Why should Businesses invest in Turkey?

Liaison Offices in Turkey
January 12, 2018
UK & TURKEY BUSINESS FORUM
April 26, 2018

SRM BUSINESS CONSULTING LIMITED

Anil.Surmeli@srmconsulting.com

“Why should Businesses invest in Turkey?” is a core investment question. There have been many papers, reports and much statistical data produced on just this topic. The majority have dealt with Turkey's outstanding qualities such as its geographical location, its young and dynamic population, its reasonable costs structures and the nation's qualified labour force. Further details of this important subject can be found along with many related reports and links to websites.

In addition to the publicly available country data and information, we do need to consider that there are both positive and negative aspects to possible investments in different sectors. To achieve success, we need to paint a realistic picture, share with each investor the true situation, and explain how they can benefit the most from the current conditions.

Both active and potential foreign investors planning to invest in Turkey have specific concerns. These are mostly due to; internal political conflicts, coupes, foreign exchange-rate fluctuations and the possibility of being affected by the unfavourable situations seen in the neighbouring Middle Eastern countries. It is of course of the utmost importance to explain and discuss the outlook for each concern, possibility, confusion, etc. Our goal is to reach our targeted achievements free of any negative effects on our investments. Sometimes we may even strive to turn troublesome situations to our advantage. This is what this article is about. So let’s examine these issues.

The Republic of Turkey, established in 1923 after World War I, has not yet made it to 100 years. However, when we look back over the past half-century we see many political, military and economic crises.

There were coups or military demands in 1960, 1971, 1980, 1997 and 2007, and a coup attempt in 2016. The 2016 coup attempt did fail, following which there were many adjustments and changes made to those structures and offices thought to have been behind the attempt. The army’s role in politics was ended, the armed forces ceased to have any control or management role over the state and now, they have become a structure ruled by the government.

If we take a look at the Economical crisis in Turkey; like many countries, Turkey has had to face a range of economic crisis in last 50 years. Some of these problems were due to world's trade cycles, and some due to internal causes. The oil crisis, wars throughout the world, natural disasters, and Turkey's large former IMF debts were some of these crises' causes. Major crises occurred in 1946, 1974, 1980, 1991, 1994, 1999, 2000 and 2001. Inflation between 1979 and 1997 inflation ran at almost 50% in Turkey. Interest rates hit record highs, and we even once witnessed an overnight rate of 7,500%. In the 2001 crisis, thirteen banks disappeared and many financial institutions were closed. Yet Turkey survived all of these, to some extent by becoming economically stronger. So, how? First of all, the 2001 crisis exposed issues in Turkey's finance and banking sector, following which reforms were made. After 2001, Turkey underwent a major change and instead of focusing only on profit and growth, it came to be understood that these could be achieved while continuing to properly value each individual and develop appropriate institutions. In addition, the rules imposed by the Basel II accords, extensive legal regulations and effective auditing produced a durable Turkish banking sector. Then, while many global banks and financial institutions were suffering from the 2008 crisis as it spread from the U.S. across the world, Turkey’s financial sector and its banks remained unaffected, a fact appreciated worldwide. Subsequently, Turkey's banks became the focus of many international financial institutions.

Turkey’s geographical location makes it both economically and politically important. This importance maintains a balance in the nation's relationships, while bringing with it some difficulties. Turkey is bordered on one side by European countries lacking in economic stability (Greece, Bulgaria), on another side by Middle Eastern neighbours unable to attain peace and political stability (Syria, Iran, Iraq), and to the north by Russia struggling to become a world power again. How rough things can be is seen by the Iran-Iraq war that lasted for eight years from 1980 and to 1988, the Gulf Wars in 1990s, from 2011 the Syrian civil war, and thirty years of terrorist acts in the county's south east.

However, while overcoming each of these difficulties – as it has throughout its history – Turkey has maintained its valuable commercial and economic potentials for both Europe and for the Middle East. Its large population, low costs and qualified labour force, its production opportunities and the nation's various business models, have each enabled Turkey to become one of the highest yield producers to Europe's huge consumption market, and one of the Middle East's most reliable commercial partners.

Let’s take a closer look at the foreign participants I summarized above. First, the banking sector and Turkey's foreign capital. In 2001, HSBC purchased Demirbank. That same year, the Lebanese Odeabank began banking activities in Turkey. In 2004, the French BNP Paribas purchased the majority of shares in TEB while the Italian Unicredit took a majority stake in Yapı Kredi Bank. In 2007, the Dutch ING Bank purchased Oyakbank, in 2012 the Russian Sberbank bought Denizbank, in 2015 the Qatari QNB became 100% owners of Finansbank while the Chinese ICBC purchased Tekstilbank. In 2017, the Spanish BBVA were successful in buying Garanti Bank. The cumulative results are striking: Between 2012 and 2016, direct foreign investment in just the banking sector totalled $8 billion dollars.

Another powerful example is the automotive industry, Turkey's largest export sector. Ford announced that, in the first quarter of 2017, they will be switching the majority of their formerly Mexican production to Turkey. Mercedes-Benz, which has continued production in Turkey since 1968, announced a decision to invest a further 115 Million Euros. At the same time, other major players such as Toyota, Honda, Renault, BMC, Hyundai, and Fiat continue to export many models of cars from Turkey. Other major brands purchase their automotive parts and equipment from local Turkish producers. Global giants, in addition to the banking and automotive industries, not only continue their operations but are constantly announcing increased holdings. All clear signs of Turkey as an advantageous investment.

Some more examples: Unilever, which has eight separate production facilities and more than 5000 employees in Turkey, opened its new facility in Konya worth 350 million Euros. Nestlé, which has had production facilities in Turkey for over a century, has decided to conduct a 150 million Euro innovation and renovation investment. One of the world's most innovative leaders, 3M, recently officially announced that it will turn Turkey into a “super hub” for exporting to nearby countries, backed by a new $500 million investment.

There is also the construction of Istanbul's third airport which will have an annual capacity of 150 million passengers, new trade ports, smart roads and the construction of new bridges, each of which have resulted in happy foreign investors, while paving the way for even more investments.

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While hundreds more could be added to these examples, some statistical information about the foreign capital flow into Turkey would probably one of the best ways to demonstrate this basic idea. The sheer scale of these statistics can be seen in the tables below.

When foreign investors chose the country in which they want to invest, they should consider that country's economic and political data. Their expectation is that their investments will return a profit, beyond just preserving their initial outlay.

Turkey has become stronger with every difficulty it has faced. It has become more experienced and it has succeeded in turning its experiences into achievements. Investment is a core component of Turkey's achievements.

But investing in Turkey is much more than just a good move. TURKEY, who have always worked hard, who have always produced, who have always maintained their unity through every situation and changing environment, would never be overlooked.