The University of Economics in Katowice/Poland FOREIGN DIRECT INVESTMENTS in Turkey FDI

The University of Economics in Katowice/Poland Part Two FDI – The Case of Turkey Intensive Programe Seminar of teachers and students 1st-13th May 2006 HONIM / Brussels

The University of Economics in Katowice/Poland Authors: Anna Brzęska Anna Gandor Edyta Tyc Artur Barski Sławomir Czech Session led by: PhD Joanna Czech-Rogosz

24 th of January 1980 Opening to foreign markets Export-led growth Reducing the public sector Privatization and liberalization Development of banking and financial institutions

24 th 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 ?

Accession features Advanced integrationAdvanced integration Demographic dynamismDemographic dynamism Duality of economyDuality of economy Migration threatMigration threat

Economic freedom Lassez faire!!!

GDP ratio Only 30% of EU average Veryunstablegrowth

Low employment EU15 65% EU25 63% Poland 52% (Employed / work force population ratio) Turkey 46%

Inflation High inflation numbers in the late 90s Over 80% in 1998

Turkey & FDI HIGHLOW HIGH Ireland, Poland, Hungary Greece, Egypt LOWTurkey Performance Potential

Historical data

FDI ratios FDI/GNP Developing countries 28% African countries 21% FDI per capita Developed countries 2245$ World average 528$ Turkey 5% Turkey 92$

FDI breakdown 40% 58%

Foreign companies 70% EU

Investor is making decision Safety of investment ? Where to invest? What do they offer? Possibility of high profits?

Competitive locations North Africa Greece Russia East Europe

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 people)Huge domestic market (70 mln people) Location at the crossroads between East and WestLocation at the crossroads between East and West High labor force potentialHigh labor force potential

STABILITY Low political stabilityLow political stability Accomplishment of structural reformsAccomplishment of structural reforms Improved resilience to shocks, reduced vulnerabilityImproved resilience to shocks, reduced vulnerability EU membership expectedEU membership expected

GROWTH High potential outputHigh potential output Structural reforms implementedStructural reforms implemented Privatization lagsPrivatization lags Unstable historical growthUnstable historical growth

LEGAL SYSTEM Business legislation not sufficient enoughBusiness legislation not sufficient enough Poor implementation of lawsPoor implementation of laws IncompetentIncompetent bureaucracy bureaucracy

LEGAL SYSTEM ctnd. Frequent changes in legislationFrequent changes in legislation Lack of political cultureLack of political culture Corruption and briberyCorruption and bribery UnnecessaryUnnecessary sectoral licenses sectoral 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 investorsGenerous incentives for investors No discrimination between foreign and domestic investorsNo discrimination between foreign and domestic investors I need information about Turkey!!!

LABOR Good competitivenessGood competitiveness High skilledHigh skilled Increasing labor costsIncreasing labor costs Large and low efficient agricultural sectorLarge and low efficient agricultural sector

INTELLECTUAL PROPERTY RIGHTS Crucial importance for developmentCrucial importance for development IPR protection in place, but ineffectiveIPR protection in place, but ineffective EU standards missingEU standards missing

LAND Shortage of appropriate land for investmentsShortage of appropriate land for investments No space planningNo space planning Rehabilitation of Organized Industrial Zones neededRehabilitation of Organized Industrial Zones needed

INFRASTRUCTURE Poor transportationPoor transportationinfrastructure Basic infrastructure insufficientBasic infrastructure insufficient Low R&D supportLow R&D support Monopolization of essential branchesMonopolization of essential branches

Late improvements FDI law enacted Company establishment simplified 19 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 allowedInternational arbitration allowed Employment of foreign staffEmployment of foreign staff It’s getting 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. 1.Gros D., (2005) Economic aspects of Turkey’s Quest for EU membership, CEPS Policy Brief no. 69/ 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 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!