GLOBAL FDI MOVEMENTS: MYTHS AND FACTS IN TURKEY

UNCLAS SECTION 01 OF 02 ISTANBUL 000449

SIPDIS

E.O. 12958: N/A
TAGS: ECON EINV TU
SUBJECT: GLOBAL FDI MOVEMENTS: MYTHS AND FACTS IN TURKEY



1. (U) Summary: Speakers at a March 24 conference on foreign
investment in Turkey evinced optimism about Turkey's overall
economic progress but agreed the country needs to develop a
strategy to attract significant FDI. Noting that the
country lags especially in the area of "green field"
investment, they pressed for continuation and
intensification of Turkey's structural reforms. End
Summary.


2. (U) The one-day conference was jointly organized by
Turkey's Foreign Investment Association (YASED) and Koc
University's Economic Research Institute. Among those
participating were YASED President Saban Erdikler, OECD
Advisor (and FDI expert)Declan Murphy, Koc Group CEO Bulend
Ozaydinli, Turk Telecom CEO Paul Doany, and former Treasury
Undersecretary (and Koc Research Institute Head) Faiz
Oztrak.

TURKEY'S FDI PERFORMANCE - A NEGATIVE REVIEW
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3. (U) Murphy and other speakers stressed that while Turkey
increased its FDI levels to $9 billion in 2005, it is still
not a major competitor for global FDI funds. Murphy pointed
out that Romania, a country with less than a third Turkey's
population, attracts $10-20 billion annually, while Ireland
currently attracts between $20-25 billion. Panelists noted
that Turkey is even further behind in attracting
"greenfield" investment, as most of the inflow has financed
mergers and acquisitions, rather than "greenfield" projects.
(Turkey has held steady at around 65 such projects per year,
less than half the number Romania received.) Panelists
attributed this to the fact that Turkey is neither a "low-
cost or a low-wage" country. They dismissed suggestions
that there is a cultural affinity between Western capital
and Eastern Europe, pointing instead to the fact these
countries had articulated FDI strategies, improved market
environments, and had very proactive approaches. Turkey, on
the other hand, has not made similar progress.

BUT A POSITIVE OUTLOOK
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4. (U) Panelists agreed that though Turkey has not lived up
to its FDI potential yet, the outlook remains positive: with
the fourth fastest growing economy in the world, a place
among the top five capital markets in the world, an
improving credit rating, low inflation, a strong
infrastructure, a young, tech-savvy population, and the EU
anchor, Turkey should do better. Bulend Ozaydinli, CEO of
Koc Holding, Turkey's largest holding group, with interests
in industry, banking, and the energy sector, offered an
extremely upbeat vision of Turkey's future in FDI markets.
Turkey's positives, he argued, will allow Turkey's economy
to face shocks and setbacks more quickly and easily, thereby
creating the stability that is so critical to investors.

SPECIFIC CONCERNS
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5. (U) While optimistic for the overall economy,
participants were more concerned about the prospects of
particular sectors. They pointed particularly to problems
in the textile industry, which is facing serious hardships
as it tries to compete with Chinese and Indian production.
They lauded the progress of the automotive industry, but
noted that it needs to contribute more value-added
production, rather than simply functioning as a final
assembly point for foreign-made components. This is
critical, Ankara University Economic Department Chair Ercan
Uygur said, if the country is to reduce its high
unemployment rate. Turkey must also address a declining
savings rate, and reduce the size of its unregistered
economy.

WHERE SHOULD TURKEY GO FROM HERE?
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6. U) Speakers and conference participants pressed for
elaboration of a coherent national FDI strategy. Among their
suggestions were the following:

- Continued privatization reforms;
- Development of a clear and predictable regulatory
regime and proven legal system that can be counted on to
reach fair conclusions if a foreign company is taken to
court;
- Targeting of priority sectors for Greenfield
investments, such as mining, telecom, and financial
industries;
- Working with existing capacity and infrastructure; for
example, expanding the existing treasury to meet growing
needs;
- Pursuing partnerships with the private sector;
- Focusing on long-term commitments through quality
investors, as opposed to "buy-low, sell-high investors";
- Continuing to build a more effective tax system;
- Focusing on tech-focused investments;
- Creating numerical, verifiable FDI objectives
- Developping an FDI promotion agency to act in the
international arena;
- Taking advantage of EU accession talks to improve the
FDI environment.
- Envisioning Turkey as a regional FDI center as both a
contributor and recipient of FDI.

Comment
--------------


7. (U) The Koc/YASED conference provided an opportunity for
stakeholders both to review worldwide FDI trends and to take
a close look at Turkey's performance. Although that
performance has not been strong to date, participants are
enthusiastic about Turkey's potential. Their prescriptions
largely track with measures that constitute the essential
building blocks of Turkey's ongoing IMF program, and that we
have encouraged Turkish policy-makers to not lose time in
implementing.
JONES