TBY talks to Zafer Çağlayan, Minister of Economy, on attracting FDI and closing the current account deficit.
TBY What are some of the key measures that the government’s Medium-term Economic Program is looking to achieve?
ZAFER ÇAĞLAYAN The government’s main objective during the 2012-2014 period is to increase employment and sustain high-quality growth. In line with our predictions put forward in the Medium-term Economic Program, we expect our economy to grow by 4%, total national income to reach $822 billion, and income per capita to rise to $10,973 in 2012. Furthermore, it is anticipated that our exports and imports will amount to $148.5 billion and $248 billion, respectively. It is also expected that the current account deficit will be $65.4 billion, falling by $6.3 billion, while the ratio of the current account deficit to GDP will recede to 8%.
How can you reassure foreign investors that Turkey remains a secure destination for trade and investment?
Our government’s policies and attitudes toward investments have received positive feedback from both domestic and foreign investors. Investment incentive statistics, including data for FDI and domestic investments, verify this view. Between 1990 and 2000, Turkey attracted FDI worth $8.7 billion. Between 2001 and 2011, on the other hand, this amount increased more than 13 fold, reaching a total of $114 billion. This rate of increase was above the world average, as well as the relevant increase in developing countries, which was around three fold.
In 2011, Turkey received FDI worth $15.9 billion, exceeding the $9 billion awarded in 2010. This upward trend in FDI, in an era of negative economic circumstances and global crisis, is a good indication of investor confidence in Turkey.
In 2011, 71% of capital inflows originated from EU countries. This shows that European investors did not lose confidence in the Turkish market, despite the eurozone crisis. According to United Nations Conference on Trade and Development (UNCTAD) statistics, Turkey attracted one-third of the investments that were destined for the politically and economically turbulent North African and Middle Eastern countries. Consequently, I am proud to say that Turkey has a strong potential to become the world leader in terms of foreign investment.
Turkey’s current account deficit is a noted concern. What measures are necessary to keep the deficit under control?
The current account deficit is an issue that we carefully study. The issue stems from the structural features of the Turkish economy. The foreign trade deficit, which is the main determinant of the current account deficit, rises in periods of economic growth depending on issues such as domestic and foreign demand, as well as the value of the Turkish lira.
We focus on what we should do beyond our short-term measures. In this context, we analyzed the import intensive industries, executed the Input Supply Strategy (GİTES), and employed structural solutions. This strategy targets increasing the efficiency in production and the capability of our industry as well as enhancing export-oriented production. We seek to reduce the dependence of our exports on intermediate goods, such as energy and non-energy raw materials. This will improve the value-added generated in Turkey. The main goals of GİTES are to ensure continuity and to increase the efficiency and security of the supplies needed by the industry. Once these goals are attained, a more balanced relationship between growth and the current account deficit will be maintained.
The new incentive package is one of the most concrete results of GİTES, which aims to find a permanent solution to the current account deficit so as to maintain development in our country. The new incentive scheme is designed to serve three main needs of our economy: the integration of investment-production-employment-export policies; the production of imported intermediate goods; and the transition from labor-intensive technology to knowledge-intensive technology for exports. In this context, the new incentive scheme consists of four main components: general, regional, large-scale, and strategic investment incentives. These are expected to reduce the imported inputs that aggravate our current account issue, and increase the production of high value-added and competitive goods on the domestic market.
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