On February 22nd, THO hosted the latest in its teleconference series: “Turkey’s Investment Outlook for 2017.”
During the teleconference, Howard Beasey, President of the American-Turkish Council, and Mustafa Ilbeyli, Senior Advisor at the Investment Support and Promotion Agency of Turkey (ISPAT), discussed the investment climate in Turkey, the impact of recent economic challenges and political developments, and the opportunities in the year ahead for American investment in Turkey.
Many factors create benefit for investors in Turkey
Despite Turkey’s current economic downturn in comparison with the growth of recent years, the speakers said that Turkey is still an economic powerhouse with plenty of advantages to offer investors.
Mustafa Ilbeyli noted that Turkey’s economy is the 16th largest in the world with an admirable record of growth in the last decade and a half, particularly in the period between 2002 and 2015. During these years, Turkey’s GDP averaged a growth rate of 6% per year. While the rate through 2022 is expected to be closer to 3.5% per year, it still outpaces competitors like Poland and the Czech Republic.
Turkey’s economy has more than tripled in size since 2002, growing from $2.236 billion to $861 billion. According to Ilbeyli, the strength of the domestic market drove this growth; the share of domestic consumption in Turkey’s GDP is 73%, while the role of imports is 27%. Due to this growth, Turkey now has a larger, more stable middle class. While the income per capita was $3,500 in 2003, it grew to $11,000 by 2015. Ilbeyli noted that of the countries with a population greater than 50 million, only 8 countries have a GDP per capita over $10,000, and Turkey is among them.
Ilbeyli also noted that Turkey’s involvement in the EU accession process has been crucial to its economic growth, as it has given Turkey an impetus to raise its economy to European standards. He emphasized the importance of Turkey’s continued engagement in this process and expressed his hope for eventual Turkish membership in the EU.
Howard Beasey commented that Turkey has aggressively pursued global trade, allowing it not only to access a greater number of markets but also positioning it as a hub for non-Turkish companies seeking access to different markets. For example, U.S. companies often use Turkey as a “conduit” to markets across the world.
Ilbeyli noted that Turkey’s strategic location allows companies to conduct business across 16 different time zones, highlighting the fact that Turkey is now not just a manufacturing hub but also a management hub. According to Ilbeyli, the Coca-Cola Company now manages its business in 90 countries from Turkey, while Microsoft manages 80 countries using Turkey as a pivot point.
In addition, Ilbeyli noted that Turkey’s customs union with the EU offers direct access to a market with 510 million people, while Turkey’s free-trade agreements with 27 countries offer access to 355 million people. Adding the Turkish market’s size of 79 million people, Turkey offers access to markets with a combined total of almost 1 billion consumers.
Ilbeyli and Beasey both noted the advantages offered by Turkey’s young, entrepreneurial population, both as consumers and as shapers of of the economy. Both speakers also commented that Turkey has pursued a robust reform agenda over the past decade and a half to allow for better conditions for investment. Ilbeyli said that Turkey’s automotive industry as well as its renewable energy sector in particular offer ideal opportunities for investment from the U.S. The Turkish government has announced that it is seeking approximately $40 billion in investment in order to meet its renewable energy goals for 2023.
Turkey is resilient
2016 was a challenging year for Turkey’s previously prospering economy. Political and economic uncertainty fueled by global and regional geopolitical developments have complicated prospects for Turkey’s economy going into 2017.
However, Beasey noted that Turkey has time and again been resilient in the face of economic, political, and security challenges. He expressed that Turkey’s business environment in particular has proven capable of weathering difficult conditions.
Beasey acknowledged that political developments in Turkey in the past year have had an impact on the perceptions and plans of American investors, who are now taking a wait-and-see approach before making greater moves in Turkey. He said that he believes that the completion of the upcoming presidential referendum on April 16th could allow for the resolution of some political uncertainly that is currently troubling investors.
He emphasized his belief that, regardless of the result of the referendum, Turkey will move forward as it has always done. He acknowledged concerns among the investor community regarding the potential consolidation of too much power in one office and underlined the need for Turkey to maintain a system with separation of powers and strong checks and balances. He emphasized that such a system is critical to ensuring stability and attracting investment.
Beasey noted that the growth of the Turkish economy since 2002 has shown Turkey’s strong desire for economic strength. He commented that Turkey’s economic success has been a boon for the current Turkish government, and he expressed his belief that the Turkish government will continue to take steps to ensure the vitality of Turkey’s economy.
Opportunities under the Trump administration
Beasey and Ilbeyli both emphasized that U.S. investment in Turkey is strong. Ilbeyli noted that there are approximately 1,700 U.S. companies operating in Turkey, and Turkey’s trade volume with the U.S. was $17.5 billion last year. U.S. companies like Ford, 3M, and Coca-Cola use Turkey as a hub for their business.
Regarding the potential for U.S. investment in Turkey under the new presidential administration in the U.S., Beasey noted that there is a sense of optimism in Turkey that the new administration will resolve some of the political issues that existed during the previous administration. In particular, Beasey mentioned that there are some indications that the U.S. government could pursue a policy regarding the YPG in northern Syria that would be more in line with Turkey’s interests.
Beasey expressed his hope that U.S.-Turkey relations regarding political matters will see greater resolution and that this will have a positive “trickle down” effect on U.S.-Turkey business ties. Ilbeyli noted that even though U.S. investors seem to have a wait-and-see approach regarding Turkey at the moment, Turkish investors still see opportunities for investment with the U.S. as “top of the list,” and the challenges of recent years have not changed this perception.
Beasey cautioned that though the Turkish business community has been patient with American investors’ wait-and-see approach, other countries like China and India have noticed the potential void that could be left by U.S. investors, and these countries will not hesitate to fill that void if it opens up.
Regarding President Trump, Beasey noted that his experience as a businessman means he will likely approach U.S.-Turkey relations in a transactional manner. As such, Beasey posited that successful and robust U.S.-Turkey economic collaboration under the Trump administration depends on the extent to which the business communities of both Turkey and the U.S. can show that the U.S.-Turkey investment environment brings value, jobs, and dollars to both countries’ economies.