US embassy cable - 04ANKARA7154

UNCLAS SECTION 01 OF 02 ANKARA 007154 
 
SIPDIS 
 
DEPT FOR EB AND EUR/SE 
USTR FOR LERRION 
TREASURY FOR INTERNATIONAL AFFAIRS - 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: GOT Expectations Tied to EU Accession 
Negotiations 
 
REF:  Ankara 6009 
 
Sensitive But Unclassified.  Please handle accordingly. 
 
1.(SBU) Summary: Government and private sector 
representatives participated in an event organized by the 
Foreign Investment Association (YASED), where Prime Minister 
Erdogan also gave a speech.  In his speech, Erdogan 
attributed the increase in FDI this year to the positive 
developments in the Turkish economy.  However, business 
sector representatives complained about lack of action and 
progress on the GOT's side.  They were particularly critical 
about a "misleading" Turkish Treasury report, which claimed 
that the GOT had made significant progress in FDI reform. 
While FDI inflows have risen in 2004 and the PM and others 
in the GOT look forward to rising FDI following the EU 
Summit, working-level Treasury contacts and private sector 
representatives agree that the GOT's investment climate 
reform efforts have stalled.  Though there may be some 
increase in FDI flows arising from the EU decision and new 
IMF program, we do not expect Turkey to have asustainable 
quantum leap  in FDI,  unless it continues to demonstrate 
its commitment to investment climate reform.  End Summary. 
 
2. (U) Speaking at a November 25 conference hosted by the 
Foreign Investment Association (YASED), Prime Minister 
Erdogan claimed that positive developments in the economy in 
the last two years had contributed to a more favorable 
investment environment in Turkey.  Erdogan stated that 95 
percent of the increase in FDI in 2004 came from European 
Union (EU) countries.  Erdogan said all investors, domestic 
and foreign, would be treated equally in Turkey and the GOT 
was ready to take action if there was any complaint about 
unfair treatment.  Note: Though the GOT has taken action-- 
albeit delayed--on some U.S. company problems, for the most 
part the GOT has failed to help U.S. investors resolve their 
problems here. End Note.  Erdogan noted that recent FDI and 
Incentives Laws had eased conditions for foreign investors 
and brought about a significant increase in the number of 
companies established in Turkey.  Erdogan said the GOT was 
committed to take any steps necessary to attract foreign 
investment to Turkey. 
 
3. (U) The participants welcomed Erdogan's remarks on 
improving the investment environment in Turkey, but 
complained that the GOT failed to take action on these 
statements.  In his opening speech, YASED President Saban 
Erdikler praised the GOT's efforts to improve the investment 
environment, noting the need for continued progress. At a 
reception prior to Prime Minister Erdogan's speech, the 
participants discussed the status of FDI in Turkey.   The 
business sector was particularly critical about a long- 
delayed FDI report Turkish Treasury was getting ready to 
publish, which the businesses thought was biased and 
reflected an "overly positive FDI outlook" for Turkey. 
Treasury was expected to prepare this report within six 
months of the Investors' Council held in Istanbul in March 
2004, and to send it to the CEOs of 19 international 
companies who participated in that meeting. Speaking 
privately at a reception before the speeches, 
representatives of YASED, the Turkish Union of Chambers and 
Commodity Exchanges (TOBB) and Turkish Industrialists' and 
Businessmen's Association (TUSIAD) complained about lack of 
progress in the GOT's efforts to improve the investment 
environment.  Treasury Foreign Capital Deputy Director 
General Osman Emed, who also participated in the event, 
confirmed the delay in FDI reform efforts, and attributed 
this to the GOT's focus on December 17, the decision date 
for the GOT's EU accession negotiations. 
 
4. (U) Following YASED's event, the press reported that the 
business representatives told Erdogan about the problems 
with the report, and complained that most of the problems 
listed in the Investors' Council remained unresolved. 
Erdogan reportedly directed Treasury to revise the report 
and include businesses' comments in it.  Press reports 
claimed that Erdogan also personally contacted relevant GOT 
offices about the problems investors raised with him during 
the event. 
 
5. (U) The GOT announced its EU pre-accession economic 
program on December 2.  The GOT's program included ambitious 
macroeconomic targets, including its $15 billion FDI inflow 
target for the 2005- 2007 period.  In its economic program, 
the GOT also committed to continue its efforts to improve 
the investment environment.  The EU announced on December 17 
that the accession negotiations with Turkey would begin on 
October 3, 2005.  Following the EU decision, Deputy Prime 
Minister Abdullatif Sener reiterated the GOT's  $15 billion 
FDI target..  Business representatives commented that EU 
accession alone would not be sufficient to bring Turkey the 
FDI boom it expects, and the GOT should continue to 
demonstrate its commitment to reform in the investment 
climate and the judicial system to attract investments. 
 
6. (SBU) Comment:  While the GOT continues to tout FDI data 
showing an increase in this year's flow of foreign capital, 
much of it derives from investment in real estate rather 
than long-term, employment-generating investments.  There 
has apparently been an increase in company formation and in 
the number of foreign businesses sniffing for opportunities 
in Turkey recently.  The GOT seems to be relying on the 
prospect of EU accession to act as a significant magnet for 
FDI, rather than continuing to implement needed reforms in 
the business climate.  We think despite the EU's "green 
light," the GOT will not be able to achieve a sustainable 
increase in FDI, nor will it reach its ambitious FDI target 
in the short-term, if it continues to delay its investment 
climate reform efforts. 
 
Edelman