FDI in the World

Globalization of the world economy is gathering pace, with international investment as the prime driver. Since the early 1980s, world foreign direct investment (FDI) flows have grown rapidly faster than both world trade and world output. Estimations indicate a continuation of this trend for the following years.

Today, every country is aware of the fundamental role which international investment plays in the. It is through the channels of investment that technological interchange and free circulation of capital, people and ideas take place.

The global economic conditions are getting more and more challenging. FDI has declined in 2002, as cross-border mergers and acquisitions wane and the economies of the major industrial countries show signs of economic slowdown and international political tensions, FDI are expected to recover strongly over the next five years, starting from the second half of 2003. Over the longer term, international production seems set to raise its share of global economic activity. The trend towards better business environments; regional integration; technological change; industrial consolidation; sharper global competition; and opportunities in emerging markets will all underpin renewed strong expansion in FDI.

FDI in Turkey

Turkey, situated at the crossroads where two continents meet, is an ideal center for investors looking for a location at the heart of Euro-Asia. With its dynamic and growing economy, huge market, competitive and skilled labor force, Turkey offers numerous opportunities to international investors. The liberal foreign investment legislation and the experience of more than 6.000 foreign capital firms ensure a stable and reliable investment environment.

In Turkey, developments in foreign investments accelerated along with the changes in the economic and social structure. The deregulation of interest rates, establishment of organized financial markets for money, foreign exchange stocks and securities, liberalization of capital movements and reforms in the banking sector are just same of the major economic policy changes while one of the major policy decisions was the adoption of liberal and flexible foreign investment practices. As a result of the changes in the foreign investment legislation, the investment climate was made more efficient and suitable for potential investors, starting with the 1980s.

In 2003, the Government has initiated a comprehensive reform program to streamline all investment-related procedures and to attract more private direct domestic and foreign investment. The Government has established a Coordination Board for Improving the Investment Climate (YOIKK). The Board assigned specialized technical committees to work on developing concrete proposals and strategies in order to overcome all main obstacles. As productive collaboration between the public and the private sector is key in this process, each technical committee consists of private sector and government agencies representatives.

The key reform areas have been determined as company establishment, employment, licenses, location of investment, taxes and incentives, customs and standards, intellectual property rights, small and medium sized enterprises, promotion of investment, foreign direct investment regulation.

On the other hand, the law that redesigns company registration process which diminishes the prior 19 required steps to 3 steps and reducing turnaround from two and a half months to one day is enacted. Thus, the company registration procedures which previously were taking almost two and a half months and requiring excessive documentation and approvals from several authorities have been simplified and streamlined. Now the registration can be done in only one day and all that is required is to fill out a standard form at one point without applying to several different authorities for approvals.

Taking into consideration the importance of a strong legal framework for foreign direct investment, the existing relevant legislation was reviewed to assess the needs for as well as the content of new foreign direct investment law has been drafted taking into consideration international best practices and the new FDI law has been enacted and published an June 17, 2003.

With the new FDI legislation notification based system instead of screening and approval system will be in effect. Also this law defines investment and investor in line with the international standards and abolishes minimum capital requirement of US$ 50,000 per real or legal person for foreign investors.

Some of the important features of the new law are a broader definition of investors to include foreign nationals, Turkish nationals resident abroad, foreign legal entities and international organizations; freedom to invest; internationally accepted FDI definition; national treatment; guarantee to transfer proceeds; key expatriate personnel; protection against expropriation; access to real estate and international dispute settlement.

FDI Figures of Turkey

As of the end of 2002, accumulated foreign direct investment in Turkey amounted to US$ 33,9 billion in terms of the value of foreign capital approvals and US$ 15,7 billion in terms of actual capital inflow.

The total of last year’s foreign direct investment approvals stand at US$ 2,2 billion, whereas actual inflows remained at US$ 590 million. In terms of approvals, the leading investors are France, the Netherlands, Germany, USA, United Kingdom, Switzerland, Italy and Japan.

Among the country groups, EU has a share of 68 % in the total foreign investment stock. The total share of OECD countries accounts for 88 % of the total foreign investment stock. The remaining 12 % go for the Islamic countries with 2 %, East European countries with 1 % and other countries with 9 %.

Sector based composition of FDI inflows to Turkey shows a similar trend with that of FDI flows in the world economy. While services represent around 50-55 % of the total stock of FDI, manufacturing sector investments account for some 35 to 40 % of annual flows. Share of agriculture and mining sector investments is around 5 % of the total stock.

Within the manufacturing industries, the leading sectors are;

- Automotive and transportation equipment

- Food, beverage and tobacco industries

- Chemical and petroleum products

- Electrical machinery and electronics

Within services sector, the leading sectors are;

- Banking

- Trade & retail chain stores

- Telecommunications

- Tourism

As of the end of 2002, 6,311 foreign capital companies operate in Turkey. The foreign partners of these companies include 108 of the 500 companies, which are listed in the Top 500 companies list of the Fortune Magazine.

From January to March 2003, 121 new foreign capital companies have been established in Turkey. This figure presents a 58,7 % decline compared to the same period of the previous year. On the other hand, total authorized FDI reached US$ 503 million, whereas it was US$ 523 million the previous year, showing a decline of 3,82 %.

US$ 303 million of the total US$ 503 million authorized FDI inflow in the first quarter of 2003 is for manufacturing sector (60,23 %), while US$ 1 million is for agriculture (0,15 %), US$ 3 million for mining (0,62 %) and US$ 196 million (39,0 %) for services sector.

On the other hand, 29 % of the total investments were from Germany in the first three months of the year, followed by the USA and the Netherlands with shares of 17,19 % and 15 % respectively.