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Investoer Guide FOR TURKEY

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Investor Guide FOR TURKEY

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  • 1. INVESTOR’S GUIDEFOR TURKEY
  • 2. Establishing a Business in Turkey ..................................................3Cost of Doing Business in Turkey ...................................................4Incentives ......................................................................................7 1. The Investment Incentive System in Turkey....................................................... 7 1.a. General Investment Incentive Regime ...................................................................... 7 1.b Incentives for Priority Development Regions .............................................................. 7 1.c Incentives Granted to Small and Medium Sized Enterprises (SME Incentives) ................. 9 1.d Research and Development Supports ........................................................................ 9 1.e Technology Development Zones’ Supports ............................................................... 10 1.f State Incentives for Export ..................................................................................... 10Taxes ...........................................................................................11 1. Taxes .......................................................................................................... 11 1.b Taxes on Expenditure ............................................................................................ 12 1.c Taxes on Wealth ................................................................................................... 12 2. Tax Incentives.............................................................................................. 14 3. Tax Exemptions and Allowances ..................................................................... 14Special Investment Zones ............................................................15Demography and Labor Force ......................................................18 1. DEMOGRAPHY .............................................................................................. 18 2. LABOR FORCE .............................................................................................. 19Business Environment..................................................................24 AUTONOMOUS BODIES ..................................................................................... 24 1. Competition Authority ............................................................................................. 24 2. Energy Market Regulation Authority .......................................................................... 24 3. Banking Regulation and Supervision Agency .............................................................. 24 4. Telecommunication Authority ................................................................................... 25 5. Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board................ 25 6. Privatization Authority............................................................................................. 25 ENVIRONMENTAL STANDARDS ........................................................................... 26 TURKISH LABOR MARKET .................................................................................. 26 EMPLOYMENT OF EXPATRIATES.......................................................................... 26 1. How to get a work permit in Turkey .......................................................................... 26 2. Main categories of work permits ............................................................................... 27 RESEARCH AND DEVELOPMENT ACTIVITIES ........................................................ 27 1. TUBITAK ............................................................................................................... 27 2. TTGV .................................................................................................................... 27 3. KOSGEB ................................................................................................................ 28Infrastructure ..............................................................................29Economic Outlook ........................................................................34 1. MACROECONOMIC INDICATORS ..................................................................... 34 1.a Changes in price levels .......................................................................................... 35 1.b Balance of Payments ............................................................................................. 36 2.FDI IN TURKEY .............................................................................................. 41 3. INTERNATIONAL TRADE ................................................................................ 46Business Legislation.....................................................................52 2
  • 3. Establishing a Business in TurkeyTurkeys regulatory environment is extremely business-friendly. You can establish a business in Turkeyirrespective of nationality or place of residence. The registration and establishment of a company inTurkey can be completed in one day.The process is handled by one ministry which acts as the coordinator between all authorities.The first step in establishing a business in Turkey is to fill out the "Business Registration Form" at thelocal Trade Registry Office located at the local Chamber of Commerce.Here are the steps to follow: • Submit the notarized Articles of Association. • Deposit 0.04% of the capital into either a State Bank or the Turkish Central Bank. • Complete the “Company Establishment Form” and register with the Trade Registry Office.International companies may start their activities in Turkey in various forms depending on the investorsdevelopment strategies.The most common types of legal entities in Turkey are : • Limited Liability Company (Ltd.Sti.) • Joint-Stock Company (A.S) • Branch Office • Liaison Office 3
  • 4. Cost of Doing Business in Turkey Minimum Monthly Wage (Gross and Net) USDNet Minimum Wage 297.29- Social Security Premium Payment (14%) 58.08- Payment for Unemployment Insurance Fund (1%) 4.14- Income Tax (15%) 52.90- Stamp Tax (6%) 2.48Gross Minimum Wage 414.89Total Deduction 117.60 Cost for EmployerGross Minimum Wage 414.89Employer Share of Social Security Premium (19.5%) 80.90Employers Payment for Unemployment Insurance Fund 8.29(2%)Total Cost for Employer 504.08Source: Ministry of Labor and Social Security, Valid for the year2007.35,6% of the labor force work on the minimum wage which is the highest rate in the EU.For more than four years, the electricity cost remain at the same tariff. The cost policy was adopted byTurkish Government in order to maintain the stability of the competiveness of national productivity. 4
  • 5. Cost of Electricity Cost of Electricity USD/kwh Active Energy Daytime Night Cent/kWh Cent/kWh Double Term TariffIndustry Mid 0.070 0.035Voltage Single Term TariffMid Voltage 0.081 0.046Source: Tedaş, Valid for the year 2007 Cost of Water for Industrial UseType of USD/m3Customer Waste Water Total VAT (%) WaterIndustry 2.41 0 2.41 8Org.Ind.Zone 1.57 0 1.57 8Source: ĐSKĐ, valid for the year 2007. Cost of natural gas for industrial purposes Price per kwh (USD) Disengaged Consumer Engaged Consumer 0.030743 USD/kwh 0.034992 USD/kwhEngaged Consumer: The group of consumers who must purchasegas from the local supplier company.Disengaged Consumer: The group of consumers who consumesmore than 1 million m3 annually and qualified to purchase gasfrom other suppliers.Source: IGDAŞ, Valid for the year 2007. 5
  • 6. Cost of Telephone Use USDFixed Cost (per Month) 25.17CALL CHARGES- YTL/minLocal Peak 0.039Local Off-Peak(2) 0.019Long Distance 0.056Source: Turk Telecom, valid for the year 2007. 6
  • 7. Incentives1. The Investment Incentive System in TurkeyThe investment incentives scheme was amended in 2006 to promote investment in manufacturingservices and the energy sector as well as to encourage exports. Local and foreign investors have equalaccess to these incentives.1.a. General Investment Incentive RegimeThe general incentive regime is mainly a tax benefit program yet in certain cases there are creditpossibilities. It is applied varyingly according to the location, scale, and subject of the investment.The Major Incentives Instruments • Exemption from Customs Duties and Fund Levies; • Custom Tax exemption for locally purchased or imported machinery and equipment • VAT Exemption for Imported or Locally Purchased Machinery and Equipment; • VAT exemption for locally purchased or imported machinery and equipment for projectsInterest Support:The Treasury covers selected parts of the investment credits’ interest rate. Interest support is providedfor • SME’s • R&D Projects • Environmental Projects • Projects in 50 Prioritized Development Provinces1.b Incentives for Priority Development RegionsIncentives are provided in 50 provinces 7
  • 8. Province ListIncentives provided are as below; • Free Land • Income Tax Relief • Employer’s Share for Social Security Relief • Energy SupportFree land allocation provided in 4 provinces 8
