Chapter 19. Turkey: Small Business Act profile

EU financial support

Over EUR 9 billion of EU financial assistance has been planned for Turkey from 2007 to 2020 through the Instrument for Pre-accession Assistance (IPA). While the EC has proposed significantly cutting the overall indicative allocation to Turkey for the 2018-20 period on the basis of a performance and progress review in 2017, total EU financial assistance to the economy remains substantial (EC, 2018[23]). IPA I (for 2007 to 2013) allocated EUR 4.58 billion in total; with significant amounts earmarked for projects fighting the informal economy, growing the entrepreneurship ecosystem to increase youth employment and developing employee capacity. IPA II (for 2014 to 2020) allocates EUR 4.49 billion in total; 7.7% is dedicated to competitiveness and the innovation sector, while 9.7% is budgeted for education, employment and social policies (European Court of Auditors, 2018[24]). Compared to IPA I, IPA II gives a higher priority to innovation, while reducing infrastructure funding support (EC, 2018[23]).

The Turkish economy benefits from numerous EU-funded support programmes. These include Horizon 2020, the biggest EU research and innovation programme to date; as well as Competitiveness of Enterprises and Small and Medium-Sized Enterprises (COSME); and Employment and Social Innovation (EaSI). These programmes address SME development, competitiveness and innovation by supporting the development of adequate labour market policies, facilitating access to finance, fostering internationalisation and enhancing innovative entrepreneurship support for start-ups and SMEs.

Since the mid-1990s, the European Investment Bank (EIB) has been supporting Turkey’s development and integration with the EU; it has lent over EUR 28.6 billion since 2000 (EIB, 2018[25]). A key focus of the bank’s investments has been SME support: SMEs have accounted for about 54% of the total EIB financing in Turkey, which reached close to EUR 2.1 billion in 2014 (EIB, 2015[26]).

Entrepreneurial learning

Entrepreneurial learning is an integral part of Turkish government policy, promoting a strong entrepreneurship culture, steering the entrepreneurship ecosystem and contributing to the competitive power of the economy. Both the Tenth Development Plan and the Turkish Entrepreneurship Strategy and Action Plan 2015-2018 provide an overarching policy framework for specific regulations and support measures for lifelong entrepreneurial learning in formal education and non-formal learning. Along with health, justice and safety, education is one of Turkey’s top policy priorities. Turkey’s recently launched 2023 Education Vision structures the government’s actions around equipping the new generation of young people, as well as adults, with scientific and critical thinking; developing a culture of questioning and research; and promoting key competences that comprise knowledge, skills and universal values essential for the competitive economy, democratic information society and sustainable development (MEB, 2018[28]).

These government actions are co-ordinated by the Entrepreneurship Council, which includes ministries, public organisations and non-government organisations (NGOs). The council provides a formal platform for the national policy partnership, supported by the SME Development and Support Organisation (KOSGEB) in its co-ordinator role. The council is also in charge of policy monitoring and evaluation. The Entrepreneurship Strategy and Action Plan has ten actions for entrepreneurial learning; these are implemented by the Ministry of National Education (MoNE). KOSGEB, the Council of Higher Education (YÖK) and other organisations, and form part of the annual progress reporting. The Entrepreneurship Council’s provision of strong, formal policy co-ordination and an oversight structure at policy level is an asset; however, given its size and the fact that it meets annually, it is important to establish a more flexible co-ordination mechanism below this top level. That would allow the main stakeholders with a specific interest in promoting entrepreneurial learning or women’s entrepreneurship to collaborate in the interim.

The government aims to include entrepreneurship in the curricula at all levels of education, launch entrepreneurship projects at schools, implement an “entrepreneurial school” concept and organise school entrepreneurship clubs. At the national level, entrepreneurship is widely promoted through the media and a variety of contests and awards. Entrepreneurship as a key competence is addressed at system level in different forms and throughout the formal education system. Entrepreneurial learning is now guided by the 2023 Education Vision and regulated by a whole range of strategy and implementation documents. These include the Turkish Lifelong Learning Strategy Document and Action Plan 2014-2018, the Strategic Plan of the Ministry of National Education 2015-2019, and the Education Vision 2023. It is supported by cross-sectoral agreements such as the Applied Entrepreneurship Training Co-operation Protocol between KOSGEB and MoNE’s Directorate General of Vocational Technical Training. The adoption of the Education Vision 2023 is an important policy development, reflecting the most up-to-date strategic thinking and aiming to equip Turkey’s youth with modern competences. It helps motivate youth to find solutions to community problems through support for social entrepreneurship. Over 2018-23, support for social entrepreneurship programmes will include preparing small-scale pilots, large-scale pilots, economy-wide pilots, monitoring, evaluation and improving.

At system level, the entrepreneurship key competence is embedded in the main philosophy of education programmes and constitutes a cross-curricular element in the primary and lower secondary education curricula. Entrepreneurship is also offered as an optional subject at upper secondary level, and is a compulsory subject in vocational and technical education. The cross-curricular concept is based on the integrated learning outcomes approach and is also applied to developing students’ digital key competence, for instance in the Information Technology and Software Curriculum (Grades 1-4 of primary school) in the 2018-19 academic year. Higher education follows a cross-curricular model promoted through the KOSGEB Practical Entrepreneurship Course, with many years of successful implementation across the university system. More than 150 000 students benefited from this course in 2017-18; its graduates are also eligible to apply for the KOSGEB New Entrepreneur Grant. The Entrepreneurship Foundation offers fellowship programmes to university students and supports training and mentoring for young entrepreneurs.

The new 2023 Education Vision sets high targets for teacher orientation. It recognises the importance of teachers’ role in preparing their students for the competitive world and offers them more power and support. The vision announces a “paradigm shift”: changing teachers’ mindsets and equipping them to facilitate a competence-based education process, to act as “learning guides” and to apply innovative active teaching and learning methods (Çengel, 2018[29]).

Support for teachers’ development of the entrepreneurship key competence is now widely offered through in-service teacher training programmes, organised both at system level and as demand-based training. These programmes benefit from support by different stakeholders, including a co-operation protocol between the Ministry of National Education, the Ministry of Industry and Technology and the Scientific and Technological Research Council of Turkey (TÜBİTAK), to train a group of teachers in innovation and entrepreneurship. Some university education faculties offer an entrepreneurship course in pre-service teacher training, following an agreement between individual universities and KOSGEB. However, preparing Turkey’s large teaching workforce to meet the challenges of establishing a competence-based learning environment remains a major objective for the near future.

Co-operation between enterprises and education institutions is key to providing practical entrepreneurship experience and a major driver influencing graduates’ future entrepreneurial career choices. Co-operation practices range from entrepreneurship projects and role models in high schools provided by Junior Achievement Turkey, to incubation centres and technoparks in Turkish universities supported by KOSGEB and TÜBİTAK. Both the Entrepreneurship Strategy and Action Plan and the Vocational and Technical Education Strategy (2014-2018) provide incentives to the private sector to engage with vocational and technical schools, including private ones, within and beyond organised industrial zones. Moreover, practical entrepreneurship experience is now featured in vocational education and training (VET) internships in companies, and MoNE co-operates with the provinces to promote both entrepreneurial initiatives and access to start-up funding for students who have successfully completed apprenticeship training. This cross-sectoral policy approach to entrepreneurial learning is demonstrated in the National Employment Strategy and Action Plan 2017-2019, supporting project-based innovation and entrepreneurship through education system actions and Active Labour Market Programmes. While entrepreneurship careers are currently more vigorously targeted at university graduates, making entrepreneurship a viable choice within VET career guidance remains an important objective.

The Turkish government closely monitors the actions that support entrepreneurial learning but evaluating the impact of its policies on the career satisfaction of those leaving education remains a system-level challenge in Turkey. This has led to the newly established Initial Vocational and Technical Education E-Graduate tracking system that looks, among other things, at links between education system learning outcomes and the skills applied by VET graduates in both waged employment, and self-employment or entrepreneurship careers. It represents good practice both within the Turkish policy environment and among WBT economies (Box 19.2).

Women’s entrepreneurship

Support for women’s entrepreneurship is well articulated in Turkish policies as an integral component of women’s economic empowerment and other related policies. This includes programmes under the Tenth Development Plan (2014-2018) for improving labour market effectiveness and increasing female labour force participation and employment, which envisage comprehensive support measures to women entrepreneurs. Seen by the Turkish government as a cross-sectoral policy issue, women’s entrepreneurship is directly addressed in the Women’s Strengthening Strategy and Action Plan (2018-2023) in which women are given priority in support for innovation, productivity, employment and growth. These documents outline specific actions to stimulate women’s engagement in entrepreneurship in the sector of information and communication technologies, and to ensure availability of counselling and guidance for women entrepreneurs on business development. Measures to facilitate women's access to state support are planned and budgeted, with KOSGEB in charge of implementation.

