Latest Developments in Turkey's Investment Environment

Updated: Aug 10


Recently, Turkey had some important developments on the investment environment; first and foremost, foreign direct investment (FDI) policy has been regulated by the Presidential Investment Office under a single document which makes the first of its kind for Turkey. Immediately after the release of the strategy document, the investment incentive system has been updated by a Presidential Decree published in the Official Gazette dated June 29. Following this amendment, the Presidential Decree published on July 14 amended the legislation of the development agencies of which have an important position among the implementing institutions of the investment environment. Lastly, legal framework of tourism investments has been updated by the legislation amendment published on July 28.


Before examining the FDI strategy and legal developments thereof in detail, it would be useful to have an insight about the Investment coordination Board (YOIKK) which previously determined the FDI policies in Turkey. After the 2001 economic crisis in Turkey, "Reform Program for the Improvement of the Investment Environment" was adopted with the aim of creating investor friendly conditions and attracting FDI by reducing the bureaucracy by the Council of ministers dated 11.12.2001. Hence, YOIKK has served to this purpose in coordination with public institutions and all other relevant organizations such as NGOs.


Within this program, concrete progress has been made in administrative processes for investment and trade such as easing company registration, licenses, operation permits, land allocation to investments, access to financing; and more favorable conditions have been created in terms of market entry for FDI.


Some recent examples of the progress under YOIKK activities are as follows; the adoption of the Law No. 7099 to improve the investment environment, easing the processes of the use of signature circular and approvals for the company books and signature circular at the Trade Registries on February 3, 2021, enacting the electronic signature system for commercial transactions, establishment of the venture capital fund which serves to advanced technology generating companies, enacting the single window system for investment incentives, export aids, release of the "Sustainability Guide for Companies" (1) by Borsa İstanbul (Istanbul Stock Exchange), amendment of Enforcement and Bankruptcy Code (June 19, 2021) for enabling the sale of enterprises as a whole to prevent further financial loss. Indeed, Turkey has improved its place in the World Bank Ease of Doing Business Index by increasing its rank to 33th place in 2020 where it previously had the 93th place in 2006. (2)


2021-2023 Foreign Direct Investment Strategy of Turkey (3)

2021-2023 Turkey International Direct Investment Strategy Document published by the Presidential Investment Office of Turkey shows us that FDI policies are now determined and handled directly by the Presidency. Previously stipulated and implemented by YOIKK, (4) FDI strategies have this time been drafted in one single document by the top governmental authority of the Republic of Turkey. In addition, having these policies stipulated in a specific document for the first time reveals that the government has given priority to FDI framework. Although this orientation is actually a result of the reconstruction of the state organization in 2016; there is no doubt that the decline in the FDI inflow to Turkey has affected this preference. (5) A conspicuous consideration is the expression of the importance of investor's trust to the country's investment environment by the Presidential Investment Office. We hence see that the need to strengthen the legal credibility of the state is expressed by the top governmental authority and the intention to take a step accordingly has been stated.


As in the process followed in FDI policy until today, it appears that the new FDI strategy document has been prepared with an investor-oriented perspective in coordination with the stakeholders of the investment environment. However, a significant innovation is that "quality FDI" definition has been given and a customized policy has been adopted accordingly. The objective of the FDI Strategy has been stated as "... effective use of public resources by avoiding possible repetitive operations of public institutions in investment services...and making services offered to investors more efficient." Quality FDI has been defined as "Investments Supporting Technological Transformation, Employment and Current Account Balance". Seven different profiles with four horizontal axes have been determined as Quality FDI. Quality FDI profiles and horizontal-axes are as follows:


  • “All R&D, design and innovation center investments regardless of sector

  • Investments which develop/expand technologies ensuring the digital transformation of industries and services

  • Technology intensive production investments with high added value which develop supplier bases and have strong backward or forward linkages

  • Value-added, high-tech service sector and business services investments

  • Investments whose selected location is in priority development regions and which provide high employment, regardless of sector

  • Export-oriented production investments

  • Investments reducing import dependency in sector/product groups with high imports of intermediate goods;

and

  • Investments to support infrastructure (Information and Communication Technology - ICT, Energy, Transportation and Logistics Infrastructure)

  • Investments with high expansion and growth potential

  • Investments in line with UN’s Sustainable Development Goals (SDGs)

  • High-quality financial investments.”


