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I. Introduction
In 2025, the global defense investment landscape is undergoing a fundamental transformation. Geopolitical fragmentation, regional militarization, and heightened digital threats have accelerated the recalibration of capital allocation across security-relevant sectors. Traditional boundaries separating civil and military technologies have dissolved, giving rise to a new generation of defense-adjacent domains—most notably, cybersecurity, artificial intelligence (AI), quantum cryptography, and dual-use systems capable of both commercial and military applications. Against this backdrop, private capital—particularly Private Equity (PE) funds and Sovereign Wealth Funds (SWFs)—has begun to play an increasingly prominent role in shaping the strategic industrial ecosystems of key regional powers.
Türkiye stands at the crossroads of this transition. Long defined by a policy of military modernization and indigenous capability development, Türkiye’s national security posture has now matured into a wider strategy of technological sovereignty. Through policy instruments such as the Strategic Target Plan, offset mechanisms, and enhanced export controls, Turkish institutions have laid the groundwork for channeling both domestic and foreign investment toward sectors that serve national defense priorities while remaining globally competitive. The country’s membership in export control regimes such as the Wassenaar Arrangement and Missile Technology Control Regime (MTCR), coupled with a robust domestic legislative framework under Laws No. 5201 and 5202, has positioned Türkiye as a secure and transparent jurisdiction for capital deployment in sensitive domains.
Historically, PE and SWFs have approached the defense sector with caution due to regulatory opacity, reputational concerns, and structural risks. However, this paradigm is shifting. As institutional investors seek long-term resilience, predictable cash flow, and exposure to protected markets, the Turkish defense-industrial ecosystem presents a compelling case. The emergence of advanced cybersecurity firms, software-based defense platforms, sensor networks, and dual-use aerospace technologies has expanded the investment universe beyond traditional hard assets. These opportunities are further de-risked through the use of minority stake models, joint ventures with Turkish defense contractors, and structured offset credits that align investor returns with Türkiye’s industrial and strategic goals.
Türkiye’s regulatory bodies, particularly the Defense Industry Agency (SSB) and the Ministry of National Defense (MSB), have responded to this capital influx with new procedural clarity, tailored compliance frameworks, and expanded licensing pathways for non-controlling foreign participation. The emphasis is clear: attract value-aligned investors who can contribute to national capacity without compromising security imperatives. The convergence of state security policy and investor interest has given rise to a fertile space for cross-border cooperation, technology infusion, and capital-efficient industrialization in Türkiye’s defense-adjacent sectors.
This article explores the legal, institutional, and transactional dynamics that underpin this evolving relationship, focusing on how PE and SWFs are engaging with Türkiye’s cybersecurity and dual-use technology segments under a changing geopolitical and regulatory order.
II. Legal and Regulatory Overview in Türkiye
Türkiye’s defense and dual-use investment environment is governed by a tightly coordinated legal and institutional framework designed to ensure national security, technological independence, and compliance with international obligations. At the core of this framework are Laws No. 5201 and 5202, which collectively establish the fundamental legal basis for the production, transfer, export, and licensing of military and defense-related goods and technologies.
Law No. 5201 regulates the manufacture, acquisition, sale, import, and export of weapons, ammunition, military vehicles, and equipment deemed sensitive for national security. This law also sets out licensing procedures for entities seeking to engage in such activities, requiring prior authorization from the Ministry of National Defense and oversight by the Turkish General Staff in certain cases. Its scope extends to both physical goods and associated technology transfers, with explicit controls applied to dual-use items that may have military relevance. The secondary legislation enacted under this law, including its implementing regulation, further defines detailed procedures for licensing, inspection, revocation, and end-use verification.
Law No. 5202 complements this regime by regulating the structure and functioning of Türkiye’s defense industry. It grants institutional authority to the Presidency of Defense Industries (Savunma Sanayii Başkanlığı – SSB) to manage procurement strategies, establish industrial priorities, and coordinate domestic capability development. Law No. 5202 introduces specific mechanisms to support indigenous production, offset implementation, and the protection of classified projects. Notably, it subjects foreign investment in strategic defense sectors to heightened scrutiny, particularly where it involves technology transfer, access to sensitive infrastructure, or participation in critical supply chains.
