Foreign investment waits for aftermath
Güncelleme Tarihi:
ALP SÜER
Oluşturulma Tarihi: Temmuz 04, 2009 00:00
ISTANBUL - Turkey will see an increase in foreign direct investment after the global turmoil, says the chief economist of Yapı Kredi. The country needs an investment climate proper for financing half of its current account deficit via foreign inflows, Cevdet Akçay says
Reactions are ongoing to the 13.8 percent contraction of Turkey’s gross domestic product, or GDP, within the first quarter of the year. The global crisis has played a significant role in one of the country’s biggest economic contractions. How the economy will overcome the crisis and how the country will establish stable growth have led to recent debate among economists.
The current crisis is affecting direct investments in Turkey. In 2007, net foreign direct investments into Turkey totaled $22 billion, but the figure dropped to $18.1 billion last year as a result of the crisis. Foreign direct capital inflow, which stood at $5.4 billion in the first four months of last year, fell approximately 45 percent to $3 billion during the same period of this year.
Stressing the importance of "foreign savings" in Turkey’s economic growth, Cevdet Akçay, chief economist of Yapı Kredi, the Turkish bank co-owned by Italy's UniCredit, said foreign direct investments in Turkey would climb again after the crisis.
Limitations in exchange rate policy moves
Turkey does not have a "production" function that covers the consumption and investment demands of a population of 70 million and at the same time creates a current account surplus, Akçay said. As an open economy that has liberalized capital movements, Turkey cannot enable current surplus with exchange rate movements, he said.
Noting that it is positive that the current account deficit is considered to have a "savings" problem, Akçay said that increasing savings, a view which is often cited by economists, is not feasible in this production function and production/income level. The appearance of a middle class in Turkey dates back five to six years, he said, in line with surveys on consumption patterns. It is inevitable for this young class to have an extremely low tendency to save, he added.
Moreover, the companies that operate in competitive climates but lack brand and market share advantage face difficulties in increasing their saving rates, he said. Considering these, it is a must to draw foreign savings, according to Akçay. But once Turkey gets rich upon increasing its capital stock and transforming its production function by converting these savings into investments, the country will boost its domestic savings, he said.
Akçay noted that Turkey should offer an investment climate in which it could finance half of its current account deficit via foreign direct capital inflow. In the near past, the country saw current account deficit of around $45 billion, a very remote figure at present, he said.
Although Turkey also needs qualified portfolio investments, named "real money," large amounts should not be expected in this category, he said. Most of the volatile funds in terms of entry and exit will not exist in the new financial system, he said, adding that this is very auspicious for macro stability.
The current crisis is affecting direct investments in Turkey. In 2007, net foreign direct investments into Turkey totaled $22 billion, but the figure dropped to $18.1 billion last year as a result of the crisis. Foreign direct capital inflow, which stood at $5.4 billion in the first four months of last year, fell approximately 45 percent to $3 billion during the same period of this year.
Stressing the importance of "foreign savings" in Turkey’s economic growth, Cevdet Akçay, chief economist of Yapı Kredi, the Turkish bank co-owned by Italy's UniCredit, said foreign direct investments in Turkey would climb again after the crisis.
Limitations in exchange rate policy moves
Turkey does not have a "production" function that covers the consumption and investment demands of a population of 70 million and at the same time creates a current account surplus, Akçay said. As an open economy that has liberalized capital movements, Turkey cannot enable current surplus with exchange rate movements, he said.
Noting that it is positive that the current account deficit is considered to have a "savings" problem, Akçay said that increasing savings, a view which is often cited by economists, is not feasible in this production function and production/income level. The appearance of a middle class in Turkey dates back five to six years, he said, in line with surveys on consumption patterns. It is inevitable for this young class to have an extremely low tendency to save, he added.
Moreover, the companies that operate in competitive climates but lack brand and market share advantage face difficulties in increasing their saving rates, he said. Considering these, it is a must to draw foreign savings, according to Akçay. But once Turkey gets rich upon increasing its capital stock and transforming its production function by converting these savings into investments, the country will boost its domestic savings, he said.
Akçay noted that Turkey should offer an investment climate in which it could finance half of its current account deficit via foreign direct capital inflow. In the near past, the country saw current account deficit of around $45 billion, a very remote figure at present, he said.
Although Turkey also needs qualified portfolio investments, named "real money," large amounts should not be expected in this category, he said. Most of the volatile funds in terms of entry and exit will not exist in the new financial system, he said, adding that this is very auspicious for macro stability.