Inspiring Turkish policymakers on best investment practices worldwide YASED FDI Summit, 8 November 2

1
Inspiring Turkish policy-makers on best
investment practices worldwideYASED FDI Summit,
8 November 2005 Mehmet ÖgütçüDeputy Chairman,
Forum Istanbul
2
Overview

• The primary objective of this session learning
  from international practices
• World investment trends and needs
• Turkey a miracle-in-the-waiting?
• How to attract and maximise benefits of FDI for
  development?
• Key messages and lessons for policy makers

3
Investment, development and geopolitics

• Today all countries are racing with each other to
  attract quality foreign investment in an
  increasingly competitive environment.
• Yet there should be no illusion FDI is not a
  panacea or a primary source for solving the
  developmental problems.
• It should be seen as a valuable supplement to
  levels of domestically provided fixed capital and
  other external finance rather.
• The patterns of FDI are constantly changing so
  should the government policies to respond to the
  new environment and expectations.
• Geopolitics, trade and regional integration play
  a crucial role in addition to sound fundamentals
  of an enabling environment.

4
Example World energy investment, 2001-2030
5
Trends and Recent Developments in Foreign Direct
Investment
6
Trends and recent developments

• FDI peaked in 2000, with 1.4 billion, but
  declined over the past four years to 648
  billion.
• FDI growth last year reflected increased flows to
  developing countries as well as to South-East
  Europe and the CIS.
• The US - the largest recipient in 2004, ahead of
  the United Kingdom and China as well as
  Luxembourg - the top FDI recipients in 2003.
• Estimated 70,000 multinationals in the world,
  with at least 690,000 foreign affiliates.
• Cross-border MAs key modes of global FDI since
  the late 1980s started to pick up following
  three years of decline.
• Developing country multinationals (China, India,
  Brazil, Malaysia, Singapore, South Africa) are on
  the rise.

7
Trends and recent developments

• The macroeconomic performance of the high-growth
  Asian economies vs the sluggish economic growth
  in continental Europe.
• .the weakening US dollar.
• Recent changes in trade architecture, including
  Chinas WTO accession and the multi-fibre
  agreement, further encouraged FDI.
• FDI seeks not only competitive production costs
  but also access to a buoyant client base.
• Large amounts of cross-border transactions
• In the utilities sector, energy production and
  distribution was the target of several large
  cross-border takeovers in 2004 and 2005.

8
The growing role of non-OECD investors

• China and India will, within our lifetime, become
  the two largest national economies in the world
  by most measures.
• Inward FDI into the Chinese economy keeps hitting
  new records.
• India is also on an increasing trend.
• Russian inward direct investment improved further
  to reach 11.7 billion in 2004.
• South America - a rebound in inward direct
  investment.
• MENA still less than 1 percent of global FDI
  but investing abroad.

9
What investors expect?

• Accessibility to larger markets, integration to
  the world economy.
• Availability of adequate infrastructure to allow
  business transactions to take place.
• Simplified investment approval processes.
• Enforcement of the rule of law, i.e. private
  property protection, and patent recognition.
• Accountable and consistent administrations.
• Sound and transparent economic and financial
  management.
• A healthy and adequately skilled workforce and
  strong local partners.

10
How do countries attract and maximise benefits of
FDI?

• Investment reforms are not achieved overnight,
  and investors will no doubt be willing to live
  with some impediments if profitable opportunities
  exist.
• But in the long run, a suitable enabling
  environment is the best guarantor of investment.
• There is not a single success story in attracting
  and making best use of the FDI.
• Governments can do little to influence geography,
  natural resource endowments or even market size
  except in the long run, all of which affect
  investor perceptions,
• but they do shape the policy and regulatory
  environment which is at the heart of investor
  concerns.