  • 9. FOR COMPANIES OIZ’s ANDINCENTIVE TYPE OTHERS INDUSTRIAL ZONESINCOME TAX RELIEF 100 % 80 %COMPANSATION FOR THE EMPLOYERS SOCIAL 100 % 80 %SECURITY CONTRIBIUTION VARIES MIN. 20%ENERGY SUPPORT VARIES MIN. 20% - 50% - 50%FREE LAND ALLOCATION AVAILABLE AVAILABLE1.c Incentives Granted to Small and Medium Sized Enterprises (SME Incentives)• Custom Duties Exemption• VAT Exemption• Interest SupportKOSGEB support of SME’s; The Small and Medium Industry Development Organization (KOSGEB) makessignificant contributions to strengthen SME’s by various support instruments in financing, R&D, commonfacilities, market research, investment site, marketing, export and training.1.d Research and Development SupportsTÜBĐTAK (Scientific and Technological Research Council of Turkey) and TTGV (Turkish TechnologyDevelopment Foundation) both reimburse and/or grant R&D related expenses and capital loans for R&Dprojects.Projects eligible for TÜBĐTAK Incentives cover:• Concept Development• Technological Research and Technical Feasibility Research• Laboratory Studies in the transformation of a concept to a design• Design and Sketching Studies• Prototype Production• Construction of pilot facilities• Test production• Patent and License studies• Activities related to post-sale problems stemming from product design 9
  • 10. 1.e Technology Development Zones’ Supports• Infrastructure facilities are provided.• Profits derived out software and R&D activities are exempt from income and corporate taxes until31.12.2013.• The wages of researchers, software and R&D personnel employed in the zone are exempt from alltaxes until 31.12.2013.• VAT exemption during the exemption period of income and corporate taxes is provided for IT specificsectors.• Exemption from customs and duties as well as fund levies.1.f State Incentives for ExportThe principle aims of this scheme are to encourage export and to increase the competitiveness of firms ininternational markets. This specific package covers mainly R&D activities, market research, participationin exhibitions and international fairs, expenditures for patents, trademarks and industrial design. 10
  • 11. Taxes1. TaxesTurkey has one of the most competitive corporate tax rates in the OECD region. The new Corporate Taxlaw that was enacted on June 21, 2006 has made some important amendments to the currentapplications and also included new concepts in the tax legislation. With the new Corporate Tax Law inplace, the Turkish corporate tax legislation has noticeably clearer, more objective and greaterharmonized provisions which are in-line with international standards.The Turkish tax regime can be classified under three main headings:1.a Income TaxesIncome taxes in Turkey are levied on all income, including domestic as well as foreign individuals andcorporations residing in Turkey. Non-residents earning income in Turkey through employment, ownershipof property, business transactions, or any other activity which generates income are also subject totaxation, but only on the income earned in Turkey.1.a.1 Corporate Income TaxesIn Turkey, the basic corporate income tax rate levied on business profits is 20%.Withholding Taxes On Selected Payments of Resident Corporations- Dividends are subject to 15%.- Interest on treasury-bill and treasury bonds derived by resident corporations is subject to 10%.- Interest on other bonds and bills derived by resident corporations is subject to 10%.- Bank deposits are subject to 15%.- Profit shares paid by participation banks in consideration of participation account are subject to 15%.- REPO agreements are subject to 15%.Withholding Taxes On Selected Payments of Non-Resident Corporations- Dividends are subject to 15%.- Interest on treasury-bill and treasury bonds derived by non-resident corporations is subject to 0%.- Interest on other bonds and bills derived by non-resident corporations is subject to 0%.- Bank deposits are subject to 15%.- Profit shares paid by participation banks in consideration of participation account are subject to 15%.- REPO agreements are subject to 15%.1.a.2 Individual Income TaxThe personal income tax rate varies from 15% to 35%.Income tax rates applicable to yearly gross earnings from 2007 are as follows: 11
  • 12. YTL INCOME SCALES RATE (%) Up to 7,500 15 7,501 - 19,000 20 19,001 - 43,000 27 43,001 and over 351.b Taxes on Expenditure1.b.1 Value Added Tax (VAT)The generally applied VAT rate varies between 1%, 8%, and 18%. Commercial, industrial, agricultural,and independent professional goods and services; goods and services imported into the country anddeliveries on goods and services caused by other activities are all subject to VAT.1.b.2 Special Consumption TaxThere are 4 main product groups that are subject to special consumption tax at different tax rates:• Petroleum products, natural gas, lubricating oil, solvents, and derivatives of solvents• Automobiles and other vehicles, motorcycles, planes, helicopters, yachts• Tobacco and tobacco products, alcoholic beverages• Luxury productsUnlike VAT, which is applied on each delivery, special consumption tax is charged only once.1.b.3 Banking and Insurance Transaction TaxBanking and Insurance company transactions remain exempt from VAT but are subject to a Banking andInsurance Transaction Tax. This tax applies to income earned by the banks, for example on loan interest.The general rate is 5%, while interest on deposit transactions between banks is 1% and sales amountfrom foreign exchange transactions is 0.1%.1.b.4 Stamp DutyThe Stamp duty applies to a wide range of documents, including contracts, agreements, notes payable,capital contributions, letters of credit, letters of guarantee, financial statements and payrolls. The Stampduty is levied as a percentage of the value of the document at rates ranging from 0.15% to 0.75%.1.c Taxes on WealthThere are three kinds of taxes on wealth:Inheritance and Gift Taxes, property taxes and motor vehicle taxBuildings and land owned in Turkey are subject to real estate tax at the following rates:• Residences 0.1%• Other buildings 0.2% 12
  • 13. Chart of Principal Turkish Taxes Corporate income tax Increase in net worth 20% Advance corporate tax Net taxable income 20% Individual/ income tax 15 – 35% (all source of income including employment income) Value Added Tax – VAT Sales value • General 18% • Basic foodstuff, textile products etc. 8% • Certain agricultural products and financial leasing services etc. 1% Banking & Insurance Transaction Tax • General 5% • Interbank deposit transactions 1% • Repossessions 1% • Money market transactions between banks and brokers 1% • Sale of Government bonds and T-bills 1% • Sale of foreign currency 0.1%Stamp Duty Value specified in the documents Usually at 0.75% (0.15% for rental contracts, 0.06% for salariesGift and Inheritance Tax Value 1 – 30%Customs Duties Value VariousTransfer of real estate Sales Value 1.5%, each buyer and sellerSpecial Consumption Tax • Petroleum products Per liter, kg, etc. Specific • Vehicles Value and engine size 1 to 84% • Alcoholic beverages & tobacco products Value, retail sale price for (*) 25% - 275.6% tobacco products And lump-sum • Certain luxury goods Value 6.7% -20%Special Communication Tax Service fee • Mobile telecommunication services 25 % • Radio & Television broadcasting services through 15% satellite or cable • Other telecommunication services 15%Motor Vehicle Tax Model, engine, weight Specified amount revised each yearMajor Municipal & Local Taxes:Real estate taxes Tax Value • Buildings 0.1 -0.4% • Land 0.1 - 0.6%Entertainment tax Per tariff, gross profit Specific, 0 - 20%Communication tax Fee 1%Electricity and Gas consumption tax Sales Value 1 -5%Environment protection tax Per fiat and business Specified amount premises revised each year 13
  • 14. (*) Only the percentage tax rate is applied provided that it is not less than the tax calculated by using the minimumlump-sum tax amounts.Source : KPMG 2. Tax Incentives • Prioritized Development Zones • Technology Development Zones • Organized Industrial Zones • Free Zones • Research and Development • Educational Corporations • Cultural Investments and Enterprises 3. Tax Exemptions and Allowances VAT exemptions include but are not limited to the following transactions: • Export of goods and services • Roaming services rendered in Turkey for customers outside Turkey (i.e. non-resident customers) in-line with international roaming agreements and which have a reciprocity condition in place • Petroleum exploration activities • International transportation • Deliveries made to diplomatic representatives, consulates and international organizations with tax exemption status and to their employees • The supply of machinery and equipment, including importation to persons or corporations that are VAT taxpayers and that have an investment certificate issued by the relevant authority • Services rendered at harbors and airports for vessels and aircrafts • Social and other exemptions apply to deliveries made to the government and other related organizations for cultural, educational, health and similar purposes • Banking and insurance transactions are exempted from VAT as they are subject to a separate Banking and Insurance Transactions Tax at the rate of 5 % • Tax exemption are provided for earnings derived by corporations from their overseas branches and both their domestic and overseas ventures if they meet certain conditions • Research and Development Allowances • Deductions from the tax base of corporations related to certain donations, aid or sponsorship expenditures for sport activities 14
