Transcript Slide 1

Inspiring Turkish policymakers on best investment
practices worldwide
YASED FDI Summit, 8 November 2005
Mehmet Ögütçü
Deputy Chairman, Forum Istanbul
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Overview
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The primary objective of this
session: learning from international
practices
World investment trends and needs
Turkey – “a miracle-in-the-waiting”?
How to attract and maximise benefits
of FDI for development?
Key messages and lessons for
policy makers
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Investment, development and
geopolitics
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Today all countries are racing with each other
to attract “quality” foreign investment in an
increasingly competitive environment.
Yet there should be no illusion: FDI is not a
panacea or a primary source for solving the
developmental problems.
It should be seen as a valuable supplement
to levels of domestically provided fixed capital
and other external finance rather.
The patterns of FDI are constantly changing;
so should the government policies to respond
to the new environment and expectations.
Geopolitics, trade and regional integration
play a crucial role in addition to sound
fundamentals of an enabling environment.
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Example: World energy investment,
2001-2030
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Trends and Recent Developments in
Foreign Direct Investment
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Trends and recent developments…
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FDI peaked in 2000, with $1.4 billion, but declined
over the past four years to $ 648 billion.
FDI growth last year reflected increased flows to
developing countries as well as to South-East
Europe and the CIS.
The US - the largest recipient in 2004, ahead of
the United Kingdom and China as well as
Luxembourg - the top FDI recipients in 2003.
Estimated 70,000 multinationals in the world, with
at least 690,000 foreign affiliates.
Cross-border M&As – key modes of global FDI
since the late 1980s – started to pick up following
three years of decline.
Developing country multinationals (China, India,
Brazil, Malaysia, Singapore, South Africa) are on
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the rise.
Trends and recent developments…
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The macroeconomic performance of the
high-growth Asian economies vs the sluggish
economic growth in continental Europe.
….the weakening US dollar.
Recent changes in trade architecture,
including China’s WTO accession and the
multi-fibre agreement, further encouraged FDI.
FDI seeks not only competitive production
costs but also access to a buoyant client
base.
Large amounts of cross-border transactions
In the utilities sector, energy production and
distribution was the target of several large
cross-border takeovers in 2004 and 2005.
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The growing role of non-OECD
investors
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China and India will, within our lifetime,
become the two largest national economies
in the world by most measures.
Inward FDI into the Chinese economy keeps
hitting new records.
India is also on an increasing trend.
Russian inward direct investment improved
further to reach $11.7 billion in 2004.
South America - a rebound in inward direct
investment.
MENA – still less than 1 percent of global FDI
but investing abroad.
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What investors expect?
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Accessibility to larger markets, integration
to the world economy.
Availability of adequate infrastructure to
allow business transactions to take place.
Simplified investment approval processes.
Enforcement of the rule of law, i.e. private
property protection, and patent recognition.
Accountable and consistent
administrations.
Sound and transparent economic and
financial management.
A healthy and adequately skilled workforce
and strong local partners.
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How do countries attract and maximise
benefits of FDI?
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Investment reforms are not achieved overnight,
and investors will no doubt be willing to live with
some impediments if profitable opportunities exist.
But in the long run, a suitable enabling environment
is the best guarantor of investment.
There is not a single success story in attracting and
making best use of the FDI.
Governments can do little to influence geography,
natural resource endowments or even market size
except in the long run, all of which affect investor
perceptions,
…but they do shape the policy and regulatory
environment which is at the heart of investor
concerns.
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Incentives or “beauty contest”?
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No longer sufficient for a country simply to liberalize
restrictions on FD; nor offering tax benefits and
other incentives
Sound fundamentals rather than direct incentives
are clearly the key to attracting FDI
In some circumstances, incentives may serve either
as a supplement to an already attractive enabling
environment or as a compensation for proven
market imperfections that cannot be otherwise
addressed
Although the “carrot” of incentives is often seen as
an improvement over the “stick” of restrictions, the
use of incentives nevertheless entails certain risks
In Southeast Asia, various estimates of the revenue
costs of incentives range from 0.7 per cent of GDP
in Vietnam to 1.7 per cent in Malaysia
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Do incentives really work?