11 strategies and 72 actions have been planned thereunder to attract quality FDI and expansions. In order to implement these actions, a monitoring board has been established under YOIKK along with new implementation groups, unlike the previous structure. Another element of the new structure that should be underlined is the establishment of the FDI e-coordination team; it is likely that this structure, which will offer practical opportunities suitable to the digital age, will actually provide more concrete contributions.


FDI Strategies have been planned in a customized manner for quality FDI to ensure facilitative and supportive approach by the public agencies to investors, which cover the entry, establishment and operational stages of these investments. Besides, the strategies have been designed to increase the competitiveness of the Turkish investment environment and to catch up with the developments around the world. We will below discuss the innovative actions under the aforementioned strategy headings, which we consider important for the investor.


Strategies for Investment Environment Promotion and Attracting Investments:

A prominent consideration in this regard is that the information enterprises with potential suitable for quality FDI and successful sectoral clusters will be compiled and presented to investors using digital opportunities as a database of investment opportunities in Turkey. Sectoral Reports, which are stated to be prepared in foreign languages, will provide investors with direct information on the investment environment. In parallel with the previous works, we also see that cooperation and promotion programs will be conducted in coordination with Embassies, business people and business organizations abroad. The "International Investor Awards" events that we think will be held similar to the Investment Advisory Council, the last of which was held in 2016, will increase the progress synergy of the investment environment.


Similar to the provisions of the World Trade Organization Investment Facilitation Agreement (6) of which Turkey is also involved in the ongoing negotiation process, and the relevant GATS Articles (7) and FTAs, (8) provisions will be included in Economic Partnership and Free Trade Agreements (FTA) to be signed by Turkey which will undoubtedly increase legal predictability for investors.


Activities to be carried out for investment attracting in a supplier-oriented manner in coordination with buyer companies in Turkey, by identifying product groups and sub-sectors within the scope of quality FDI and determining potential investors, will create opportunities for investors. Another innovation that stands out in terms of providing actual benefits is the creation of a portfolio of ready-to-invest projects in Turkey.


The fact that direct actions will be taken towards potential investors with the activities planned to be held within the Istanbul Financial Center for Fin-Tech investments, and that the existing investors in the country will be directed to value-added investments as well as R&D and design centers, foreshadow new opportunities.


Strategies for the Services of the Administrations regarding the Market Entry, Establishment and Activities of Investments:


The "Central Investment Information System" along with establishment of "Investment Coordination Units" in the relevant Ministries might pave the way for the provision of services with a one-stop-shop approach. Development of digital uses in local administrations and "Digital Welcome Packages" that will provide customized information to investors who are new to the investment environment will contribute to ease of doing business. Offering opportunities such as "welcome package" and "entrepreneur visa" to quality FDI investors and giving priority to residence and work permits to foreign persons who will come to the country within this framework will increase the attractiveness of the investment environment. Perhaps the best news for new investors is that the "Single Contact Point" will be established on digital channels for establishment and licensing processes.


Releasing the investment legislation to public before the entry into force and implementing transition processes will prevent possible problems that may be encountered by both investors and public agencies. We see that the institution that was planned to be established as a foreign investment dispute resolution board, has been transformed into the "Investment Ombudsman" system; Undoubtedly, this institution will facilitate prevention and resolution of disputes for foreign investors. The action on increasing use of adr mechanisms in investment disputes such as mediation, conciliation and arbitration, brings to mind the possibility of a new legislation work in this regard. Another development in this regard is the establishment of specialized courts on technical issues such as environment, construction and energy, and the aim of increasing intellectual and industrial rights courts to provinces. Investors will be able to settle their disputes through more convenient means.


