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Foreign D irec t I nvestments2011

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F O R E I G ND I R E C TI N V E S T M E N T SI N T U R K E Y

F O R E I G ND I R E C TI N V E S T M E N T SI N T U R K E Y

UNDERSECRETARIAT OF TREASURYGENERAL DIRECTORATE OF FOREIGN INVESTMENT

PRIME MINISTRYUNDERSECRETARIAT OF TREASURY

REPUBLIC OF TURKEY

FOREIGN DIRECTINVESTMENTS IN TURKEY

2010

May 2011GENERAL DIRECTORATE OF FOREIGN INVESTMENT

Foreign D irec t I nvestments 2011

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CONTENTS

A. FOREIGN DIRECT INVESTMENT INDICATORS ......................................... 1. 2010 OVERVIEW .............................................................................................. 1.1. World Foreign Direct Investment Flows ................................................. 1.2. Foreign Direct Investment Inflows to Turkey ........................................ 1.3 Companies with Foreign Capital in Turkey ............................................. 1.4. Investment Projects of Companies with Foreign Capital in Turkey ... 2. INVESTOR COUNTRIES IN TURKEY ........................................................

B. ACTIVITIES TO PROMOTE FOREIGN DIRECT INVESTMENTS .......

1. IMPROVING INVESTMENT ENVIRONMENT ........................................ 1.1. Efforts Around the Globe to Improve Investment Environment ..... 1.2. Measures Taken to Tackle with Recession of FDI ............................... 1.3 Activities of the Coordination Council for the Improvement of

Investment Environment (YOIKK) in 2010 .......................................... 1.4. Ranking of Turkey in Investment Indices: Six Years Perspective ....... 1.5. 6th Meeting of the Investment Advisory Council (IAC) for Turkey .2. BILATERAL INVESTMENT TREATIES ......................................................

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TABLES

Table 1 : FDI Inward Stock, Top 10 Host Economies and Turkey (2009) ..................Table 2 : Global FDI Inflows, Top 10 Host Economies and Turkey 2007-2009 ........Table 3 : FDI Inflows by Components (1995-2010) ........................................................Table 4 : Top Five Cross-Border M&A Transactions in 2010 ........................................Table 5 : FDI Inflows by Sector, 2010 ...............................................................................Table 6 : Sectoral Distribution of FDI Inflows, 2002-2010 ...........................................Table 7 : FDI Inflows by Home Country 2009-2010 .....................................................Table 8 : Privatization and FDI ...........................................................................................Table 9 : Number of Companies with Foreign Capital by Year According to Their Mode of Establishment ........................................................................................Table 10 : Breakdown of Companies with Foreign Capital by Mode of Establishment (2009-2010 Monthly) ..................................................................Table 11 : Sectoral Breakdown of Companies with Foreign Capital ...............................Table 12 : Breakdown of Companies with Foreign Capital by Country of Origin .......Table 13 : Breakdown of Companies with Foreign Capital by Amount of Equity Capital (2006-2010) ...............................................................................................Table 14 : Breakdown of Companies with Foreign Capital by Sector and Amount of Equity Capital (2009-2010) ...................................................................................Table 15 : Breakdown of Companies with Foreign Capital by Country of Origin and Amount of Equity Capital (2009 - 2010) ...........................................................Table 16 : Breakdown of Companies with Foreign Capital by Province of Establishment .........................................................................................................Table 17 : Breakdown of Companies with Foreign Capital by Sector and Province of Establishment (1954-2010) .............................................................................Table 18 : Investment Projects of Companies with Foreign Capital ...............................Table 19 : Sectoral Distribution of the Investment Projects of Companies with Foreign Capital in 2010 .........................................................................................Table 20 : Sectoral Distribution of the Investment Projects of Companies with Foreign Capital 2006-2010 ...................................................................................

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Table 21 : Distribution of Investment Projects of Companies with Foreign Capital by Provinces 2006-2010 .......................................................................................Table 22 : Distribution of Investment Projects of Companies with Foreign Capital by Provinces 2006-2010 ........................................................................................Table 23 : Distribution of Investment Projects by Schemes of State Aids Category in 2010 ....................................................................................................................Table 24 : Projects with Investment Amount Over USD 30 million in 2010 ................Table 25 : FDI in Turkey in 2010 ..........................................................................................Table 26 : FDI in Turkey, 2002-2010 ....................................................................................Table 27 : FDI and Number of Companies for Countries in Top 10 .............................Table 28 : Investor Country Index and Breakdown of FDI in 2010 According to Home Country .......................................................................................................Table 29 : Number of Regulations Enacted Regarding FDI between 1992-2009 .........Table 30 : Ranking of Turkey in Investment Indices: Six Years Perspective ..................Table 31 : International Institutions and Transnational Corporations Attended in the Sixth Meeting of Investment Advisory Council of Turkey ............................Table 32 : Bilateral Investment Treaties of Turkey .............................................................Table 33 : Bilateral Investment Treaties Signed by Turkey (in the Process of Ratification) .............................................................................................................

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MAPS

Map 1 : Breakdown of Companies with Foreign Capital by Province of Establishment (2010) ............................................................................................Map 2 : Breakdown of Companies with Foreign Capital by Province of Establishment (1954-2010) ....................................................................................Map 3-9: Regional Distribution of Companies with Foreign Capital by SectorsMap 3 : Marmara Region ......................................................................................................Map 4 : Aegean Region .........................................................................................................Map 5 : Mediterranean Region ............................................................................................Map 6 : Black Sea Region .....................................................................................................Map 7 : Central Anatolia Region .........................................................................................Map 8 : Eastern Anatolia Region ........................................................................................Map 9 : South Eastern Anatolia Region .............................................................................Map 10 : The Distribution of Investment Projects by Province (2006-2010) ...............Map 11 : The Distribution of Investment Amount of Investment Projects by Province (2006-2010) .............................................................................................Map 12 : Regions in the Scheme of State Aids for Investments Provinces (2006-2010) ..............................................................................................................Map 13 : Geographical Distribution of Investment Projects in 2010 by Category of State Aid for Investment Schemes .......................................................................Map 14 : Geographical Distribution of Investment Projects in 2010 by Category of State Aid for Investment Schemes .......................................................................Map 15 : The Distribution of Turkey’s Bilateral Investment Treaties by Countries .....

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CHARTS

Chart 1 : FDI Inflows, by Groups of Economies ............................................................Chart 2 : FDI Outflows, by Groups of Economies ........................................................Chart 3 : FDI Inflows in Turkey Between 1995 and 2010 ..............................................Chart 4 : Sectoral Distribution of FDI Inflow 2010 ......................................................Chart 5 : Breakdown of Companies with Foreign Capital by Mode of Establishment (2006-2010) ..................................................................................Chart 6 : Breakdown of Companies with Foreign Capital by Sector According to Mode of Entry (2008-2010) ...............................................................................Chart 7 : Distribution of the Number of the Projects in 2010 by Regions .................Chart 8 : Distribution of the Investment Amount of the Projects in 2010 by Regions ...................................................................................................................Chart 9 : Distribution of Manufacturing Sector Investments Benefited from the Regional and Sectoral Scheme in 2010 ..............................................................Chart 10 : Number of Companies Established in Turkey by the Austria Based Investors and FDI Inflows from the Austria to Turkey ..................................Chart 11 : Number of Companies Established in Turkey by France Based Investors and FDI Inflows from France to Turkey ..........................................................Chart 12 : Number of Companies Established in Turkey by Germany Based Investors and FDI Inflows from Germany to Turkey .....................................Chart 13 : Number of Companies Established in Turkey by the Netherlands Based Investors and FDI Inflow from the Netherlands to Turkey ...........................Chart 14 : Number of Companies Established in Turkey by Greece Based Investors and FDI Inflow from Greece to Turkey ...........................................................Chart 15 : Number of Companies Established in Turkey by Japan Based Investors and FDI Inflow from Japan to Turkey ...............................................................Chart 16 : Number of Companies Established in Turkey by the USA Based Investors and FDI Inflow from the USA to Turkey ........................................Chart 17 : Number of Companies Established in Turkey by Luxembourg Based Investors and FDI Inflow from Luxembourg to Turkey ...............................

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Chart 18: Number of Companies Established in Turkey by the UK Based Investors and FDI Inflow from the UK to Turkey ............................................................Chart 19: Number of Companies Established in Turkey by Spain Based Investors and FDI Inflow from Spain to Turkey ................................................................Chart 20: The Number of Investment Climate Projects Supported by FIAS ...............Chart 21: The Number of Investment Climate Reforms ..................................................Chart 22: Top Five Investment Climate Obstacles .............................................................Chart 23: Growth Rates with respect to Micro Companies ..............................................

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BOXES

Box 1: Investor Country Index ..............................................................................................Box 2: Investment Climate Assessment (ICA) 2009 Report .............................................

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A. FOREIGN DIRECT INVESTMENT INDICATORS

1. 2010 OVERVIEW

1.1. World Foreign Direct Investment Flows

Foreign Direct Investment (FDI) flows have been among the economic indicators that are negatively affected by the latest global financial crisis. Nonetheless, the negative effects of financial crisis on FDI flows, which were actually felt in 2009, are considered to decrease in 2010. Such evaluations are made on the base of the processes that are mostly completed. Final and definite data about FDI inflows in 2010 by sector and home countries will be in the new version of World Investment Report, which is expected to be published in the second half of 2011 by the United Nations Conference on Trade and Development (UNCTAD).

According to UNCTAD estimates1 in January 2011; global FDI inflows amount to USD 1,122 billion in 2010 reflecting an increase by 1% compared to 2009. A rise by 10% in developing countries and a decrease by 7% in developed countries are expected in global FDI inflows in 2010 with respect to the previous year. Institute of International Finance (IIF)2 estimates that FDI inflows to developing economies in 2011 will increase by 12%. Also an increase by 36% in FDI inflows is expected in developing countries of Europe, where Turkey is also included.

According to UNCTAD’s World Investment Prospect Survey (2010-2012)3; 43% of large Multi-national enterprises (MNEs) anticipate that FDI flows will be larger in 2010. This ratio rises to 58% for 2011 and 2012. The results of the survey indicate that China, India, Brazil, USA and Russia are expected to be the leaders of FDI inflows between 2010 and 2012. Considering the regions, East and South Asia is expected to be the most attractive region in terms of FDI inflows while this region is expected to be followed by the EU-15 region.

1 Global Investment Trends Monitor, January 2011, UNCTAD. 2 IIF, Capital flows to emerging market economies, January 2011.3 World Investment Prospects Survey 2010-2012, September 2010, UNCTAD.


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According to the United Nations Conference on Trade and Development (UNCTAD)4, the decrease of global FDI flows in the latter half of 2009 was followed by a modest recovery in the first half of 2010 and a cautious optimism in the short term was observed about FDI expectations. Global FDI inflows, which had experienced a downturn by 16% in 2008 with respect to the previous year, decreased by 37% in 2009 and amounted to USD 1,114 billion.

