AMCHAM SURVEY HIGHLIGHTS INVESTOR CONCERNS

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TAGS: EINV ECON ETRD TU
SUBJECT: AMCHAM SURVEY HIGHLIGHTS INVESTOR CONCERNS

REF: 2007 ANKARA 670

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1. (U) Summary. The third annual American Business Forum
Turkey investment survey highlights U.S. investor
disillusionment with the pace of reform and concerns
regarding macroeconomic stability. A large majority of
surveyed investors nonetheless remain confident in Turkey's
market potential and plan to stay in the market. The survey
highlighted areas where the U.S. business community believes
reforms are needed including transparency in government
contracting, intellectual property rights protection and the
efficiency of the legal system. USG engagement with the
Turkish government on reforms designed to improvement
investment climate and enhance market access was viewed as
crucial. End Summary,


2. (U) The American Business Forum Turkey (ABFT),an
affiliate of the American Chamber of Commerce, released its
third annual survey on the business and investment climate in
Turkey in February. The survey polled 105 respondents, up
from 51 in 2007 (baseline) and 72 in 2008. Respondents were
evenly split between services (50) and industry (55.)
General outcomes track with previous years, but reflect the
impact of the ongoing financial crisis as well as a loss of
investor confidence in GOT macroeconomic policy
implementation, as little progress has been made following
the 2007 general election. ABFT Chairman Galip Sukaya noted
that U.S. executives remain optimistic about the market
potential of Turkey and the quality of the workforce but are
disappointed in the pace of reforms.

General Market Perceptions
--------------


3. (U) A large majority of surveyed investors have a positive
impression of market potential (76%),believe investing in
Turkey was a good idea (75%),plan to stay in the market
(79%) and would recommend Turkey to potential investors
(71%.) These numbers track with previous years. Fewer
respondents than previous years expect expansion (54% vs. 64%
in 2008) while only 40% of respondents (vs. 62% in 2008) see
improved prospects for growth in the coming year. Note:
These responses are almost certainly affected by the on-going
global recession. End Note.


4. (U) The 2009 survey reported a clear drop in optimism
related to the ruling party compared to 2008. In 2008, 67%
of respondents were confident the new government would create
a more attractive environment for foreign investment. This
number dropped to 48% in 2009. The survey reported drops of
similar magnitude (approximately 15-20 percentage points) in
responses to questions related to the government's ability to
maintain a stable macroeconomic environment, tackle important
micro issues and accelerate EU harmonization efforts.


5. (U) An overwhelming majority (85%) of investors believed
USG efforts to engage the government of Turkey (GOT) to
improve the investment climate and enhance market access were
important. A majority (55%) of respondents believe tension
in the bilateral relationship stemming from disagreements
over Iraq, Iran or Israel policy or the passage of an Armenia
Resolution by Congress could adversely affect the operating
environment for their company.

Specific Investor Concerns
--------------


6. (U) The survey reported a clear loss of confidence in GOT
policy making, with only 31% of respondents expressing
confidence in the ability of current officials to ensure
macroeconomic stability and 39% confident that Turkey's
macroeconomic indicators will be stable in the coming year.
ABFT Board member Jeffrey Kemprecos noted that investors were
expecting much bolder reforms in 2008 following elections in
the summer of 2007.


7. (U) Survey results on infrastructure, taxation and the
legal system track with previous years. Two thirds of
respondents (66%) believed electricity costs were not
reasonable compared to other markets. Selective enforcement
of laws was also cited as a problem - only 29% of investors
surveyed believed environmental laws were applied equally to

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all businesses. Almost three quarters of respondents (74%)
claimed that personal income taxes were too high. Only 40%
of respondents saw total taxation (including levies, fees and
excise taxes) as comparable to other countries in which their
company operates.


8. (U) The legal system is viewed as inefficient (only 33%
believe otherwise) and biased against foreign investors (only
42% believe foreign and domestic investors are treated
equitably.) Just 43% of respondents believed they would get
a fair hearing in court. Under one third (30%) of
respondents believed IPR is well protected. (Note: The GOT
is aware of this shortfall, State Minister for EU Affairs
Egemen Bagis acknowledged as much to the annual general
meeting of the international investors association (YASED)
noting that revisions to the Commercial Code currently under
discussion would remedy shortfalls in the IPR regime. End
Note.) Although corruption exists -- 54% cited it as an issue
within the legal system -- the effects of corruption pale in
comparison to the challenges posed by inefficiency within the
court system and a general bias against foreign investors.


9. (U) U.S. investor views of the workforce are generally
positive. Recent labor market reforms appear to have
positively influenced investor sentiment. However,
education, particularly for blue collar workers, remains a
source of complaints. Only 40% of respondents believed the
high-school level education system adequately serves the
business community's needs. Investors would prefer to see a
greater focus on practical training rather than theory.
Infrastructure is generally viewed favorably with privatized
airports and telecom cited as particular bright spots.


10. (SBU) Comment. ABFT's annual survey is a useful means of
quantifying investor sentiment with regard to both government
policies and much needed reforms. Following the summer 2007
general elections that returned the ruling AKP to power, the
U.S. investor community (along with Turkey's business
community in general) experienced a surge of optimism. AKP
had performed well during its first term in office and was
the most business friendly party to hold office in decades.
However, as ABFT notes in its 2009 Survey press release, many
now view 2008 as a "lost year". A combination of
bureaucratic inertia and political mis-steps distracted from
the business of economic reform and the U.S. investor
community has ratcheted expectations down accordingly.
Together with Embassy Ankara we will continue to work with
ABFT and other U.S. - Turkish business organizations to press
the GOT for positive action on the economic reform agenda.
End Comment.
Wiener