US embassy cable - 04ANKARA6009

UNCLAS SECTION 01 OF 02 ANKARA 006009 
 
SIPDIS 
 
E, EB/CBA AND EUR/SE 
USTR FOR LERRION 
TREASURY FOR OASIA - MILLS AND ADKINS 
USDOC/ITA/MAC/DAVID DEFALCO 
DEPT PASS EXIM FOR PAUL TUMMINIA 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EINV, TU 
SUBJECT:  Turkey FDI: Investment Climate Efforts Stall 
 
 
Sensitive But Unclassified.  Please handle accordingly. 
 
1.  (SBU)  Summary.  Government and private sector sources 
agree there was little significant improvement in Turkey's 
investment climate in 2004.  Foreigners' real estate 
purchases amounted for a large portion of an increase in FDI 
recorded in Central Bank figures.  Creation of a semi- 
governmental investment promotion agency has been put on 
hold due to a disagreement between the GOT and the private 
sector.  End Summary. 
 
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Modest Rise in FDI Inflows 
--------------------------- 
 
2.  (SBU)  Econoff and Econ Specialist discussed investment 
climate issues with Osman Emed, Deputy Director General for 
Foreign Investment at the Turkish Treasury on October 19, 
and with Naci Akin, Business Development Director of the 
Turkish Union of Chambers and Commodity Exchanges (TOBB) on 
October 1.  Emed said that although investment statistics 
may not fully capture FDI inflows, he had no information to 
amplify the Central Bank's data showing some USD 1.8 billion 
in inflows of FDI to Turkey this year.  Emed said this 
figure was considerably higher than last year's USD 844 
million, but a large portion of this amount, as much as USD 
1.0 billion according to the Central Bank data, appears be 
going into purchases of Turkish real estate, rather than 
employment-generating investments.  He said there has been a 
mini-boom in foreign company establishment, but so far, 
little sign of long-term FDI inflows.  In particular, a 
large number of Chinese and Middle Eastern companies seem to 
be putting feelers out to the Turkish market. 
 
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Investment Climate Improvement Effort 
------------------------------------- 
 
3.  (SBU)  Emed confirmed that the GOT's efforts to 
systematically introduce reforms to the investment climate 
have stalled.  The official reform committees (known by 
their Turkish acronym YOIKK) have met once in the last year, 
and a lack of top-level focus has encouraged inertia in the 
various Turkish bureaucracies, which would be affected by 
reform.  The GOT has not even begun work on a progress 
report in investment climate reform promised at the March 
2004 Investor Advisory Council meeting, chaired by the Prime 
Minister.  Emed attributed the drift on investment climate 
primarily to the GOT's near-total focus on obtaining a date 
for accession talks from the EU in December, and to the 
conviction -- which he does not share -- that the prospect 
of accession talks will by itself lead to an FDI boom in 
Turkey. 
 
4.  (SBU)  Emed noted the efforts to add a new subject to 
the YOIKK process -- reform of company liquidation 
procedures, which currently form a barrier to exit from the 
market.  Emed said the sectoral permit problem was also on 
the agenda of the last YOIKK meeting, but remained 
unresolved.  The committee decided to ease the permit 
application process by authorizing governors' offices in 
each province to receive the applications and coordinate 
with the related ministries.  However, Emed thought this was 
not a viable solution, since it added another step to the 
permit process. 
 
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Investment Promotion Agency Shelved 
----------------------------------- 
 
5.  (SBU)  Emed told us that plans to establish an 
investment promotion agency for Turkey had been put on hold 
because the GOT could not come to terms with the private 
sector on the composition of the board, as well as because 
Turkey's various business chambers could not agree on the 
financing sources for the agency.  Rather than creating the 
semi-autonomous agency the private sector preferred, TOBB's 
Naci Akin told us that the GOT had insisted on a public 
sector entity, financed by the state budget and subject to 
what is perceived to be cumbersome public procurement 
legislation.  Emed suggested that forming a promotion agency 
is secondary in importance to the overall investment climate 
improvement effort. 
 
6.  (SBU)  Separately, the chairman of the Foreign Investors 
Association (YASED), Saban Erdikler, said the shelving of 
the long-proposed agency was "a real disappointment."  He 
said that the government had agreed to fund more investment 
promotion activities through the Treasury's Foreign 
Investment Directorate, but that this was far from a 
substitute for the knowledge and dynamism a public-private 
organization could bring, as Ireland's or the Czech 
Republic's experience with such organizations demonstrated. 
He said the government had agreed to review the Treasury's 
investment promotion performance in one year, after which 
the proposal for a new agency could be reopened. 
 
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Comment 
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7.  (SBU)  The GOT's investment climate improvement efforts 
had a limited positive effect on the FDI inflow to Turkey in 
2004, and its expectations for 2005 heavily rely on 
obtaining a date for accession talks with the EU in 
December.  Our message has been that the Turkey should not 
take for granted that a favorable decision from the EU 
followed by an FDI boom, but should continue to demonstrate 
its commitment to reform in the investment climate and the 
judicial system, in order to attract long-term, employment- 
generating investments. 
 
Edelman