In the long term, global FDI inflows seem to pick up according to the expectations that are stated in World Investment Report. Global FDI inflows are expected to increase to USD 1.2 trillion in 2010, rise to 1.3 – 1.5 trillion in 2011 and 1.6 – 2 trillion in 2012. Nevertheless, there are risks and uncertainties about FDI projections due to the fragilities that might occur during the global economic recovery.

FDI flows to developed countries decreased by 44% to USD 566 billion and FDI flows to developing countries decreased by 24% to USD 478 billion in 2009 (Chart 1).

4 World Investment Report (WIR) 2010, UNCTAD.


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Source: WIR, 2010

USA was the top recipient country with an FDI inflow of USD 129.9 billion. USA was followed by China (USD 95 billion), France (USD 59.6 billion), Hong-Kong (USD 48.4 billion), and the UK (USD 45.7 billion).

Turkey with an FDI inflow of USD 7.6 billion in 2009 dropping back twelve notches on the list of top recipients of FDI globally, was ranked the 32nd in the world and the 15th among developing countries5 (Table 2).

FDI outflows from developed countries declined by 48% with respect to the previous year (2008) and regressed to the level of USD 821 billion in 2009 and FDI outflows from developing countries amounted to USD 229 billion. Share of developing economies and transition economies reached to 25% of global FDI outflows (Chart 2).

USA maintained its position as the largest outward investor in 2009 with an FDI outflow of USD 248.1 billion. Developing countries like Hong Kong (China), China and Russian Federation were among the significant investor countries in the

5 FDI inflows in Turkey reached to USD 8.4 billion by the revises of the Central Bank of the Republic of Turkey (CBRT) afterwards.


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world, ranking in the top 10. Turkey with an FDI outflow of USD 1.6 billion ranked the 45th in the world.

Source: WIR, 2010

By the end of 2009, the total FDI stock value in the world reached USD 17.7 trillion. USA (USD 3.1 trillion), France (USD 1.1 trillion) and the UK (USD 1.1 trillion) were the leading three economies with the highest amount of FDI stock (Table 1).


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Table 1: FDI Inward Stock, Top 10 Host Economies and Turkey (2009)

Rank Country FDI Stock(USD Billion)

1 USA 3,120.62 France 1,133.03 United Kingdom 1,125.14 Hong Kong, China 912.25 Belgium 830.16 Germany 701.67 Spain 670.68 The Netherlands 596.79 Canada 524.9

10 China 473.139 Turkey6 77.7

6Source: WIR, 2010

30% of the total FDI stock in the world was in developing countries. Hong Kong, China, Brazil, Singapore, Mexico and Russia were the top five developing countries with respect to stock value. Turkey was the 39th in the world with an FDI stock value of USD 77.7 billion moving it up a notch on the list of top countries in terms of FDI stock compared to 2008 (Table 1).

Sectoral Overview

Exact data about the FDI flows in 2010 will be publicized in the second half of 2011, hence; the most recent data for FDI flows by sectors belong to 2009. Primary, manufacturing and services sector all experienced decline in FDI. Observing their relative weights in FDI, share of primary and services sectors increased while manufacturing decreased. Sectors such as pharmaceuticals and food processing were initially more resilient to the crisis however they, too, were affected negatively in 2009. Nonetheless; electricity, gas and water distribution, electronic equipments, construction and telecommunications attracted more FDI in 2009 than in 2008. Manufacturing was the worst affected sector from the crisis with a contraction of 77% in cross-border M&As with respect to the previous year. Primary sectors experienced a decline by

6 Data on foreign direct investment in Turkey are obtained through an annual survey conduct-ed with the FDI enterprises in Turkey, which are selected on the basis of certain criteria. Both book values and market values of the FDI enterprises are reported in the survey. In order to determine market values of the FDI enterprises that are quoted at the Istanbul Stock Exchange (ISE) , market values announced by the ISE are used. As for the other enterprises, book values are multiplied with market value/book value ratios announced by the ISE for the related sectors.


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47% and services sectors experienced a decline by 57% and both were less affected from global crisis than manufacturing. Financial intermediation, a sub-sector of the services sectors, suffered a contraction by 87% in terms of M&A transaction values compared to the previous year.

Mergers and Acquisitions (M&As)

Decreasing trend of cross border M&A activities continued in 2009 and 2010, by the negative impact of the global financial crisis. However, this trend is expected to upturn in 20117.

Decline in FDI flows in 2009 was mainly resulted from the sinking profits of the foreign affiliates of transnational corporations (TNCs) and the contraction in cross border M&A transactions.

The value of cross-border M&As fell to USD 250 billion in 2009, with a decline of 65% compared to the previous year. According to UNCTAD’s World Investment Report, the value of M&A transactions decreased to USD 2.8 billion in 2009, while it had been USD 13.2 billion in 2008. The data in UNCTAD’s World Investment Report shows that the value of cross-border M&As by private equity funds contracted by 65% in 2009 with respect to 2008 and declined to USD 106 billion.

According to Zephyr Annual M&A Report 20108 published by Bureau Van Dijk (BvD), a research company that analyses global cross border M&A activities, the negative impact of the financial crisis, which began in 2008, on M&A activities continued in 2010. As compared to previous year (USD 3.7 trillion), deal volume of global M&A activity in 2010 decreased by 19.2% to USD 3 trillion. The number of M&A transactions in 2010 was 56,414, up 19.3% from 2009.

7 World Investment Report (WIR) 2010, UNCTAD8 Zephyr Annual M&A Report 2010, BvD. Bureau van Dijk (BvD)


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Table 2: Global FDI Inflows, Top 10 Host Economies and Turkey 2007-2009 (USD Billion)

2007Rank Country FDI

1 USA 266.02 UK 186.43 Belgium 118.44 The

Netherlands 115.45 Canada 108.46 France 96.27 China 83.58 Germany 76.59 Hungary 71.5

10 Spain 64.328 Turkey 22.0

World Total 2,100.0

2008Rank Country FDI

1 USA 324.62 Belgium 110.03 China 108.34 UK 91.55 Russia 75.56 Spain 73.37 France 62.38 Hungary 62.09 Hong Kong 59.6

10 Canada 55.320 Turkey 18.1

World Total 1,770.9

2009

Rank Country FDI1 USA 129.92 China 95.03 France 59.64 Hong Kong 48.45 UK 45.76 Russia 38.77 Germany 35.68 S. Arabia 35.59 India 34.6

10 Belgium 33.832 Turkey 7.6

World Total 1,114.2

Source: World Investment Report 2010, UNCTAD


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1.2. Foreign Direct Investment Inflows to Turkey

1.2.1. Components of Foreign Direct Investment Inflows9

The FDI inflow to Turkey reached to USD 9.1 billion in 2010 from USD 8.4 billion in 2009.

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Chart 3: FDI Inflows in Turkey Between 1995 and 2010

Source: CBRT

9 According to Foreign Direct Investment Law No 4875; foreign direct investment inflow is defined as the net amount of cross-border transfers by companies based in Turkey which are classified as equity capital or other capital in Central Bank of The Republic of Turkey’s balance of payment statistics and transfers for acquisitions of real estate by foreigners.


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Table 3: FDI Inflows by Components (1995-2010) (USD Million)10

1995-2002

2003 2004 2005 2006 2007 2008 2009 2010(Cumulative)

Cumulative FDI (net) 9,551 1,702 2,785 10,031 20,185 22,047 19,504 8,411 9,071

FDI 9,551 704 1,442 8,190 17,263 19,121 16,567 6,629 6,577

Capital (Net) 9,035 556 888 8,053 16,876 18,100 14,313 5,382 5,901

Inflow 10,118 564 986 8,454 17,533 18,843 14,348 5,464 5,936

Outflow -1,083 -8 -98 -401 -657 -743 -35 -82 -35

Reinvested Earnings - 132 204 81 106 294 399 788 600a

Other Capitalb 516 16 350 56 281 727 1,855 459 76

Real Estate Purchases (Net) - 998 1,343 1,841 2,922 2,926 2,937 1,782 2,494

Source: CBRT a) Estimate b) Investment credits received by foreign-owned companies from the foreign partner

Out of USD 9.1 billion of the FDI inflows received in 2010, USD 6.6 billion was from the equity component and USD 2.5 billion was from real estate purchases (Table 3).

The largest FDI inflow in 2010 was USD 1.4 billion paid by OMV (Austria-based power utility) for the acquisition of 54.17% stake of Petrol Ofisi. The acquisition of shares of Fiba Insurance and Inform were other large FDI inflows (Table 4).

In 2010, the share of the total value of the M&A transactions recorded as FDI in the balance of payments statistics among total FDI was about 35.8%. In Turkey, electricity, gas and water supply sector had the largest share (59.5%) within the cross-border M&A transactions recorded as FDI in 2010.

10 2010 data, released in 2011 Balance of Payments Report published by Central Bank of the Republic of Turkey in April 2011, were used in this report. Balance of Payments statistics concerning previous years which are published by the Central Bank of the Republic of Turkey are revised retrospectively as required.


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Table 4: Top Five Cross-Border M&A Transactions in 201011

Acquired Company Acquiring Company

Home Country of the Acquiring Company

Ratio of Shares Taken Over (%)

Foreign Direct Investment(USD Million)

Petrol Ofisi (POAŞ) OMV Austria 54.17 1,352

Fiba Sigorta Sompo Japan Insurance (NKSJ) Japan 93.4 338

İnform Legrand S.A. France 100.0 148.8

Memorial Sağlık Grubu

ARGUS Capital Partners – Qatar First Investment Bank

U.K.-Qatar 40.0 100

Ströer Kentvizyon Ströer Group Germany 40.0 70.2

Source: Undersecretariat of Treasury, CBRT

1.2.2. Foreign Direct Investments by Sector

In 2010, electricity, gas and water supply (energy), financial intermediation and manufacturing were the top three sectors in Turkey in terms of FDI inflows. 56.5% of the FDI inflow occured in the electricity, gas and water supply (31.6%) and financial intermediation (24.9%) sectors (Table 5).

The FDI inflows to energy sector in Turkey were USD 2.1 billion in 2010. Energy sector has been the top sector for the last two years in terms of FDI inflows. This performance, in turn, was due to the large M&A deals in the sector. Thus, the energy sector had the primary share in FDI inflows thanks to the acquisition of 54.17% of shares of Petrol Ofisi by OMV, the acquisition of shares of five hydropower plants which are in Aralık, Hamzalı and Reşadiye Cascade, by Energo-Pro and the acquisition of 5.0% of shares of Yeşil Enerji by Statkraft.

Number of companies with foreign capital operating in energy sector climbed from 97 in 2005 to 126 in 2010 parallel to the increasing demand of energy in Turkey. As of 2010, within 126 companies in total, registered capital values of 33 companies were greater than USD 500,000.

