The new airport terminal at Istanbul's Sabiha Gökçen International Airport opened on time and on budget. The airport aims to capitalize on growth in Istanbul's Asian districts and rising middle class aspirations. The private operator, GMR from India, hopes to increase passenger numbers and revenues from operations such as duty-free shopping, parking, and an airport hotel. However, the airport still struggles during peak hours to manage a high volume of flight connections within a short timeframe. The success of the new terminal and meeting investment costs will depend on continued passenger growth at the airport.

1. INVESTING IN Inside
Neighbouring
Iraq is no longer
seen as a pariah
for businessmen
Turkey
FINANCIAL TIMES SPECIAL REPORT | Thursday November 26 2009
Page 3
www.ft.com/invest­turkey­2009
Chance to
assert economic
independence
But without the IMF interest rates by more than 10 exit from fiscal stimulus, with a
percentage points in a year to medium-term plan to stabilise
‘walking stick’, the mitigate a brutal contraction in debt in 2010 and cut the budget
recovery will be more the real economy. Banking sec- deficit from 6.6 per cent at the
tor profits for the year may end of this year to 4 per cent by
sluggish, says reach TL20bn ($13.5bn), 50 per the end of 2011. But economists
Delphine Strauss cent higher than in 2008. say reliance on higher tax reve-
Ratings agencies have sig- nues and a lack of detail on how
nalled they may upgrade Tur- fiscal rules will be formulated or
W
hen financial lead- key’s sovereign rating – a move spending controlled reduce the
ers converged on long priced into markets. Fitch plan’s credibility.
Istanbul for theOc- cited its “relative resilience to The Treasury expects to roll
tober meetings of the severe stress test of the glo- over almost all domestic debt
the International Monetary bal financial crisis” and Moody’s payments next year, a ratio that
Fund and World Bank, Turkey said it was “better prepared … would increase if there were any
took pride in becoming the first than would have seemed possi- fiscal slippage, external shock
country to host the gathering ble, given its dependence on or mishap with privatisations.
twice. An even greater source of external financing.” Tevfik Aksoy, analyst at Mor-
pride was the fact that it had Yet Mr Erdogan’s ruling Jus- gan Stanley, says the record Sculptures of a bull and a bear outside the Istanbul Stock Exchange: foreign capital inflows were encouraged by IMF oversight Bloomberg
finally broken free from the tice & Development (AK) party lows in real interest rates have
IMF’s tutelage, after a half cen- must still convince outsiders it sapped enthusiasm in the bond port – a sluggish recovery by cash flow may mean new activ- level for deals, after a year in blings. But tensions have risen
tury as a serial recipient of can maintain stability without market, with inflows of only Turkish standards, and not ity for M&A bankers and private which sellers’ expectations far sharply in recent days after a
funds and advice, lurching from external anchors. Inflows of for- $1.3bn from non-residents enough to bring relief from equity investors in 2010. exceeded what they were willing string of anonymous letters
one bail-out to the next. eign capital fuelled rapid gains between March and September. double-digit unemployment. The need to raise revenues is to offer. alleging military schemes to dis-
While the global recession in prosperity in the years up to If government debt issuance Fiscal pressure is also delay- prompting the government to In the last month, the UK firm credit the AK Party, and a row
drove many countries into the 2007, largely because investors proves higher than planned, ing some reforms the govern- re-launch long-delayed privatisa- Bridgepoint has acquired a about government-authorised
IMF’s embrace, for Turkey it were reassured by IMF over- domestic banks will be the main ment thinks desirable. Mr Baba- tions of energy distribution stake in the vehicle inspection wiretapping of secularist-
became a chance to assert new sight, and by Turkey’s applica- buyers, reducing their ability to can has said plans to promote grids and lay plans to privatise company Tuvturk, while a pri- minded judges and prosecutors.
independence in economic man- tion for membership of the lend to the private profitable power stations. vate equity arm of HSBC is A record tax fine against the
agement. Ankara might yet European Union. sector and fuel recovery. Istanbul municipality wants among investors in the ground- billionaire media owner Aydin
agree a new loan on its own Now, Mr Erdogan is deter- “The absence of an IMF deal ‘The modernisation to sell the fleet of ferries plying handling company Havas after a Dogan is a sign that political
terms but, as Recep Tayyip mined not to let the IMF dictate would not imply a funding crisis process is likely to be the Bosphorus; there will be a stake sale by TAV, an airport tensions are spilling over into
Erdogan, the prime minister, fiscal policy, and the prospect of but would likely imply a slower second attempt to auction off operator that needed to cut debt the corporate arena.
put it, there was no need to lean EU accession is so distant that recovery in private sector credit highly volatile and the national lottery, and Mr to pursue rapid expansion. “Turkey’s modernisation proc-
on an IMF “walking stick”.
Thanks to previous reforms,
it has ceased to interest inves-
tors. Instead, the AKP is press-
growth,” says Christian Keller,
economist at Barclays Capital.
prone to intense Babacan has signalled plans to
start the privatisation of state-
As always, the biggest risks to
all this activity are political. At
ess is likely to be highly volatile
and prone to intense power
Turkey entered the downturn ing on with reforms to extend Banks are in any case power struggles’ owned Ziraat bank. present, companies are benefit- struggles between competing
with a solid banking system and rights for Kurds and other unlikely to return to aggressive Suzan Sabanci Dincer, chair- ing from the AKP’s hyperactive interest groups,” writes Ahmet
strong public finances, helping minorities that, while much- lending at a time when bad woman of the lender Akbank, foreign policy, as it promotes Akarli at Goldman Sachs.
it avoid a familiar pattern of needed, have stirred political loans are still rising and low Istanbul as a financial centre predicts there will also be a closer trade ties with neigh- Without a “benevolent” power
capital flight, currency collapse, tensions. Paradoxically, some central bank interest rates will cannot yet include tax cuts. wave of restructuring, as groups bours as a means of bolstering such as the EU to smooth the
rampant inflation and spiralling risks may be increasing just as reduce their margins. Draft legislation on renewable weakened by the downturn seek regional stability. process, he adds, “it may prove
interest rates. the worst of the crisis passes. Economists expect gross energy is also delayed because scale to compete. Domestic politics, however, difficult to avoid frequent politi-
Instead, with a stable cur- Ali Babacan claimed credit at domestic product to contract by of doubts over the cost of price Ferruh Tunc, senior partner remain fraught. The AKP’s big cal setbacks and, in the
rency, falling inflation, and the IMF meetings for becoming some 5.5 per cent over 2009 as a guarantees for solar energy. at KPMG’s Istanbul office, clashes with the military and extreme, acute social conflict,
bond yields near record lows, one of the first economy minis- whole, and grow by 3.5 per cent Yet the continued strains on thinks private equity buyers are judiciary in 2007 and 2008 had leading to extended periods of
the central bank was able to cut ters to commit himself to an in 2010 if there is no IMF sup- public finances and corporate close to finding a new price subsided into lower-level rum- uncertainty.”
