Explore untapped investment opportunities across a variety of industries in Türkiye

TEXT: Automotive

The foundation of Türkiye’s automotive industry dates back to the early 1960s. During a period of rapid industrialization and progress, this key sector transformed itself from assembly-based partnerships to a full-fledged industry with design capability and massive production capacity. Since 2003, original equipment manufacturers (OEM) have invested over USD 17 billion in their operations in Türkiye. These investments significantly expanded their manufacturing capabilities, which in turn led Türkiye to become an important part of the global value chain of international OEMs. Meeting and exceeding international quality and safety standards, today’s Turkish automotive industry is highly efficient and competitive thanks to value-added production.

As part of its commitment to transforming its automotive industry, which has historically been a key economic driver in integrating the Turkish economy with the global value chain, and to its vision of making Türkiye an economic powerhouse, Türkiye has introduced its own locally-developed born-electric car built upon strength stemming from the country's long-standing know-how in the area.

Accordingly, Türkiye's Automobile Joint Venture Group, known as Togg, will produce five different models on a joint platform with fully-owned intellectual and industrial property rights by 2030.

• Leveraging a competitive and highly-skilled workforce combined with a dynamic local market and favorable geographical location, the vehicle production of 8 global OEMs in Türkiye has increased by almost five times from 300,000s in 2002 to over 1.3 million units in 2021. This represents a compound annual growth rate (CAGR) of around 6 percent during that period.

• Significant growth posted by Türkiye’s automotive sector led to the country’s becoming the 13th largest automotive manufacturer in the world and 4th largest in Europe by the end of 2021.

• Türkiye has already become a center of excellence, particularly with respect to the production of commercial vehicles. By the end of 2021, Türkiye was the number one producer of commercial vehicles (CVs) in Europe.

• Proven as a production hub of excellence, the Turkish automotive industry is now aiming at improving its R&D, design, and branding capabilities. As of 2022, 156 R&D and design centers belonging to automotive manufacturers and suppliers are operational in Türkiye.

• Notable examples of global brands with product development, design, and engineering activities in Türkiye include Ford, Fiat, Daimler, AVL, and FEV. Ford Otosan’s R&D center is one of Ford’s three largest global R&D centers, while Fiat’s R&D center in Bursa is the Italian company’s only center serving the European market outside its home country. Meanwhile, Daimler’s R&D center in Istanbul complements the German company’s truck and bus manufacturing operations in Türkiye. AVL Türkiye, which opened up its 2nd R&D center in Türkiye, develops autonomous and hybrid vehicle technologies.

• Türkiye offers a supportive environment on the supply chain side. There are around 1,100 component suppliers supporting the production of OEMs. With the parts going directly to the production lines of vehicle manufacturers, the localization rate of OEMs varies between 50 and 70 percent.

• Türkiye is home to many global suppliers. There are more than 250 global suppliers that use Türkiye as a production base, with 30 of them ranking among the 50 largest global suppliers.

• Auto manufacturers increasingly choose Türkiye as a production base for their export sales. This is evidenced by the fact that 73 percent of vehicle production in Türkiye was destined for international markets in 2021. Türkiye exported more than 950,000 vehicles to international markets in the same year. In addition, Türkiye has been the number one vehicle exporter to European markets for around a decade.

LOGISTICS & TRANSPORTATION

Well-endowed with a strategic location, Türkiye lies at the nexus of a global market with a trade volume of around USD 7 trillion that includes Europe, Africa, Central Asian countries, and Russia. Within a 4-hour flight radius, Türkiye rests well within reach of 67 countries with a total GDP of USD 38 trillion and a combined consumer base with a USD 1.6-billion worth of purchasing power.

In future years, population growth in South East Asia and Africa is set to outpace anywhere else in the world, international trade is expected to increase, and the center of gravity of global trade is slated to shift towards Asia.

Increasing population and trade are projected to speed up the demand for transportation and logistics services, presumed to nearly double in 2050 relative to the levels seen today.

Türkiye is committed to beefing up its infrastructure investments in the transportation and logistics industries in order to strengthen and further enhance its current position in global trade. These investments are implemented in line with current global trends in the industry such as urbanization, sustainability, environmental awareness, connectivity to major markets and next-generation transportation.

