On Doing Business in Turkey

By Can Gursu

Turkey has set ambitious goals in a large number of fields for 2023. Investment Support and Promotion Agency President Ilker Ayci is confident that the country will emerge as strong global player. Ayci provide his evaluation of the investing climate in Turkey to The Trukish Perspective.

The Turkey Attracts investment from all over the world. Likewise, it invests in many different countries itself. What is your assessment of the endeavors Turkey has taken on in the past 2.5 years and the state of its investments?

The recent global financial crisis and the ongoing euro zone crisis have had negative impacts on the entire world economy, let alone the Turkish economy. In a gloomy economic environment, global investors have had to either cancel or postpone their investments. However, as the Investment Support and Promotion Agency of Turkey (ISPAT), we are turning the crisis into an opportunity-global investors faced with recession in advanced economies are looking for safe harbors to anchor in. Emerging economies, like Turkey, offer safe havens rich with economic opportunities. Turkey was one of the fastest-recovering economies since immediately after the recent global financial crisis and it now stands out as one of the most attractive foreign direct investment (FDI) destinations in the world. Secondly, as the advanced economies, which have traditionally been the main sources of FDI in the world in order to diversify these sources. In this regard, emerging economies like China, India, and Russia have been emerging as new sources of FDI. We have developed new strategies for each of these countries. Similarly, cash-rich countries-such as oil-rich Gulf countries-have also become new sources of FDI, and we are proactively working to attract FDI from these countries.

Today, there are more than 32,000 foreign companies with active investments in Turkey. The country has attracted around $123 billion of FDI over the decade since 2003. This is an impressive figure, as Turkey attracted only $5billion of FDI in the eight decades preceding 2003. Moreover, according to projections by international institutions and experts, Turkey is expected to attract around $130 billion of FDI over the next five years.

The Investment Support and Promotion Agency has declared a target of attracting $110 billion in investment in five years. What sort of activities are you pursuing to reach this target?

Turkey has set specific targets to achieve by 2023 in fields from health care to the economy and from defense to education. These targets include becoming one of the top ten economies in the world, with a GDP of $2 trillion; increasing exports to $500 billion by value annually; upgrading the country’s energy, transportation, and health care infrastructure through the construction of “hospital cities”,increasing electricity generation by more than double, and building new bridges across the Bosphorus and Dardanelles straits. Also among Turkey’s national targets is transforming Istanbul into an international financial center.

As Turkey implements its structural reforms, it has also been taking various initiatives in close cooperation with the private sector in order to improve the investment climate on. One of these initiatives is the Coordination Council for the Improvement of the Investment Environment, which is a key structure by which the private sector contributes to the process of improving the investment climate and which is recognized by international economic authorities as a success story of the public-private platform. The council rationalized the regulations on investments in Turkey, developed policies by determining the arrangements necessary to enhancing the competitiveness of the investment environment, and generated solutions to the administrative barriers encountered by local and foreign investors in all phases of the investment process, including the operating period. Moreover, the government has taken exceptional measures to provide a more business-friendly environment for foreign investors in Turkey. In addition to the Coordination Council for the Improvement of the Investment Environment, the government established the Investment Advisory Council, with the participation of senior executives from prominent multinational companies, in order to address the administrative barriers to investment, improve the positive image of Turkey as an attractive investment destination, and provide a global perspective to the ongoing investment climate reform agenda. Since 2004, the Investment Advisory Council of Turkey has been meeting under the chairmanship of the Prime Minister, and it has been making important decisions since then. These decisions constitute the top items on the reform agenda of the Coordination Council for the Improvement of the Investment Environment.

Every year, around 600,000 students graduate from over 170 universities and 700,000 from high schools.

Which industries are attracting the most investment? What kinds of incentives are offered to international investors in relation to these industries?

If we look at the stock value of the existing FDI in Turkey, we will see that the manufacturing sector has been the most attractive sector in Turkey, followed by financial services, energy, ICT, retail, health care, and mining. Further delving into manufacturing indicates that food and beverages, automotive, electronics, chemicals, pharmaceuticals, petrochemicals and machinery manufacturing are the main recipients of FDI.

There are also numerous investment projects through PPP and further opportunities in education, energy, defense, health care, transportation, and other public services. Similarly, opportunities are also available in privatization projects. While Turkey’s privatization efforts yielded $49 billion in the last nine years, there are still several more areas to be privatized, such as infrastructure and energy generation (which has been partly privatized).

