Turkey is a transcontinental country bordering South-eastern Europe and South-western Asia with the majority of the country located in the latter. It has a population of 79.4 million people. Turkey’s economy is the 17th largest economy in the world, with a Gross Domestic Product (GDP) of $799.54 billion. It is viewed as a mixed economy in which there is a growing private sector combined with centralised economic planning and government regulation. Notable industries in Turkey include a sizeable automotive industry, shipbuilding and agriculture. Other key sectors of the Turkish economy are banking, construction, home appliances, electronics, textiles, oil refining, petrochemical products, food, mining, iron and steel, and the machine industry.
The current sizeable automotive industry dates back fifty years and developed on the basis of a broader strategy of industrialising through import substitution. This strategy focused specifically on the production of LCVs. Over the past 10 years the industry has experienced strong growth on the back of the establishment of thirteen OEMs producing over one million vehicles and a component industry consisting of more than five hundred entities. The successes of the automotive industry in this country were largely based on major investments and incentives which encouraged the formation of the Customs Union with the European Union, deemed necessary to move an outdated industry in to one that set to be internationally competitive, as well as research and development (R&D) leading to the upgrading of the level of technology in the industry.
Turkey now participates in design and product development related to global model developments. These notable success factors have led to a further expansion of investments by existing multinational manufactures and have resulted in Turkey becoming the 17th largest automotive producer worldwide. In this regard, Turkey accounts for 1.3% of global production (growing at 4% in 2014) and exports between 60% and 70% of vehicles produced. Available production capacity is 1.7 million vehicles; however, this is unlikely to be fully utilised due to socio-political challenges presently impacting on the performance of the Turkish economy.
Turkey’s current sizeable automotive industry dates back fifty years and developed on the basis of a broader strategy of import substitution industrialisation. This strategy focused specifically on the production of light commercial vehicles. Over the past 10 years the industry has experienced strong growth on the back of the establishment of 13 OEMs producing over one million vehicles and a component industry comprising more than 500 suppliers.
Interesting Fact: Volkswagen is considered to be the single most popular vehicle brand in Turkey, despite the OEM not having any production or assembly facilities in the country.
A bilateral customs agreement with the EU means that Turkey provides low levels of tariff protection for domestic producers. Duties vary across the various vehicle types; however, zero duties are applicable on almost all products sourced from the EU (which account for the majority of the imports). Based on this a company such as Volkswagen (which has no production facilities in Turkey) can supply into the market on a duty-free-basis provided these vehicles are sourced from its EU facilities. Also based on this, it is evident that the domestic market experiences import pressures in both passenger and light commercial vehicle segments.
Turkey’s Investment Incentive Scheme is designed to specifically encourage investments, in an effort to reduce the dependency on the importing of specific goods. Some of the primary objectives include a reduction in current account deficit, increase investment support in regions that are not as developed, increase in the level of support instruments, promote clustering activities and support investments that will create knowledge transfer. A review on the current Investment Incentive System resulted in a focus on four categories that would be supported, these include The General Investment Scheme, The Regional Investment Scheme, The Larger Scale Investment Scheme, and The Strategic Investment Scheme.
In the automotive industry the nature and the level of incentive support is determined in accordance with the regional incentive package, irrespective of their geographic location and as a result of priority investments into “engine, engine parts, drivetrain components and electronics” (Ministry of Economy, KPMG 2014). Policy and investment support in Turkey have resulted in firms benefiting in the following ways: being exempt from VAT (18%) and customs duties for machinery and equipment, as well as decreased corporate tax calculated at 80% and recued until total value reaches the 40% contribution level of total investment. In addition, the Ministry covers employer’s social security premium support on additional employees hired as a result of the investment up to a minimum industry wage (for seven to 10 years).
The incentive support programme does not have a published termination date and material changes are not foreseen in the economic policy under the current administration.