Most countries are either unable or unwilling to provide such marketing and facilitation. Fortunately, Turkey, which had been for decades among those FDI-deprived countries, is now ranked relatively high among countries that market themselves effectively, especially by providing accurate and timely information to potential foreign investors and facilitating their site-selection processes.The current global crisis has hit hard not only international trade, but also FDI flows, after their steady upward trend between 2003 and 2007, with FDI inflows reaching a historic record of $1.9 trillion in 2007. Last month the United Nations Conference on Trade and Development (UNCTAD) released a report titled “Assessing the Impact of the Current Financial and Economic Crisis on Global FDI Flows,” which estimated that global FDI flows, especially cross-border mergers and acquisitions (M&As), declined by 15 percent in 2008. FDI flows are predicted to decline at an even faster rate this year, at between 30 percent and 40 percent, as many greenfield FDI projects have been either cancelled or postponed, hitting FDI inflows to developing countries particularly hard. The decline in FDI flows, compounded by a surge in corporate restructurings and divestments, results from two major factors: First, ability to invest has decreased as multinational corporations face severe financial constraints, both internally, due to falling corporate profits, and externally, due to scarcer and costlier finance. Second, willingness to invest has diminished as economic prospects continue to look dim, especially in developed countries, in the midst of the most severe global recession in half a century. The combined negative force of these two factors is exacerbated by the rising risk aversion of companies worldwide as they try to strengthen their resilience against a possible, though unlikely, depression.
The decline in Turkey's FDI inflows reflects the global decline discussed in the UNCTAD report. According to the latest International Direct Investment Information Bulletin, released last week by the General Directorate of Foreign Investment of Turkey's Treasury Undersecretariat, total net FDI inflows increased from $2.785 billion in 2004 to $10.031 billion in 2005, $20.185 billion in 2006 and a historic record of $22.046 billion in 2007, but decreased to $18.171 billion in 2008. The downward trend seems to be getting steeper. Between January and March of this year, total net FDI inflows fell to $2.248 billion from $4.493 billion in the same period last year, a precipitous drop of 50 percent.
That is the bad news. The good news is that Turkey seems to have positioned itself well relative to most other countries in terms of its ability to market itself to increasingly scarce and reluctant foreign investors in the midst of the current global crisis, according to a recent study titled “Global Investment Promotion Benchmarking 2009.” This study, the second in a series, is the result of an effort by the Investment Climate Advisory Service, (the renamed Foreign Investment Advisory Service), which is jointly funded by International Finance Corporation, Multilateral Investment Guarantee Agency (MIGA) and the World Bank, to study how well investment promotion agencies market their countries to foreign direct investors. Specifically, it assesses, using a methodology designed by the MIGA, how effectively 181 national and 32 subnational investment promotion intermediaries (IPIs) of 181 countries affect, by providing reliable and current information through professional facilitation, the site-selection processes of potential foreign direct investors. This assessment, carried out between March and September 2008, is two-pronged: First, the degree to which the IPI Web sites offered “a business-support gateway” for potential foreign investors in terms of their information architecture, design, content and promotional effectiveness. Second, the ability of the IPIs to directly provide the specific information sought by investors in two potential projects, a beverage-manufacturing company and a software developer seeking to expand their operations, in terms of availability and contactability, responsiveness and handling, response and customer care.
The report measures only the ability of IPIs to provide information to investors in the early stages of FDI. It does not measure overall FDI competitiveness, business climate, facilitation at the site-visit level or services provided to domestic or existing foreign investors. In his foreword to the report, Louis T. Wells, a professor at the Harvard Business School who is an expert on FDI promotion, emphasizes that for many countries that have adopted inward FDI as a major vehicle of their growth strategies and accordingly improved their business climates and offered various guarantees and incentives to foreign investors, the expected FDI inflows have failed to materialize. Why? Because “without efforts by countries to market themselves to potential investors, company business managers have generally failed to add new countries to their “short list” of attractive sites for their projects.” And the most basic component of marketing is the provision of accurate and timely information to potential investors. Such information can make a country's location internationally more competitive by reducing investors' risk perceptions and transaction costs in making their site selections.
Turkey's IPI, the Prime Ministry's Investment Support and Promotion Agency (ISPAT), referred to as Invest in Turkey (www.invest.gov.tr), whose motto is “Your One-stop Shop in Turkey,” comes off with flying colors in the assessment. Overall ISPAT is ranked 15th among the top-25 national IPIs, headed by Austria, in the world. Turkey's overall score falls into good performance, below best practice. Although ISPAT's Web site is not among the top-25 IPI Web sites, headed by the Czech Republic, ISPAT ranks an impressive 4th among the top-25 IPIs, headed by Austria, in responding to investors' information inquiries. Turkey's inquiry-handling performance in both the beverage and software projects falls into Best Practice. According to the report, “in both inquiry exercises, Invest in Turkey's business case for investment was short but perfectly formed. … Invest in Turkey provided a concise, incisive and highly polished business case that relates exactly to those factors that a company would be using to identify and select the optimal location for its sector and type of proposed operations.”
In my column "Marketing Turkey" (March 5, 2007), I called the creation of ISPAT in 2006, thanks to the direct intervention of Prime Minister Recep Tayyip Erdoğan against his many naysayers, "another crucial step forward in Turkey's long-delayed emergence as a top FDI host country." ISPAT has evidently made tremendous progress since Alpaslan Korkmaz became its president in October 2006. I congratulate him and ISPAT on their remarkable achievement in such a short period and wish them continued success in attracting FDI to Turkey in these extremely hard times.
