By HUSNIYE GUNGOR
When the new board of directors chaired by Boeing Turkey Managing Director and Country Executive Aysem Sargin took over the management of the International Investors Association (YASED), they thought they had a challenging agenda ahead with trade wars, Brexit and growing uncertainty exerting downward pressures on investments. “Little did we know at the time that a once in a lifetime crisis was waiting for us,” says Sargin, who was elected for a second term at the 39th and 40th general assemblies of YASED held together last Friday. “Looking at the current environment, the fog is still there, with all the variants of the virus, uncertainty over when demand is coming back in certain sectors, a still recovering economy and geopolitical issues…”
One big issue for investors more than ever today is how to minimize risks, Sargin says. Her first term, however, was defined by uncertainty and risk, and she admits it was one of the hardest periods of her life. Nonetheless, she managed to make a major shift in her thinking at that time, finding ways to navigate the uncertainty and continue to build relationships with both the private and public sectors. It’s a lesson she would like to carry forward into her second term.
YASED is a large business organization, with 270 members from 35 different countries, representing 15 sectors. “When you look at our member-base, we have plenty of issues to understand, deal with and create solutions for. That was a challenge,” Sargin notes. Still, the board chaired by her thought they should focus on what comes next for them rather than what has passed. Thus, YASED focused on digitalization and supply chains, toward which some of its members had already taken some steps.
They worked in cooperation with the Ministry of Industry and the Presidency‘s Investment Office in order to prepare a detailed study looking at which sectors Turkey can achieve quick wins from global supply chain shifts, establishing the YASED Supply Chain Platform in partnership with the government. “We sometimes held online events only for socializing under YASED United to keep our members updated,” she says.
It is still a very challenging investment environment today, Sargin believes. The United Nations Conference on Trade and Development (UNCTAD) does not expect the investment environment to get back to pre-pandemic levels before 2024, because of the substantial “35% fall in international foreign direct investment (FDI)” and a creeping conservatism among investors.
“All the international companies are trying to position themselves in today’s environment and want to make sure they minimize the damage and stay afloat in a smart way during this period. They are also trying to plan for the post-pandemic period, trying to understand what major changes will help them succeed in the new world order.”
Risk perception a great challenge
Turkey’s investment environment, on the other hand, is dominated by the risk perception, which Sargin thinks is its greatest challenge. Existing investors in Turkey are more inclined to invest in the country compared to a new investor, according to a YASED study analyzing Turkey’s global investment competitiveness. “Investors already in the Turkish market are somehow more accustomed to what happens in Turkey, politically and economically, and know what to expect,” she says.
However, Turkey’s risk perception from the outside is higher because of the number of unknowns in play. Macroeconomic instability and FX rate volatility have an impact on these international companies’ profitability. “You feel like you had a great year in Turkey but then your headquarters may see some different figures because of this kind of volatility,” she notes.
We are recently seeing the impact of politics and geopolitics on economies like never before and this is not happening only in Turkey, Sargin says. “We have some blessings, like being close to a market as big as Europe that will provide many opportunities, but at the same time we are in a challenging neighborhood with strange relationships going on.”
This risk perception makes investors reconsider their decisions in Turkey and globally when combined with other factors and to the extent Turkey can minimize these uncertainties, Sargin thinks it will have a better chance of attracting more investments. Pointing out that the industrial sector has seen a fast recovery, Sargin says that in terms of global supply chains, Turkey is getting stronger, and has become a competitor for traditional supply chain players like China.
However, she says, “We have to make sure that we take other steps to improve the certainty for investors and take some measures to boost investments. There are some new investment incentive models and Turkey’s peers are competing in very different ways. We have a lot of homework to do, from digitalization to green transformation, to investment promotion, which we need to work on quickly.”
Asset-light investments will be the future
In terms of areas on the rise in international investments, Sargin is personally happy about asset-light investments, which she thinks are the future of economy. So, anything digital like service centers that come to Turkey will enable progress in the digital economy, which she thinks is going to be the key. “The good news about Turkey in this environment is we have very strong engineering skills, which is a real strength together with Turkey’s young population. Anyone who is based in Turkey can even support a company outside of Turkey and this is service exports. Turkey’s talent will be on the agenda especially in engineering and technical jobs.”
There are also other areas where Sargin thinks Turkey can be competitive in the short term, according to YASED’s supply chain study. “Computers and electronic components are going to be one of those. In the long term, the competitive sectors in our report are electronics, automotive, chemical industry, and aviation and defense.”
