Transcript Sectoral Distribution of FDI,2004-2009

PROF DR. SEDEF AKGÜNGÖR
 Resource allocation in general and the use of capital
sources in particular is one of the most important and
controversial subjects in economics.
 As capital is considered the prime mover of all types of
surplus creation process, the utilisation of capital
sources becomes the primary explanatory factor of the
economy.
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Conceptual Framework
 The source of capital accumulation is investments.
 Investments can be seperated into two categories:
 physical and non physical.
 The first includes, customarily, buildings, machinery and
equipment.
 The second is mainly investments in human capital, education,
health, culture, science and technology.
 In order to be clear about the definition “constant capital
investments” term will be used to mention the investments that
are used for producing commodities and services .
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 The amount and the quality of gross constant capital
investments, which remain a flow concept and the
sectoral distribution are the main indicators in
analysing how capital sources are utilised.
 The total amount of capital investments in the GDP
(gross domestic product) shows the amount of total
income that is not consumed but seperated for
reproduction, i.e. further growth of the economy.
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 Gross capital formation (this notation is used by the
Worldbank) consists of outlays on additions to the fixed
assets of the economy plus net changes in the level of
inventories.
 Fixed assets include land improvements (fences, ditches,
drains, and so on); plant, machinery, and equipment
purchases; and the construction of roads, railways, and the
like, including schools, offices, hospitals, private
residential dwellings, and commercial and industrial
buildings.
 Inventories are stocks of goods held by firms to meet
temporary or unexpected fluctuations in production or
sales, and work in progress. Net acquisitions of valuables
are also considered capital formation.
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Gross Capital Investments 2000-2009
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 During the 1980s, the ratio of GCI (gross constant
capital investments, term used by Yakup Kepenek) in
GDP was around 21 per cent.
 During the 1990s , the ratio was close to 24 per cent.
 After the severe economic crisis of 2001, the ratio of
GCI in GDP declined from 21,6 per cent to 17 per cent.
 After 2001 , the ratio had an increasing trend till 2009.
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 Qualitative aspects of investments are defined only on
the grounds of the sectoral distribution of the GCI
from both private and public sources.
 If trends of public and private investments are
examined for Turkey, the relative share of the first is
much lower and had a decreasing trend throughout
the years.
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Composition of Gross Capital Investment in GDP,
2000-2009
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Sectoral Distribution of Gross Investments 2006-2010
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Sectoral Distribution of Gross Investments
between private and public sectors ,2004-2009
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 During the mid 2000s the main share of private investments
were in manufacturing with 44 per cent of the total .
 This overall total indicates that manufacturing is able to attract
investments ,ceteris paribus, irrespective of its nature and
quality, which should be considered a positive sign for the
economic improvement of the country.
 The second largest share of the private GCI is in transportation
and communication with about 17 per cent of the total.
 Third one is housing with 15 per cent. This is traditionally a
private investment area and was stimulated by TOKİ (Housing
Development Administration) during the 2000s.
 Thus, these three sectors have more than 75 per cent of private
GCI while in all other sectors the shares are less than 10 per cent.
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The FDI (foreign direct investments)
 The FDI are one of the types of financial inflows to the economy.
 The other two are foreign borrowing and short term capital
inflows.
 The FDI are those investments ,like constant capital
investments,which are made for producing goods and services in
the country.
 FDI is thought to be the factor that is closing the savings gap.
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 The extensive globalisation of the financial capital has
created a situation where the importance of the FDI
(foreign direct investments) has increased into
unprecedented dimensions.
 Attracting foreign capital has become one of the most
important economic policy devices, especially after 1990s.
 In Turkey, before 1980 the FDI was primarily directed at
increasing manufacturing output, via either public or
private ownerships.
 However , later the FDI changed drastically from both
angles, in quantitative and qualitative terms.
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 Before 1980, 85 per cent of FDI was made made in
manufacturing, mostly in automotive, electrical machinery
and electronics and other metallic commodities.
 These FDI dominated manufacturing sectors were followed
by food and beverages, and glass and chemicals.
 During the import substituting industrialisation, the FDI
were mainly allocated to producing consumer goods,
durable and nondurable ones for the domestic market,
which was protected from foreign competition.
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 After 1980 when the economy was fully liberalised, the FDI
had extremely favourable conditions, unlike before.
 Almost all sectors, such as banking, insurance, trade,
agriculture, mining and some service sectors were opened
up to the FDI.
 In addition,bureaucratic procedures were simplified and
monetary transfers, including profits, were eased.
