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TurkeyÂ’s inward and outward foreign direct investment performance

Posted on 14 February 2011

Date: 26/01/2009
Turkey’s inward and outward foreign direct investment performance

Since 2005 Turkey’s FDI inflows, especially through M&As in financial services, have risen spectacularly, not only in dollars but also as percentages of gross fixed capital formation. In 2006 and 2007, these percentages were higher than those for both the world and developing countries. Moreover, Turkey’s ranking among 141 countries, based on its IFDI performance index, as shown in Table 3, rose significantly during 2005-2007. The IFDI performance index is the ratio of the share of a country’s FDI inflows in world FDI inflows to its share of gross domestic product (GDP) in world GDP.

Turkey’s FDI outflows, on the other hand, although rising, are still minuscule relative to its inflows and relative to global outflows as well as outflows from developing countries. Turkey’s ranking among 141 countries, based on its OFDI performance index, as shown in Table 3, fell during 2005-2007, although its ranking as a source country was higher than as a host country. The OFDI performance index is the ratio of the share of a country’s FDI outflows in world FDI outflows to its share of GDP in world GDP.

Despite the recent surge in IFDI, Turkey still lags behind the world and developing countries in terms of IFDI stocks as percentages of gross domestic product. This is the result of Turkey’s ambivalence, and at times outright hostility, toward IFDI through the early 1980s, followed by its economic and political instability until the early 2000s, which made Turkey chronically unattractive to foreign investors.

The latest Treasury data show a total OFDI stock of $14.676 billion at the end of 2008. In comparing the official data on the OFDI transfers with data from the Foreign Economic Relations Board (DEIK), based on DEIK’s country reports, we can see how grossly the official data underestimate the level of Turkish OFDI. For instance, although according to the official data the cumulative FDI transfers to Russia were $2.8 billion at the end 2008, DEIK estimated last June that the total Turkish FDI stock in Russia was $6 billion.

Consider another host country, Egypt. Although according to the official data the cumulative FDI transfers to Egypt were merely $59.5 million at the end of 2008, referring last week to Turkish FDI in Egypt, State Minister Kürsad Tüzmen, an outspoken advocate of Turkish OFDI, said: “Our entrepreneurs have made investments amounting to $1.2 billion so far. Such figures will rise to $3 billion soon.” According to Minister Tüzmen, Turkish OFDI stock has reached $30 billion, which is double the total cumulative FDI transfers figure disclosed by the Turkish Treasury.

Although Turkey’s globalization through FDI has accelerated in recent years, it still lags behind the rest of the world, even after allowing for data deficiencies. Given the still widespread suspicion, stemming from historically deep-rooted fears of exploitation and domination, of foreign business activities at home and the current global financial crisis and recession, the sustainability of the IFDI surge is far from assured. Given also the less prevalent but nonetheless significant opposition to Turkish business activities abroad through OFDI, based on concerns about the loss of investments and jobs at home, especially in the midst of a stagnant economy, Turkey’s FDI-based globalization is promising but precarious.

26 January 2009, Today’s Zaman (Abridged)

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