The head of the European Bank for Reconstruction and Development (EBRD) has said the Bank’s aim is to attract more foreign investors to Turkey, but for this to happen, they first need to see a more stable political situation in the country.
The EBRD is a major investor in Turkey. To date, the Bank has invested 10 billion euros in various sectors of the Turkish economy with almost all investments in the private sector, closing 2017 with more than 1.6 billion euro invested in a record 51 projects across Turkey.
“I want to use the EBRD to bring more foreign investors to Turkey but first they need to see stability and a stable political situation,” EBRD President Suma Chakrabarti said in an exclusive interview on Jan. 18.
A key area potential investors examine is whether policy framework will be stable and consistent over time or whether it is liable to change, according to Chakrabarti.
“So stability and consistency is important. The rule of law is important. How democratic institutions develop and policy is stabilized are important. Given the frequency of elections in this country, the election cycle is also important. These are the sort of things investors examine. At the moment Turkey is in a good position. It needs to do the right things to remain in this good position,” he added.
The more tensions with the EU and others calm down, the better for everyone, Chakrabarti also noted, adding that Turkey-EU ties are headed in the right direction now.
“We have to remember that the EU is still the dominant trade and economic partner for Turkey. If you look at the statistics, the EU counts for nearly 50 percent of Turkey’s exports and 75 percent of its FDI (Foreign Direct Investment) inflows. So it is crucial relationship and I am very glad it is improving again after a period of difficulty,” he added.
In 2015 the EBRD made 1.9 billion euros worth of investments in Turkey. The same again in 2016. But in 2017 this figure dropped to 1.6 billion euros, though Turkey remained the largest single investment area.
“This was partly due to the political situation. Investors were waiting to see how things would turn out before investing. But we have shown that Turkey is still a very important market for EBRD investments. I am pretty confident Turkey will remain in the top one or two investment markets in the coming years. We are committed,” Chakrabarti said.
Resilience to shocks
According to the EBRD president, Turkey has done really well against various shocks in the global economy.
“If you look at last year, Turkey grew very fast indeed, about 7.5 percent in the first three quarters. If you look at the banking system, it is very well capitalized. The public debt is quite low and non-performing loan ratios are quite low, so it is in a quite good state. We at the EBRD are currently forecasting that Turkey will grow another 3.5 percent in 2018. I wouldn’t be surprised if Turkey does even better than 3.5 percent,” Chakrabarti said, before citing a number of potential risks that must be averted.
“One area the Turkish government needs to focus on is consumption-led growth. A lot of the growth last year was based on consumption and there is always a danger with this. If there is a downturn in the economy, then people can’t pay back their loans very easily and so non-performing loans could rise. It is better to have investment-led growth, which is why the country needs to deal with some of the investment-climate issues it faces,” he added.
Turkey must also focus on realizing key structural reforms to improve its labor market flexibility and ease of doing business, among other things.
Turkey to become EBRD’s top donor
Chakrabarti’s visit marks the establishment of the EBRD-Turkey donor fund as the country becomes an EBRD benefactor, in addition to being a founding shareholder and the Bank’s largest country of operations by investment volume.
“I am really excited that the Turkish government has decided to become an EBRD donor. Not many of our countries of operations can do this. But Turkey, which is our largest country of operation, has decided to become extremely generous and is providing 25 million euros as a bilateral donor – which I will sign tomorrow,” the EBRD president said.