Investment opportunities in Turkey

Turkey - an ongoing success story

T he recent global financial crisis, triggered by a liquidity shortage of the US finance sector in late 2007, quickly spread into a global financial pandemic, leaving hardly any economy unscathed. While financial institutions involved in derivative trading, stock markets and real estate sectors in particular were hit to the point of devastation, repercussions were, and still are, severely felt by national economies in terms of contraction and declining foreign direct investment (FDI). After globally attaining record heights in 2007, with FDI worth US$1979 billion worldwide, investments spiraled 14% downwards in 2008 to US$1697 billion and then an estimated further 39% in 2009 to US$1040 billion. This decline is attributed to lower access to financial resources due lack of liquidity and higher cost of finance, as well as dissuading economic prospects.

Turkey largely evaded this crisis due to its previous financial reforms and appropriate interest rate adjustments, monetary policy measures and expansionary fiscal policies that its policy makers had initiated. Though Turkey was unable to escape the effects of declining external demand and decelerating international capital flows, its economy shrank by 4.7% in 2009 on a year-over-year basis. Now, Turkey is back on track with 6% growth for the last quarter of 2009 and medium-term projections of 3.5% growth for 2010. More so, according to the OECD Economic Outlook, Turkey is the fastest-growing economy among its member countries.

With 64% of Turkey's population being between 14 and 60 years of age and with more than 450,000 graduates from over 150 universities, Turkey's population is not only young, but also highly- skilled. Besides being abundant and skilled, the labour force is productive and cost-effective. The average cost of labour per hour was US$2.98 on average for 2009, in comparison the average cost for hourly labor in the UK of US$24.18. Turkey leads most European counties in terms of weekly working hours where 53.7 hours are worked on average per week, only to be trailed by the UK's 43 hour work week.

Besides its human capital, Turkey offers a unique geographical location that situates it between the biggest hydrocarbon producers and their major markets, rendering it the ultimate energy corridor. 70% of the world's energy resources are located to the east and south of Turkey, while one of the largest consumers, Europe, is adjacent to the west. Because of its inimitable location and stable political conditions, Turkey hosts the Nabucco pipeline. Turkey also acts as an international hub with access to multiple markets.

Turkey sits at the heart of a market, within close proximity to 1.5 billion people and US$25 trillion in GDP in total. Many multinational corporations have acknowledged this advantage by moving their international headquarters to Turkey.

These developments are sustained with an investor-friendly government that has implemented a structural reform agenda, overhauling the public and financial sectors, as well as the social security system. The establishment of the Coordination Council for the Improvement of Investment Environment (YOIKK) and the Investment Support and Promotion Agency (ISPAT) testifies how serious Turkey is about attracting and maintaining investments. A new FDI law was passed, giving foreign investors protection against expropriation, guarantee of transfers, full access to real estate, international arbitration and lowered corporate income tax (from 30% to 20%). Also, multinational corporations receive national treatment, have the freedom to invest and can employ expatriates. In addition to those, new R&D and Innovation Support legislation has been passed, providing a generous scheme with advantages such as the deduction of R&D expenditures from the tax base or social security premium exemptions.

Besides, sound economic indicators Turkey offers many sector-specific opportunities for potential investors. With the liberalization of the energy market, more than US$100 billion worth of investments in this sector will be necessary by the year 2020 to meet the rising demand, providing great investment opportunities in a highly-lucrative sector.

Turkey also strongly supports investments in the renewable energy sector. Turkey's solar and wind maps are among the best in the world, while the country has significant potential for the development of geothermal energy at the same time.

Turkey, as a cradle of civilizations, has a great variety of natural and historical beauties which makes the country the seventh most visited tourist destination of the world. The objective in the tourism sector is to be included among the top five countries of the world in terms of attracting the highest number of tourists and receiving the highest amount of tourism revenues by 2023. This potential seems to have been noticed on an international scale, with Istanbul being the "European Capital of Culture" in 2010 as the he third mostly visited city of Europe.

The Tourism sector in Turkey offers various opportunities for investors, such as convention tourism in which Turkey ranks the 13th of the world. Turkey is also among the top seven countries of the world and ranks 2nd of Europe with its 1300 thermal springs, in terms of its rich geothermal resources and potential. On the other hand, there are 20 skiing centers, 14 golf courses and approximately 40 marinas in Turkey.

The Turkish real estate sector, offering ever-greater opportunities for investors every year, has come to prominence, especially in the last decade, on the back of economic and political developments. As the global recession recedes, the real estate market in Turkey has stated to improve. According to Turkstat, the number of apartment units sold in the second quarter of 2009 increased by 72% when compared to the same period in 2008. The entry of global actors into the real estate market is increasing the competitiveness of the sector, while massive mergers and acquisitions are taking place, help its expansion and overall growth rates. Different surveys and publications, such as the "Emerging Trends in Real Estate Europe", prepared jointly by PricewaterhouseCoopers (PWC) and the Urban Land Institute, show how global and local interest in the Turkish real estate sector has increased.

The Turkish automotive industry, which is developing in a way that protects its innovative and flexible structure within the intensely-competitive environment, has raised Turkey to a prestigious position on a global scale - now among the 17 countries that are able to produce over 1,000,000 vehicles (International Motor Vehicle Manufacturers Association - 2008). In terms of motor vehicle production, Turkey is the 15th biggest producer in the world and the 5th largest manufacturer in Europe. On the other hand, in terms of commercial vehicle production, Turkey is the 9th biggest producer in the world and the 2nd largest manufacturer in Europe, while it is the number one bus producer in Europe.

In Turkey, the GNP per capita has exceeded the level of US$10,000 thanks to the improving economic structure, while an increasing production capacity is being observed, as well as a strong domestic demand. The number of vehicles per 1000 persons is approximately 135. Overall, the automotive sector presents opportunities which can be summarized as an unsaturated domestic market, readily-available skilled labour to work in the sector, logistic advantages due to Turkey's geographic location and available support networks, such as infrastructure, free zones and organized industrial zones.

But, most importantly, Turkey has an investor-friendly government which has established an agency just to serve this purpose. The Republic of Turkey Prime Ministry Investment Support and Promotion Agency (ISPAT) is the official organization for promoting Turkey's investment opportunities to the global business community. It renders assistance to investors before, during and after their entry into Turkey. ISPAT has successfully embarked on a mission to become the "one stop shop" for global investors. ISPAT serves as an interface between international investors and all institutions involved in the process. Its services, provided in 11 languages, are free of charge, including market and sector research, site selection assistance and the streamlining of all administrative and procedural requirements for potential investors.

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