INTERNATIONAL INVESTORS ASSOCIATION SETS 2008 PRIORITIES

UNCLAS ANKARA 002938 SIPDIS SENSITIVE SIPDIS E.O. 12958: N/A TAGS: ECON EINV BEXP KIPR TU SUBJECT: INTERNATIONAL INVESTORS ASSOCIATION SETS 2008 PRIORITIES Ref: 06 Ankara 6734 ¶1. (SBU) Summary: Moving Turkey's informal economy (still estimated at over 40% of the Turkish workforce) into the formal economy and tax rolls again topped the International Investors Association of Turkey's (YASED) priorities for 2008. During their November annual meeting in Ankara, YASED executive board members said they also plan to push the government to reform its system of taxation and incentives, reform vocational education, increase intellectual property rights (IPR) protection, attract more research and development (R&D),increase greenfield investment, and stay the course on the EU accession process. These themes are not new and mirror many of their priorities for 2007. End summary. ¶2. (SBU) The informal economy, estimated at over 40% of the Turkish workforce, once again tops the list of international investor concerns, primarily because of the tremendous tax burden it puts on foreign companies who follow the rules. According to the Istanbul Chamber of Industry survey of the top 500 industrial companies in Turkey, foreign corporations employed 28% of the workforce in 2006, but they pay a much larger share of the social security premiums and labor taxes because so many Turkish companies operate wholly or partly out of the tax system. YASED Secretary General Mustafa Alper said that while economy-minded officials in the government admit to the immense problem of the informal economy, there has not been much focus on implementing the necessary reforms or making progress on campaign promises since the elections. ¶3. (SBU) YASED's second, and related, priority is to see the taxation and incentives system reformed. YASED would like to see the taxation system changed so that the burden is more evenly shared by domestic and international companies. During the Ambassador's November 14 courtesy call with newly appointed Minister of Industry and Trade, Zafer Caglayan, Caglayan outlined for us the new draft commercial code his Ministry is preparing with the Ministry of Justice. On incentive reforms, Caglayan mentioned moving away from the regional incentive plans currently favored by the GOT and focusing on attracting high-tech companies by offering tax cuts, lower social security contributions, and subsidized energy prices. ¶4. (SBU) Items three through six on YASED's government agenda relate to Turkey's push to attract greenfield investment from high-tech and innovative companies. According to Alper, many firms interested in investing in Turkey have difficulty finding the highly-trained workforce needed for high-tech production. Therefore, YASED's board plans to push the government to reform the educational system to include more vocational education focused on technology. Complementary to this is YASED's continued push to strengthen intellectual property protection in Turkey, thereby increasing investor confidence and international willingness to produce/manufacture here. By strengthening education and intellectual property protection, YASED expects FDI in the research and development (R&D) sector will increase and bring the greenfield investment and job creation that Turkey needs. As a final agenda item, YASED members reaffirmed their support for the EU accession process and will continue to encourage the government to stay the course on reforms ¶5. (SBU) Comment: YASED's 2008 agenda indicates that very little has changed in the past year as far as foreign investors are concerned. The GOT's privatizations and the spate of recent bank purchases injected much-needed foreign capital into Turkey's growing economy. But Turkey has yet to see a shift in its foreign investment mix from privatizations, mergers and acquisitions to greenfield investment. That shift may require the government to go forward with several painful economic reforms. End comment.