INVESTMENT SUSTAINABILITY AS THE MAIN FACTOR OF A SUSTAINABLE ECONOMY
The economic, social, political and cultural changes in the world that began in the second half of the 20th century, as well as outstanding advances in technology, have fully demonstrated the phenomenon called globalization.
In the existing new structure, there was no opportunity to continue working within the framework of a closed economy, as trade and cooperation between countries became more intense, and the economies of the countries became more intertwined. In the new economic climate and structure, it has become vital to be confident in the sustainability of investments. Therefore, in order to achieve sustainable development, developing countries such as Turkey create jobs, care about the prosperity of the population, and try to keep up with technological progress. In the face of the trends of liberalization and globalization around the world, developing countries need to increase their existing resource potential.
In 2016, the global flow of international direct investment fell by 13% to 1 trillion 520 million dollars. The reasons for this reduction are continuing instability of the global economy, low demand, geopolitical risks and, in particular, the decline in the profitability of international companies. The UNCTAD Global Investment Report states that developing countries as a whole have experienced a decline in international direct investment inflows, with developed countries accounting for 57% of total investment inflows in 2016. Among the 10 countries attracting the largest amount of direct international investment, developed countries hold the leading position. The United States remains the first with $ 385 billion in direct international investment, followed by Great Britain.
Turkey needs significant external resources to maintain the direction of economic progress and balanced growth, as well as to convert its debts accumulated in previous years due to the lack of savings, which prevents it from leaving the group of developing countries. In order for Turkey to put its economy on a healthy course, so it could grow without a current account deficit, first of all, Turkey must satisfy the need for outsourcing through direct international investments aimed at creating factories, jobs, opening branches and subsidiaries, and acquiring real estate. Turkey needs international investment, and international capital never ignores this lucrative country.
«Discipline in monetary and fiscal policy»
In accordance with the purchasing power parity (PPP), Turkey, which was the 18th largest economy in the world in 2003, moved to the 13th position by the end of 2019 due to structural reforms and sound macroeconomic policies. Turkey, with an average annual growth rate of 5.3% in 2003–2019, was one of the fastest growing economies among the G20 and the Organization for Economic Cooperation and Development (OECD).
With a serious economic weight, Turkey surpassed its rivals in terms of direct investment, and Poland, Romania, the Czech Republic and Hungary in terms of economic growth. Turkey’s economy has grown 3 times compared to the end of 2002 and reached 761 billion dollars.
The consistency of monetary and fiscal policies also allows Turkey to take important steps to achieve fiscal balance while reducing external debt.
Due to its strong financial position, Turkey was able to survive the global financial crisis of 2008-2009 with minimal losses, and use the opportunities provided by fiscal policy as necessary. Turkey’s strong financial position has also given it a leading role on the global stage, which it has consolidated by means of a balanced fiscal policy during the Covid-19 pandemic.
STRATEGICALLY IMPORTANT LOCATION
«Turkey has direct access to the labor market of 990 million people»
The national income per capita increased against the overall growth of the Turkish economy. In 2002, it comprised 3.600 dollars, and by the end of 2019, it had increased to 9.213 dollars. As a result, a significant number of people began to belong to the middle and upper middle class. In 2002, 45 million of the 66 million population were in the lowincome group, while only 20 million were in the middle-and uppermiddle-income group. As the end of 2020, 64 million people out of 83.6 million of the population were in the middle-and upper-middleincome group.
Due to these changes, the purchasing power of households has increased significantly, which in turn continues to contribute to the growth of domestic demand in the country and the overall economic growth of Turkey. In addition, the current Agreement on the Customs Union with the EU and the Free Trade Agreement signed by 28 countries open the way to the market of producers of goods and services in Turkey, which comprises 990 million people.
«1.3 billion people have fast access to a strong economy»
Turkey’s strategic position stands out as one of the most important advantages it offers to international investors. The fact that 1.3 billion people in Europe, North Africa, the Gulf region, Russia and Central Asia can reach a territory with an economy worth 26 trillion dollars in a four-hour flight makes Turkey an important production and management base. Many transnational companies (Toyota, Ford, Nestle, Hugo Boss, BOSS, GE, etc.) place their production and/or management bases in Turkey for this reason.
