Direct investment inflow to Turkey decreases, outflow increases

An unusual trend has been the case for the Turkish economy for a couple of years. The country’s outward direct investment has been rising, although it has started to attract fewer FDI.

According to the Central Bank data, Turkey lured around $12 billion of FDI last year, lower than the 2013 figures. Turkey’s FDI inflow has actually been decreasing for a couple of years.

The country lured record-high FDI in 2007 at around $22 billion, followed by $19.8 billion in FDI in 2008. The figures cooled to around $8.5 billion both in 2009 and 2010, at the height of the global economic crisis. Turkey’s FDI then jumped again to $16.1 billion in 2011, but started to decrease in the following years: $13.2 billion in 2012, $12.9 billion in 2013 and $12 billion in 2014.

The most interesting part is seen in the Turkish companies’ direct investments abroad. Turkish companies made direct investment at around $6.8 billion in foreign countries last year, according to the Central Bank data.

This means the country used almost half of its FDI inflow figures abroad. This is a dramatic increase, as Turkish companies’ direct investment had been around $3 billion for the last decade. We saw the figure almost double last year.

We saw huge acquisitions by several Turkish companies abroad last year. The biggest acquisition was made by Yıldız Holding. The company paid $3.3 billion for U.K.-based cookies and snacks maker United Biscuits.

More companies are expected to make direct investments abroad in the coming period.

Turkey still appears relatively under-globalized in terms of the activities of foreign multinationals in Turkey and those of Turkish multinationals abroad, based on a review of Turkey’s inward FDI and outward FDI performance relative to the rest of the world, using official data. And we should have found the rise in outward direct investments of the Turkish companies very positive, but Turkey’s current account deficit problem stops many of us from being happy. The healthiest way for a country is to decrease this gap to lure more FDI. This specifically matters now for Turkey, of which economic activity has been slowing down and unemployment figures have been on rise. In this vein, there would be no problem if Turkey could increase its FDI inflow as well as the outward direct investment of its own companies.

Another problem with the country’s direct investment equilibrium is the share of the property buying by foreigners in Turkey. Foreigners bought around $4 billion worth of real estate in Turkey last year. This figure is almost $1.5 billion higher than the country attracted direct investment to its manufacturing sector.

It might be best for the country’s economy administration to ask why Turkey’s FDI inflow is decreasing although much more FDI is needed to maintain its current account balance.

And it is quite clear: So as long as Turkey does not return to the road of making structural reforms in the economy and judicial system, the country will fall behind in luring FDI.