Economy
From buyer to builder: 25 years that changed Türkiye’s defense industry
Over nearly a quarter-century, Türkiye’s defense sector has transformed from foreign-dependent licensed manufacturing into a high-capacity industry driven by high domestic content and robust global exports.
The transformation coincides with the 25-year period of the ruling Justice and Development Party (AK Party), which marked its anniversary on Friday.
Türkiye now develops a broad range of indigenous platforms and systems, invests in critical technologies and exports high-value-added products across the globe.
In 2002, Türkiye had only 56 defense firms and some 62 projects underway. Those figures today stand at more than 4,500 and 1,400, respectively.
The total project volume skyrocketed from $5.5 billion in 2002 to over $100 billion today.
Defense and aerospace exports surged from just $248 million to $10.05 billion in 2025.
Shipments hit $5.79 billion in the first seven months of 2026 and totaled $11.2 billion on an annualized basis as of July.
Türkiye is currently the world’s 11th-largest defense exporter and is close to breaking into the ranks of the top 10.
For much of the past two decades, Ankara has expressed frustration over its Western allies’ failure to provide adequate defense systems against missile threats despite Türkiye being a major NATO member.
That prompted it to invest billions of dollars to transform from a nation heavily reliant on equipment from abroad to one that is a major exporter and where homegrown systems now meet almost all of its defense industry needs.
Its research and development spending increased from $49 million in 2002 to over $3.5 billion, while the domestically produced content ratio increased from 20% to more than 85%.
Shift to domestic development
The Turkish defense sector provides direct employment to over 100,000 people, and the average age of a defense industry worker is 34.
Turkish defense was dominated by off-the-shelf purchases, licensed production and technology transfer in the early 2000s. This trend gradually shifted to promote domestic development, homegrown original design and the localization of critical subsystems.
The sector’s scope of operations expanded as project scales grew, with a broad range of products and technologies emerging, such as armored vehicles, conventional platforms, unmanned systems, warships, jet aircraft, air defense systems, radar and electronic warfare systems, smart munitions, engines, space technology and advanced electronics.
The Turkish defense and aerospace industry made around $1.1 billion in revenue in 2002, while this figure exceeded $20 billion by 2026.
Unmanned aerial vehicles
Unmanned aerial vehicles have been one of the most significant areas of transformation over the past 25 years.
Defense firm Baykar’s Bayraktar TB2 unmanned combat aerial vehicle became one of the most symbolic breakthroughs in Turkish defense.
The combat drones earned worldwide fame after proving their capabilities in several conflicts, including Syria, Libya, Karabakh and Ukraine.
Their success eventually helped Türkiye become one of the world’s top drone exporters.
Baykar’s multirole Bayraktar Akıncı platform further improved Türkiye’s drone capabilities with its high payload capacity, long range, advanced sensors and heavy munitions integration.
Baykar’s Bayraktar Kızılelma carried Türkiye’s drone expertise into the unmanned fighter jet area by combining high speed, air-to-air and air-to-ground capabilities and the ability to operate from short-runway ships.
Turkish Aerospace Industries’ Anka and Aksungur unmanned combat aerial vehicles contributed to the development of high-altitude, long-endurance and strategic reconnaissance and surveillance capabilities of Turkish drones by integrating satellite communications, homegrown electro-optical systems, munitions and engines.
Growing aviation industry
The Turkish Aerospace Industries’ under-development twin-engine stealth fighter Kaan and the Hürjet jet trainer also marked major milestones in Türkiye’s manned aviation.
The Kaan is one of the most technologically ambitious programs in Turkish aviation with its low observability, advanced avionics, mission computer, radar and system integration.
The Hürjet was developed to provide a homegrown trainer platform to advance the country’s capability to develop manned military aircraft.
The Turkish Aerospace Industries T129 Atak helicopter’s product and system integration experience translated into the homegrown T625 Gökbey helicopter, marking a giant leap in rotary-wing technologies.