Two other key government action plans also foresee a set of measures for supporting women’s entrepreneurship: the Entrepreneurship Strategy and Action Plan (2015-2018) and National Employment Strategy and Action Plan (2017-2019). The latter seeks to reduce women’s informal employment, among other actions. As part of the Entrepreneurship Strategy and Action Plan, the government is also promoting and expanding the Woman Entrepreneurship Ambassadors Project run by the Women Entrepreneurs Association of Turkey (KAGIDER); training needs analyses of woman entrepreneurs by the Women Entrepreneurs’ Council; and analysis of women’s entrepreneurship issues by the Ministry of Labour, Social Services and Family. The Entrepreneurship Strategy and Action Plan also aims to develop and implement a sustainable support system for women entrepreneurs in Turkey. These highlight the government’s substantial efforts to build a comprehensive policy support framework for women entrepreneurs – among other special target groups – that would ensure long-term, sustainable results and promote cross-sectoral policy linkages.

The Entrepreneurship Council is strongly promoting women’s entrepreneurship, implemented through non-formal partnerships involving both government and non-government organisations ranging from ministries, KAGIDER, the Union of Chambers and Commodity Exchanges of Turkey (TOBB), the Women’s Entrepreneurship Board, and the Turkey Business Women Association, to Vodafone Turkey and the Turkey ICT Foundation. Many partners are engaged in awareness raising and promotion, including the Ministry of Labour, Social Services and Family, KOSGEB and TOBB. The Confederation of Turkish Tradesmen and Craftsmen (TESK) has run entrepreneurship training for women as part of EU projects funded by the Instrument for Pre-accession Assistance (IPA) and also through close co-operation with KOSGEB. Since 2012, 645 women have been certified as entrepreneurs. Women were also given entrepreneurship training by the TESK ADAPTESK project funded by IPA. One awareness-raising action by KOSGEB envisages organising annual contests for successful women entrepreneurs. Partners also share good practice in women’s entrepreneurship; one example is the organisation of International Women in Business Meetings by the TÜRKONFED Women in Business Commission, in partnership with its member associations and international organisations (UN Women and the United Nations Development Programme, UNDP). The government has also engaged major international support, including from the EBRD through its Finance and Advice for Women in Business Programme funded by the EU and the Republic of Turkey. The European Union; the Turkish Ministry of Labour, Social Services and Family; and the Turkish Employment Agency (İŞKUR) are supporting the programme for women entrepreneurs with EUR 38 million for credit enhancement, advice to small businesses and technical assistance for partner banks.

According to KOSGEB, women’s participation in the government-supported entrepreneurship programmes is increasing, with the share of women attendees at KOSGEB’s entrepreneurship training reaching 47%. Women also made up 47% of the 40 000 people who attended entrepreneurship training programmes organised in co-operation with İŞKUR under the Entrepreneurship Support Programme.

The government – through KOSGEB – monitors and evaluates the implementation of all programmes under the Entrepreneurship Strategy and Action Plan. It consolidates progress reports and presents them to the Entrepreneurship Council once a year. While the monitoring data are published in the Annual Activity Reports, access to evaluation results is confined to the data and analysis under the overall framework of the Entrepreneurship Strategy and Action Plan implementation, and in a number of programme-based reports (e.g. the EBRD’s Finance and Advice for Women in Business Programme).

Preventive measures and bankruptcy procedures

The insolvency regime is primarily governed by the Enforcement and Bankruptcy Law, enacted in 2004. The Turkish Commercial Code, Code of Obligations, Code of Civil Procedure and the Banking Act also govern some aspects of the insolvency system. Although the bankruptcy legislation does not apply to public organisations covered by the Public Financial Management and Control Law No. 5018, it applies to revolving fund enterprises of public organisations.

Until 2018, the Turkish legal framework proposed two main options: bankruptcy resulting in liquidation and postponement of bankruptcy. The latter was a stipulation enabling an insolvent company to avoid liquidation if its financial situation could be improved. Due to its nature, this mechanism could not be considered either as an out-of-court settlement or a debt restructuring scheme.5 Thus, according to private sector interviews, it was mainly used by debtors as a tool to threaten creditors and to gain time as the postponement could be extended for up to seven years.6 Applications to postpone bankruptcy were introduced in 2003, suspended in 2016 and resumed as of March 2018.

As bankruptcy postponement was not serving its intended purpose, the legislature made a new amendment to the Enforcement and Bankruptcy Law in March 2018.7 The amendment introduces “concordat restructuring”, a reorganisation scheme under the jurisdiction of commercial courts. Therefore, the process cannot be qualified as a pre-bankruptcy out-of-court settlement. Following these changes to the legal framework, two main proceedings are now available for distressed companies:

1. 1. Bankruptcy resulting in liquidation, which can be initiated in three different proceedings: 1) ordinary bankruptcy, where a creditor initiates a bankruptcy proceeding against a debtor for debt collection purposes; 2) special bankruptcy, where a creditor holding a negotiable instrument (e.g. cheque, bond) can initiate special bankruptcy proceedings; and 3) direct bankruptcy, where a creditor or a debtor can file for bankruptcy.

2. 2. Concordat restructuring where a debtor who is currently unable to pay their debts – or likely to be unable to do so in the future – can conclude an agreement with creditors to restructure, reschedule or reduce the debt. Following the debtor’s application, the specific restructuring agreements must be signed within two years. The approval of the agreement requires a double majority: half of the creditors representing at least two-thirds of the claims. The restructuring is subject to the ability of the company to repay its debts following restructuring. However, non-preferential creditors are not protected and the debtor can get rid of his or her debts by paying what is agreed in the concordat. If the requirements are not met, the reorganisation is refused by the court, resulting in liquidation.

According to Article 206 of the Enforcement and Bankruptcy Law, following the court’s decision secured creditors are able to seize their collateral after reorganisation (no automatic stay) and they are paid first out of the proceeds of a bankrupt firm’s liquidation. The law also stipulates that tax debts take priority over any other debts during bankruptcy. It gives top priority to the receivables of employees, including indemnities. There are restrictions; for instance creditor consent should be sought when a borrower files for reorganisation.

Bankruptcy decisions are published in the Trade Registry Gazette and the courts inform the relevant chamber of industry or commerce. However, following the decision, removal from the bankruptcy register and from the national credit blacklist is not automatic. The owner of the company needs to apply to the court, and the court informs all related bodies about closing the bankruptcy case including the Trade Register Office, the Banks Association of Turkey, chambers of commerce and/or trade, and the Capital Markets Board.

The public credit registry and the private registry credit bureau manage the exchange of credit information among financial institutions. Information on positive and negative credit is stored in the system. An entrepreneur can be deleted from these credit databases five years after full discharge.

Turkey has also established a National Judiciary Informatics System (UYAP) as an e-government initiative (see “Digital government services for enterprises” in Section Operational environment for SMEs (Dimension 4)) to reduce the time and cost of court processes, as well as increase the transparency of the judiciary system. As a central network project, UYAP encompasses all courts, public prosecutor services, prisons, other judicial institutions and other government departments in Turkey. Users and administrations can follow all the steps through the online system.

However, despite measures to lower the time and cost of resolving court cases, Turkey remains the poorest performer on resolving insolvency in the WBT region according to World Bank Doing Business indicators (World Bank, 2018[18]). In 2018, it took five years to resolve a case on average, compared to 3.3 years in 2015 (this was partly the result of the suspension of bankruptcy8 between July 2016 and March 2018). Insolvency procedures cost 14.5% of the debtor's estate.9 Major expenses include government charges at 4.5% and attorney fees at about 5% of the total expenses; the fees of administrators, auctioneers, accountants and other professionals involved in the insolvency proceedings make up the rest of the expenses. The recovery rate has fallen by almost half, from 27.9 cents on one owed dollar in 2015 to 15.3 cents in 2018. It should be added that Turkey is the only economy in the WBT region where the recovery rate has fallen (World Bank, 2018[18]).

