Turkey recently became the biggest producer of white goods in Europe. When we take a broader view and look beyond just this sector, we can see that the country is now sea of opportunity for investors outside of the European continent.
Crucially, it possesses a large and growing domestic market, making it an attractive destination for multinational corporations engaged in everything from white goods production to automobile manufacturing. Moreover, the country has a highly qualified (and young) workforce, a well-developed supply chain network and a strategic location that puts locally based companies in close proximity to emerging markets in the region. It is important to emphasise that Turkey’s closeness to fast-developing economies in Central Asia and the Middle East provides a key advantage to exporters, as demonstrated by the huge gains achieved in export volume over the last 10 years.
Turkey has created opportunity against a backdrop of adverse circumstances. Amid the economic crises that occurred in the US in 2008 and Europe in 2010, the country demonstrated its resilience to investors, and thus bolstered its reputation as a place to do business. While rising unemployment and financial turbulence was predominant in many regions of the world, Turkey became the fastest-developing country globally after China, with the 8.5% rate of growth it recorded in 2011. In 2012, Turkey proceeded with caution by shifting growth down a gear to improve the current account deficit, showing the world the sophistication of its macroeconomic policy making.
Moving forward, continued progress will require higher levels of inward foreign direct investment, which means closer cooperation is needed between the government and the private sector to create more favourable conditions for attracting capital that supports long-term development. As such, two key recommendations come to mind.
First, when encouraging multinational corporations to enter the domestic market, the authorities need to consider the quality of the proposed investment. It is illogical to support foreign enterprises that only profit the subject company, but provide no added value for Turkey. In particular, encouraging foreign companies to establish local operational facilities that employ qualified personnel is crucial, because this will support innovation at home and lead to the inward transfer of technology and expertise.
Secondly, in order to achieve a competitive advantage internationally over other countries seeking to attract foreign capital, Turkey must create an investment-friendly legal and regulatory framework. It is essential to secure the transfer of profit and income generated by foreign investors without delay, and to provide arbitration alternatives to resolve conflicts involving foreign investors that are rooted in international best practices. The need to approach local and foreign investors with the same concept of justice is an important requirement that should be obvious, but a reminder is warranted.
Finally, the current investment incentive scheme represents a step in the right direction, primarily because it places special emphasis on investing in underdeveloped regions and on research and development. This incentive scheme combined with Turkey’s natural advantages is a good starting point.
While there are risks for foreign multinationals operating in Turkey, there is no place in the world where operations can be conducted with zero risk. For foreign investors, the important thing is to watch for the moments when risks can in fact turn into opportunities, and to take the best action at the right time.
As the world continues to transform and change at an incredible speed, we have very little doubt that this is the right time for Turkey, which will become an even more attractive location for multinationals given its encouraging growth trajectory and strong fundamentals. Such levels of foreign investment will create a win-win proposition that could ultimately help the country to achieve its long-term development goals.
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