  • 15. Special Investment ZonesThere are 4 types of special investment zones in Turkey:1. TECHNOLOGY DEVELOPMENT ZONES - TECHNOPARKS• Technology Development Zones are areas designed to support R&D activities and attract investmentsin high technology fields.• There are 14 operational TDZ’s and 8 new TDZ’s which have been approved for construction.ADVANTAGES OF TDZ’s• Offices ready to rent and infrastructure facilities provided.• Profits derived from software and R&D activities are exempt from income and corporate taxes untilDecember 31, 2013.• Deliveries of application software produced exclusively in TDZ’s are exempt from VAT until December31, 2013. Examples include software for systems management, data management, businessapplications, different business sectors, Internet, mobile phones and military command control.• Wages of researchers, software and R&D personnel employed in the zone are exempt from all taxesuntil December 31, 2013.• A VAT exemption during the exemption period of income and corporate taxes is provided for IT specificsectors.• Exemption from customs and duties as well as fund levies.• Academic staff is encouraged to establish companies, participate in a recognized company or join itsexecutive boards as well as conduct research in the zones. 15
  • 16. 2. ORGANIZED INDUSTRIAL ZONESOrganized Industrial Zones are designed in a way that allow companies which provide goods and servicesto operate within approved boundaries with the necessary infrastructure, techno parks and socialfacilities.• The infrastructure provided in the zones includes roads, water, natural gas, electricity,communications, waste treatment and other services.• There are 93 OIZ’s in 81 provinces with a completed infrastructure. Another 151 OIZ’s are currentlyunder construction throughout Turkey.Number of Organized Industrial Zones in Turkey: Marmara Region (57) Aegean Region (44) Mediterranean Region (17) Central Anatolia Region (42) Black Sea Region (33) Eastern Anatolia Region (20) South Eastern Anatolia Region (13)ADVANTAGES OF OIZ’s have in 54 PRIORITIZED PROVINCESInvestors operating in the zones located in 54 selected provinces benefit from the following advantages:• 100% exemption from income tax for employed workers.• 100% exemption from the employer’s share of social security costs.• Free land allocation.• Up to 50% support for electricity costs.• Exemption from real estate tax, waste water charges, building construction duties and the use-of-building.Province List:Provinces with active OIZ’sAdana, Adiyaman, Afyon, Amasya, Ankara, Antalya, Aydın, Balikesir, Bartin, Bayburt, Bilecik, Bolu,Burdur, Bursa, Canakkale, Cankiri, Corum, Denizli, Duzce, Elazıg, Erzincan, Erzurum, Eskisehir,Gaziantep, Hatay, Isparta, Istanbul, Izmir, Karaman, Karabuk, Kars, Kayseri, Kirikkale, Kirklareli,Kirşehir, Kilis, Kocaeli, Konya, Kütahya, Malatya, Manisa, Mardin, Mersin, Niğde, Ordu, Osmaniye,Samsun, Sinop, Sivas, Sanliurfa, Tekirdag, Tokat, Trabzon, Tunceli, Usak, Yozgat, Zonguldak, Van3. INDUSTRIAL ZONES• Industrial Zones are designed to provide sites suitable for large scale and technology intensiveinvestments.• The Council of Ministers approves the Industrial Zones after the evaluation of the investment sites bythe Ministry of Industry and Trade.• The investments carried out in an Industrial Zone should be in a high technology sector and have aninvestment site of a minimum of 1,500 m2.• Industrial Zones benefit from all of the same advantages provided to OIZ’s. 16
  • 17. 4. FREE ZONES• Free Zones are special sites considered outside the customs area although they are within the politicalborders of the country. These zones are designed to increase the number of export-focused investments.• Legal and administrative regulations on commercial, financial and economic fields which are applicablewithin the customs area are either not implemented or partially implemented in the Free Zones.• There are 20 Free Zones in Turkey which operate close to EU and Middle East markets; are adjacent tomajor Turkish ports on the Mediterranean, Aegean and Black Seas; and which have easy access tointernational trade routes.Free Zone List• Istanbul AHL• Istanbul Deri ve Endustri• IMKB• Tubitak MAM• Kocaeli• Istanbul• Avrupa• Trakya• Bursa• Izmir Menemen Deri• Ege• Denizli• Antalya• Kayseri• Samsun• Adana-Yumurtalik• Mersin• Gaziantep• Mardin• Dogu Anadolu• Trabzon• RizeADVANTAGES OF FREE ZONES• %100 exemption from custom duties and other assorted duties• %100 exemption from corporate income tax for production companies• %100 exemption from the value added tax (VAT) and special consumption taxes• Goods can remain in Free Zones for an unlimited period; earnings and revenues generates in FreeZones can be freely transferred to any country, including Turkey, without any prior permission.• Goods in free circulation can be sent to Turkey or to EU countries from the Free Zones without anycustoms duty. Moreover, no customs duty is applied to goods of a third country origin at the entrance tothe Free Zones or exit to third countries.• Companies are free to transfer profits from Free Zones abroad as well as to Turkey without restrictions. 17
  • 18. Demography and Labor Force1. DEMOGRAPHYTurkey is located in the GMT+2 time zone, which allows it to communicate with countries from both westand east in the same working day.783,562.38 km2Turkey’s 783,562.38 km2 of land is divided in 7 geographic regions, namely the Marmara, Aegean,Mediterranean, South East Anatolian, East Anatolian, Central Anatolian and Black Sea. The country issurrounded by 4 seas: Mediterranean, Aegean, Marmara and Black Sea.70 MILLIONTurkey has a total population of 70 million, of which 24.6 million people are active in the labor force. Demographic StructureAverage Age 290-14 years 24.9%15-64 years 68.1%65 years and over 6.9% (2007 est.) Population growth rate1.04% (2007 est.) Life expectancy at birthtotal population 72.88 yearsmale 70.43 yearsfemale 75.46 years (2007 est.)Source : TURKSTAT 18
  • 19. Gender RatiosAt Birth 1.05 m/f0 – 14 1.038 m/f15 - 64 1.032 m/f65 + 0.84 m/fTotal Population 1.019 m/fSource : www.indexmundi.com Population Age0 – 14 24.9% (m 9.03 million / f 8.7 million)15 - 64 68.1% (m 24.6 million / f 23.8 million)65 + 6.9% (m 2.2 million / f 2.6 million)Source : www.indexmundi.com2. LABOR FORCETurkey offers investors a young, talented, motivated and skilled workforce composed of 24.6 millionpeople, approximately 35% of the total population. This skilled labor force is capable of meeting theneeds of the globally integrated and highly diversified Turkish economy.Turkey’s young population is an important source for labor force growth and has helped Turkey to rankhighest among its competitors . 19
  • 20. The distribution of the workforce among many diverse sectors reflects the wealth of the opportunitiesoffered to investors.Labor costs in Turkey are very competitive and wages have remained quite stable. As it can be seen fromthe table below, the unit wage manufacturing index is still below the 1997 level. 20
  • 21. The Turkish labor market is one of the best in the world because of the qualifications, skills, dedicationand motivation that it offers. 21
  • 22. Turkey has a young, dynamic labor force with an average age of 29 years old. 22
  • 23. A strong work ethic is an important component of the Turkish work culture. The workplace as aninstitution is cherished in Turkey because it allows individuals to utilize their skills and to work towardsself advancement. The labor force’s dedication to work is shown via Turkey’s high productivity, lowabsenteeism and its top ranked position among working hour rates per year.EDUCATIONAt the end of every academic year, nearly 400,000 graduates from 115 universities in Turkey join thelabor market. Moreover, about 250,000 students graduate every year from 4,244 vocational andprofessional high schools; an additional 400,000 students graduate from 3,690 high schools in Turkey.All things considered, Turkey has a labor market which continues to improve dramatically every year,both in quantity and quality. 23
