The University of Economics in Katowice/Poland

FOREIGN DIRECT INVESTMENTS

in Turkey FDI

The University of Economicsin Katowice/Poland

Part Two

FDI – The Case of Turkey

Intensive Programe Seminar of teachers and students1st-13th May 2006 HONIM / Brussels

The University of Economicsin Katowice/Poland

Authors: Anna Brzęska Anna Gandor

Edyta Tyc Artur Barski

Sławomir Czech

Session led by: PhD Joanna Czech-Rogosz

24th of January 1980

• Opening to foreign markets• Export-led growth• Reducing the public sector• Privatization and liberalization• Development of banking and

financial institutions

24th of January 1980

• No currency restrictions• Free low of capital• Establishment of capital

market and reorganization of Istanbul Stock Exchange

• Encouraging investmentsEncouraging investments

EU enlargement

20052005 2015? 2015?

Accession features

•Advanced integrationAdvanced integration•Demographic dynamismDemographic dynamism

•Duality of economyDuality of economy•Migration threatMigration threat

Economic freedom

Lassez Lassez faire!!!faire!!!

GDP ratio

Only 30% Only 30% of EU of EU

averageaverage

Very Very unstable unstable growthgrowth

Low employment

EU15 65%EU15 65%

EU25 63%EU25 63%

Poland 52%Poland 52%

((Employed / work force population ratio)Employed / work force population ratio)

Turkey 46%

Inflation

HighHigh inflation inflation numbers in numbers in the late 90sthe late 90sOver 80% in Over 80% in 19981998

Turkey & FDI

HIGHHIGH LOWLOW

HIGHHIGHIreland, Ireland, Poland, Poland, HungaryHungary

Greece, Greece, EgyptEgypt

LOWLOW TurkeyTurkey

PerformancePerformance

PotentialPotential

Historical data

FDI ratiosFDI/GNPFDI/GNP

Developing Developing countries 28%countries 28%

African countries African countries 21%21%

FDI per capitaFDI per capitaDeveloped Developed

countries 2245$countries 2245$

World average 528$World average 528$

Turkey 5%Turkey 5% Turkey 92$Turkey 92$

FDI breakdown

40%40%58%58%

Foreign companies

70% EU70% EU

Investor is making decision

Safety of Safety of investmeinvestme

nt?nt?

Where Where to to

invest?invest?

What do What do they they

offer?offer?

PossibilitPossibility of high y of high profits?profits?

Competitive locations

North AfricaNorth Africa

GreeceGreece

RussiaRussia

East East EuropeEurope

What to invest in?

• Mobile telecommunicationsMobile telecommunications• E-businessE-business• BankingBanking• InternetInternet

What to invest in?

• AutomotiveAutomotive• ElectronicsElectronics

Turkish gain on investments

• Improved competitivenessImproved competitiveness• Research & Development boostResearch & Development boost• EmploymentEmployment

TURKISH FDI DETERMINANTS

GENERAL• Huge domestic market (70 mln Huge domestic market (70 mln

people)people)• Location at the crossroads Location at the crossroads

between East and Westbetween East and West• High labor force potentialHigh labor force potential

STABILITY

• Low political stabilityLow political stability• Accomplishment of structural Accomplishment of structural

reformsreforms• Improved resilience to shocks, Improved resilience to shocks,

reduced vulnerabilityreduced vulnerability• EU membership expectedEU membership expected

GROWTH

• High potential outputHigh potential output• Structural reforms Structural reforms

implementedimplemented• PPrivatizationrivatization lags lags• Unstable historical growthUnstable historical growth

LEGAL SYSTEM

• Business legislation not Business legislation not sufficient enoughsufficient enough

• Poor implementation of lawsPoor implementation of laws• Incompetent Incompetent

bureaucracybureaucracy

LEGAL SYSTEM

ctnd.ctnd.

• Frequent changes in legislationFrequent changes in legislation• Lack of political cultureLack of political culture• Corruption and briberyCorruption and bribery• Unnecessary Unnecessary

sectoral licensessectoral licenses

TAXES

• Increasing tax burdenIncreasing tax burden• Lack of viable tax systemLack of viable tax system• Vast unregistered economyVast unregistered economy

INCENTIVES

• Country promotion inadequateCountry promotion inadequate• Generous incentives for Generous incentives for

investorsinvestors• No discrimination between No discrimination between

foreign and domestic investorsforeign and domestic investorsI need I need

information information about about

Turkey!!!Turkey!!!

LABOR

• Good competitivenessGood competitiveness• High skilledHigh skilled• Increasing labor costsIncreasing labor costs• Large and low efficient Large and low efficient

agricultural sectoragricultural sector

INTELLECTUAL PROPERTY RIGHTS

• Crucial importance for Crucial importance for developmentdevelopment

• IPR protection in place,IPR protection in place, but but ineffectiveineffective

• EU standards missingEU standards missing

LAND

• Shortage of appropriate land Shortage of appropriate land for investmentsfor investments

• No space planningNo space planning• Rehabilitation of Rehabilitation of

Organized Industrial Organized Industrial Zones neededZones needed

INFRASTRUCTURE

• Poor transportation Poor transportation

infrastructureinfrastructure• Basic infrastructure insufficientBasic infrastructure insufficient• LowLow R&D support R&D support• Monopolization of essential Monopolization of essential

branchesbranches

Late improvements

FDI law enactedFDI law enacted

Company establishment Company establishment simplifiedsimplified

19 319 3

The Foreign Direct Investment Law of

2003

• Freedom to investFreedom to invest• Freedom of profit transfersFreedom of profit transfers• Acquisition of real estatesAcquisition of real estates• International arbitration International arbitration

allowedallowed• Employment of foreign staffEmployment of foreign staff

It’s getting It’s getting better!!better!!

Major FDI obstacles

• Poor legislationPoor legislation• Over-regulationOver-regulation• BureaucracyBureaucracy• Slow pace of reformsSlow pace of reforms• Political resistancePolitical resistance

Investors’ institutional fears

• Political interferencePolitical interference• Weak justice systemWeak justice system• CorruptionCorruption• Poor implementation of IPRPoor implementation of IPR

Investors’ economic fears

• Lack of economic stabilityLack of economic stability• Chronic inflationChronic inflation• Exchange rate instabilityExchange rate instability

Selected bibliography to the 2nd Part

1. Gros D., (2005) Economic aspects of Turkey’s Quest for EU membership, CEPS Policy Brief no. 69/2005.

2. Investment Environment and Foreign Direct Investments in Turkey, (2004) Working Paper for Investors Advisory Council Meeting in March 2004, Turkish Industrialists’ and Businessmen’s Association, Istanbul.

3. Loewendahl H. and Ertugal-Loewendahl E., (2001) Turkey’s Performance in Attracting Foreign Direct Investment, Implications of EU Enlargement, European Network of Economic Policy Research Institutes Working Paper no. 8.

Thank you for your attention!!

Have a nice day!