Turkey investment body to hold B2B meetings with Kuwaiti investors

Turkey seeks to boost Kuwaiti investments in strategic sectors

Arda Ermut, President of the investment office, speaks during the interview.—Photo by Joseph Shagra

The Prime Ministry Investment Support and Promotion Agency of Turkey organized a roundtable with CEOs of top companies in Kuwait on Sunday to discuss the investment climate and opportunities in Turkey. The event discussed the Turkish economy’s latest trends and investment environment and opportunities for foreigners.

Kuwait Times spoke with Arda Ermut, President of the investment office, about relations between Kuwait and Turkey. He said the enormous potential and trade perspectives of the two countries match perfectly, and in the upcoming period, they plan to attend more investment-related meetings and seminars in Kuwait. They also plan to collaborate with business associations and government institutions to hold B2B meetings with potential Kuwaiti investors, organize their visits to Turkey and help with the investment process.

Ermut revealed that the end of June 2018, there were 325 companies and four liaison offices with Kuwaiti capital in Turkey. Kuwait was Turkey’s 57th largest export and 80th largest import partner in 2017 and the trade volume between the two countries was $414 million in 2017. Some excerpts:

Kuwait Times: Tell us more about the function of the Presidency of the Republic of Turkey Investment Office?
Ermut: Established in 2006 as part of an overall action plan to create a more business-friendly economic environment in Turkey both for domestic and international investors, the Investment Office is the official organization for promoting Turkey’s investment opportunities to the global business community and for providing assistance to investors before, during and after their entry into Turkey.
We are in charge of encouraging investments that are needed for the further economic development of Turkey. To this end, Invest in Turkey supports high-technology, value-added and employment-generating investments with facilitation and follow-up services during the whole processes of relevant investments. Our efforts have led to around $195 billion of foreign direct investment pouring into Turkey over the past 15 years, an era marked by political stability led by President Recep Tayyip Erdogan. Let me remind you that total FDI attracted into the country prior to 2002 was around $15 billion.

Impressive growth
KT: Can you give an overview of the current Turkish economy?
Ermut: Turkey is ranked as the 13th largest economy, achieving an impressive annual growth rate of nearly 6 percent over the past 15 years. Since the beginning of 2018, the Turkish economy has been experiencing significant events. Financial markets have observed rising volatilities and unhealthy price formations in recent months that are out of line with Turkey’s macroeconomic dynamics and solid fundamentals.

First, Turkey achieved an average annual growth rate of 5.7 percent in the 2003-2017 period and 6.8 percent in the 2010-2017 period, which proved resilient against domestic and international shocks. With this performance, the Turkish economy outperformed other emerging countries despite negativities such as the 2008 global financial crisis, the European sovereign debt crisis, an influx of refugees, a failed coup attempt, regional conflicts and recent protectionist moves and trade war expectations.

The composition of the growth has also evolved into a more balanced position in recent quarters. Along with domestic demand, an important driver of Turkey’s growth performance, a rebound has been observed in the contribution of net exports thanks to competitive exchange rates, rising tourism revenues, restored relations with neighbors and trade diversification policies. Thus, Turkey has achieved a sustainable production and investment-oriented export-led growth strategy.

Second, excluding gold and energy, the current account dynamics and its financing have improved recently in Turkey. Growth recovery in trading partners such as the EU, the contribution of competitive real exchange rates and downward expectations in imports can be considered the main factors that will support the current account of Turkey for the near future. With regard to the financing of the current account deficit in Turkey, an important part is financed by FDI and long-term sources with a considerably lower role of portfolio and short-term inflows.

The third solid fundamental is Turkey’s fiscal position. The recovery in the Turkish economy after the 2001 crisis has been characterized by the restructuring of the banking system, and more importantly, restoring the healthiness of its fiscal position. In this context, Turkey has achieved lower public debt and decreased the fiscal deficit by pursuing tight fiscal policies. Over the past 15 years, budget deficit to GDP ratio in Turkey has drastically decreased from over 10 percent to levels varying between 1 to 3 percent and the public debt to GDP ratio has also been reduced from over 70 percent to below 30 percent, outperforming the Maastricht criteria of 60 percent.
All these figures indicate that, while having difficulties in certain areas, the fundamentals of the Turkish economy are solid, strong and promising.

KT: The Turkish lira has had some real trouble lately – how do you assess the situation?
Ermut: The recent depreciation has not been exclusive to the Turkish lira, almost all currencies, especially emerging market currencies, but also advanced economies’ currencies have depreciated against US dollar in recent months. The US dollar has significantly appreciated against all major currencies, including the euro, over the past six months.
Prudent measures

The main causes of currency depreciation are a stronger dollar, the intensification of global trade between the US and the rest of the world, mainly China and the EU, rising short-term interest rates in the US and robust economic growth in the US supported by corporates spending and tax decreases.