  • 24. Business EnvironmentAUTONOMOUS BODIESAutonomous Bodies are established in order to regulate and monitor different types of markets inaccordance with the requirements of a functioning market economy. The Bodies have both administrativeand fiscal independency. Some of the important entities in Turkey are the Competition Authority, theEnergy Market Regulation Authority, the Banking Regulation and Supervision Authority;Telecommunication Authority and the Tobacco, Tobacco Products and Alcoholic Beverages MarketRegulation Board.1. Competition AuthorityCompetition Authority (CA) is responsible for the full achievement of competition in the markets. Mainresponsibilities and powers of the Competition Authority are:a. To carry out, the examination, inquiry and investigation into activities and official transactions definedin Competition Code upon application or upon its own initiative; to take the necessary measures toexpunge infringements of the Code; and to impose administrative regulationsb. To evaluate the requests for exemption and to grant an exemption certificate to the appropriateagreements which may distort competition,c. To constantly follow the markets to which exemption decisions and negative clearance certificates arerelated, and to re-evaluate the applications of those in case changes are established in these markets orin the positions of the partiesd. To evaluate mergers and acquisition activities and approve them according to determined criteriawww.rekabet.gov.tr2. Energy Market Regulation AuthorityEnergy Market Regulation Authority (EMRA) regulates and controls the energy market. The Authorityensures its independent duties in order to provide sufficient energy sources to consumers at high qualityand at low cost, in a reliable and environmentally friendly manner. The main responsibilities of EnergyMarket Regulation Authority are:a) To regulate and monitor the Electricity, Natural Gas, Petroleum and Liquid Petroleum Gas markets,b) To establish a financially viable, stable and transparent energy market within a competitiveenvironment.www.epdk.gov.tr3. Banking Regulation and Supervision AgencyBanking Regulation and Supervision Agency (BRSA) safeguards the rights and benefits of depositors;prevents all kinds of operations and transactions that may risk the orderly and safe operation of banks orthat may harm the economy; facilitates the efficient working of the credit system. The main goals of theAgency are as follows: 24
  • 25. a) To enhance the efficiency of the banking sector and its competitivenessb) To maintain confidence in the banking sectorc) To minimize potential negative effects of banking sector on economyd) To improve the stability of the banking sectore) To protect the rights of depositors.www.bddk.org.tr4. Telecommunication AuthorityTelecommunication Authority undertakes the regulation, the authorization, the reconciliation and thesupervision of activities within the telecommunication market. The main responsibilities of the Authorityare:a) To prepare the required plans in the telecommunications area and present them to the Ministry ofTransportation,b) To observe the developments in technology of the telecommunications area in cooperation with theuniversities and private establishments,c) To observe, control, examine and evaluate the telecommunication implementations,d) To give opinions on the concession contracts to be signed for telecommunication services and/orinfrastructure,e) To define the general criteria on price tariffs, contract provisions and technical issues to beimplemented for the users of the telecommunication services and infrastructure, and other operators fortheir use of interconnections between the telecommunication networks,f) To define and implement the performance standards considered as a basis for telecommunicationitems,g) To take the required measures to protect the consumer rights.www.tk.gov.tr5. Tobacco, Tobacco Products and Alcoholic Beverages Market Regulation BoardTobacco, Tobacco Products and Alcoholic Beverages Market Regulation Board(TAMRB) establishesregulatory and supervisory systems in areas dealing with tobacco, tobacco products, alcohol andalcoholic drinks. The main responsibilities of the Board are as follows:a) Regulation and supervision of tobacco production; granting of permission for the import of tobaccoseeds; issuing of authorization to trade in tobacco; regulating, monitoring, and supervising tobaccoproducers on the basis of a written contract; and buying and selling of tobacco products by publicauctionsb) Granting permissions for setting up tobacco processing plants, controlling their production,movements, handovers, and closures; monitoring of tobacco stocks and warehouses; and the granting ofcompatibility permissions to tobacco warehousesc) Supervision of companies operating within the sectord) The granting of production permits, sales permits as well as granting permission to establish factoriesaimed at producing tobacco productse) Regulating the market in Ethyl Alcohol, Methanol, Distilled Alcoholic Drinks, and Fermented AlcoholicDrinks; preparing national regulation policies; and harmonizing with the EU regulationswww.tapdk.gov.tr6. Privatization AuthorityPrivatization Authority does not show the main characteristics of the above mentioned market regulatingautonomous agencies. However, as an independent administrative body fully responsible for privatizationin Turkey, it has a very high importance for the direct investors. The Privatization High Council andPrivatization Administration are responsible for carrying out privatization transactions in Turkey. Themain responsibilities of the Authority are:a) To decide which enterprises meet the criteria for inclusion in the privatization process,b) To prepare enterprises for privatization in both fiscal and legal matters,c) To determine a timeline for the completion of privatization procedures,d) To prepare the privatization process of enterprises which have been deemed suitable,e) To decide on the privatization methods required for selected enterprises,f) To decide on scaling down methods for enterprises that are already in the process of privatization, 25
  • 26. g) To conclude the activities of enterprises either temporarily or permanently, which are already in theprocess of privatization,h) To make a decision about the possible liquidation of companies in the privatization process.www.oib.gov.trENVIRONMENTAL STANDARDSTurkeys policies regarding environmental protection and development are based on the harmonization ofpolicies and solutions with both EU and international standards, reinforcement of existing legislation,improvement of environmental management, prevention of pollution and increasing awareness ofenvironmental issues.Turkey participates in 76 international agreements concerning environmental protection andmanagement as well as 25 bilateral agreements.On January 28, 2003, the Republic of Turkey ratified an act between Turkey and European Unioncountries regarding Turkeys participation in the European Environment Agency and the EuropeanInformation and Observation Network. Furthermore, most of the legislation on the environment hasalready been harmonized with the exception of certain legislation that is at the last stage of fullharmonization with the EU law.TURKISH LABOR MARKETTurkey has been a member of the International Labor Organization (ILO) since 1932. Since it became amember, Turkey has approved 56 ILO Agreements. Moreover, Turkey has signed Bilateral Social SecurityAgreements with 22 countries.According to the Turkish Constitution, the State is responsible for creating a suitable environment toprevent unemployment and to provide a peaceful labor environment.The minimum wage is to be determined annually by the Ministry of Labor and Social Security. Accordingto the Social Insurance Code, the social security services for employees are handled by the SocialInsurance Agency. Recently, the Social Security Agency has been reorganized with the ultimate goals ofconsolidating all Social Security and Social Support Organizations into one single body; standardizingthe regulations and principles of all social security institutions; and keeping track of the fiscal positionand financial records of the institutions.Is-Kur, a governmental body, is responsible for the domestic and international matching of jobs withemployees; carrying out workforce planning; as well as safeguarding and developing employment. Thereis a large amount of private employment agencies in the market working effectively with employees andemployers. It is also possible to find employment and employees via private employment agencies.EMPLOYMENT OF EXPATRIATES1. How to get a work permit in TurkeyExpatriates are required to obtain a work permit before they start to work dependently or independentlyin Turkey.The Ministry of Labor and Social Security is responsible for:• Processing the applications of companies that wish to employ expatriates• Issuing work permits for expatriates• Extending and/or restricting the term of work permits in accordance with the relevant legislation 26
