Press release

Foreign investment in Turkey doubles in last five years

London and Istanbul, 8 May 2013

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Foreign investors can see the long-term growth potential Turkey can offer according to EY’s first Turkey Attractiveness Survey.

The report combines an analysis of international investment into Turkey over the past five years with a recent survey of over 200 global business leaders about their views on potential of the Turkish market. The latest data for EY’s European Investment Monitor (EIM) shows that inward investment in Turkey has steadily grown since 2007. The number of projects more than doubled from 40 in 2007 to 95 in 2012.

This is matched by a positive response from investors who have confidence that Turkey is on a growth trajectory, and its investment appeal is expected to rise further in the future. Turkey’s strategic location, stable and solid economic growth and the size of its domestic market are the cited reasons for the growing corporate interest in the country.

Despite the uncertain global economic environment more than half of total respondents have expressed their intention to set up operations in Turkey within the next year and 71% think that Turkey’s investment attractiveness improved substantially over the last three years. A majority of investors highlighted that the current negotiations around Turkey’s accession to the EU had improved their perception of the country’s attractiveness.

Investor confidence in Turkey’s economy is high with over 80% expecting an improvement in investment attractiveness, this is second only to that of Brazil among major emerging markets and much higher than the 38% who expect improving conditions in Europe.

Müşfik Cantekinler, Head of Transaction Advisory Services, EY Turkey comments,  “Turkey has overcome a series of political and economic challenges and is now enjoying a period of stable and solid economic growth. The country still has great untapped potential, with its economy set to grow at least 5% each year in the medium-term. Turkey’s world-class features – including its strategic location and large domestic market – are attracting a number of investors, who remain confident about Turkey’s future.”

Where has investment come from?

The EIM data highlights that, from 2007 to 2012, companies from the US provided 28% of foreign direct investment (FDI) into Turkey with 86 projects. Sectors such as business service, ICT, chemicals, transport and logistics and diversified industrial products (DIP) have attracted significant American attention.

In the past five years, the EU has directed 202 projects to Turkey. The EU’s interest in Turkey mostly focuses on sectors with a high technology component such as DIP and automotive. Other sectors such as business services, and transport and logistics have also drawn investor attention.

Germany is the leading European investments in Turkey with 64 projects followed by France, the UK and Italy with 30, 26 and 24 projects respectively. Although Western Europe remains the largest regional investor in Turkey, its relative importance in FDI inflows to the nation has been declining and it is likely to shrink in the future.

Japan is the sixth largest investor in Turkey and the largest Asian investor. It accounts for more than one-third of the continent’s projects in Turkey. The top sectors for Japanese investment are automotive (29%) and financial services (18%).

The Turkish government has made a conscious effort to deepen ties with the MENA region and although it currently accounts for only 3% of investment decisions in the country, investment from the region is expected to increase in the years to come.

Current levels of FDI also remain low from China, India and South Korea but they have been trying to capitalize on Turkey’s growth story and investment is expected to rise. Together, these countries have directed 23 projects to Turkey since 2007. A number of Chinese firms are seeking investment opportunities in Turkey, especially in nuclear energy, highway, high-speed train, railway and port projects. Turkey and South Korea are collaborating to build nuclear and coal power plants.

Turkey has been lagging behind other regional RGMs in terms of attracting FDI. Both Russia and Poland fared better between 2007 and 2012. But the gap between Turkey and others is narrowing. While FDI in Turkey has been increasing or stable since 2007, its counterparts in Europe have witnessed an uneven trend. Since 2011, the country has shown better FDI performance than the Czech Republic and Ukraine.

Jay Nibbe, EY’s EMEIA, Markets Area Managing Partner, comments, “Historically, Turkey has seen the majority of its foreign investment coming from developed economies. However, a major shift is underway for investment and trade flows from the Middle East, Africa and Asia.”

FDI profile dynamic mix of sectors

EIM data shows that business services was the most active sector in Turkey between 2007 and 2012 with 17% of projects. Strong growth potential and macroeconomic stability have encouraged companies to set up sales and marketing offices and contact centers in the country. The US (41%) was the top investor, followed by the UK (17%), Germany (9%) and Australia (5%). In 2011 particularly, business services outstripped all other sectors, with a 167% increase in project numbers, mainly fueled by accelerated investment activity undertaken by US and German companies.

Increasing demand and cost competitiveness have also attracted DIP (52), Automotive (49), ICT (39) and Financial services (36) in the period.  

Cantekinler comments, “Turkey’s FDI profile is a dynamic mix of established and emerging sectors. The country attracts projects in knowledge-intensive sectors as well as heavy industry. The government has supported investment in all industries by creating a conducive and competitive investment climate.”

Istanbul most favored by investors

Istanbul is the city most favored by investors. It attracted over half of the total FDI projects that came to Turkey between 2007 and 2012. Istanbul benefits from its advantageous geographical location, reasonably well-developed infrastructure and an educated workforce. However, as investment increases in the country investors are also looking further afield to other cities such as Izmir, Ankara and Bursa which also show signs of investment growth.

Improvements to help foster growth

Turkey’s future looks bright, but it needs to remove some barriers to investment. It must enhance the quality of human capital by improving access to primary education and vocational training. The business environment can also be made more conducive to FDI by eliminating obstacles such as bureaucracy and corruption. Investors also highlighted innovation and R&D as other improvement areas.

Attracting FDI has been a high priority for the Turkish Government. The government has been improving the investment climate by implementing structural reforms and incentive schemes.

Looking ahead

The Turkish government has also started to focus on FDI. Some measures include a revamp of the tax regime – to make it more appealing to manage investment funds from Turkey – and encouragement for foreign companies to start greenfield projects in less developed areas. As further improvements are made to the country’s business environment and innovation culture, businesses can benefit from greater efficiency of operations, better competitiveness and enhanced value gained from reduced costs.

When asked about a specific strategy for investment in Turkey, 56% of established investors revealed plans for extending existing operations in the country. While 41% plan to expand facilities, 15.1% are looking to increase their labor force.

Cantekinler concludes, “Given that many investors are optimistic about Turkey’s future prospects, the country is slowly, but surely, attracting investors’ attention. A strategic geographical location offers Turkey the opportunity to develop into a major operational hub over the next 10 years.”


Notes to Editors

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EY’s 2013 Turkey attractiveness survey

EY’s 2013 Turkey attractiveness survey analyzes a) the real attractiveness of Turkey to foreign investors based on FDI data from EY’s European Investment Monitor (EIM), which tracks greenfield FDI projects but excludes portfolio investments and M&A, and b) the perceived attractiveness of Turkey by foreign investors, based on a representative number of telephone interviews conducted with a panel of international business leaders.