Let’s be honest, who hasn’t experienced a touch of Schadenfreude when a troublesome neighbour has fallen on hard times?

While Greece enjoyed a spring enlivened with a near complete economic collapse, and subsequent demonstrations and riots in protest at unpopular austerity measures, neighbouring Turkey basked in the early sunshine. As corners of Athens burned, the squares and parks of Istanbul burst into life with the multicoloured blossoms of over nine million tulips planted by a city municipality that still has cash to splash on flowers that only bloom for one month of the year, and the city’s bazaars were packed with tourists blissfully unaware of the troubles next door.

Despite the contrast, few Turks have felt inclined to gloat, remembering the country’s own economic tribulations of a decade ago when only a $20bn IMF bailout saved Turkey from collapse.

The road back to economic health was hard, but the results spectacular – and, more importantly, solid; in fact, Turkey managed to weather the recent global economic crisis with only minimal effects, and by the last quarter of 2009 had rebounded to 6% growth.

According to the country’s economy minister, Ali Babacan, Turkey’s success story is the result of eight years hard work by his government, which, when it came to power in November 2002, inherited an economy in tatters, a banking system that had eschewed all attempts at regulation and political environment riven with rumours of military coups.

“Turkey in 2002 and Turkey today are almost two different countries,” says Babacan. “The structural reforms we introduced formed the basis for our economic policies,” he adds, explaining that it is these reforms that served to protect the country from the worst of the global crisis and left it as little more than an onlooker as the neighbouring eurozone stumbled.

Most important of these has been a complete overhaul of the Turkish banking sector which lay at the heart of Turkey’s 2001 economic crisis, when more than 20 banks collapsed due to a combination of mismanagement and fraud.

“This time round we were the only country across the OECD that didn’t have to bail out any banks,” says Babacan.

That enviable result came about as the result of the creation of a strong regulatory body and enforcing higher than normal capital adequacy ratios, followed by a period of monitoring and testing the newly regulated sector.

“We realised that under extreme conditions some banks may experience problems so we asked some to recapitalise or merge,” he says, explaining that the process, which was completed with a minimum of fuss in 2006, bore fruit just two years later when crisis hit.

Subsequent performance has been no less impressive. Babacan’s three-year economic programme, which was announced in September last year, was followed quickly by ratings upgrades from four agencies, a process which has allowed Turkey to finalise its borrowing for 2010 at the lowest ever spreads.

Even the cautious economists at the IMF are predicting GDP growth of 5% this year, and earlier this year Babacan was able to decline the fund’s offer of a renewal of the eight-year-old standby agreement, so comprehensive has the bounce back from the global crisis been. “Our debt to GDP ratio is 45%, Spain’s is 50%; the markets are not questioning the sustainability of Turkish debt,” he says.

More confidence boosting measures are planned. A new law is in the pipeline limiting average public sector deficit to only 1%, which, if successful, should lead to more ratings hikes and even cheaper borrowing. This compares more than favourably with EU rules which limit member states to a 3% deficit – a limit most broke last year. This and Turkey’s other attractions are not lost on investors.

“European economies grow at 1.5%–2% a year, our sustainable growth rate is around 5%, and there is still great potential for more growth,” says Sinan Goksen, vice president of equity research at Istanbul brokerage Ekspres Invest, adding that another factor in Turkey’s attraction to investors is its location and growing role as a major transport hub.

Nowhere is that more evident than Istanbul, where the country’s European and Asian rail networks are about to be joined by a tunnel being constructed under the Bosphorus, which will be followed by both a road tunnel and a third bridge joining the two continents.

As with transport, so withenergy. Plans for major new oil and gas pipelines will kick-start other investments, including two new oil refineries, but with Turkey’s per capita electricity consumption still less than half the EU average it is in power generation that the biggest investments are anticipated, with the number of power plants expected to double over the next decade as demand rises.

“Power consumption will grow at around 8% a year for the next decade, and that means at least $4bn [€3.2bn] investment a year,” says Goksen.

Little wonder that big European players, such as Germany’s RWE, Austria’s Verbund, and CEZ of the Czech Republic, have already invested, with others, such as the UK’s RES Group and Norway’s Statkraft, buying into Turkey’s rapidly growing renewable energy sector.

Goksen also identifies Turkey’s once notorious financial services sector as an area with investment potential, thanks to its strict regulation and low penetration that offers room for expansion.

“The sector is now extremely healthy with many major US and European banks now owning banks here,” he says, adding that the sector is on the verge of adopting the Basel II banking accords, which should further increase confidence in the industry. “The insurance sector is growing rapidly and pension assets under management are still less than 1% of GDP but are growing by 30%–40% a year.”

Tourism too offers huge potential. “We had 22 million tourists last year but I think this still not close to our potential – look at Istanbul, we should be getting that many visitors just there,” says Goksen.

He has a point. Tulips aside, the city is enjoying a new-found confidence and basking in its role as European City of Culture 2010, with new tourism and cultural projects being announced on a daily basis. And with increasing tourist numbers requiring growing accommodation, Turkey’s stop-start real estate sector could also be of interest to investors, with hotels, shopping malls and high-end office complexes springing up across Turkey’s main cities. However, currently Istanbul is the only real estate market offering reliable returns, with markets elsewhere in the country requiring a longer-term investment.

Turkey’s export-driven manufacturing sector also still offers growth potential despite the recent weakness in other European economies having an impact. Recent figures are indeed encouraging, with industrial production figures for March up 21% on 2009, exports for the month up 22% at $9.9bn (€8bn) and unemployment at 14%, down from last year’s high of 15.5%.

Turkey’s biggest export earner remains its little-heard-of automotive sector. Goksen points out that the global manufacturers who came to Turkey in the 1960s and 1970s such as Ford, Fiat and Renault, and those that arrived in the 1990s, which included Toyota, Honda and Hyundai, are now looking to expand their highly profitable Turkish joint ventures from low-cost assembly to research and development. Others, like Volkswagen and Chinese manufacturer Chery, are believed to be looking to open production facilities. “They want to start developing new models here that they can sell to global markets,” says Goksen.

With this in mind, the government is working in consultation with the industry to develop a road map for its development, aiming to expand out of the assembly of low-end cars and light commercial vehicles to better address changing markets.

“In 10 years, one in five cars sold in Europe will be electric,” says Ercan Tezer, general secretary of Turkey’s Automotive Manufacturers Association.

“We have to take that into account and invest accordingly, to produce a wider range of vehicles.”

To that end the plan is expected to recommend investment in a dedicated test track, crash testing lab and emissions testing facilities, to allow manufacturers to design and develop new vehicles in Turkey as well as build them. It’s an ambitious scheme but one few familiar with the country believe is impossible, even in the current global economic crisis.

“You just have to look at our recent history. We have a very young population, 50% of which is under 30; we are very resilient to crisis,” says Goksen