Turkish Energy Sector impacts the Turkish economy. Turkish dependence on the energy sector from imported energy is having a massive impact and consequences on its economy in recent years and it will further shape the countries future and economy. In what way the economy and energy sector interact will be further explored. The major economic data and data about energy sector will be provided. Since the year 2000 onward, many improvements in the energy sector have been made and also resulted in a better economic situation that was impacted by the world economy crisis but has been further developing. Many challenges still exist and if the way of development will go on recording to the outlined directions, strategies and policies the growth of the economy is inevitable. Changes are still needed in area of diversification of the energy sector and broaden specter of energy suppliers. It needs to be taken into account that various factors have an influence on the economy and energy sector is just one of them. With the improvement and development of reviewable and nuclear energy, Turkey can make much improvement that will further boost the economy.
The essay Turkish energy sector and its implications for the economy, for the year 2000 will focus on the type of economy present in the east country, how energy sector is divided, further exports and imports of the economy will be examined and the overall economic and energy situation in Turkey. First and short basic theories about connection of energy and economy will be described. The essay will follow the main thesis to: Turkish dependence on the energy sector from imported energy is having a massive impact and consequences on its economy in recent years and it will further shape the country’s future and economy.
Many theories have so far studied the connection between energy and the economy, but there is no world excepted method that has been recognized. Increase in energy consumption means an increase in the transport of energy. Worldwide we have seen growing of energy consumption with growing GDP, development and increasing number of population. Time and place matter for the energy since it is a commodity. Transport of energy has been perceived as a major economic activity. The Turkey Data Monitor shows that with GDP growing also consumption of energy has been rising in Tukey. But what is the real connection between those two factors is a subject of debate. Based on the Stern (2010 1-30) many theories exist and there are many that are not sufficient. On one side, he explained the physical point of view, that argues that energy is necessary for economic production and therefore for economic growth but on the other side with an examination of the mainstream theories of economic growth mostly none pay attention to the role of energy. In the mainstream theories, energy is not regarded as a factor that has influence on the economy, but oil prices are important on a short run. The ecological economic model is one that includes economic growth as a major important factor. Stern summons up that theories that try to explain the growth of economy with ignoring the energy are not right, but also others that try to explain growth entirely as a function of energy supply with ignoring information, knowledge and institutions are also wrong. That is why this paper will focus on much more than just a core examination of economy and energy consumption, but rather on the broader aspect, such as a political system, geography of the country, history, development, institutions and recent development.
Energy is necessary for economic development and achieving growth. With higher income more demand for cleaner energy exists. Technological expansion has been seen and with it more efficient and effective use of energy. Electricity is the main key to provide energy access. In order to reach all that a healthy economy is needed. The economy provides that demands are met, investments and infrastructure put in place and necessary resources for development and research are guaranteed. Cost benefit analyses between costs and benefits and prices and costs need to be made. Research and development result in lower energy consumption and higher production of GDP. To put all that in place government needs to provide policies with private sector involvement (International Institute for Applied Systems Analysis 2012, 285-417).
Turkey lies in an important strategic location, representing the ties between the Middle East, in the Caspian region where major oil production is seen and developed and consumer markets in Europe. Importance of the Bosporus and Dardanelles, the connection between the Mediterranean and Black Sea through which many billion barrels of crude petroleum and oil goes. Many important gas pipelines lie in this area. Turkey invested in the last fifteen years a lot into the energy sector reform. With the change the necessity for energy is also growing. Not so long time ago the country had stated owned, vertically-integrated model and has gone to total privatization of electric distribution, gas market, renewable energy and natural gas market. A lot of changes were seen in the legislation, forming new regulatory bodies that carried out the necessary reform. Based on the World Bank (2015, 7) report the first electrification was accomplished by mid 1990s and have since than grown for more than 100% by the year 2014. With growing needs for energy also challenges are rising.
