The Turkish Economy and the Development of its Financial Sector
domestic market. In the EU, Turkish firms wanted to access technology and skills while in Africa and in Asia; and they sought cost reduction by gaining access to low-cost labour markets and other inputs.2 The surge of capital exports has both domestic and international causes, but the real question relates to the sustainability of such an outward orientation and whether the policy makers, public opinion and the financial sector is prepared to shoulder such a transformation.3 For instance, in order to encourage more Turkish investment abroad, the government amended the structure of Turkish Holding Companies (HoldCo) in 2006. The new structure provides HoldCo with ‘participation gains’ in the form of an exemption from corporate tax on dividend income and gains derived from the sale of shares in foreign participation.4 Above all else, the financial sector in Turkey, assuming that it has the necessary human resources, is far from adequately channelling through necessary funds to finance the Turkish OFDI. In fact, Turkey faces several structural challenges to complete its economic transformation. The Turkish economy was caught short by the global economic meltdown with a high growth rate, increasing OFDI, a high current account deficit and a surging Public Sector Borrowing Requirement (PSBR). 2. Although the recent growth of Turkish economy enticed MNEs and SMEs to turn their attention to external markets, this sphere of economic activity has been broadly neglected by policy makers. OFDI, still seen as part of “capital flight,” and its stimulus is attached to broader diplomatic policy. As such it is perceived as an attempt that consequently “steals jobs away from the Turks.” There exists no insurance coverage for companies investing abroad. Neither there is a regular body providing information about local conditions to firms venturing abroad from the host countries. The general attitude towards the Turkish FDI, however, is gradually shifting towards a more positive stance as issues like famine in Somalia or the recent repatriation of workers from Libya receives broader public attention. 3. Turkish government measures to improve the environment for inward investment include the enactment of the new FDI Law 4875 in June 2003, which replaced the old FDI Law 6224, passed in 1954. The new law eased restrictions on inward FDI in all sectors, eliminated minimum capital requirements, granted foreign investors full convertibility in transfers of capital and earnings, allowed them to own property without restrictions, and recognized their right to international arbitration. 4.
The government has also initiated a program that aims to develop trade marks in specific areas of production, ranging from textiles and food processing to electronics and the au tomotive sector. This program is known as “Turquality” and about one hundred firms are participating in it with the hope that they will achieve global competitiveness by improving their knowledge of production, industrial organization, marketing, and servicing.
Published on Feb 16, 2012
A Publication based on the International Conference organised at the European Parliament/Brussels by Dr. ELENI THEOCHAROUS, Member of the Eu...