Do incentives really bring foreign investment?

A new incentive program announced in Ankara on Thursday by Prime Minister Recep Tayyip Erdoğan is expected to help reduce Turkey’s current account deficit (CAD) through investments with high added value while minimizing differences in regional development. The new program -- following one that was introduced in 2009 -- features incentives that include social security employment premium subsidies for seven to 10 years and land allocation and tax exemptions for new investments from the beginning of this year through the end of 2013.

It is obvious there have been some difficulties attracting even local investors to the eastern parts of Turkey, let alone foreign investors. We all appreciate attempts to move towards a better economy. I am pretty sure that these incentives will be a remedy for the southeastern and eastern provinces of Turkey, which are currently deprived of investment.

Has the incentive mechanism been correctly supported?

An incentive package is not a simple or easy thing to implement. Many other elements of the investment climate affect the successful future of an investment. Besides, incentives do not really work unless there is an investor-friendly environment, which includes developed infrastructure, qualified staff and neutral courts for fast dispute resolution. Unfortunately, the incentive package will not really bring a major change in the investment climate. Some major elements for the success of these incentives are missing.

Qualified staff and labor unions

Labor unions must act in compliance with the sustainable development of the economy. Labor union action must not end with a foreign investor closing its factory in Turkey. I have witnessed this in the past. A foreign investor comes to Turkey with the hope of making a good profit and benefiting from incentives introduced by the government. However, a loss created by an illegal strike sweeps away all benefits gained through incentives.

Legislation and legal practice should conform to intention to support foreign investment

I am not saying that the courts should act in favor of foreign investors, but they should consider that a foreign investor, more or less, needs more care than a local because he has been invited to invest in the country. Investors take a risk when coming to Turkey, and one of the major concerns of decision-makers from investing companies is whether the courts and legal environment are investor-friendly or not. I know some foreign investors have been disappointed in this regard in the past.

A real example of investment promotion: Turkish Arbitration Act

If incentives are supported by other means, especially by the implementation of rules for the fair judgment of a dispute case, then the chance for the success of the program increases. If I may give an example of this, it is a fact that the growth of investments accelerated after the implementation of the Turkish Arbitration Act. Earlier, the practice of arbitration in Turkey was very limited. Decisions made by arbitrators were subject to appeal before the Supreme Court of Appeals, which could examine the award in substance. Needless to say, let alone the waste of time spent at the archives of Ankara, this appeals stage indeed ended, in some cases, in a new judgment that ignored the arbitrators’ decision. Thank God this is over now. An arbitration award is only subject to a procedural check under the Arbitration Act. A similar revolution should be made in litigation, at the level of the local and appellate courts handling these matters.

The government should not bother introducing incentives without the full support of the judiciary.

The fate of multi-million euro investments is in the hands of a labor court judge. In many cases, it is possible to observe attempts by opposition party deputies to create pressure by visiting the court to support the employees, who are no longer just employees but either claimants or defendants. A Turkish court derives its powers from the nation and makes decisions on behalf of the nation. Therefore, a court should not act contrarily to the benefits of its nation. What are the benefits? They are justice, economic freedom and a better future. If the weighing hand of justice is in favor of either party in advance of the judicial process, then there is no room left for neutrality.

NOTE: Berk Çektir is a licensed attorney at law and available to answer questions on the legal aspects of living in Turkey. Please kindly send inquiries to b.cektir@todayszaman.com. If a sender’s letter is published, names may be disclosed unless otherwise expressly stated by the sender.

DISCLAIMER: The information provided here is intended to give basic legal information. You should get legal assistance from a licensed attorney at law while conducting legal transactions and not rely solely on the information in this column.