And, how will you build on these achievements over the coming year? Thanks to the dynamism of our economy and efforts of our agency, a lot of new investment was drawn into Turkey, including DuPont building a new innovation centre and Recordati investing in the pharmaceutical industry.
Moreover, Turkey increased the total investment volume in greenfield investment projects from $8.8bn in 2012 to $9.5bn in 2013, an 8% rise. With these figures, Turkey was among the top 20 countries in the world in terms of attracting greenfield foreign direct investment (FDI).
In the past 12 months we have also organised and attended many successful events. In 2013 alone we made 101 visits to 39 countries. These included presenting at the annual Bio International Convention in the US on the opportunities in Turkey’s pharmaceuticals and biotechnology sectors, which are both important elements of the Turkish national health strategy.
Our government has set challenging targets to achieve by 2023, which is the centennial celebration of the foundation of the Republic of Turkey. Turkey aims to be one of the top 10 economies in the world with a GDP of $2trn, with exports amounting to $500bn.
To reach these ambitious goals, we need rapidly to increase both domestic and international investment in Turkey. Hence, our aim for 2014 is to surpass the performance of previous years.
Turkey surpassed the International Monetary Fund’s growth estimate for 2013. What fuelled that impressive growth?
Over the past decade, Turkey has been able to retain sound macroeconomic fundamentals thanks to the structural reforms conducted by a pro-business, stable government. Being aware of its huge potential, Turkey has implemented a set of structural reforms to enhance the competitiveness of its economy, boost labour market flexibility and eliminate vulnerabilities.
The key changes took place within public finance reform, which gave the government the leverage for fiscal adjustment and price stability as well as reform of banking, social security and healthcare.
As a result of these structural reforms, Turkey has emerged as one of the most appealing investment destinations in the world. The economy has been growing over 5% per year since 2002.
In the meantime, GDP per capita has more than tripled. While many economies were unable to recover from the global financial crisis, Turkey has been one of the fastest recovering economies in the world, expanding by 9.2% in 2010, followed by 8.5% in 2011.
So it is not surprising that Turkey had a higher growth rate than expected in 2013. Strong fundamentals and the dynamism of the Turkish economy will continue to accelerate growth in the future.
The start of the year was politically bumpy for Turkey, as well as for its neighbours. How is it coping with its internal and external political challenges?
Internal and external political tensions can have a serious impact on investment and the economy in general, but that is definitely not the case in Turkey.
Despite political instability in some of the surrounding countries, and internal political developments such as local elections and presidential elections this year, FDI inflows into Turkey rose by 25% in the first five months of 2014 when compared with the same period in 2013. A strong macroeconomic structure and political stability ensure the investment climate will not be affected by these kinds of developments.
Have the recent political scandal or the June 2013 protests negatively impacted investor confidence?
I do not think the latest events have any significant negative effect on direct investment in Turkey. Moreover, if they did, it would have a positive effect on our exports because of the effect on the exchange rate – export-oriented investments would become more attractive. The most important factors for long-term direct investment are economic and political stability, which has been enjoyed by Turkey for the past decade.
Short-term political challenges and financial shocks affect portfolio investments rather than direct investments. These types of “hot money” investments respond to changes in exchange rates, interest rates or political conjuncture more aggressively. And, even after the recent change in the Turkish exchange rate, foreign portfolio investors did not actually exit the country.
When we look at transactions on the Borsa Istanbul for the first quarter of 2013, the net outflow of foreign investors was very limited. The rise in FDI inflows for 2014 is a clear indicator of investor confidence in the Turkish economy. Additionally, many international organisations make confident predictions about the future of the Turkish economy.
Turkey ranks as the seventh most attractive emerging market, according to Bloomberg Markets. Many experts believe Turkey will continue to climb the ladder of top FDI recipient countries due to its vast potential.
Similarly, Turkey is among the top 20 countries in the United Nations Conference on Trade and Development’s Transnational Corporations’ Top Prospective Host Economies Report for 2013-2015. As a manufacturing hub, Turkey will rank as the second in Europe in the next five years, according to a Deloitte report.
What reforms have been made regarding foreign investment in Turkey in recent years? What reforms are on the horizon?
