DESTINATION TURKEY

Turkey 2011 | ECONOMY | FOCUS: FDI

A pillar of stability throughout the crisis, Turkey increased its FDI inflows in 2010 and is now looking to see a return to pre-2008 levels.

Spearheaded by the Investment Support and Promotion Agency of Turkey (ISPAT), Turkey's drive to attract long-term investment proved successful in 2010; however, there is still a long way to go to return to pre-crisis levels. In 2010, there was a total flow of $8.9 billion of FDI into Turkey, up only slightly from $8.41 billion the previous year; a result of Europe's slower recovery from the global financial crisis—Europe contributed 76% of 2010's total FDI inflow. In 2010 the number of companies in Turkey with foreign capital hit 25,837, up from 23,600 in 2009.

In 2008 total FDI reached $18.27 billion, and in 2007 a record level of $22.05 billion was recorded. The largest equity investment in 2010 was Spanish bank BBVA's purchase of an 18.6% stake in Garanti Bank for $5.8 billion.

In sector-by-sector terms, the electricity, water, and gas supply industries attracted the most investment, with the financial intermediation and manufacturing sectors coming in second and third.

THE BREAKDOWN

In 2010, Turkey's total FDI flow of $8.90 billion was constituted mainly of equity investment, the net value of which was $6.23 billion. A further $2.49 billion was a result of net real estate investment, while the rest was made up of intra-company loans, according to the Central Bank of Turkey. Central Bank policy going forward looks to slow the rate of equity investments while increasing the prevalence of more long-term investments, cooling down the effects of so-called “hot money" flows. In that regard, the increase in foreign real estate investment to $2.49 billion from $1.78 billion in 2009 is positive.

In sector-by-sector terms, Turkey's strong financial sector increased its FDI flow from $666 million to $1.58 billion in 2010, while manufacturing—one of Turkey's main growth sectors—saw a decrease from $1.57 billion in 2009 to $847 million in 2010.

In terms of companies with foreign capital, the wholesale and retail trade comes in at number one with 7,808 companies. Second comes manufacturing with 4,353 companies, and in third is real estate, with 4,123.

The EU has been the major source of FDI inflows, with France and the Netherlands investing the most in Turkey in 2010, at $589 million and $501 million, respectively. After the EU, Turkey attracted the most foreign investment from the Middle East and Asia, at $437 million and $873 million, respectively.

2011 & BEYOND

In the first quarter of 2011, FDI surged to $3.95 billion, a 154% increase on the previous year. Equity investments also surged by 256% over the same period in 2010, reaching $3.54 billion, while foreign capital levels also rose to $3.49 billion, a 233% increase.

Skyrocketing foreign capital is attributable to the interest of leading foreign firms, with BMW and Nissan reported to be contemplating investments, as well as Commercial Aircraft of China (COMAC), and US-based hotel chain Marriot, to name but a few. Bülent Göktuna, Chairman of the Board of Mineks International, a leading M&A firm in Turkey, predicts FDI levels as high as $20 billion by end-2011, and a surge is now expected following the AK Party's victory in the June 2011 elections.