Orient express

Should Turkey succeed in its aim of joining the EU, it will be the second most populous nation in the European bloc after Germany. But unlike Germany and the other ageing populations of western Europe, the majority of Turkey’s 73 million population is under the age of 35, representing a formidably large workforce.

After a decade of hyperinflation, currency crash and political crises, Turkey is showing significant progress on many fronts, underpinned by World Bank and International Monetary Fund programmes since 2000. The country began a new stand-by agreement in 2005 that is set to last for three years. The economy is in growth mode and inflation has been pegged back. On 1 January 2005 the currency consolidated on the basis of one new Turkish lira per 1,000,000 old, so the exchange rate is now a respectable looking YTL2.29 to the pound.

Rating agency Moody’s estimates GDP growth as around 5% in 2005, having stabilised from just short of 9% the previous year. It predicts continued growth at 5% levels over the next couple of years. The critical inflation rate is now down to double figures and tight government controls look like keeping it there.

At present Turkey’s long-term foreign debt is rated Ba3 by Moody’s and BBby Standard & Poor’s, with outlook “stable” and “positive” respectively.

S&P points to the progress Turkey has made over the past year on structural reform, especially privatisation. Divested assets in 2005 were estimated at $22bn.

Political and regulatory environment

Moody’s describes the 2002 election of the current government as a “critical turning point in Turkey’s modern history” that has tempered the country’s history of chronic political and financial instability. Its success has created fertile conditions for growth and Turkey’s export sector has been booming on the back of it. But how easy a place is Turkey to do business?

The World Bank ranks Turkey 93rd out of 155 countries for ease of doing business, protecting investors, paying taxes, trading across borders, enforcing contracts and closing a business. This puts it between Serbia and Montenegro and Nigeria. Not inspiring, perhaps, but Turkey is a large and complex market.

Doing business there

The corruption index puts Turkey equal 65th with Peru and Burkina Faso, with a score of 3.5 on a scale of 1 to 10 – Iceland tops the ratings with 9.7 while last-placed Chad scores 1.7. But it is important to remember that the rating is based on perceptions of corruption. People who actually do business there, such as the CEO of heating appliance manufacturer Baxi (see case study below), typically say how business-positive Turkey is as a place to operate.

It’s a view supported by Mustafa Erim, senior manager with the PricewaterhouseCoopers emerging markets team. He says that Turkey’s workforce can be a major asset.

“It is a highly qualified, skilled and cost-effective labour force, well known for its learning capacity,” Erim says. “With a working average for an employee of 280 days per year and nine hours per day, Turkey is the third hardest-working country in the world.”

Management/accountancy staff

Erim adds that well-qualified executives are available, as well as competent engineers, finance, sales and HR managers who meet international standards and speak major European languages, especially English. Many major executive search firms have offices in Turkey.

The international accounting firms also have local offices producing a flow of locally trained accountants and financially able people. Many Turkish business people return home after training abroad in multinational companies and institutions and bring with them skills to add to their knowledge of their home market.

Making a success of business

Although 100% foreign ownership of businesses is permitted in Turkey, most companies set up joint ventures or distribution deals, making their most valuable asset an able and trustworthy partner who knows the market for their products or services and can negotiate Turkish bureaucracy. Tackling red tape is a major and time-consuming risk – even if you know the language.

In Turkey, traditional respect for professional qualifications often means that lawyers, engineers, doctors and others are greeted with their professional title. Rank in an organisation is also more respected than in the UK.

Although Turkey is a secular country, most Turks are Muslims. Many pray several times a day and respect Ramadan and other Islamic customs. It is important to pay heed to this when arranging meetings in the country.

Turks are also strongly family oriented and may not separate their personal life from their business life as rigidly as may be the case in Britain.

The bottom line in Turkish business is the personal relationship. Strong business relationships are forged through trust, good personal interaction and evident mutual benefit. Build the personal relationship first and the business will follow.

Case study: Local hero

Inflows and outflows