The national SME Development and Support Organisation (KOSGEB) – as well as chambers of industry and commerce, banks and development agencies located in NUTS II regions – disseminate information on the government support available for entrepreneurs experiencing difficulties. Turkey is currently the only economy with websites or call centres for entrepreneurs concerned about their business failing; these are run by KOSGEB.

The economy’s bankruptcy early warning infrastructure is poorly developed. The current system identifies companies when they are already distressed based on five financial indicators: 1) credits transferred to non-performing loans; 2) late or delinquent credit payments; 3) levy on immovable and movable assets; 4) cancelled cheques; and 5) protested bills.

Promoting second chance

There are no civic or economic consequences or restrictions are imposed during the period of bankruptcy that might prevent entrepreneurs from having a fresh start. However, according to private sector interviews, the government does not have an information campaign on promoting second chances. No public measures exist at local or regional level. There are also no training courses for entrepreneurs on starting afresh, and no information on second chance procedures on the government website.

Second chance is mentioned under the Turkish Entrepreneurship Strategy and Action Plan. The action plan aims to facilitate a second chance for bankrupt entrepreneurs but the strategy does not provide details on specific measures to achieve this.

Institutional framework

The SME Strategy (2015-2018) is a well-developed, comprehensive document that is aligned with the national development strategy, the Tenth Development Plan (2014-2018). The key objectives of the SME Strategy revolve around export promotion and internationalisation, enhancing innovation and facilitating access to finance. Its measurable targets comprise: 1) increasing SME exports to USD 150 billion; 2) increasing the number of exporting SMEs to 60 000; 3) increasing the share of SMEs in commercial R&D expenditures to 33%; and 4) creating 3 million new jobs in SMEs. The Eleventh Development Plan was being prepared at the time of writing, with the Presidency’s Annual Work Plan announced in October 2018 outlining the key actions to be carried out until the end of 2019. It builds on the Tenth Development Plan, including the same overarching targets across various policy areas (Box 19.4).

As noted in the previous assessment, the leading SME implementation agency is the Turkish SME Development and Support Organisation (KOSGEB), affiliated to the Ministry of Industry and Technology. KOSGEB’s General Assembly consists of government representatives as well as organisations representing the business sector and civil society. Its Executive Board also includes high-level representatives from the public and private sector. KOSGEB is a well-resourced SME agency, covering a wide range of SME supporting projects and programmes. Its regional offices give it a presence in all 81 of Turkey’s provinces.

The SME strategy is monitored twice a year, at the end of January and the end of July. The organisations responsible for implementing the strategy submit their Target Progress Reports to KOSGEB, whose Strategy Development and Financial Services Department is responsible for overall monitoring. According to KOSGEB, 65 of the SME Strategy Action Plan’s actions were in progress at the beginning of 2018, with 27 actions completed as of November 2018.

In 2018, Turkey amended the definition of SMEs, increasing the upper limit of annual net sales or financial balance sheet items to TRY 125 million (around EUR 22.5 million) from the previous TRY 40 million (around EUR 7.2 million). This resulted in about 9 000 additional enterprises qualifying as SMEs, i.e. those employing fewer than 250 employees, leaving only approximately 10 000 enterprises classified as large enterprises.

The informal economy is addressed by the Programme for Reducing the Informal Economy (2014-2018) as part of the Tenth Development Plan, published by the Revenue Administration in 2015. The programme aims to reduce both the informal economy’s share of GDP and the share of informal employment in the non-agricultural sector by 5 percentage points. The programme’s main actions include: 1) promoting voluntary regulatory compliance and improving the level of regulatory compliance; 2) strengthening the audit capacity of the responsible institutions and legislation review; 3) increasing awareness of the informal economy’s harmful nature in the private sector and in society as a whole; and 4) improving inter-agency data sharing on the informal economy and enhancing overall inter-institutional co-operation in this area.

Legislative simplification and regulatory impact analysis

Legislative simplification in Turkey is part of the SME strategy. Business-related legislation with an impact on SMEs is being reviewed and simplified under the strategic target of “protecting SMEs in the process of improving the business and investment environment”. However, to date no information on the proportion of legislation reviewed or simplified as part of the SME strategy has been made publicly available.

The Prime Minister’s Office launched the Reduction of Bureaucracy and Simplification of Legislation (BAMS) initiative in 2014. To date, BAMS has resulted in 348 amendments to business-related regulations, the elimination of 3 148 documents from various application processes, and the digitalisation of a number of business-related services. BAMS also saw 406 business-related documents digitalised and the SME Information System commissioned in February 2018 (for more information on e-government, see Section Operational environment for SMEs (Dimension 4) on the operational environment for SMEs).

Measures aimed at simplifying legislation were also included in the Action Plan of the Programme for Reducing the Informal Economy (2014-2018). These mainly relate to facilitating transactions and operations in the taxation process. According to the progress report, by the end of 2015 all transactions in the taxation process had been revised and necessary amendments made. No new actions have been introduced or conducted since.

In Turkey, regulatory impact analysis is conducted for some business-related legislation. As of July 2018, the main institution in charge of RIA is the Presidency Organisation, which took over this task from the Office of the Prime Minister. The RIA Guide underlines the need to examine impacts on SMEs as part of the analysis. According to the Regulation on Legislation Preparation, a full RIA is formally required for business-related legislation whose probable annual effects are above TRY 30 million (around EUR 5.4 million). A partial assessment is required for draft legislation which falls below this threshold. However, as a previous OECD study showed, in practice RIA is not conducted regularly, and even those draft laws with expected impacts over the TRY 30 million threshold lacked appropriate impact analyses (OECD, 2017[34]). The same study also showed that there was no evidence of a systematic review of policy proposals against set government priorities or of quality control of the RIAs carried out by ministries initiating the legislation (OECD, 2017[34]).

The RIA threshold was changed during the reference period. It had been set at TRY 10 million (around EUR 1.8 million) then raised to the current level in 2016. This change is expected to reduce the already relatively low frequency of RIA in Turkey. Finally, as for the last assessment, no RIAs are made publicly available on line.

Public-private consultations

Public-private consultations (PPCs) are still not formally required in Turkey. As in the previous assessment cycle, there are no legal or regulatory frameworks in place that define the general principles or procedures for conducting PPCs. While the RIA Guide encourages consultation with all related stakeholders, it is not mandatory. To date there is also no centralised online portal that lists all ongoing PPCs in Turkey, and participants’ views in PPCs are not made public. Nevertheless, the National E-government Strategy (2016-2019) stipulates the introduction of a Legislative Participation Portal, to monitor legislative work conducted by the government and collect stakeholders’ views on these legislative developments. It is not clear, however, whether this portal will act as an online PPC platform once it is established.

Private sector engagement is strongest in Turkey when developing new strategies and action plans. For instance, a wide group of stakeholders was consulted during preparation of the SME Strategy and the Entrepreneurship Strategy. Turkey also has councils designed to facilitate consultations with interested parties. For instance, the Entrepreneurship Council was established in 2012 and consists of public, private and academic representatives chaired by the Minister of Trade. It meets at least once a year to develop entrepreneurship through various initiatives. However, the same pattern is not observed for consultations on legislation. In 2017, only 40% of draft primary laws and 20% of draft subordinate laws were open to consultation. Like some other WBT economies, Turkish laws are predominantly adopted without any PPCs. In 2016, 83% of all laws were adopted this way, which is the highest share in the region, followed by the Republic of North Macedonia at 70% and Serbia at 65% (OECD, 2017[34]). An example of good practice is the technical sectorial committees established and chaired by the Ministry of Industry and Technology, with private sector association and business members. Consultations usually take place in these committees before technical legislation is adopted.

Private sector participation in PPCs is mostly indirect, occurring through the Union of Chambers and Commodity Exchanges and other business associations and chambers according to their area of work. When it comes to monitoring PPCs, no government body is responsible for overseeing the consultation process.

Digital government services for enterprises

Since the 2016 assessment, Turkey has made considerable progress in integrating digital government into public administration reforms.

In 2016, the Turkish government adopted the National E-Government Strategy and Action Plan (2016-2019), co-ordinated by the Ministry of Transport, Maritime Affairs and Communications. The strategy outlines the roadmap for digital government services and ensures continuity from the previous e-government strategy (2015-18). Four strategic targets have been established, in line with the previous strategy: 1) ensuring the efficiency and sustainability of the e-government ecosystem; 2) implementing common systems for infrastructure and administrative services; 3) achieving e-transformation in public services; and 4) enhancing use, participation and transparency.

