US embassy cable - 04ADANA22

UNCLAS SECTION 01 OF 02 ADANA 0022 
 
SIPDIS 
 
 
SENSITIVE 
 
 
ANKARA PASS APP IZMIR 
 
 
E.O. 12958: N/A 
TAGS: ECON, ADANA 
SUBJECT:  SE TURKEY'S INITIAL REACTIONS TO 
NEW ECONOMIC INCENTIVES' LAW 
 
 
l. (SBU) President Ahmet Necdet Sezer  approved 
an "economic incentives" law 
on January 29, 2004, which grants tax and 
insurance privileges, as well as energy support 
and free land, to regional investor in an effort 
to increase employment opportunities in eastern 
and southeastern Turkey. 
 
 
2. (SBU) According to a statement released by the 
Presidential Press Office, the law 
has been printed in the Official Registry as of 
February 6, 2004. The Law grants these privileges 
to all cities with less than $1,500 per capita 
annual income as of 2001. The free land provision 
includes all cities with less than $1,500 per 
capita income and special economic development 
areas. Thirty-six cities are going to benefit 
from this law. Incentives in these cities include 
provisions that  new employees and workers 
employed since October 2003 will  pay only 20 
percent of their required taxes.  The Treasury 
will pay the insurance premiums of all new 
employees. For other regions,  the Treasury will 
pay 80 percent of the insurance costs. 
 
 
3.(SBU) Firms which employ at least 10 people in 
these 36 cities will be allocated free Treasury 
or state lands. In order to receive the free 
land, the firm has to employ the agreed number of 
employees for five years.Energy support for 
investors will be provided until 2008.  The 
Treasury will pay 20 percent of the electricity 
costs of firms which employ at least 10 people 
and are in the mining production, greenhouse, 
animal, tourism, education or health sectors. 
Every additional employee above ten will increase 
the rate paid in the electrical subsidy by half a 
point. Public sector enterprises will benefit 
from energy support, but not insurance subsidies. 
Firms operating in free-trade areas will also 
receive tax and insurance incentives. 
 
 
 
 
 
 
 
 
 
 
 
 
4.(SBU)  Of 36 affected cities, 14 are in the 
Adana Consular District:  Malatya, Diyarbakir, 
Osmaniye, Batman, Sanliurfa, Mardin, Adiyaman, 
Van, Bingol, Mus, Siirt, Bitlis, Hakkari and 
Sirnak. Conspicuous by its absence is the 
southeast province of Tunceli which Consulate 
Adana initially estimated would meet the low per 
capita income threshold for this initiative. 
However,  upon consultation with Tunceli Chamber 
of Commerce and Industry General Secretary, Adana 
Consulate found out that reason why Tunceli was 
excluded from this list  because its per capita 
annual income was $1,584. 
 
 
5.(SBU)  Chamber of Commerce and Industry 
officials in southeast Turkey found 
the recently passed Economic Incentive Bill 
positive but inadequate. They said the 
majority of the western entrepreneurs who would 
like to benefit from these incentives 
would not go to their cities, but rather to 
Duzce, which also receive regional subsidies, 
because of its proximity to their existing 
investment in Istanbul. If there had been a 100 
percent investment and tax exemption in the 
region, then the businessmen said that they might 
attract either foreign direct investment  or 
shifting domestic investment to the southeast 
Turkey region. They also said that the Incentive 
bill would have been more useful if it had 
offered some concessions on provincial and 
sectoral bases. Generally, they expect some small 
scale investments from  businessmen already 
active in the southeast region. 
 
 
6.(SBU) One notable new domestic investment 
possibility emerged in Sanliurfa province, 
Mr. Ismail Demirkol, Sanliurfa Chamber of the 
Commerce and Industry, President said that, after 
endorsment of the bill, he was called by 
unspecified businessmen in the Istanbul garment 
sector  who said that they would like to do some 
research on starting new garment factories in 
Sanliurfa. Mr. Demirkol believes such factories 
would contribute to mitigating the significant 
unemployment problem in the region. 
 
 
COMMENT: The IMF sought to eliminate these 
investment incentives as part of the 
broader tax reform effort, but accepted a 
compromise incentive package in the face of the 
Prime Minister's insistence.  There is 
considerable skepticism among Fund and World Bank 
staff that these incentives will result in 
significant new investments in the poorer 
parts of Turkey, but senior government officials 
in Ankara are convinced they are essential to the 
region's development. 
REID