Post-election uncertainty threatens Turkey’s falling FDI

Greenfield investment, which dropped by half in 2014, unlikely to pick up in short or medium term

Turkey has been a popular investment choice for many multinational companies in recent years because of its large consumer market, low costs and location straddling Europe and Asia. But regional security fears combined with slowing economic growth are presenting challenges to Turkey's FDI appeal, challenges exacerbated by uncertainty following last weekend's elections.

The Turkish economy grew less than 3 per cent last year, according to the state statistics agency, missing government targets. It also saw a dramatic dip in its greenfield investment levels, although government figures show headline foreign investment inflows holding up better.

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Turkey attracted $12.5bn in total FDI in 2014 against $12.4bn the previous year and $13.2 bnin 2012, according to central bank figures published by Invest in Turkey, an investment promotion agency that sits under the authority of the prime ministry. These figures include equity investments (accounting for $8.4bn of the total) and investments into real estate.

Capital expenditure on strictly greenfield inward investment projects, meanwhile, dropped by nearly half last year in a large departure from its capex levels of recent years, according to fDi Markets, an FT data service. Greenfield investment is defined as a company starting a new venture in a foreign country by constructing new operational facilities from the ground up, or, in the case of fDi Markets data, significantly expanding existing facilities.

From 2010 to 2013, yearly capital investment into greenfield projects in Turkey hovered between $8bn and $10bn before dropping to $4.6bn in 2014. Project numbers also declined last year, dropping to less than 100 for the first time in several years, dropping Turkey out of the top 10 list of destination countries in Europe by project numbers.

US companies have been the most active greenfield investors in Turkey in recent years, according to fDi Markets, while European investors account for the largest share of overall inflows, according to government figures.

Greenfield investment fell sharply in 2014 by all measures Year Projects Capex ($m)* Avg Capex ($m)* Companies 2014 97 4,626 47.7 89 2013 130 9,425 72.5 119 2012 144 8,887 61.7 135 2011 138 10,554 76.5 129 2010 124 8,768 70.7 144 Total 633 42,260 66.8 552  Source: fDi Markets. *Includes estimates

US greenfield investment plummeted from $5bn in 2013 to $340m in 2014, a big reason for the overall decline in Turkey's numbers last year. However, it was a mega-investment by General Electric in 2013 that inflated the total for that year: the global energy giant announced plans to spend $5bn on a new wind turbine manufacturing facility in Turkey with an annual capacity of 3,000 megawatts.

Last year, the largest investment recorded by fDi Markets was a manufacturing investment of an estimated $57m when US-based Plaskolite, an acrylic sheet producer, said it would open a new cast-acrylic sheet plant in Malatya as part of a joint venture with Turkey-based Isik Plastik. Capex figures for greenfield projects into Turkey last year were on the whole of a relatively small size.

Turkey's FDI situation will be cast into further flux by the surprise results of the June 7 elections, which saw the governing Justice and Development party of President Recep Tayyip Erdogan fail to win an outright majority. While some in the business community may welcome a changing of the guard and the chance for a different approach to monetary policy and potential for renewed economic growth, what investors dislike most of all is uncertainty -- and Turkey's new political picture looks set to offer only questions in the short to medium term. Foreign companies are likely to take a wait-and-see approach in the meantime.

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Source: Post-election uncertainty threatens Turkey's falling FDI