Return to orthodox policies to form a basis for FDI inflow
has returned to rational TURKEY economic policies following the change in the economy administration after the May 2023 elections. On the one hand, the new economy team has introduced a wide array of measures such as rate hikes, credit crunch, and restrictions in installment opportunities to curb inflation, which hit 68.50% in March annually; on the other hand, it strives to diversify the public sector’s income sources. The initial outputs of these policies are expected to become more visible as of mid-2024.
Gerhard Lackner, Austrian Trade Commissioner for Turkey, Azerbaijan, and Georgia, evaluated Turkey’s new economic program and bilateral economic relations between Austria and Turkey for TR MONITOR on the sidelines of the 3rd Austrian Mountain Technology Summit, hosted by ADVANTAGE AUSTRIA Istanbul in Erzurum on March 8.
The measures by the new economy administration have been critical as there was a macroeconomic misbalance in Turkey, and especially rate hikes have helped a lot to get the situation under control, according to Lackner. “It was important that those decisions were made. The Central Bank Governors have done a good job, and I’m happy that the political leadership has backed these decisions,” Lackner said. “Although I am aware that these decisions are challenging for Turkish people in Turkey because they have brought additional burdens such as higher taxes and loan costs, I believe they will recover the economy in the long run.”
Touching on foreign direct investment (FDI) in Turkey after the new economy administration, Lackner stated that FDI requires stability and predictability. “If you take your money somewhere, you want a safe place. Economic stability is a must for foreign investors. Turkey’s return to more orthodox economic policies will form an excellent basis for incoming investments,” he said.
According to a report by the International Investors Association (YASED), FDI flows peaked at USD 22bn in 2007 and decreased by 22% to USD 10.6bn in Turkey in 2023 due largely to an unstable macroeconomic environment. “There was also the wait-and-see position due to the May 2023 elections. Ongoing measures and policies are the basis for success in the future,” he noted.
RENEWABLES TO BRING COOPERATION TO THE NEXT LEVEL
The bilateral trade between Turkey and Austria has nearly surged 7-fold over the past 25 years, according to Lackner. In recent years, Turkey and Austria have increased their trade mutually. Turkey’s exports to Austria rose by almost 22%, while imports from Austria surged by 15% in 2022, when the bilateral trade volume reached EUR 4.62bn. Moreover, it already caught the 2022 figures in the first 11 months of 2023 when it hit EUR 4.6bn. “Currently, we don’t have the data for December 2023. I estimate the bilateral trade to end 2023 at EUR 5bn,” Lackner said. As for 2024, he noted that the figures can be stable or slightly decline with the impact of the March 31 local elections in Turkey.
Zooming in on details, automotive and automotive parts are one of the most important export goods for Turkey and Austria. Moreover, machinery, electronics, electrical appliances, and textile fibers are among the other important export goods from Austria to Turkey. “Turkey also delivers machinery, electronics, and electrical appliances to Austria. However, we purchase lots of fruits, vegetables, and processed products from Turkey,” Lackner noted.
ADVANTAGE AUSTRIA Turkiye is trying to open new industries, markets, and technologies and find new partners in Turkey. Within this frame, the winter sports infrastructure industry comes to the fore as a potential cooperation area. “It isn’t the largest area and doesn’t currently generate the hugest amount of exports or economic interchange. However, it’s a sector we see constantly evolving,” Lackner said. To him, the Turkish ski industry is investing, expanding, and modernizing, and the business between Turkey and Austria will continue to grow in this sector.
Another area to enhance bilateral trade and cooperation is hidden in the renewable energy industry. Turkey is investing a lot in renewables, and there is a high demand for energy in the country. “There is a lot of investment in solar and wind power in Turkey. It is an area where Austria has expertise and can contribute,” Lackner noted.
TURKEY IS A REGIONAL HUB FOR AUSTRIAN FIRMS
Austria is among Turkey’s top foreign investors. The FDI inflow from Austria to Turkey amounted to USD 10.8bn in 2002-November 2021. Currently, 250 Austrian firms operate in Turkey, the majority of which are in Istanbul, while others are in Ankara and Izmir, and a minority of them are scattered around the country. Three-quarters of them have manufacturing operations in Turkey. “Having 250 firms is quite a large amount for Austria, considering its population of 9 million people versus Turkey, where 85 million people live,” Lackner said.
With manufacturing subsidiaries and sales branches, Austrian companies are involved in almost all sectors in Turkey. Automotive, construction, building materials, wood processing, mining, engineering services, technical consultancy, information technologies (IT), logistics and transportation, personnel services, environment technology, finance, insurance, metal, packaging, paper, recycling, biogas, biomass, and hydropower, are among the outstanding industries, in which they operate.
Lackner emphasized that Turkey is an interesting and massive market for companies to manufacture and cater to its local market. After the Russia-Ukraine war, Austrian firms started to scale down their businesses in Russia, where they had been traditionally strong. “But they still operate in other countries where they have been serving out of Russia before, and they are covering the gap caused by Russia through Turkey or other markets now,” Lackner noted. “We have many companies in Turkey that cover Africa, North Africa, and the Middle East.”
ADVANTAGE AUSTRIA Turkiye receives inquiries from Austrian firms about Turkey as an investment location. “Sometimes they follow other firms, Austrian companies or their international clients, which have already expanded into Turkey, and other times they demand information as they are interested in setting up their local base in Turkey.”
Lackner pointed to issues that companies consider and compare before their penetration into overseas markets. From this perspective, political stability, rule of law, and corruption indices are among the elements that come to the fore. “These companies make their comparisons and commercial decisions. The new economy administration’s decisions on the macroeconomic side are crucial in this sense as well,” Lackner noted. Lackner added that Turkish companies are quite interested in setting up firms in Austria. They consider Austria a hub for Central and Eastern Europe. Painting, culinary, gastronomy, and air cargo are among the outstanding industries of Turkish investments in Austria.