Mixed outlook for FDI in Turkey

ANKARA – Turkey can expect hefty foreign investment due to attractive company valuations and banks with strong balance sheets, but data show the trend is slowing as buyers scared by the global credit crisis become more selective. Analysts say the country will draw at least $15 billion in foreign direct investment (FDI) this year and a $20 billion official goal is well within reach despite global gloom, but this is partly due to payments from past sales rather than fresh deals. New mergers in the first quarter of this year have topped $4 billion after Turkey had a bumper year in 2007 with a record $22 billion in FDI. British American Tobacco bought state cigarette maker Tekel for $1.7 billion and a consortium led by private equity firm BC Partners bought the country’s biggest supermarket chain Migros for $1.6 billion. Privatization of Turkey’s second-biggest state lender Halkbank will be the key deal this year and analysts expect it to raise a significant sum despite global financial difficulties. «Turkish banks don’t have exposure to subprime and have strong balance sheets. It’s a growth market that many investors will want exposure to. Recent local equity losses also mean valuations are attractive,» said Nicholas Kennedy, head of emerging markets at 4Cast. Turkey’s main share index is now 26 percent lower than its end-2007 level. Ankara sold 25 percent of Halkbank last year but has yet to decide a plan for selling the rest of the bank. «It is not necessary to lower (FDI) expectations for this year. We can still expect to see a figure like $19-$20 billion this year,» said Fortis Bank chief economist Haluk Burumcekci. Breakthrough in trends Overcoming investors’ general reluctance in a worsening global economic climate depends on how hard the government pushes privatization and long-awaited structural reforms, analysts said. Treasury data showed FDI fell sharply to $614 million in January from $6.065 billion in the same month last year, and analysts said it was not a good start. «We observe a breakthrough in the upward trend. It appears we are heading toward lower volumes as the figures and lack of foreign interest in this month’s Ankara natural gas distribution tender confirms this,» said Burumcekci. Analysts said even if Turkey attracts a good deal of foreign money in 2008, the government needs long-term plans for boosting FDI levels and should not rely on payments from past privatization deals. «Saving another year means nothing. FDI around $20 billion has to be sustainable to keep growth and to finance the current account deficit in the coming years,» said Burumcekci. FDI is important for keeping economic growth rates above five percent and plugging a large current account deficit. A biannual survey published last week by the Istanbul-based Foreign Investors Association (YASED) showed a majority of foreign firms operating in Turkey expect a deterioration in economic stability. Shocks in international markets are cited as the biggest factor that would affect investment decisions, the survey showed. «Things do not look too bright abroad and it is an obstacle for striking big deals. But we need to wait for March data before saying the trend is really deteriorating,» said Oyak Investment economist Gulay Elif Girgin. Selective investors «A reluctance to invest in higher risk areas is natural during times of uncertainty and the current credit crisis only magnifies this problem,» Kennedy said, noting that Turkey’s current account deficit hit $38 billion last year. «Investors are going to be increasingly selective on where they put their cash in the coming months, with those economies with high current account gaps particularly exposed, which obviously includes Turkey,» said Kennedy. An unpredictable political environment and a large external deficit singles out Turkey among emerging markets as a lucrative but risky destination. The country’s top prosecutor is seeking closure of the ruling pro-business Justice and Development Party (AKP) and a ban on the party’s leaders including the prime minister, saying the party aims to overthrow Turkey’s secular system.

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