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Investment climate heats up

Article - October 10, 2011
The powerhouse of industry and regional finance centre has international investors ever more interested
Lucrative investment opportunities for global investors permeate a multitude of Turkish sectors, ranging from energy to research and development (R&D). The robust economic performance, growing domestic market, skilled workforce and strategic location of Turkey make it one of the most attractive investment destinations in the world. As such, Turkey attracted around £58 billion of foreign direct investment (FDI) over the past eight years (2003-2010), whereas it had attracted merely £9.4 billion of FDI in the preceding three decades (1973-2002).

The Turkish economy has shown remarkable performance, recording steady growth over the past eight years. A sound macroeconomic strategy, combined with prudent fiscal policies and major structural reforms in effect since 2002, has integrated the Turkish economy into the globalised world, while transforming the country into one of the major recipients of FDI in its region.

The structural reforms, hastened by Turkey’s EU accession process, have paved the way for changes in a number of areas. As these reforms have strengthened the macroeconomic fundamentals of the country, inflation has decreased to 3.9 per cent as of March 2011, down from 30 per cent in 2002, while the public debt stock ratio to GDP fell from 74 per cent to 42 per cent between 2002 and 2010.

As GDP levels more than tripled to £463 billion in 2010, up from £145 billion in 2002, GDP per capita also more than tripled, exceeding £6,300 in the given period. The visible improvements in the Turkish economy have also boosted foreign trade, while exports reached £71.6 billion by the end of 2010, up from £22.6 billion in 2002.

Prior to the recent global recession, the Turkish economy sustained strong economic growth for 27 consecutive quarters. However, the global financial crisis has challenged the macroeconomic and financial stability of many economies by adversely affecting financing facilities and external demand, causing a significant slowdown in all global economic activities.

Nevertheless, the perceived positive developments in the economy showed signs of a fast recovery as early as the last quarter of 2009, with a growth rate of 5.9 per cent. This economic growth continued into 2010 with 12 per cent, 10.3 per cent, 5.2 per cent, and 9.2 per cent in the first, second, third and fourth quarters of 2010 respectively, thus expanding by 8.9 per cent in 2010.

Turkey’s recent economic performance has created an optimistic environment, enabling international organisations to regard it as one of the fastest growing economies in the world. According to the OECD, Turkey is expected to be the fastest growing economy of the OECD members from 2011-2017, with an annual average growth rate of 6.7 per cent.

Turkey is the 17th largest economy in the world and will likely become one of the top 10 economies in the next decade. It is also a powerhouse in industry as the eighth largest steel producer and the 16th largest automotive manufacturer in the world, as well as the largest TV producer in Europe.

Such a vast industrial production base is also augmented by the country’s strategic location. In order to utilise its advantages, such as a young population, skilled workforce, economic performance and historical and cultural ties in the region, many global companies have either established manufacturing bases in Turkey or moved their regional headquarters to Istanbul. For example, HP has recently inaugurated a manufacturing facility in Turkey to produce and export more than two million desktop PCs. 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. Finally, both Coca-Cola and Microsoft have their regional headquarters in Turkey, managing almost 100 countries from the republic.

The profit of investing in Turkey is not limited to the opportunities in the domestic market. In addition to the growing local market, there are plenty of opportunities in neighbouring countries. Turkey’s geostrategic location enables investors to access multiple markets in Europe, the Middle East, North Africa and the Caucasus. Turkey has a customs union with the EU and free trade agreements with 20 countries, providing investors with the opportunity to export their products there without customs duties or many other restrictions.

As an industrial powerhouse and a regional business hub, Turkey offers enormous opportunities for British companies to penetrate the growing economies of the region. Many British companies are aware of this and are expanding in parallel with Turkey’s growth. There are 2,250 British companies in Turkey, which have invested around £6.3 billion in the country over the past seven years. For example, together with the acquisition of Demirbank, HSBC has successfully ridden the wave of economic development in Turkey and increased its total assets to more than £6.3 billion, up from £1.3 billion in 2002, which represents a cumulative growth rate of 400 per cent. Similarly, Vodafone Turkey was the fastest growing unit within Vodafone Europe with £1.4 billion of net revenues in 2010.

Britons are also investing in real estate in Turkey, with around 35,000 British nationals owning real estate there. The number of British tourists visiting Turkey has almost tripled, reaching 2.7 million in 2010, which is why Turkey is the seventh most visited holiday destination in the world, offering exquisite touristic services in health care, SPA, culture, historical sites and seaside resorts. For Turkey, hospitality and accommodation matter; out of the world’s best 100 hotels, 20 are located in Turkey.

The abundant investment opportunities available here range from automotive, ICT, iron and steel to energy, renewable energy and petrochemical sectors. The expertise of British companies in public-private partnership (PPP) projects provides them with a comparative advantage to benefit from the PPP opportunities in Turkey. Both local and national authorities have been implementing numerous investment projects through PPPs and they are also realising further opportunities in education, energy, defence, health, transportation and other public services.

Similarly, opportunities are also widely available in privatisation projects. While Turkey’s privatisation efforts totalled £30.1 billion in the last eight years, there are still several more areas to be opened up, such as infrastructure and energy generation, which is partly privatised. Turkey’s growing demand for energy requires more than £62.8 billion of investment over the next decade.

Having been tested by the global economic crisis, Turkey has one of the most stable and profitable financial sectors in its region. The Turkish Government’s Istanbul Finance Centre project offers global companies with an opportunity to run their financial operations in the region through Istanbul, thanks to various incentives, a skilled workforce and a global, cosmopolitan city with a vibrant local economy. Financial investors from the UK can also benefit from this facility.

Turkey is committed to attracting FDI. To this end, the Investment Support and Promotion Agency of Turkey (ISPAT) was established under the Prime Ministry in 2006.

ISPAT is the official organisation for promoting Turkey’s investment opportunities to the global business community and providing assistance to investors before, during and after their entry into Turkey. ISPAT serves as a reference point for international investors and as a point of contact for all institutions engaged in promoting and attracting investments at local, national and regional levels.