  • 27. Applications for work permits can be made both inside and outside of Turkey:• Expatriates residing outside of Turkey need to apply to the relevant Turkish Consulate in either theirresidential country or their country of citizenship• Expatriates with valid residence permits (a minimum 6 month period, with the exception of residencepermits for educational purposes) can apply directly to the Ministry of Labor and Social SecurityOther legal procedures regarding work permits are as follows:• A work permit is valid only when a work visa and/or residence permit is also granted• Applications are processed and answered within a fixed 90 day period by the Ministry. For keypersonnel of large foreign direct investors, this period is at most 15 days2. Main categories of work permitsWork permits are divided into 4 categories:• Dependent work permits for a definite period of time• Dependent work permits for an indefinite period of time• Independent work permits• Exceptional work permitsExceptional work permits can be granted under certain conditions stipulated in Law. This type of workpermit can be issued to an expatriate living in Turkey who is married to a Turkish citizen, to one who willtemporarily come to Turkey with the aim of scientific and/or cultural activities, or to one employed byministries, public authorities or other similar organizations.RESEARCH AND DEVELOPMENT ACTIVITIES1. TUBITAKIn Turkey, public institutions and universities play an important role in R&D activities. The Scientific andTechnological Research Council of Turkey is the public agency in charge of promoting, developing,organizing, conducting and coordinating research and development in different fields of natural sciences.This research is in line with the national targets for economical development and technical progress. TheCouncil also makes important contributions to the relations between universities and industries.The institution provides certain incentives in order to increase the scientific and technologicalcompetitiveness of Turkey; develop methods to rapidly transform scientific research into technologicalinnovations; and provide an active contribution from the private sector into research and development.www.tubitak.gov.tr2. TTGVThe Turkish Technology Development Foundation was set up to raise the industrial sectors awareness ofR&D and to support technological development projects in the Turkish Industry through the fundsprovided by the Under Secretariat of Treasury from the resources of the World Bank. This Foundationcontinues its activities as a successful example of Private and Public Sector cooperation. In this respect,the Foundation promotes the R&D activities of the industrial sector; contributes to the creation of thenecessary infrastructure for technology to produce a commercial and marketable product, system orservice; provides financial support; and undertakes studies aimed at improving the legislative andinstitutional framework for R&D.www.ttgv.org.tr/ 27
  • 28. 3. KOSGEBAnother institution, which conducts R&D research in Turkey, is the Small and Medium-sized IndustryDevelopment Organization (SMSIDO - KOSGEB). KOSGEB is focused on helping small and medium-sizedindustrial companies to adapt quickly to technological innovations; increasing their competitiveness andcontributions to the economy; as well as improving their efficiency.www.kosgeb.gov.tr 28
  • 29. InfrastructureENERGY INFRASTRUCTURE1. ENERGY STRATEGY:• Turkey’s strategy in the energy sector is to supply security and higher service quality to the consumer.• In addition to unused energy resources such as hydrologic and lignite, Turkey’s renewable energypotential is a great opportunity for investors. The new law which supports renewable energy encouragesthese types of investment and makes them even more attractive.1.a INSTALLED POWER IN TURKEY (2006) 29
  • 30. 1.b RESOURCES USED TO PRODUCING ENERGY (2006)1.c COMPARISON OF ELECTRICITY PRICES FOR INDUSTRIAL USERS (2006)Energy prices in Turkey, presently at 8.32 €¢/kWh, are very competitive with respect to the globalmarket.(Source: EMRA) 30
  • 31. 1.d PIPELINE PROJECTS IN TURKEYTurkey’s priority is securing its energy resources. In order to achieve this goal, Turkey is realizing manypipeline projects for both natural gas and oil. At the time of their completion, the following projects willprovide secure energy resources for both Turkey and Europe.• Baku-Tbilisi-Ceyhan COPL Project• Turkey-Greece NGTL Project• Transcaspian Turkmenistan-Turkey Europe NGTL Project• Azerbaijan-Turkey NGTL Project• Iraq-Turkey NGTL Project• Egypt-Turkey NGTL Project• Turkey-Bulgaria-Romanian-Hungary-Austria NGTL Project (Nabucco Project)• Eastern Black Sea NGTL• Western Black Sea Project• Natural Gas Underground Storage Project(Source : PETROLEUM PIPELINE CORPORATION)1.e GAS TRANSFERS FROM TURKEY TO EUROPE 31
  • 32. 2. Telecommunications Infrastructure Telecommunications Infrastructure - 2006Mobile Telephone Subscribers 54.7 milPublic Telephone Switched Users 18.8 milInternet Users 18.0 milBroadband Subscribers 3.5 milSource: Telecommunications Authority - Turk Telekom A.ŞThe Telecommunication sector in Turkey has evolved considerably in recent years and began with theprivatization of 55% of Turk Telekom stock. The diversification of services within the telecommunicationsector via mobile phones and the internet has created new economies which are attractive as areas forfurther investment.3. Transportation InfrastructureThe proximity Turkey has to major markets such as CIS, the Middle East and North Africa means that 1.2billion consumers can be easily reached.Turkey’s advantages also include its logistics industry which has developed significantly since its entryinto the EU Customs Union. Its geographic, physical and corporate infrastructure is one of the keyattractions for potential investors. Transportation InfrastructureNumber of PassengersInternal Flights 28.8 milExternal Flights 32.8 milNumber of AirportsRail Way 10.948 kmSea Way 243.5 million tons/yearSource: Ministry of Transportation - 2006Turkey meets all the requirements for the efficient and cost effective shipment of goods with its highperformance structure, reliable and on-time transportation services and its strategic location in theregion. 32
  • 33. Quantities by Transportation TypeDETAILED QUANTITIES BY TRANSPORTATION TYPE 2004 2005 2006 QUANTITY QUANTITY QUANTITY (tons) VALUE $ (tons) VALUE $ (tons) VALUE $ 000. TON % 000. $ % 000. TON % 000. $ % 000. TON % 000. $ %SEATRANSPORT 150.453,0 86,4 80.876.384,0 50,4 159.221,0 86,1 102.167.289,0 53,8 178.079,0 87,6 122.747.456,0 55,3RAILWAYTRANSPORT 2,1 1,2 1.845.728,0 1,1 2.168,0 1,2 2.573.457,0 1,4 2.162,0 1,1 3.086.501,0 1,4ROADTRANSPORT 19.790,0 11,4 58.234.461,0 36,3 21.845,0 11,8 60.271.018,0 31,8 21.165,0 10,4 67.415.308,0 30,4AIRWAYTRANSPORT 237,0 0,1 16.201.418,0 10,1 275,0 0,1 17.050.735,0 9,0 275,0 0,1 18.332.136,0 8,3OTHERS 1.648,0 0,9 3.466.590,0 2,2 1.431,0 0,8 7.719.220,0 4,1 1.705,0 0,8 10.362.749,0 4,7TOTAL 172.130,1 100,0 160.624.581,0 100,0 184.940,0 100,0 189.781.719,0 100,0 203.386,0 100,0 221.944.150,0 100,0Source.TURKSTAT The national road and railway network are completely integrated into the Eurasian infrastructure. The Silk Road connection project will ensure a uniform railway connection between Europe, the Middle East, the Turkic Republics and the Far East throughout Turkey. Regular truck transportation and Ro-Ro ferry routes are continuing to increase logistic services capacity. 33
  • 34. Economic OutlookFiscal discipline and a tight fiscal policy continue to be the main pillars of Turkey’s economic program andhave contributed a great deal to disinflation as well as to a strong growth performance. In addition to thesound macroeconomic policies, Turkey has implemented a comprehensive and far-reaching structuralreform agenda. Compared with the experiences of other countries, Turkey’s success has beenremarkable primarily because of the speed with which it has conducted structural and institutionalchanges. Indeed, Turkey has made large strides in restructuring its financial sector as well as improvingpublic sector governance and its business environment.1. MACROECONOMIC INDICATORSThe Turkish economy has had a steady growth rate for the last 20 quarters. GNP and GNP per capitafigures highlight the strength and the stability of the national economy as well as its integration tomacroeconomic global trends. GNP (Current GNP Per Capita Growth price in billions (Current Price in (Real) of USD) USD) (%)2007 ( I. Period) 91.8 6.72006 399.7 5,477 6.02005 360.9 5,008 7.62004 299.5 4,172 9.92003 239.2 3,383 5.92002 180.9 2,598 7.92001 145.7 2,123 -9.52000 200.0 2,965 6.31999 185.3 2,879 -6.11998 206.5 3,255 3.91997 192.4 3,079 8.3Source: Turkish Statistical Institution (TURKSTAT) 34
  • 35. 1.a Changes in price levelsThe implementation of tight fiscal and strict monetary policies has helped to significantly decreasedinflation, bringing it down to a single digit. Wholesale PI Annual Consumer PI Annual GNP Av. Change Avg. Change Deflator (%)2007 9.70 9.03 7.02006 9.77 10.51 11.72005 8.24 10.14 5.32004 11.1 10.6 9.52003 25.6 25.3 22.52002 50.1 45.0 44.42001 61.6 54.4 55.32000 51.4 54.9 50.91999 53.1 64.9 55.81998 71.8 84.6 75.31997 81.8 85.8 81.2Source: Turkish Statistical Institution (TURKSTAT) 35
  • 36. 1.b Balance of PaymentsIn 2006, the current account deficit increased nearly 30% over the 2005 level, rising to almost $23billion USD. In the same year, capital and finance accounts produced a $20.9 billion USD surplus. 2002 2003 2004 2005 2006Current Account -1,524 -8,036 -15,601 -22,603 -31,679Exports f.o.b. 40,071 51,13 66,956 76,758 91,022Imports f.o.b. -51,554 -69,34 -97,54 -116,774 -137,45Balance on Goods -7,283 -14,01 -23,878 -33,53 -40,128Services: Credit 14,025 17,952 22,941 26,64 24,411Services: Debit -6,146 -7,441 -10,144 -11,368 -11,027Balance on Goods and Services 596 -3,499 -11,081 -18,258 -26,744Income: Credit 2,486 2,246 2,651 3,684 4,473Income: Debit -7,042 -7,803 -8,288 -9,387 -10,988Balance on Goods, Services and Income -3,96 -9,056 -16,718 -24,057 -33,366Current Transfers 2,436 1,02 1,117 1,454 1,687Capital and Financial Account 1,406 3,095 13,41 20,487 34,671Direct Investment 962 1,253 2,024 8,723 19,231Portfolio Investment -593 2,465 8,023 13,437 7,36Other Investment 7,19 3,424 4,187 16,174 14,194Reserve Assets -6,153 -4,047 -824 -17,847 -6,114NET ERRORS AND OMISSIONS 118 4,941 2,191 2,116 -2,992Wise and prudent economic policies accompanied by structural reforms have brought a new perspectiveto the Turkish economy. The outstanding growth performance in conjunction with strong disinflationbrought the economic reforms to a new frontier. Turkey has been able to attract considerably highamounts of foreign direct investment (FDI) in recent years because the stability of the economy was ableto enhance the investment environment. Furthermore, the projections for the future are quite positive.2006 witnessed record high FDI inflows to the country. Net FDI inflows, which had averaged around $1billion USD in the past, increased to $20.1 billion USD. There was also a significant shift in the termstructure of debt from short-term to long-term. 36