Real estate has also been one of the most attractive fields in Turkey. Turkey ranked 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. Today, Istanbul is one of the most attractive real estate investment destinations in the world. 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 a recent survey jointly prepared by PrincewaterhouseCoopers (PwC) and the Urban Land Institute(ULI), Istanbul ranks at the top of the “Development and Investment” category. Istanbul scored the highest in the “Existing Property Performance”, “New Property Acquisitions” , and “Development Prospects” categories. Moreover, the government has amended the relevant legislation to allow foreign nationals to buy real estate in Turkey in exception to the reciprocity principle, which make the field even more attractive.

Attracting FDI is a major objective of the Turkish government. To this end, the government has improve the investment climate through comprehensive structural reforms and introduced lucrative investment incentives. Over the past decade, the government implemented three incentive programs-in 2003, 2006, and 2009 respectively-and announced the fourth one in April 2012. The schemes put into action in the past decade have played an important role in drawing investment. Each program was tailored to trends in the global economy and recent changes in the domestic market. The incentives scheme announced in April 2012 was prepared and improved according to the new conditions, trends, and requirements of domestic and global conditions.

Turkey Ranked as the Third Most Attractive Real Estate Investment Destination Among Emerging Countries in 2012

The main objectives of the new incentives scheme include reducing the current account deficit and increasing production and investment for highly import-dependent intermediate goods. This means boosting investment support in the least developed regions, improving efficiency in industry and logistics, and investing in medium-and high-level technologies to achieve the transfer of technology. The new program comprises four different schemes, namely general incentive, regional incentives, incentives for large-scale investment, and incentives for strategic investments. More specifically, Turkey offers investors value-added tax (VAT) exemption and corporate tax reduction, as well as support for social security premiums, interest payments, and land allocation. This new system will contribute to the structural transformation of Turkey’s industries, particularly through strategic investments, by encouraging domestic production of goods that are mainly imported. With the new system, the government has redefined the regions, decreased the minimum fixed investment amount for large-scale investments, and introduced a new instrument-incentives for strategic investments, which are intended to reduce Turkey’s current account deficit.

Under the new system, the government intends to balance the levels of local development nationwide, particularly focusing on raising investment in the country’s least-developed areas. To maximize the impact of the program, the regions were categorized according to their levels of development as a balancing mechanism. In preparation for this region-based approach, the government conducted thorough research to update information on each province’s socio-economic ranking and grouped them into six categories. This raking system is flexible, too, and it will be constantly updated as different areas reach new levels of development. With this new incentives scheme, the main purpose is to focus on the least-developed regions; therefore, incentives for investors in these areas benefit from a larger scope of support. The new incentives system also gives priority to several specific industries, such as defense, automotive, aerospace and aviation, maritime freight/passenger transportation, pharmaceuticals, education, tourism, and mining. Investments in these industries are supported by means of incentives provided for Region 5, the second-least developed region. As for the incentives for strategic investments, the main goal is to promote and support investments in industries with considerable trade deficits. By reducing trade deficits in key industries, the government is aiming at reducing the current account deficit. It is important to highlight that strategic investments are strongly supported in all regions with identical incentives.

How would you access Turkey’s investing climate in relation to the rest of the world? What kinds of opportunities does Turkey present to international investors?

Turkey’s strategic location allows investors to access multiple markets around Turkey, which collectively hold a population of 1.5 billion people and a combined GDP of $25 trillion; provides investors in Turkey with logistics advantages; and provide Turkey with connectivity advantages. Moreover, Turkey’s geographical proximity to export markets is supported by a legal framework through free trade and customs agreements-Turkey is part of the EU Customs Union and it has free trade agreements with 22 countries. Not only are there logistical advantages but there is also relaxed legal framework enabling investors to export to different markets without customs duty. Moreover, the legal framework is reinforced by treaties to prevent double taxation with 79 countries and bilateral agreements with 75 countries for the promotion and protection of investments.

Education and a skilled labor force are also making Turkey more competitive. Every year, around 600,000 students graduate from over 170 universities and 700,000 students from high schools, with around half of the latter graduating from vocational and technical high schools. There are more than 40 universities in Istanbul, making it the largest concentration of higher education in the region, and they offer world-class education and training to meet the professional and technical demands of the business world.

Multinational companies are already taking advantages of Istanbul’s strategic location by relocating their regional headquarters to Istanbul. For instance, GE Healthcare moved its regional headquarters from London to Istanbul to manage its operations in 80 countries in four major regions-Central Asia, the Middle East, Russia, and Africa. Similarly, both Coca-Cola and Microsoft have their regional headquarters in Istanbul, from where they manage operations in 80 countries.