With regulatory framework the country managed to create a more efficient energy sector with a better functioning energy market and distribution. A lot of changes followed with the prospect of North Atlantic Treaty Organization (NATO) country to become and European Union (EU) country also. Many reforms were made in the light of the EU’s electricity and gas directives and energy reforms in Europe. In the light of economic crisis also Turkey was not spared and with the help of the International Monetary Fund (IMF) and World Bank (WB) changed measurement also in the energy sector. They manage to “provided for sectoral restructuring, the establishment of electricity and gas markets, market opening, electricity suppliers (traders), bilateral contracting, open access to networks, and the establishment of an Energy Market Regulatory Authority (EMRA)” (World Bank 2015, 13). The basic foundations were built, but that is far from that what could guarantee its mere success in the future. The economy of Turkey is growing from year to year and with it also energy needs. Turkey is confronting challenges to secure energy supply from which the welfare of its citizens depends. In 2004 adopted Electricity Strategy included many of the steps that were taken in order to provide a more secure energy environment. With the possibility of consumers choosing the energy supplier, electricity market opened after 2003 with growing electricity market participants. About 70% (World Bank 2015, 30) is currently traded through bilateral contracts. During the years 2002 to 2007 we have seen economic growth over 6% per year. After the year 2008 with economic downturn annual growth rate fall drastically below -4 %. The economic growing rate since 2010 settled in 4-5% per year (Turkey Data Monitor). Shares of total installed power since the year 200 forward has been in favor of private share that has since 2000 when the private share was only 13% grown to the 55% till the year 2014 (World Bank 2015, 31). Reverse trend is seen for public share.
What challenges does Turkey confront regarding the economy and energy sector? The stability has been under question in the geographic location of the country and the region location which has been for a long time caught up with rivals, fights, conflicts and civil war. In the restless Syria, where civil war is ongoing for more than five years and other conflicts in the neighborhood have an effect on the economy of a country located on two continents. Unstable conditions result in higher prices for energy especial vulnerable is the gas sector. The country has also international disputes (CIA World Factbook) with Greece over Cyprus, Syria and Iraq regarding the hydrological projects, Kurdish problem in Iraq and inside the country, unsettled history disagreements with Armenia. In current events refuges and internally displaced persons present and issue too. The country is also important rout of illicit drugs from Asia to Europe and US. All those reasons and issues mentioned above weaken the Turkish economy. Another problem among restless neighborhood and the region is also a current account deficit, increased interest rate, which results in reduced investor confidence. Political instability is another key factor (Turkey Data Monitor). Energy sector based on the World Bank report (2015, 16) needs improved governance, increased transparency and secure public support. The issue Turkey is dealing with that represents a threat to stable economy is deterioration of geopolitical situation as already pointed out in the Middle East, but also Ukraine and issues with Russia and the last year plane’s shoot down. The dependence of Turkey and its economy on imported oil plays very important role and the energy demand have resulted also in changing policy.
Based on the CIA World Factbook estimations Turkey produced in 2012 228.3 billion kWh, which ranked the country in the 12 place worldwide. The electric consumption was 197 billion kWh in the same year with ranking on the 20 place worldwide. Electricity import was a lot higher that the electricity export (1.236 billion kWh compere to 7.425 billion kWh). 61% of the electricity comes from fossil fuels, 34.3% from hydroelectric plants and 4.6% from renewable sources (CIA World Factbook). Support for renewable energy has been established with potential of installing solar facilities. More progress so far has been seen in the hydro development and renewable energy financing. There are also nuclear power interests in the county. Till this day they do not produce and power from nuclear plants, but it has been mentioned in many projects. The negotiations were made by Russia government and French-Japanese consortium with plans of building two plants (World Bank 2015, 37-40). Leaving the disadvantages of nuclear energy behind this could be as stated in the Turkish energy strategy the solution in a long turn to secure supply, diversification and the answer to global changes, since if the economy continues to grow at this rate 4-5% as it is today the demand for energy will grow 4-5% annually. Government plans are diversification of energy market with various resources from limiting the gas, growing usage of renewable, lignite, and starting nuclear projects. In all sectors, but nuclear one the private sector playa a basic role. The Most important data described regrading electricity can be seen in the Table 1 below retrieve from the Turkey Data Monitor. The consumption of electricity as also the other energy resources has been steadily growing.
Source: Turkey Data Monitor.
Based on OEC Turkey is the 27th largest export economy in the world and based on the Economic Complexity Index 40th most complex economies. Turkey is producing country of natural gas where the difference between import and export is vast. Turkey is scaled on 8 places of all the world countries of gas import and on 40 places of export. It is ranked among 17 countries that consume most of the natural gas. When saying that one needs to have in mind that Turkey also have big number of the population and that data should be calculated on one citizens to be comparable to the rest of the world (CIA World Factbook and Turkey Monitor Data). Rapidly growing economy has been achieved through increased population. Because of demographic and economic growth, Turkey has become an important energy market. As seen before lignite and oil are the main energy sources. Turkey needs to consider diversification of import and export countries. The major trading partners are not diverse. In the oil monopoly of import is seen basically from Russia. As of 2012 the main trading partners of Turkey were Germany, Russia and Iran. With 90% of Turkey oil and gas being imported is being portrayed in negative effects on the economy and also on the national security (Turkish Statistical Institute 2012, 20). Though the country is part of the EU INOGATE energy program which main aim is to enhance the energy security, attracting investment in energy sector and support sustainable energy development. Major trading partners of all goods and comedies also the oil and natural gas of Turkey in the top export countries we find are Germany, Iraq, the United Kingdom, France and Italy. The top import origins are Germany, China, Russia, Italy and the United States (The Observatory of Economic Complexity).