State-of-the-art naval defense
Beyond aerial systems, Türkiye’s national ship project, called MILGEM, laid the foundation for domestic naval platform design, ranging from corvettes to frigates.
Advancements in combat management systems, sensors and weapon integration became key to ensuring independence and export capacity in naval defense.
The TF-2000 anti-air warfare guided-missile destroyer extended the Turkish Navy’s air defense capabilities to the high seas through its long-range air defense and advanced radar and weapon-sensor integration.
The unique naval engineering capabilities Türkiye gained through the MILGEM project enabled the development of the country’s domestic submarine project, called MILDEN, to develop underwater platforms.
The partnership between the TCG Anadolu drone carrier assault ship and the Bayraktar TB3 combat drone introduced a new sea-air operations concept to the Turkish defense industry, integrating amphibious capabilities with a UAV capable of operating from short runways.
Missile defense systems
Meanwhile, Türkiye’s air defense architecture also grew with Roketsan and Aselsan’s Hisar and Siper missile systems, which contributed to a layered air defense architecture combining integrated sensors, command-and-control systems and missile systems within a single domestic architecture against various threats at low, medium and high altitudes.
Türkiye’s multilayered air defense system, Steel Dome, has been developed by bringing together radars, electro-optical sensors, electronic warfare components, command-and-control infrastructure and air defense weapons of various ranges under a common network.
Roketsan’s Som, Atmaca and Kara Atmaca developed long-range precision strike capabilities for air, sea and land platforms, while the same firm’s Tayfun missile introduced the ability to engage long-range and precision land targets, boosting Türkiye’s strategic deterrence.
Turkish defense also evolved in surface vehicles, with the main battle tank Altay establishing a broad industrial ecosystem around critical technologies, such as armor, active protection, fire control and power packs, while also highlighting the strategic importance of reducing foreign dependence on engines and power packs.
Aselsan’s Koral electronic warfare system and other homegrown radar systems enhanced the effectiveness of air, land and sea platforms in modern warfare through radar detection, electronic jamming, early warning and sensor superiority.
Indigenous technologies
Meanwhile, the PD170, TF6000 and KTJ engine projects brought power system developments for UAV engines, turbofans, cruise missile engines and more.
These projects have been key to ensuring platform independence in defense through indigenous engine technologies.
At the same time, Turkish defense transformed its export model from direct product sales to a broader approach that includes training, maintenance and sustainment, system integration, co-production and technology cooperation.
Turkish defense products are exported to some 185 countries, and around 230 different product types are actively used worldwide.
The sector’s primary goal this year is to further independence efforts in critical technologies, establish high-volume mass production capacity and permanently expand its share in the global market.
The United Arab Emirates (UAE) promised Thursday to invest 40 billion euros ($46.5 billion) in Germany during a state visit by the leader of the Gulf country.
The money would partly pay for data centers with a capacity of up to one gigawatt, Berlin said, and an “Investment Council” would be set up to boost business links between the two nations.
The Gulf is a key source of capital for the AI boom as oil-rich states in the region seek to invest their energy wealth.
“The UAE invests for the long term and builds partnerships that endure,” UAE Industry Minister Sultan Ahmed Al Jaber said.
“Germany has been an important strategic and economic partner for decades and the additional 40 billion euros intended investment reflects our ambition to invest in that relationship.”
Berlin had earlier rolled out the red carpet for President Sheikh Mohamed bin Zayed Al Nahyan, who met Chancellor Friedrich Merz after earlier being received with military honors by President Frank-Walter Steinmeier.
Security was tight for the visit, with Berlin cordoning off flag-lined streets and deploying large numbers of police.
The visit comes as the U.S. war against Iran has roiled the Gulf region, with President Donald Trump’s erratic diplomacy unsettling many midsize powers and leading them to diversify their strategic and economic partnerships.