Some of Türkiye’s short- and medium-term goals in the logistics sector are as follows:

• Increasing the number of logistics centers on a national scale and adopting effective business management in these centers

• Lining up among the top 10 countries in the Logistics Performance Index rankings

• Developing and expanding the dry port system

• Positioning Türkiye as a logistics hub in the middle corridor

• Supporting digital transformation

• Speeding up customs control processes and boosting their efficiency

In addition to these short- and medium-term goals, Türkiye has also set its eyes on becoming a pioneer and leader country on a regional and a global scale with the development of transportation and logistics systems that comply with the principles of economic growth, high value-added production, export-oriented approaches, as well as the principles of integrity, sustainability, trust allocation and efficiency.

ENERGY

Demand for energy and natural resources has been increasing due to the economic and population growth in Türkiye. It has posted the fastest growth in the OECD, with an annual growth rate of 5.5 percent since 2002. Since then, Türkiye’s primary energy supply has shown a two-fold increase. Türkiye’s growing economic performance has also been reflected on the country’s electricity generation infrastructure given the dramatic rise in the total installed capacity from 31.8 GW to 95.9 GW. To satisfy the increasing needs of the country, the current capacity is expected to reach 110 GW by 2023 through further investments to be commissioned by the private sector as underlined in the 11th Development Plan for 2019-2023.

The success of a privatization and liberalization program going on since 2002 has handed over all of the power distribution assets and 78 percent of the power generation assets to the private sector, creating revenues of USD 23 billion for the Treasury. In the same period, about USD 100 billion worth new public and private investments were completed in power generation, transmission, and distribution assets. Under the strategy to increase liberalization and competition in the market, the Energy Exchange Istanbul (EXIST), which is responsible for managing and operating energy markets, including power and gas commodities, was established in 2013.

Türkiye is a net energy importer country. The import dependence has been the main driving force behind the formulation and implementation of new policies and investment models to commission local and renewable energy resources. Türkiye has a substantial amount of renewable energy potential, and utilization of this potential has been on the rise over the last decade. As of end-2020, hydro, wind, and solar resources constitute the vast majority of the country’s renewable energy resources, accounting respectively for 30.9 GW, 8.8 GW, and 6.7 GW of the total installed capacity.

Türkiye also has a substantial amount of coal reserves, totaling 17.3 billion tons and composed of mostly lignite. It is also worth mentioning that Türkiye’s natural gas sector has been steadily improving. In order to increase security of supply and seasonal gas send-out capacity, Türkiye has commissioned two Floating Storage Regasification Unit (FSRU) terminals in 2018 and opened up the first phase of the TuzGolu (Salt Lake) Natural Gas Storage Facility. Another goal of these investments is to expand Türkiye’s gas storage capacity to 11 bcm by 2023, up from its current capacity of 4 bcm.

CHEMICALS

Global sales of chemicals more than doubled over the past decade, driven in large part by emerging economies that accounted for around 80 percent of new chemical production capacity.

Chemical sales in Türkiye have closely followed the global trend. Türkiye is an attractive investment location for chemical companies with its robust market growth fueled by end-user markets and its competitive production costs. Türkiye is also a regional production, management, and export hub for leading brands in the chemicals industry. Chemical giants such as BASF, Henkel, Bayer, Evonik, Air Liquide, Linde, Ravago, P&G, PPG, and Dow have been producing in Türkiye for decades and have continued to grow over the years.

The sustained growth in customer industries in Türkiye is also a source of strength. Türkiye is the largest commercial vehicle producer in Europe, the 13th largest automotive manufacturer in the world, the 10th largest agricultural producer in the world, and the largest textile producer in Europe, accounting for 3 percent of global exports.

As part of the urban transformation project in Türkiye, it is estimated that around 6.5 million residential units nationwide will be demolished and rebuilt over the next 20 years. Thus, Türkiye's construction industry, which is valued at USD 60 billion, is one of the fastest growing end-user markets for the chemicals industry in Türkiye.

Another promising area in Türkiye's chemicals industry is the plastics sector, which accounts for almost 3 percent of global plastics production.

The significant gap between the capacity and the consumption of petrochemical products offers ample opportunities for local and foreign investors. There are also lucrative opportunities in Türkiye's surroundings that investors can tap into by utilizing the country's strategic location and top-notch infrastructure.

The combination of a growing economy, a large domestic market, advanced infrastructure, a skilled and competitive workforce, and investor-friendly legislation ensure that manufacturers in Türkiye's chemicals sector stand to reap long-term returns from investing in one of the most promising emerging nations in the world.

Copyright Business Recorder, 2023