Direct investment in Turkey (2006)

Résumé du document

We are currently investigating an investment proposal concerning the chocolate confectionery sector, in Turkey. Specifically the analysis concerns the chocolate tablets production. Below follows an explanation of the elements of the investment decision, the general aspects of the Turkish economy and an analysis of the risks that the project could potentially face. For some decades Turkish economy was characterized by certain aspects, which worsened much more during the 90's. After the 2001 crisis, the Government outlined a new economic program to bring about a rapid turnaround in the economy. The new program goes much deeper than previous attempts in addressing the structural roots of the crisis – weak public finances and a fragile banking system – while strengthening social programs. The program also aims at bringing Turkey closer to its goal of EU accession. The establishment of the new macroeconomic settings was of key importance for improving confidence. While interest and exchange rates continue to be heavily influenced by fiscal policies due to the large public sector borrowing requirements, the Central Bank has been successful in building up credibility over time and is increasingly shaping inflation and interest rate expectations.

Extraits

[...] Other main risks the investment could face are: Lack of fiscal discipline in the public sector. The company may find itself lost between several contradictory fiscal regimes and end up paying far more than what was predicted in the beginning. Serious structural problems in a wide range of economic sectors and especially banking. A very slow and inefficient banking system could potentially create problems as far as it concerns the procedures for the acquirement of the loan, very long delays and thus increase of the cost of capital or unfavorable terms for the interest and capital payments. [...]

[...] Reforms regarding the judicial system have also taken place in order to facilitate foreign investment. After 2000, international arbitrage for the resolution of conflicts is permitted, between the State and dissatisfied investors. Turkey is now an official member of the International Center for the Settlement of Investment Disputes and MIGA and has signed the New York convention for the application of international arbitrage. Sector performance Turkey's economic outlook has been positive with declining inflation, which is at its lowest in more than 30 years, a strong economy and productivity growth. [...]

[...] High real interest rates, which make it more difficult for Turkey to reimburse its foreign debt. Apart from the problems that high interest rates create to the national economy, there is also a very high risk for the company. Given the fact that the company will borrow from the local banks a considerable amount in Turkish lira for the investment, the slightest increase in interest rates, will cause a much heavier obligation for reimbursement of the interests and the capital. [...]

[...] Nationalization is not a current phenomenon in Turkey. On top of that, the new law on international investment in 2003 places foreign and local investors on equal terms and foreign companies do not need acquire the Treasury's permission and authorization. This law protects foreign investors from nationalization risks. As far as it concerns expropriations, turkish laws demand that they abide by international laws and procedures and that they are non-discriminative and justified by a public interest cause. The compensation given out to the owners has to be fair and fast. [...]

[...] Especially if inflation goes up, the cost of raw materials is going to increase. The company will have to decide also if it is going to increase direct wages, in order to keep its people happy. If wages go up, the cost of production will increase accordingly, but if not another risk is created: that of possible strikes or general dissatisfaction. Last but not least, the company will also have to decide if it is going to transfer the extra cost to the final consumer. [...]