State vigilance is a rising investor concern
CORPORATE TAX public feud between prime received a TL474m fine money,” says Alan Green- duced to broaden the tax same . . . unjustified tax received pragmatic treat-
minister Recep Tayyip relating to duty-free fuel halgh at the accountancy base, lower rates on some attempts by the authorities ment from the current gov-
Delphine Strauss Erdogan and Aydin Dogan, sales. All three companies firm Kapital Karden. taxes and improve collec- [as with Dogan],” says a ernment, often more favour-
Inside asks whether recent the billionaire whose news- say they have complied Better enforcement is tion. But with the budget senior banking executive in able than of locals.
Banking As the country’s papers and TV channels with tax rules and will seek needed. “Unfortunately, deficit set to rise to 6.6 per Istanbul. One important induce-
financial situation changes, demands mark a had become increasingly legal redress if necessary. paying taxes is not very cent of GDP, tax cuts are on Accountants complain tax ment for foreign capital – a
so may investor attitudes
towards risk, writes
new strategy critical of his government.
However, evidence is now
“Punitive taxation contin-
ues, becoming a major
common in Turkey,” Ali
Babacan, economy minister,
hold and the temptation inspectors’ zeal is not
always matched by compe-
zero rate of withholding tax
on bonds – is now at risk
Delphine Strauss mounting of a much uncertainty for foreign said in defence of the Dogan tence, or clear and predicta- after a court ruled it was
Page 2 When Turkey’s finance broader enforcement drive direct investment and fine. Statistics from the ’Unfortunately, ble legislation. “I’m not inequitable given the 10 per
Energy David O’Byrne
ministry sent the Dogan by corporate tax inspectors domestic fixed investment,” Organisation for Economic paying taxes is not happy with the way they cent rate charged to Turk-
media group a bill for – which economists and analysts for the consul- Co-operation and Develop- conduct investigations. For ish investors.
says Moscow still holds all
TL4.8bn ($3.2bn) in unpaid accountants say is long- tancy Global Source wrote ment bear this out: taxes on very common in years, the best people have Mr Babacan has promised
the cards in deciding
pipeline routes Page 2 taxes and penalties this
autumn, foreign investors
overdue, but must be car-
ried out consistently to
after news of the Google
fine emerged.
income, profits and capital
gains equalled 5.3 per cent
Turkey’ not been choosing to work
for the government,” says a
foreign investors an over-
haul of corporate tax rules
Private equity were dismayed – but not keep investor confidence. The fines are the result of of gross domestic product in Ali Babacan, partner at a big account- to leave ”no room for grey
BC Partners’ buyout of overly nervous. This month, Google’s changes inside the tax 2006, against an OECD aver- Economy Minister ancy firm in Istanbul. areas” and ensure “foresee-
Migros is breaking Ministers maintained that Turkish operation became administration designed to age of 13 per cent. Ambiguities in the tax able, predictable, fair imple-
new ground, writes the fine, along with a the latest target, receiving a step up scrutiny of big com- Because of its narrow tax procedural code mean too mentation”.
Martin Arnold Page 3 TL900m penalty imposed fine of around TL70m. In panies – and raise cash for base, Turkey has relied dis- will be to resort to blunter many points are open to He is clearly keen to steer
earlier in the year, was the October, Turkcell, the the treasury. proportionately on indirect instruments. interpretation, while seek- the debate beyond the con-
Wine Political attitudes result of routine inspec- mobile phone operator, was “There have been more taxation, especially on a “I think the government ing redress in the Turkish troversy over the Dogan
make for a challenging tions, with no political asked to provide collateral tax inspections in the last plethora of consumption is very keen to improve its courts could take years. case. But like it or not, that
investment climate, writes interference. But most to meet a TL258.3m tax three months and, as with taxes that are not always revenues from those compa- Despite the vagaries of row may now be the yard-
Pelin Turgut Page 4 viewed it as personal – the demand. Earlier in the year, any government, it’s economically rational. nies that are profitable. The the system, foreign inves- stick by which foreign
culmination of a long and the oil company BP because it needs the Reforms are being intro- banking sector fears the tors have in general investors judge the system.

2. 2 ★ FINANCIAL TIMES THURSDAY NOVEMBER 26 2009
Investing in Turkey
New terminal lands on time and budget Low interest
SABIHA GÖKÇEN
Istanbul’s second
rates call for
its success in turning Istan-
bul’s Ataturk airport into a
hub between Europe and
experience in equipment
purchases, says Cenk Alp-
soy, GMR International’s
trends in passenger num-
bers. At Sabiha Gökçen, the
contract unusually includes
lured from the bigger Atat-
urk airport not just by low
prices, but with shorter taxi
airport’s fortunes rising
with those of the city – and
in particular its less devel-
airport aims for
new strategy
the Middle East. regional head. It also flew ground handling, cargo and times and a faster turn- oped Asian side.
