“The volume of FDI attracted in May is proof [of trust investors have in Turkey],” the minister said in a written statement on Friday. Turkey appealed to as high as $1.5 billion in FDI only during the fifth month.
The January-May performance was 16 percent better compared to the same period a year ago. Turkey received $5.6 billion in FDI in the first five months of last year. In all of 2011, Turkey saw $15.9 billion in international investment for the country. It, however, attracted the highest amount of FDI between 2006 and 2008, with an average of more than $20 billion annually.
Figures from the five-month period indicated that capital fleeing Europe has notably helped Turkey’s FDI performance. A total of 78.6 percent of all foreign long-term investments Turkey had in the January-May period was of European origin, but only $1.9 billion in FDI came from the UK. Another $1.2 billion and $495 million came from Austria and the Netherlands, respectively. The most enticing sector for foreign investors in the first five months was manufacturing at $2.4 billion.
“That food and beverage production, as subsectors under manufacturing, topped the list with $2 billion proves Turkey’s production and exports capacity. That foreign investors preferred the manufacturing industries over others is also proof that Turkey is making progress towards becoming one of the most important hubs for production and exports of goods,” Çağlayan said in the statement, adding that a new investment incentive package his government recently announced will buttress Turkey’s pursuit of more FDI in this and the coming years.
The long-awaited incentive package was unveiled in early April by Prime Minister Recep Tayyip Erdoğan. It implements policies to attract new investments to 15 of the country’s relatively less-developed eastern provinces. Also expected to substantially further help reduce the national current account deficit (CAD) while minimizing differences in regional development with some large investments, the new incentive package is the most comprehensive announced so far. It took effect late last month.
The package divides provinces into six categories based on their current level of economic development and the investment opportunities they offer. The first category, mainly western provinces, is the most developed, while the sixth category includes the least developed regions, particularly in the eastern and southeastern parts of the country. It envisages offering incentives to increase production capacity and competition in six particular sectors -- machine manufacturing, iron and steel production, the automotive sector, food production and agriculture, chemical production, and textiles. The government holds these six sectors the most responsible for the country’s CAD, which started to shrink in the past couple of months thanks to appropriate fiscal and monetary policies.
According to data from the Central Bank of Turkey, the national CAD has dropped by more than a quarter to touch $27 billion in the January-May period of this year. Playing the biggest role in the reduction of the deficit were the country’s improving terms of trade. Increasing service sector revenue, particularly in the tourism sector, also made a notable contribution to narrowing the gap.
In the face of a quickly widening CAD last year, the central bank adopted an unconventional policy mix of lower interest rates and higher required reserve ratios to make Turkey less attractive for highly volatile, short-term international capital inflow, while at the same time making it more difficult for consumers to take out loans from banks, in order to tame credit expansion throughout the year. The measures were coupled with government action taken late last year by the executive branch to substantially raise what is called the private consumption tax (ÖTV) on certain -- mostly imported -- products such as cars and cell phones.