US embassy cable - 05ANKARA3381

UNCLAS SECTION 01 OF 02 ANKARA 003381 
 
SIPDIS 
 
DEPT FOR EB, OES AND EUR/SE 
TREASURY FOR INTERNATIONAL AFFAIRS - MILLS AND ADKINS 
USDOC/ITA/MAC/DAVID DEFALCO 
DEPT PASS EXIM FOR MARGARET KOSTIC 
 
SENSITIVE 
 
E.O. 12958: N/A 
TAGS: EINV, EIND, EFIN, TSPL, TU, EUN 
SUBJECT:  Incentives in Turkey's Technology Development 
Zones 
 
1. (SBU) Summary:  As a part of its efforts to attract 
foreign investment and promote high technology development, 
the GOT has given a variety of incentives to companies and 
individuals working in Technology Development Zones.  These 
zones have had some success in attracting foreign 
entrepreneurs and spurring exports.  While apparently on a 
much smaller scale than those given to special industrial 
zones (septel), the tax advantages given to these zones are 
an example of Turkey's predilection for dispensing 
incentives for special objectives, rather than implementing 
more painful structural reforms in the business climate. 
End Summary. 
 
2. (U) Turkey's Technology Development Zones (TDZ) Law was 
enacted in June 2001 to "promote technology-intensive 
production through cooperation among universities, research 
organizations and private entities, to provide jobs for 
qualified personnel and to attract foreign direct investment 
to Turkey."  The law has been amended since then to expand 
the coverage of the incentives for investments made in these 
zones.  Econoff and Econ Specialist met with the TDZ 
Department Head at the Ministry of Industry and Commerce 
(MOI), on April 5 to learn more about incentives available 
to those investing in these zones. 
 
Economic Incentives Offered in the Zones 
---------------------------------------- 
 
3. (U) According to the law, the TDZs can be established 
within universities or as techno-parks, such as those 
already operational in the Gebze and Eskisehir organized 
industrial zones (OIZs).  MOI and other agencies (including 
the Turkish Scientific and Technical Research Council - 
TUBITAK, the State Planning Office, the Public Works 
Ministry and others) form a committee which reviews TDZ 
applications.  Our MOI contact told us the GOT gives 
priority to projects with the greatest potential for 
commercialization in manufacturing. 
 
4. (U) The GOT provides the following incentives to 
investors in TDZs: 
 
-- MOI provides a grant to the management of the TDZ to 
establish necessary infrastructure, including for 
construction of management's building.  MOI may also provide 
funds to management for the procurement of land for the TDZ. 
 
-- Business revenue from research and development (R&D) 
activities and from software will be exempt from the value 
added tax, income tax and corporate taxes until 2013. The 
salaries of the personnel working on these areas will also 
be exempt from all taxes, except social security 
contributions. 
 
-- TDZ management is exempt from income and corporate taxes. 
 
-- Academics are able to conduct research in TDZs and 
commercialize their innovations.  Academics can establish an 
enterprise or a partnership with an existing enterprise in 
the TDZs for such purposes. 
 
5. (U) MOI told us that there are currently 17 techno-parks, 
of which 9 are actively functioning, with 400 companies 
employing over 2,000 research personnel.  A total of USD 60 
million worth of high tech products were exported from the 
TDZs in 2004.  The majority of these exports were defense 
industry products and software.  The GOT aims to attract 
more FDI with these zones, and our interlocutor cited the 49 
percent share of Tefen, an Israeli company associated with 
entrepreneur Stef Wertheimer, in the Gebze OIZ techno-park 
as an example of the concept's ability to attract foreign 
investment.  He added that the European Investment Bank also 
provided a loan to support various TDZs in Turkey.  He also 
stressed the importance the GOT attaches to technological 
enhancement, which was clearly reflected in the high 
research and development budget allocation this year.  MOI 
was cooperating with the TUBITAK, which coordinates the 
GOT's research allocations, to develop more projects in the 
TDZs. 
 
6. (U) Econoff thanked MOI for the briefing, and, in 
closing, stressed the very positive role that strong 
intellectual property protection can play in encouraging 
foreign direct investment and technological progress. 
 
Western Mediterranean Technology Zone 
------------------------------------- 
 
7. (U) Environmental Specialist met with representatives of 
BATEK, the West Mediterranean Technology Zone established 
last year.  BATEK claims success in attracting the interest 
of Russian IT sector and in establishing close relations 
with firms in Uzbekistan, Israel, Bulgaria and Sweden.  The 
representatives maintained that they planned to take 
advantage of the European Union 6th Framework Program for 
Research and Technological Development and direct and 
indirect support from KOSGEB (the GOT committee for small 
and medium-sized enterprise promotion) and TUBITAK. 
However, BATEK representatives said they were having 
difficulty finding seed capital.  BATEK, which is located at 
the Akdeniz University in the agriculturally-rich and 
diverse Antalya region, intends to focus on the agriculture, 
medicine and biotechnology sectors. 
 
8. (SBU) Comment:  TDZs should help compensate for 
historically low Turkish research spending, and may 
counterbalance the GOT's traditional bias in favor of 
encouraging low- and medium-technology manufacturing. 
Bringing together academics and businesspersons in such 
zones is bound to generate commercially relevant research. 
However, deploying incentives for these zones creates 
economic distortions and unfair competition with firms 
outside them, a point the IMF has made repeatedly to the 
GOT.  It is also no substitute for taking sometimes 
politically painful steps to improve the business climate 
such as strengthening protection of intellectual property 
rights and reining in unfair competition by capturing more 
of the shadow economy. 
Edelman