The bold expansion at in IT experts from Hydera- refuelling, as well as reve- round at peak times. She rattles off the names
growth, writes Sabiha Gökçen reflects bad and Delhi to help nues from passenger taxes, But Sabiha Gökçen has of companies due to move
Delphine Strauss changes closer to home: the
rapid development of Istan-
switch operations from the
old to the new terminal.
duty free sales, car parking
and an airport hotel.
had problems at peak hours
in the old terminal trying to
to the more residential
shore of the Bosphorus –
bul’s Asian shore, the rising GMR comes fresh from But the consortium must meet airlines’ demands for including state-owned
Two weeks before opening, aspirations of Turkey’s mid- building Hyderabad’s new recover its €450m invest- flight connections with a banks set to relocate from BANKING important, while their cli-
workmen were knee-deep in dle classes, and the appeal airport but Sabiha Gökçen ment as well as meeting shorter gap than it can Ankara – and of multina- ents may be tempted by
wet concrete outside the of the city itself to both is its first foray overseas. payments to the govern- physically manage, leading tionals such as Unilever Delphine Strauss more adventurous options
main entrance, tenants
were assembling shops, and
tourists and businessmen.
The wavy silhouette of its
Mr Alpsoy says the group
chose Turkey for its first
ment. It is counting on pas- to chaotic scenes at depar-
ture. Shedding a low-cost
and Procter & Gamble
already installed.
says that this year’s for their investments than
short-term cash deposits.
lines of red suitcases were roof – meant to suggest the venture because of the image looks challenging. Istanbul’s attractions go windfall profits are That will mean training
Turkish Airlines’
passing through tests of seven hills on which the potential for other projects Pegasus, which uses Sabiha beyond its romantic sky- unlikely to be bank branch staff in asset
baggage handling systems. city was founded – is the in its core areas of energy presence will be Gökçen as its main base, is line, she suggests, saying
matched over the
management, she says.
But when the new inter- mark of an architect chosen and road-building. a fast-expanding no-frills the consortium had “We have to educate our
national terminal at Istan- by the Turkish military, Other Turkish groups are crucial to attract carrier. Most airlines listed declined an offer from a pri- next few years clients – they have to know
bul’s Sabiha Gökçen airport
opened its doors this
which owns the airport. But
the consortium that built
eyeing the opportunities for
airport expansion in Turkey
other flag carriers on the airport’s website also
fit that category.
vate hospital to set up a
diagnostic centre in the old
where they’re investing.
Until now, they go to see
month, its operators could the terminal, after bidding and beyond. Celebi, a Sabiha Gökçen’s manage- terminal building – ready to “We were caught by the cri- the bank manager . . . they
celebrate completing it a €1.92bn for 20-year operat- ground handling company, senger numbers rising from ment says Turkish Airlines’ receive medical tourists sis with our seatbelts fas- have coffee, bargain over
year ahead of schedule – ing rights, is a collaboration has just won contracts at some 6m this year to 10m presence will be crucial to from Russia or former tened,” says Suzan Sabanci the interest rate, and it’s
with a 20m passenger between a Turkish con- Delhi’s international airport by 2010 and double that by attract other flag carriers: Soviet Union countries. Dincer, Akbank’s chair- done. Now, if you don’t
capacity bigger than glomerate, Limak, and and in Brussels. TAV, 2020. they delayed the terminal’s In a more glamorous woman, in a fair summary explain different asset
required by contract. India’s GMR Infrastructure. which runs Istanbul’s main “Our target is that every- opening to coincide with anecdote, she says the of the ease with which Tur- classes, it’ll backfire, he
While airlines around the Their joint venture holds an Ataturk airport, has just one in Turkey will fly,” the launch of new THY director of the new Abu key’s banking sector has won’t be happy.”
world suffer mounting 80 per cent stake in the formed a joint venture with says Gökhan Bugday, the routes. But Temel Kotil, Dhabi Guggenheim withstood the shocks of the If that shift does occur,
losses and falling passenger operation, with 20 per cent Saudi Arabia’s Al-Rajhi airport’s chief executive – THY’s chief executive, is museum chose to hold past two years. the implications are big –
numbers, Turkish aviation owned by the Malaysian air- Holding to bid for projects. echoing prime minister less enthusiastic about the meetings in Turkey so both Due to reforms enacted one peculiarity of Turkish
is thriving. Turkish Airlines port operator MAHB. Profits under the BOT Recep Tayyip Erdogan, who terminal, saying: “We don’t US and Middle Eastern visi- after a previous banking capital markets is the near-
claims it will this year be Limak has local knowl- (build, operate and transfer) sees air travel as a symbol have great plans for it.” tors could get visas. “Istan- crisis, Turkish banks – absence of retail investors,
the only European flag car- edge and expertise in con- contracts that predominate of progress and prosperity. Ebru Özdemir, a board bul is becoming more of a Akbank among them – especially in equities.
rier to grow, largely due to struction, but GMR added are highly sensitive to He argues airlines can be member of Limak, sees the magnet,” she says. entered the downturn with Although Turks can
enviable capital cushions, invest in shares simply by
no exposure to toxic deriva- walking up to a cashpoint
tives and with the bulk of and picking from a choice
their funding coming from of funds, most view the
Change in
a stable deposit base. stock market as the pre-
In the year to September, serve of speculators. One
net profit for the sector as a result is that pension funds
whole was 41 per cent remain puny next to emerg-
higher than in the same ing market peers.
period of 2008, according to Mr Aksel says 75 per cent
drug prices
figures from the banking of household savings go to
regulator. Banks continued cash deposits at present,
opening branches, although with just 4 per cent
at a slower pace than invested in equities – and
planned, keeping staff num- rich families buying stock
bers broadly flat despite in their own companies
prompts
stringent cost-cutting. account for most of that.
But much of that was The total equity exposure
thanks to the central bank’s of domestic institutional
decision to counter the investors was TL1.7bn
recession by cutting inter- ($1.14bn) at the end of
est rates by more than 1000
heartache
basis points in a year.
Because Turkish banks
can generally adjust their
own rates on deposits faster
than on loans, a year of
monetary easing has
boosted their margins and
PHARMACEUTICALS tional manufacturers up in arms. produced windfall profits.
