With its membership talks with the EU to begin this autumn, its privatisation drive in full swing and its economy continuing to grow at a blistering pace, Turkey is on the verge of attracting large amounts of foreign investment for the first time, economists and bankers say. For a country of its size, Turkey has been an underachiever at pulling in direct foreign investment (FDI) over the past five decades.
Turkey has a population of more than 72 million people – the third-largest in Europe after Russia and Germany – and is expected to surpass Germany in the next 10 years. It has the youngest population on the continent with 45% of its inhabitants under the age of 25. Yet it attracted only $20.7bn in FDI between 1954 to 2004, according to the State Institute of Statistics (DIE). That amount was less than half the foreign investment inflows to China alone in 2003, according to the UN’s Conference on Trade and Development (Unctad).
Unctad ranked Turkey 110th out of 140 countries in an inward FDI performance index published in its World Investment Report for 2004, behind such countries as Malawi, Madagascar and Cameroon. The index is calculated as the ratio of a country’s share in global FDI inflows to its share in global gross domestic product.
“Turkey hasn’t lived up to our expectations in drawing foreign investment,” Mustafa Alper, secretary general of the Foreign Investors’ Association (YASED), told The Banker. “We believe Turkey can attract $15bn a year – or 5% of its gross national product.”
Damage limitation
Political instability, a stifling bureaucracy, a Byzantine legal system, high inflation, prohibitive taxes, a sprawling, overbearing state sector and a thriving unregistered economy that inhibited a competitive market economy have all kept away foreign investors in the past, Mr Alper declared.
In 2004, Turkey drew only $2.6bn in direct FDI, including $1.3bn in real estate acquisitions, the Central Bank of Turkey reported. Sixty-six countries hauled in more foreign investment than Turkey in 2003, although it was the world’s 17th largest economy, according to Unctad. But the government of prime minister Recep Tayyip Erdogan has introduced a series of measures that have increased Turkey’s attractiveness for FDI, say businessmen and bankers.
A new foreign investment law was enacted in 2003, replacing 49-year-old legislation. It changed the old FDI registration and approval system and banned nationalisation without fair compensation. It eased restrictions on FDI entry into Turkey by eliminating minimum capital requirements; granting companies and individual investors full convertibility in their transfers of capital and earnings; and allowing foreign companies to acquire property in the country without any restrictions.
An Investment Advisory Council composed of the representatives of many multinational companies, such as Citicorp, Nortel Networks, Hyundai, Nestlé, Fiat, Siemens and Arcelor, was established in March 2004, showing the importance the government places on foreign investment. The prime minister and several of his cabinet members attended the first meeting of the council with 20 chief executive officers of the biggest multinationals. A second meeting was scheduled for April 29, 2005.
Foreign firms switch on
Inflation accounting, which was long demanded by foreign corporations in Turkey, has been introduced. The government has liberalised the law on work permits of foreign nationals and drafted a bill to create an investment promotion agency. The government’s privatisation drive, to culminate with the sale of state telecommunication concern Turk Telekom this year, is also aimed at stimulating foreign investment.
Foreign companies are beginning to respond by expanding existing operations, starting up new investments or acquiring interests in banking, the automotive industry, retailing, tourism, electronics, chemical products, energy, logistics and the services sector.
Finland’s telecommunications company Sonera Holding has agreed to acquire a 27% stake in Turkcell Holding, from Cukurova Holding, for $3.1bn. The acquisition would give Sonera majority control over Turkcell, the nation’s biggest mobile phone network operator.
Korean car maker Hyundai is considering investing $500m in its automobile factory in western Turkey that will turn it into a major export base.
“We are going to expand our capacity in Turkey by the end of this year. The explosive demand for passenger cars in Europe makes this necessary,” Werner Frey, vice-chairman for Hyundai Europe, declared.
