Prime Minister Recep Tayyip Erdoğan on the government’s new investment incentives programme

Turkey is in a unique economic position and is significantly more prosperous than it was a decade ago. This is due, in large part, to our party’s efforts to create a reliable, stable and predictable political and economic environment. Since late 2002 – except during the peak of the recent global financial crisis in 2009 – the Turkish economy has been in constant development, and today, investors can look forward with trust that the government is paving the way for business with safe steps. Among the government’s actions that have enabled this development is the implementation of a series of incentive schemes. During our governments we have implemented three incentive programmes – in 2003, 2006 and in 2009 – and we announced the fourth one in April 2012. These schemes have resulted in a radical transformation of the Turkish economy. Turkey’s GDP was around $230bn when the Justice and Development Party (AKP) came to power in 2002, and over a nine-year period it has more than tripled, reaching $772bn by the end of 2011. Similarly, the value of exports has climbed from $36bn to $135bn, and the reserves held by the Central Bank of the Republic of Turkey have grown from around $27bn to $91bn between 2002 and 2011. Over the same period, the levels of chronic inflation, unemployment and interest rates have all declined, and the ratio of gross public debt stock to GDP has fallen from about 74% to 39% as well. In the current economic environment, investments carry a larger share in the growth of the economy than ever before. The total value of investments in 2002 was $59bn, while at the end of 2011 this figure stood at $283bn. Of this, private sector investments accounted for $235bn of the total in 2011, up from around $43bn in 2002. This surge in investment is the result of the confidence and stability prevailing in contemporary Turkey.

The schemes put into action during the past nine years have played an important role in soaring investment. Each programme has been adapted to trends in the global economy, as well as recent changes in the domestic market. The incentive scheme that we announced in April has been prepared and improved according to the new conditions, trends and requirements of domestic and global conditions. The latest programme was prepared for an economy growing at a record rate of 8.5%, with declining unemployment, increasing exports and a high level of resilience to the shocks experienced by other economies during this time of global uncertainty.

The previous incentive programmes have considerably increased investment in Turkey. For example, the 2009 incentive programme resulted in $157bn of investments and created more than 375,000 jobs, just as it was intended to do. Compared to the 2006 programme, the 2009 programme saw investments increase by 73%.

What is more, in regards to the previous incentive programme in 2009, of the total amount of fixed investment, 72% of the investment projects granted incentives were greenfield projects whose contribution to the economy has a significant multiplier effect. The previous incentive system has proved successful, and we are now upgrading and updating it in accordance with the changing economic conditions as well as the needs of investors.

The main objectives of the new incentive scheme are to reduce the current account deficit and boost production and investment for high-import-dependent intermediate goods. This means increasing investment support in the least-developed regions of the country, improving efficiency in industry and logistics, and investing in mid- and high-technology products to achieve a technological transformation.

The new system comprises four different schemes: general incentives, regional incentives, incentives for large-scale investments and incentives for strategic investments. More specifically, we are offering investors value-added tax (VAT) exemptions and corporate tax reductions, as well as support for insurance premiums, interest payments and land provisions.

This new system will contribute to a structural transformation of Turkey’s industries, particularly through strategic investments, by encouraging domestic production of commonly imported goods. With the new system, we have redefined the regions, decreased the minimum fixed investment amount for large-scale investments and introduced a new instrument, namely incentives for strategic investments that are intended to reduce the country’s current account deficit.

Under the new system, we intend to balance the levels of local development nationwide, particularly focusing on raising investment in the least-developed areas. To maximise the impact of the programme as a balancing mechanism, we have categorised the regions according to their levels of development. In preparation for this region-based approach, we have conducted thorough research to update information on each province’s socio-economical ranking and grouped them into six categories. This ranking system is also flexible and will be constantly updated as different areas reach new levels of development.

With this new incentive scheme, our main purpose is to focus on the least-developed regions, therefore incentives for investors in these areas will benefit from more support. We have already achieved great success in increasing investment in the least-developed regions; under the incentive system launched in 2009, more than half of incentive certificates were granted to investment projects in the least-developed regions.

The new incentive system gives also priority to several specific sectors, such as defence, automotives, aerospace and aviation, rail and sea transportation, pharmaceuticals, education, tourism and mining. Investments in these sectors will be supported across Turkey as if they were made in the fifth incentive region, which covers underdeveloped areas in the east and south-east.

As for the incentives for strategic investments, the main goal is to promote and support investments in sectors in which we have a considerable trade deficit. By reducing the trade deficit in key industries, we are aiming to reduce our current account deficit. It is important to highlight that strategic investments will be strongly supported in all regions with the same incentives.

I believe that both domestic and foreign investors will utilise these incentives in the best possible way. In addition to introducing incentive programmes, we are also actively supporting local and foreign investors through public institutions.

To this end, we have established the Investment Support and Promotion Agency of Turkey, which is attached to the Prime Ministry and reports directly to me. The agency assists investors before, during and after their investments.

The government is committed to attracting foreign direct investment (FDI), and therefore it has been doing its best to create an attractive investment climate in Turkey. That is why, as a result of our efforts, Turkey has attracted $110bn in FDI over the past nine years, whereas it had attracted only $15bn in the preceding eight decades before 2002. I do believe that with the new incentive system, we will see more FDI flowing in. We will closely follow the implementation of the new incentive programme and work to support investors at every stage of their investments.