Turkey Seeks Improvement in Investment Climate

New Incentive System in Turkey Seeks Improvement in Investment Climate

 August 19,  2016

 

The new incentive mechanism will provide the foreign investors with greater advantages according to the value of the project, says Turkish Minister of Development Lutfi Elvan.

 

What the New System Brings

Planning and Budget Commission of the Turkish Parliament has passed a draft law that seeks to improve the investment climate in Turkey. The draft will be discussed in the General Assembly and enter into force.

Development Minister Lutfi Elvan met with foreign press following the High-Level Businessmen Meeting and explained Turkey’s new incentive system. According to Mr. Elvan, the most distinctive feature of the new system will be the possibility to hold project-based negotiations between investors and the Ministry of Economy regarding the scope of possible incentives. In other words, cost and value of the investment projects will be the main criteria for Turkish decision-makers, and will provide greater flexibility to both sides. Mr. Elvan said that such an incentive mechanism would be applied for the first time in Turkey.

Why Now

In his remarks, Mr. Elvan stated that Turkey “continues to provide window of opportunity despite failed coup attempt.” Indeed, the coup attempt that failed on July 15 as a result of counter-protests by the Turkish people and united stance against military intervention by both ruling and opposition parties raised questions about Turkey’s economic stability and business environment. After all, the Achille’s-heel of Turkish economy, dependence of foreign-sourced financing, creates vulnerability especially during politically unstable periods. Given the decline in tourism revenues, Turkey’s current account deficit (widened by 54% yoy to 4.9 billion USD in June), the risk perception of investors become even more important. 

 

That said, main macro-economic indicators have remained stable despite coup attempt. The chart above demonstrates that there is no abnormal volatility in exchange rates. Nevertheless, business environment has been looking for signs of normalization and stabilization since July 15. The democracy rally that was held on Aug. 7 with the participation of President Tayyip Erdogan, government officials, opposition leaders and people from various backgrounds gave the main sign of political stability. Now that the government is moving ahead with incentive mechanism demonstrates that business environment is the main priority. Mr. Elvan’s statement is an important driver.

 

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