Turkey is attracting more efficiency-seeking investments lately, which means the country is cost competitive, an advantage to attract investments, according to Sargin. Some industries serve the region from Turkey, which will attract more regional centers going forward. “Turkey is a good destination when you think about those supply chain dynamics in terms of location and Customs Union membership with the EU. These things provide certain advantages for international companies, especially those who are doing business from afar who want use Turkey as a base.”
The green transformation issue will also be big on the agenda. All the central banks are infusing the markets with cash and Sargin thinks there is some funding out there. “Green transformation in Turkey needs funding; transformation-related funding will likely arrive in Turkey that will mobilize some investments as well.”
Elections to cause further delay in FDI
Politics is always complicated in Turkey and actually there is a kind of stability in this, Sargin believes. For anyone doing business, a focus on bringing in more uncertainty on the political side in the current already foggy environment probably would further increase uncertainty for investors and maybe cause some delays in their investments, she says. What investors really want is to see a focus on the economy, global competitiveness, trade and investments. The economic reform package that President Erdogan announced last year was well received by international investors. “We loved it,” says Sargin. “It was timely and it made all of us believe that things are changing. It was a new motivation for all of us. All our expectations were covered in the action plan. But focus on fixing economic crises somehow causes delays in the implementation of economic reforms.”
Sargin also thinks that a snap election is likely to cause further delays in the realization of such action plans. “As investors, we all believe in the potential of Turkey. Many existing investors did not cancel their investments in Turkey, but rather postponed them. Today is the day we need to take quick action. All our competitors on the investment side are taking immediate steps to be the winners in the post-pandemic period.”
In the end, Sargin offered a piece of good news as well: DowAksa, one of YASED’s members, will be increasing its manufacturing capacity by 50%. The company will have an official ground breaking ceremony either in October or November. “DowAksa produces carbon fiber and composites, which will make Turkey competitive globally. But beyond that, because Turkey is working on indigenous production of automobiles and wind turbines, this material will be important for Turkey to produce domestically,” she says.
One wish that Sargin has is to see Turkey attract more investments in the upcoming period. But more importantly, she wants the composition of these investments to include more FDI and less real estate, which increased to 50%, or USD 7.8 bn total FDI in 2020. She thinks we have all the strengths in the right place. “If we can send the right messages to investors, and prepare ourselves quickly for the next era, everybody will be on the same page and ready to tackle the future.”
FDI AND YASED IN FIGURES
>> Europe continues to lead Turkish FDI with 60% of investments in 2020
>> Turkey receives 24% FDI from periphery countries
>> FDI from Asia is still low at 3.7%
>> USD 100bn: Total investments of YASED members
>> YASED companies provide direct employment for 600,000 people.
>> 15% of all employment in R&D centers are YASED member international investors
>> YASED represent 270 of the biggest companies from 35 countries in 15 sectors.
>> In 2015, Turkey attracted USD 20 bn in FDI, 22% was from real estate sales to foreigners. In 2020, around 50% of total USD 7.8 bn FDI was real estate.
IT WOULD BE GREAT IF HEAR THINGS BEFORE
OUR HEADQUARTERS: SARGIN
“As they are game changers and injections into the economy, FDIs are what all countries are looking at after the pandemic. One key issue, according to UN statements, is to keep your existing investor retention. Many countries have developed new policies to engage with existing investors. Thus, the framework legislation for investments has been on our agenda for a long time. We brought up the subject in the meeting with President Erdogan last December. The investment framework legislation improves some parts that will make investment environment more predictable. Especially the dispute settlement mechanisms could expedite the legislative process on the commercial side. The other issue we brought up was consultative mechanisms between the government and the private sector, including investors. When legislation is prepared with big changes happening in the economy, it would be great if we could exchange views on that ahead of time, at least it would be great if we had a heads-up so we could hear them before our headquarters. One thing about the future that we think will be a major gate-opener for Turkey is its compliance with General Data Protection Regulation (GDPR). Transfer of data is an issue for all companies in the upcoming period. If we want to keep our investors and help them expand their investments on the digital side or attract new investments, we really want to make sure that we implement international standards in data, both legislatively and with respect to our infrastructure, which is another important task we are working very closely with the Presidency Digital Transformation Office to achieve. We will soon be announcing our report on that too.”
‘WE ARE EXCITED ABOUT PARIS AGREEMENT’
“It is great news that Turkey is ratifying the Paris Agreement. If you don’t comply with EU Green Deal, do not reduce your carbon print accordingly, then your companies will not be able to trade anymore with the EU. In this environment, staying behind the world would create some real losses for Turkey. I am excited that we are a part of it. This is something that we were preparing for anyway as a country. The Minister of Trade has already published an action plan on green transformation. They did a very good job by looking into the sectors. With the ratification of the Paris Convention, I think we will able to access more funding to complete this transformation in a timely manner.”