11 According to the equity FDI inflows in 2010.


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Table 5: FDI Inflows by Sector12, 2010 (USD Milion)

Rank Sector Capital (%)1 Electricity,Gas and Water Supply 2,063 31.62 Financial Intermediation 1,630 24.93 Manufacturing 867 13.34 Wholesale and Retail Trade 389 6.05 Construction 372 5.76 Real Estate, Renting and Business Activities 368 5.67 Transport, Storage and Communication 210 3.28 Mining and Quarrying 196 3.09 Health and Social Work 114 1.7

10 Other Community, Social and Personal Service Activities 114 1.7Other 213 3.3

Total 6,536 100.0

Source: CBRT

FDI inflows in financial intermediation sector amounted to USD 1.6 billion in 2010. Although this amount is less than the average of the last six years, financial intermediation was the second sector after energy sector in Turkey in 2010.Total FDI inflows of the sector for the last six years amounted to USD 31 billion, which represents 42.6% of the total FDI inflows in Turkey. FDI inflows in financial intermediation sector reached high levels, due to the recent large scaled cross border M&A deals in banking sector.

Acquisition of 93.4% of Fiba Sigorta (Insurance) with an amount of USD 338 million by Sompo Japan Insurance (NKSJ) and acquisition of 9% of Turkland Bank by Hariri Group (BankMed) took place in this sector.

As of the end of 2010, 299 companies with foreign capital operate in financial intermediation sector.

12 Net amount of transfers of the companies and branch offices with foreign capital and domestic companies with the participation of foreign capital. Other capital, that is investment credits received by foreign-owned companies from foreign partners and transfers for acquisition of real estate by foreigners are excluded.


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Although large scaled M&A deals did not take place in manufacturing sector, due to capital transfers by many companies, the existing trend of FDI in the sector was maintained and FDI inflows amounted to USD 867 million in 2010.

In manufacturing sector, as of the end of 2010, 4,369 companies with foreign capital were in operation in Turkey. This figure refers to 17% of total number of companies with foreign capital. Chemical products with 484 companies, food products, beverages and tobacco with 468 companies and textiles with 440 companies were the top three sub sectors of manufacturing.

Financial

Intermediation25%

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Other19%

Construction6%

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Chart 4: Sectoral Distribution of FDI Inflow 2010

Source: CBRT


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Table 6: Sectoral Distribution of FDI Inflows, 2002-2010 (USD Million)

Sectors 2002 2003 2004 2005 2006 2007 2008 2009 2010

Financial Intermediation 246 51 69 4,018 6,957 11,662 6,069 666 1,630

Transport, Storage and Communication 1 1 639 3,285 6,696 1,117 170 391 210

Electricity, Gas and Water Supply 68 86 66 4 112 568 1,068 2,126 2,063

Wholesale and Retail Trade 75 58 72 68 1,166 165 2,085 389 389

Manufacture of food products, beverages and tobacco 14 249 78 68 608 766 1,252 196 149

Manufacture of chemicals and chemical products 8 9 38 174 601 1,109 200 336 102

Manufacture of basic metals and fabricated metal products 18 1 6 139 158 515 1,243 31 160

Real Estate, Renting and Business Activities 0 3 3 29 99 560 641 560 368

Other 141 238 219 750 1,242 2,675 2,019 1,557 1,465

Total 571 696 1,190 8,535 17,639 19,137 14,747 6,252 6,536

Source: CBRT

1.2.3. FDI Inflows13 by Home Country

FDI inflows from the EU countries amounted to USD 4.9 billion, which were 75.1% of the total inflows in 2010. The first three origin countries for 2010 FDI inflows were Austria with 27.5%, France with 9.2% and Germany with 9.1% (Table 7). Austria, which was the top investor country in Turkey with USD 1 billion in 2009, maintained its position by increasing capital flows to Turkey by 76.4%.

13 Net amount of transfers of the companies and branch offices with foreign capital and do-mestic companies with the participation of foreign capital. Other capital, that is investment credits received by foreign-owned companies from foreign partners and transfers for acquisition of real estate by foreigners are excluded.


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Table 7: FDI Inflows by Home Country 2009-2010 (USD Million)

2009

Rank Country Capital Inflow (%)

1 Austria 1,019 16.3

2 The Netherlands 718 11.5

3 France 617 9.94 Germany 498 8.05 Luxembourg 493 7.9

6 Czech Republic 465 7.4

7 UK 350 5.68 Italy 314 5.09 USA 260 4.2

10 Belgium 201 3.2Other 1,317 21.1Total 6,252 100.0

2010

Rank Country Capital Inflow (%)

1 Austria 1,798 27.52 France 600 9.23 Germany 598 9.14 The Netherlands 498 7.65 Greece 425 6.56 Japan 347 5.37 USA 320 4.98 Luxembourg 280 4.39 UK 240 3.7

10 Spain 190 2.9Other 1,240 19.0Total 6,536 100.0

Source: CBRT Source: CBRT

The first four home countries for 2009 and 2010 FDI inflows in Turkey have not changed. This situation indicates that trends of FDI inflows from Austria, France, Germany and the Netherlands remained stable.

1.2.4. FDI in Privatization In 2010, there were not any capital transfers of FDI due to privatization activities recorded in the balance of payments. Total privatization amount and FDI inflows through privatization between 2000 and 2010 are shown in Table 8.


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Table 8: Privatization and FDI (USD Million)

Year a Privatization Amount

FDI Inflows Through

Privatization2000 3,302 5852001 2,489 2,3692002 536 -2003 187 -2004 1,283 492005 8,222 1,5002006 8,096 1,7682007 4,259 -2008 6,297 6112009 2,275 2322010 3,085 -

Total 40,031 7,114Source: Privatization Administration, CBRT a) Including GSM operator’s license fees in 2000 and 2001

1.2.5. Cross-border M&A Activities and FDI14

Deal volumes and number of deals in both domestic and international reports about M&As may differ from each other, because of the dissimilarities in modes of data gathering and analysis methods. Also estimates for undisclosed deals may be different from each other.

In 2010, which was a year of efforts for recovery from the global economic crisis, some developing countries including Turkey showed a better performance in dealing with the negative effects of the crisis while developed economies such as USA, Japan and Eurozone countries like Greece, Spain, Italy and Portugal are still vulnerable.

14 Source: Deloitte Annual Turkish M&A Review 2010, January 2011 Birleşme ve Satın Alma İşlemleri 2010 Raporu, Ernst & Young, January 2011


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Foreign investors’ contribution in M&A deals remained unchanged in 2010. According to Deloitte’s report, USD 10.5 billion of the total M&A deals of USD 29 billion comprised the transactions by the foreign investors. Ernst&Young’s report, on the other hand indicates that the share of the foreign investors’ transactions in total worth of the M&A deals was about 38% with USD 9.9 billion.


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1.3 Companies with Foreign Capital in Turkey15

As of the end of 2010, there are 25,948 companies with foreign capital were in Turkey. 21,133 of these were companies and branch offices with foreign capital; and 4,815 were participation of foreign partners to domestic companies (Table 9).

Table 9: Number of Companies with Foreign Capital by Year According to Their Mode of Establishment

Year Company Establishment Participation Branch

Office Total 1954-2005 (Cumulative ) 8,080 1,870 323 10,273

2006 2,266 596 58 2,920

2007 2,624 616 64 3,304

2008 2,483 624 64 3,171

2009 2,302 566 68 2,936

2010 2,724 543 77 3,344

Total 20,479 4,815 654 25,948

Provisional Data, Source: Undersecretariat of Treasury

While the number of companies with foreign capital decreased by 4% in 2008 and by 7% in 2009, 13% increase was seen in 2010.

As of the end of 2010, of the total of 25,948 companies with foreign capital operating in Turkey, 77% are limited companies, 20.8% are joint-stock companies and 2.2% are branch offices, commandite companies, collective companies, ordinary companies, business associations and ordinary commandites.

15 Number of companies with foreign capital is subject to change continuously due to updates on liquidations or exit of foreign partner. Revisions are made periodically.


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Chart 5: Breakdown of Companies with Foreign Capital by Mode of Establishment

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Between 2006 and 2010, the ratio of the number of company establishments and branch offices within the total companies with foreign capital was approximately 81%.

Chart 6: Breakdown of Companies with Foreign Capital by Sector According to Mode of Entry

2008-2010

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n

Com

pany

Esta

blis

hmen

t

Part

icip

atio

n

Com

pany

Esta

blis

hmen

t

Part

icip

atio

n

Com

pany

Esta

blis

hmen

t

Part

icip

atio

n

Othercommunity,social and

personal service

Real estate,renting andbusinessactivities

Manufacturing Construction Hotels andrestaurants

Wholesale andRetail Trade

Transport,Storage and

Communications

Ade

t

2008 2009 2010



19

It is observed that the majority of the companies with foreign capital in Turkey, operate in the retail and wholesale trade sector, which is followed by the manufacturing, and real estate, renting and business activities sectors.

In 2009, the number of companies with foreign capital and branches established was 2,370 and there were 566 participations to existing domestic companies. In 2010, 2,801 companies and branches with foreign capital were established in Turkey and there were 543 participations to existing domestic companies (Table 10). In 2010, while the number of companies with foreign capital and branches increased by 18.2%, the number of participations to existing domestic companies decreased by 4.1%, compared to the previous year.

Table 10: Breakdown of Companies with Foreign Capital by Mode of Establishment (2009-2010 Monthly)

2008 2009

% ChangeCompany

Establishment Participation Branch Office Total Company

Establishment Participation Branch Office Total

January 179 44 8 231 201 48 6 255 10.4February 170 45 3 218 197 46 7 250 14.7March 185 57 2 244 248 42 9 299 22.5April 163 44 2 209 218 43 6 267 27.8May 177 47 7 231 252 49 5 306 32.5June 230 52 9 291 213 56 5 274 -5.8July 203 44 6 253 217 43 5 265 4.7August 208 48 4 260 207 56 12 275 5.8September 179 42 4 225 206 38 6 250 11.1October 207 50 2 259 264 42 5 311 20.1November 198 33 12 243 231 36 4 271 11.5December 203 60 9 272 270 44 7 321 18.0Total 2,302 566 68 2,936 2,724 543 77 3,344 13.9


1.3.1. Sectoral Breakdown of Companies with Foreign Capital

As of the end of 2010, of the total 25,948 companies with foreign capital, 7,847 have been operating in the wholesale and retail trade business, while 4,369 in the manufacturing sector and 4,144 in the real estate leasing business. Among the companies with foreign capital operating in the manufacturing sector, chemicals and chemical products sector takes the lead, followed by the textiles, food products, beverages and tobacco manufacturing sectors (Table 11).