As seen from Table 1 domestic demand in the founding member of OECD and the G-20 major economies and partner of the EU Customs Union has outgrown the foreign one and this change came after the economic crisis. Turkey’s main exporting region is Europe and their demand has shrined in the year of the greatest economic crisis. The private sector is the main contributor to the GDP growth that has overall, showed and ranked Turkey in one of the biggest economies in the world. Most goods and services are being imported and there could one assume since it is the same in the energy sector that country may be vulnerable to the outside factors and countries of import. The industry represents the biggest part of the economy, following by services and agriculture. The discrepancy and the big difference between import and export is mostly due energy demand for crude oil and natural gas (Turkey Data Monitor).
Source: Turkey Monitor Data.
The essay has followed the main thesis to prove: Turkish dependence on the energy sector from imported energy is having a massive impact and consequences on its economy in recent years and it will further shape the countries future and economy. The paper has shown that dependence in the energy sector in Turkey is big and some steps have already been made to reduce that and to provide more secure and environmentally. Major importing partner is Russia, with which in the history, many tensions and disagreements arose. Many theories have been examined and they have different views on how the economy and energy sector are connected. Some have anticipated non correlation and some big influence. In the paper I used the middle road between two opposing poles and tried to prove that energy sector plays important role in economy of Turkey but on other did not forget the role other factors have. Turkey location in the restless region where many unresolved disputes still exists. Iraq, Ukraine, and Syria are a possible destabilizing factor in the country for investors are “scared” of location that can get involved in a conflict. Another side is also shifting polices in Turkish government and its still not totally democracy. Many protests were seen recently and many human rights abuses which all effect the economy of certain countries. Turkey is one of the biggest economies in the world based on its GDP and challenges ahead to secure energy environment has already been addressed. The country has even prior the economic crisis made some progress with cooperation with IMF, EU institutions and the World Bank. They open and privatized the energy sector, improve and established new bodies that are responsible for the whole country energy framework, the numbers of investors, consumers and diversity of actors in the energy sector has grown. Turkey started to explore options and made some strategies and deals in order to start to explore the renewable energy resource and also made a long term plans and deals with two different companies that will in future play important role in providing nuclear power. Economy in Turkey depends on outside sources that need to be imported in order to work and that are why the economy is vulnerable because of price changes and in situation of disputes with major importing countries. Its important regional location being the bridge between Middle East and Europe is going to take development of Turkey forward. There is still much improvement that needs to be made, but there has been made the corner steps to begin development in more democratic, liberal, sustainable and diversely way.
Cia.gov,. "The World Factbook". N.p., 2016. Web. 4 Jan. 2016. https://www.cia.gov/library/publications/the-world-factbook/geos/tu.html
IIasa,. "Iiasa". N.p., 2015. Web. 4 Jan. 2016.
Atlas.media.mit.edu,. "OEC - Turkey (TUR) Exports, Imports, And Trade Partners". N.p., 2016. Web. 4 Jan. 2016.
Stern, I David. (2010). The Role of Energy in Economic Growth. Web. http://ccep.anu.edu.au/data/2010/pdf/wpaper/CCEP-3-10.pdf
The World Bank. (2015). Turkey’s Energy Transition: Milestones and Challenges. Web. http://www-wds.worldbank.org/external/default/WDSContentServer/WDSP/IB/2015/10/28/090224b083174b65/2_0/Rendered/PDF/Turkey0s0energ0tones0and0challenges.pdf
Turkeydatamonitor.com,. "TURKEY DATA MONITOR". N.p., 2016. Web. 4 Jan. 2016.
Republic of Turkey Ministry of Foreign Affairs,. "From Rep. Of Turkey Ministry Of Foreign Affairs". N.p., 2016. Web. 4 Jan. 2016.
Turkstat.gov.tr,. "Welcome To Turkish Statistical Institute(Turkstat)'S Web Pages". N.p., 2016. Web. 4 Jan. 2016.