Under the present system, the “The net interest margin
Pelin Turgut examines Ministry of Health sets the retail is the most important deter-
the effects of price of medicine as well as the
rates by which pharmaceutical
minant of profitability for
Turkish banks and so far it Until now, [clients]
electorally popular companies can increase their has been moving in their go to see the bank
healthcare changes prices. Since 2004, the price for an
original pharmaceutical has been
favour,” analysts at Fitch
Ratings wrote recently. manager . . . they
based on the lowest ex-factory Now, with the overnight have coffee,
A
midst the debate over price found in five reference coun- borrowing rate at a historic
Islamism, a key driver tries – France, Greece, Italy, Por- low of 6.5 per cent, the cen- bargain over the
behind the landslide re- tugal and Spain. The prices of tral bank appears to be
election won by Turkey’s original and generic products nearing the end of its eas-
interest rate, and
government in 2007 went unno- were then capped at 100 per cent ing cycle. As their margins it’s done.’
ticed: healthcare reform. and 80 per cent of the reference narrow, banks are likely to Suzan Sabanci Dincer,
Starting in 2005, the Justice and price, respectively. be even more wary in lend- Akbank chairwoman
Development Party (AKP) enacted The September decree changed ing to companies and con-
a series of IMF-sought changes to that dramatically. Prices on both sumers struggling through
rein in a sprawling social security original and generic drugs can one of the deepest reces- August 2009 – just 2 per
system, broaden access to quality now be no higher than 60 per cent sions in the region. cent of the Istanbul Stock
healthcare and improve the regu- of the reference price. “All of a Tefvik Bilgin, head of the Exchange’s free float.
latory environment for manufac- sudden, the rules have changed,” banking regulator, has Yet there have been
turers. says Engin Guner, deputy head of warned banks are unlikely inflows in recent weeks to
“Newspapers no longer run the Association for Research- to match 2009’s profits for HSBC Turkey’s equity
those tragic pictures of people based Pharmaceutical Companies some years after. “The dam- funds – even if these are
waiting in line in front of public (AIFD). age to the real economy still a very small proportion
hospitals because those queues no “Business and investment plans makes us very cautious,” of the total under manage-
longer exist,” says Serkan Tar- for 2009 and 2010 were made Ms Sabanci Dincer says. ment, Mr Aksel says.
mur, a partner in PwC Turkey before this new price decree. If Loans by Turkish banks He has also seen shifts
and co-author of a recent sectoral this regulation takes effect as is, grew 30 per cent in 2008, from cash deposits into
survey. “Anybody can now get it will be very hard for the sector but were roughly flat this fixed-income funds, and
treatment, even in private hospi- to fulfill its investment potential.” year, and she expects says HSBC is exploring new
tals and the state will reimburse Drug expenditure in Turkey at muted growth of just 12 per commodity-based funds
the hospital for it. This has been a $136 per person is already low cent in 2009, as well as after trebling its gold fund
radical, successful reform and it compared with the OECD aver- tougher lending criteria. in three months.
was an important factor in the age, he said, estimating that 75 Local support: small pharmacists have run a campaign to encourage people to buy generic drugs Alamy The prospect of interest “The structural case for
government’s re-election.” per cent of proposed cost-cutting rates remaining low for an equities remains strong as
It was almost too successful. By would be from original pharma- generic drugs market. “There is a July, Pfizer was rumoured to be crisis, with the exception of Zen- extended period, however, long as real rates stay in
October, the Health Ministry had ceutical manufacturers. In a move towards generics on the interested in the takeover of tiva [which bought 75 per cent of may demand a more funda- mid single-digit levels over
already spent the TL12.5bn recent survey, 84 per cent of AIFD part of the government as an generics market leader Abdi Ibra- Eczacibasi’s generic pharmaceuti- mental shift in behaviour the next few years,” Ali
($8.3bn) allocated for pharmaceu- members said the proposed important cost-saving measure,” him. cals business in 2007]. But talks from both lenders and sav- Riza Incekara, analyst at
tical expenditures in 2009, jeop- change would stop new capital or says Mr Tarmur. Turkey has a Local industry also has support with various companies are ongo- ers, who for decades have BGC Partners wrote in a
ardising budgetary targets in a production investments, while in the form of the vocal Turkish ing. They will wait for the market been accustomed to double- recent strategy note.
tight fiscal year. The prescription more than half said at least 20 per Pharmacists Union, who recently to settle after this price change digit rates of return. “Mutual funds and pen-
drug market grew nearly 10 per cent of jobs would be cut. Multinational generics ran a successful campaign to buy and then act,” says Mr Tarmur. In “This is something we’ve sion funds are likely to be
cent last year to $9.4bn and is The state is a key force in more manufacturers have not generic that resulted in several a recent PwC survey of pharma- never lived through,” says the primary vehicles for
expected to maintain that growth than one respect. More than 80 multinational companies increas- ceutical manufacturers and pri- Namik Aksel, chief execu- domestic retail investors in
rate to become one of the world’s per cent of all drug purchases are yet come to Turkey ing discounts on their brands. (All vate equity investors, more than tive of HSBC Asset Manage- shifting their portfolio,” he
top 10 largest markets in the next
decade. “Even in a year of finan-
reimbursed by the social security
institution, with the remaining
mainly because of the pharmacies in Turkey are individ-
ually owned, there are no chains.)
40 per cent cited regulatory uncer-
tainty as the main barrier to
ment in Istanbul.
Turkey’s habitual crises
adds.
“Before the 2001 crisis,
cial crisis such as this, healthcare nearly 20 per cent of public sector financial crisis Opportunities for new invest- investment. always involved the lira interest rates were ‘low’ at
costs have increased because employees similarly state-reim- ment are also helped by the frag- For its part, the government crashing, high inflation and 30 per cent and people were
access has become easier and bursed through the Finance Min- mented structure of the local mar- delayed enactment of the price interest rates, “so investors going into equities – retail
state insurance coverage is istry. Private health insurance is strong generics manufacturing ket – the top 10 companies change to December, suggesting are risk-averse,” he notes. investors were the last in.
wider,” says Mr Tarmur. negligible, accounting for 1.2m tradition, accounting for 53 per together account for less than there may be revisions. But it is Now, Ms Sabanci Dincer People got hurt very badly
To stem rising costs, the gov- people out of a 75m population cent of unit sales last year. There half of sales. “The large multina- unlikely to be annulled alto- says: “The banking model and never wanted to go
ernment issued an overnight last year. are several large, well-established tional generics manufacturers gether, signalling that a period of in Turkey is changing.” back,” Mr Aksel says.
decree in September that would The pressure to keep healthcare companies and they are being haven’t yet come to Turkey restructuring for pharmaceutical For high street banks, fee “This time, we feel it’s
change pricing and has multina- costs down is likely to boost the courted by foreign investors. In mainly because of the financial manufacturers is yet to come. income will become more going to be different.”