20

Table 11: Sectoral Breakdown of Companies with Foreign Capital

Sectors1954-2005

2006 2007 2008 2009 2010

1954-2010

(Cumulative) Total

Agriculture, hunting, fishing and forestry 156 39 46 52 55 63 411

Mining and quarrying 182 45 77 87 73 79 543

Manufacturing 2,237 412 463 454 388 415 4,369Manufacture of food products, beverages and tobacco 244 42 34 34 50 64 468

Manufacture of textiles 290 45 46 21 18 20 440Manufacture of chemicals and chemical products 254 40 54 45 39 52 484Manufacture of machinery and equipment n.e.c. 164 51 44 46 29 23 357Manufacture of motor vehicles, trailers and semi-trailers 157 15 19 23 18 7 239

Other Manufacturing 1,128 219 266 285 234 249 2,381

Electricity, gas and water supply 97 40 69 108 128 126 568

Construction 624 386 444 344 299 319 2,416

Wholesale and retail trade 3,579 717 757 760 913 1121 7,847

Hotels and restaurants 849 182 196 203 171 154 1,755Transport, storage and communications 867 256 270 282 264 344 2,283

Financial intermediation 138 46 42 42 17 14 299Real estate, renting and business activities 1,104 626 779 635 468 532 4,144Other community, social and personal service activities 440 171 161 204 160 177 1,313

Total 10,273 2,920 3,304 3,171 2,936 3344 25,948


The worldwide FDI inflows in manufacturing and services sector slumped in 2009. Nonetheless, while the share of manufacturing sector in total FDI inflows has decreased, that of the services sector has increased. The production of motor vehicles, trailers and semi-trailers, which was adversely affected from the global economic crisis in 2009, showed a recovery starting from 2010. The worldwide production of motor vehicles increased by 25.8% in 2010. Even those sectors that were initially deemed resilient to the crisis, such as chemicals, food, beverages and tobacco production, were adversely affected. However, it is observed that, the electricity, gas and water distribution, electronic equipments, construction and telecommunication sectors enjoyed higher FDIs in 2009 as compared to 2008.

The worldwide trend of FDI’s concentration on services sector is also observable in Turkey. The sectoral breakdown of the companies in operation between 2006 and 2010 indicates that the first three sectors in terms of the number of companies are


21

wholesale and retail trade, real estate leasing and business services and manufacturing. While, up until 2005, the manufacturing industry followed the wholesale and retail trade sector, it fell behind the real estate, renting and business activities in 2006. The decline, which started in 2009 due to the global crisis, in the number of companies with foreign capital operating in motor vehicles, trailers and semi-trailers production, continued in 2010 with a rate of 61.1%. In line with this trend FDI inflows in the same sector decreased by 82%. The number of companies with foreign capital in 2010 increased considerably in transport, storage and communications sector by 30.3%, in wholesale and retail trade sector by 22.8%, in agriculture, hunting, fishing and forestry sector by 14.5%, in real estate, renting and business activities sector by 13.7% and in manufacturing industry sector by 7%. However, there was a decrease by 17.6% in financial intermediation sector, by 9.9% in hotels and restaurants sector and by 1.6% in electricity, gas and water supply sector. Within manufacturing industry, in turn, the number of companies with foreign capital showed an increase in manufacture of chemicals and chemical products by 33.3% and by 28% in manufacture of food products, beverages and tobacco. On the other hand there was a decrease in the number of companies with foreign capital in manufacture of motor vehicles, trailers and semi-trailers by 61.1% and in manufacture of machinery and equipment by 20.7%.

1.3.2. Companies with Foreign Capital by Country of Origin

Looking at distribution of the total 25,948 companies with foreign capital by country of origin, EU countries obviously take the lead with 13,582 companies. Of these EU countries, the top three are Germany with 4,326 companies, the United Kingdom with 2,238 companies and the Netherlands with 1,872 companies (Table 12).

Of the total 3,344 companies established in 2010, 1,343 were from the EU, 942 were from Near and Middle Eastern countries and 513 were from other European countries (Table 12).


22

Table 12: Breakdown of Companies with Foreign Capital by Country of Origin

Countries1954-2005

2006 2007 2008 2009 20101954-2010

(Cumulative) Total

European Union 5,431 1,832 1,896 1,681 1,399 1,343 13,582 Germany 1,777 513 521 552 492 471 4,326 The Netherlands 806 249 243 259 147 168 1,872 United Kingdom 789 435 413 237 202 162 2,238 Other European Countries 371 90 78 101 89 96 825

Other European Countries (Excluding EU) 1,242 335 437 504 417 513 3,448

African Countries 188 39 46 47 68 96 484North America 573 126 146 133 146 136 1,260

U.S.A. 520 107 117 114 115 106 1,079 Canada 53 19 29 19 31 30 181

Central-South America And Caribbean 63 12 18 12 17 14 136Near And Middle Eastern Countries 1,965 377 474 533 632 942 4,923

Azerbaijan 220 80 116 127 163 170 876 Iraq 295 62 99 83 107 108 754 Iran 637 98 96 133 173 421 1,558 Other 813 137 163 190 189 243 1,735

Other Asian Countries 695 152 253 220 234 267 1,821 China 211 22 38 43 42 43 399 South Korea 84 12 21 13 21 19 170

Other 400 118 194 164 171 205 1,252Other Countries 116 47 34 41 23 33 294Total 10,273 2,920 3,304 3,171 2,936 3,344 25,948


1.3.3. Companies with Foreign Capital by the Size of Capital

An analysis of companies with foreign capital in terms of size of equity capital shows that ratio of companies with equity capital under USD 50,000 in the total had been decreasing steadily between 2006 and 2010.

On the other hand, the share of companies with an equity capital range between USD 50,000-200,000 is 32.8% in 2010 up from 26.4% in 2006.

The share of companies with a capital higher than USD 500,000 within the total showed an average rate of 8.7% increase between 2006 and 2010 (Table 13).


23

Table 13: Breakdown of Companies with Foreign Capital by Amount of Equity Capital (2006-2010)

2006 2007 2008 2009 2010

Capital Amount ($)

Number of Companies

Share in Total

(%)

Number of Companies

Share in Total

(%)

Number of Companies

Share in Total

(%)

Number of Companies

Share in Total

(%)

Number of Companies

Share in Total

(%)<50,000 1,712 58.6 1,846 55.9 1,617 51.0 1,516 51.6 1,688 50.5

50,000 – 200,000 772 26.4 895 27.1 911 28.7 961 32.7 1,096 32.8

200,000- 500,000 218 7.5 244 7.4 330 10.4 223 7.6 277 8.3

>500,000 218 7.5 319 9.7 313 9.9 236 8.0 283 8.5

Total 2,920 100.0 3,304 100.0 3,171 100.0 2,936 100.0 3,344 100.0


In 2010, 283 companies with an equity capital over USD 500,000, were established. Among these, 64 companies are in manufacturing sector, 57 in wholesale and retail sector, 33 in electricity, gas and water supply, 31 in construction and 26 in real estate, renting and business activities activities sector. Compared to the previous year, the number of companies with equity capital of this size showed an increase of 48.8% in the manufacturing sector, of 43.8% in the transport, storage and communications sector and of 50% in the electricity, gas and water supply sector in 2010 (Table 14).


24

Table 14: Breakdown of Companies with Foreign Capital by Sector and Amount of Equity Capital (2009-2010)

Sectors

2009 2010

Capital Amount ($)

<50,000 50,000 - 200,000

200,000 -

500,000 >500,000 Total <50,000 50,000 -

200,000

200,000 -

500,000 >500,000 Total

Agriculture, hunting, fishing and forestry 29 17 3 6 55 26 19 11 7 63

Mining and quarrying 35 25 7 6 73 41 21 4 13 79

Manufacturing 171 135 39 43 388 163 139 49 64 415

Manufacture of food products, beverages and tobacco 24 15 3 8 50 24 27 2 10 63

Manufacture of textiles 7 6 1 4 18 5 10 2 3 20Manufacture of chemicals and chemical products 19 13 3 4 39 16 16 7 13 52

Manufacture of machinery and equipment n.e.c. 10 11 3 5 29 12 6 2 5 25

Manufacture of motor vehicles, trailers- semi-trailers 9 5 3 1 18 3 1 2 1 7

Other Manufacturing 102 85 26 21 234 103 79 34 32 248

Electricity, gas and water supply 71 31 4 22 128 51 34 8 33 126

Construction 120 127 25 27 299 134 121 33 31 319

Wholesale and retail trade 466 312 81 54 913 557 420 87 57 1,121

Hotels and restaurants 83 56 14 18 171 86 47 11 10 154

Transport, storage and communications 137 90 21 16 264 170 121 30 23 344

Financial intermediation 9 1 3 4 17 7 2 1 4 14

Real estate, renting and business activities 294 127 18 29 468 344 131 31 26 532

Other community, social and personal service activities 101 40 8 11 160 109 41 12 15 177

Total 1,516 961 223 236 2,936 1,688 1,096 277 283 3,344


As of 2010, 144 of the total 283 companies, having registered equity capital over USD 500,000, are wholly or partıally owned by the EU-based investors (Table 15).


25

Table 15: Breakdown of Companies with Foreign Capital by Country of Origin and Amount of Equity Capital (2009 - 2010)

Countries

2009 2010

Capital Amount ($)

<50,000 50,000 - 200,000

200,000- 500,000 >500,000 Total <50,000 50,000 -

200,000 200,000- 500,000 >500,000 Total

European Union 781 412 85 121 1,399 738 368 93 144 1,343

Germany 271 158 32 31 492 269 128 32 42 471

The Netherlands 81 36 10 20 147 78 48 13 29 168

United Kingdom 111 57 15 19 202 84 54 10 14 162

Other European Countries 54 24 4 7 89 46 33 7 10 96Other European Countries (Excluding EU) 210 134 39 34 417 268 165 45 35 513

North Africa 17 16 4 3 40 27 31 5 4 67

Other African Countries 14 13 1 28 18 10 1 0 29

North America 92 30 14 10 146 83 29 7 17 136

U.S.A. 78 22 8 7 115 69 17 5 15 106

Canada 14 8 6 3 31 14 12 2 2 30Central-South America And Caribbean 10 5 0 2 17 10 2 2 0 14

Near And Middle Eastern Countries 277 259 51 45 632 398 390 99 55 942

Azerbeijan 64 65 22 12 163 72 74 18 6 170

Iraq 40 48 9 10 107 28 56 16 8 108

Iran 78 80 8 7 173 176 187 37 21 421

Other 95 66 12 16 189 122 73 28 20 243

Other Asian Countries 101 84 28 21 234 128 97 20 22 267

Other Countries 14 8 1 0 23 18 4 5 6 33

Total 1,516 961 223 236 2,936 1,688 1,096 277 283 3,344


1.3.4. Geographical Distribution of Companies with Foreign Capital

In the breakdown of 25,948 companies according to their city of establishment, Istanbul comes first with 14,568 companies. Other cities following Istanbul in ranking are Antalya with 3,233 companies, Ankara with 1,736 companies and Mugla with 1,548 companies (Table 16).