Within this legal environment, the Controlled Items List (Kontrole Tâbi Liste – KTL 2023), published by the Ministry of National Defense, provides the definitive catalog of military, munitions, and dual-use items subject to control. The list is harmonized with Türkiye’s commitments under the Wassenaar Arrangement and MTCR, and includes advanced electronics, cryptographic systems, UAV subsystems, missile components, and cyber-intelligence tools. Entities intending to invest, produce, or transfer such items must obtain specific authorizations under 5201 and 5202 and ensure end-use compliance consistent with Türkiye’s export control obligations.
In addition to material controls, the regulatory regime imposes stringent security clearance obligations. Pursuant to the MSY 317-2(C) Defense Industry Security Directive, all companies seeking to participate in defense projects must secure both Facility Security Clearances (Tesis Güvenlik Belgesi) and Individual Security Clearances (Kişi Güvenlik Belgesi) for relevant personnel. These clearances are prerequisites for accessing classified information, restricted zones, and participating in defense procurement or offset projects. Clearance applications are processed by the Ministry of National Defense, and any foreign shareholder influence—particularly through PE or SWF participation—must be declared in advance and evaluated for compatibility with national security protocols.
At the strategic level, investment oversight in the defense sector involves not only regulatory agencies but also the highest-level policy coordination bodies. The National Security Council (Milli Güvenlik Kurulu – MGK) and the Defense Industry Executive Committee (Savunma Sanayii İcra Komitesi – SSİK) play decisive roles in aligning industrial projects with Türkiye’s long-term security doctrine. SSİK, chaired by the President of the Republic and comprising top civilian and military leadership, holds ultimate decision-making authority over high-value defense procurements, foreign technology acquisitions, and the qualification of joint ventures involving foreign partners.
Together, this regulatory structure ensures that investment into Türkiye’s defense and dual-use sectors is not only legally coherent but also strategically curated. It provides investors with clarity, predictability, and defined procedures, while preserving the primacy of national defense and technological autonomy.
III. Recent Policy and Institutional Developments (2024–2025)
Türkiye’s defense and technology investment framework has entered a phase of active recalibration in response to the evolving global security architecture and domestic industrial priorities. Between 2024 and 2025, the Turkish government has introduced a series of policy enhancements and institutional adaptations aimed at increasing resilience, deepening local supply chains, and selectively opening sensitive sectors to foreign capital. This recalibration reflects Türkiye’s broader transition from a procurement-driven model to one centered on ecosystem-building, technology sovereignty, and structured foreign partnership.
A significant milestone in this process has been the activation of Türkiye’s updated Strategic Objective Plan, which repositions defense-adjacent technologies—particularly cybersecurity, satellite communications, data encryption, and dual-use AI systems—as national security assets. These sectors now fall under the expanded definition of “strategic technologies” within the updated industrialization guidelines issued by the Presidency of Defense Industries (SSB). As a result, investment in these areas is subject to pre-approval requirements, long-term security protocols, and localization benchmarks tailored to project-specific risk assessments.
In alignment with these changes, Türkiye has also refined its foreign investment review framework. Transactions involving acquisition of minority interests in companies handling classified data, strategic algorithms, or software with cryptographic functions are now evaluated through a layered screening mechanism administered by the SSB and the Ministry of National Defense. Particular emphasis is placed on beneficial ownership disclosure, board representation rights, and access to sensitive know-how. This new mechanism reflects Türkiye’s commitment to managing security externalities in capital markets without deterring investment that supports its defense modernization agenda.
Complementing these developments are updated export control protocols that harmonize Türkiye’s obligations under the Wassenaar Arrangement and the Missile Technology Control Regime (MTCR). The 2024 editions of the Controlled Items List and Technical Annex have been integrated into the national licensing infrastructure, providing greater precision in item classification and end-use risk assessments. This update also strengthens Türkiye’s ability to trace the downstream use of exported components—particularly in the context of dual-use electronics, autonomous vehicle systems, and advanced avionics.
