Turkey 2014 FDI Seen Meeting Last Year Level Amid Graft Probe

Turkey’s investment agency says foreign direct investment this year will be undeterred by a corruption scandal and elections that have raised perceptions of political risk in the country.

FDI is expected to reach at least as much as the 2013 figure of about $13.7 billion, Ilker Ayci, head of the Ankara-based Investment Support & Promotion Agency of Turkey, or Ispat, said in embargoed comments at a news conference yesterday. Inflows may rise should the outcome of local elections on March 30 show that the government’s position isn’t threatened by the graft investigation, he said.

“As long as foreign investors continue having signals of political stability after the elections, we will have strong FDI inflows this year,” Ayci said. “We should not be surprised if they even rise over last year.”

Foreign direct investment helps finance Turkey’s large current account deficit with longer-term commitments and has increased in importance as borrowing costs for more-volatile portfolio flows rise. The yield on Turkey’s 10-year bonds in dollars maturing in March 2023 rose to 5.5 percent as of today from a low of 3.2 percent on May 9, according to data compiled by Bloomberg.

Deficit Doubled

FDI to Turkey has dropped from more than $20 billion in 2006 and 2007, and the country will probably need more than $5 billion a month to service its 2014 current-account deficit, according to estimates compiled by Bloomberg. At a projected 7.2 percent of gross domestic product, Turkey’s deficit would be the biggest among emerging markets after Ukraine, according to IMF data.

The deficit more than doubled to $8.32 billion in December from a month earlier, according to the latest data from the central bank. That took the 2013 shortfall to $65 billion, equivalent to about 7.9 percent of gross domestic product, based on the Economy Ministry’s GDP estimate of $823 billion. The ratio was 6.1 percent in 2012, data compiled by Bloomberg show.

“Finance, energy and manufacturing will likely be the top industries that will attract FDI going forward as they have in the past,” Ayci said.

About $9.5 billion of the inflows in 2013 were so-called greenfield investments, meaning new investments rather than acquisitions of existing assets, Ayci said. 3M Co. (MMM), which started a $500 million plant near Istanbul, and Sumitomo Rubber Industries Ltd (5110), which is building a tire plant with a Turkish partner for $516 million, are among companies investing in Turkey.

Ayci’s team is “in close contact with Volkswagen” to have the German carmaker build a production plant in Turkey, he said. “The company will sooner or later invest here.”

Corruption Probe

The arrests of the sons of three government ministers amid a widening graft probe, and the Federal Reserve’s decision to cut its $85 billion-a-month bond-buying program are threatening growth and political stability in an economy that has grown 5 percent annually under Prime Minister Recep Tayyip Erdogan’s decade-long rule. Erdogan, who has called the probes an attempted coup, replaced 10 ministers in his 26-member cabinet in December, days after the scandal was made public on Dec. 17. Turks go to the polls for municipal elections on March 30.

“Foreign investors that we regularly meet say they expect tension in the country following Dec. 17 developments to ease after the elections,” Ayci said. “FDI investors are not like portfolio investors and they have a long term outlook about their investments.”

Ayci said potential investors have questioned him and his team of 82 experts about Erdogan’s ban of micro-blogging service Twitter for leaks by anonymous accounts alleging to show corruption among Turkey’s most powerful people, including Erdogan and his family.

“This is way low in their list of investment criteria about Turkey,” he said.

To contact the reporter on this story: Ercan Ersoy in Istanbul at eersoy@bloomberg.net

To contact the editors responsible for this story: Benedikt Kammel at bkammel@bloomberg.net Benjamin Harvey, David Risser

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