Growing Attention

Turkey

Economic News

22 Jul 2010
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With a string of glowing reports to its credit in recent days, the Turkish economy hasn't had such a good press in years - and the signs are that many foreign investors have certainly noticed.



That was one of the messages Daniel Thornily, a vice president of The Economist Corporate Network, gave at a recent conference in Istanbul. "It's possible to say Turkey is quite successful when you look at inflation, growth, economic management and fiscal discipline," he said, before adding that he saw the outlook for Turkey as more positive and stable now that at any time since the death of Mustafa Kemal Ataturk in 1938.



This positivity is not entirely news either, as many foreign companies have been demonstrating in recent months. April alone saw news of two major foreign enterprises taking an interest in Turkey: Electrolux, the Swedish producer of household appliances, and Japanese auto company Honda.



According to Nevio Pollesel, Electrolux's head of operations in Turkey, the company is considering investing in production facilities here, with an announcement of such an investment to come "shortly".



"The only shortcoming in Turkey is a railroad," Pollesel said. He explained that the company transports large items such as refrigerators on trains.



Meanwhile, Honda, Japan's third-biggest carmaker, has said it will produce a small sedan called the "City" at its plant in Turkey, making it the second model to be built in the country.



Honda did not say how many of the cars would be built. The company produced about 16,000 Civic models in Turkey last year, absorbing about four-fifths of the plant's capacity, according to Market Watch.



The new model will boost productivity at the plant, but the decision is also a response to growing demand in Turkey. Sales here more than doubled last year, jumping from 10,869 units to 23,122.



Hondas available in Turkey include the Civic and the Jazz compacts, the Accord sedan, and the CR-V and HR-V sports-utility vehicle models. The latter four are imports.



As early as next year, Honda plans to boost yearly production in Turkey to 30,000 cars, according to Nihon Keizai Shimbun, a major daily business newspaper in Japan.



The paper said that demand for cars in Turkey is almost as big as before the financial crisis of 2001, which shrank national output by 10% and left many jobless.



Auto demand in Turkey reached 470,000 units in 2000, and plunged below 100,000 after the crisis, Nihon Keizai Shimbun said. The recovering market grew to 450,000 last year.



Structural changes spurred by the International Monetary Fund and the EU-oriented reforms of Erdogan's government have helped restore the economy and the international perception of its prospects, according to Turkey watchers such as Thornily. The Turkish economy grew at an 8.9% growth rate in 2004, the 16th fastest rate worldwide, Turkish newspaper Zaman reported on April 21.



"Western countries have a very positive impression of Turkey. Some companies boosted their sales by 30-40% in recent months," the paper added.
Yet there are some concerns ahead, Thornily added. He expects Russia to provide competition for Western European investment dollars, and while Turkey offers a large labour pool, Russia's workers are better educated, he said.



However, Turkey has long been competing on Russia's home ground and doing rather well at it. On April 21, on a visit to Turkey, Russian Minister for Economic Development and Trade German Gref told reporters that Turkish companies were finding success in his country. Turkish electronics maker Vestel made 1m televisions in its Russian factory last year, and plans on making 1.2m in 2005.



"Half of the [Russian] parliamentary, supreme court and ministerial buildings were repaired by Turkish firms," Gref said. "The ministry building where I work was built by a Turkish firm too. The firm took the place of at least five Russian construction firms. [Turkish] constructors have seized the Russian market."



Yet if the good news for Turkey is to continue, there need to be a lot more foreign companies investing here. The country has traditionally had trouble attracting foreign direct investment (FDI), ranking a lowly 123rd in a 2002 worldwide investment report by the United Nations Conference on Trade and Development. Nearby rivals for Western European investment fared much better - Hungary had 16 times more FDI per capita than Turkey.



Now though, many hope that the foundations for more foreign interest are not only there, but are also being more widely seen to be there.

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