Merz visited the Gulf region in February, shortly before the U.S.-Israeli war started against Iran. He said then that “we need such partnerships more than ever at a time when major powers are increasingly dominating politics.”
The UAE is Germany’s largest trading partner in the Gulf, with bilateral trade topping $15 billion last year, and many big German companies have a presence there including BMW, Siemens, ThyssenKrupp and rail operator Deutsche Bahn.
German and Emirati companies had signed a further 29 agreements with a total value of 9.4 billion euros during the visit, Berlin said.
The UAE, meanwhile, has made major investments in Germany, including in the chemical industry and offshore wind power.
During Merz’s visit in February, German energy giant RWE and Abu Dhabi’s national oil company ADNOC signed a memorandum of understanding on LNG imports over the next decade.
Gulf countries have also long bought defense equipment from Germany and have shown interest in startups that make drones to bolster NATO’s deterrence efforts against Russia.
Germany, the largest EU economy, supports talks toward a European Union free trade deal with the Emirates.
The European Central Bank (ECB) hiked interest rates for the second time this year on Thursday, meeting expectations as renewed tensions in the Middle East sent energy prices soaring again, threatening to push inflation higher.
The central bank for the 21 eurozone nations lifted its benchmark rate a quarter percentage point to 2.5%, its highest level since March last year.
It was the ECB’s second increase this year after policymakers lifted borrowing costs in June for the first time since 2023 in response to the energy shock triggered by the U.S. war with Iran.
“The conflict in the Middle East continues to generate inflation pressures, and inflation is set to remain well above target for an extended period,” the ECB said in a statement.
“The outlook remains highly uncertain, with risks to the upside for inflation and to the downside for economic growth,” it added.
The central bank kept its inflation forecast for this year unchanged at 3% but raised it slightly for next year, to 2.5%.
It also slightly raised its growth forecasts for this year, to 0.9% from 0.8%, and for next year to 1.4% from 1.2%.
Fears of higher inflation, which hit 3.3% in August, above the ECB’s 2%, are being fanned by a surge in global energy prices.
The Brent international oil benchmark has climbed back above $100 a barrel this week, while natural gas prices, a key energy cost for Europe, reached their highest level in more than three years.
The surge is being driven by an escalation in the U.S.-Iran conflict as well as a flare-up in fighting between Saudi Arabia and Yemeni Houthi rebels, dimming prospects of Gulf energy shipments returning to normal.
‘Inflation worsening’
For households in the euro area, another rate hike means pricier mortgages, consumer credit and other loans.
The central bank, meeting this time in Berlin on one of its regular trips away from its Frankfurt headquarters, has faced criticism in some quarters for trying to tackle an energy supply shock with tighter monetary policy.
Rate hikes aim to slow inflation by dampening demand from consumers and businesses, but critics say they can do little to tackle the root cause of the current burst in price rises, a shortage of energy.
And so far, there has been little sign of eurozone inflation seeping more broadly through to the economy via higher costs for food, goods or services.
Some economists say the ECB is worried about a repeat of 2022, when the central bank was criticized for raising rates too slowly in response to the inflation surge following Russia’s invasion of Ukraine.
Still, some analysts back more tightening and say the current energy surge might prompt the ECB to hike further.
“The inflation outlook has worsened over the summer,” said Sylvain Broyer, chief economist for Europe, Middle East and Africa at S&P.
“Supply shocks are not only multiplying, but it is increasingly likely that demand is also adding to inflation,” he said.
“In that context, the ECB may need to move into restrictive territory and cannot rule out further rate hikes at this stage.”
Türkiye’s industrial production decreased on both an annual and a monthly basis in July, with the year-over-year drop at 0.3%, official data showed on Thursday.
Monthly, the output fell 1%, according to the data from the Turkish Statistical Institute (TurkStat).
Among the subsectors of industry, the mining and quarrying index shrank 3.8% annually in July 2026, the institute said.
The electricity, gas, steam and air conditioning supply index dropped 5.6% compared with the same month of the previous year.
