Government to focus on attracting foreign investments
03.09.2007
The new government’s emphasis in its economic policy making will be to specifically attract productivity oriented foreign investment. Easy to promise, difficult to deliver. Turkey's continuing efforts to woo foreign capital will increasingly focus on investments that promise increased productivity, employment and value added, the government signaled in its new program unveiled Saturday.
“This a significant shift in tone, but not necessarily an easy one to deliver upon,” said economist Aydın Sezer, a former analyst with the state Undersecretariat of Foreign Trade. “The shift to a policy of promoting investment that brings new jobs and technology has been much debated, but it is not an area where Turkey has many significant comparative advantages.”
With little fanfare, the economic program of the just-formed 60th Turkish government, announced over the weekend by Prime Minister Recep Tayyip Erdogan, reflected a shift that suggests the anticipated change in strategy. To date, the previous government's remarkable success in attracting foreign direct investment (FDI) turned use of that investment to manage a growing current account deficit. But now, Erdogan's emphasis on “production oriented foreign investment” signals a response to criticism that record investments, most notably those in the banking and service sectors, has not resulted in greater job growth. During recent elections, the main criticism leveled against the Justice and Development Party (AKP) by the opposition Republican People's Party (CHP) was the lack of “greenfield” investment in new plants or facilities.
The economic focus of the previous government, also led by Erdogan, had been securing a sizeable primary budget surplus, according to an announcement made by Erdoğan on Mar. 18, 2002.
As the budget has remained healthy over the last five years, it seems that focus has shifted elsewhere. There are no indications that the primary surplus remains a priority any longer, according to the program announced Saturday.
Instead, Erdogan has emphasized “production oriented foreign investment,” as the previous program did not differentiate between different types of foreign investment in such a way. The prime minister, responding to mounting criticism concerning unproductive foreign capital inflows, noted that the new government will work to support “global capital focus on the production of goods and services.”
Sezer has said that criticizing the situation is very easy and simply overlooks the benefits of investment in any sector. All of these investments combine to further the internationalization of the Turkish economy and give international capital a continued stake in Turkey's success. In order for the strategic shift to achieve any measure of success, new industrial polices will need to be developed as well.
“With relatively high input, electricity and labor costs, Turkey is not an appealing destination for FDI in goods producing sectors,” said Sezer. He noted that new investments in the automotive sector have reached their saturation point and Turkey faces stiff competition from Eastern Europe and Russia. Turkey's customs union with the European Union, one of few comparative advantages Turkey retains, is also wearing thin as the crumbling of global tariffs cuts into any edge Turkey might muster.
“In terms of the government's policy making, this is a positive and constructive development,” Sezer said. “But the question is how? It is easy to state this as policy but very difficult to deliver. This is going to require comprehensive change in strategy.”