Harun Kılıç, Partner, Kılıç and Partners, on reforms inspiring investor trust: Viewpoint

Turkey Seeks to become a Top-10 Economic Power by 2023

The most important step in reaching this target will be the provision of the necessary finance needed for business and investment opportunities. The country will have to triple GDP within the next eight years to achieve this target. It is apparent that to do this Turkey will require substantial foreign direct investment. Reforms and amendments to current law and regulation will only serve as part of what is required to attract investors. Confidence and trust in the system and a clear legal framework is the key to achieving more private investment and some industry sectors are clearly benefitting from recent changes.

Infrastructure Investment is the Key to Turkey’s Future Economic Growth

A number of legal reforms have been made in the area of public-private partnerships (PPPs). This has created major foreign investment with the assistance of the European Bank for Reconstruction and Development (EBRD) and the World Bank, investing in such mega projects as the Dalaman Airport Concession, with a loan of €175m provided in February 2015. Significant financing is also available in the health sector, with a PPP programme launched by the Turkish government to build new hospitals. The effectiveness of applicable law plays an important role for these organisations and private investors, who provide finance for PPP projects. It is to Turkey’s credit that within the EBRD assessment framework for PPP legislation and effectiveness, it achieved a 70% effectiveness level for the “Definitions and Scope of the Law” category, and 90% effectiveness in the “Settlement of Disputes and Applicable Laws” category, which gives the power to obtain a proper remedy for any breach through international arbitration and the enforcement of arbitral awards.

Reforms Create New Opportunities for Investors

changes in the finance sector and initiatives to attract foreign investors are set to expand Turkey’s foreign investment inflow in the financial markets. Through the recent introduction of new regulation, Turkey continues to align its legal basis in financial transactions with the EU. Furthermore, there is stricter regulation on brokers, banks and corporate governance, as well as the introduction of an electronic fund distribution platform (TEFAS) and tax-saving incentives for angel investors. The amendments made to current legislation provide a stronger and more robust financial system and strengthen investor protection.

Another important industry is the energy sector. The generation, sale and distribution of both electricity and gas has been opened up to competition and private investment. Due to a high demand for electricity, the sector has needed significant infrastructural investment, which has increasingly been provided by private companies via privatisation and investments. In 2003 the private investment contribution in the electricity sector was 38%; by 2013 this had increased to 61%, by virtue of new legislation and in line with the government’s target. It is expected that the ongoing liberalisation of the energy sector will continue to attract more private companies willing to invest.

Energy and finance are not the only sectors being targeted by foreign investors and companies. The reforms in the telecommunications and e-commerce sectors are a hot topic for foreign investment. These priority sectors were targeted for reform during the first quarter of 2015, with moves to open up competition and restrict the monopolisation of the market through amendments to supplier regulation and restrictions on some of the biggest providers in both mobile and fixed-line services. With the recent introduction and development of 4G mobile technology, the aim is to open up the market by introducing a fourth mobile licence to the sector in order to create more competition and to allow for the private investment in infrastructure required by a 4G network.

While we do also believe amendments are made to Turkish law far too frequently, they are nonetheless necessary to creating a better business environment for our international investors and business clients.