As part of this strategy, the services offered by the e-government portal established in 2008 (https://www.turkiye.gov.tr/) have proliferated. The portal is designed to provide citizens and enterprises with a single access point for electronic services. It also functions as an interoperability system, allowing public sector agencies to interact with each other. Turkey also belongs to the European Interoperability Framework, which supports the economy’s efforts in establishing a fully functional interoperability network.

As of February 2016, the portal included more than 1 400 services from 216 different agencies, as well as information about administrative procedures and links to the services provided directly through each public agency’s website. There are over 26 million registered users.

In 2016, to widen the use and the range of electronic services, the Turkish government started to replace its non-electronic ID cards with electronic ones (e-IDs). The government expects to finish the replacement process by the end of 2020. By then the objective is to increase electronic authentication capacity for e-government services and update electronic service platforms to enable the use of e-IDs.

The system for filing tax returns on line is now fully operational. According to the 2017 ICT Technology Usage in Enterprises Survey, carried out by TUIC, 53.5% of all enterprises declared their VAT on line (TUIK, 2017[38]). The same survey also found that 55.8% of all enterprises filed their social security returns on line. Pensions are paid through the social security funds online payment system and some cadastre processes are carried out through the national portal.

There is no specific legislation yet for including e-government policies in public administration. Each ministry is responsible for their own domain according to their competences. However, to close this legislative gap, in September 2016 the government adopted the Regulation on the Procedures and Principles Concerning Conducting e-Government Services.10 This regulation aims to establish common binding principles for public institutions on digital services.

Despite Turkey announcing its interest in open government in September 2016, the Steering Committee of the Open Government Partnership has designated the economy as “inactive” because the government did not engage with the committee and has failed to deliver an action plan since 2014. As result, in 2017 Turkey was withdrawn from the partnership.

Open government data (OGD) is part of the 2016-19 National E-Government Strategy and Action Plan under the strategic aim of “enhancing usage, participation and transparency”. The planned actions cover a broad range of services such as developing an open data sharing portal, transforming public data into open data and sharing data, and developing a public investment and realisation monitoring portal. The strategy mentions developing actions to promote the reuse of OGD for economic value creation. One of the targets specified in the document is as follows: “Open data will be used to increase efficiency and create economic value with new products/services”. However, evidence shows that the appropriate legislation is lacking. According to the results of the OECD Open Government Data Survey 3.0, Turkey reported the absence of formal requirements stating the obligation of public sector organisations to anonymise data before publication. (OECD, 2018[39]).

The government uses surveys, conducted and assessed by TUIK as part of the Satisfaction in Life Survey, to collect information about the use, satisfaction with and effectiveness of e-government services. As a result, Turkey is one of the few WBT economies to collect data on satisfaction with public services and provide them in electronic format (Turkstat, 2017[40]). However, the entire survey is only available on request and after approval. The metadata is not provided in machine-readable format nor via a centralised web portal, but can be only acquired on a CD-ROM (Turkstat, 2017[41]). In addition there is no evidence that the administration makes adjustments based on the survey results or that there are any follow-up measures.

Business registration and licensing

Turkey offers one-stop shops for online company registration through the Central Commercial Registration System (MERSIS). However, this process is not yet fully digital; the entrepreneur must be physically present. Registration cannot be done at a single window – entrepreneurs are required to complete different steps at different windows in the same location.

Three company identification numbers are used during the registration process: 1) tax number (or tax identification number); 2) social security number; and 3) trade register number. All company types have to conduct a similar process. They have to register at the tax office, trade registry office and social security administration. For limited liability companies and corporate foundations, the companies have to deposit 0.04% of their capital at the Competition Authority.

Between 2016 and 2018, Turkey slightly increased the time needed to register a business by one day. At present, it takes seven days to complete the overall company registration process, including obtaining compulsory licences for standard business activities – this is the third quickest in the WBT region. However, the economy has the third highest cost of starting a business in the WBT region, at 10.6% of income per capita, after Bosnia and Herzegovina and Albania (World Bank, 2018[18]).

The Regulation on Business Licensing11 serves as written guidance on the procedure of obtaining a licence. Each ministry and municipality is responsible for issuing licences according to their competences. All decisions about whether or not to grant a licence are documented in writing. However, evidence shows that the information collected for a licence is not systematically shared with other authorities,12 so that entrepreneurs have to submit the same information for different processes. Thus, the licensing fees13 do not comply with the cost-recovery principle.14

The economy still does not digitally assign officials responsible for granting the licence. Turkey is planning to simplify the licensing procedure by introducing the perakende bilgi sistemi (PERBIS) platform. This already exists as a pilot and will serve as a centralised system for business licence applications, creating a single entry point for various applications. It is expected to start operating in the first quarter of 2019.

Evidence shows there is no generic law for applying the silence-is-consent15 principle in Turkey. Only one reference is made to it under Article 96 of the Enforcement and Bankruptcy Act, which states that the silence-is-consent principle is to be used in most areas of the public administration. However, the article stipulates that the meaning of the principle changes according to the area of implementation, i.e. silence does not always mean accepting the claims. There is no evidence that the principle has been adopted in other policy areas.

Tax compliance procedures for SMEs

Turkey has a single replacement tax regime for SMEs which brings together several elements. SMEs, unincorporated businesses which have an annual revenue of less than TRY 148 000 (around EUR 26 600) and an annual rental cost of less than TRY 7 400 (around EUR 1 300) in 2018 are subject to the single replacement tax regime called basit usul vergisi. This regime, aimed at micro businesses, was first introduced in 1998 to encourage the formalisation of businesses by simplifying tax compliance requirements.

A presumptive tax scheme exists for income taxation of unincorporated businesses, which is calculated on the basis of annual revenue and costs of renting (or imputed rental value if the entrepreneur owns the business property). Those eligible under the basit usul vergisi regime are not required to prepare withholding tax returns or to pay advanced tax. Moreover, their sales of goods and services are exempt from VAT, and they can deduct a standard amount of TRY 8 000 (around EUR 1 400) from their annual revenue. These businesses are also exempt from bookkeeping, and they are only required to complete a special tax return and submit it to the Tax Administration.

There are no tax incentives schemes for SMEs for other taxes. No information is available on the existence of any assessment of the effective tax burden imposed by presumptive tax regimes, or whether the tax scheme encourages businesses to remain small.

Legal and regulatory framework

Overall Turkey has a comprehensive legal framework for access to finance. However, the formal legal framework for secured transactions has room for further improvement. According to the World Bank’s Doing Business report (World Bank, 2018[18]), Turkey scores 7 out of 12 on the “strength of legal rights index”, which looks at creditor rights and collateralisation, compared to an average of 9 in the WBT region. Some improvements have been made since the previous assessment, including legislative changes stipulating that secured creditors are paid before taxes, thus strengthening creditors’ position in insolvency cases. Restructurings and enforcements through court proceedings tend to be lengthy. For example, insolvency proceedings can take five years and the recovery rate is very low (14.7 cents on the dollar compared to 58 cents on average in the EU) (World Bank, 2017[43]; World Bank, 2018[18]). No simplified or fast track in court proceedings exist for liquidation or reorganisation (for more information see Section Operational environment for SMEs (Dimension 4)).

There have been some positive developments regarding registers for pledges over movable assets. A new law on pledges over movable assets was passed in October 2016 and entered into force in January 2017. It allows for non-possessory pledges in commercial transactions – a major change from the previous legal regime. It is possible to establish a pledge over individual assets rather than all movable assets within a commercial enterprise as a whole. The law also allows pledges over prospective movables and future receivables and expands the list of parties allowed to enter into pledge agreements. These changes are a positive step towards making the registration process less cumbersome and are particularly important for small businesses, as they may not have sufficient fixed assets to pledge.

Turkey has one credit registry bureau, the Credit Bureau of Turkey (KKB), which covers over 80% of the population. The KKB also operates the Risk Center, established in 2013 to collect risk information for regulatory purposes and provide risk analysis services. However, it does not collect information from sources such as retailers or utility companies. Having a formal record of such information linked to a credit check would allow more individual and small entrepreneurs to build a credit history without having had access to a bank loan.

The Basel core principles have been fully implemented, including Basel III requirements. In addition, banks are required to disclose the risks of foreign exchange borrowing to their clients. To curb the weakening of the Turkish lira, Decree No. 32 came into effect in May 2018, prohibiting foreign currency lending to individuals and unhedged borrowers, and banning foreign-currency indexed loans.