Turkey’s economic policy authorities are taking prudent and timely measures to support the financial stability and sustain the effective functioning of financial markets to counter the recent developments seen in the Turkish lira. The Central Bank of Turkey pulled down the required reserve ratios for both TRY and FX denominated liabilities to specifically support flexibility of the banks in their liquidity management as of August 13, 2018. Complementing this measure, banking regulation and supervision of Turkey limited FX swap transactions to curb the decline in and stabilize the value of TRY as of August 15, 2018. On top of that, the CBRT has a rich policy set and implements any of which is deemed fit when necessary to stabilize the value of TRY. In this regard, the CBRT has hiked the rates more than once in recent months, the most recent hike was on September 13, 2018 when it increased policy rates by 625 basis points.

KT: How would you summarize Turkey’s engagement with Kuwait?
Ermut: We believe that relations between Kuwait and Turkey have enormous potential and trade perspectives of the two countries match perfectly. We are very keen on attracting FDI from Kuwait and I can guarantee my and my team’s full support in all phases of Kuwaiti investments in Turkey.
In the upcoming period, we plan to attend more investment-related meetings and seminars in Kuwait. We also plan to collaborate with business associations and government institutions to hold B2B meetings with potential Kuwaiti investors, organize their visits to Turkey and help them with their investment process.

Open for business

KT: What would you say to convince foreign investors to come to Turkey?
Ermut: Turkey is a country open for competition and international investors. We are a country that has realized its economic welfare under the leadership of private industry. Therefore, we consider the legal regulations and reforms to ensure comfortable and free investments by the private industry to be very important. We believe that the government’s role in the economy should be to support, not to clog.

With this in mind, we carried out a prominent R&D reform in early 2016 and we introduced support for design for the first time. Design is the most important component of high value-added production, and R&D is the most critical part of it. As a government, we give strong support to R&D. We released a new Industrial Property Law in early 2017. Thus, we ensured protection of R&D, patents and innovation. By forming a legal framework on these issues, we created a fair competition environment.

That was not enough for us. We made very important and revolutionary reforms to improve the investment environment in March. We reduced the time necessary for establishing a company. We shortened the process for establishing a company, which was 30 days before 2002, to 6.5 days first, and now to only a few hours. The investors can directly go to the trade registry with their articles of association and begin to work without having to go to the revenue office, social security office, notary or any other organization. This is an important reform as it supports the investment ecosystem.

The economic growth and stability achieved by Turkey and its reforms and regulations have of course been noted by international investors. International investors, who saw the stability and growth provided by the reforms, invested around $195 billion to our country during the last 15 years. Considering that our country attracted only $15 billion in FDI during the

80 years prior to 2003, we can more clearly see how meaningful the progress we made is.
We are determined to further leverage the success we achieved in FDI to higher levels because we believe that Turkey’s potential of attracting direct investments is much higher. Turkey offers important opportunities both in and out of the country with its young and dynamic population of 81 million people as well as with its strategic location. At present, many international companies consider Turkey as an investment base to penetrate the region.

Geographical advantage
Turkey is geographically close to the markets of Europe, Central Asia, the Middle East and Africa, and it has also developed very strong relations in the region through free trade agreements. Similarly, you can easily access almost each and every important commercial point of the region thanks to Turkish Airlines.

Furthermore, we believe developing infrastructure is essential for attracting FDI. For this purpose, we built the Marmaray and the Eurasia Tunnel, which connects the Asian and European continents beneath the Bosphorus. We have realized investments that will enable delivering goods and services more effectively and much faster. The Osmangazi Bridge, a suspension bridge with the fourth longest span in the world, and Yavuz Sultan Selim Bridge, the third bridge on Bosphorus, have reduced the distance between trade and investment centers.

Also, Istanbul’s new airport, which will eventually be the largest airport in the world, opened its first phase on October 29. This strengthened Turkey’s central position as a global hub. We have also laid foundations for the Canakkale 1915 Bridge, which is to take the top rank in its segment in the world. Furthermore, we continue to work on the Kanal Istanbul Project, which will be built as a sister to the Bosphorus.

We have not neglected financial infrastructure. We are exerting every human effort to turn Istanbul into an international finance center. From its developed economy to human capital and strategic position, Istanbul has the potential to become an ideal international finance center. We are conducting the infrastructure work and the necessary regulatory arrangements together to realize this potential.

KT: Are you involved in promoting any industry or product, which may be of interest for prospective investors?
Ermut: We are working to attract investments that will contribute to Turkey’s economic development. To this end, we are targeting investments that will transfer technology to Turkey, generate employment in Turkey and reduce Turkey’s dependence on imports, thus reducing the current account deficit. As such we are focusing on key areas and sectors that will deliver these results and make Turkey more competitive. Such sectors are automotive, ICT, petrochemicals, energy, renewable energy, machinery, aerospace and pharmaceuticals.

