FDI flows to Turkish market dry up amid 2009 crisis

Turkey received $7.6 billion in FDI last year, putting the country 32nd on the list of countries that attracted the most FDI, a report by the United Nations Conference on Trade and Development (UNCTAD) has shown. The country dropped 12 places, from 20th to 32nd, in the span of a year. In 2008 FDI entering Turkey decreased by 18 percent over the prior year. Turkey also saw sharp drops in FDI compared to other developing nations, falling from ninth place to 15th from 2000 to 2008. The investments made by Turkish entrepreneurs in foreign countries amounted to $1.6 billion last year.

With $7.6 billion in FDI, Turkey received 0.7 percent of international direct investment worldwide last year. Among 157 developing countries, though, its share was 1.4 percent.

The study, titled “2010 World Investment Report,” was made public at a press conference organized by the International Investors Association (YASED) yesterday in İstanbul.

EU crisis weighs on Turkish FDI

In the first five months of the year, $2.7 billion in FDI entered the country, a 37 percent drop compared to one year earlier. In line with this figure, total FDI is expected to reach $7 billion by the end of the year, YASED Secretary-General Mustafa Alper predicted.

“Turkey receives most of its investment from Europe. The recent financial woes in the EU have adversely influenced FDI flow to Turkey. As the European troubles still continue, it is difficult to expect a rebound in Turkey like other developing countries,” asserted Alper.

The global financial crisis hit international investors hard last year, with FDI plunging by 37 percent to $1.1 trillion around the world from 2008 to 2009. The FDI drop in 2008 was much smaller, at 16 percent, as the adverse impacts of the recession on businesses were narrower. According to UNCTAD data, the five countries attracting the most FDI were the US, China, France, Hong Kong and the UK.

Turkey’s FDI stock amounted to $77.7 billion as of 2009, 12.6 percent of the gross domestic product (GDP). The total amount of FDI stock in the world reached $17.7 trillion. The report revealed that three-fourths of FDI last year was carried out by investors from developed countries.

According to the report, foreign affiliates of multinational companies suffered drops in their sales, production and exports last year, while the number of people employed in these firms was up from 78.96 million in 2008 to 79.83 million in 2009. Last year FDI entering developed countries plummeted by 44 percent to $566 billion and to developing countries by 27 percent to $548 billion. The report concluded that the share developing countries receive from FDI is on the rise.

But, contrary to such a shift in investor attitude, FDI flows to Turkey suffered a significant decline last year. YASED Deputy Chairman Adnan Nas, drawing attention to this fact, emphasized the necessity of changing Turkey’s FDI strategies to remedy this situation. “Turkey’s image is poor and its country rating is low. Our judicial system is not very good. Investors do not feel safe here. We have made some progress in this regard, but surely we should do more,” he said.

Nas maintained that international credit rating agencies were unfair to Turkey in not upgrading its rating but added that the country still has important shortcomings in predictability, which plays an important role in its low credit rating.

Nas expressed concern over a delay in the fiscal rule bill, which is unlikely to be passed before Parliament goes on summer recess, predicting that it will have a negative impact on foreign investors considering investing in Turkey.

Merger and acquisition (M&A) activities in Turkey, the main driver of FDI, also plunged from $13.2 billion in 2008 to $2.8 billion last year. This trend was similar around the world, with all M&A activities plummeting by 65 percent to $250 billion in the global economy.

UNCTAD predicted the FDI flow would show signs of a slight recovery this year after a sharp drop in 2009, but regain its pre-crisis level of $2 trillion only by 2012. Accordingly, the FDI flow worldwide is expected to amount to $1.2 trillion in 2010, $1.3 trillion to $1.5 trillion in 2011 and $1.6 trillion to $2 trillion in 2012.