Problems hinder foreign direct investment in Turkey

ISTANBUL – A 1997 bus crash that killed 49 people failed to dent Turkey’s reputation as a safe destination for tourists, but action against the bus’s makers rang the alarm bells for foreigners looking to invest there. And investment is what is needed if Turkey is to drag itself out of the economic mire and clean up its image of murky dealings and protectionism that deters foreign cash from flowing to this emerging economy on the fringes of EU membership. After years of legal wrangling, a Turkish judge ordered Mercedes Benz last November to recall all models of the crashed bus sold in Turkey. He said its design was responsible for a blaze that swept through the bus’s passenger compartment, burning all in its path. The judge had ordered the arrest of DaimlerChrysler directors, keeping them away from a flagship concert they sponsored in Turkey. The decision was later revoked. Leading industrialists say the recall, though likely to be rejected by an appeals court, starkly reflects a behind-the-scenes battle between pro-laissez faire liberals and conservatives opposed to any foreign presence on Turkish soil. «We have a progressive front and a conservative front. One is trying to improve the investment environment for foreigners. The other is trying to halt it,» Abdurrahman Ariman, general secretary of the Foreign Investors Association, told Reuters. Data show that Mercedes Benz and its DaimlerChrysler parent company are one of few big multinationals to commit to production in a country known for its corrupt, shackled, high-risk economy. «They say ‘Look at foreign investors, they build bad cars, bad buses’. This is a kind of xenophobia,» Ariman said. Industry leaders say it is hardly surprising to find foreign direct investment (FDI) in Turkey totaled $900 million in 2000 while fellow emerging market Brazil attracted $33 billion. Unreliable laws and their inefficient execution, property rights infringements and corruption are just some of the reasons why foreign investors stay away, according to a report prepared by the Foreign Investment Advisory Service (FIAS) of the World Bank. Too late? Ankara has pledged to ease reams of non-tariff barriers, but analysts say progress may be too slow to bolster growth in 2002, leaving fragile firms and banks to fend for themselves. Industrialists say pledges to untangle much red tape and irregularities will not be ready for some months. «FDI is without a doubt the first pillar for the recovery of Turkey,» Mercedes Benz Turk General Manager Till Becker said last week. «(But) an investor wants stable and reliable laws… Declarations and intentions are not enough.» The state says it takes at least two and a half months just to set up a firm in Turkey. Land acquisition can take four years. Turkey says it will soon establish a «one-stop-shop» for foreign investors, reducing the number of government departments firms must apply to from 40 to just one. It also hopes to stage a flagship conference with World Bank chief James Wolfensohn and global business leaders later this year to attract capital. But the World Bank, which is helping to fund Turkey’s economic recovery, is unlikely to give the go-ahead if reforms are not implemented. A new $16 billion standby accord approved by the International Monetary Fund (IMF) earlier this month made Turkey the fund’s biggest debtor, as it works to reverse an estimated 8.5 percent economic contraction in 2001. The accord is Turkey’s 18th with the fund but the first to make improvements to the FDI environment a condition for cash. Turkey must act to address its shortcomings or face years more as a country where few dare to venture. «Turkey’s performance recently has been so depressing,» said Clive Vokes of the UN Conference on Trade and Development. «This whole thing about doing nothing is not an option.» Its economy lies behind Vietnam, Angola, Kazakhstan and Nigeria in terms of FDI inflows. Phony image While Mercedes Benz battles it out in the Turkish courts, mobile phone provider Telsim is fighting a $3 billion case of alleged fraud in the United States which threatens to further taint Turkey’s image as a safe place for foreigners to invest. Telsim, owned by the Uzan family, must answer charges it borrowed money from American firm Motorola Inc and Finland’s Nokia with no intention of ever paying it back. The Uzans deny all charges. «Motorola and Nokia are hurt and, of course, that has a negative effect on foreign investors. This problem should somehow be handled, tackled and solved. It has created something negative regarding Turkey’s image,» Ariman said. The Turkish state has offered the multinationals scant help, saying it will not intervene in what it deems a commercial issue. Industry leaders say there is widespread graft and influence-peddling in Turkey. They say the disputes involving Telsim and Mercedes might never have occurred if relevant laws were passed and applied to the letter. «The only thing foreign investors need is the rule of law. Sometimes Turkey doesn’t have the law, sometimes it has the law but doesn’t implement it. Under these circumstances how can the foreign investor trust in Turkey’s future?» Ariman said. Turkey’s crisis was triggered last February by a row between the prime minister and the president on how to fight corruption. An attempt to root out corruption during an earthquake rebuilding program prompted Turkey’s housing minister to resign, but he was later cleared of all charges by Parliament. The FIAS report says that 63 percent of foreign companies believe corruption is the greatest barrier to investment. «Corruption abuse and bribery in the private sector is an important issue,» says Adnan Nas, Chairman of Price Waterhouse Coopers in Turkey. «Among 35 OECD countries, Turkey is the third most corrupt after China and Indonesia.» Copycats Foreign firms Reuters spoke with identified an unstable political and economic environment, unreliable laws and graft as critical issues. They also note that copyright infringement is rife and presents the most immediate danger to their future. The government, they say, is once more doing little to help. «Normally you lose 50 percent of profits. Companies who copy products use our data to register their copied brands. They get it either from the government or they send abridged dossiers,» the head of one multinational told Reuters. Turkey has an unfortunate reputation as a haven for local firms looking to make a quick and easy killing. The latest Microsoft programs are sold for $2 or less on the street, although Turkish laws prohibit their sale. Industry leaders say goods from televisions to detergents and designer labels to medicines are all peddled widely. «They copy detergents, cleaning products, lots of things,» said Ahter Kutadgu, director at Unilever Holding in Turkey.«Something must be done about this.»