How might the investing climate be affected by the increase of Turkey’s credit rating to “investment worthy”, signs that the Fed could end its expansionary monetary policy, and the Turkish lira losing value?

Turkey’s economic fundamentals have been strengthened as a result of Turkey’s political stability and sustainable economic growth in Turkey paved the way from comprehensive structural reforms that removed bureaucratic hurdles, and streamlined procedures, thus creating predictability and giving confidence to global investors. Such a macroeconomic outlook-recently boosted by rating upgrades-is imperative to attracting FDI, and global investors are quite aware of such positive developments in the Turkish economy. All these developments are expected to pave the way for more FDI inflows to Turkey in 2013 and beyond.

What regions in Turkey are investors targeting? Have changes been observed in fifth-and sixth-region investments with the new incentive system?

An improved investment climate with lucrative incentives has attracted foreign investors to all around Turkey. Abundant investment opportunities are available in Turkey ranging from real estate, finance, automotive, ICT, energy, renewable energy, and iron and steel to petrochemicals. Turkey offers tremendous opportunities for global companies to penetrate the growing markets of the Middle East, North Africa, Central Asia, and the Caucasus.

Turkey’s image abroad has changed immensely compared to ten years ago. International investors are showing high interest in Turkey. In a historical context, what are your thoughts on this transformation?

Over the past decade, Turkey has embarked on a comprehensive structural reform program in order to improve its investment climate. A new FDI law was introduced in 2003, the corporate tax rate was decreased to 20% down from 33%, and all bureaucratic hurdles were removed; the legal framework was thus reformulated in favor of investment. To this end, the government, together with the private sector, established the Coordination Council for the Improvement of Investment Environment. It is an excellent platform for partnership between the private and public sectors, and it is where stakeholders identify and remove regulatory and administrative barriers to both foreign and local private investments. As a result, the investment climate in Turkey has improved dramatically. The reform process has yielded results including making Turkey the second-biggest reformer of its restrictions on FDI among OECD countries. Political stability since 2002 has made Turkey one of the most stable countries in the region. Moreover, together with political stability, economic stability has also been secured, offering investors a safe haven. Another area is privatization, which has minimized the role of government in the economy, enhancing the efficiency of the privatized enterprises. The government has realized numerous projects in cooperation with private sector in order to develop infrastructure. All these developments, reforms, and political commitment to economic development, coupled with Turkey’s young and dynamic domestic markets, have put Turkey in front of it peers.

Turkey has bright future that promises more investment opportunities. This is not just our perception-many international institutions and experts have a positive stance on Turkey’s future, their projections placing Turkey as one of the top ten economies in the world. More opportunities will come with the realization of Turkey’s ambitious targets for 2023, the centennial celebration of the foundation of the Republic.

Turkey offers tremendous opportunities for global companies to penetrate the growing markets of the Middle East, North Africa, Central Asia, and the Caucasus.

Certain East Asian and Persian Gulf countries with current surpluses have lately set their eyes on Turkey for investment. Japan, Hong Kong, and China have especially been showing interest in Turkey, and you visited the area in August in connection to this interest. What are your expectations of these meetings?

We are working relentlessly in order to attract FDI to Turkey. The main pillar of our strategy is to make Turkey one of top ten FDI destinations by 2023, the centennial of the foundation of the Republic of Turkey. East Asian countries will definitely be part that strategy, since most importantly, Japan, Hong Kong, and China are major investors in the world. Over the past five years, companies from Japan, Hong Kong, and China have been investing $100 billion, $80billion, and $70billion respectively. Secondly, considering the nature of those economic models, investments from East Asia will have high value added, since they are technology intensive and quality oriented. For these reasons, we will follow investors from East Asia closely and do our best to bring them to Turkey for investment.

The information on this page may have been provided by a contributor to ChinaGoAbroad, and ChinaGoAbroad makes no guarantees about the accuracy of any content. All content shall be used for informational purposes only. Contributors must obtain all necessary licenses and/or ownership rights from the relevant content owner(s) before submitting such content (including texts, pictures, photos and diagrams) to ChinaGoAbroad for publication. ChinaGoAbroad disclaims all liability arising from the publication of any content/information (such as texts, pictures, photos and diagrams that infringe on any copyright) received from contributors. Links may direct to third party sites out of the control of ChinaGoAbroad, and such links shall not be considered an endorsement by ChinaGoAbroad of any information contained on such third party sites. Please refer to our Disclaimer for more details.