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Proponents: they are the efficient
manifestations of competitive markets, or
alternatively, are ‘second-best’ government
interventions.
Opponents: they divert public funds away from
necessary activities and introduce market
distortions.
Insufficient monitoring and transparency of
incentive schemes.
Increasing use of discretionary, as opposed to
rules-based policies leads to arbitrariness,
opacity and discrimination between
enterprises. In more extreme cases - a scope
for corruption.
Too many incompatible targets: an “old” focus
on export promotion may coincide with a “new”
strategic-sector orientation.
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How do the countries manage
to attract FDI?
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The analogy is a love relationship: FDI
should often be competed for, “seduced”
and “won”
Investment promotion agencies can help to
build a country’s image, attract the
attention of prospective investors and
strategically target certain types of foreign
investors, but policies matter
Governments can do little to influence
geography, endowments or even market
size, but they do shape the policy and
regulatory environment
There is not a single success story in
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attracting and making best use of the FDI.
Turkey: “a miracle-in-waiting”
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Despite the fact that a number of barriers to
investment still remain, prospects for increased
FDI flows are certainly looking up.
A population of 72 million – third-largest in Europe
after Russia and Germany, with 45% under 25.
Its domestic market has a great potential for
growth and unique location gives it access to
Europe, Central Asia and the Middle East.
More than 6,000 foreign companies have invested
in Turkey. Yet, its performance is far from
satisfactory - only $20.7bn in FDI between 1954 to
2004.
It is still difficult to claim in fairness that today’s
Turkey is a friendly place to invest, but anticipated
EU accession will dramatically change the
investment environment and attitudes.
The government wants to attract $15bn of foreign
investment over the next three years. How?
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How does Turkey compare?
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Speakers
Kiyoshi Mori, Director, JETRO
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discuss how Japanese government and private
sector have been organised to attract inward
FDI and send outward FDI;
elaborate on what he considers to be the
critical factors for investment/development
agencies in attracting FDI and supporting
companies to invest abroad;
conclude with why Japanese investors have
preferred Turkey and lessons to be drawn by
Turkish political/business leaders from the
Japanese example.
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Speakers
Rudolf A. Müller, Switzerland
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the "secrets" of how the Swiss companies
perform as foreign investors;
institutional framework behind them;
importance of public and corporate governance
in inwards and outward investment; and
good practices that Turkish political/business
leaders bear in mind in light of the Swiss
example.
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Speakers
Mohammed Asfour, Jordan
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FDI outlook in MENA region;
Relative success stories in the region with a
particular focus on Dubai Development and
Investment Authority, Jordan Investment
Board and GAFI (Egypt);
Suggestions for attracting MENA investment
and organising successful IPA practices for
Turkey.
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Speakers
José Ramón Ferrandis, Spain
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Spain's impressive FDI performance after
EU accession;
Inward and outward investments and
investor targeting strategies;
and lessons for Turkey, which is viewed as
the "Spain of 1980s".
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Speakers
Charles Kovacs, Hungary
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Combined perspective (with his three hats
on as Hungarian practitioner, BIAC
representative and UNCTAD counsellor) on
why investors decide to invest in a host
country,
Functions of an ideal IPA as an effective
bridge between the investor and the
government,
Turkey’s investment future in view of its
anticipated EU accession over the next
decade and geographical, demographic,
economic, and strategic assets.
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Key messages to policy-makers
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Turkey is doing very well now thanks to privatisation
and the euphoria and changes coming out of the EU
negotiations.
However, this is really the high point, unless the
momentum for structural reforms is maintained, along
with maintenance of political stability and secularism.
Major remaining barriers: bureaucratic opposition to
reforms; dispute resolution and the implementation of
legislation; tax-related issues; corruption; and protection
of intellectual property.
Need to move towards high value added, employmentgenerating “quality” investments and see FDI as part of
a broader development/competitiveness strategy.
Facilitator role, level playing field, transparency,
partnership with private sector, and respect the sanctity
of contracts.
Learn from international good practices and respect the
rules of the game.
Bear in mind geopolitical context and implications.
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