This record is a partial extract of the original cable. The full text of the original cable is not available.

280912Z Mar 06

UNCLAS SECTION 01 OF 02 ISTANBUL 000449 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV TU
SUBJECT: GLOBAL FDI MOVEMENTS: MYTHS AND FACTS IN TURKEY 
 
 
¶1. (U) Summary: Speakers at a March 24 conference on foreign 
investment in Turkey evinced optimism about Turkey's overall 
economic progress but agreed the country needs to develop a 
strategy to attract significant FDI.  Noting that the 
country lags especially in the area of "green field" 
investment, they pressed for continuation and 
intensification of Turkey's structural reforms.  End 
Summary. 
 
¶2. (U) The one-day conference was jointly organized by 
Turkey's Foreign Investment Association (YASED) and Koc 
University's Economic Research Institute.  Among those 
participating were YASED President Saban Erdikler, OECD 
Advisor (and FDI expert)Declan Murphy, Koc Group CEO Bulend 
Ozaydinli, Turk Telecom CEO Paul Doany, and former Treasury 
Undersecretary (and Koc Research Institute Head) Faiz 
Oztrak. 
 
TURKEY'S FDI PERFORMANCE - A NEGATIVE REVIEW 
--------------------------------------------- 
 
¶3.  (U) Murphy and other speakers stressed that while Turkey 
increased its FDI levels to $9 billion in 2005, it is still 
not a major competitor for global FDI funds.  Murphy pointed 
out that Romania, a country with less than a third Turkey's 
population, attracts $10-20 billion annually, while Ireland 
currently attracts between $20-25 billion.  Panelists noted 
that Turkey is even further behind in attracting 
"greenfield" investment, as most of the inflow has financed 
mergers and acquisitions, rather than "greenfield" projects. 
(Turkey has held steady at around 65 such projects per year, 
less than half the number Romania received.)  Panelists 
attributed this to the fact that Turkey is neither a "low- 
cost or a low-wage" country.  They dismissed suggestions 
that there is a cultural affinity between Western capital 
and Eastern Europe, pointing instead to the fact these 
countries had articulated FDI strategies, improved market 
environments, and had very proactive approaches.  Turkey, on 
the other hand, has not made similar progress. 
 
BUT A POSITIVE OUTLOOK 
----------------------------------------- 
 
¶4. (U) Panelists agreed that though Turkey has not lived up 
to its FDI potential yet, the outlook remains positive: with 
the fourth fastest growing economy in the world, a place 
among the top five capital markets in the world, an 
improving credit rating, low inflation, a strong 
infrastructure, a young, tech-savvy population, and the EU 
anchor, Turkey should do better.  Bulend Ozaydinli, CEO of 
Koc Holding, Turkey's largest holding group, with interests 
in industry, banking, and the energy sector, offered an 
extremely upbeat vision of Turkey's future in FDI markets. 
Turkey's positives, he argued, will allow Turkey's economy 
to face shocks and setbacks more quickly and easily, thereby 
creating the stability that is so critical to investors. 
 
SPECIFIC CONCERNS 
------------------ 
 
¶5. (U) While optimistic for the overall economy, 
participants were more concerned about the prospects of 
particular sectors.  They pointed particularly to problems 
in the textile industry, which is facing serious hardships 
as it tries to compete with Chinese and Indian production. 
They lauded the progress of the automotive industry, but 
noted that it needs to contribute more value-added 
production, rather than simply functioning as a final 
assembly point for foreign-made components.  This is 
critical, Ankara University Economic Department Chair Ercan 
Uygur said, if the country is to reduce its high 
unemployment rate.  Turkey must also address a declining 
savings rate, and reduce the size of its unregistered 
economy. 
 
WHERE SHOULD TURKEY GO FROM HERE? 
---------------------------------- 
 
¶6.  U) Speakers and conference participants pressed for 
elaboration of a coherent national FDI strategy. Among their 
suggestions were the following: 
 
  -    Continued privatization reforms; 
-    Development of a clear and predictable regulatory 
regime and proven legal system that can be counted on to 
reach fair conclusions if a foreign company is taken to 
court; 
-    Targeting of priority sectors for Greenfield 
investments, such as mining, telecom, and financial 
industries; 
-    Working with existing capacity and infrastructure; for 
example, expanding the existing treasury to meet growing 
needs; 
-    Pursuing partnerships with the private sector; 
-    Focusing on long-term commitments through quality 
investors, as opposed to "buy-low, sell-high investors"; 
-    Continuing to build a more effective tax system; 
-    Focusing on tech-focused investments; 
-    Creating numerical, verifiable FDI objectives 
-    Developping an FDI promotion agency to act in the 
international arena; 
-    Taking advantage of EU accession talks to improve the 
FDI environment. 
-    Envisioning Turkey as a regional FDI center as both a 
contributor and recipient of FDI. 
 
Comment 
------- 
 
¶7.  (U) The Koc/YASED conference provided an opportunity for 
stakeholders both to review worldwide FDI trends and to take 
a close look at Turkey's performance.  Although that 
performance has not been strong to date, participants are 
enthusiastic about Turkey's potential.  Their prescriptions 
largely track with measures that constitute the essential 
building blocks of Turkey's ongoing IMF program, and that we 
have encouraged Turkish policy-makers to not lose time in 
implementing. 
JONES