Introduction
Engaging in import and export activities in Türkiye can be a lucrative venture, given the country’s strategic location between Europe and the Middle East, as well as its growing economy. However, Turkish trade is not without its challenges. In 2024, several key issues continue to affect both importers and exporters, making it essential to understand these obstacles to navigate the Turkish trade landscape effectively.
Legal and Regulatory Challenges
One of the significant Turkish trade challenges is the unpredictable judicial, legal, and regulatory frameworks. U.S. exporters, as well as other international traders, often face inconsistent policies and burdensome documentation or localization requirements. For instance, the introduction of a new allocation system for wheat imports in October 2024, which replaced a full export ban, has added another layer of complexity to the market. Under this system, exporters of processed grain products are permitted to import only 15% of the amount used for their exports, with the remaining 85% sourced from Turkish Grain Board (TMO) stocks. This not only complicates the supply chain but also raises concerns about long-term supply sustainability and the potential for price instability.
Economic Instability
Another export issue is the impact of economic instability. Türkiye has been grappling with a currency crisis, which has weakened the Turkish lira (TL) significantly. The central bank’s aggressive monetary tightening, including a benchmark policy rate hike to 45% by June 2024, aims to tame inflation and stabilize the TL. However, this has resulted in higher borrowing costs, making it harder for firms to sustain operations. The private sector’s reliance on foreign exchange-denominated loans has become particularly problematic as the TL’s value diminishes relative to the USD or Euro.
The current account and capital account deficits, exacerbated by increased energy import costs, further complicate the economic environment. Despite these challenges, Türkiye achieved a record $20 billion in exports in January 2024, with a 3.6% year-over-year increase. However, the trade deficit remains a concern, with the government aiming to reduce it below $100 billion by the end of 2024.
Geopolitical Tensions and Sanctions
Geopolitical tensions and Western sanctions also play a significant role in Turkish trade challenges. The trade between Russia and Türkiye has declined significantly in 2024 due to Western sanctions, affecting Türkiye’s role as a key importer of Russian energy and a hub for re-exporting Russian oil products to Europe. Türkiye’s decision to block Russian payments and cut down exports of dual-use goods to Russia has strained Turkish-Russian relations, adding another layer of complexity to the trade environment.
Supply Chain Disruptions
Supplier delivery times and supply chain disruptions are additional export issues. Delays in deliveries from Asia, partly due to restrictions through the Red Sea, have been mounting through 2024. This has resulted in slower new export orders and overall weaker new orders, contributing to a decline in manufacturing activity in Türkiye. The S&P Global Purchasing Managers’ Index (PMI) for Türkiye dipped to 48.2 in July 2024, marking a fifth straight contraction and the fastest rate of decline since October 2022.
Labor and Wage Challenges
Labor and wage challenges are also pertinent. Türkiye faces competition from emergent suppliers in North Africa, existing suppliers in Eastern Europe, and ASEAN countries that have been taking on manufacturing relocated from mainland China. The country’s economic challenges have restricted its attraction as a reshoring location, with foreign direct investment (FDI) of just $4.4 billion in the 12 months to June 2024. Capital cost and availability, as well as labor availability, are cited as significant challenges to reshoring by Turkish manufacturers.
Sector Specific Challenges
In terms of specific sectors, the automotive and chemicals industries are among the top performers in Turkish exports. In January 2024, automotive exports topped the list with $2.78 billion, followed by the chemicals industry with nearly $2.3 billion. However, these sectors are not immune to the broader challenges affecting Turkish trade. For example, measures against unfair trade practices and dumping practices have impacted various sectors, leading to a decline in imports and a narrowing of the trade deficit.
Closing Thoughts
To navigate these challenges, potential investors and exporters are advised to work closely with Turkish partners to gain local insights and determine potential solutions. Careful planning and a long-term outlook are crucial for success in Türkiye.
Despite the numerous challenges, Türkiye remains committed to export-oriented development. The government has implemented aggressive monetary tightening to stabilize the economy and reduce trade deficits. Vice President Cevdet Yılmaz emphasized the importance of increasing domestic savings to reduce the current account deficit and implementing structural reforms to accelerate green and digital transformation, aiming for a more productive and higher value-added economy.
In conclusion, while Turkish trade offers significant opportunities, it is essential to be aware of the various challenges that come with operating in this market. From economic instability and geopolitical tensions to supply chain disruptions and labor challenges, exporters and importers must be prepared to adapt and navigate these complexities. By understanding these issues and working closely with local partners, businesses can better position themselves for success in the dynamic and sometimes unpredictable environment of Turkish trade.