Strategies Regarding Land Allocation to Investments:

On the subject of land allocation, developments have been made with respect to National Geographic Information System within the framework of YOIKK plans previously. With the new strategy, it has been decided to analyze the potential industrial land need to compile industrial land information suitable for investments under Geographic Information Systems. The land inventory information to be presented to the investors will facilitate investment decisions and actions. Another decision to highlight is the expansion of specialized free zones for new technologies; the synergy created within these regions will offer favorable opportunities especially for start-ups.


Strategy for Development of Supplier Infrastructure

Providing mechanisms such as "target-oriented incentive mechanisms and mentoring support to supplier companies" for the suppliers of quality FDI investments established in Turkey, and creation of the "Turkey Supplier Platform" system that will bring investors and suppliers together is a step that will make the business environment attracting. Supporting technology and knowledge transfer as well as personnel assignment by quality FDI investors to potential companies in Turkey will strengthen the supplier infrastructure in Turkey for foreign investors and create opportunities for Turkish companies. Another emerging opportunity is that R&D projects carried out by quality FDI companies established in Turkey and by their supplier SMEs as well as investor-matching and project development in priority sectors of quality FDI will be supported.


Strategies for Developing Turkey's Investment Climate Infrastructure and Human Resources

Actions planned to make the investment climate infrastructure suitable to quality FDI will create opportunities for infrastructure investors. The incentives to be provided within the scope of the "Combined Freight Transport Regulation", which is planned to be put into effect in the coming months, will provide favorable opportunities for companies operating in combined transportation and companies using this service. This action will also increase ease of doing business for all investors. We see that the human resources development strategy has also been adopted to make the investment environment more suitable to quality FDI.


Strategies for FDI Legislation, International Commitments and Incentive Plans

It appears that the investment legislation and incentive system will be updated to catch up with developments in the world, especially with respect to global supply chain, in order to make the Turkish Investment Environment more attractive for quality FDI. Therefore, it is obvious that new opportunities will arise for investors who have the potential to direct their business towards these areas. With a new legislation, bureaucracy for investments is aimed to be reduced as well as to increase predictability and transparency. Another outstanding consideration is to conclude FTAs with target countries to be determined within the scope of quality FDI and to deepen the concluded FTAs; which is an important subject that companies operating in the fields of foreign trade and investment should keep tracking so as to seize potential opportunities. Finally, it seems that works will be carried out to ensure compliance with the UN Sustainable Development Goals and the EU Green Deal in order to keep up with the current international commitments and to strengthen the bond with the investors and foreign trade companies of the EU which is Turkey's largest trading partner. In this context, it is important for investors to monitor business opportunities such as incentive plans to support the transition process with respect to carbon border adjustment mechanism.


Overview of the 2021-2023 FDI Strategy

The strategy has revealed the understanding of one stop shop service by bringing together investor evaluations with institutional experience and knowledge that Turkey has created so far, especially through YOIKK. One can see Turkey's success in this field, especially within the context of DB Ease of Doing Business Index mentioned above. Actions aimed at reducing bureaucracy, preventing investor disputes/resolving these disputes with alternative methods will undoubtedly increase the attractiveness of the investment environment. Within the scope of the regulations and support/incentive mechanisms mentioned above, the opportunities to emerge in the coming months will create a new synergy in the target sectors and the sub-sectors that form infrastructure thereof, especially in terms of mergers & acquisitions.


Amendments in the Investment Incentives System

  • The definition of environmental investment has been detailed and prerequisite of being documented for at least 15 percent water saving and/or waste/emission reduction has been introduced by TÜBİTAK Marmara Research Center Environment and Cleaner Production Institute.

  • As of January 1, 2022, the minimum fixed investment amounts that can be supported will have been increased.

  • With regard to defense industry investments, the import status of the product manufactured, has been excluded from criteria to be supported as strategic investments.