Sources of external finance for SMEs (bank financing, non-bank financing and venture capital)

Bank lending has further expanded since the last assessment, with an annual credit growth of 9-21% since 2015. SMEs have also benefitted from this expansion in absolute terms – with SME lending almost doubling to TRY 693 billion in August 2018 from 389 billion in 2015 – even though their overall share in total loans has slightly declined, to around one-third of business loans (OECD, 2018[31]). One key driver for this has been the Credit Guarantee Fund, the KGF, which massively increased its operations thanks to significant Treasury backing. In 2017, guarantees of around TRY 200 billion (about EUR 36 billion) were extended under the scheme, compared to TRY 5 billion in 2016. The disbursement of these funds was aided by the introduction of a portfolio guarantee mechanism which moved away from loan-by-loan approvals of guarantees, making the scheme scalable and more efficient for banks. In addition, KOSGEB has a range of support programmes, some of which have a subsidised lending element (see Section 0 on business support services for a description of different programmes). All of this has contributed to relatively favourable conditions for SMEs to access financing. Bank coverage in rural areas and less developed regions remains sparse, but mobile banking is increasingly helping to include the rural population in the formal banking sector.16 However, long-term financing remains an issue. While the availability of bank credit has improved in recent years, continued access will be highly dependent on macroeconomic developments. Future challenges to the lending environment may stem from a higher cost of lending, shorter tenors available in the market and foreign exchange market volatility.

Non-bank financing options provide a viable alternative to bank lending in Turkey. The leasing and factoring markets are some of the most advanced in the region, with penetration levels at close to 1% and 6% respectively, nearing average levels in the EU. While the leasing markets in most of the region are dominated by vehicle leasing, machinery and equipment leasing across a range of sectors makes up more than 70% of total leasing activities in Turkey,17 reflecting a larger market and more manufacturing capacity in the economy overall. On the other hand, microfinance only exists at the level of smaller projects, mainly run by NGOs in less developed regions of Turkey. While the lack of a legal framework may contribute to this absence, the small loan amounts offered by microfinance may not be appropriate for the majority of businesses in the economy, which instead rely on banks for their financing needs.

Turkey has a number of initiatives to support start-ups and companies in their growth stage. Business angels, for instance, are very active and have significantly increased their investments to become one of the most active markets in Europe. According to data from the European Business Angel Network, Turkey’s financiers have invested a total of EUR 52 million in 354 projects, putting it in fifth place behind the United Kingdom, Germany, France and Spain. There have also been attempts by the Treasury to develop the venture capital (VC) fund environment. A “fund of funds” approach under the Turkish Investment Initiative18 is poised to be replaced by a new, more direct, mechanism. A proposal is in preparation to allow the Treasury to invest up to TRY 2 billion (about EUR 364 million) directly into VC funds for SME investments. However, while investment capital may be present in the economy, there is still the question of how realistic an exit from an equity investment is. Borsa Istanbul has a low capitalisation market targeted at smaller companies and partners with institutions such as KOSGEB to encourage listings. However, exit opportunities beyond initial public offerings are rare, as only a few strategic investors scan the market for potential targets and the sell-side industry focuses mostly on the larger companies in the economy.

Finally, crowdfunding is emerging as a new financing tool for start-ups. In a major legislative change, Turkey is looking to establish a legislative and regulatory framework for crowdfunding which will allow for the introduction of an equity-based model in addition to existing grant or reward-based systems. As a result, this type of financing should become more attractive. Secondary legislation to govern crowdfunding activities and, importantly, provide clear rules and mechanisms to protect investors, is currently being drafted by the Capital Markets Board of Turkey with assistance from the EBRD. A sound legal framework will contribute to the governance and regulation of crowdfunding activities in Turkey, allowing it to act as an alternative funding source for start-ups, SMEs and unlisted companies. However, the appetite of investors in the VC and start-up space overall may be subdued in the future by a more difficult macroeconomic environment.

Financial literacy

Entrepreneurs in Turkey can access training for financial literacy through dedicated agencies – KOSGEB being one of them. Notably, KOSGEB runs an online platform for training called SME Campus,19 which also covers financial education. Rather than being of a general nature, these courses are tailored to the needs of businesses, something rare in the region, and contributing to Turkey’s improved scores on this sub-dimension. However, evaluations of the population’s financial literacy have all been carried out by outside organisations, such as Standard & Poor and the OECD, and the extent to which these are taken into account in policy making is unclear. In addition, financial education is not mandatory in the school curriculum.

Overall co-ordination and general measures

The Directorate-General for Product Safety and Inspection within the Ministry of Trade is the government body designated to co-ordinate overall quality infrastructure policy. The National Action Plan for the EU Accession (2016-2019) represents the overarching policy document guiding the transposition of the EU acquis in this area.

The Ministry of Trade hosts a website that provides information on technical regulations and barriers to trade. It contains information on CE (Conformité Européenne) marking, newly adopted technical regulations in the EU and international markets for each product group. The ministry has also established a single point of contact for providing guidance, practical information and assistance on all aspects of exporting to the EU Single Market. This contact point in Turkey allows exporters to consult the Ministry of Trade experts by phone, on line and via a mobile phone application. It also allows them to find the pertinent forms for exports and to reach Turkey’s trade representatives abroad.

Harmonisation with the EU acquis

All quality infrastructure institutions are operational, adequately staffed and actively co-operate with European and international institutions. Following the Customs Union agreement with the EU that came into effect in 1995, Turkey has made progress in aligning its regulations with the EU acquis on the free movement of goods.

As of August 2018, Turkey had adopted a total of 23 662 European standards as national ones. It has harmonised around 98% of the standards developed by the European Committee for Standardization (CEN) and 94% of those of the European Committee for Electrotechnical Standardization (CENELEC). The new National Standardisation Strategy and Action Plan (2017-2020) was co-ordinated by the Ministry of Industry and Technology. The action plan consists of four targets to improve the standardisation system: 1) strengthening the standardisation infrastructure; 2) ensuring the effective participation of all relevant stakeholders in the standardisation process and increasing the use of the standard; 3) increasing participation in the global arena; and 4) preparing specific standards for products using new technology and improving work safety guidelines. The national standards body, the Turkish Standards Institute (TSE), is fully operational, and 62 of its 1 658 employees are tasked with preparing standards. The TSE also performs conformity assessments that serve to partially finance its standardisation activities. Currently, it is the only national standards body in the WBT region that does not rely on public funding. In 2018, a number of articles in the standardisation law were revised. The TSE is a full member of the CEN/CENELEC and the European Telecommunications Standards Institute. It is also a member body of the International Organization for Standardization and a full member of the International Electrotechnical Commission.

To make Turkey’s participation in international standards organisations more inclusive, the TSE has established 129 national mirror technical committees. Based on voluntary membership, these committees help to formulate Turkey’s position in developing international standards. The TSE’s activities in education about standardisation stand out in the WBT region. Its education department organises target-group specific activities to address current and future stakeholders and raise the general awareness of standards and standardisation. These include co-operation with four universities, lectures in high schools and quarterly child-friendly cartoons to introduce them to the world of standards and standardisation in a playful way.

The national Turkish Accreditation Agency (TURKAK) is fully operational and currently employs 150 personnel. Like the TSE, it relies completely on its own revenues. There are currently 1 580 accredited conformity assessment bodies (CABs) in Turkey, and they are easily accessible via the TURKAK website.20 Thanks to the Customs Union, 49 of Turkey’s CABs have obtained notified body status in the European Union’s New Approach Notified and Designated Organisations information system.21 This represents a significant increase from the 30 notified CABs in 2016. TURKAK’s advisory board, consisting of 92 government and non-government members, is designated to monitor and evaluate TURKAK activities and propose measures for improvement. TURKAK is a full member of the European co-operation for Accreditation (EA) and a signatory to the EA Multilateral Agreement (EA MLA), covering the greatest number of accreditation scopes in the WBT region;22 only the scope of validation and verification now remains. It is also a full member of the International Laboratory Accreditation Co-operation (ILAC), and is also an ILAC Mutual Recognition Agreement (EA MRA) signatory and a member of the International Accreditation Forum. These recognition agreements allow products and services to be accepted across national borders without the need for additional conformity assessment procedures in the export markets, thereby facilitating access to new markets for SMEs and removing technical barriers to trade.

