Despite an uncertain global economic environment Turkey is riding on a wave of increasing foreign investment; it has doubled in the past five years with investments still expected to rise further.
Investors are focusing on the automotive sector as well as sectors with a high technology component. Other sectors such as business services and transport and logistics have also drawn serious investor attention. Infrastructure, a successful economy, a large domestic market and low taxes and incentives are driving the jump in investments. Turkey's highly qualified, skilled and cost effective labour force are attractive to foreign investors. A majority of potential investors believe Turkey's accession to the European Union will also improve the country's investment attractiveness. More than half of total respondents in a 2013 Ernst and Young survey expressed their intention to invest in operations in Turkey within the next three years. The Customs Union Agreement of Turkey with the European Union represents a huge opportunity for investors looking for a relatively low cost export base for the European market. It is also possible for companies located in Turkey to make a duty free trade with other European Union countries. Turkey offers a competitive tax system to investors with local regulations, tax treaty network, special free zones and incentive tools. Recent tax law amendments have reduced tax rates and the depreciation rules and investment allowance system provide opportunities to lower the effective corporate tax rates. Istanbul is by far the city most favored by investors, attracting over half of the total foreign direct investment projects that came to Turkey between 2007 and 2012. Other Turkish cities Izmir, Ankara and Bursa have also shown recent signs of strong investment growth. Turkey is a country that offers a central location to many markets including the Middle East, Africa and Europe. With United Arab Emirates and Qatar both strong markets it puts Turkish investment in a very strong position. While the European invesment market is slowing, it is still an important market to be in or have easy access to, which is what makes Turkey so desirable. Perhaps the most significant attraction to Turkey is its demographic advantage. Turkey boasts 76 million inhabitants with about 20% under the age of 14. Economist Jim O'Neill believes Turkey is very much an emerging economic giant and with really good "inner" demographics for at least the next 20 years there will be a rise in the number of people eligible to work relative to those not working. Turkey has a burgeoning middle class. That means a compelling consumer opportunity.
The Turkish market remains extremely under-penetrated for the general partners. Private equity currently accounts for about 0.1% of Turkish GDP. In the BRIC countries the equivalent figure is more than three times that, while in the US it is around 10 times that.
Compared to big emerging markets like China and India, the market isn't particularly crowded - which could benefit both general partners and limited partners. Sanction-hit Russia has become an even more difficult place to invest in and some limited partners believe that Turkey will pick up some of the capital originally earmarked for this region.
The future for Turkey looks bright and if the government eliminates remaining obstacles such as bureaucracy and inadequate legal infrastructure Turkey will be a shining star in the investment sky.
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