26

Table 16: Breakdown of Companies with Foreign Capital by Province of Establishment (Top Ten Provinces)

CityNumber of Companies(1954-2010)

(%)Number of Companies

(2010) (%)

Istanbul 14,568 56.1 1,997 59.7Antalya 3,233 12.5 376 11.2Ankara 1,736 6.7 198 5.9Mugla 1,548 6.0 207 6.2Izmir 1,379 5.3 91 2.7Bursa 527 2.0 57 1.7Aydın 464 1.8 55 1.6Mersin 437 1.7 47 1.4Kocaeli 309 1.2 35 1.0Adana 190 0.7 27 0.8Other Cities 1,557 6.0 254 7.6Total 25,948 100 3,344 100


In Istanbul, where 56.1% of the total number of companies with foreign capital are located, the sectors with the highest number of companies are wholesale and retail trade, manufacturing industry and real estate sectors (Table 17).


27

Map

1: B

reak

dow

n of

Com

pani

es w

ith F

orei

gn C

apita

l by

Pro

vinc

e of

Est

ablis

hmen

t (20

10)

Prov

ision

al D

ata,

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rce:

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t of T

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28

Map

2: B

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dow

n of

Com

pani

es w

ith F

orei

gn C

apita

l by

Pro

vinc

e of

Est

ablis

hmen

t (19

54-2

010)

Prov

ision

al D

ata,

Sou

rce:

Und

erse

cret

aria

t of T

reas

ury


29

Table 17: Breakdown of Companies with Foreign Capital by Sector and Province of Establishment (1954-2010)

Sectors Istanbul Antalya Ankara Mugla Izmir

Agriculture, hunting, fishing and forestry 108 79 26 57 17

Mining and quarrying 208 26 107 55 9

Manufacturing 2,554 199 243 380 50Manufacture of food products, beverages and tobacco

232 30 17 61 5

Manufacture of textiles 295 6 8 25 4Manufacture of chemicals and chemical products 325 18 15 39 1

Manufacture of machinery and equipment n.e.c.

216 3 32 32 1

Manufacture of motor vehicles, trailers and semi-trailers

93 -- 10 17 --

Other Manufacturing 1,393 142 161 206 39

Electricity, gas and water supply 325 27 124 38 1

Construction 916 598 208 118 202

Wholesale and retail trade 5,193 473 469 487 108

Hotels and restaurants 593 563 73 72 285

Transport, storage and communications 1,383 338 82 97 179

Financial intermediation 257 8 8 7 6

Real estate, renting and business activities 2,202 764 274 169 482Other community, social and personal service activities 829 158 122 68 40

Total 14,568 3,233 1,736 1,548 1,379


60.9% of the total of 25,948 companies operate in the Marmara region, 15.5% in the Mediterranean region, 13.8% in the Aegean region, 7.8% in the Central Anatolia region and 1.9% in other regions.


30

Regional Distribution of Companies with Foreign Capital by Sectors

Map 3: Marmara Region

Map 4: Aegean Region


31

Map 5: Mediterranean Region

Map 6: Black Sea Region


32

Map 7: Central Anatolia Region

Map 8: Eastern Anatolia Region


33

Map 9: South Eastern Anatolia Region


34

1.4. Investment Projects of Companies with Foreign Capital in Turkey

In 2006-2010 period, a total amount of USD 25.4 billion was registered for investment in 925 projects. In 2010, 218 certificates of state aids for investment were issued for projects which were registered to be launched by companies with foreign capital. The investment amount envisaged to be actualized by these projects is USD 5.3 billion.

Table 18: Investment Projects of Companies with Foreign Capital

Greenfield Projects for Production or Services Expansion Projects Other Types of

Investmenta Total

Projects (Number)

Investment Amount (USD Million)

Projects (Number)


Projects (Number)


Projects (Number)


2006 71 451 44 1,002 27 263 142 1,7162007 90 1,512 59 1,468 30 597 179 3,5782008 104 4,120 74 813 28 426 206 5,3592009 96 5,209 50 1,824 34 2,423 180 9,4552010 117 2,737 65 868 36 1,697 218 5,302Total 478 14,029 292 5,975 155 5,406 925 25,410

Source: Undersecretariat of Treasurya) Quality improvement, modernization, product diversification, integration, removal of bottle necks, renovation and completion

In 2010, greenfield projects accounted for 53.7% of all 218 projects launched in production or services sectors, while expansion projects for 29.8%, and quality improvement, modernization, product diversification, integration, removal of bottle necks, renovation and completion projects for the remaining 16.5%. The projected amount of USD 2.7 billion of investment in 117 greenfield projects consisted 51.6% of the total investment value of USD 5.3 billion. With a total estimated amount of USD 868 million, 65 expansion projects accounted for 16.4% of total investments. The remaining 36 projects on quality improvement, modernization, product diversification, integration, removal of bottlenecks, renovation and completion accounted for 32% of total investment value. In the last five years, 51.6% of total number of projects and 55.2% of total investment amount were of greenfield projects.

The number of the projects initiated started in 2010 increased 21% compared to previous year. The increase in the amount of these projects in 2009 was due to


35

decisions to launch large scale investments, especially in electricity, gas and water supply and motor vehicles sectors where the newly introduced scheme of State Aids for Invesment played a stimulating role . In terms of amount of investment projects, manufacturing sector investments in motor vehicles had the largest share of 31.8% with a value of USD 1.7 billion. The investment projects of Ford Otomotiv Sanayi A.Ş. with a projected investment amount of USD 887.8 million, Toyota Otomotiv Sanayi Türkiye A.Ş. with 284.1 million and Mercedes-Benz Türk A.Ş. with USD 178.7 were the prominent investment projects of the sector in 2010. In manufacturing industry other important projects exceeding USD 100 million projected investment amount were investments by Universal Çimento Sanayi A.Ş. in the cement industry and Brisa Bridgestone Sabancı Lastik Sanayi ve Ticaret A.Ş. in the tyre industry, with total investment amounts of USD 305 million and USD 180.6 million respectively.

In 2010, electricity, gas and water supply sector came after motor vehicles, with 25.4% share (Table 19). Although the share of the sector in the number of the projects was about 6%, in terms of the total investment amount, electricity, gas and water supply sector reached to an investment volume of USD 1.3 billion. The important investment projects of 2010 were projects of RWE & Turcas Güney Elektrik Üretim A.Ş., Enerjisa Enerji Üretim A.Ş. and Eti Elektrik Üretim A.Ş. with total investment values of USD 759.5 million, 262.5 million and 148 million, respectively.

Since 2008 an important part of the total investment amount has come from projects launched in manufacturing, electricity, gas and water supply sectors (Table 19).

In the services sector, three investment projects of Güneş Ekspres Havacılık A.Ş. with an estimated amount of USD 261.5 million had an important share in 2010. Another important project in this sector was the one planned to be actualized by Superonline İletişim Hizmetleri A.Ş. with a projected amount of USD 109.5 million.


36

Map

10:

The

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cts

by P

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(200

6-20

10)

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37

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11:

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nt o

f In

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Pro

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006-

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)

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f Tre

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y


38

Tabl

e 19

: Sec

tora

l Dis

trib

utio

n of

the

Inve

stm

ent P

roje

cts

of C

ompa

nies

with

For

eign

Cap

ital i

n 20

10

SEC

TOR

S

Proj

ects

Sta

rted

for

Gre

enfie

ld In

vest

men

ts

Proj

ects

Sta

rted

fo

r Exp

ansi

on

Inve

stm

ents

Oth

er T

ype

of

Inve

stm

enta

Tota

lSh

ares

of t

he

Sect

ors(

%)

Proj

ects

(N

umbe

r)

Inve

stm

ent

Am

ount

(U

SD

Mill

ion)

Proj

ects

(N

umbe

r)

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Am

ount

(U

SD

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(N

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(N

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(N

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39

T

able

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SEC

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In 2010 geographical distribution of the projects in terms of investment amount shows that Kocaeli with intensive motor vehicles and tyre industries’ investment activity takes the first place, and Denizli where USD 759.5 million worth of the electricity production project of RWE & Turcas Güney Elektrik Üretim A.Ş. was initiated takes the second place (Table 21)

Between 2006 and 2010, İstanbul took the first place with regard to total investment amount. Bursa and Kocaeli followed İstanbul.

Table 21 : Distribution of Investment Projects of Companies with Foreign Capital by Provinces 2006-2010 (USD Million)

Provinces 2006 2007 2008 2009 2010 2006-2010İstanbul 259 1,224 1,247 286 274 3,291Bursa 96 320 118 2,053 252 2,839Kocaeli 105 315 527 476 1,301 2,724Adana - 6 16 1,735 338 2,095Samsun - - - 1,356 - 1,356Balıkesir - 3 910 - 44 957Sakarya 16 511 35 41 340 942Sinop - - 884 - - 884Denizli 6 7 36 - 762 811İzmir 107 204 132 154 112 709Antalya 28 5 140 37 323 533Tekirdağ 62 55 134 114 146 511Hatay - 70 17 403 7 497Kahramanmaraş - - 113 341 - 454Manisa 121 38 57 110 117 442Bilecik 3 195 8 25 148 379Osmaniye 2 166 - - 210 378Ankara 13 73 173 25 94 378Muğla 4 - 250 39 64 358Kırklareli 58 2 115 32 28 235

Source: Undersecretariat of Treasury

The provincial distribution of the total number of the investment projects launched in 2010 reveals that Kocaeli and İstanbul took the first two places. Antalya and İzmir follow them with 16 projects and Bursa is the fifth with 14 projects.


41

Table 22: Distribution of Investment Projects of Companies with Foreign Capital by Provinces 2006-2010 (Number of Projects)

Provinces 2006 2007 2008 2009 2010 2006-2010İstanbul 37 41 42 19 24 163Kocaeli 11 25 28 32 27 123Bursa 12 20 20 15 14 81İzmir 10 16 9 14 16 65Manisa 8 10 7 6 11 42Ankara 3 7 15 7 8 40Tekirdağ 11 8 6 6 9 40Antalya 5 4 7 6 16 38Sakarya 5 6 6 4 6 27Mersin 2 3 4 3 7 19Muğla 3 1 4 4 6 18Adana - 2 3 7 5 17Düzce 4 5 2 3 3 17Bilecik 1 3 3 6 2 15Hatay - 4 1 7 3 15Kırklareli 6 1 3 3 2 15Çanakkale 4 4 1 3 - 12Denizli 4 3 3 - 2 12Eskişehir 1 - 3 4 4 12Balıkesir - 2 2 - 5 9



42

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Analysis of the number of projects and project amounts for 2010 in the framework of the State Aids for Investments Scheme indicates that projects mostly concentrated in the first region where companies with foreign capital are intensively established (Chart 7-8).


Out of the total investment amount of USD 5.3 billion, USD 2.3 billion benefited from the measures under the General State Aids for Investment Scheme, USD 1.5 billion was supported under the Scheme of Large Scale Projects and USD 1.5 billion benefited from the Regional Scheme (Table 23).

