Turkey at the bottom rung of ladder in investments abroad

Mustafa SÖNMEZ Hürriyet Daily News

The iron and steel facility that Turkey’s Tosyalı group launched with $750 million investment in Algeria this week is seen. The group says it’s the largest direct investment of a Turkish firm abroad. Company photo

During the north Africa tour of the government, capital export from Turkey to Morocco, Tunisia and Algeria, in other words projects involving making investments abroad were the main focus. How much external investment can Turkey make, as a country experiencing deficiency of savings, and with what aims and to which countries?

Exporting goods and capital has speeded up with globalization. Almost no country is left on earth that is outside the coverage of this. Capital exporting, essentially, is a feature of the developed central countries, however, it is known that those rising peripheral countries also export capital for different aims; they invest in countries outside their own. Russia, China, Brazil and even India. Similarly, we can count South Korea and some other Asia and Latin America countries among them. However, again, there are important differences between the qualities and the quantities of investments abroad of peripheral countries and the incoming foreign direct investments to these countries. The situation of each country has to be analyzed separately.

Global firms always seek the highest profit rate and look for the suitable sector, the suitable activity for this; they leave those low profit sectors and businesses to other sub-country firms. This is the reason why industry has been left to Asia. It is also the result of this division of labor that Turkey has become the biggest “exporter” in the automotive industry today which once upon a time consisted of only textile and food plants. For Turkey, which has a foreign exchange deficit that corresponds to 8-9 percent of its national income, thus, which is in need of a foreign source flow to that extent, to export capital is not due to having a “capital surplus” but is for different reasons. The sectorial and geographic breakdown of the last 10 years’ foreign investments would explain this anyway.

Where does money go?

Turkey’s direct foreign investments moved a little bit mostly in the 2000s when large-scale flow of external sources increased. During the period 2002-2012, the foreign resources of about $485 billion consisted of predominantly loans and hot money with 20 percent of it as direct investment.

In the past 10 years, we have experienced a direct foreign investment of nearly 100 billion dollars. They, more than new investments, were mostly the purchases of privatized KİTs and buying of local banks. In the same years, investments of Turkey abroad did not even reach one fifth of this.

The “international investment position” that measures countries’ external financial assets and liabilities is prepared by each country’s central bank monthly according to the blueprint given by the IMF. The International Investment Position Data of the Turkish Central Bank gives the latest value of those external investments of Turkey and foreign investments done in Turkey. According to this, the asset value of Turkey’s direct investments abroad at the end of the first quarter of 2013 reached $31 billion and the value of companies in Turkey that are direct foreign investments is measured as $185 billion. This shows that Turkey’s direct investments abroad constitute only 17 percent of those active inside the country.

Three quarters of Turkey’s investments abroad are in Europe and the United States, the rest are in Asia. Sectorial breakdown explains why this is so: 22 percent of direct investments of Turkey abroad are related to finance. In other words, Turkish banks invest in financial centers such as Holland, Luxembourg to find money; they make money by brokering foreign trade. Also, they operate at tax havens at off-shore banking regions such as Ireland and Malta. This is the essence of the investment abroad in finance.

Sectorial-wise, second place is occupied by food and textiles, those industries Turkey has become specialized in, with 35 percent. This is understandable that they have exceeded borders. TPAO’s investments abroad in oil countries such as Azerbaijan, Kazakhstan and Iraq have a share near to 15 percent. Also, Turkcell’s investments abroad are noteworthy. Turkish Airlines (THY) also seems to have made investments abroad by opening offices in several countries.

Indeed, there are also companies formed abroad to undertake construction work abroad. They also reach to Russia, Ukraine and other peripheral, neighboring countries and have a share of nearly 8 percent in total investments abroad.

In summary, Turkey is growing after 2002 as a country experiencing an intense foreign resource flow; however, with a huge foreign currency (current account deficit) deficit; it requires foreign resources again and again. It is exporting but by importing more. It looks as if it is investing abroad but by opening its doors to multiple times more foreign direct investment flow… The chemistry of its investment abroad does not yet resemble the known investments of central countries.

Investment into finance also has a different aim. Those labor-intensive investments such as food, textile and construction that do not have a high profit rate do not have features that would
elevate the country to the higher league and that would decrease dependence by generating foreign currency.