In contrast, the manufacturing index posted an annual increase of 0.3% in July 2026.
On a monthly basis, all three major industrial subsectors recorded declines in July 2026.
The mining and quarrying index contracted 2.2% month-over-month, while the electricity, gas, steam and air conditioning supply index also posted a 2.2% drop.
The manufacturing index decreased 0.8% compared with the previous month.
Looking at the main industrial groupings, high-technology manufacturing registered the sharpest annual decline at 8.5% in July 2026.
High-technology manufacturing also posted the largest monthly decrease, shrinking 5.8% compared with June 2026.
Meanwhile, durable consumer goods recorded the highest monthly growth among the main industrial groupings, rising 3.3% in July 2026.
China and the U.S. hope to reach an agreement on lowering import taxes soon, a Chinese government spokesperson said Thursday, fueling expectations that an announcement could come when the leaders of the two countries meet in two weeks.
Negotiators are striving to implement reciprocal tariff reductions on $30 billion of goods “at an early date,” Commerce Ministry spokesperson Huang Ling said at a weekly briefing.
She did not elaborate. U.S. President Donald Trump and Chinese leader Xi Jinping are expected to meet in Washington on Sept. 24 for what will be their third face-to-face talks in the past year. Both governments characterize the top leader talks as a way to stabilize relations in an era of competing interests between the world’s two largest economies.
“Leaders’ diplomacy plays an irreplaceable strategic guiding role in China-U.S. relations,” Chinese Foreign Ministry spokesperson Guo Jiakun said Thursday.
Trump and Xi agreed at their previous meeting in May in Beijing to launch a U.S.-China Board of Trade that would manage trade between the two countries, along with a parallel Board of Investment. The agreements came after a truce was reached in a blistering tariff war in which Trump hiked tariffs on Chinese imports to extremely high levels and China responded in kind.
The talks on reciprocal tariff reductions are a central part of the negotiations on creating the Board of Trade. The goal is to identify and reduce tariffs on equivalent amounts of “non-sensitive” goods on each side.
“Trade will be front and center at the summit,” Barclays Bank said in a research note this week on the upcoming Trump-Xi meeting, noting that the truce the two countries reached on tariffs expires on Nov. 10. But it cautioned that the scope for a broad trade deal is limited, and that targeted tariff reductions are more likely.
Türkiye’s commitment to price stability remains “very strong,” Treasury and Finance Minister Mehmet Şimşek said, pledging that Ankara would maintain its economic program and deliver disinflation despite difficult global and geopolitical conditions.
Speaking to international media, Şimşek evaluated economic goals and the current picture days after the government unveiled a new road map for the 2027-2029 period.
“The only criticism we would accept is that we have been ambitious in our targets. We have, and there is, of course, a cost associated with that. But the commitment is there,” he said.
According to the 2027-2029 Medium-Term Program (MTP), the authorities have lifted their expectations for year-end inflation, mainly due to war-related effects, projecting it to decline to 9% by the end of the program.
Inflation is forecasted to come in at 28.4% this year, 21% in 2027 and 13.5% in 2028, before falling to single digits.
Annual inflation rate eased to 31.51% in August from 31.75% in July, according to official data.
Şimşek joined Vice President Cevdet Yılmaz and the head of the Presidency’s Strategy and Budget Office, Ibrahim Şenel, at the Presidential Complex for an international media meeting on MTP.
“We will stay the course and deliver. What is important is the direction of travel,” he said, according to remarks published late Wednesday.
Combating illicit finance
At the same time, the minister noted that Türkiye maintains close cooperation and effective information-sharing with its partners and allies, particularly the U.S.
“Türkiye is committed to combating terrorist financing, any form of illicit financial activity, money laundering, sanctions evasion and all forms of illicit trade,” he said.
All companies operating in Türkiye must fully comply with national regulations and avoid sanctions, while competent authorities are assessing recent U.S. Treasury announcements and allegations within the rule of law, he added.