The FDI law, which was enacted in 2003, offers all international companies in Turkey similar treatment to national companies and guarantees the rights of investors. Investment procedures and processes for international investors in the vast majority of sectors are the same as those for local companies.
This means all protection measures for local investors are valid for international investors. The new law also guarantees the transfer of profit, access to real estate and protection against expropriation as well as providing international arbitration. Moreover, we have bilateral investment treaties with 84 countries.
These treaties provide even more protection to foreign investors than local investors, because some exclusive provisions are generally involved in these agreements. So there is no legal risk for international investors in Turkey. Today, Turkey has one of the most liberal investment environments in the world.
The government has also been implementing a series of incentive schemes. The latest of these was announced in April 2012, and its main objective is to boost production and investment for highly import-dependent intermediate goods, as well as to increase investment in the less developed regions.
The new incentives system offers investors different options, including reductions and exemptions in tax and social security premiums, land allocation, research, development support and so forth.
Do you have estimates for FDI for this year and what do they indicate?
Turkey attracted $5.7bn FDI in the first five months of 2014, 25% up compared with the same period of 2013. According to a research study conducted in 2013 by two scholars from the London Business School and the US Federal Reserve’s board of governors, the FDI flow of US companies to other countries during election years decreases by 12%.
The fact that Turkey’s FDI inflows have increased in the election year proves that Turkey is a much more attractive country for FDI, even when compared with developed markets. Looking at the FDI numbers in the first five months of 2014, we can say that Turkey is expected to attract more FDI by the end of 2014 than it attracted during 2013.
What will be the impact of full EU membership for Turkey as an investment hub? Do you think it will allow Turkey to attract more investors?
Turkey has been an EU candidate country since 1999 and the accession negotiations for full membership started in October 2005. Turkey has attracted more than $70bn of FDI from the EU over the past eight years since negotiations started. Today there are more than 18,000 companies from EU countries with active investments in Turkey.
Similarly, foreign trade between Turkey and the EU has increased tremendously. It is noteworthy that almost three-quarters of FDI inflows to Turkey have come from EU countries – a clear indication of our economy’s de facto integration with the EU economy. Additionally, Turkey signed the Customs Union Agreement with the EU in 1996 and since then trade between Turkey and the EU has more than quadrupled.
Today, many EU companies are using Turkey as a manufacturing base within the EU and for other markets surrounding Turkey. Most European business leaders choose Turkey not just because of its vast domestic market, but also to expand their businesses in the region, using Turkey as a hub for their regional operations.
The EU accession negotiations have made Turkey one of the most attractive destinations for foreign investment, and entry to the EU as a member country will serve both Turkey and other investing countries.
Why should foreign investors consider Turkey?
We can point to plenty of reasons, but I would like to concentrate on just three. First, Turkey is a natural bridge between the east and west, as well as south and north. Turkey’s strategic location provides access to multiple markets with 1.5 billion people, a combined GDP of $25trn and more than $8trn of foreign trade, which corresponds to around half the global total.
When we consider Turkey’s existing and future free trade agreements with countries in its surrounding regions, it is a fantastic opportunity for investors wishing to export their products to these markets. That is why many global companies have either established their manufacturing bases in Turkey or moved their regional headquarters to Turkey. Second, another opportunity investors could take advantage of is a favourable domestic market.
As Turkey’s population growth rate has fallen from over 2% to roughly 1.5%, the country is on the verge of entering a golden demographic period similar to the experience of east Asia in the 1980s, where the productive working population relative to children and retirees is at its largest, providing the potential for an even more rapid income growth. Moreover, between 2002 and 2012, Turkey’s GDP per capita tripled, reaching $10,500.
Our target for 2023 is to increase GDP per capita to $25,000. Only a few emerging markets in the world have the potential to attract investment both for exports and their domestic market. Finally, with half its population under the age of 30, the young and dynamic population is also creating one of the most skilled labour pools in the world.
About 600,000 students graduate from universities in Turkey every year. Today, Turkey is training world-class engineers in many areas, from mechanical engineering to computer engineering. Productivity and a disciplined work ethic are other aspects of the Turkish labour force.
The workforce has been rapidly increasing its productivity, according to the latest studies, such as the IMD World Competitiveness Yearbook, therefore providing investors with a competitive advantage.