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Turkish State pushes sluggish Economy © Bildpixel/ pixelio.de
06.09.2016

TURKISH STATE PUSHES SLUGGISH ECONOMY

  • Low interest rates and government subsidies should drive consumption and Investments
  • Less start-ups and fewer direct foreign investment

Istanbul (GTAI) - After the failed coup attempt of July 15th 2016 the Turkish government wants to support the economy. Financial relief, government subsidies and a low interest rate policy should aim strengthening of consumption and investment and eliminate the arisen uncertainty in the business world. At the same time the overall savings ratio should be increased and the basis for financing of major infrastructure projects be improved.

The target of the government for an economic growth of 4.5% in 2016 appears now as no longer realistic. After the impressive increase of 4.8% in Q1 2016 government representatives expect for the rest of the year lower numbers, so that for the full year 2016 a growth of around 3.0 to 3.5% could be achieved.

  • Low interest rates and government subsidies should drive consumption and Investments
  • Less start-ups and fewer direct foreign investment

Istanbul (GTAI) - After the failed coup attempt of July 15th 2016 the Turkish government wants to support the economy. Financial relief, government subsidies and a low interest rate policy should aim strengthening of consumption and investment and eliminate the arisen uncertainty in the business world. At the same time the overall savings ratio should be increased and the basis for financing of major infrastructure projects be improved.

The target of the government for an economic growth of 4.5% in 2016 appears now as no longer realistic. After the impressive increase of 4.8% in Q1 2016 government representatives expect for the rest of the year lower numbers, so that for the full year 2016 a growth of around 3.0 to 3.5% could be achieved.

But not only the failed coup attempt and subsequent the internal political turmoil are affecting the economic development. Also the in the recent months clearly increased geopolitical risks, the armed conflicts along the southeastern border with Syria and Iraq, and the threat of terrorist attacks are pressing on the business climate.

The number of start-ups is declining since April 2016th. According to the Turkish Chamber Union TOBB (Türkiye Odalar ve Borsalar Birligi) in July a provisional low point with a decline of about 34% over the same month of last year has been reached.

Establishment of new companies
Month 2015 2016

Change (%)

January 6,471 6,894 6,5
February 5,509 6,363 15,5
March 6,092 7,117 16,8
April 6,022 5,860 -2,7
May 5,635 5,422 -3,8
June 5,896 5,571 -5,5
July 4,760 4,760 -34,1
January til July 40,385 40,363 -0,1

Source: Turkish Union of Chambers of Commerce TOBB (http://www.tobb.org.tr)

"Tailored" state support for Investors

Despite a rising inflation (annual increase of consumer prices in late July 2016: 8.8%) since several months the Turkish Central Bank is lowering the interest rates in small steps and ensures an increasing liquidity. For investors the government is planning generous subsidies. In the words of economy minister Nihat Zeybekci the government investment promotion is standing before fundamental changes. The plan includes "unlimited, customized and project-based" facilitations for specific sectors, which will go far beyond current incentives.

In this context Zeybekci named metallurgy, petrochemical, pharmaceutical and medical technology, in addition the renewable energy and modern agricultural technologies. In addition to extensive tax breaks the planned state aids will also include subsidizing the salaries of highly skilled employees, a free allocation of land, subsidies of taxes and energy subsidies. With this especially international investors should be won and high technology projects should become supported.

Foreign direct investments slumped in the first half year of 2016

According to the Turkish Ministry of Economy foreign direct investment declined in the 1st half of 2016 compared with the same period of last year by 55%. In 2015 a net amount of USD 16.9 billion flowed into Turkey, and in 2014 approximately USD 12.5 billion. Of these USD 5.3 billion or resp. USD 4.2 billion were invested in real estate.

Foreign direct investment in Turkey without real estate (in USD million)
Sector 1.Halfyear 2015  1.Halfyear 2016  Change (in %)
Agriculture 5   24 380
Industry 2,710 866 -68
Mining 185 17 -91
Manufacturing  1,445 607 -58
Food, Beverages, Tobacco products 257 171 -33
Textile and Clothing 399 21 -95
Leather and leather goods 2 8 300
Wood and wooden products 0 1 -
Paper and paperproducts 4 20 400
Coke and refined petroleum products 500 11 -98
Chemical and pharmaceutical 
  products
69 136 97
Coutchouk and plastic products  21 54 157
Non metal  mineral products - 23 -
Metal and metal products 36 24 -33
Machines and machinery equipment 5 20 300
Electronic and optical products 46 98 113
Automotives 90 8 -91
Furniture 16 12 -25
Electricity, Gas 1,078 242 -78
Water, wastewater, waste-disposal 2 0 -100
Services  2,066 1,274 -38
Total  4,781 2,164 -55

Source: Turkish Ministry of Economy (Ekonomi Bakanligi, http://www.ekonomi.gov.tr)

State fund to finance infrastructure projects established

Of particular importance for the future financing of large infrastructure projects, especially in the transportation sector, is the law No. 6741 of  08  /19th / 2016, establishing the Turkey-Property Fund (Türkiye Varlik fonu - Sovereign Wealth Fund). The law, which was announced in the government Gazette No. 29813 on 08 / 26th /2016 regulates the structure and operational rules of the new fund, which originally was to be filled from the state budget and privatization proceeds and should have started with an initial capital of TL 50 million. The law provides the establishment of a stock corporation that will be responsible for investments, stakes and other commitments of the fund. The financial market operations of the fund are according to paragraph 8 of the law 6741largely exempt from taxes and fees.

From the new Turkey-Fund the government expects major funding contributions for ongoing and upcoming major projects. These include the third international airport in Istanbul and the planned "Canal Istanbul", which will run parallel to the Bosporus. Expected to the ideas of the government the fund should bring an annual contribution of 1.5 percentage points to the real GDP growth over the next ten years. Economy Minister Zeybekci expects through the fund in the long term an asset control of about USD 200 billion.

Debts to the State can be paid by installments

Companies that are under financial pressure should be relieved by the law no. 6736 for the restructuring of public demands from March 8th 2016. This came in force after the publication in the government Gazette no. 29806 of August 19th 2016. With this law firms and persons, which have debts at the tax office or at social security institutions, can get the possibility to settle their outstanding claims, including failure surcharges by installments within 18 months. On claims up to TL 50 (1 Euro = 3.31 TL) the state will entirely dispense. The redemption of debt from tourism enterprises, which are due in2016, will in accordance to the law shifted by one year.

The private retirement provision for all workers should increase the savings rate 

In order to increase the country's low savings rate, the Turkish government has adopted the law no. 6740 on August 10th 201616, which gets into force on January 1st 2017 (promulgated in the government Gazette No. 29812 on August 25th 2016). With this law, changing the law no. 4632 of March 28th 2001 about the voluntary private retirement provision all workers aged less than 45 years and of Turkish nationality will in the future "automatically" be included in the system of the private pensions system. Affected employees however have the right, within two months from the inclusion date to declare their abandonment and leave the system.