Surging FDI, Deregulation Boosting Turkish Economy

Turkey is showing a strong resolve to attract foreign direct investment to improve its economy, securing net foreign investment last year of 18.2 billion dollars. The figure is eight times that of Korea (2.2 billion dollars).

Under this aggressive effort to induce foreign investment and expand exports, Turkey’s GDP grew to 729.4 billion dollars last year from 303.3 billion dollars in 2003, narrowing the gap with Korea (947 billion dollars) to two notches in the world GDP rankings. Korea’s economy ranks 15th and Turkey’s 17th.

○ Attracting big foreign investment

The Turkish economy began growing in 2003, when the Justice and Development Party took power. Under the party platform of right-leaning economic and Islamic social policies, Prime Minister Recep Tayyip Erdoğan has pursued a campaign of market opening to transform his economy’s growth engine from domestic consumption to exports.

First, Erdoğan revamped taxation to attract foreign companies. He unified a tax system for both domestic and foreign companies, reduced corporate taxes from 38 percent to 20 percent in 2003, and made further cuts of two to 10 percentage this month according to region.

The Investment and Promotion Agency of Turkey was set up under the prime minister in 2006. Comprising 30 international experts, it helps foreign companies select factory sites and builds housing for their workers.

The agency’s investment team leader for the Asia-Pacific region, who also worked for the Jeju Free International City Development Center in Korea, said, “Foreign investors in Korea need to ask for help from each provincial government. In Turkey, however, our agency provides foreign investors with one-stop service.”

The International Bank for Reconstruction and Development said in a recent report that a foreign company needs an average of just six days to set up in Turkey, lower than the average of 13 for a member country of the Organization for Economic Cooperation and Development.

○ Expansion of exports

Making the most of its location as a gateway between Europe and Asia, the Turkish government is putting efforts into exporting goods produced using foreign investment. The country’s main export items include construction, building materials, shipbuilding and agricultural products. Trade with Eastern Europe and Central Asia has surged and Turkey is poised to enter Africa.

Export volume soared to 107.2 billion dollars in 2007 from 47.3 billion dollars in 2003. While Korea’s annual GDP growth remained at four to five percent from 2004 to 2006, Turkey achieved seven to nine percent, increasing its economy 2.4 fold over the past five years.

Under the auspices of the government, the Confederation of Businessmen and Industrialists of Turkey has held a world trade exhibition two to three times a year since 2006. About 5,000 businessmen from around the world visit the exhibition and have concluded export contracts worth 10 billion dollars.

The confederation incorporated exhibitions for Europe and Africa to hold an integrated exhibition at Expo Center in Istanbul Wednesday through Friday last week. The event drew 2,300 foreign and 3,200 domestic entrepreneurs.

At the opening ceremony, Prime Minister Erdoğan said, “With 61 percent of its population aged 34 years or younger, Turkey has a qualified workforce of 24 million,” adding, “Based on this, we will further expand exports to lift our country out of the global economic crisis faster than any other country.”

ceric@donga.com