How does Turkey's trade with Muslim-majority nations impact its economic growth

Introduction

Turkey’s trade with Muslim-majority nations has significantly impacted its economic growth in recent years, serving as a key driver of expansion and diversification. This strategic focus on Islamic markets has yielded several important benefits for Turkey’s economy:

Increased Trade Volume

Turkey has dramatically increased its trade with Muslim-majority countries since the early 2000s:

Trade with Muslim-majority nations grew from $8.4 billion in 2002 to $69 billion in 2018, an eightfold increase.

The share of Turkish exports going to Middle Eastern economies rose from 9% in 2002 to 19% in 2009.

As of 2020, the Middle East and North Africa (MENA) region accounted for 22.2% of Turkey’s total exports, up from 12.4% in 2002.

This substantial growth in trade volume has provided a significant boost to Turkey’s export-driven economy.

Economic Diversification

Expanding trade with Muslim-majority nations has allowed Turkey to diversify its economic partnerships:

It has reduced Turkey’s reliance on EU markets, with the share of exports to the EU falling from 56% in 2002 to less than 50% by 2009.

Turkey has signed free trade agreements with numerous Muslim-majority countries, including Egypt, Syria, Jordan, Morocco, and Tunisia.

The country has positioned itself as a hub for Islamic financial products, including sukuk (Islamic bonds) and Sharia-compliant investment funds.

This diversification has helped insulate Turkey’s economy from regional economic shocks and fluctuations in demand from traditional trading partners.

Foreign Direct Investment

Increased economic ties with Muslim-majority nations, particularly Gulf states, have attracted significant foreign direct investment to Turkey:

Gulf Cooperation Council (GCC) countries accounted for 7.1% of foreign direct investment in Turkey since 2020, with $15.8 billion in stock as of 2022.

Qatar provided the most FDI among GCC countries, investing $9.9 billion, followed by the UAE with $3.4 billion.

Turkey has announced framework agreements for bilateral investment with the UAE reaching over $50 billion.

This influx of capital has supported Turkey’s economic growth and development.

Strategic Sectors

Trade with Muslim-majority nations has benefited key strategic sectors of Turkey’s economy:

The defense industry has seen growing interest from countries like Malaysia, Indonesia, Thailand, and the Philippines in Turkish products such as armored vehicles, weapon systems, and drones.

Turkey has become a hub for Islamic finance, attracting investments and business in this growing sector.

Infrastructure and construction projects in Muslim-majority countries have provided opportunities for Turkish firms.

These sector-specific benefits have contributed to Turkey’s overall economic growth and technological advancement.

Challenges and Future Outlook

While trade with Muslim-majority nations has generally been positive for Turkey’s economic growth, some challenges remain:

Political tensions with certain countries, such as Egypt and some Gulf states, have at times disrupted economic relations.

Turkey still faces trade deficits with some of its Muslim-majority trading partners.

The recent economic crisis in Turkey and currency depreciation have impacted trade volumes.

However, Turkey is actively working to overcome these challenges:

The government has launched an “Export Development Strategy with Islamic Countries” aiming to increase Turkey’s export share to Islamic nations from 26% to 30%.

Turkey is pursuing a free trade agreement with the Gulf Cooperation Council, which could further boost economic ties.

The country is leveraging its strategic position as a potential transport corridor between Europe and the Middle East to enhance its economic role.

Conclusion

Turkey’s increased trade with Muslim-majority nations has significantly contributed to its economic growth by expanding export markets, attracting investment, and supporting key industries. While challenges exist, the ongoing focus on these relationships suggests they will continue to play a crucial role in Turkey’s economic development in the coming years.