Success of oil pipeline depends on whims of Moscow
ENERGY its lower end, it is also one which has long warned of of Ceyhan, which Turkey sia having long backed a Italy and Russia commit- make or break the project. pass line of their own.
of the most beautiful. the dangers posed by too has long harboured ambi- rival project to build a pipe- ting the three countries to “Shipping oil by tanker They plan to construct
Government wants It is no surprise then that much tanker traffic. tions of turning into a line through Bulgaria and work together on this and through the strait is always that line, the South Stream
to ease traffic on with oil tanker traffic Turkey’s own proposed major regional energy hub. Greece – a far shorter route, other regional energy going to be cheaper than gas pipeline, across the
through the straits having solution is the Samsun- However despite presid- and Kazakhstan having projects. any pipeline,” says John Black Sea to export Russian
the Bosphorus, says more than doubled since Ceyhan, or Trans Anatolian ing over a ground-breaking Russian prime minister Roberts, Caspian analyst at gas to Europe, by-passing
David O’Byrne 1995 and expected to double pipeline, planned to carry ceremony at Ceyhan in
‘Shipping oil by Vladimir Putin also Platts. Ukraine which has previ-
again in the next decade on oil from Turkey’s Black Sea 2007, Calik and Eni have announced that he had “Ultimately Russia con- ously attempted to leverage
At 30km long but just 700m the back of fast-rising oil coast, 550km across the struggled to secure suffi- tanker through secured Kazakh support for trols the oil routes from the its location on Russia’s gas
wide at its narrowest, Istan- production in Russia and country to the Mediterra- cient commitments of oil to the project – a claim yet to Caspian to the Black Sea, export route to obtain
bul’s Bosphorus strait is the Caspian basin, Turkey nean coast, bypassing the ensure the line will be com- the strait will be confirmed by Almaty. and only Russia can ensure cheap gas.
one of world’s
crowded and potentially
most is keen to provide an alter-
native export route.
crowded Bosphorus.
Sponsored by a consor-
mercially viable.
Eni can supply oil from
always be cheaper It is an important step,
but there is still no definite
the line has enough oil to
make it viable.”
Russia is also hoping to
co-operate with Turkey on
hazardous waterways, “Traffic through the tium of Turkey’s Calik the giant Kashagan field in than any pipeline’ commitment of oil to the Such a move by Russia other pipelines, including a
where even with state-of- strait already presents an Enerji and ENI of Italy it is Kazakhstan which it is Samsun-Ceyhan line. would come at a price, he second gas line across the
the-art radar monitoring, unacceptable risk to the designed to carry up to 1.5m developing in partnership “Negotiations are still cautions, pointing out that Black Sea and an extension
transiting ships are still population of Istanbul, and barrels per day. with Kazakh state oil com- long declined to commit to continuing with both Rus- the recently signed agree- of an existing gas line south
obliged to take on a pilot. any oil pipeline that can It is also expected to help pany KazMunaiGaz, but the any of the competing sia and Kazakhstan,” a ments make only one defi- across Turkey to Ceyhan
Fringed with forests and relieve the pressure will be kickstart a new petroleum line also needs oil from Rus- schemes. spokesman for the Calik- nite commitment – for Tur- and on to Israel that would
villages on its upper welcome,” says Burak refining, petrochemicals sian or Kazakh producers. That situation has now Eni consortium told the FT. key to allow ENI and Rus- also allow for the develop-
reaches, and the palaces Ozugergin, spokesman for and manufacturing sector Support has been slow in changed with a recent It is also a step that con- sia’s Gazprom to conduct a ment of gas-based indus-
and mosques of Istanbul at Turkey’s foreign ministry at the Mediterranean port coming, however, with Rus- agreement between Turkey, firms that Moscow can feasibility study for a by- tries at Ceyhan.

3. FINANCIAL TIMES THURSDAY NOVEMBER 26 2009 ★ 3
Investing in Turkey
Links growing beyond aid and smuggling
IRAQ serious blow to its cashflow.
There is evidence of similar
Alex Barker says the problems in areas such as con-
country’s long­term struction. Ilnur Çevik, a former
newspaper proprietor and busi-
relationship with its nessmen who worked in north-
war­torn neighbour is ern Iraq, says the risks of work-
ing in such a fledgling economy
an opportunity are often unbearable.
“There was no proper plan-
P
ass a big construction ning, no proper supervision,
site in Erbil, Sulei- everything was arbitrary, and
maniya or Dohuk – the you have to deal with corrup-
booming cities of Iraqi tion,” he said. “On paper it
Kurdistan – and it is most likely looks very nice. But the reality
that the workers will be toiling is sometimes very different.”
away for a Turkish company. But Joost Hilterman of the
In good times and bad, mer- International Crisis Group
chants from Turkey have beaten argues such cases are the
a path over the long, mountain- expected commercial casualties
ous and disputed border with of a tricky working environ-
Iraq, looking to sell their wares ment. “Business and Turkish
or tap the region’s great and investment is booming. There
largely unrealised commercial are of course cases where the
potential. relationship has soured on an
From oil to construction, individual basis,” he says “The
Turkish entrepreneurs have Kurdish region does not have a
amassed some of the political banking system or a regulatory
clout and business hardiness system. Investors are not the
necessary to cope with the majors [international compa-
Kurdish region’s rocky regula- nies], they are smaller compa-
tory terrain – turning them into The Taq Taq oil field in Iraq’s self­ruled Kurdish region: Turkish companies have been forced to halt production following a dispute between the Kurds and Baghdad AFP nies that are the big risk-takers.