  • 37. A Sustainable Growth PathIn recent years, the Turkish economy has displayed a high growth performance due to decisivelyimplemented structural reforms as well as successful macroeconomic policies; it has become one of thefastest growing economies in the world. The average real GDP growth rate, which was 2.4% during the1992-2001 period, reached 7.45% in the 2002-2006 period.In the last five years, the driving force of economic growth was the total factor productivity increase onthe supply side and the private sector investment on the demand side. In 2006, in-line withexpectations, GNP increased by 6.0% and reached $400 billion USD while per capita income rose to$5,477 USD.Economic growth for 2007, is presently estimated at 5% and early indicators point out that the officialestimate of 5% growth for the entire year seems well within reach. It is anticipated that economicgrowth will be driven mainly by private sector investments supported by high export performances.As a result of sustained pace in growth, structural reforms and the process of macroeconomicstabilization, the EU emphasized the improvement in functioning market forces in Turkey. Theaccelerated reform process along with EU accession negotiations, robust private sector investments andfavorable demographics promise a faster convergence with the EU during the negotiation process. Theexpected rise in participation in the labor force and vast productivity gains through increasinginvestments are predicted to be the driving engines of the convergence; these factors also guaranteesustained high growth. 37
  • 38. Declining Inflation...One of the most striking aspects of the recent performance of the Turkish economy has been thesubstantial decline in inflation in a strong growth environment with soaring energy prices. Annualinflation rate declined from a level near 70% at the beginning of 2002 to 7.5% in October 2005, thelowest level in 35 years. To further support disinflation, the Central Bank of Turkey shifted to formalinflation targeting in 2006. The 2007 end-year CPI target was determined at 5% with a 2 percentagepoint uncertainty range around this target.Prudent Fiscal PolicyFiscal discipline continues to be the cornerstone of the macroeconomic performance of the Turkisheconomy. By sustaining historically high levels of total public sector primary surpluses over GNP,averaging more than 6.5% annually for the past four years, Turkey reduced its debt stock and positivelyaffected the expectations of the market towards a stable economic growth environment and low inflationrate. 38
  • 39. Looking at External Accounts...The 2006 current account deficit was realized at 7.9% of GNP. The current account deficit was easilyfinanced in 2006 and the share of long term and non-debt creating capital inflows demonstrated anincreasing trend. The FDI inflows reached $20.1 billion USD in 2006, the highest ever in Turkisheconomic history. The receipts from FDI are expected to continue in future years with the acceleration ofthe EU accession process and efforts to improve the investment environment.The current account deficit in 2007 is projected to decline to about 7% of GNP mainly due to high exportperformance, privatization receipts, and rising FDI. 39
  • 40. In ConclusionThanks to prudent fiscal and monetary policies as well as comprehensive structural reforms, economicfundamentals and balance sheets have strengthened considerably in recent years, making the economymuch more resilient to adverse shocks. In order to move forward, Turkey still faces importantchallenges. In this respect, Turkey is determined to continue and to accelerate the structural reforms onall fronts and transform into a well developed country in every aspect.1.c INDUSTRIAL PRODUCTION INDEX, JUNE / 2007The Monthly Industrial Production Index increased 1.8 % in June of 2007 as compared to June 2006When we compare the change in the Manufacture Industry Production Index rate of June 2007 to June2006 we see the highest increase was in the manufacturing of wood products and cork, at 16.5 %; 12.4% in the manufacturing of electrical machinery n.e.c; and 10.0 % in the manufacturing of rubber andplastic products.WEIGHT OF SECTORSSUBMAINSECTORS 100 % MINING INDUSTRY C Mining industry 4,89 % 10 Coal mining 41,7 % D Manufacturing industry 86,92 % 11 Crude petroleum 18,29 % E Electricity, gas and water 8,19 % 12 Mining of iron ores 13,74 % 13 Non metallic Mineral 26,27 %MANUFACTURING IND.15 Food, beverages 10,64 % 26 Non Metallic 6,85 %16 Tobacco p. 1,35 % 27 Basic metal 8,9 %17 Textile 10,88 % 28 Metal prod. 3,39 %18 Wearing a. 5,42 % 29 Machi. nec 5,76 %19 D. Leather 1 % 30 Office mach. 0,05 %20 Wood prod. 0,59 % 31 Elec. Mach. 3,22 %21 Paper prod. 1,59 % 32 Radio, TV 1,49 %22 22-Publishing 1,73 % 33 Medic. Đnst. 0,26 %23 Refin. 14,48 % 34 Motor vehicle 6,27 %24 Chemic p. 10,34 % 35 Other tran. 1,07 %25 Plastics p. 3,41 % 36 Furniture I. 1,3 %Growth rate comparison of industrial production over the same month of the previousyear (%) June Average of six-monthECONOMICACTIVITIES Index Change Index Change Index Change Index Change 2007 2006 2007 2006TOTAL INDUSTRY 149.4 1.8 146.7 10.0 140.5 5.3 133.4 6.0MINING SECTOR 108.2 2.9 105.1 10.9 99.5 10.3 90.2 6.9MANUFACTURE 148.6 1.1 147.0 9.6 139.2 4.7 133.0 5.6PRODUCTIONELEC. GAS and WATER 182.1 8.2 168.3 13.8 178.5 9.2 163.4 8.9 40
  • 41. 2.FDI IN TURKEY2.a. Turkey is the 13th most attractive country in the world for FDI2.b. International Direct Investment (Inflows) (Million $of USD) Jan.-Sept. 2000 2001 2002 2003 2004 2005 2006 2006 2007International DirectInvestment Total 982 3,352 1,133 1,752 2,883 10,029 29,968 13,127 15,334(Net)International Direct 982 3,352 1,133 754 1,542 8,188 17,046 10,798 13,156InvestmentEquity Investment 982 3,352 617 737 1,191 8,137 17,038 10,783 12,862(Net)Inflows 1,707 3,374 622 745 1,291 8,538 17,695 11,345 12,921Liquidation -725 -22 -5 -8 -100 -401 -657 -562 -59OutflowsIntra Company -- -- 516 17 351 51 8 15 294Loans*Real Estate (Net) -- -- -- 998 1,343 1,841 2,922 2,329 2,178*Loans which companies with foreign capital take from foreign partnersProvisional DataSource: Central Bank of the Republic of Turkey 41
  • 42. 2.c. The number of companies with foreign capitalAs of September 2007, a total of 17,756 companies with international capital were operating in Turkey.Among these, 14,118 companies and branch offices with international capital have been established and3,155 foreign capital participations in the existing companies incurredYear Company Establishment Participation Branch Office Total2007/Sept 2,264 486 51 2,8012006 2,637 651 62 33502005 2,285 502 58 2,8452004 1,565 467 63 2,0952003 871 200 34 1,1052002 359 114 22 4952001 327 120 30 4772000 318 111 18 4471954-1999 (Cumulative) 3,492 504 145 4,141Total 14,118 3,155 483 17,756As of September 2007, Provisional DataSource: Undersecretariat of Treasury2.d. Breakdown of Companies with International Capital by Sector (Number of Companies) 1954- (1954- Jan.-SeptSectors 1999 00 01 02 03 04 05 06 2007/May (Cum.) 06 07 TotalAgriculture,hunting, fishing 69 6 9 4 27 33 40 39 38 42 269and forestryMining and 64 8 7 18 11 32 50 43 30 60 293quarryingManufacturing 1,158 96 93 80 267 369 456 459 335 388 3,366Manufacture offood products 129 8 7 8 20 51 43 40 31 28 334and beveragesManufacture of 116 4 12 12 63 58 78 53 36 38 434textilesManufacture of 145 10 10 6 29 50 40 45 36 43 378chemicals and 42
  • 43. chemicalproductsManufacture ofmachinery and 84 8 5 7 19 25 30 47 36 36 261equipmentn.e.c.Manufacture ofmotor vehicles, 96 13 11 6 16 18 21 14 12 15 210trailers andsemi-trailersOther 588 53 48 41 120 167 244 260 184 228 1,746ManufacturingElectricity, gasand water 48 10 4 6 10 14 12 45 34 49 198supplyConstruction 147 10 27 21 30 136 348 434 318 380 1,533Wholesale and 1,443 150 165 207 434 888 792 862 627 628 5,569retail tradeHotels and 474 38 53 43 60 78 180 226 169 153 1,305restaurantsTransport,storage and 281 44 49 44 95 219 260 285 223 245 1,522communicationsReal estate,renting and 241 56 43 38 90 230 520 724 528 682 2,624businessactivitiesOthercommunity,social and 216 29 27 34 81 96 187 233 174 174 1,077personal serviceactivitiesTotal 4,141 447 477 495 1,105 2,095 2,845 3,350 4,476 2,801 17,756As of September 2007, Provisional DataSource: Undersecretariat of TreasuryThe majority of the 17,756 companies financed with international capital is in the wholesale and retailtrade sectors; this is followed by manufacturing, real estate renting and other business activities. Textilegoods production leads the manufacturing sector in investments followed by chemicals and food andbeverage products. 43
