VZCZCXRO8923
RR RUEHDA
DE RUEHAK #2938 3451502
ZNR UUUUU ZZH
R 111502Z DEC 07
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC 4614
INFO RUCPDOC/USDOC WASHDC
RUEATRS/DEPT OF TREASURY WASHDC
RUEHIT/AMCONSUL ISTANBUL 3613
RUEHDA/AMCONSUL ADANA 2513

UNCLAS ANKARA 002938 
 
SIPDIS 
 
SENSITIVE 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON EINV BEXP KIPR TU
SUBJECT: INTERNATIONAL INVESTORS ASSOCIATION SETS 2008 PRIORITIES 
 
Ref: 06 Ankara 6734 
 
¶1. (SBU) Summary:  Moving Turkey's informal economy (still estimated 
at over 40% of the Turkish workforce) into the formal economy and 
tax rolls again topped the International Investors Association of 
Turkey's (YASED) priorities for 2008.  During their November annual 
meeting in Ankara, YASED executive board members said they also plan 
to push the government to reform its system of taxation and 
incentives, reform vocational education, increase intellectual 
property rights (IPR) protection, attract more research and 
development (R&D), increase greenfield investment, and stay the 
course on the EU accession process.  These themes are not new and 
mirror many of their priorities for 2007.  End summary. 
 
¶2. (SBU) The informal economy, estimated at over 40% of the Turkish 
workforce, once again tops the list of international investor 
concerns, primarily because of the tremendous tax burden it puts on 
foreign companies who follow the rules.  According to the Istanbul 
Chamber of Industry survey of the top 500 industrial companies in 
Turkey, foreign corporations employed 28% of the workforce in 2006, 
but they pay a much larger share of the social security premiums and 
labor taxes because so many Turkish companies operate wholly or 
partly out of the tax system. YASED Secretary General Mustafa Alper 
said that while economy-minded officials in the government admit to 
the immense problem of the informal economy, there has not been much 
focus on implementing the necessary reforms or making progress on 
campaign promises since the elections. 
 
¶3. (SBU) YASED's second, and related, priority is to see the 
taxation and incentives system reformed. YASED would like to see the 
taxation system changed so that the burden is more evenly shared by 
domestic and international companies.  During the Ambassador's 
November 14 courtesy call with newly appointed Minister of Industry 
and Trade, Zafer Caglayan, Caglayan outlined for us the new draft 
commercial code his Ministry is preparing with the Ministry of 
Justice.  On incentive reforms, Caglayan mentioned moving away from 
the regional incentive plans currently favored by the GOT and 
focusing on attracting high-tech companies by offering tax cuts, 
lower social security contributions, and subsidized energy prices. 
 
 
¶4. (SBU) Items three through six on YASED's government agenda relate 
to Turkey's push to attract greenfield investment from high-tech and 
innovative companies.  According to Alper, many firms interested in 
investing in Turkey have difficulty finding the highly-trained 
workforce needed for high-tech production.  Therefore, YASED's board 
plans to push the government to reform the educational system to 
include more vocational education focused on technology. 
Complementary to this is YASED's continued push to strengthen 
intellectual property protection in Turkey, thereby increasing 
investor confidence and international willingness to 
produce/manufacture here.  By strengthening education and 
intellectual property protection, YASED expects FDI in the research 
and development (R&D) sector will increase and bring the greenfield 
investment and job creation that Turkey needs.  As a final agenda 
item, YASED members reaffirmed their support for the EU accession 
process and will continue to encourage the government to stay the 
course on reforms 
 
¶5. (SBU) Comment:  YASED's 2008 agenda indicates that very little 
has changed in the past year as far as foreign investors are 
concerned.  The GOT's privatizations and the spate of recent bank 
purchases injected much-needed foreign capital into Turkey's growing 
economy.  But Turkey has yet to see a shift in its foreign 
investment mix from privatizations, mergers and acquisitions to 
greenfield investment.  That shift may require the government to go 
forward with several painful economic reforms.   End comment.