Why is Turkey so interesting? Interview with Yavuz Akiol, DYHI’s Managing Director
We interview Yavuz Akiol on Turkish economy latest performance and on opportunities for italian SMEs in Turkey.
How is Turkish economy performing?
The Turkish economy has shown a remarkable performance over the last eight years.
A sound macroeconomic strategy in combination with solid fiscal policies and major structural reforms that has been in effect since 2002 has integrated the Turkish economy into the globalized world. These conditions prepared a fertile ground for foreign direct investments (FDI) flow into Turkey.
The structural reforms, hastened by Turkey’s EU accession process, have paved the way for comprehensive changes in a number of areas. The main objectives of these efforts were to increase the role of the private sector in the Turkish economy, to enhance the efficiency and resilience of the financial sector, and to place the social security system on a more solid foundations. As these reforms have strengthened the macroeconomic fundamentals of the country, the economy grew with an average annual real GDP growth rate of 5.2 percent over the past nine years between 2002 and 2011.
Turkey has also reined in its public finances; the EU-defined general government nominal debt stock fell to 39.4 percent from 74 percent between 2002 and 2011. Hence, Turkey has been meeting the “60 percent EU Maastricht criteria” for public debt stock since 2004. Similarly, during 2002-2011, the budget deficit decreased from more than 10 percent to less than 3 percent, which is one of the basic Maastricht criteria.
As the GDP rose from USD 231 billion in 2002 to USD 772 billion in 2011, GDP per capita soared in the same period from USD 3,500 to USD 10,444.
The remarkable growth in Turkish economy has also boosted foreign trade, with exports reaching USD 135 billion by the end of 2011, up from USD 36 billion in 2002. Similarly, tourism revenues, which were around USD 8.5 billion in 2002, grew to exceed USD 23 billion in 2011.
So significant improvements in such a short period of time have brought Turkey to be classified as the 16th largest economy in the world and the 5th largest economy when compared with EU countries, according to GDP figures (at PPP) in 2011.
While many economies have been unable to recover from the recent global financial recession, the Turkish economy grew 9.2 percent in 2010, and 8.5 percent in 2011, thus standing out as the fastest growing economy in Europe, and one of the fastest growing economies in the world.
According to the OECD, Turkey is expected to be the fastest growing economy of the OECD member countries during the period 2011-2017, with an annual average GDP growth rate of 6.7 percent.
Very recently Standard&Poor’s (S&P), the well known rating agency, has raised Turkey’s sovereign credit rating to ‘BB+’, up from ‘BB.
Fitch, another well known rating agency, upgraded Turkey’s sovereign rating to ‘investment grade’ late last year.
Is Turkey open to foreign investment?
Turkey ranks as the world’s 13th most attractive destination for Foreign Direct Investment in 2012. (according to the A.T. Kearney FDI Confidence Index.)
As of the end of 2011, around 30,000 companies with foreign capital were operating in Turkey. During the same year 16 billion USD had flowed into the country as FDI.
Turkey offers significant opportunities to foreign investors due to its geographical position that makes it a natural crossroad among Europe, the Middle East and Central Asia.
In addition to this strategic location other factors play an important role.
Hospitality, tolerance and openness are traditional values of the Turkish people.
Turkey’s investment legislation is simple and complies with international standards, offering equal treatment for all investors. The backbone of the investment legislation is made up of: Encouragement of Investments and Employment Law, Foreign Direct Investments Law, international treaties and various laws and related sub-regulations on the promotion of sectorial investments.
Recent amendments to the existing legislation improve Turkey’s investment environment still further.
In particular the objectives of the Foreign Direct Investment (FDI) Law are:
– to encourage FDI in the country
– to protect of investors’ rights
– to align investors and investments with international standards
– to establish a notification-based system rather than an approval-based one for FDI
– to increase the volume of FDI through streamlined policies and procedures.
The FDI Law provides a definition of foreign investors and foreign direct investments. In addition, it explains important principles of FDI, such as freedom to invest, national treatment, expropriation and nationalization, transfers, access to real estate, dispute settlement, valuation of non-cash capital, employment of expatriates, and liaison offices.
The regulation on the implementation of FDI Law includes procedures for the application of the law.
The aim of the new FDI Law on work permits for foreigners is to set up the rules on work permits given to foreigners and to discipline the work carried out by foreigners
In summary they are:
– The geographical position
– The leading role in the region
– People’s hospitality and openness to foreigners
– A fast growing economy
– A low cost of labour
– A remarkable growth of consumption
– A favourable legislation
– The presence of a dynamic private sector
– Customs union with EU countries
– The presence of good infrastructures and of plans for their further improvement
How are the relationships between Turkey and Italy?
Italian investors can benefit from all the above mentioned geographical, environmental, legislative conditions.
Trade volume between Italy and Turkey has reached 21 billion USD and Italy is now Turkey’s fourth trade partner. The level of imports from Italy has reached 13,5 billion USD.
The number of Italian companies in Turkey has risen tenfold in the last five years and now exceeds 850.
Bilateral agreements for the promotion and protection of investments have been stipulated with 75 countries including Italy.
Turkey has signed double taxation prevention treaties with 77 countries including Italy. This enables taxes paid in one of the two countries to be offset against taxes payable in the other, thus preventing double taxation.
Italy is a country of 4 million small and medium sized companies: do you think they can look at Turkey as a potential destination for their business?
Compared to other developing economies, Turkey is particularly interesting because of its location at the crossroad between many different areas.
As far as culture and mentality the two countries, as we have mentioned before, are similar and this makes relations easier.
The growth of internal demand and the presence of a qualified and low cost labour force make Turkey an interesting market for Italian SME’s.
What industries are more interesting for Italian companies?
It is not easy to define what industries are more interesting for Italian companies. Since Turkey and its economy are growing, the domestic demand for all kind of consumer goods is also growing.
A good sector is the textile sector in which those companies with a solid brand and a good organization can do very good business.
The food sector is probably another very promising one.
But also technologically advanced and well organized B2B companies can find Turkey a very interesting and profitable market.
It goes without saying that it is very important to know the country and to know where to locate one’s business and how to approach the market.
Any suggestion for those willing to starting a business in Turkey?
My advice is to carry out an in depth analysis of the market in order to get all the information and the numbers needed to make a sound decision as to whether, how and where to invest. Once the decision is made I suggest to carry out a test in order to verify how the market reacts in terms of sales.
How can you support Italian SMES wishing to expand in Turkey?
To the companies that approach the Turkish market for the first time we can offer a consolidated methodology based on three steps:.
– A general analysis of the opportunities existing in the country
– An in depth market research focused on the companies’ products and sectors
– A thorough evaluation of risks and opportunities and an exhaustive business plan to support the decision to invest or not.
If the company decides to invest, we can support it in the implementation phase and in monitoring the results achieved.
As for the companies already present in the Turkish market we can support them to make their operations leaner and more efficient. We can also help them to increase their sales and to find new business opportunities.