  • 44. 2.e. International Direct Investment Inflow by SectorDuring last 5 years, the highest FDI attracting sectors are manufacturing, financial services and energyfields (Million $) Jan.-MaySectors 2002 2003 2004 2005 2006 2006 2007Agriculture, hunting and forestry -- 1 4 5 5 -- --Fishing -- -- 2 2 1 -- 3Mining and quarrying 2 14 75 40 122 76 318Manufacturing 110 448 214 788 1,868 1,214 2,810Manufacture of food products and 14 249 78 68 609 580 255beveragesManufacture of textiles 10 8 14 183 26 14 187Manufacture of chemicals and 9 9 39 174 602 305 896chemical productsManufacture of machinery and 13 17 8 13 54 52 24equipment n.e.c.Office machinery and computers 2 4 2 13 53 41 76Manufacture of motor vehicles, 33 145 35 106 63 46 66trailers and semi-trailersOther Manufacturing 19 14 38 227 461 176 1,306Electricity, gas and water supply 68 86 69 4 112 111 537Construction 3 8 23 80 278 161 246Wholesale and retail trade 89 92 103 68 1,167 1,139 111Hotels and restaurants 0 4 1 42 23 22 12Transport, storage and 1 2 639 3,285 6,700 4,887 504communicationsFinancial intermediation 260 51 69 4,016 6,957 3,423 7,870Real estate, renting and business 0 6 3 29 93 58 481activitiesHealth and social work 5 23 53 74 265 180 17Other community, social and personal 84 10 36 86 104 84 12service activitiesTotal 622 745 1,291 8,536 17,695 11,345 12,921Provisional Data Source: Central Bank of the Republic of Turkey 44
  • 45. 2.f. International Direct Investment Inflow by CountryThe main FDI exporting countries such as EU members and the USA are very interested in investing inTurkey through different multinational companies. (Million $) Jan.-Sept.Countries 2002 2003 2004 2005 2006 2006 2007European Union (25) 455 555 1,025 5,005 14,539 10,328 4,542Germany 86 142 73 391 357 315 596France 22 120 34 2107 439 338 67Netherlands 73 50 568 383 5,119 4,911 2,105United Kingdom 8 141 126 165 628 447 523Italy 241 1 15 692 189 95 64Other European Countries 25 101 209 1,265 7,807 4,222 4,187Other European Countries (Excluding 64 70 109 1,65 91 79 242EU)Africa 0 0 -- 3 21 20 5U.S.A. 2 52 36 88 848 456 3,589Canada 7 6 61 26 121 115 8Central America And Caribbean 0 0 -- 8 32 22 17South America 0 0 -- -- 1 1 467Asian 70 60 60 1,756 1,927 299 1,025Gulf Arabian Countries 5 0 -- 1,675 1,783 264 103Near And Middle Eastern Countries 0 1 54 3 127 26 201Other Asian Countries 65 59 6 78 17 9 721Australia 0 0 -- 1 108 18 26Unclassified 24 2 -- 1 7 7 --Total 622 745 1,291 8,538 17,695 11,345 12,921Provisional Data Source: Central Bank of the Republic of Turkey 45
  • 46. 3. INTERNATIONAL TRADEIn 2006, both exports and imports reached an all time high: exports increased by 16.% reaching $85.1billion USD, while imports rose by 18% amounting to $137 billion USD. The table below shows Turkeyshistoric trade figures for the years 1995-2006.FOREIGN TRADE STATISTICS In Millions of USD 2002 2003 2004 2005 2006Export 36,059 47,253 63,121 73,275 85,142Import 51,554 69,34 97,54 116,352 137,032Trade Volume 87,613 116,593 160,661 189,627 222,174Foreign Trade Balance -15,495 -22,087 -34,419 -43,076 -51,89Export / Import 69.9 68.1 64.7 63.0 62.1Export / GNP 24.8 26.1 26.4 24.5 21.3Import / GNP 35.4 38.3 40.8 38.9 34.3Trade Volume / GNP 47.8 48.8 53.6 63.3 55.6Source: TURKSTATLiberal policies and an export-based development model have been functioning since 1980 and Turkeynow has an open economy which has completed its integration with the rest of the world. Furthermore,the continued increase in the export rate ranks Turkey among the 30 leading exporting countries,making it an exemplary economic leader in the EMEA region.3.a. Turkeys foreign trade1980 was a crucial turning point for the Turkish economy and foreign trade policies. With the introductionof an economic program based on the objective of ensuring the operation of the countrys economyaccording to the principles of a free market mechanism, and on the objective of bringing aboutintegration with the world economy, Turkey has abandoned the import-based industrial strategy whichcreated a closed economy. It has adopted an export-based industrialization’ strategy.Türk Eximbank was established in 1987 with the objective of increasing the competitive strength ofTurkish exporters in foreign markets, and of supporting Turkey’s export strategy. Turkey became amember of the World Trade Organization (WTO) in 1995. Following this move, it finalized an agreementwith the EU for accession to the Customs Union on January 1, 1996.Furthermore the export of industrial products which had made up 36% of total exports in 1980 reached80% by 1990.By the year 2000, a continued structural transformation of exports was observed. Out of the totalexports for the year 2000, the share of manufacturing industry products was 91.2%; agricultural andforestry products 7.1%; and mining products 1.4%.As of 2003, Turkey was ranked the 24th largest exporting country in the world. Furthermore, the exportrate increase of 31% in 2003 positioned Turkey second among the 30 leading exporting countries toachieve the highest export growth rate. 46
  • 47. These developments contributed greatly to Turkey being considered an attractive investment region; thisis particularly because trade and investments exhibit complementary features. Also, the open economyindicator calculated as the GNP/foreign trade ratio is accepted as a significant determining factor forforeign direct investors in identifying their investment areas. With its economic structure integrated withthe world economy, Turkey has not only increased its trade volume and exports but also has created anexport product range with an emphasis on industrial products of high added value which requireadvanced technology. This was all made possible by ensuring a structural transformation in its exports.Furthermore it has continued to diversify its target markets.Turkey currently exports over 7,000 products to 170 countries and for 2007, will reach nearly $100billion USD in exports.3.b. Foreign Trade by Economic ActivitiesIn line with the policies implemented within the framework of the export-led development model that hasbeen followed since 1980, exportation has become important to Turkey both qualitatively andquantitatively.Starting particularly in 1980 and continuing up to the mid-1990s, very important developments havebeen observed in the market share of labor-intensive industrial products such as the manufacture oftextiles and of clothing; iron and steel; and foodstuffs.In 1996, with the establishment of a Customs Union with the European Union, Turkeys exportationentered a new structural transformation process. Developments in recent years show that production andexport have increased significantly in high technology sectors such as electrical and electronic machineryand equipment as well as automobile manufacture. In this respect, it is also seen that the export marketshare of the manufacture of industrial products has increased in the period from 1999 to 2006.Between 1980 and 2006 there have been important changes made in the distribution of imports withindifferent sectors.Since 1990, the manufacturing industry has became the leading importer. Including the sub-sectors ofthe manufacturing industry, it is apparent that the import share of iron and steel, as well as chemicals intotal imports has not changed significantly. However, the import of machinery and transportationvehicles, as well as that of textile products sectors has increased.3.c. Foreign Trade in terms of CountriesIn terms of both imports and exports, members of the European Union are Turkeys most importanttrade partners.Imports by CountryWith respect to Turkeys imports by country groups, EU members have maintained the highest positionsince 1980. Between 1999 and 2005, while it was observed that imports from EU members rose fromaround 44% to 52%, there was also a marked increase in imports from Asia, the Black Sea EconomicCooperation Member Countries, and the Common Wealth of Independent States which has attractedsignificant attention.In 2005, the share of imports to OECD countries was 56.6%. The highest position among the OECDcountries was held by the EU members with a total market share of 42.2%. In 2005 the top 5 countriesin terms of imports were Germany, Russia, Italy, China and France. The overall share of these 5countries in imports was 40.1%. 47
  • 48. 2002 2003 2004 2005 Million % of Million % of Million % of Million % of USD Total USD Total USD Total USD TotalOECD Countries 32984,5 64 43898,6 43898,6 59492,4 61 65896,5 56,6EU Countries 23321 45,2 33494,7 33494,7 45373,1 46,5 49047,6 42,2EFTA Countries 2512 4,9 3395,7 3395,7 3888,7 4 4437,3 3,8Other OECD 7151,4 13,9 7008,2 7008,2 10230,6 10,5 12845,1 11CountriesTurkish Free 574,5 1,1 588,9 588,9 809 0,8 756,8 0,7ZonesNon OECD 17994,8 34,9 24852,2 24852,2 37238,4 38,2 49698,4 42,7CountriesEuropean 6342,8 12,3 8910 8910 14411,3 14,8 19274 16,6CountriesAfrican Countries 2696,2 5,2 3338 3338 4779,3 4,9 6032,9 5,2American 592,3 1,1 1082 1082 1359 1,4 1798,1 1,5CountriesMiddle East 3681,5 7,1 4059 4059 5121,8 5,3 7372,9 6,3CountriesOther Asian 4366,5 8,5 6801 6801 10636,2 10,9 14457,8 12,4CountriesOther Countries 315,5 0,6 651 651 930,9 1 762,6 0,7Selected Country GroupsBlack Sea Econ. 6576,6 12,8 9297,7 9297,7 15263,1 15,6 20401,3 17,5CooperationEconomic 1548,2 3 2735,7 2735,7 3208,1 3,3 5101,5 4,4Cooperation Org.CommonwealthofIndep.States 5554,5 10,8 7777,1 7777,1 12848,2 13,2 17178,4 14,8Turkish 467,8 0,9 623,3 623,3 940,9 1 1262,3 1,1RepublicsIslamic 6770,1 13,1 8481,5 8481,5 10565,9 10,8 14426,8 12,4Conference Org.Selected Countries*Germany 7041,5 13,7 9453 13,6 12515,7 12,8 13594,8 11,7 48