TÜBİTAK National Metrology Institute (TÜBİTAK UME) is responsible for metrology in Turkey. With 281 employees in 2017 (compared to 254 the year before), it has increased the number of national and international measurement comparisons as well as the types of calibration and tests. TÜBİTAK UME is an associate member of the European Co-operation of Legal Metrology and a full member of the European Association of National Metrology Institutes. It is also one of the founder members of the International Bureau of Weights and Measures (BIPM) and a member of the International Organisation of Legal Metrology. Since 2018, TÜBİTAK UME and the BIPM have been running a joint training initiative that gives opportunities to scientific and technical staff from BIPM member states or associates to conduct research for a period of one to three months in TÜBİTAK UME's laboratories. The initiative, which aims to support emerging metrology systems, is due to continue until 2019. To further its network of international co-operation, TÜBİTAK UME also signed a total of 34 memorandums of understanding (MoUs) with national metrology institutes. In 2017, it signed an MoU with the Institute of Metrology of Bosnia and Herzegovina for the purpose of initiating co-operation between the two institutions in scientific and legal metrology. The co-operation includes developing legal metrology services in the areas of agriculture, environment and medical devices in line with the EU legislation, as well as joint research projects.

Market surveillance (MS) activities in Turkey are conducted by several ministries, with the Ministry of Trade assigned as the co-ordinating body. Co-ordination is envisaged through two mechanisms: the Market Surveillance Co-ordination Board and the Market Surveillance and Product Safety Assessment Board. According to the 2017 annual report, overall spending on market surveillance fell by 1% in 2017; however, this followed a 30% increase in 2016 (EC, 2018[20]). Although the number of inspectors increased by 4.1% in 2017, this did not lead to an increase in the number of audited products, which fell by 24% in the same year. Inspections carried out by market surveillance authorities detected 47% fewer non-compliant or unsafe products in 2017, mainly reflecting the lower number of inspections. Turkey submits its annual market surveillance programme to the European Commission. As a candidate economy, Turkey does not participate in the EU Rapid Alert System (RAPEX), but the necessary administrative and technical infrastructure has been established through the notification system for dangerous products. The Ministry of Trade serves as the national contact point for all market surveillance authorities and a national MS database is in place to collect information about unsafe and non-compliant products in the Turkish market.

SME access to standardisation

The TSE provides monthly journals, both on line and as hard copies, to raise awareness about standards and standardisation. It also organises training events on implementing standards. However, practical guides and case studies on the benefits of standardisation are not available on the TSE website. Direct dialogue between the TSE and SMEs is also rather sporadic and limited.

Turkey envisages a number of concrete measures to improve SME access to standardisation in the new National Standardisation Strategy and Action Plan (2017-2020). The following actions are planned to ensure the effective participation of all relevant stakeholders in the standardisation process and to increase the use of standards,: 1) preparing a dictionary of standardisation terminology; 2) establishing a reward system for contributions to standardisation; 3) evaluating and monitoring the work of technical committees; 4) preparing promotional materials on the benefits of using standards; and 5) organising seminars and workshops. In addition, the TSE signed a co-operation protocol with the Union of Chambers and Commodity Exchanges of Turkey on organising regular sector-specific meetings that aim to increase SME involvement in individual sectors in the technical committees. Moreover, a new project also plans to modernise the TSE’s technical infrastructure to enable remote participation in technical committee meetings.

In terms of financial support, Turkey offers standards at reduced prices for SMEs. Under its General Support programme, KOSGEB provides co-financing support for implementing product standards and specific management system standards. The support programme also includes reimbursing the costs of certification, test analysis and calibration. In 2017, 1 213 SMEs benefitted from the programme, and a total of 7 829 have benefitted since 2010. While reimbursement rates range from 50% to 70% of the incurred cost (depending on the region where the SME is registered), conformity assessment costs are fully reimbursed. The upper support limit of the programme is set at TRY 30 000 (about EUR 5 400).

Policy framework for innovation

A number of strategic documents recognise the importance of innovation policy in Turkey, including the current SME Strategy 2015-2018 and the Tenth Development Plan 2014-2018. A new development plan is being drafted and a national Science and Technology Innovation (STI) Strategy 2017-2023 is also planned. The Supreme Council for Science and Technology co-ordinates innovation policy. The council is preparing a report on the implementation of the previous STI strategy, which ended in 2016. There are two relevant implementing agencies – TÜBİTAK and KOSGEB – both running a number of programmes to support SME innovation. The Directorate General for Industry and Productivity within the Ministry of Industry and Technology conducts regular independent evaluations of existing programmes, including those by TÜBİTAK and KOSGEB. The evaluation covers selected programmes, not all of them systematically. KOSGEB focuses entirely on enterprise support programmes whereas TÜBİTAK supports R&D activities, but companies are also eligible to apply for their grants.

Government institutional support services for innovative SMEs

Business incubation in Turkey is supported through a number of government programmes. Since the late 1990s, KOSGEB has established more than 20 technology development centres (TEKMERs) in co-operation with universities that act as incubators, providing physical space and also advisory services. However, TEKMERs are currently being restructured, and many were not operating at the time of writing. There are no government programmes to support private sector incubators, but SMEs in these incubators are individually eligible for support from TÜBİTAK and KOSGEB.

KOSGEB finances office space, staff and acceleration services for two international incubators recently established in the United States. Company owners have to be Turkish citizens to reside and qualify for support in these incubators, but this instrument is also expected to attract international partners, based on similar programmes run by Singapore and Malaysia.

The BIGG acceleration programme has been supported by TÜBİTAK since 2012. So far almost 1 000 companies have been established through this programme. In 2018, 30 agencies were given finance to support entrepreneurs with training, mentoring, incubation, networking and other types of support. In the second phase of the programme, entrepreneurs are provided with finance of up to TRY 150 000 (around EUR 27 000). In 2018, there were 3 323 applicants for the programmes and 1 438 received support in the first phase. Of these, 146 were selected for financing in the second phase.

Technology extension services in Turkey are offered either by technology park management companies or through technology transfer offices. Of 81 technology development zones (TDZs) in 54 provinces, 21 are under construction and 60 are now operating. These host more than 5 000 innovative start-ups and companies, who are provided with incubation services (under Law No. 4691, Law on Technology Development Zones) by the Ministry of Industry and Technology as well as by the TDZ managing companies. SMEs can receive funding for these services through KOSGEB’s R&D, Innovation and Industrial Application Support Programme.

In TDZs, the number of companies at the incubation phase has to be at least 10% of the total number hosted. Companies under incubation receive a 50% reduction in rent, and those supported by TÜBİTAK or KOSGEB programmes receive an additional 25% reduction.

Government financial support services for innovative SMEs

At the national level, both TÜBİTAK and KOSGEB offer financial support to private sector research, development and innovation (RDI) activities through the R&D and Innovation Support Programme and the R&D Start-up Funding Programme for SMEs. There are also development agencies at NUTS-II level which design and implement financial support programmes for innovative SMEs according to regional needs.

Depending on the programme, companies can receive anywhere between EUR 100 000 to EUR 300 000 per project, depending on the stage of innovation development. In all the programmes at least 25% of the total budget is co-financed by beneficiaries. Projects are selected through competitive calls for proposals, and proposals are evaluated and chosen by selection committees which include agency, private sector and academic representatives.

Companies that receive public support for RDI activities are eligible for a number of tax incentives, including corporate income and personal income tax deductions. According to the Law on Technology Development Zones, companies based in TDZs are exempt from corporate income tax on the profits resulting from their software development and R&D activities, and the R&D personnel working in those companies are exempt from all income taxes until the end of 2023.

The Programme for Supporting the Research and Development Activities Law states that half of the insurance premium for R&D staff is to be covered by the Ministry of Treasury and Finance for five years. Finally, all innovation and R&D expenditures made by beneficiaries are subject to discounted corporate tax in technology centres, R&D centres, public institutions and bodies, R&D and innovation projects supported by foundations established by law or international funds, and in pre-competition co-operation projects. The wages of R&D and design personnel in these organisations are partially exempt from income tax – 90% of the income for those with a PhD degree and 80% for others.

SME innovation is also encouraged through public procurement. Since 2005, in order to foster R&D-based procurement methods, Turkey has run the Public Institutions Research and Development Projects Support Programme. The programme has been designed to fulfil the R&D needs of public institutions via dedicated calls for projects by universities, industry and public research institutes. In 2013, public procurement was also used to stimulate innovation in SMEs under the Programme and Action Plan for Technology Development and Domestic Production through Public Procurement prepared under the Tenth Development Plan 2014-2018. However, public procurement procedures under this programme are not entirely compliant with the EU acquis, since they give preference to domestic operators (see Section Operational environment for SMEs (Dimension 4) on public procurement).

