Transcript Document

Foreign Direct Investment in
Turkey
Andrew Vorkink
Turkey Country Director
The World Bank
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Outline
1. The role of FDI in the economy and FDI
trends
2. Key factors affecting FDI
3. Turkey’s progress to date and the remaining
agenda
4. Conclusions
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FDI = Sustainable growth and
employment
Potential to generate large capital inflows
Gives access to foreign markets, especially in
multinational corporations (MNCs) countries
Efficient way to access foreign technology, in
turn increasing productivity
Preferred method of financing current account
deficits caused by episodes of rapid growth
Leads to knowledge, management and
technology transfers --if the “right conditions are
in place”
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But FDI does come with risks
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Possible abuse of dominant market position by
MNCs
Possible MNCs attempts to influence the
political process and coax concessions from
governments in return for location decisions
Possible increased volatility of balance of
payment flows
Possible that MNCs continue to do business
exclusively with parent companies, without
generating local transfer of knowledge and
technology
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The role of FDI in the global
economy is growing steadily …
MNCs do about 2/3 of world trade
About 30-40% of this trade is within MNCs
MNC export activity is taking new forms: ‘global
production networks’, with very fine vertical
specialization by function/component between countries
FDI is growing faster than other economic factors:
national investment, GDP or exports
Local companies are also involved in global production
networks, but only if
• They have very high levels of technological capabilities and form
strong ties with MNCs to access and absorb their technological
know-how and management skills – Skills and Education are key
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… FDI in Turkey has been
chronically low
FDI/GDP. International Comparison.
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8
Bulgaria
7
Percent
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EU 8
5
4
China
3
2
Turkey
1
0
1995
1996
Turkey
1997
1998
EU 8
1999
2000
2001
China
2002
2003
2004
Bulgaria
While worldwide FDI has increased by a factor of 12 in the
last ten years, in Turkey it has been stagnant since the mid90s. While now growing, it was less than 1% of GDP in
2004.
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Quality also matters: R&D-intensive FDI to the
whole ECA Region is close to negligible
US Multinationals R&D (US$ million)
3000
All developing
LAC
S & SE Asia
CEE
2500
2000
South and
East Asia
1500
1000
500
East Europe
0
1994
1995
1996
1997
1998
1999
2000
2001
2002
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Traditional key factors of
FDI location:
Some remain relevant
 Stable macroeconomic environment
 Stable, transparent and welcoming policies
 Large and/or fast growing markets
 Primary resources
 Cheap and trainable labor
But others are becoming less important
 Cheap unskilled labour
 Protected markets
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‘New’ factors in FDI location and to
establish links with the local economy
 Strong legal systems and property rights
 Low ‘transaction costs’ (entry, exit, expansion,
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taxation, customs, employment, cross-border
M&As)
Modern ICT infrastructure and logistics plus R&D
Human capital: new skills, flexible practices,
training provisions, ease of expatriate entry
Strong supplier and service networks
Effective FDI promotion, targeting and
coordination with supply side policies
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How to promote supplier linkages
with MNCs?
 Local content rules are often inefficient – and
are now forbidden by the WTO
 Fiscal incentives are costly and can only play an
initial stimulating role
 What works best:
 Improving supplier capabilities, directly and with MNC
assistance
 ‘Matchmaking’, information dissemination
 International best practice:
 Ireland: comprehensive strategy to attract FDI
 Malaysia: SMART, Global Supplier Program
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Turkey’s progress to date
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Macroeconomic stability
EU accession
FDI Act in June 2003
 Eliminated the minimum capital investment
requirement (US$50,000); no need to obtain
approval from the foreign Investment General
Directorate; foreign firms allowed to invest in real
estate

Improvement in several aspects of the business
environment (e.g., reduction of tariff and nontariff barriers, reduction of corruption)
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Turkey’s Agenda
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Consolidate macroeconomic stabilization by removing
vulnerabilities
Further improve the investment climate
 Reform financial and capital markets
 Reduce administrative procedures for firms operation:
focus on licensing, registration costs and exit
procedures
 Reduce corporate tax and improve tax administration
 Improve efficiency of the judiciary for business dispute
resolution
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Remove remaining regulatory constraints on foreign
ownership
 Reduce limitations on foreign investment in civil
aviation, fishery, maritime transport and broadcasting
 Reduce permissions needed to operate in mining and
tourism
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Turkey’s Agenda
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Improve competition levels and reduce industrial
concentration
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Continue with accelerated privatization
Monitor and reduce State Aid
Strengthening anti-monopolistic behaviour of large groups
Continue successful implementation of anti-trust policies
Increase use of quality standards and technology among
local firms and improve the skills of the labor force
 Quality: align legislation to EU, reform Standards and Quality
Agency (TSE), increase firms’ and labs’ use of standards
 Technology: Foster technology adoption at the firm level;
reform TUBITAK and create a new innovation agency; align IPR
legislation with Acquis and improve IPR enforcement
 Strengthen skills by modernizing the higher education
admission system and reforming curricula at all levels
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Conclusion
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Turkey is fully committed to a modern and
efficient economy as a mean to improve the
life of its citizens
FDI is an important ingredient in achieving
this objective
There is strong competition in attracting FDI
and while Turkey has made great progress,
important challenges remain
The agenda ahead is clear and the country
has the ability to meet these challenges
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