  • 49. Russia 3891,7 7,5 5451,3 7,9 9033,1 9,3 12856,8 11Italy 4097 7,9 5471,5 7,9 6865,8 7 7539,8 6,5China 1368,3 2,7 2610,3 3,8 4476,1 4,6 6848,2 5,9France 3052,7 5,9 4164,1 6 6201,3 6,4 5874,8 5USA 3099,1 6 3495,8 5 4745,2 4,9 5360,6 4,6Switzerland 2142,7 4,2 2968,2 4,3 3404,5 3,5 4053 3,5United Kingdom 2438,3 4,7 3500 5 4317,1 4,4 4681,4 4Spain 1419,2 2,8 2003,7 2,9 3253,7 3,3 3540,1 3Southern Korea 900,4 1,7 1312,4 1,9 2572,5 2,6 3475,7 3Iran 921 1,8 1860,7 2,7 1962,1 2 3469 3Japan 1465,5 2,8 1927,1 2,8 2684,3 2,8 3102,3 2,7Ukraine 991,1 1,9 1331,5 1,9 2509,4 2,6 2632,4 2,3Belgium- 1150 2,2 1523,6 2,2 1991,7 2 2224,3 1,9LuxemburgNetherlands 1311,3 2,5 1656,7 2,4 1908,1 2 2138,6 1,8Saudi Arabia 793,8 1,5 969,1 1,4 1231,5 1,3 1886,5 1,6Sweden 535,1 1 822,2 1,2 1118,4 1,1 1423,6 1,2Total 51553,8 100 69339,7 100 97539,8 100 116351,7 100Source: SPO* The countries are chosen according to the total import values in the previous years.Exports by CountryBetween 1980 and 2005, the share of Turkish exports to European Union members was around 50%;these countries maintained their place as the group to which Turkey exports most. Between 1999 and2005, it was observed that while the share of exports made to the EU countries changed from around51% to 54%, there was also an increase in exports made to Black Sea Economic Cooperation Countries,to countries of the Islamic Conference Organization, and to the Commonwealth of Independent States.In 2005, the share of exports to OECD countries was 60.4 %. The highest position among the OECDcountries was held by the EU members with an overall share of 52.3%. In 2004, the top 5 countries forexports were Germany, the UK, Italy, the USA and France. The overall share of exports by these 5countries was 40.6%. 49
  • 50. 2002 2003 2004 2005 Million % of Million % of Million % of Million % of USD Total USD Total USD Total USD TotalOECD Countries 23,553.1 65.3 30.422.4 64.4 40.332.2 63.9 44.280.0 60.4EU Countries 18,458.5 51.2 25,898.7 54.8 34,309.9 54.4 38,349.6 52.3EFTA Countries 409.0 1.1 538.0 1.1 655.5 1.0 819.9 1.1Other OECD 4,685.5 13.0 3,985.6 8.4 5,366.8 8.5 6,009.7 8.2CountriesTurkish Free 1,438.5 4.0 1,928.3 4.1 2,529.1 4.0 2,963.8 4.0ZonesNon OECD 11,067.5 30.7 14,902.2 31.5 20,259,6 32.1 26,031.5 35.5CountriesEurope + CIS 3,447.4 9.6 4,720.0 10.0 5,922.2 9.4 7,920.2 10.8CountriesAfrican Countries 1,696.7 4.7 2,131.2 4.5 2,951.5 4.7 3,625.8 4.9American 241.2 0.7 256.0 0.5 373.0 0.6 520.7 0.7CountriesMiddle East 3,575.7 9.9 5,131.5 10.9 7,237.6 11.5 9,268.8 12.6CountriesOther Asian 1,939.8 5.4 2,604.0 5.5 2,864.0 4.5 3,486.7 4.8CountriesOther Countries 166.7 0.5 59.5 0.1 911.3 1.4 1,209.3 1.7Selected Country GroupsBlack SeaEconomic 3,476.9 9.6 5,044.4 10.7 6,736.3 10.7 8,604.0 11.7CooperationEconomicCooperation 1,041.9 2.9 1,569.2 3.3 2,186.5 3.5 2,658.9 3.6OrganizationCommonwealthof Independent 2,278.9 6.3 2,962.6 6.3 3,932.7 6.2 5,046.6 6.9StatesTurkish Republics 619.3 1.7 899.1 1.9 1,186.1 1.9 1,406.0 1.9IslamicConference 5,195.9 14.4 7,341.8 15.5 10,141.2 16.1 12,988.8 17.7Organization 50
  • 51. Selected Countries*Germany 5,868.8 16.3 7,484.9 15.8 8,745.3 13.8 9,448.8 12.9United Kingdom 3,024.9 8.4 3,670.1 7.8 5,543.9 8.8 5,916.1 8.1Italy 2,375.7 6.6 3,193.2 6.8 4,640.3 7.3 5,606.2 7.7USA 3,356.1 9.3 3,751.6 7.9 4,848.6 7.7 4,887.3 6.7France 2,134.6 5.9 2,826.1 6.0 3,668.4 5.8 3,791.0 5.2Spain 1,125.1 3.1 1,789.5 3.8 2,618.4 4.1 3,009.1 4.1Iraq 0.0 0.0 0.0 0.0 1,820.8 2.9 2,724.7 3.7Netherlands 1,055.6 2.9 1,525.9 3.2 2,138.0 3.4 2,467.3 3.4Russia 1,172.0 3.3 1,367.6 2.9 1,859.2 2.9 2,374.4 3.2Romania 566.5 1.6 873.3 1.8 1,235.5 2.0 1,783.6 2.4U. A. E 457.3 1.3 702.9 1.5 1,143.7 1.8 1,669.4 2.3Israel 861.4 2.4 1,083.0 2.3 1,313.9 2.1 1,462.5 2.0Belgium 693.3 1.9 885.6 1.9 1,183.2 1.9 1,291.1 1.8LuxembourgBulgaria 380.3 1.1 621.7 1.3 894.3 1.4 1,178.5 1.6Greece 590.4 1.6 920.4 1.9 1,170.8 1.9 1,124.1 1.5Saudi Arabia 554.6 1.5 741.5 1.6 768.5 1.2 961.2 1.3Iran 334.0 0.9 533.8 1.1 813.0 1.3 905.4 1.2Poland 342.6 1.0 480.0 1.0 697.7 1.1 829.3 1.1Total 36.059.1 100.0 47,252.8 100.0 63,120.9 100.0 73,275.3 100.0Source: SPO* The countries are chosen according to the total export values in the last year.TURKEY MEMBERSHIPS IN INTERNATIONAL TRADE ORGANIZATIONSTurkey has been a member of World Trade Organization, since 1995. Its commitment to intergrating withregional and international trade norms is seen in its participation in and membership of variousorganizations such as: Economic Cooperation Organization (ECO), UNCTAD, Black Sea EconomicCooperation Organization, World Customs Organization, International Chamber of Commerce, IslamicCooperation Organization, D-8 , Stability Pact, and various other organization. 51
  • 52. Business LegislationTurkey offers a simple business legislation system with international standards through which allinvestors enjoy equal treatment. Recent amendments to the existing law will assist Turkey even furtherwith its present improvements in the investment environment.Turkey offers:1. Legal Framework for Foreign Direct Investment2. Bilateral Agreements, Double Taxation Prevention Treaties and Social Security Agreements3. Bilateral Free Trade AgreementsLegal Framework of Foreign Direct InvestmentThe aim of Foreign Direct Investment Law is:• To encourage FDI’s in the country• To protect foreign investors’ rights• To bring the investors and investments in line with international standards• To establish a notification-based rather than approval-based system for FDI’s• To increase the volume of FDI’s through established policiesThe Foreign Direct Investment Law provides a definition of foreign investors and foreign directinvestments. Additionally, it explains the important principles of FDI’s such as freedom to invest, nationaltreatment, expropriation and nationalization, transfers, access to real estate, dispute settlement,valuation of non-cash capital, employment of expatriates, and liaison offices.The Regulation for the implementation of the Foreign Direct Investment law consists of:• Specifying the procedures and principles of the issues that are laid down in Foreign Direct Investment(FDI) Law.The target for the new FDI law on work permits for foreigners is:• To regulate the work carried out by foreigners• To stipulate the rules about working permits given to foreignersBILATERAL AGREEMENTSBilateral Agreements for the Promotion and Protection of InvestmentsSince 1962, Turkey has developed an impressive Bilateral Agreements network including 79 countries.The main purpose of these agreements is to promote the investment flows between the parties, toensure a more stable investment environment, to provide economic and legal assurance to foreigninvestors and to establish a favorable atmosphere for economic cooperation. 52
  • 53. Double Taxation Prevention TreatiesTurkey signed Double Taxation Prevention Treaties with 68 countries which enables offsetting tax paid inone of two countries against the tax payable in the other, in this way preventing double taxation.The following list includes the countries with which Turkey has DTT agreements.Europe (34): (Albania, Austria, Belarus, Belgium, Bosnia/Herzegovina, Bulgaria, Croatia, Czech Republic,Denmark, England, Estonia, Finland, France, Germany, Greece, Holland, Hungary, Italy, Latvia,Lithuania, Luxemburg, Macedonia, Moldova, Norway, Poland, Portugal, Romania, Serbia/Montenegro,Slovakia, Slovenia, Spain, Sweden, Turkish Republic of Northern Cyprus, Ukraine)Africa (7): (Algeria, Egypt, Ethiopia, Morocco, Republic of South Africa, Sudan, Tunisia)Asia (18): (Azerbaijan, Bangladesh, India, Indonesia, Japan, Kazakhstan, Kyrgyzstan, Malaysia,Mongolia, Pakistan, Russia, Singapore, South Korea, Tajikistan, Thailand, The Republic of China,Turkmenistan, Uzbekistan)Middle East (8): (Jordan, Saudi Arabia, Israel, Iran, Lebanon, Syria, United Arab Emirates, Kuwait)Americas (1):(U.S.A).Turkey continues to expand the coverage area of the Double Taxation Prevention Treaty by adding morecountries on continuous basis.Social Security AgreementsTurkey signed Social Security Agreements with 22 countries(Albania, Austria, Azerbaijan, Belgium,Bosnia and Herzegovina, Canada, Czech Republic, Denmark, France, Georgia, Germany, Great Britain,Libya, Luxembourg, Macedonia, Netherlands, Norway, Quebec, Romania, Switzerland, Sweden, TurkishRepublic of Northern Cyprus) which ease the movement of the expatriates between countries. Thenumber of these countries will increase parallel to the enlarging spectrum of the FDI origin.Bilateral Free Trade AgreementsTurkey has 11 Free Trade Agreements (with EFTA, Israel, Macedonia, Croatia, Bosnia and Herzegovina,Palestine, Tunisia, Morocco, Syria, Egypt and Albania) which forms a levy-free environment in intra-tradeon an agreed list of goods. This framework explains why many global companies are now using Turkey asthe second supply source, not only for EU and rapidly growing Turkish market, but also for Middle East,Black Sea and North Africa, with the added advantage of relatively cheaper but well-educated laborforce, coupled with cost-effective transportation.Turkey is carrying out negotiations to include Gulf Co-operation Council, Jordan, Lebanon, Georgia andFaroe Islands to the existing network in order to attract investors. 53