The government's decision to postpone the privatisation of three electricity distribution grids, TEKEL's tobacco arm along with the announcement that Halkbank would not in fact go for a block sale but rather a 25% IPO, was unexpected. Though FDI projections for 2007 have been revised, predictions on the inflow of foreign investment remain robust for the year.
Both the foreign and local business community put the delay of big-ticket private entities down to the election year, with the government looking to secure as many seats in parliament as possible following the November vote. Safer to launch an IPO now and postpone the privatisation of Halkbank, known as it is for granting loans to small and medium sized companies, with 11,000 employees in Turkey. Equally understandable that the government would want to hold onto three electricity grids for a while longer, with energy prices a predictably sensitive matter for the public.
Though contenders were more than exasperated by the government's decision, investor confidence is consistent with previous years. "Foreign direct investment inflows have been continuously increasing, in fact increasing exponentially," Minister of State Ali Babacan told OBG, "Before our government assumed office, the average FDI inflow was $1bn. In 2003 FDI levels rose to $1.8bn, then up to $2.8bn in 2004, $9.7bn in 2005 and $19.8bn in 2006." Aside from the country's geographic location, size and economic potential, the government's friendly orientation to the private sector and indivisibly disciplined management of the economy cannot be overstated.
The projected inflow of foreign investment remains impressive. A February report by Merrill Lynch expects foreign investment to hit $10bn in the first half of 2007. In the meantime, AK Securities projects that FDI inflows could amount to $17bn in 2007, with the delayed payment of sales completed in 2006 helping to account for the large sum. Projections by Raymond James, a financial services firm, expect Turkey to pull in a whopping $20bn worth of FDI this year alone.
This has not discouraged criticism from the private sector following the government's announcement to slow the privatisation process. Some believe that the market would have suffered, had the decision come at a time when liquidity in the international markets were not so great. Meanwhile, concerns remain over the possible outcome of Turkey's two elections. How Ankara will go about tackling the PKK in Northern Iraq, and how the US will deal with an intransigent Iran next door also continues to cause local debate.
Turkey's economic record gives reason for comfort, with the demonstrated certain resilience to domestic, regional and international events over the last six years. Babacan points out that the economy was far more exposed and vulnerable in 2003 - the year when the Turkish parliament decided against a US invasion of Iraq from Turkish territory, followed by the local bombings of the British consulate, HSBC and a synagogue. Though the economy was characterised by a higher debt stock, a higher rate of inflation, and higher risk rates on borrowing at the time, it emerged intact. Now in even better condition, Turkey absorbed the run on emerging markets in May-June 2006 with relative ease.
Domestic stability framed by EU-inspired reform is key to investor confidence. "We have the anchor of the EU. That we have a target is very important," said Babacan. Though investor sentiment remains robust, market observers acknowledge that 2007 is a year of political uncertainty.