Today I would like to continue my search on investment opportunities in Turkey in 2009 and beyond. To recall, Turkey lost its growth momentum even before the eruption of the current global economic crisis.

In fact, after the rate of industrial production reached 9.9 percent -- associated with a parallel growth in overall gross domestic product (GDP) -- it receded to a 5 percent average between 2006 and 2007 and almost to zero in 2008 because of the economic crisis.

In this declining performance, in addition to political instabilities, there were also economic factors, such as the rising current account deficit and resistant consumer inflation. Both of these problems were triggered by external shocks, such as a dramatic rise in energy, commodity and food prices. As these factors raised Turkey’s risk profile, the borrowing rate of almost every category also rose significantly.

What is important from the vantage point of today’s article is that in addition to its heavy burdens on societies all over the world, this “creative destruction” would bring also its potential benefits to countries such as Turkey that have potential in certain economic areas, as summarized below.

As one of the fastest growing markets, Turkey offers vast opportunities. Typically as an emerging market, Turkey had a high average growth rate -- 7 percent -- between 2002 and 2007, before the emergence of the current crisis. Unlike the pre-2001 crises, when Turkey had boom and bust cycles every three to five years with high interest rates, double-digit inflation up to 70 percent annually, a cumbersome debt burden and weak public finances, Turkey’s growth records since 2002 have been stable and sustainable.

After its recent aggressive growth records, Turkey’s GDP doubled to more than $650 billion and per capita GDP tripled to more than $8,000.

Turkey is one of the most successful “globalizers” in terms of its trade and financial integration due to the “trade creation effect” of the country’s openness. Turkey’s exports rose from $30 billion in 2001 to $130 billion by the end of 2008. The same process also triggered Turkey’s import volume. After this phenomenal rise, the share of exports and imports rose to almost 20 percent and above 25 percent of GDP, respectively.

Not only are Turkey’s exports led mainly by manufactured goods, the composition of export shifted significantly from low value-added goods, in which price competition dominated, toward modern or rising industries in which competition is determined by high value-added quality. Another aspect of Turkey’s trade orientation is its rich and varied trade destinations. In that regard, Turkey’s export dependence on single markets, such as the European trade zone, which constituted almost 70 percent just six years ago, is declining significantly.

Turkey’s recent efforts in attracting foreign capital resulted in a phenomenal increase in the volume of both foreign direct investment (FDI) and long-term capital. FDI amounted to $19 billion, $21 billion and $15 billion in 2006, 2007 and 2008, respectively. The average level of FDI inflows was around just $100 million throughout the 1990s. Because of this remarkable rise in capital inflows, Turkey’s rising current account deficit was successfully financed, and the saving-investment gap was closed with a long-term maturity and relatively cheaper rates, which caused domestic investment rates to rise to almost 25 percent of GDP, one of the highest among emerging markets. Finally, this process triggered the structural transformation of Turkish industry toward more competitive industries.

In attracting FDI, Turkey’s improved overall macroeconomic conditions, investment-friendly environment, rising purchasing power, changing consumer tendencies with a young population and Turkey’s geographical proximity to the major markets such as the EU and oil-rich Gulf countries have been the major factors. Moreover, Turkey’s dedication to privatizing its largest public facilities has been quite important. One of the remarkable effects of these outstanding advantages is visible in automotive industry investments. From the main industry (Ford, Fiat, Daimler, MAN, Hyundai, Renault and Toyota) to the supply industry, hundreds of global automakers have rushed to establish production facilities in Turkey. In addition to strong domestic demand, automotives have been the largest export sector for the past three years.

Other major sectors that have attracted foreign capital were services such as those in the finance, telecommunication and retail industries in Turkey. Among these, until recently, the share of foreign banks in total banking assets in Turkey was less than 5 percent. Within a couple of years, the share of foreign ownership has increased to 40 percent.

Energy and agriculture will dominate the FDI agenda in the coming era. This is because of expanding economic activities and the industry’s structural transformation. In fact, among others, energy investments and Turkey’s fast developing industrial structure will continue to create vast opportunities for project financing and development banking. For this reason, several development banks continue to offer extensive facilities and loans to investors in Turkey. It is no coincidence that Turkey is one of the largest debtors of international financial institutions.

Parallel to the global warming and rising demand, agriculture has already become a strategic sector all over the world. Obviously, Turkey’s geographic position brings incomparable opportunities to create an agricultural boom by the next decade. With its large lands appropriate for cultivation, well developed irrigation systems, sound infrastructure, and proximity to the most demanding markets in the Gulf region, Russia and Europe, Turkey will become one of best agricultural locations to invest in all over the world.

Tourism will continue to become the most strategic service sector exporter. Turkey gained around $5 billion from the tourism sector just a few years earlier. As Turkey’s brand name is rising rapidly, tourism income was estimated to reach $25 billion in 2008. The rate of increase in the number of visitors as well as the rate of increase in per capita tourism revenue is significantly above other countries.

Turkey’s natural potential is to reach at least $50 billion within 10 years with its rich historical, cultural, religious and health-oriented richness and climate conditions.

21/01/2009