TBY talks to M. İlker Aycı, President of the Investment Support and Promotion Agency of Turkey (ISPAT), on FDI results, the new commercial code, and opportunities in 2012.
TBY Did ISPAT meet its targets for FDI in 2011? What goals are in place for 2012, and what strategy is in place to achieve them?
İLKER AYCI Turkey attracted around $16 billion of FDI in 2011, which was a 76% increase compared to 2010. We were very optimistic at the beginning of 2011, expecting $12 billion-$15 billion in FDI and we were able to meet our target. We are confident that we will surpass these figures in 2012. International institutions and global investors are very sanguine about Turkey’s potential to attract FDI. For example, according to the IMF’s projections, Turkey is expected to attract more than $110 billion worth of FDI over the next five years. Turkey ranks as the 13th most attractive and confident investment destination in the world in 2012, according to the Foreign Direct Investment Confidence Index, a survey conducted by A.T. Kearney among multinational companies. We are developing specific strategies for certain countries, investors, and sectors. Furthermore, we are detailing these studies and customizing them according to Turkey’s needs.
What opportunities does Turkey’s high-tech education initiative, the Fatİh Project, offer foreign investors?
The Fatİh Project is full of opportunities for technology companies thanks to its large scale and high market value. Spanning four years, the Fatİh Project envisions the utilization of cutting-edge educational technology to increase the quality of public education. This involves equipping pre-school, primary, and secondary school students with tablet PCs and classrooms with smart electronic boards. The project is estimated to create a market of about $7 billion over the first four years. The Fatİh Project presents opportunities on such a scale that a technology firm can potentially leap ahead of its competitors. At least 15 million tablet PCs will be distributed to students nationwide within the first four years, and this will be followed by the introduction of at least 1.5 million units per year afterward. The project includes the installation of smart boards and touch panel LCDs in 620,000 classrooms. Foreign investors can both contribute to and benefit from such a promising project.
The Turkish economy is projected to grow at a slower rate in 2012. How do you expect this to impact the level of FDI?
The Turkish economy has been robustly growing in recent years, with 9.2% growth in 2010 and 8.5% in 2011, thus becoming one of the fastest growing economies in the world. The official estimate for Turkey’s economic growth in 2012 is comparatively moderate. The Turkish government expects 4% growth in 2012 and 5% in 2013. These figures are very close to the OECD’s recent assessment, according to which Turkey is set to grow by 3.3% in 2012 and 4.6% in 2013. The economic slowdown is a concern not only for Turkey but also for the global economy. In its latest World Economic Outlook report, the IMF predicted that the global economy would grow by 3.5% in 2012, down from 3.8% in 2011, while the eurozone will contract by 0.3% after expanding by 1.4% in 2011, and the EU 27 will barely grow. Similarly, emerging and developing economies are expected to grow by 5.7% in 2012, down from 6.2% in 2011. These predictions are mainly due to the economic uncertainty following the eurozone debt crisis. However, once the dust settles, the world economy will be back on track, and Turkey will continue to grow robustly. We don’t expect that it will have a negative impact on the level of FDI, as the nature of FDI is based on long-term outlooks rather than short-term business cycles. Meanwhile, in the medium and long run, Turkey is expected to grow robustly. According to the OECD, Turkey is expected to grow by 6.7% between 2011 and 2017, standing out as the fastest growing economy amongst the OECD members. Therefore, global investors are investing in the future of Turkey, a country that is promising growth and more business opportunities.
What is the anticipated impact of the new Turkish Commercial Code (TCC) on M&A activity?
The new TCC is a landmark development in the country’s commercial life. It aligns Turkey’s business legislation with international standards, in particular with EU legislation, by incorporating internationally accepted accounting standards into domestic legislation, increasing the transparency of enterprises and preventing unfair competition. The new law will revolutionize Turkish business life and change the dynamics of M&As in Turkey. Company mergers, divisions, and conversions are all regulated in accordance with EU law. The law will radically boost auditing standards and transparency, eventually increasing the number of investment and acquisition targets in the M&A market. In a recent survey among corporate executives, private equity practitioners, financial advisors, and legal advisors based in Turkey, around 92% said that the new TCC would play a crucial role in facilitating M&A activity.
Which sectors offer the most opportunity for investment in 2012?