TÜBİTAK also invites public institutions to determine needs that could be addressed by R&D projects, and Technological Product Certificates are given to innovative companies that participate in public tenders. Although not providing any direct advantages to SMEs in public procurement, these certificates can be used as a substitute for work completion certificates required in tenders.

Finally, there are no impact assessments, evaluation studies or studies of the state of play for any type of procurement for innovation.

SME and research institution collaboration and technology transfer

During the reference period, the Public-University-Industry Co-operation (PUI) Strategy and Action Plan (2015-2018) continued to be carried out by the Ministry of Industry and Technology in order to improve synergy and collaboration among the stakeholders in the R&D and innovation ecosystem.24 Under this strategy, an online portal (www.kusip.gov.tr) was established in 2016 to raise awareness of public funds and to enhance interaction between enterprises and academia. In 2017, academic staff were granted the right to establish companies and engage in the commercial activities of companies established already as part of the TDZs. In the long term, this may facilitate collaboration, and hence technology transfer, between the private sector and academia. There are no innovation voucher schemes for SMEs in Turkey, but business-academia collaboration is funded through TÜBİTAK’s University-Industry Collaboration Support Programme. Business funding for R&D performed by higher education institutions is one indication of R&D collaboration between these two sectors. In 2015, business funded about 15% of higher education R&D in Turkey, the highest share among OECD countries, demonstrating a strong collaboration between the two sectors (OECD, 2017[44]). This collaboration is further strengthened through the strong network of technology parks and technology transfer offices that are located across the countries, described above.

Framework for environmental policies targeting SMEs

SME greening in Turkey is covered in a number of national strategic documents: the SME Strategy and Action Plan (2015-2018), Tenth Development Plan (2014-2018), National Climate Change Action Plan (2011-2023), National Energy Efficiency Action Plan (2017-2023), Turkish Industrial Strategic Document (2015-2018), Turkish Entrepreneurship Strategy (2015-2018), and Productivity Strategy (2015-2018).

In the SME strategy the key greening focus is promoting eco-efficient products, services and processes, as well as eco-innovation. Under Target 2 – Supporting innovative SMEs on product, service and business model innovation – the SME strategy sets out activities to support the commercialisation of SME projects in the areas of advanced and environmental technologies.

As in the previous assessment cycle, the national SME agency KOSGEB is the main body implementing SME greening measures. Through its General Support Programme, it supports SME greening projects both financially and non-financially, with the main emphasis on energy efficiency. SMEs are provided with a variety of support to improve energy efficiency, from guiding documents and online advice to direct financial assistance as part of the KOSGEB support programme. An additional measure for enhancing energy efficiency in Turkish SMEs is increasing the quality and quantity of energy efficiency consultancy companies through government subsidies to consultancy services in energy efficiency for SMEs.

All the planned activities are being implemented, the budget has been mobilised and funds are mainly provided from the government budget. Monitoring is also conducted regularly, both of the achievement of strategic objectives and the efficiency of the implementation body. An impact analysis of the SME greening policies and programmes, however, has not been done yet.

Energy efficiency is also at the core of other programmes and projects. Energy management units (EMUs) have been established in Turkey’s Organised Industrial Zones with the aim of providing direct mentoring support to interested companies operating in the zones. Information dissemination and promotional activities are also planned as core EMU activities (Box 19.7).

Furthermore, training and mentoring are offered by the Global Cleantech Innovation Programme (GCIP) to young entrepreneurs and SMEs working in clean technologies (environment and energy). The GCIP is conducted by the United Nations Industrial Development Organization, the Global Environment Facility and TÜBİTAK, with the aim of developing an entrepreneurship ecosystem in the field of clean technologies. Since its establishment in 2014, the GCIP has offered training and mentoring to around 80 projects mainly in the areas of waste management, water efficiency and renewable energy.

The Turkish government regularly consults the private sector when developing environmental policies, SME greening strategies and action plans. The government also co-operates with business associations and local councils to deliver environmental guidance to SMEs. The Turkish Union of Chambers and Commodity Exchanges is one of the most active business associations, providing input to the development of environmental policies for SMEs. Due to the local character of the environmental projects KOSGEB implements, it systematically co-operates with local chambers of commerce and industry. NGOs and business associations are also present at the workshops, training courses and meetings organised as part of SME greening projects, often providing direct technical support along with KOSGEB experts.

Incentives and instruments for SME greening

One of the key goals of SME greening is to improve SMEs’ energy efficiency. To this end, KOSGEB provides financial support to companies via different programmes. One of them – the Efficiency Increasing Programme – is run in co-operation with the Ministry of Energy and Natural Resources’ Directorate, General Renewable Energy. Companies with energy consumption above a certain threshold can apply to the programme and their energy efficiency projects are supported by up to 30%, within a limit of TRY 1 million (around EUR 180 000). Another programme is the Voluntary Agreements, under which the government covers 20% of companies’ energy costs, up to TRY 200 000 annually (around EUR 36 000), on the condition that they reduce their energy costs by 10% of their five-year consumption average. KOSGEB also provides financing for SME energy efficiency audits and for consultancy and training costs under the General Support Programme. Support covers 50%, 60% or 70% of the costs, depending on the region, up to TRY 75 000 (around EUR 13 500). KOSGEB also provides financing for energy efficiency projects under the SME Development Support Programme, which covers between 60% and 80% of project costs.

In the WBT region, Turkey stands out for its regulatory instruments for SME greening. These are performance standards – requirements for recycling material used for packaging. In 2017, the government introduced the Regulation on Packaging Waste Control, which stipulates what percentage of each material used by the manufacturer should be recycled: 54% of glass, plastic, metal and paper. Authorised organisations and municipalities collect and recycle the packaging waste. Companies should be a member of these authorised organisations and pay membership fees to reuse the recycled materials.

Government authorities in Turkey offer guidance to SMEs on complying with environmental regulations and carrying out green practices, mainly through dedicated websites and brochures. KOSGEB endeavours to achieve this under its General Support Programme, which also provides financial support to SMEs to acquire ISO 14001: it covers 50% of the cost of certificates (application and file examination, inspection and audit) and the test and analysis documents, up to USD 25 000 per document.

KOSGEB also audits firms to ensure they comply with the environmental procedures and rules specified for each sector according to risk level. It also promotes the use of environmental management systems in SMEs through environmental audits. While a ISO 14001 certificate is not mandatory, if a company has one it is highly likely to pass the audit process.

Chambers and sectoral associations (e.g. the Istanbul Chamber of Industry) organise awards to recognise good environmental practices. KOSGEB awards the Environmentally Friendly SME of the Year as one of its annual entrepreneurship awards.

Energy efficiency is also supported by donors and banks through the Turkish Small and Mid-Size Sustainable Energy Financing Facilities (TurSEFF and MidSEFF) launched by the EBRD, with support from the EIB in 2010 and the European Commission in 2011. The facilities provide loans to private sector borrowers through several Turkish banks for small-scale and mid-size investments in SME energy efficiency, renewable energy, waste-to-energy and industrial energy efficiency (TurSEFF, 2018[51]; MidSEFF, 2018[52]). By 2018, TurSEFF had supported over 1 000 projects, generating 502 MW of renewable energy. MidSEFF has helped to create 1 200 MW of renewable energy by financing 61 projects.

Finally, green public procurement policies are being introduced in Turkey by promoting goods and services with a minimum energy efficiency rating. However, this is still at an early stage.

Export promotion

Turkey has several export promotion programmes as a result of numerous communiqués and parallel national strategies, with the Directorate General (DG) of Exports of the Ministry of Trade running 14 programmes. Export promotion activities are covered by the SME Strategy and Action Plan 2015-2018; the Export Strategy 2023; and the Industrial Strategy of 2015-2018, which also foresees financial support for export-oriented SMEs. In 2018, the Ministry of Economy also launched the e-export strategy, which aims to increase exports through e-commerce (Ministry of Economy, 2018[55]).

In developing new legislation and programmes, formal consultation with the private sector is directed through exporters’ unions, chambers of industry or the ministry. Informal consultation also takes place through DG Exports, which maintains close contact with SMEs and integrates their suggestions into programme designs and updates.