Table 23: Distribution of Investment Projects by Schemes of State Aids Category in 2010 (Million USD)

SectorRegional Large Scale General Total

Number Investment amount Number Investment

amount Number Investment amount Number Investment

amountEnergy - - - - 13 1,345.3 13 1,345.3Services 18 458.8 - - 14 264.2 31 723Manufacturing 78 999.8 7 1,521.6 73 644.8 158 3,166.2Mining 7 20.0 - - 1 3.4 8 23.4Agriculture 5 20.0 - - 3 23.8 8 43.8Total 108 1,498.6 7 1,521.6 103 2,281.5 218 5,301.7


In 2010, Energy sector projects accounted for more than half of all investment projects which benefited from General Scheme of State Aids for Investment. Manufacturing industry investment projects took the lead in benefiting from the Large Scale Project Scheme and Regional Scheme.


44

All of the seven projects that benefited from Large Scale Project Scheme in 2010 were in manufacturing industry. Among these manufacturing industry investments automotive sector investments took the first rank with USD 1.4 billion.

Sectoral composition of 108 projects which were supported through the Regional and Sectoral Scheme shows that manufacturing industry takes the lead in category of the State Aids for Investment Schemes. Among all manufacturing sector projects in this category automative sector projects had the largest share (Chart 9).


In 2010, there were 218 projects with a total investment amount of USD 5.3 billion which were supported under the State Aids for Investment Schemes. 34 of these projects, had investment amount over USD 30 million and total investment amount of all these projects is USD 4.2 billion (Table 24).


45

Table 24: Projects with Investment Amount Over USD 30 million in 2010 (Million USD)

SectorRegional Large Scale General Total

Number Investment amount Number Investment

amount Number Investment amount Number Investment

amountEnergy - - - - 4 1,201 4 1,201Servives 5 333 - - 5 249 10 582Manufacturing 9 523 7 1,522 4 406 20 2,450Total 14 855 7 1,522 13 1,856 34 4,233



46

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2. INVESTOR COUNTRIES IN TURKEY

In 2010, Austria, France, Germany, the Netherlands, Greece, Japan, United States, Luxembourg, United Kingdom and Spain are the countries which undertook a substantial amount of FDI16 in Turkey.

Table 25: FDI in Turkey in 2010(USD Million)

Table 26: FDI in Turkey, 2002-2010(USD Million)

Rank Country Capital (%)

1 Austria 1,798 27.52 France 600 9.23 Germany 598 9.14 The Netherlands 498 7.65 Greece 425 6.56 Japan 347 5.37 USA 320 4.98 Luxembourg 280 4.39 UK 240 3.7

10 Spain 190 2.9Other 1,240 19Total 6,536 100.0

Rank Country Capital (%)

1 The Netherlands 14,261 18.82 USA 6,734 8.93 Greece 6,489 8.54 Belgium 5,805 7.65 France 5,136 6.86 Austria 4,973 6.57 Luxembourg 4,822 6.38 Germany 4,455 5.99 UK 3,709 4.9

10 UAE 3,616 4.8 Other 16,044 21.1 Total 76,044 100.0

Source: CBRT Source: CBRT

The Netherlands, USA and Greece, which were among the top investors in 2010, ranked in the top three in terms of FDI inflow to Turkey between 2002 and 2010. The fact that the eight countries in the list of the top ten investors in Turkey are the same for both the year 2010 and the 2002-2010 period reveals that the direct investor country profiles in Turkey could be considered as stable.

16 Net amount of transfers of the companies and branch offices with foreign capital and domestic companies with the participation of foreign capital. Other capital, that is investment credits received by foreign-owned companies from foreign partners and transfers for acquisition of real estate by foreigners are excluded


49

Austria

Austrian direct investments had an upward trend year by year since 2007, and it amounted to USD 1,798 million in 2010, reflecting an increase of 76% compared to USD 1,019 million in 2009 and Austria became the top investor country in Turkey. According to UNCTAD’s estimates17 total outflows of Austria will amount to about USD 10.8 billion. These figures indicate that Turkey has been a significant destination for Austrian direct investment outflows in 2010. The most significant investment in 2010 was made by Austria-based company OMV, which operates in energy sector. Acquisition of 54% of Petrol Ofisi A.Ş.’s shares for EUR 1 billion (about USD 1,391 million) accounted for the majority in Austrian investments in Turkey. 65 companies with Austrian capital began to operate in Turkey by company establishment, branch office establishment and share transfer methods in 2010.

France

Direct investment inflows from France, which had been USD 617 million in 2009, amounted to USD 600 million in 2010 and maintained the level they had during the recent years. Regarding the FDI inflows from France, manufacturing is the top sector, while financial intermediation is the second after manufacturing. The most significant capital inflow within France based direct investments is made by Legrand France by acquisition of 100% shares of Inform Elektronik in 2010. According to UNCTAD’s estimates3 FDI outflows of France will amount to about USD 122.9 billion making France the second largest investor country in the world in 2010. 88 companies and branch offices were established or participated by French capital in 2010 in Turkey.

17 Global and Regional Trends of FDI Outflows in 2010, April 2011, UNCTAD


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Chart 10: Number of Companies Established in Turkey by Austria Based Investors and FDI Inflows from Austria to Turkey

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Chart 12: Number of Companies Established in Turkey by Germany Based Investors and FDI Inflows from Germany to

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Chart 14: Number of Companies Established in Turkey by Greece Based Investors and FDI Inflows from Greece to Turkey

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Chart 15: Number of Companies Established in Turkey by Japan Based Investors and FDI Inflows from Japan to Turkey


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Chart 17: Number of Companies Established in Turkey by Luxembourg Based Investors and FDI Inflows from

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Chart 18: Number of Companies Established in Turkey by UK Based Investors and FDI Inflows from UK to Turkey

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Chart 19: Number of Companies Established in Turkey by Spain Based Investors and FDI Inflows from Spain to Turkey

Source: CBRT

Table 27: FDI and Number of Companies for Countries in Top 10

Rank CountryNumber of Companies in Turkey*

FDI in Turkey** (2010)(USD Million)

Global FDI Outflows***

(2010) (USD Million)

1 Austria 529 1,798 10,8002 France 916 600 122,9003 Germany 4,326 598 104,9004 The Netherlands 1,872 498 31,9005 Greece 434 425 -6 Japan 130 347 56,7007 USA 1,079 320 325,5008 Luxembourg 250 280 18,3009 UK 2,238 240 24,800

10 Spain 373 190 22,300Sources:* Provisional Data, Undersecretariat of Treasury** CBRT *** Global and Regional Trends of FDI Outflows in 2010, April 2011, UNCTAD


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Germany

Direct investment inflows from Germany to Turkey increased by 20% compared to the previous year and amounted to USD 598 million in 2010. Financial intermediation was the top and energy was the second most favoured sector among the Germaninvestors in Turkey. Ströer Group increased its stakes in Ströer Kentvizyon by acquiring 40% of Ströer Kentvizyon’s shares for an amount of about USD 70 million and this deal can be considered as the most significant German based merger and acquisition deal in 2010. Capital transfer from Germany to Turkey due to the acquisition of Park Dış Ticaret by RPM Building Solutions (USA) and Tremco Illbruck (Germany) can be counted as another significant deal in 2010. According to UNCTAD’s estimates17 FDI outflows of Germany will amount to about USD 104.9 billion. With this estimate, Germany is the third largest investor country in the world in 2010. 471 companies with German capital began to operate in Turkey by company establishment, branch office establishment and share transfer methods in 2010. Germany is placed in the first rank according to the number of foreign companies with 4,326 companies.

The Netherlands

FDI inflows from the Netherlands, which were above USD 5 billion in 2006 and 2007, did not sustain these high volumes in the following years. FDI inflows from the Netherlands decreased recently and amounted to USD 718 million in 2009 and USD 498 million in 2010. Construction, manufacturing and financial intermediation were among the leading sectors. According to UNCTAD’s estimates17, global FDI outflows of the Netherlands will amount to about USD 31.9 billion. 168 companies and branch offices were established or participated by Dutch investors in 2010 in Turkey. The Netherlands is the third country with 1,872 companies.


53

Greece

Foreign direct inflows from Greece to Turkey had been above USD 2 billion in 2006 and 2007, and came down to USD 59 million in 2009. However in 2010, transfers from Greece increased compared to 2009 and amounted to USD 425 million. Almost all Greece-based direct investments in 2010 were in financial intermediation sector.

Japan

Despite its limited amount of foreign direct inflows in recent years, Japan was one of the top 10 investor countries in 2010 in Turkey with USD 347 million. Almost all of the direct investments from Japan were transferred for financial intermediaries. Sompo Japan Insurance (NKSJ), which is one of the largest insurance companies in Japan, acquired 93% of Fiba Sigorta. Due to this deal, USD 338 million was transferred from Japan to Turkey.

USA

Foreign direct inflows from USA to Turkey amounted to USD 320 million in 2010 (2009 – USD 260). Energy sector was the top sector, while transportation, storage and communication sector and manufacturing sector were the other significant sectors. Acquisition of 46% of Airties Kablosuz İletişim’s stakes for USD 18 million and the capital transferred due to this deal was one of the leading USA based deals in 2010.

Luxembourg

Direct investments from Luxembourg which were USD 493 million in 2009, decreased to USD 280 million in 2010. Construction, manufacturing and wholesale and retail trade were the most attractive three sectors for the Luxembourg investments in Turkey.


54

United Kingdom

UK based FDI flow to Turkey after reaching a peak of about USD 1.3 billion in 2008 declined to USD 350 million in 2009. The downward trend did not change during the year and the UK originating FDI inflow to Turkey fell 31% decreasing to USD 240 million in 2010. Transportation, storage and communication sector attracted one third of the all FDI from the UK and became the top sector in 2010. Manufacturing and construction were the folllowing leading sectors. A significant capital inflow of USD 46 million was transferred by HSBC Principal Investments, which acquired 28.3% of Havaş’s stakes for an amount of USD 76.1 million in 2009. Moreover; an amount of USD 50 million was transferred by UK-based Argus Capital via Luxembourg due to the sale of 40% of stakes of Memorial Health Group to Argus Capital and Qatar First Investment Bank for an amount of USD 100 million. Another UK-based significant transfer due to an M&A deal was made by a private equity fund called as Bancroft, which acquired Kayalar Kimya.

Spain

FDI inflows from Spain to Turkey, which were USD 145 million in 2009, amounted to USD 190 million in 2010. More than half of the FDI from Spain took place in real estate sector and construction sectors. There was no significant capital transfer from Spain due to M&As in 2010. However, due to the sale of Garanti Bank to Spain-based BBVA in 2010, an important amount of direct investment inflow from Spain to Turkey is expected in 2011.


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Box 1: Investor Country Index

In determining the ranking of investor countries the only factor which is taken into account is FDI inflows from the concerned country to Turkey. However, since according to the balance of payment recording system, the country, from where the amount for direct investment is transferred, is accepted as the ‘country of origin’; occasionally an investment made by an investor of a certain country can be classified under the investments of another country (from where the transfer is made). Besides, considering the amount of investment as the sole indicator while neglecting others like the number of companies, the equity capital(s) of the companies or the transactions enacted, might impose limits while evaluating the ‘investor countries’.On this ground, an investor country index was constructed by making use of all the indicators of FDI. In order to provide a better analysis instrument.

