The current state of doing business in Turkey

Looking for a positive figure on the Turkish economy? Foreign Direct Investment (FDI) figures might help. They were around $1 billion per year in the last decade of the 20th century and improved to around 10 billion per year in the first 12 years of the 21st. Not bad, you may say. But Ernst&Young’s Attractiveness Survey for 2013 shows a different country, one with low skills, bribery and influence peddling. Want to get a clear picture of the domestic political debate in Turkey? Let me help.

First, why is FDI coming in? The survey first points to the size of the domestic market and the geographic location of the country. Both features are being praised by more than 80 percent of the respondents as being very and fairly important features shaping investment decisions regarding Turkey. The business environment and innovation capacity on the other hand, are identified as two major “challenges.” Challenge is one polite word to identify bottlenecks. What does that mean? FDI is coming into Turkey just for the land value and the country’s high population. It is like renting out an old cottage in the hills – the place itself might be shabby, but you’re not there to admire the owners’ taste or skill. You’re looking at the god-given mountains around it, before packing up for home again. That is not a model countries should aspire to if they want sustainable development.

Secondly, where was the money invested between 2007 and 2012? Mostly in Istanbul. That is the answer in 55 percent of the cases. Why? Istanbul is perceived as the most livable city in Turkey. Eight percent of the FDI went to Izmir and 5 percent to Ankara. That is 70 percent in three major cities.

Nothing went to the eastern provinces. That regional disparity would be a good starting point to question candidates on for local elections on March 30th. I have a hunch the Istanbul-centric big government projects might have played a role here.

Thirdly, are there further demands of FDI investors? More than half of respondents asked for a clearer political, legislative and administrative environment. That is a cryptic outcry against corruption. If the legislative framework is not clear, then you have discretionary power. The larger the room for discretion, the higher the probability of corruption. That is Turkey for you today. And due to that, “businesses in Turkey are subject to a degree of bureaucracy, bribery and influence peddling” notes the survey. E&Y’s European Fraud Survey 2011 notes Turkey as a country where bribery and corruption have become commonplace. At the 54th position, Turkey ranks below the UAE and Qatar in Transparency International’s Corruption Perception Index. Just have a look at the Global Competitiveness Report 2012-2013. Businesses find it difficult to comply with the complex administrative requirements. That is the good old “discretion factor” for you. Turkey ranks 80th in government regulations factor there. That is to Qatar’s 3rd, China’s 23rd and Indonesia’s 48th.

So $10 billion a year comes in just for the land value and population statistics, despite the bribery and influence peddling. This has been obvious for years. But as Lady Macbeth notes “all the perfumes of Arabia will not sweeten this little hand.” So spin doctors will keep on spinning, but businesses will eventually see the situation in Turkey today as it is.