valued partners for others. Considering that, the situation
When European or US compa- Turkish troops, units of the diplomatic progress in October ments – have invariably gone to between Erbil and Baghdad over light by regulators and the is not bad at all.”
nies are contemplating a move rebel Kurdish Workers Party by making the first ever visit by Turkish groups able to draw on sharing oil revenue. Kurdish authorities. Meanwhile Meanwhile Kurdish authori-
into Iraqi Kurdistan, their first insurgents and hidden loads of a Turkish foreign minister to a skilled, often ethnically Kurd- Two Turkish companies – Petoil, which secured licence ties are looking to court more
port of call is often Istanbul. “It “mazout” – illegal smuggled the Kurdish region, flanked by ish workforce that are willing to Genel Enerji and Petoil – were agreements in Northern Iraq a established companies, meeting
is simple logic for everybody to fuel. dozens of businessmen. Mr tolerate a tough and sometimes again among the first to attempt few months before the US inva- with dozens of big hitters in
turn to Turkey for support,” Now Turkey is preparing to Aksoy says the visit was dangerous working environ- to overcome these obstacles, sion, is now working with Prime Turkey’s business community.
says Ercüment Aksoy, head of open two more border gates and “important for business”. ment. A further $180m road- taking poll positions in key con- Natural Resources of the US and Safeen Dizayee, spokesman
the Turkish-Iraqi business coun- a consulate in Erbil – an “To have a consulate and the building contract was awarded cessions. Both are also now Oil Search of Australia to for the Kurdish Democratic
cil. “We are the pioneers.” unthinkable political step five presence of the government will to Yüksel Insaat last month, a examples of Turkish groups act- develop fields. Party, says the relationship
It marks the maturing of a or 10 years ago. International oil make it easier in all our areas of group with experience in con- ing as a bridgehead for interna- Yet the problems faced by must move beyond “flooding
cross-border business relation- companies are working in tan- work,” he says. “Diplomatically, struction projects from Kabul to tional investors – a rough model these energy groups underline our markets with Turkish
ship that has long survived in dem with Turkish groups to rather than standing back to Qatar. of co-operation that could apply how difficult and unpredictable goods” and building infrastruc-
spite of politics, from the legitimately pump oil across the back, we’re now hand in hand. But those seeking their for- to many other sectors as the business can be in northern ture to more inward investment
oppression of Saddam Hussein border. There is even talk of This is a great opportunity.” tune in Northern Iraq tend to be region’s economy develops. Iraq. Genel in recent months and outward exports. “We had
to the peaks of Kurdish separa- reviving the great Ottoman To date construction has been firmly focused on the region’s Genel Enerji, owned by the has been forced to halt produc- lots of cowboys coming in, not
tist violence in Turkey. dream of a railway linking the dominant business area. Big abundance of oil. Development powerful Cukurova group, is in tion from its Taq Taq field fol- finishing projects, disappearing
For many years, the flow Baghdad and Berlin via Istan- public infrastructure contracts – is still severely hampered by the partnership with Heritage Oil of lowing a dispute between the with advance payments. Now
across the border mainly bul. from airports and universities to lack of export routes, legal the UK and has plans to merge, Kurds and Baghdad over pay- we’re looking more at serious
amounted to food (often aid), Ahmet Davutoglu sealed this roads and new housing develop- uncertainty and wrangling should the deal be given a green ment mechanisms, dealing a companies,” he says.
BC deal tests water
for private equity
MIGROS healthy demographic Big private equity deals
growth, which contributed in Turkey have included
Martin Arnold says to a 1.3 per cent rise in its TPG’s acquisition of a con-
debt­funded population last year to
71.5m people, more than
trolling stake in Mey Icki,
Turkey’s biggest producer
acquisitions are half aged under 30. of spirits including Raki,
becoming attractive In the six months to June,
Migros revenues rose by 13
the country’s most famous
tipple, in a deal worth
per cent to TL2.68bn about $810m in February
As a Greek dealmaker who ($1.8bn), while its earnings 2006.
oversaw Turkey’s biggest before interest, tax, depreci- Kohlberg Kravis Roberts
private equity acquisition, ation and amortisation announced its first private
Nikos Stathopoulos is used increased 8 per cent to equity deal in Turkey in
to breaking new ground. TL192.4m. October 2007 with the acqui-
Now the managing part- Mr Stathopoulos says sition of UN Ro-Ro, a cargo
ner at BC Partners hopes to Migros has opened 250 shipper that ferries trucks
set more precedents at stores in the first nine between Istanbul and Italy,
Migros, Turkey’s biggest months of this year and in a transaction put at
supermarket group, which aims to reach 3,000 outlets €910m.
was bought by a BC-led con- by the end of BC’s five-year In the media sector, Prov-
sortium in a $3.15bn deal plan. idence Equity bought
last year. The second way that BC almost 50 per cent of Dig-
Mr Stathopoulos says the hopes Migros will be a pio- iturk, the country’s largest
1,300-store chain is growing neering deal is by becoming digital television broad-
strongly and bucking the Turkey’s first private equi- caster, three years ago.
trend of falling sales and ty-owned company to bene- The credit crisis has
profits that has hit many fit from the tax-deductibil- slowed buy-out activity in
private equity-owned com- ity of its interest payments, Turkey – like much of the
panies since last year’s col- although it is unclear if this world – with only two pri-
lapse of Lehman Brothers. can be achieved. vate equity deals so far this
Mr Stathopoulos, who led This benefit, which gener- year, compared with six last
the Migros acquisition, says ates tax-savings for private year, according to Dealogic.
it has proved resilient to a But there are signs that
fierce recession in Turkey’s private equity is regaining
economy, which is expected The credit crisis its appetite for Turkish
to contract by about 6-7 per could throw up deals as Bridgepoint last
cent this year. “That is month offered to acquire a
mostly due to the defensive more opportunities, 33 per cent stake in Tüv-
characteristics of food
retail, as people still have to
as Turkey’s rich turk, a vehicle inspection
company.
