Ozgur Altug Comments: Turkey Unloved By Foreign Investors - Groong

 Most emerging markets suffered a collapse in foreign direct investments a result of the financial crisis. But it is a surprise that Turkey is among the countries where flows have been slow to recover. Despite a string of big privatisations, and economic growth estimated at between 7 and 8 per cent in 2010, central bank statistics show direct investment into Turkey was only $6.2bn in the 11 months to November, lower even than the $7.6bn registered in the same period of 2009. Investors, it appears, do not yet agree with this week's boast by prime minister Recep Tayyip Erdogan, in an article for Newsweek, that `Turkey is a market where foreign direct investment can get emerging market returns at a developed market risk.' At their peak, in 2007, FDI inflows totalled $22bn. The drop in FDI is a serious concern because it increases Turkey's reliance on more volatile portfolio inflows to finance a current account deficit that is already approaching 6 per cent of GDP, and under pressure from rising commodity prices. Analysts say Turkey has an advantage over peers in Eastern Europe - it still has a long list of state assets, from banks to power plants, slated for privatization. Ahmet Aksu, head of the privatization agency, said last week that Turkey would raise $11bn from previous sales, and a possible $9bn from new sales, in 2011. But the FDI shortfall in 2010 was not only due to the eurozone's problems and the lull in M&A activity: it was also a reflection of very low international interest in state auctions of power distribution grids that raised nearly $16bn over two years. Musfik Cantekinler, head of corporate finance for Ernst & Young's Turkey office, said foreign investors were deterred partly by concerns over transparency, according to a Bloomberg report on January 12. One question, then, is whether foreign participation in the next round of privatisations will be strong enough to turn the tide. There is certainly international interest in some projects: French, Spanish and Portuguese concessions groups are among those eyeing the sale of operating rights to highways and two bridges across the Bosphorus. The sale of Istanbul's fast ferry network and gas distribution grid, IGDAS, are also likely to attract a range of bidders. But in the energy sector, where high prices stifled foreign interest in the grid auctions, several multinationals appear to be opting for greenfield investments - in gas-fired plants, hydroelectric power and wind farms in particular - rather than waiting for state tenders of generation assets. Ozgur Altug, economist at BGC Partners, estimates that greenfield investments could account for as much as 40 per cent of FDI in 2011, double their highest contribution in the past 5 years, with inflows from M&A accounting for a similar proportion. BGC Partners forecasts FDI will recover modestly to around $12.5bn this year, while Tim Ash, economist at the Royal Bank of Scotland, thinks they will edge above $10bn in the next couple of years. 

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