11
Incentives or beauty contest?

• No longer sufficient for a country simply to
  liberalize restrictions on FD nor offering tax
  benefits and other incentives
• Sound fundamentals rather than direct incentives
  are clearly the key to attracting FDI
• In some circumstances, incentives may serve
  either as a supplement to an already attractive
  enabling environment or as a compensation for
  proven market imperfections that cannot be
  otherwise addressed
• Although the carrot of incentives is often seen
  as an improvement over the stick of
  restrictions, the use of incentives nevertheless
  entails certain risks
• In Southeast Asia, various estimates of the
  revenue costs of incentives range from 0.7 per
  cent of GDP in Vietnam to 1.7 per cent in
  Malaysia

12
Do incentives really work?

• Proponents they are the efficient manifestations
  of competitive markets, or alternatively, are
  second-best government interventions.
• Opponents they divert public funds away from
  necessary activities and introduce market
  distortions.
• Insufficient monitoring and transparency of
  incentive schemes.
• Increasing use of discretionary, as opposed to
  rules-based policies leads to arbitrariness,
  opacity and discrimination between enterprises.
  In more extreme cases - a scope for corruption.
• Too many incompatible targets an old focus on
  export promotion may coincide with a new
  strategic-sector orientation.

13
How do the countries manage to attract FDI?

• The analogy is a love relationship FDI should
  often be competed for, seduced and won
• Investment promotion agencies can help to build a
  countrys image, attract the attention of
  prospective investors and strategically target
  certain types of foreign investors, but policies
  matter
• Governments can do little to influence geography,
  endowments or even market size, but they do shape
  the policy and regulatory environment
• There is not a single success story in attracting
  and making best use of the FDI.

14
Turkey a miracle-in-waiting

• Despite the fact that a number of barriers to
  investment still remain, prospects for increased
  FDI flows are certainly looking up.
• A population of 72 million third-largest in
  Europe after Russia and Germany, with 45 under
  25.
• Its domestic market has a great potential for
  growth and unique location gives it access to
  Europe, Central Asia and the Middle East.
• More than 6,000 foreign companies have invested
  in Turkey. Yet, its performance is far from
  satisfactory - only 20.7bn in FDI between 1954
  to 2004.
• It is still difficult to claim in fairness that
  todays Turkey is a friendly place to invest, but
  anticipated EU accession will dramatically change
  the investment environment and attitudes.
• The government wants to attract 15bn of foreign
  investment over the next three years. How?

15
How does Turkey compare?
16
Speakers

• Kiyoshi Mori, Director, JETRO
• discuss how Japanese government and private
  sector have been organised to attract inward FDI
  and send outward FDI
• elaborate on what he considers to be the critical
  factors for investment/development agencies in
  attracting FDI and supporting companies to invest
  abroad
• conclude with why Japanese investors have
  preferred Turkey and lessons to be drawn by
  Turkish political/business leaders from the
  Japanese example.

17
Speakers

• Rudolf A. Müller, Switzerland
• the "secrets" of how the Swiss companies perform
  as foreign investors
• institutional framework behind them
• importance of public and corporate governance in
  inwards and outward investment and
• good practices that Turkish political/business
  leaders bear in mind in light of the Swiss
  example.

18
Speakers

• Mohammed Asfour, Jordan
• FDI outlook in MENA region
• Relative success stories in the region with a
  particular focus on Dubai Development and
  Investment Authority, Jordan Investment Board and
  GAFI (Egypt)
• Suggestions for attracting MENA investment and
  organising successful IPA practices for Turkey.
  

19
Speakers

• José Ramón Ferrandis, Spain
• Spain's impressive FDI performance after EU
  accession
• Inward and outward investments and investor
  targeting strategies
• and lessons for Turkey, which is viewed as the
  "Spain of 1980s".

20
Speakers

• Charles Kovacs, Hungary
• Combined perspective (with his three hats on as
  Hungarian practitioner, BIAC representative and
  UNCTAD counsellor) on why investors decide to
  invest in a host country,
• Functions of an ideal IPA as an effective bridge
  between the investor and the government,
• Turkeys investment future in view of its
  anticipated EU accession over the next decade and
  geographical, demographic, economic, and
  strategic assets.

21
Key messages to policy-makers

• Turkey is doing very well now thanks to
  privatisation and the euphoria and changes coming
  out of the EU negotiations.
• However, this is really the high point, unless
  the momentum for structural reforms is
  maintained, along with maintenance of political
  stability and secularism.
• Major remaining barriers bureaucratic opposition
  to reforms dispute resolution and the
  implementation of legislation tax-related
  issues corruption and protection of
  intellectual property. 
• Need to move towards high value added,
  employment-generating quality investments and
  see FDI as part of a broader development/competiti
  veness strategy.
• Facilitator role, level playing field,
  transparency, partnership with private sector,
  and respect the sanctity of contracts.
• Learn from international good practices and
  respect the rules of the game.
• Bear in mind geopolitical context and
  implications.