Furthermore, the procedures governing End User Certificates (EUCs) have been tightened. As of 2025, all exports and re-exports of defense and dual-use goods require a validated EUC supported by a non-transfer and non-modification clause. This change aims to mitigate risks of diversion and unauthorized reverse engineering, particularly in high-risk jurisdictions. Investors and joint venture partners must now demonstrate not only technical compliance but also operational integrity within the scope of Türkiye’s defense export policies.
Institutionally, Türkiye has enhanced inter-agency coordination by reinforcing the role of the Defense Industry Coordination Board and expanding the mandate of SSİK to include proactive oversight of foreign technology partnerships and offset program evaluations. These bodies are now equipped with advanced compliance intelligence tools and sector-specific risk matrices to guide their decisions.
Together, these policy and institutional reforms mark a decisive shift toward strategic selectivity and controlled openness. They are designed to invite investment that aligns with Türkiye’s long-term objectives while filtering out structures that could jeopardize national control over critical technologies.
IV. Investment Models: PE and SWF Entry Points
As Türkiye refines its strategic industrial architecture, Private Equity (PE) and Sovereign Wealth Funds (SWFs) are increasingly finding viable entry routes into defense-adjacent sectors through innovative investment structures. These models are tailored to reconcile investor interests with Türkiye’s national security imperatives, regulatory boundaries, and localization mandates. The prevailing approach emphasizes limited control, structured transparency, and alignment with industrial participation strategies.
The most common structure observed in recent transactions is the minority equity model. This arrangement allows foreign investors to acquire non-controlling stakes—typically below 49%—in Turkish defense or dual-use technology firms, provided they do not obtain board-level influence over strategic decisions or classified programs. These investments are subject to prior approval by the Ministry of National Defense and the Presidency of Defense Industries, particularly where the target company holds active defense procurement contracts or possesses access to restricted technologies. To ensure operational insulation, these investments often include tailored shareholders’ agreements restricting access to sensitive technical data and delineating governance rights along strictly commercial lines.
Another increasingly favored model is the joint venture (JV) structure. JVs typically involve Turkish entities—often companies with existing Tesis Güvenlik Belgeleri or those qualified under the SSB’s industrialization program—partnering with foreign capital providers to co-develop cybersecurity software, autonomous systems, or dual-use platforms. In such arrangements, the Turkish partner retains operational control, while the foreign investor contributes capital, international market access, or technological input under licensing or co-development schemes. These JVs are particularly useful in projects seeking to benefit from Türkiye’s offset credit system or aiming to fulfill localization quotas under long-term SSB procurement plans.
A third pathway involves equity participation structured within the framework of Türkiye’s Industrial Participation and Offset (IP/Offset) obligations. Under this model, foreign prime contractors or state-sponsored investors enter the Turkish market by acquiring indirect stakes in approved sub-tier suppliers or R&D entities, thereby satisfying their offset liabilities under major defense procurement contracts. These investments are credited within the SSB’s offset accounting system and are generally welcomed when they support local content, export capability, or know-how transfer. Such equity contributions are often accompanied by project-specific confidentiality regimes and parallel commitments to establish testing infrastructure or training programs in Türkiye.
Despite these pathways, certain regulatory barriers remain. All share transfers involving entities operating within the scope of the Controlled Items List are subject to pre-authorization, and in some cases, national security clearance. Foreign investors must also comply with restrictions on the repatriation of sensitive intellectual property developed within Türkiye. Moreover, transactions involving strategic facilities or entities with access to classified projects require an additional layer of scrutiny under the Defense Industry Security Directive, including potential restructuring of corporate governance to ring-fence sensitive operations.
In sum, while Türkiye maintains robust controls over foreign participation in the defense ecosystem, it has created well-defined channels for investment structures that are legally compliant, strategically aligned, and operationally feasible. These models not only preserve sovereignty over core technologies but also enable productive engagement with global capital and expertise.
V. Target Sectors: Cybersecurity and Dual-Use Technologies
Türkiye’s defense-adjacent investment landscape is increasingly defined by its focus on cybersecurity and dual-use technologies—two domains that offer high growth potential while addressing urgent national and international security challenges. These sectors occupy a strategic sweet spot: they are critical to Türkiye’s security architecture, eligible for defense procurement or offset participation, and capable of attracting foreign capital under regulated conditions.
