According to many theories of globalization, convergence is expected to take place not only in economic structures but also in the social fabric of societies, which may not be desirable at all.In the realm of economics, convergence is expected business practice, employee-employer practice, foreign trade structure practice, practice among contacts with foreign capital and the like. Among other factors, mergers and acquisitions (M&A) are seen as an important indicator of convergence. After many years of isolation from the world economy until the 1980s, many reform measures were implemented and Turkey was exposed to global economic discourse. Many radical reform measures were implemented before and after the crisis of 2001, and parallel to this reform process, the EU began to consider Turkey as one of the working market economics.
It is not surprising that after all these measures Turkey has started attracting an incomparable volume of foreign capital since 2004. Among major activities, M&A have achieved striking momentum in the last two-and-a-half years.
According to a recent report, in the first half of 2008, there were 92 M&A with a total transaction volume of $11 billion, representing an increase over the same period of last year, when total M&A transactions reached $10.5 billion. This performance was not expected by many exporters due to a credit crunch in major developed countries. However, I argued here that the credit crunch in developed economies will increase the change of some emerging market economies with correct economic fundamentals. In fact, as I expected, the credit crunch shifted the funds' focus from developed countries to developing countries.
It can be argued that if Turkey's domestic political risks -- the closure case against the Justice and Development Party (AK Party) and organized terror activities that infiltrated the heart of many state organs -- were moderated, the volume of M&A in the first half 2008 would be even higher. This performance should be assessed as confirmation of Turkey's qualified "investment friendly" environment, fueling the expectations for significant growth potential.
To give a brief summary of total M&A in 2008 as of today, against 57 transactions by foreign interests, Turkish companies made 35 purchases totaling $2.8 billion. Of the total deal value in the first half of 2008, 75 percent was generated by foreign investors. In contrast to nine transactions in 2007, US-based investors have concluded only one deal so far this year, underlining the American credit crunch triggered by mortgage sector malaise. Surprisingly, the Gulf region was quite silent in the first half, highlighting that it is waiting for reforms so as to attract Islamic financial resources.
Among others, the privatization of the tobacco industry, the sale of Migros (a retail store chain) and the sale of Başkent Doğalgaz made up 45 percent of the total deal volume, whereas the top 10 deals accounted for 75 percent. Is seems that for the last half of the year, the energy sector will gain the priority in M&A.
In terms of convergence and attracting more foreign capital, the process is quite positive and promising. However, in terms of greenfield investment, the situation is quite discouraging. This process creates a sense of alienation in the country in the sense that people believe foreigners are taking over all profit-making companies and transferring significant profit out of the country without reinvesting. For foreign capital to survive in Turkey in the longer term they should understand this psychology and act accordingly.