“Our message to both the financial sector and other actors in the economy is that all companies have to conduct their activities in full compliance with national regulations,” Şimşek said in apparent reference to Iran-related sanctions.
The U.S. Treasury Department has recently moved with a campaign to increase economic pressure on Iran.
Well-established framework for Iran gas payments
Şimşek also said Türkiye’s gas contracts with neighbors such as Iran and Russia are long-term agreements, some of which have been in place for decades.
“We do not pay Iran directly for the natural gas. We have an understanding, again, with the U.S. The money sits in a very tightly regulated account, and payments can only be made for items such as food and medicine,” he said.
“There is a well-established framework governing how natural gas payments are managed.”
Iran accounts for a relatively small share of Türkiye’s gas imports, while the country has invested heavily in alternative supplies and storage, Şimşek said, noting that the U.S. is now one of Türkiye’s leading liquefied natural gas (LNG) suppliers.
Return to free float ‘desirable’
Moreover, Şimşek said that returning to a free-floating exchange rate is desirable because it acts as a shock absorber, but lower inflation, better-anchored inflation expectations and two-way foreign-exchange flows are needed first.
“This is not about being afraid of returning to a free float. It is about getting the conditions right,” he said, calling speculation over an imminent change “baseless.”
He stressed that daily exchange-rate policy is conducted by the central bank and that the Medium-Term Program assumes a neutral real exchange rate.
“We are not in the business of making bets on the exchange rate,” he added.
Price stability
Şimşek also rejected claims that the 2027 inflation target was revised upward to permit looser monetary policy.
“The idea that the inflation target for 2027 was revised upward to loosen monetary policy never came onto our agenda,” he said.
He said the program reflects significant changes in energy, agricultural and other commodity prices, as well as the difficult geopolitical environment.
“When the facts change, of course, forecasts change,” he said.
Housing and selective credit support
Şimşek also said Türkiye has invested $104 billion in earthquake reconstruction, with 621,000 housing units delivered or due to be delivered this year.
Rent inflation in earthquake-hit provinces is around 20%, compared with 50%-60% elsewhere, demonstrating that “supply-side measures make a huge difference,” he said.
The government also plans 750,000 state-funded social housing units to ease housing and rental costs.
Şimşek said selective credit programs support manufacturers, farmers, small businesses and technology investments, helping preserve employment and create jobs.
“The ultimate goal of this program is a sustainable high growth rate and better income distribution. So, basically, better standards of living for Turkish people,” he said.
Global trade in goods has grown stronger since June despite geopolitical tensions and policy-related uncertainties, the World Trade Organization (WTO) said on Wednesday, pointing to the resilience in merchandise flows even as risks remain elevated.
The September reading of the WTO’s barometer tracking merchandise trade growth was 102, an improvement from the June barometer of 101.7, with growth remaining above trend.
The WTO publishes its Goods Trade Barometer four times a year. It covers export orders, air freight, container shipping, automotive products, raw materials and electronic components.
Readings above 100 indicate growth above the baseline trend of 100, while figures below 100 point to below-trend growth.
The Geneva-based trade body said the strengthening came despite uncertainty linked to geopolitical tensions and trade policy developments.
In March, the WTO forecast that growth in world trade in goods would slow down markedly to 1.9% this year from 4.6% in 2025, and could decelerate even more if the U.S. war with Iran continues to push up energy prices and disrupt global transport.
U.S. President Donald Trump has imposed sweeping tariffs on global trading partners, while shipping through the key Strait of Hormuz, through which a fifth of global oil supplies used to transit has been severely disrupted by conflict in the Middle East.
However, strong demand for electronic components tied to investment in AI and digital infrastructure was helping offset the negative effects from those factors, the WTO report said.
Trade growth remains uneven across sectors and regions, and the WTO warned that geopolitical and policy-related risks continue to cloud the outlook due to ongoing disruption to supply chains, shipping routes and transport costs.
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