Cybersecurity has become a national priority, particularly following Türkiye’s expanded digitalization of command-and-control systems, satellite communication infrastructure, and civilian critical infrastructure. In this context, the development of secure data transmission platforms, quantum-resistant encryption protocols, and autonomous threat detection systems has attracted attention from both domestic industrial groups and international investors. Cybersecurity firms operating in Türkiye that provide native cryptographic solutions or defense-grade intrusion detection systems are often eligible for project-level support under SSB initiatives and may be incorporated into classified defense projects. Accordingly, investments in this space require careful alignment with MSY 317-2(C) restrictions, especially with regard to access to source code, integration environments, and remote update capabilities.
A prominent example of regulatory evolution is the implementation of EK-T protocols, which govern secure remote access to sensitive software infrastructure in defense and aerospace projects. These protocols have significantly raised the compliance threshold for foreign investors in Turkish cybersecurity firms, requiring firewalled environments, dedicated key management systems, and operational isolation from parent entities abroad. Despite these restrictions, the market remains attractive due to strong domestic demand and Türkiye’s growing role as a cybersecurity exporter to friendly states.
Dual-use technologies—those capable of both civilian and military applications—form the second pillar of Türkiye’s strategic investment opportunity. The 2023 edition of the Controlled Items List (KTL 2023) highlights numerous such technologies across sectors, including advanced sensors, radar modules, satellite imaging components, inertial navigation systems, and unmanned aerial vehicle (UAV) subsystems. These items fall under the purview of both the Wassenaar Arrangement and the MTCR, and their development, export, and licensing are subject to Türkiye’s international control obligations. Notably, dual-use AI algorithms, edge computing platforms, and surveillance analytics tools are now among the most regulated yet commercially promising segments.
The appeal of dual-use investments lies in their eligibility for both defense procurement and civil government contracts. For instance, imaging software developed for border surveillance may also be integrated into national infrastructure or disaster management systems. This functional flexibility enables investors to diversify revenue channels while still qualifying for strategic classification and participation in state-led R&D programs. Additionally, these projects often benefit from incentives such as TÜBİTAK grants, industrial zone privileges, and favorable treatment under technology development zone regulations.
Türkiye’s approach to these technologies is neither fully closed nor open; rather, it is structured to ensure that foreign capital enhances domestic capability without compromising regulatory sovereignty. This is achieved through a blend of licensing, project-by-project clearance, and investor commitments to localization, technical support, and data security. Due diligence requirements are high, and investors must demonstrate long-term alignment with Türkiye’s industrial and strategic goals.
Ultimately, the cybersecurity and dual-use segments represent not only profitable investment terrain but also the front line of Türkiye’s bid for defense-technological self-reliance. For PE funds and SWFs willing to operate within the legal architecture and strategic sensitivities of the jurisdiction, these sectors offer scalable, resilient, and policy-aligned opportunities for capital deployment.
VI. Case Studies (Redacted/Generic)
Türkiye’s evolving regulatory clarity and institutional maturity have paved the way for several recent transactions by Private Equity (PE) funds and Sovereign Wealth Funds (SWFs) across defense-adjacent domains. While specific deal details remain confidential due to national security restrictions and NDAs imposed under the MSY 317-2(C) framework, the general contours of such transactions offer valuable insight into how capital is currently structured, monitored, and optimized within Türkiye’s strategic ecosystem.
One illustrative case involves the acquisition of a minority stake by a foreign PE fund in a Turkish company specializing in autonomous navigation software for unmanned aerial systems (UAS). The target company, while not producing weaponized platforms, provides flight control algorithms and obstacle avoidance systems used in both civil and military UAVs. To comply with Law No. 5201 and the KTL 2023 classification, the foreign investor submitted to a multi-layered security clearance and agreed to strict limitations on access to the source code repository, R&D pipeline, and system integration environments. The deal structure included a firewall around the defense contracts, an observer-only board seat, and a side agreement precluding any technology transfer or software duplication without prior SSB approval.
