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This blog post is on the business risk in Turkey.
The fundamental motivation for modernizing the Turkish economy and business climate is the EU admission discussions. Turkey is a springboard for Central Asia and the Middle East with its massive local consumer market of 82 million.
The UK and Turkish Governments entered into a free trade agreement in December 2020 to provide the EU-Turkey Customs Union for enterprises that previously traded. In other high-growth markets, UK firms thus do not suffer the same barriers. Regulatory barriers, stagnation in decision-making and abrupt legislative and regulatory changes can be disruptive. Additional tariffs applicable to domestic industry protection are applicable to UK firms if their products are made outside the United Kingdom or the EU.
Investors are disturbed by frequent regulation changes with short deadlines for implementation and an insufficient assessment of the broader impacts on the industries involved. Some have raised worry about rule of law, especially the independence of official institutions and their impartiality.
Feedback from certain Turkish enterprises indicates that British businesses are seen to be risk-averse, cautious and hesitant to decide. Although due diligence is required, UK companies need to establish a market commitment, either by a clear presence here or by strong partnerships.
This includes regular market visits and an early desire to engage in initiatives or company prospects. This might involve the demonstration of a critical product and the capacity to meet Turkey’s demands in order to indicate that the ultimate answer for the Turkish needs is prepared to be discussed and adopted.
British businesses will thus have to be able to react to Turkish short tender schedules and be in a good position to supply precise details thereafter. Instead of a strictly business engagement, Turkish enterprises typically take an interest in collaborations and the sharing of expertise.
Contributing Factors To Business Risk In Turkey
Starting A Business
You may start a company in Turkey within a week. However, to start quickly, you must follow the rules established by the Turkish Government and it might be hard for enterprises outside the country to navigate by completing this method.
After numerous processes have been completed and the articles of the associate are notarized, the enterprise must deposit a proportion of capital first on the account of the Competition Authority and then deposit the capital at a bank.
Resolution Of Disputes
The legal system of Turkey contains established business laws and insolvencies providing a way of enforcing property and contractual rights. The system of courts can take judgments slowly and is usually overburdened, since a case can sometimes take quite some time to conclude.
Turkey is a signatory to the 1958 New York Convention on Foreign Arbitrator Awards for Recognition and Implementation, and is part of the International Center for the Settlement of Investment Disputes (ICSID). Turkish law allows internationally binding arbitration between foreign investors and the State of investment disputes.
Many political issues and the problem of monetary and fiscal policy raise concerns for investors.
These include the escalation of tensions in US relations with Ankara’s acquisition of the Russian-made S-400 missile system, the war in Syria, the immigration problem with European countries, and the tension over oil and gas exploration rights near the European countries and Cyprus.
Along with these international issues, there is also a political orientation towards lowering interest rates and gaining more control over the TL.
The expectation of the establishment of a dollar swap line between Turkey and the Fed, which is one of the branches that investors are holding on, seems to have been weakened after a Fed official announced that swap lines will be established with countries with a “mutual trust” relationship.
According to estimates announced by S&P Global on Wednesday, the Turkish economy should roll over debt close to $ 168 billion in the next 12 months, or about 24 percent of its GDP.
In addition, the fact that the TL has seen historical lows makes it even more costly for the state and companies to repay their dollar-denominated debts.
The fact that Turkey has only 85 billion dollars of gross foreign exchange reserves against 168 billion dollars short-term foreign debt shows that the country’s coverage ratio is one of the lowest among developing countries with 50%.
The Macro Economic Problem
It looks like Turkey will experience its second recession in less than two years. According to the International Monetary Fund (IMF), the economy is expected to contract by 5 percent due to the effects of the coronavirus.
Credit rating agency S&P Global predicted that the budget deficit would hit a record 5% of GDP this year, and this year would be a heavily lost season for tourism. Despite these factors drawing attention to the pressures on the economy, the decrease in international oil prices may help energy importer Turkey. However, the depreciation of the TL reduces the benefits of the decrease in energy prices.
Status Of Reserves
The net international reserves of the CBRT have decreased from 40 billion dollars to approximately 25 billion dollars this year. Treasury and Finance Minister Berat Albayrak stated that Turkey has more than enough foreign exchange reserves and stated that they do not have any plans to introduce capital controls. Albayrak’s statements were limited to calming investors’ concerns.
Some analysts predict that reserves could run out within months if the current trend continues. Many think that the situation will not be allowed to aggravate that much. Reserves, on the other hand, increased for the first time since March, according to the data released yesterday.
The net international reserves of the CBRT finally increased to 28 billion dollars as of May 1, after four consecutive weeks of decline yesterday.