Fund. The Environmental Sustainability and Energy Sector Development Policy Loan series focused on enhancing private sector clean technology investments and on integrating climate change considerations in key sector policies and programs. Through the World Bank, Turkey is participating in the Partnership for Market-Readiness to help it set-up a Green House Gas monitoring, reporting, and verification system in the power and industrial sectors and prepare for a possible use of a market-based instrument to mitigate the impact of climate change. Starting in 2013, World Bank technical assistance will be scaled up, utilizing the EU Instrument for Pre-Accession Assistance to support energy reforms in line with EU policies, and strengthen institutional capacity in the areas of power and gas market development, energy efficiency, and renewable energy integration.

Key achievements supported by the World Bank include:

  • Greenhouse gas emission reduction estimated at 3.3 million ton per year through the financing of renewable energy and energy efficiency projects.
  • Electricity produced from privately owned renewable generation facilities increased by more than seventeen times, from 1,490 GWh in 2002 to 26,234 GWh in 2012.
  • Through its investments in the power sector IFC has reached 7.9 million costumers. 
  • Expansion of electricity transmission lines of about 7,000 Km from 2002 to 2011. Transmission expansion and upgrades have strengthened the system's reliability by adding transfer capacity equivalent to supply power to an estimated additional 4.6 million households.
  • Decrease in the number and duration of interruptions faced by consumers in eight regional companies between 39% and 37% and 78% and 82%, respectively.  
  • Improvement in collection efficiency of eight regional companies, between 96% and 103%.

2. Strengthened Disaster Prevention and Management. Turkey remains vulnerable to natural disasters, particularly earthquakes, and the city of Istanbul remains highly vulnerable due to its location on the North Anatolian Fault, high population, and commercial/industrial densities. The World Bank provides support through the Istanbul Seismic Mitigation and Emergency Preparedness (ISMEP) Project, which aims at improving the city’s preparedness for a potential earthquake through enhancing the institutional and technical capacity for disaster management and emergency response, strengthening critical public facilities for earthquake resistance, and supporting measures for better enforcement of building codes.

Key achievements supported by the World Bank include:

  • 702 public buildings were retrofitted or constructed in Istanbul, including schools that serve more than 750,000 students and teachers, and hospitals/clinics that serve about 1 million patients annually. 
  • The back-up Disaster Management Center is operational and the construction of the Istanbul Governorship’s main Disaster Management Center was completed.
  • A first-in-Turkey digital inventory of cultural heritage buildings of Istanbul was developed under the authority of the Ministry of Culture and Tourism.
  • 450,000 people were trained in disaster preparedness and an estimated 5 million citizens reached via social and public media through the Public Awareness and Neighborhood Community Volunteers programs.
  • 3,630 engineers throughout the country were trained in the seismic retrofitting code, and two pilot municipalities of Pendik and Bagcilar became the first in Turkey to introduce e-services for building permits issuances to their citizens.

Improved Municipal Services and Urban Environmental Management. The demand for quality urban environmental management and municipal services—water, wastewater treatment, solid waste collection, and waste disposal services—is expected to continue rising in Turkey. Turkey is experiencing rapid urbanization, with about 65% of Turkey’s population living in urban areas, amid expectations that this will increase to more than 80% by 2030. In the urban sector, the Bank provides financial and technical support through the Municipal Services Project and Land Registration and Cadastre Modernization Project. IFC’s first engagement in the municipal sector in Turkey was with the Metropolitan Municipality of Istanbul, under the KK metro project in 2008.  In December 2012, IFC closed a second transaction with the city of Izmir targeted at improving the sea transportation, the traffic management and the emergency response system.

Key achievements supported by the World Bank include:

  • Percentages of non-revenue water were significantly reduced in targeted cities by the end of 2012, such as Asat (Antalya), where losses were reduced from 52% to 44%, Kutahya (from 69% to 35.5%), and Mersin (from 66% to 50%).
  • More than 1.8 million people in eight cities around the country benefitted from new or rehabilitated municipal water supply systems.
  • Sewerage services increased dramatically in some cities, such as Ilica, where the percentage of the city population connected to the sewer network increased from 40% in 2006 to 90% by the end of 2012, Antalya (from 43% to 69% percent).
  • The number of cadastre disputes in courts decreased from 4% to about 2% of annual transactions (0.3% for renovated parcels) due to improved technology and the consultative nature of the survey methods introduced by TKGM.
  • The time to respond to cadastre data requests was reduced from one week to two hours. 
  • Cadastral renovation was completed for 1 million parcels and more than 115,000 square kilometers of ortophoto maps (aerial photographs that are corrected so that the scale is uniform and the photos have the same lack of distortion as a map) were produced.

LENDING

Turkey: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments

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