 In order to make a more favourable investment
environment for the FDI, labour and tax lws were issued.
 Free zones were established.
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 After 1980 the total FDI increased very steeply.
 After August 1989, the process of opening up the
economy reached its highest levels when capital
markets were completely liberalised and the process of
privatisation was strongly implemented and
conditions for the FDI become much more favourable.
 Although the amount of FDI inflow during the 1990s
was more than four times than that of the 1990s, the
economic and political instability, economic crises and
high rates of inflation did not permit a full-scale FDI
inflow during the 1990s.
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 Golden years of the FDI inflow are the 2004-2008 period.
 For example, in 2005 the yearly FDI is more than the total
of the 1990s.
 It more than doubled in the next year and continued
thereafter until the economic crisis of 2008-2009.
 During the 2000s, about 70-80 per cent of the FDI came
from Europe and mostly from the EU countries.
 Except in 2007 when its share was 25 per cent ,the US had
about 5-7 per cent of the FDI where the rest came mainly
from the Middle East.
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Foreign Direct Investments after 1980
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NET Foreign Direct Investments after 1980
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Sectoral Distribution of FDI
 The primary qualitative aspect of the FDI is its sectoral
distribution.
 There is a huge increase in the inflow of the FDI to the services
sector in recent years.
 Some qualifications are needed to understand this increase in
the FDI in the services sector.
 After 2005, the FDI in the electricity and gas sector increased
rapidly,and gained a larger percentage of the total.
 It is possible that as a result of international developments in the
energy market and the place of Turkey in this framework, the
relative share of this sector my have an increasing trend.
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 The are specific reasons behind the qualitative change
in the FDI.
 First, there was no industrialisation policy followed by
the government after 1980s, except some incentives
which were directed at export promotion.
 Thus, the FDI in manufacturing,however limited it
may be, was mainly an outcome of that policy.
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 Second, the most important reason for the tremendous
increase in FDI during the 1990s and 2000s wasthe opening
up of these sectors in generaland the privatisation drive in
particular.
 The restructuring of the banking sector and sales of banks
to foreigners had increased the FDI in that sector.
 In addition all types of financial services were the most
impressive sub sector for foreign capital.
 Another sub sector that goes alongside banking is
communication.
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 Third, among the service sectors that attracted FDI
flow was real estate, including construction and
renting activities.
 Fourthly, the FDI is gaining new ground in wholesale
and retail trade , and the health services.
 The common characteristic of these sectors is the
higher rate of short term profits.
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Sectoral Distribution of FDI,2004-2009
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Sectoral Distribution of the FDI,2004-2009
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Investment Incentives
 Investment incentives are important policy devices.
 They can be provided according to specific targets,
such as the type of production which underlines the
sectoral distribution of incentives.
 In addition, incentives can be given for other reasons,
especially for stimulating regional development.
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 The main types of investment incentives are
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tax and duty exemptions;
export promotions;
facilitating marketing abroad and designing fairs;
research and development;
environmental considerations;
tax rebates;
exemptions from custom duties;
easing imports by other means;
and the free use of some export earnings.
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 During the 2002-2008 period investment incentives,
that is the ratio of investments that benefited from
incentives were 17,2 per cent of total investments of all
types, including foreign investments.
 However, this ratio had a diminishing trend.
 It was highest with about 33 per cent in 2003 and went
down to around 13 per cent during the last two years.
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 When the sectoral breakdown of incentives according
to the “Incentive Certificates” are considered,
manufacturing gets the highest share ranging between
62 per cent in 2004 and 48 per cent in 2007 of the total
share.
 Services have a third of the total, while mining and
agriculture have 1,5 and 3,0 per cent of the total
respectively.
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Regional breakdown of the investment incentive certificates
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 It can be concluded from the incentive figures that the
incentives are not used as an effective policy tool for the
converging of the less developed regions of the country
towards the more developed ones.
 Incentives can be classified according to type.
 On average about 70 per cent of incentives are allocated to
totally new investments, while roughly 20 per cent goes to
expansion investments.
 These are followed by “completion,renovation,restoration
and modernization” investments that make up a few
percentage points on average.
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Conclusion
 The allocation of capital investments is essentially market
driven.
 With an extremely liberalised and globalised framework this
process can be considered as anatural outcome in itself.
 The question is whether this policy facilitates the expansion of
the production possibilities of the economy such that the
country will converge towards the production level of the
advanced economies.
 To find out if these crucial criteria are fulfilled, two variables are
needed to be established:one is the rate of economic growth;the
other is the qualitative aspects of capital accumulation.
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