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09 May 2013

Asian interest in Turkey rises

Martin Spurling

by Martin Spurling

Chief Executive Officer, HSBC Turkey

Riverside scene in Istanbul, Turkey

Turkey is determined to strengthen its links with the MENA region

The growing appetite among Asian and Middle East investors in Turkey could prove a key factor in the country achieving its “2023 Vision”. Turkey has high aspirations. Its government’s ambitious target is to invest USD350 billion in transportation and essential infrastructure by 2023, the 100th anniversary of the modern Turkish Republic.

The government is proposing a new airport in Istanbul, costing an estimated USD9 billion. It also needs about USD106 billion to upgrade the electricity sector over the next 20 years, but it requires external capital. Turkey, which has traditionally relied on Europe for sources of funding, now sees increasing opportunities to strengthen ties with Asia and the Middle East.

Turkey, which has traditionally relied on Europe for sources of funding, now sees increasing opportunities
with Asia and
the Middle East

The European debt crisis and Turkey’s sometimes strained relationship with other EU nations has highlighted the importance of having other trade partners and sources of capital.

Asian interest in Turkey is still in its early stages. Europe provided USD12.4 billion of the USD15.9 billion of foreign direct investment in Turkey during 2011, according to the most recent data from the Turkish government. Asian countries provided USD505 million. The disparity between the two is evident but recent examples of significant Asian financing suggest this gap may close.

Khazanah Nasional, a Malaysian government-owned investment organisation, was involved in a major private equity deal in Turkey last year when it bought a majority stake in the country’s hospital chain, Acibadem, from Abraaj Group. The deal was valued at more than USD2 billion.

Foreign direct investment in Turkey from the Middle East and North Africa (MENA) is more established and has been rising for several years. Total foreign investment in Turkey totalled USD15.9 billion in 2011, up from USD9 billion the year before with the MENA region accounting for 18 per cent.

There is a determination within Turkey to strengthen links with MENA. Ahmet Davutoglu, Turkey’s Foreign Minister, recently called for “maximum economic integration”. Speaking at the Turkish Arab Economic Forum in Istanbul, he urged Arab companies and people to come and work in Istanbul and develop the city’s influence on the global stage.

Foreign investors will have been buoyed by a recent uplift in sentiment towards Turkey. The World Bank has shown faith in Turkey’s 2023 Vision by awarding the country USD6.5 billion of financial support. Turkey’s elevation to investment-grade status in 2012 boosted capital flows into the country and a possible further upgrade this year could increase interest further.

There is also potential for companies to raise more money from the corporate bond market in Turkey. The market is small, about 1 per cent of GDP, but has started to develop. The majority of issuance is by banks, but other corporates are expected to follow in the short term.

Turkey may need all of these funding sources to advance if its 2023 Vision is to be realised. By then the country hopes to record a GDP of USD2 trillion; increase annual Turkish exports to USD500 billion; hit a foreign trade volume of USD1 trillion; and to be a top 10 economy (it is currently 18th). At the same time, state-of-the art transport and telecom services should be in place to support thriving Turkish businesses. It is a tall order by any standards but no country ever prospered by aiming low.