Turkey: An Expert Opinion On ... Prospects For Foreign Direct Investment In Turkey

Last Updated: 7 November 2013
Article by Safak Herdem

Most of the economic pundits are in agreement that Turkey has increasingly been playing a prominent role in the world economy and redefining itself as an attractive hub for Foreign Direct Investments (FDIs). The country has already been associated with the economic powerhouses of BRIC and accentuated its appeal for foreign investors by its resilient economic standing during the latest global economic recession.

Figures in FDI

Turkey has managed to attract $123.7bn dollars of FDI during the course of the last decade and this number is even more staggering given the poor state of Turkish economy before 2003 which could only managed to attract a total of $14.6bn worth of FDI during the 80 years of its modern Republican history until 2003. Moreover, despite a 20.82% decline in overall FDI projects in Europe in 2012, Turkey increased its FDI market share in Europe by 3.4% and its share of capital investments by 6.14%. These figures make Turkey one of the powerhouses of FDI in the region which elevated it to be ranked as the second most country that attracts FDI in the region after Saudi Arabia.

Almost one third of the top 500 Turkish companies have already been financed by international investors in various degrees and around 30.000 foreign companies have established their business operations in Turkey as of 2011. Most of the FDI to Turkey emanates from the EU countries with 16,928 established companies in the country. However, 7,901 Near and Middle East based companies demonstrate that the FDI inflow to Turkey is not only confined to the EU zone countries but has a more diversified base. Finance and insurance with around $15.8bn dollars, electricity and gas with around $10bn dollars, manufacturing with around $14.4bn and wholesale and retail trade with around $3.8bn dollars of FDI between 2008-2012 attest the diversified nature of the inflows; not only concentrating in one specific business sector but penetrating to a broader range of business fields.

The good and improving state of the Turkish economy is visible in other fronts as well. Amid the concerns for high level of imports, Turkish exports has been surging during the last decade where it jumped from $36bn dollars in 2003 to over $100bn dollars during the course of the last ten years and stands at around $152.6bn dollars as of August 2013.

Demographics; young and a dynamic population, the economy of the scale; a population numbering around 76 million and the national legal framework that guarantees equal treatment for the companies with foreign capital are usually put forward as the pillars behind the growth of FDI in Turkey. However a critical addition to these three should be made; the stable political situation in Turkey in a period when it's closer vicinity is marked by instability.

Political prospects: Further stability in the future?

2014 seems to be an ultra occupied year in terms of the political agenda in Turkey. Turkish voters will go to polls to decide on country's new President and the local elections will decide who are going to rule the municipal governments in Turkish cities. This might seem to be another addition to the already burdened Turkish politics after the incumbent government's decision to suppress the Gezi protests which had started over a controversial government decision to built a new shopping mall modeled as a replica of Ottoman army barracks on the site of a public park in Taksim square. However, the latest polls covering the period between 10-19 August 2013, suggest, despite the widespread protests for Gezi, AKP still commands slightly more than 50% of the overall votes.

Moreover what unites almost all of the political analysts from different political backgrounds, who rarely agree on anything, that there is no serious and united opposition in Turkey that can challenge Mr. Erdoğan's rule. Even though the Kurdish issue is and has always been Turkey's soft belly, expectations are running high that Mr. Erdoğan might show resolve with regard to the peace process in exchange of the much needed support of the Kurdish opposition party BDP, to garner enough votes for the critical constitutional amendment that would transform Turkish political system from parliamentary to a presidential one which will give complete mastery to Mr. Erdoğan in Turkish politics.

In short, 2014 despite two elections, is highly likely to witness the continuation of AKP rule in Turkey and the stable political situation which has been going on more than a decade that is highly favorable for FDI in Turkey.

Originally published in Globe Trader, Friday, 13th September 2013.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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Safak Herdem
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