The Ministry of Trade is the primary government body responsible for export promotion, while KOSGEB, the Turkish Exporters Assembly, regional exporters and Türk Eximbank also support export promotion in various capacities.26

Services offered by Turkey’s export promotion programmes for SMEs include trade information and commercial intelligence, economy representation at major trade fairs, marketing support, product development, and training. KOSGEB provides support to SMEs in these areas through several programmes, namely its General Support Programme, the International Incubation Centre and Acceleration Support Programme. Under its General Support Programme, KOSGEB funds SMEs’ international trips and promotional activities at a rate of 50-60% or up to TRY 10 000 (around EUR 1 800).27 KOSGEB’s International Incubation Centre and Acceleration Support Programme also supports SMEs in the form of financing office space abroad, staff, acceleration services and foreign business trips.28

Broadly, the Ministry of Trade classes export promotion programmes into three phases: preparation, marketing and branding. Programmes for the preparation phase, such as the Supporting the Development of International Competitiveness (UR-GE) programme, aim to enhance SMEs’ capacity for better export performance.29 Turkey supported around 185 projects under the UR-GE programmes between 2011 and 2016, in which the benefitting umbrella organisations each had around 15 companies.30 During the assessed timeframe, this scheme was amended by adopting a broader definition of the activities that it could support (EC, 2017[27]). Other DG Exports programmes include Participation in Trade Fairs Organised Abroad, Market Research and Access to Markets, International Branding and the TURQUALITY project, which particularly aims to promote the Made in Turkey label abroad. The budget for DG Exports totalled TRY 989.5 million (around EUR 238.4 million) in 2017.

The Ministry of Trade plans to establish 25 new export support offices across 16 provinces with proven export potential (Ministry of Trade, 2018[56]).31 This initiative, if implemented, will significantly broaden support coverage and target export mobilisation through e-exports and e-commerce.

As for trade financing, Turkey’s fully state-owned export credit agency, Türk Eximbank, offers credit lines, such as Export Preparation Credit for SMEs, which provide them with lower interest rates. Turkish SMEs can benefit from a broad range of products and services across three categories: short-term export credits, medium- to long-term export credits and credits for services earning foreign currency. SMEs involved in manufacturing and exporting can also apply for the Credit Guarantee Fund and obtain letters of intent and export credit insurance. Türk Eximbank provides financing on commercial terms and in accordance with the OECD Arrangement on Officially Supported Export Credits (Türk Eximbank, 2018[57]).

The World Bank granted Turkey USD 250 million through the Innovative Access to Finance project between 2014 and 2018, which offers access for SMEs and export-oriented enterprises to longer-term Islamic finance, and factoring for SMEs. This project is intermediated by the Industrial Development Bank of Turkey and participating banks and factoring companies (World Bank, 2014[58]).

The SME beneficiaries of the export promotion programmes of KOSGEB and Türk Eximbank are not made public. While DG Exports makes the list of beneficiary umbrella organisations public, it does not disclose the names of the individual SMEs benefitting.

Export promotion programme activities are monitored through the Ministry of Trade’s annual activity reports, while financial auditing is done by DG State Aid (T.C. Sayıştay Başkanlığı, 2018[59]). However, there are no independent reviews of the export promotion programmes.

Meanwhile, despite the broad range of programmes and services available to SMEs in support of export promotion, SMEs cite a low awareness of available programmes and confusion regarding eligibility criteria due to frequent regulatory and legislative changes. To address this perception problem, Turkey developed the Nudge project in 2017 using behavioural economics in order to design policy mechanisms that will increase the uptake of its export promotion subsidies among SMEs (see Box 19.8).

Integration into global value chains

The Ministry of Trade directly supports SMEs’ integration into global value chains (GVCs) through two primary initiatives, the Directive on Supporting Certificates of Market Access and the programme Supporting the Improvement of International Competitiveness, both managed by the Ministry of Trade and implemented by the Turkish Exporters’ Assembly.

The Directive on Supporting Certificates of Market Access was widened over the assessed period to cover companies’ expenses for participating in global value chains (EC, 2017[27]). Its targets are in line with the SME Strategy and the Tenth Development Plan.32 With a budget of TRY 1.44 billion (around EUR 260 million) over 2018-2022, the Turkish Exporters Assembly, which implements the project, provides project-based financial support for SMEs’ procurement of machinery, equipment, training, consultancy and software, customer visits and certification-test analysis, to a maximum of 50% of costs and USD 1 million per beneficiary. As this programme was only implemented in 2017, data on its results are not yet available. The companies which have qualified as beneficiaries of the programme will be audited annually by the Ministry of Trade in order to evaluate their performance. The results of this monitoring will not be made publicly available.

The UR-GE programme (Supporting the Development of International Competitiveness), also provides strong support for SME integration into GVCs, exemplified by the success of its footwear cluster support project. The strategic design and implementation of this programme, arranging training and advisory activities in line with needs analysis findings, led to a foreign trade surplus for the region’s footwear sector. Meanwhile, KOSGEB indirectly contributes to these efforts through a wide range of supporting activities under the Enterprise Europe Network.33

SMEs are systematically informed about programme activities through ongoing seminars, while up-to-date information is disseminated through intermediaries such as chambers, cluster management teams and exporter unions. KOSGEB also offers a support line (via phone or Internet) that enterprises can contact to obtain detailed information and to voice opinions and suggestions.

The Supreme Court of Public Accounts reviews the programmes’ expenditures on an annual basis, and their activities are monitored and published in publicly available annual reports. However, the SME beneficiaries of the programmes are not made public.

Alongside these ongoing programmes, KOSGEB’s recently designed Internationalisation Support Programme specifically aims to support SME integration in global value chains by in various areas, from software and hardware; test, analysis and certification; and service procurement support, for instance at a rate of 75% and maximum value of TRY 300 000 (around EUR54 000) per beneficiary.34

Despite these efforts, Turkey’s participation in global value chains remains below its potential. An OECD study found that this is due to “institutional features that hamper efficient allocation of capital and labour, obstacles inherent in bilateral trade agreements and entry regulations, underdeveloped human capital and insufficient investment in innovation, R&D and knowledge-based capital” (Ziemann and Guérard, 2017[53]).

Promoting the use of e-commerce

Individuals’ use of e-commerce (as measured by online purchases in the last 12 months) in Turkey (25%) remained significantly below the EU average (60%) in 2018 (Eurostat, 2018[14]). Similarly, only 9% of Turkish SMEs sold online (at least 1% of turnover) in 2018, while on average 17% of SMEs did so in the EU (Eurostat, 2018[14]).35 However, during this assessment period, Turkey took a more proactive approach and has introduced support for SMEs’ uptake of e-commerce.

The Ministry of Trade’s DG Exports provides ongoing support to SMEs through the Programme to Support Market Research and Market Entry, which is linked to the Tenth Development Plan and the SME Strategy and Action Plan. Under this programme, DG Exports sponsors 80% of their membership fees for e-commerce sites/portals for a period of three years. SMEs apply for membership through umbrella organisations (such as chambers of commerce, exporter unions), which then apply to the ministry on their behalf in groups of at least 250 member companies. The budget from government sources allocated to activities promoting e-exports is TRY 33.8 million (around EUR 6.1 million) between 2018 and 2022.

Government efforts aside, the Turkish Enterprise and Business Confederation has initiated a project called Digital Anatolia. It aims to enhance awareness of digital opportunities by promoting interaction between digitalisation professionals and SMEs through meetings across the economy (OECD, 2018[2]). The project, which broadly aims to stimulate digital transformation, could also have positive effects on SMEs’ e-commerce uptake.

Legal frameworks for e-payments and consumer protection are in place, and efforts to increase the effectiveness of consumer protection in e-commerce have propelled Turkey to the forefront globally for generating trust in the digital environment. Turkey has championed clear and comprehensive regulations for online consumer protection, most notably through its presidency of the International Consumer Protection and Enforcement Network (ICPEN) in 2017-2018.36

Turkey’s Ministry of Trade has developed a Trust Stamp in Electronic Commerce, which entered into force in 2017. Verified and audited e-commerce sites may display the mark if they meet criteria defined by the Communiqué on the Trust Stamp in E-Commerce, such as data protection; awareness of e-commerce and payment systems regulations; clear information about company operators; and effective communication methods for customer demands and complaints. Recently the Ministry of Trade and the Turkish Union of Chambers and Commodity Exchanges signed a protocol allowing the latter to provide the Trust Stamp to SMEs.

Turkey is also making headway in developing statistics on e-commerce. In the last quarter of 2017, the Ministry of Customs and Trade launched an e-commerce information platform to register and record all e-commerce activities in order to develop statistics.