In another case, a Gulf-based SWF partnered with a Turkish satellite encryption firm under a joint venture model. The JV was created to co-develop quantum-resilient key distribution protocols for sovereign communication platforms. The Turkish entity provided engineering capabilities, personnel with T1-level security clearance, and access to a restricted testing facility. The foreign partner contributed capital, foreign R&D findings, and market access to select allied jurisdictions. The SSB granted conditional project approval under the assurance that production, testing, and export would remain under the jurisdiction of the Republic of Türkiye. The JV was also eligible for offset credits, as the foreign partner was simultaneously involved in a major procurement transaction with the Turkish Armed Forces.
A third example features a European PE firm’s attempt to acquire controlling interest in a cryptography hardware startup involved in military-grade data processing modules. Despite the target company’s compliance with civil-sector licensing and lack of direct defense contracts, the transaction triggered an intervention by the Ministry of National Defense upon discovery that the hardware architecture had potential for adaptation into command-and-control platforms. As a result, the approval was denied, and the transaction was only restructured as a minority investment with a technology licensing agreement subject to post-transfer compliance audits and sovereign veto rights.
These examples underscore several operational realities. First, Türkiye allows foreign capital in sensitive sectors, but only under structured legal oversight and security guarantees. Second, deal structures must anticipate classified work, even if current operations are civil in nature, due to the dual-use potential of core technologies. Third, proactive engagement with the SSB, clear demarcation of roles, and internal separation of export-controlled operations are essential not only for regulatory approval but also for the long-term viability of the investment.
The case studies demonstrate that Türkiye has cultivated a functional model of “strategic openness,” balancing the need for capital inflow and industrial growth with uncompromising national security controls. For disciplined investors with a long-term outlook and compliance capabilities, the Turkish defense-adjacent market remains accessible, competitive, and increasingly institutionalized.
VII. Outlook and Strategic Considerations for Investors
As Türkiye continues to reinforce its strategic autonomy and deepen its technological base, the defense-adjacent investment landscape will remain both highly regulated and uniquely attractive. The combination of regional geopolitical pressure, NATO-aligned modernization needs, and Türkiye’s self-declared imperative for independent capability development ensures that capital flowing into cybersecurity, AI, dual-use platforms, and digital command systems will be both needed and selectively welcomed.
For institutional investors—especially PE funds and SWFs—Türkiye offers a distinctive value proposition. The defense and dual-use sectors are characterized by relatively low competitive saturation, recurring public procurement pipelines, and policy incentives aimed at fostering export capacity. These are not speculative industries; they are built on long-cycle government contracts, export guarantees, and structured offsets, all of which contribute to investment durability and predictable returns.
However, access to these sectors requires more than capital. Investors must understand that Türkiye’s defense-industrial ecosystem is constructed around three core principles: strategic containment of foreign influence, controlled knowledge transfer, and the protection of national security assets through law, protocol, and institutional scrutiny. Therefore, investment decisions must account for the comprehensive compliance architecture—ranging from security clearances and licensing obligations to end-use controls and mandatory localization undertakings.
Looking ahead to 2026, Türkiye is expected to formalize new secondary legislation under Law No. 5202, introducing sector-specific foreign participation thresholds and expanding the scope of covered technologies under the Controlled Items List. The Presidency of Defense Industries (SSB) is also anticipated to broaden its oversight of joint R&D ventures and deepen industrial participation crediting models for cybersecurity-related projects. These changes will likely offer new structured routes for foreign co-investment, particularly in the context of allied technology cooperation frameworks.
Investors would be prudent to anticipate growing linkages between Türkiye’s national security policy and its international economic diplomacy. Defense-industrial ties are increasingly being used to anchor strategic partnerships with the Gulf, Central Asia, and Southeast Asia. In this setting, investments that serve Türkiye’s long-term technological resilience and export ambitions—while demonstrating transparency and alignment with sovereignty principles—will likely enjoy privileged access, policy support, and regulatory continuity.
The message to international capital is clear: Türkiye’s defense-adjacent markets are open, but not passive. They demand alignment, compliance, and contribution. Those who structure their investments with these realities in mind will find not only entry, but partnership.