eat,” he says. families are forced The credit crisis could
The BC executive says throw up opportunities, as
that since Migros was
to sell assets to rich families, such as the
bought by a consortium of raise capital Koç family (which sold
BC, Turkven, and Italy’s Migros) and the Dogan fam-
DeA Capital, it has been ily (which faces a $3.3bn tax
taking market share from equity-owned companies, is fine), are forced to sell
its rivals, thanks to its full a common feature of lever- assets to raise capital.
range of store formats, such aged buy-outs in the US and “Some of these families or
as 5M hypermarkets, Europe, but has not been corporates are overlever-
Migros supermarkets, and tested in Turkey before. aged, may have debt matur-
Sok discount stores. In preparation for the pos- ing soon that needs repay-
As customers have sible move, the $1.5bn of ing, or may want to
shifted away from the more debt used to finance the ini- improve their capital struc-
upmarket supermarkets, tial buy-out of Migros has ture, so I expect there will
such as Macrocenter, they been transferred from the be some potential disposals
have spent more in dis- acquisition vehicle to the coming out of them,” says
count stores, such as Sok, operating company. Mr Stathopoulos.
says Mr Stathopoulos. The final way that the BC
“As we have five brands boss hopes the Migros deal
in different formats, we will break new ground in Contributors
have experienced growth in Turkey is to become one of Delphine Strauss
all formats and can address the first companies to bene- Turkey Correspondent
consumer needs from differ- fit from a proposed law to
ent directions,” he says. allow squeeze-outs of Martin Arnold
Private Equity
“Sok is performing particu- minority shareholders. Correspondent
larly strongly as people are BC owns 98 per cent of
trading down in times of Migros shares, but has been Alex Barker
recession.” prevented from taking it Political Correspondent
In addition, organised private by the lack of a
retailers, such as Migros squeeze-out law, forcing it David O’Byrne
and its smaller rivals Carre- to keep publishing full Pelin Turgut
four and Tesco, have quarterly results. FT Contributors
increased their share of “Turkey is modernising Tom Griggs
Turkey’s food retail market and coming in line with the Commissioning Editor
from traditional Bakkal rest of Europe,” says Mr
“mom and pop” stores. Stathopoulos. “This should Steven Bird
Supermarkets and other boost mergers and acquisi- Designer
organised retailers still con- tions by private equity and
trol only 40 per cent of Tur- inward investment in Tur- Andy Mears
key’s food market, com- key.” Picture Editor
pared with about 80-90 per Other big private equity
cent in most western Euro- groups that have invested For advertising details,
pean countries, so there is in Turkey recently will be contact:
more room to grow, argues watching closely to see how Regina Gill
Mr Stathopoulos. BC fares in its push to Phone +49 69 156 85 16
Another driver of growth improve the rules for pri- Email : regina.gill@ft.com
at Migros is Turkey’s vate equity in the country.

4. 4 ★ FINANCIAL TIMES THURSDAY NOVEMBER 26 2009
Investing in Turkey
Government wary of temptations of Bacchus
WINE ecik Karasi or delicate Narince, annual sectoral growth we saw taking their expertise with The market was liberalised in
technology has improved and in the early 2000s to a stand- them. 2001 when a state monopoly on
Political attitudes international buyers are taking still,” says Sibel Kutman, a It was the plight of abandoned alcoholic beverages was lifted
make for a challenging note. “What I saw in vineyards
and cellars suggests it will not
member of the board at Doluca.
More recently, an advertising
vineyards on the Aegean island
of Bozcaada that prompted Mr
and private sector wine imports
freed up. A market watchdog,
investment climate, be long before Turkey produces ban took effect in July making Soley to turn to wine-making. TAPDK, was established in 2002
says Pelin Turgut something truly exceptional,”
said well-known wine critic Jan-
it illegal to promote alcohol in
association with food, Turkish
“I’ve had a house on the island
for 20 years,” he says. “I could
to regulate the industry. A pri-
vate consumption tax was intro-
cis Robinson, who writes for the cultural or historic values, or – see a tradition dying out and I duced the same year, at a rate of
Although home to one of the FT, after a recent visit. in vague wording – in a way wanted to save it.” His Corvus 48.7 per cent on fresh grape
world’s earliest wine-producing After all, the Turkish wine that might appeal to youth. label produces about 300,000 bot- wine. Over the next three years,
regions – dating back 4,000 years industry would appear to have “The government has adopted tles a year, several of which it was raised to 63.3 per cent.
– Turkey’s wine offerings were huge potential: the country is an attitude of passive resist- have won international awards. Imports are taxed further – 50
low on variety and uninspiring the world’s fourth-largest grape ance,” says Resit Soley, a promi- He began exporting last year to per cent on European products,
until just a few years ago. grower, it has favourable cli- counter a slowdown in domestic 70 per cent for other countries.
A state-run alcohol monopoly mate and soil conditions, nearly sales he attributes to high taxes. About half the sector’s reve-
and two companies – Kavakli- 1,000 indigenous grape varieties ‘It is a great market, “My goal now is to sell nine out nues are paid out in tax – more
dere and Doluca, founded at the and a large, youthful population both in terms of its of 10 bottles abroad,” he says. than TL3bn ($1.9bn) last year.
same time as the republic in the – more than half of 70m are “That’s the only way to circum- “All I’m asking for is fair-
1920s – dominated a lacklustre under the age of 35 – with rap- vineyards and a large, vent the tax dilemma here.” ness,” says Mr Soley. “As it
market. Then there were a
handful of lesser brands, known
idly urbanising palates. Alcohol
sales rose by 19.5 per cent to
youthful consumer The republic’s westernising
founder Mustafa Kemal Ataturk
stands, I have to pay tax on my
product two weeks after I’ve
colloquially as “dog-killers”. more than 1.1bn litres last year. population’ famously enjoyed a tipple and invoiced it. But I get paid by
Vintage year or grape variety Yet businesses are faltering. kept a wine cellar. But some 80 supermarkets and suppliers
were little-known details and Wine producers accuse the gov- years later, his successor, Prime weeks, even months after they
hardly mattered. ernment of failing to support nent architect-turned-vintner Minister Recep Tayyip Erdogan, receive an order.”