There are several factors which are taken into account while ranking investor countries. Investor country index obtained by weighting the below factors and the top ten investor countries ranking in terms of the index and 2010 FDI inflows are shown respectively in the Table 28.

For ranking of the investor countries which have 10 or more companies with foreign capital and bring minimum USD 1 million of FDI;

• cumulative number of companies with foreign capital in Turkey • the share of companies with foreign capital of higher than TL 500,000 among the

total number of companies with foreign capital • the share of companies with foreign capital of lower than TL 50,000 among the

total number of companies with foreign capital• the number of companies with foreign capital established in 2010• FDI inflows to Turkey between 2002 and 2010 • the number of transaction between 2002 and 2010 • FDI inflows to Turkey in 2010.

Table 28: Investor Country Index and Breakdown of FDI in 2010 According to Home Country

Rank Country Index

1 Germany 2.73

2 Netherlands 2.48

3 Austria 2.04

4 USA 1.31

5 UK 1.13

6 France 1.13

7 Luxembourg 0.90

8 Greece 0.78

9 Iran 0.58

10 Belgium 0.43

Rank Country FDI - 2010

1 Austria 1,798

2 France 600

3 Germany 598

4 Netherlands 498

5 Greece 425

6 Japan 347

7 USA 320

8 Luxembourg 280

9 UK 240

10 Spain 190


56


57

B. ACTIVITIES TO PROMOTE FOREIGN DIRECT INVESTMENTS

1. IMPROVING INVESTMENT ENVIRONMENT

1.1. Efforts Around the Globe to Improve Investment Environment

Policies towards enhancing the shares taken from global FDI flows, have become among the top agenda items for almost all countries since 1990s.

The global economic and financial crisis which started in 2008 and showed its effect globally in 2009, turned into a different phase in 2010. Chiefly in the developed countries the growth rates were contracted and the debt stock reached to record high levels. The investment policies of transnational companies (TNCs) were adversely affected by the economic environment and confidence indicators started to fall.

All these economic and financial developments have been forcing especially the developing countries increasingly to focus on studies related with improvement of the investment environment; thus, improvement of the investment environment has become one of the top agenda items of the international institutions. In this context, international institutions enhanced technical and financial assistance by diversifying programs related with reforms.

• FIAS which was established as a sub-body of World Bank and International Finance Corporation (IFC), supports projects to improve the investment environment, investment policy and promotion, bureaucratic simplification and sectoral investment environment. FIAS has increased the number of projects more than two-fold during the crisis period and supported 401 projects in 2009-2010 while the number was 108 in 2008. These data point out that FIAS which shapes the policies related with improvement of the investment environment, had one of its most active periods in 2009-201018.

18 FIAS 2010 Annual Report, https://www.wbginvestmentclimate.org/uploads/ FIAS_2010%20AR%20Final.pdf,2010


58

Chart 20: The Number of Investment Climate Projects Supportedby FIAS

6074

84 83

108

224

177

0

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Source: FIAS 2010 Annual Report

• According to the World Bank’s Doing Business 2010 Report which is a reference source in the investment climate field, 2008-2009 has been the term in which the highest number of reforms were carried out since 2004 and in this period 287 reforms have been implemented in 131 countries. According to Doing Business 2011 Report, countries continued to diversify their investment policies. In this period, 216 reforms have been implemented in 117 countries in order to improve investment environment.19 By assessing World Bank’s past crisis experiences these data support the expectation that the post crisis period could create an opportunity for countries to accelerate their reform policies20.

19 Doing Business 2011, p.120 Doing Business 2011, p.5


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Chart 21: The Number of Investment ClimateReforms

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2006-2007 2007-2008 2008-2009 2009-2010Year

Number of Reformist CountriesNumber of Reforms

Source: World Bank, Doing Business Reports

1.2. Measures Taken to Tackle with Recession of FDI

During the post crisis period, contrary to expectations it is observed that a tendancy to refrain from protectionist policies has become evident. UNCTAD is one of the basic institutions that monitor and report the investments in the world. According to UNCTAD’s “Investment Policy Measure” report which was publicized on January 15, 2010, most of the measures taken by 27 countries in October 2010- January 2011 period are investor friendly. Also in this period 32 agreements related with investments. were concluded among 58 countries.

According to UNCTAD’s World Investment Report 2010, 102 policy measures affecting investments were implemented in 50 countries and 70% of these measures were in the direction of further liberalization and promotion of foreign investments.


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Table 29: Number of Regulations Enacted Regarding FDI between 1992-2009

1992-1994

1995-1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009

Number of Countries Making Amendment/Regulation 49 66 70 71 72 82 103 92 91 58 54 50Number of Amendments/Regulation 95 132 150 207 246 242 270 203 177 98 106 102 - Investor friendly 94 121 147 193 234 218 234 162 142 74 83 71 - Investor unfriendly 1 11 3 14 12 24 36 41 35 24 23 31

Source: UNCTAD, World Investment Report, 2010

In various meetings conducted by G-20, OECD and UNCTAD, all playing significant role in the exit strategies, policies like promoting investments, refraining from protectionist policies and adopting investor friendly measures in the post crisis period, are frequently stressed.

Refraining from protectionist policies and promoting investor friendly policies were the issues reaffirmed by many countries in meetings of the OECD Council at Ministerial Level conducted on May 27th-28th 2010 and UNCTAD World Investment Forum held during September 6th -9th 2010.

1.3 Activities of the Coordination Council for the Improvement of Investment Environment (YOIKK) in 2010

Turkey has been carrying out policies to provide a conducive environment for both foreign and domestic investments via the Coordination Council for the Improvement of the Investment Environment (YOIKK) through public-private dialogue since the beginning of 2000s.

In this context, the works regarding the improvement of the investment environment have been parallel to the global tendancy in 2010. In the context of YOIKK works, 1 YOIKK meeting, 3 YOIKK Steering Committee meetings and 52 Technical Committee meetings were conducted in 2010. Accordingly 26 of the 55 actions which were determined in the 14th meeting of the YOIKK on March 11th, 2010, were concluded.


61

In the framework of actualized amendments, establishment of appropriate land filling facilities according to the type of waste, micro and small companies’ easier access to KOSGEB Support programs , launch of an “SMEs Information System” which will enable online application, avoidance of informality throughout the agricultural economy, automation of the process in work permits, simplification of the investment location process in coastal constructions, grant of tax exemption for the products brought under the projects supported within the international bilateral and multilateral R&D programs and provision of an effective audit and control system in food sector have been secured.

Like in the previous years, works on improvement of investment environment were extended by inputs from studies of international institutions in 2010. In this context, “Turkey Investment Climate Assessment Report” has been prepared by the World Bank in cooperation with the YOIKK Secretariat. In the report, the change in the expectations and perceptions of the investors in the post crisis period is assessed and some policy recommendations for the works of YOIKK Technical Committees are presented (Box 2).


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Box 2: Investment Climate Assessment (ICA) 2009 Report

The aim of the Investment Climate Assessment Report (ICA), which is prepared under a standard methodology in 110 countries, is to assess the role of the investment environment on the economic performance of the business sector; identify the key priority areas that could strengthen Turkish companies’ performance in such areas as productivity, export competitiveness and employment creation. The Report which was prepared in cooperation between the World Bank and YOIKK Secretariat and publicized on May 28th, 2010, is a significant analytical work that evaluates macroeconomic and structural items by assessing the Turkey’s business environment from an international perspective in the light of the data collected from private sector.

In the context of ICA, company-level survey data were collected from 1.152 companies during January 2008-April 2009. The companies were selected from 5 regions that have different development levels. These companies were selected from 5 basic sectors of the manifacturing industry(food and beverages, textile, garment, chemicals, non-metallic mineral products), and retail and services sectors; the sectors’ contribution to production and employment was also taken into account.

The report identifies three priority areas to help the economy achieve sustainable, broad-based growth that incorporates SMEs and is more evenly distributed across the country; ● The first priority is to alleviate the, mainly financial, obstacles that constrain SMEs’ growth, thus preventing the largest portion of the enterprise sector from reaping economies of scale. ● The second priority is to increase Turkish SMEs’ competitiveness by enhancing their ability to adopt and use knowledge. ● The third priority is to further reform and strengthen the regulatory capacity of the government.In the context of these priorities some recommendations were made including; ●Developing Credit Guarantee Fund system ●Combining support programs that were given to SMEs into a single point ●Strengthen YOİKK’s role to improve the business environment and advocate for regulatory reform. ●Development Agencies could serve as “single window” shops. These recommendations were considered as a significant source for the Technical Committees while the Action Plan was determined. In the report, access to finance (26%), tax rates (18%), political instabilities (18%), informal sector practices (14%) and inadequacy of educated labor force (9%) were identified as the basic investment climate obstacles.


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Box 2 (Continued):

Chart 22: Top Five Investment Climate Obstacles

0

5

10

15

20

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Access to Finance Tax Rates Political Instability Informal SectorPractices

InadequatedEducated Labor

Force

Access to finance is perceived as the most serious obstacle by Turkish companies. However, in 2008 13% of the companies that operate in manufacturing sector perceives access to finance as an obstacle while this ratio was %47 in 2005. Moreover in the 2008 survey that includes service sector and allows an international benchmark, this ratio was %14. When this ratio is compared with the benchmark countries like Bulgaria (17%), Poland (22%), Czech Republic (24%), Romania (37%), and Brazil (56%), it is observed that, investors in Turkey perceive access to finance easier.

Another issue that is perceived as an investment climate obstacle is the tax rate. In this context, while tax rates were defined as the most problematic issue on the investment environment by the companies in 2005, the significance ranking of this issue deteriorated in 2008. The ratio of the companies that perceive tax rates as an obstacle reduced to %50 in 2008 from 81% in 2005.

Informal sector practices are also perceived as a significant investment environment obstacle. In this context, the ratio of the companies that perceive informal sector practices as an obstacle increased to 52% in 2008 from 42% in 2005. Moreover, 32% of the companies of all sectors declared that competing with informal companies is a serious obstacle.

Another point that is perceived as an obstacle by the companies is inadequacy of the labor force. The companies that perceive the education and skill levels of labor force as a significant constraint declined to 25 % in 2008 from %33 in 2005.


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Box 2 (Continued):

Chart 23: Growth Rates with respect to Micro Companies

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Russia

Poland

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Another point that is stressed in the report is that, Turkish SMEs grow 10%-12% more slowly than the SMEs in benchmark countries. In the world, the rate of expansion of the companies decreases as the size increases. However in Turkey, SMEs are growing more slowly than large companies. Turkish SMEs in 2004-2007 grew 14-16 percent more slowly than micro companies, while growth of SMEs in comparator countries was in the range of 5-6 percent slower than that of micro companies.