KT: How does the Investment Office provide assistance regarding foreign direct ?nvestment in Turkey?
Ermut: Active on a global scale, we operate with a network of local consultants based in countries such as China, France, Germany, India, Japan, South Korea, Qatar, Saudi Arabia, Spain, the UK, the UAE and the US. We offer an extensive range of services to investors through a one-stop-shop approach, ensuring that they obtain optimal results from their investments in Turkey. Our team of professionals assist investors in a variety of languages including Arabic, Chinese, English, French, German, Italian, Japanese and Spanish.

Working on a fully confidential basis, as well as combining the private sector approach with the backing of all governmental bodies, our free-of-charge services include consulting services, coordination services, business facilitation services, site selection support, investment delegation visits, project launch services, partnership development assistance and aftercare services.

What the Investment Office offers:
* General and customized business information, sectoral analysis and reports
* Site selection support
* Arrangements of meetings with governmental bodies and other stakeholders
* Facilitation of your investment at all stages
* Matchmaking with local partners and establishing business linkages
* Project launch services

KT: How is the legal framework of foreign direct investment regulated under Turkish Law?
Ermut: Turkey’s investment environment is favorable, offering a landscape that is comparatively easy to navigate. Turkey enacted a new Foreign Direct Investment Law in 2003, enshrining equal treatment for all investors, both foreign and domestic, and providing them with certain guarantees, such as international arbitration, guarantee of profit transfer and protection against expropriation. Foreign investments in Turkey are also protected by bilateral investment treaties signed with more than 75 countries. Turkey has also signed bilateral tax treaties with some 80 countries to prevent double taxation. The local accounting system is mostly aligned with international accounting standards.

KT: What type of tax practice is applicable in Turkey?
Ermut: Turkey has one of the most competitive corporate tax rates in the OECD region. The Turkish corporate tax legislation has noticeably clear, objective and harmonized provisions which are in line with international standards.
The Turkish tax legislation can be classified under three main headings – income taxes, taxes on expenditure, and taxes on wealth. Income taxes are divided into two, namely individual income tax and corporate income tax. Although individual income tax and corporate income tax are governed by different laws, many rules and provisions pursuant to individual income tax also apply to corporations, particularly in terms of income elements and the determination of net income. Taxes on expenditure include value added tax, special consumption tax, banking and insurance transaction tax and stamp duty tax. Lastly, there are three kinds of taxes on wealth – property taxes, motor vehicle tax and inheritance and gift tax.

KT: What is the new incentive program that has recently been announced and how will that benefit the economy?
Ermut: Recently announced incentives include tax deductions in automotive, white goods, furniture and real-estate sectors. Within the scope of these new incentives, value-added tax in the furniture sector was reduced to 8 percent from 18, special consumption tax on white goods was reduced to zero, special consumption tax charged to automobiles below 1,600 engine size was reduced by 15 percent, value-added tax on commercial vehicles was reduced to 1 percent from 18, and value-added tax on real estate, which has already been reduced to 8 percent from 18, will remain the same. Deductions, which will be implemented in these six topics, aim to reduce inflation, support the re-balancing period in the economy and increase employment.

KT: Turkish tourism is expecting a strong rebound, but how do you think the recent steep fluctuations in foreign exchange will affect the sector?
Ermut: Turkey’s tourism revenue rose by 19 percent in 2017, hitting $26.3 billion compared to 2016’s $22.1 billion. While we hosted 36.8 million foreign tourists in 2014 and 36.3 million in 2015, this figure fell sharply to 25.3 million in 2016. There was a strong rebound in 2017 and we recorded 32.4 million visitors. Turkey expects 40 million tourists in 2018 and has set 2023 targets as 50 million tourists and $50 billion in tourism revenue.

Against this backdrop, Turkey is experiencing a rebound in the tourism industry and is expecting a return to the record high number of tourists seen only a few years ago. The increase in the number of reservations in 2018 is indicative of Turkey’s return to prominence as a prime tourism destination. The tourism targets in Turkey’s Vision 2023, which includes attracting 50 million tourists with a total revenue of $50 billion, are well on the way to being achieved.
The recent currency fluctuations may have adverse effects in emerging markets and Turkey but in our case, this also helped the re-balancing of the Turkish economy as tourism revenues and export amounts have risen together with the rise in foreign exchange.


KT: Tell us about your expectations for 2019. What will be the main focus?
Ermut: From the economic perspective, the main focus will be on re-balancing. Despite lots of negativities in the past and now the currency fluctuations, the Turkish economy has the ability and potential to cope with these problems. The composition of growth has evolved into a more balanced position in recent quarters. Along with domestic demand, an important driver of Turkey’s growth performance, a rebound has been observed in the contribution of net exports thanks to competitive exchange rates, rising tourism revenues, restored relations with neighbors, and trade diversification policies. Thus, Turkey has achieved a sustainable production and investment-oriented export-led growth strategy. We aim to achieve this in 2019 as well.
On the investment and FDI side, our target is to attract more FDI than the previous year. However, while achieving this, we also aim to attract more investments to strategic sectors that will help reduce our current deficit.

By Faten Omar

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