YOUNG POPULATION AND SKILLED LABOR FORCE
«Europe’s youngest population»
Turkey’s demographic structure is an important factor both for economic growth and for attracting international investment. Turkey, which is the youngest country in Europe, has a population of 83.6 million with the average age of 32.7 years. The number of young adults potentially expected to join the workforce also continues to grow.
«890 thousand university graduates every year» The Turkish labor market is growing due to new young people of working age; the quality of the labor force is improving. Every year, 890 thousand students graduate from universities and 500 thousand from vocational schools. Due to this trained human resource capacity, international investors are able to easily connect with the competent engineers and managers they need.
CONTINUOUS REFORM PROCESS
«Process of bringing Turkey’s legislation into line with EU standards is successful»
Many measures have been successfully implemented in order to improve the investment climate in Turkey. In 2003, the law on Foreign direct investment and related regulations were adopted. The adoption of the Investment Promotion Regulation in 2006 and the launch of the Prime Minister’s Investment Support and Promotion Agency in 2007 have made a significant contribution to the process. In addition, the alignment of Turkish legislation with the European regulations has been strengthened by the new Turkish Trade Code adopted in 2012.
THE LIBERAL INVESTMENT CLIMATE
«Rapid business facilitation»
All the advantages offered by Turkey and the business-friendly investment environment that has been created in the country through reforms have increased Turkey’s attractiveness to international investors. Agreements on mutual promotion and protection of investments and agreements on the prevention of double taxation are also among the advantages offered by Turkey to international investors.
Reforms are also being implemented to make Turkey one of the top 20 countries in the World Bank’s Ease of Doing Business index. In this connection, a very important step was taken with the adoption of the law «On Amendments to Certain Laws in order to improve the Investment Environment», which entered into force in March 2018. The law, on the one hand, makes the creation of companies even easier, and on the other, contains important regulations related to business activities.
Due to the reforms, Turkey, which was ranked 60th in the ease of doing business index in 2017, rose up to 43rd position in 2019 and 33rd in 2020.
Turkey currently has bilateral investment protection agreements with 82 countries and double taxation prevention agreements with 86 countries.
The incentive system offered to investors by Turkey was specifically designed to reduce the dependence of the country’s strategic sectors on imported intermediate goods by supporting the manufacturing industry. Reduction of the current account deficit, expansion of investment support for underdeveloped regions, increase of support elements, encouragement of clustering and supporting investments that will allow for technological transformation are among the main goals of the new investment promotion system.
Operating since January 1, 2012, this system consists of three separate regimes, to each of which domestic and foreign investors have equal access.
The first mode is the implementation of general investment incentives. Regardless of the region in which investments are made, all projects that meet specific requirements for capacity and the minimum amount of investment in fixed assets are supported within the framework of the general scheme of investment incentives.
The second mode is the implementation of regional investment incentives, in which the regional sectors to be supported are determined in accordance with the potential of the region and the size of the local economic scale, while the intensity of the support provided varies depending on the level of development of the regions.
Domestic and international companies engaged in research and development (R&D) in Turkey also have various advantages in the field of R&D. To make use of these advantages, many international companies are opening research centers in Turkey, providing a significant number of jobs.
There are more than 200 research centers in Turkey, and about 210 of them belong to global companies such as Ford, Fiat, Daimler, AVL, Siemens, Samsung, Toyota, Bosch, Unilever, Renault and Cisco. Thus, the Ford research center in Turkey is the third largest center of the company in the world; the Fiat research center in Bursa is the only center of the company outside Italy on the European market; Samsung Electronics launched its research and development center at the Istanbul Technopark in 2015, as well as its innovation center in 2016.
R&D expenditures, which amounted to $ 4 billion in 2002, are now approaching $ 25 billion. The number of researchers during the same period increased from about 50 thousand to 240 thousand.