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“Turkey’s Experience Sharing Program”, which was initiated in 2008 in order to share the hands-on experience with other countries through bilateral cooperation schemes has been effectively carried out also in 2010. In the framework of Friends of Yemen Group activities, a visit was conducted to Sana in May 2010 and an assessment report has been submitted to the Friends of Yemen Group members including recommendations related with improvement of the investment environment in Yemen. Moreover in 2010, contact has been made with Turkish Republic of Northern Cyprus authority and the first phase of a three step program was conducted on January 27th-28th, 2011. In 2011, it is planned to conduct similar activities with Economic Cooperation Organization (ECO) and Islamic Development Bank (IDB) member countries.

1.4. Ranking of Turkey in Investment Indices: Six Years Perspective

International institutions publish investment indices related with improvement of the investment environment which enable comparison between countries periodically. Indices which focus on factors that are considered by the investors in the stage of choosing the appropriate investment location, such as legal framework, institutional capacity, infrastructure, assess the quality of investment environment of countries through various methods and different criteria. In this context, investors follow these indices closely. Furthermore, indices contribute to monitor the effects of reforms by countries, determine the reform agenda and contribute to acceleration of these works.

Within this framework Turkey has been closely monitoring and assessing its ranking in the international investment indices and other countries’ reforms. The improvements observed in Turkey’s position in recent years, indicate that, the studies related with improvement of the investment environment based on public-private dialogue, lead to improvements in legal and administrative body and contribute to Turkey’s international competitiveness level. The performance of Turkey in international investment indices produced by leading international institutions since 2006 is presented below:


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Table 30: Ranking of Turkey in Investment Indices: Six Years Perspective

Name of Index/International Institution

Ranking/ Number of Countries

2006


2007


2008


2009


2010


2011

Change(2006-2010)

Ease of Doing Business/World Bank 84/155 65/175 60/178 63/181 60/183 65/183 19

Economic Freedom Index/Heritage Foundation 92/157 90/157 81/157 75/179 67/180 67/179 25

Best Countries to do Business Index /Forbes 61/135 48/144 41/121 41/127 46/128 - 15

Corruption perception Index/Transparency International

60/163 64/180 58/180 61/180 56/178 - 4

1.5. 6th Meeting of the Investment Advisory Council (IAC) for Turkey

The sixth meeting of the IAC which had been established in 2004 in order to provide an international perspective to ongoing reform agenda was held on June 2010 under the chair of Prime Minister Recep Tayyip Erdoğan, in Istanbul. The meeting was attended by the Managing Director of IMF Mr. Dominique Strauss Kahn, Vice President of the World Bank Group Mr. Philippe Le Houerou, President of the European Investment Bank Mr. Philippe Maystadt, senior executives from 17 multinational companies and NGOs representing Turkish private sector.


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Table 31: International Institutions and Transnational Corporations Attended in the Sixth Meeting of Investment Advisory Council of Turkey

In Interternational Organization/ Instution1 International Monetary Fund2 World Bank Group3 European Investment Bank Multinational Companies Country Sector1 Adobe Systems USA Information Technologies2 Alshaya Group Kuwait Retail3 Cisco Systems USA Information Tech.&Telecom4 Citigroup USA Finance5 Coca-Cola Company USA Beverage6 Deutsche Bank Germany Finance7 Fiat Group Italy Beverage8 Finmeccanica Italy Aviation9 Huawei Technologies Co. China Telecommunications10 Indesit Company Italy Home Appliances11 Jain Irrigation Systems India Agriculture&Irrigation12 Kraft Foods USA Food13 Li&Fung Limited Hong-Kong Logistics&Transportation14 Mitsui Co.Ltd Japan Manf./ Infrastructure15 Ogilvy&Mather USA Services16 UPS USA Logistics&Transportation17 Vodafone Group England Telecommunications

The members of IAC stated that Turkey attracted a record level of FDI before crisis, the risks caused by global economic turmoil were managed well, the plans related with the fiscal rule were appreciated. The Council members who stated that the initiations taken by Government to improve the investment environment since 2008 was acknowledged, have encouraged the Government to seize the current opportunity to renew and refocus its investment climate reform agenda to reflect new global economic realities and continue to deliver an era of robust sustainable growth fueled by the private sector in Turkey.

In this regard, the Council members recommended Government to focus on the following basic areas in the following years, through Declaration of Outcomes publicized at the end of the meeting:


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• Sustain macroeconomic stability• Within the context of improvement of business and investment environment;

Continue to fight against the informal economyFormulate to the legal framework which will keep pace with the needs

of modern business; in this regard, key legislation should especially be enacted such as replacement of the current commercial code with the draft legislation in the Parliament.

Taking measures to improve the speed, efficiency, consistency and predictability of the judicial system.

Further liberalization of the energy sector, especially renewable resources, the transportation sector, and the telecommunication sector, in this regard constitute legal infrastructure.

Policies that support to provide SMEs better access to finance, strengthen linkages between production and supply networks and improve management capacity.

Continue efforts to increase transparency and speed of customs procedures.

Strengthen the education system (in particular vocational education).Improving the efficiency, predictability and consistency of the tax

system.Reducing the number of regulatory permit procedures affecting

business.Strengthen sustainable agriculture through more efficient irrigation

systems.•Continue the reforms which will enhance the efficiency of labor market; in this regard taking measures that will strengthen the linkages between employment and education, reduce the cost of registered employment and enhance the flexibility of labor market by considering the fiscal constrains and enact National Employment Strategy.

• To commercialize innovative activities, enhance the collaboration among universities and business sector, enhance private sector R&D expenditures, protecting intellectual property rights through effective enforcement and ensuring high international standards.


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• Istanbul Finance Center project should be implemented in accordance with global standards and best-practices.

After stressing that the Government managed the global economic turmoil well, the Council members stated that the implementation of the program formed by the recommendations publicized through Declaration of Outcomes will bring a new era of private sector led growth and investment in Turkey. The points made by the Council members are assessed by YOIKK Technical Committees and other related institutions; in this regard improvement achieved in these areas within a year are reported in Investment Advisory Council Progress Reports.


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2. BILATERAL INVESTMENT TREATIES

The main purposes of Turkey’s bilateral investment treaties (BITs) are to increase the bilateral flows of capital and technology, and protect investments of international investors in the framework of the legal system of the host contracting state. In line with these principals, BITs are signed with countries having strong investment relations with Turkey or carrying a potential in this direction or with which the development of bilateral economic relations are considered promising.

BITs, which have been signed by Turkey with 82 countries so far, are fundamental agreements including key provisions for international investors, such as application of national treatment and most favoured nation treatment to foreign investors by the host state, guarantee of free transfer of profits, clarification of the terms and conditions of expropriations that may be practiced by the host state, and resort to international arbitration in case of a dispute between the investor and the host state.

In accordance with the Ministry of Foreign Affairs policy approaches to Latin America and Africa , negotiations with Uruguay, Colombia, Ghana , Uganda and Zambia are put in plans for 2011. Since 2010, Turkey has started to renegotiate the old-dated agreements with the Eastern Europe, Balkan, Caucasia, Asia and Middle East countries in order to address the current needs and priorities of the Turkish investors. In this context, negotiations with Albania, Azerbaijan, Bangladesh, People’s Republic of China and Kosovo have been held. In addition, the negotiations with Kuwait were concluded and a new agreement has been signed in 2010. The negotiations to renew the old-dated BITs are projected to be carried on in 2011. In 2010, negotiations with Democratic Republic of Kongo, Kenya and Cameroon were started. In addition, negotiations with Senegal (2010), Nigeria (2011) and Tanzania (2011) were concluded and BITs between Turkey and these countries were signed.

The dates of the signature and entry into force of 73 BITs signed and ratified by Turkey are shown in Table 32.


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Table 32: Bilateral Investment Treaties of Turkey

Country Date of Entry into Force Country Date of Entry into Force

1 Afghanistan 19.07.2005 38 Latvia 03.03.19992 Albania 26.12.1996 39 Lebanon 04.01.20063 Argentina 01.05.1995 40 Libya 22.04.20114 Austria 01.01.1992 41 Lithuania 07.07.1997

5 Australia 29.06.2009 42 Macedonia 27.10.19976 Azerbaijan 08.09.1997 43 Malaysia 09.09.20007 Bangladesh 21.06.1990 44 Malta 14.07.20048 Belarus 20.02.1997 45 Moldova 16.05.19979 Belgium-

Luxembourg 04.05.1990 46 Mongolia 22.05.2000

10 Bosnia Herzegovina 29.01.2002 47 Morocco 31.05.2004

11 Bulgaria 22.09.1997 48 Oman 15.03.201012 People’s Republic

of China 20.08.1994 49 Pakistan 03.09.199713 Croatia 21.04.1998 50 Poland 19.08.199414 Cuba 23.10.1999 51 Portugal 19.01.200415 The Czech

Republic 01.08.1997 52 Qatar 12.02.200816 Denmark 01.08.1992 53 Romania 08.07.201017 Egypt 31.07.2002 54 Saudi Arabia 05.02.201018 The United

Kingdom 22.10.1996 55 Singapore 27.03.201019 Estonia 29.04.1999 56 Slovakia 23.12.200320 Ethiopia 10.03.2005 57 Slovenia 19.06.200621 Serbia 10.11.2003 58 South Korea 04.06.199422 Finland 23.04.1995 59 Spain 03.03.199823 France 03.08.2009 60 Sweden 08.10.199824 Georgia 28.07.1995 61 Switzerland 21.02.199025 Germany 05.12.1965 62 Syria 03.01.200626 Greece 24.11.2001 63 Tajikistan 24.07.199827 Hungary 22.02.1995 64 Thailand 21.07.201028 India 18.10.2007 65 The Netherlands 14.11.198929 Indonesia 28.09.1998 66 The Philippines 18.03.200930 Iran 13.04.2005 67 The Russian

Federation 17.05.200031 Israel 27.08.1998 68 Tunisia 28.04.199432 Italy 02.03.2004 69 Turkmenistan 13.03.199733 Japan 12.03.1993 70 Ukraine 21.05.199834 Jordan 23.01.2006 71 The United States 18.05.199035 Kazakhstan 10.08.1995 72 Uzbekistan 18.05.199536 Kuwait 25.04.1992 73 Yemen 31.03.201137 Kyrgyzstan 31.10.1996



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Table 33: Bilateral Investment Treaties Signed by Turkey (in the Process of Ratification)

Countries Date of Signature 1 Algeria 03.06.19982 Bahrain 15.02.2006

3 Czech Republic (New Agreement) 29.04.2009 4 Croatia (Additional Protocol) 18.02.20095 Kosovo 07.04.20066 Kuwait (New Agreement) 27.05.20107 Nigeria 02.02.20118 Senegal 15.06.20109 Slovakia (New Agreement) 13.10.200910 Sudan 19.12.199911 Tanzania 12.03.201112 The Republic of South Africa 23.06.200013 The United Arab Emirates 28.09.2005


The website on “Outward Investment” (www.ydy.gov.tr) was introduced by The Undersecratariat of Treasury in 2010 in order to inform Turkish entrepreneurs who have invested or who plan to invest abroad. The main aim of the site is to inform Turkish entrepreneurs about the precautionary measures against different risks that can be faced in the home countries for their investments.


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