Those days are receding. A the nascent industry, chiefly who owns the up-market Corvus a devout Muslim, abstains, as do As Turkish wines make their
combination of industry liberali- through a tax levied since 2002, label. “It doesn’t kill you, but it most members of his cabinet. mark abroad, foreign investors
sation, a slew of wealthy execu- which is among the steepest in saps your strength. It is an AKP mayors in various munici- such as Piero Antinori and Fres-
tives investing in boutique vine- the world when measured exhausting constant struggle.” palities have tried periodically cobaldi have visited to look into
yards and innovation by the US- against per capita income. Due to Muslim prohibition, to ban alcohol sales. vineyards. “On one level it is a
educated scions of established Wine taxes now amount to under Ottoman rule, “The official attitude is less great market,” says Mr Kutman.
wine-makers is helping to revi- €0.80 per litre, compared with a wine-making was traditionally than friendly,” says Mr Kutman. “Both in terms of its vineyard
talise an ancient tradition. European average of €0.48 per the province of the empire’s “For a country on the road to opportunities and a large,
Turks can now count a litre. “The tax has made wine Christian Greek and Armenian EU membership, there is no youthful consumer population.
number of homegrown grape very expensive, which has subjects. When the Empire desire to officially promote “But there is a big question
varieties, such as the dark, tan- reduced consumption and collapsed in the 1920s, most of Turkish wine or to see wine as a mark over the political attitude.
nic Bogazkere, fruity red Kal- brought the 12-15 per cent its non-Muslim minorities left, national product.” That makes investors wary.” Rising quality: men carrying grapes to market in Murefte Getty
Volumes rise,
spending falls
TOURISM lira, the drop is milder, but
industry associations expect
Delphine Strauss the trend to continue to the
asks if all­inclusive end of 2009.
Tour companies say Tur-
hotels are good key is popular not just
for the health of because it is cheap, but
because of the price-quality
the industry ratio, modern accommoda-
tion and range of activities.
Eight and a half tons of fire- Official data show that,
works; enough caviar to fill although aggregate tourism
a private jet; and a guest revenues rose steadily up to
list ranging from Sharon 2008, foreigners’ average
Stone and Tom Jones to the expenditure has been fall-
prime minister of Uzbeki- ing for years, peaking at
stan: last May’s launch $706 in 2003 and declining to
party opening the Mardan $635 by 2008. It has aver-
Palace hotel in Antalya was aged $573 so far this year.
nothing if not lavish. The decline could be
The hotel, complete with partly due to shorter stays,
gold-plated bathrooms and as Istanbul becomes a popu-
a five acre swimming pool, lar weekend destination.
is the creation of the But Faruk Boyaci, a
Azerbaijani billionaire Tel- board member at the indus-
man Ismailov, the latest oli- try association Turob, says:
garch drawn to the Mediter- “Tourism on the coast is
ranean province already losing... This year the all-
popular with high-spending inclusive system has helped
Russians. Turkey overcome the eco-
Its vast premises are typi- nomic crisis, but we have to
cal of a trend in Turkey’s look to the long term.”
coastal resorts towards “It’s a big problem for
hotel complexes that can us,” says Cumhur Guven
accommodate tourists on Tasbasi, a senior official at
all-inclusive packages. the ministry of culture and
Less typical is its extrava- tourism. He says the minis-
gance: local businesses try is working on new regu-
have long complained that lations that will impose
package deals drive down tough supervision even on
prices and quality, attract- big, top-end hotels offering
ing only the most impecuni- all-in deals. “We may even
ous holidaymakers. ban them for smaller
“Small shopkeepers are hotels,” he adds.
dying because of the all- But he gave no details of
how such a ban could be
implemented, and said well-
‘The all­inclusives run packages protected
have helped Turkey tourists from grubby eater-
ies and shopkeepers’ sharp
overcome the practices. Rather than abol-
economic crisis but ishing the system, the gov-
ernment may focus on
we have to look to incentives to drive coastal
tourism upmarket and
the long term’ develop niches such as
sports or spa holidays.
inclusive hotels. People Ertugrul Gunay, culture
don’t eat outside, they don’t minister, is considering
buy outside. Shops are clos- cuts in sales and consump-
ing in Side,” says Tuncay tion taxes on tourism, Turk-
Tuksal, who once owned ish media reported last
seven shops selling vivid week.
carpets in the beach resort. In August, Recep Tayyip
He now owns only two, Erdogan, the prime minis-
both inside five star hotels, ter, promised tax breaks for
and earns money through yacht owners flying the
exports. Turkish flag, as he opened a
Yet Turkey’s image as a marina at the Aegean port
low-cost, short-haul destina- of Didim.
tion has served it well this Investors, though, may be
year, as crisis-conscious turning their attention
Europeans seek to cut holi- away from Turkey’s coast.
day spending. The Limak group, which
Foreign visitor numbers owns popular beach resort
from January to September hotels, is building a com-
were 1.5 per cent higher plex in northern Cyprus,
than in the same period of whose casinos attract Turk-
2008, which is striking, ish, Israeli and Greek Cyp-
given sharp falls elsewhere riot tourists. In Turkey, it is
around the Mediterranean. now focusing on four-star
The latest data suggest city hotels, a market it
Turkey has benefited in thinks under-served.
particular from British Even the Mardan Palace
tourists opting to holiday is not immune to the tough
outside the eurozone economic climate. Soon
because of the weak pound, after the launch party, a
a trend confirmed by book- vast market owned by Mr
ings at tour companies such Ismailov in Moscow was
as Thomas Cook and TUI shut down by police citing
Travel. health regulations.
But the flow of visitors is Russian commentators
little consolation to busi- speculated that the ill-
nesses losing money as timed display of wealth in
tourists shorten their stay Antalya had angered the
and scrimp on extras such authorities.
as tours or seafront dining. The hotel is now offering
Revenues from foreign cut-price rooms for the next
visitors, $16bn in 2008, fell public holiday, and Turkish
8.4 per cent year-on-year in media report its staff have
the first nine months of sought help from unions
2009. Measured in Turkish over unpaid salaries.