Turkish government to promote investment in poor cities

ISTANBUL - Hürriyet Daily News

The governments’ new incentive plan projects to boost investments and consequently reduce unemployment in the poorest provinces of the country.

A new government incentives strategy plan is set to boost Turkey’s east by implementing zero taxes and paying half the interest on investment loans in the area, according to daily Hürriyet.

The news follows the launch of a $30 billion fund carved out by the Science, Industry and Technology Ministry and the European Investment Fund to support small and medium enterprises (SME) in Turkey’s underdeveloped regions.

“This [incentives] plan aims to boost labor-intensive sectors in the east and southeast [regions] by implementing no social security premiums, no taxes [for the enterprises], free plots,” the ministry was quoted as saying by Hürriyet. “The government will pay a substantial part of the [investment] loans interest.”

Under the plan, the country would be divided into five regions in terms of investment priorities.
“Technological investments are unlikely in the fifth region [mostly consisting of the east], but the labor-intensive sector will invest in this region as minimum wage is not enough for someone who lives in a big city, but it is [a very important income in poorer] provinces,” it said, adding that such investment would be better in Turkey instead of countries like India and Egypt.

The fifth incentive region is marked by “underdevelopment” and mostly covers the eastern and southeastern provinces, the country’s poorest regions where Kurdish militant movements have been active for decades.

Some of the “special” incentives to be implemented in the fifth region include a tax exemption of up to 100 percent and government pledges to pay half of the interest on loans for investment. Labor-intensive, rather than technology-intensive, investments will benefit from the “special” incentives in the underdeveloped provinces that constitute the fifth region.

The government’s social security contributions will also be different from the other four regions. This support will be available for up to three years in four regions but will increase to up to 10 years in the fifth region.

Labor-intensive investments are better for increasing the level of employment in such regions where there is not enough human resources or quality infrastructure due to decades of neglect. Also, labor-intensive industries traditionally tend to migrate to poorer regions where average wages are lower.
The plan also envisages support for high-tech investments and the boosting of foreign direct investment inflow. Turkey is preparing a foundation to attract international investments at a time when the economic crisis continues in the world, the ministry said.

“Turkey, in a sense, will be a country that presents opportunities for international investors. Development at a normal pace is not enough. Sectors to leap forward should be at the forefront. The sectors of technological products and high-value added goods will be heavily prodded,” the ministry said.

30 million-euro fund

The Science, Industry and Technology Ministry and European Investment Fund also announced the launch of a project last week to support SMEs in Turkey’s underdeveloped provinces, according to a press release.

The Small and Medium Industry Development Organization and the Istanbul Venture Capital Initiative are collaborating on the project called the Developing43 (G43) Anatolia Venture Fund.

The 30-million-euro fund, which will invest in up to 12 firms in the targeted provinces, will be launched in the second half of 2012.