Abundant investment opportunities are available in many sectors, ranging from energy, finance, automotive, ICT, food and beverage, agriculture, renewable energy, iron and steel, to petrochemicals and real estate. More opportunities will come with the realization of Turkey’s ambitious targets for 2023, the centennial celebration of the foundation of the republic. Turkey has set specific targets to achieve by 2023, from health care to the economy and from defense to education. The country has several aims: to become one of the world’s top 10 economies with a GDP of $2 trillion; to increase its export volume to $500 million; to upgrade the country’s energy, transportation, and health infrastructure through the construction of hospital cities; to more than double electricity generation; and to build new bridges on the Bosphorus and Dardanelles straits. It is also a national target for Turkey to make Istanbul an international financial center. Having been tested by the global economic crisis, Turkey has one of the most solid and promising financial sectors in the region. The Turkish government’s Istanbul International Finance Center (IFC) project offers global companies a chance to run their regional financial operations through Istanbul thanks to various incentives, a skilled workforce, and a global, cosmopolitan city with a vibrant local economy.
What investment incentives can ISPAT highlight?
In addition to promising sectorial opportunities, global investors can also benefit from lucrative incentives, including favorable tax deductions, special investment zones, exclusive R&D and innovation support, and staff training. What we would like to highlight is that Turkey has recently introduced a new incentives scheme that aims to cure Turkey’s current account deficit. Investments in sectors with considerable trade deficits are viewed as strategically important and thus will be supported throughout Turkey, especially through the new regional and sectorial incentive system. Similarly, large-scale investments with high value-added are also supported. Moreover, regionally offered incentives create more opportunities for investors. Another unique incentive Turkey presents to global investors is the service offered by ISPAT, the official organization for promoting Turkey’s investment opportunities to the global business community and providing assistance to investors before, during, and after their entry into Turkey. The agency serves as a reference and a contact point for all global investors by linking them with both the government and businesses in Turkey. All of our services come free of charge, and they include providing market information, site selection, B2B meetings, and coordination with relevant governmental institutions, as well as facilitating legal procedures and applications, such as establishing companies, incentive applications, and obtaining licenses and work permits.
Which legislative reforms will have the most impact on Turkey’s investment environment?
Turkey has already reformed its investment environment; all bureaucratic hurdles have been removed, investment procedures have been streamlined, and red tape has been reduced. The Coordination Council for the Improvement of the Investment Climate (YOİKK) was specifically established for this purpose. The Council continues to work to improve the investment climate in line with global developments. A new draft law regulating the real estate sector in Turkey is currently pending approval from Parliament. Once enacted, this law will boost foreign investment in the Turkish real estate sector, which is one of the most attractive in the world. Turkey ranks as the third most attractive real estate investment destination among emerging countries in 2012, according to a survey conducted by the Association of Foreign Investors in Real Estate. Istanbul’s rapid rise as a lucrative property investment location has left behind the likes of London, Paris, and Madrid, with the city emerging as the top growth market in Europe’s real estate industry, according to “Emerging Trends in Real Estate Europe,” a survey conducted jointly by PricewaterhouseCoopers (PwC) and the Urban Land Institute (ULI).
Is Turkey seeing increased interest from South America, China, and the GCC region? What areas are seeing the most investment?
The recent global financial crisis, which deeply affected the world’s economy, has also changed the landscape of global FDI. Until very recently, more than half of global FDI was flowing to advanced economies; however, for the first time, more than half of global FDI went to developing economies in 2010, and this trend continued in 2011. Another change in the nature of global FDI is that some emerging economies such as the BRIC (Brazil, Russia, India, and China) countries and GCC states have been emerging as new sources of global FDI. In such a changing global environment, the nature of FDI inflows to Turkey has also changed. The EU is still dominating FDI inflows to Turkey, but its share decreased from 86% in 2004 to 71% in 2011, while other countries have been increasing their investments in Turkey. For example, by the end of 2010, the stock value of GCC region FDI in Turkey exceeded $13 billion, up from $234 million in 2002. Russia and Azerbaijan have also increased their investments in Turkey; just last year we received $700 million from Russia and $1.2 billion from Azerbaijan alone. US companies have also been boosting their investments in Turkey, investing around $1.4 billion in 2011, which corresponds to a 334% year-on-year increase. Similarly, we have recently witnessed a greenfield investment by Indian investors and M&A activities from Chinese investors. They are all investing in a rapidly growing and promising Turkey. The sectorial breakdown of FDI inflows indicates that the country is attracting more production-based investments, which heavily contribute to the economy. For example, Turkey attracted $4.3 billion to the energy sector in 2011 and $3.4 billion to the manufacturing sector. Petrochemicals alone attracted $1.2 billion.
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