FDI the cornerstone of Turkey

Turkey, one of the most vibrant economies in the world, has been undergoing a profound transformation thanks to major structural reforms – accelerated by Turkey’s EU accession negotiations – started in 2005.

The Turkish government, which considers foreign direct investment (FDI) to be the main component of the country’s economic development, has significantly improved the investment environment through various reforms and new legislations. In 2003, an FDI Law, offering foreign investors legal guarantees by treating them equally with local investors, was enacted.

Economic performance, a young and dynamic population, the country’s strategic location, and an investor-friendly environment have created plenty of investment opportunities in Turkey, and made it one of the most attractive destinations for FDI in the world. 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 areas in which Turkey took action were public finance reform (which gave the government the leverage for fiscal adjustment), price stability, banking reform, social security reform and healthcare reform.

Rationalising regulation
Turkey has also undertaken various initiatives in close cooperation with the private sector in order to improve the investment climate. The Coordination Council for the Improvement of Investment Environment, a key structure within which the private sector makes contributions to the process of improving the country’s investment climate, was established in 2001.

The council has rationalised the regulations on investments in Turkey, developed policies by determining the necessary arrangements that will enhance the competitiveness of the investment environment, and generated solutions to the administrative barriers encountered by investors in all phases of the investment process, including the operating period.

The Turkish government strongly supports global companies that move their regional HQs
to Turkey

The Turkish government has also implemented a series of incentives schemes. The latest of these, announced in April 2012, aimed to boost production and investment for high-import-dependent intermediate goods, and 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 and R&D support.

Thanks to these developments structural reforms, a strong financial sector and the growing confidence in Turkey, the amount of FDI (which was about $15bn between 1923 and 2002) increased to $123bn between 2003 and 2012. The number of companies with foreign capital rose from 5,600 to 34,000 during the same period.

Many multinational companies have either established their manufacturing bases in or moved their regional headquarters to Turkey. The country offers a robust platform for economic expansion on a regional scale, enabling companies to leverage common qualities and local capabilities in Turkey.

For instance, Coca-Cola has already established its regional HQ in Turkey, from where it manages operations in 94 countries. Similarly, GE Healthcare has moved its regional HQ to Istanbul to manage its operations in 80 countries across four regions: Central Asia, the Middle East, Russia and Africa.

Microsoft is also managing 80 countries from Turkey. The Turkish government strongly supports global companies that move their regional HQs to Turkey. With a recent amendment to the FDI legislation, foreign companies can now establish their regional management centres in Turkey under a liaison office structure without paying corporate tax, VAT, personal income or stamp duty.

Supporting investment
Turkey’s economic success over the past decade has impressed and encouraged many experts and international institutions, who have made confident projections about Turkey’s future. For example, according to a recent report issued by the OECD, the Turkish economy is expected to grow with an average annual real GDP growth rate of four percent between 2014 and 2015, which will make Turkey one of the fastest growing economies in the world.

In order to provide foreign investors with better services, in 2006 Turkey established the Investment Support and Promotion Agency of Turkey (ISPAT), which is directly attached to the Prime Minister’s office. ISPAT provides investors with assistance before, during and after their entry into Turkey. It serves as a reference point for international investors, and as a point of contact for all institutions engaged in promoting and attracting investments at national, regional and local levels. It works on a fully confidential basis and combines the private sector approach with the backing of all governmental bodies.

ISPAT’s free-of-charge services include, but are not limited to: providing market information and analyses; industry overviews and comprehensive sector reports; site selection; coordination with the relevant governmental institutions; and facilitating legal procedures and applications, such as establishing business operations, incentive applications, obtaining licenses and work/residence permits.

Active on a global scale, ISPAT operates with a network of local consultants in Canada, China, France, Germany, India, Japan, Saudi Arabia, Spain, the Russian Federation, the UK, the US and South Korea. It offers an extensive range of services to investors through a one-stop-shop approach, and assists them in obtaining optimum results from Turkey. ISPAT’s team of professionals can assist investors in Arabic, Chinese, English, French, German, Italian, Japanese, Korean, Russian or Spanish, as well as Turkish, and is dedicated to helping investors successfully develop their business operations in Turkey.

In order to promote investment environment and opportunities in Turkey, ISPAT held 52 visits to 30 foreign countries in 2011, 95 visits to 38 countries in 2012, and 101 visits to 39 countries in 2013. Between 2011 and 2013, ISPAT prioritised energy and manufacturing sector investments. With its extensive range of promotional activities, ISPAT is aiming to attract high technology investments, encouraging investment in products not yet produced in Turkey.

Holding the umbrella
According to the World Bank report, among 189 investment promotional agencies, ISPAT ranked as 13th in the world in terms of ‘General Performance Assessment’, and 7th for the quality of its website. Very recently, ISPAT took over presidency of the World Association of Investment Promotion Agencies (WAIPA), the umbrella organisation for 175 investment promotion agencies (IPA) from 130 countries. WAIPA’s main missions are enhancing cooperation between IPAs, organising experience-sharing and training events, and improving investment environments in member countries.

ISPAT, with its new role in WAIPA, aims to make WAIPA a reference institution concerning foreign direct investments over the coming years. To this end, a new strategy and action plans have already started to be developed by the WAIPA steering committee, led by ISPAT.

In addition, ISPAT has held many joint events with the World Bank, International Finance Corporation, Organisation of the Islamic Cooperation, Islamic Development Bank and others. ISPAT has contributed to many training and capacity building programmes, particularly in the last three years. These have allowed it to share its experiences with other institutions – especially investment promotion agencies. Since its establishment, ISPAT has signed 50 memoranda of understanding with different organisations from various parts of the world.

While ISPAT continues to promote Turkey’s investment opportunities, more will emerge with the realisation of Turkey’s ambitious targets for 2023 – the centennial celebration of the foundation of the Republic of Turkey. The government has set specific targets to achieve by 2023, ranging from healthcare to the economy, from defence to education, and from energy to transportation. These targets include becoming one of the top 10 economies in the world, with a GDP of $2bn and increasing export revenues to $500bn. ISPAT’s efforts will contribute to achieving these challenging targets, by means of attracting more foreign direct investment to the country, both in quantity and quality.