Why to Invest in Automotive Industry in Turkey

US Investment in Automotive industry in Turkey

Why to invest in Turkey? Successful economy: Turkey has a bright future and is expected to be the fastest growing economy among the OECD members during 2011-2017 with an annual average real GDP growth rate of 6.7 percent. Foreign direct investments have been an important part of building Turkey’s economy since 2003. It has enjoyed a sustainable economic growth with 4.3 percent annual average real GDP increase for the last 7 years and GDP growth from USD 230 billion in 2002 to USD 618 billion in 2009. Turkey is the 16th largest economy in the world and the 6th largest economy compared to the EU area in 2009; FDI inflow in total for the last 7 years is over USD 83 billion and it is ranked as the 15th most attractive FDI destination for 2008-2010 (UNCTAD). FDI Inflow to Turkey is presented below (USD billion):

Turkey has attracted a high amount of FDI. Inflow by the most significant countries is presented below (USD million):

The legislation, by providing increased rights and more secure environment for foreign capital, helped the country attract more foreign direct investment; furthermore, this was supported by guaranteed profit transfers and equal treatment for the domestic and foreign investors. The company establishment procedures have been simplified to a great extent as well. Competitive tax system: Corporate income tax is reduced to 20 percent and individual income tax is between 15 and 35 percent. Tax benefits and incentives in Technology Development Zones, Industrial Zones and Free Zones could include total or partial exemption from corporate income tax. Developed infrastructure: Turkey has developed technological infrastructure in telecommunications and transportation; furthermore, it has low-cost sea transportation and good railway transportation to Central and Eastern Europe. Employment: Foreign capital companies may employ foreign personnel; in addition, Turkey is offering high quality and cost-effective labour force who is young, well-educated and motivated. Geographical position: Turkey is offering significant opportunities for foreign investors with its unique positioning between Europe, Middle East and Central Asia. It is an opportunity for access to other markets with 1.5 billion consumers in Europe, Eurasia, the Middle East and North Africa. Domestic market: It is important due to the large size of the domestic market; furthermore, as the economy has been developing the individuals are gaining increasing purchasing power.

Why to invest in automotive industry in Turkey? Automotive sector: Its development began in the ‘50s in a protected domestic market with production under licenses from Ford, Renault and Fiat and since then, it has grown substantially.

Automotive industry statistics: Consisting of 17 domestic and foreign principal producers supplemented by approximately 4,000 sub-industry companies, the sector directly employs 300,000 qualified workers. As of 2005, the three most significant export items in Turkey are automotive products. Turkey is the 15th largest producer in the world, and the 5th largest manufacturer in Europe of motor vehicles. Domestic market for automotive product: Turkey’s GNP per capita in recent years has exceeded USD 10,000; therefore, automobile ownership in Turkey rose rapidly between 2003 and 2009, with a CAGR of 7.1 percent. 75 percent of households still do not own a car, so there is a strong potential for continuous long-term growth.

FDI Inflow to Turkey by Sector: During the last six years, manufacturing sectors have attracted one of the highest amounts of FDI. The FDI amounts for Manufacture of motor vehicles, trailers, and semi-trailers, are presented below (in USD million):

Foreign capital companies: As of the end of 2010, there are more than 25.800 companies with foreign capital operating in Turkey, presented below (in thousands):

Source: Undersecretaries of the Treasury Foreign capital companies in Manufacture of motor vehicles, trailers and semi-trailers sector, are presented below:

Automotive sector, imports & exports: It is highly international. Around 76 percent of Turkish vehicle production in 2009 was exported, mainly to Europe. However, around 56 percent of motor vehicle sales in Turkey during 2009 were imported vehicles. Turkey is one of the largest exporters of passenger cars to Europe, with total exports of USD 16.8 billion in 2009 and Toyota, Ford Otosan, Tofas and Oyak-Renault rank among Turkey’s top ten exporting companies.

Automotive manufacturers: There are 22 automotive manufacturers in Turkey and many world brands are present:

Weakness -Taxation in automotive sector: The growth of car sales and car ownership in Turkey has been significant even though there is substantial tax burden on new passenger car sales which is the same for the domestically-produced and imported. * Special Consumption Tax and VAT raise the domestic purchase price of a vehicle to 60-100 percent above the pre-tax price. * Taxes on petrol are also high, some of the highest in Europe. * The vehicle excise tax paid every six months is significant. Threats: * The transfer of production which could be expected from high-cost EU countries to Turkey is resisted by the strong labour unions in EU countries. * Dependence on EU markets * Rapid growth in China and India. As a result of all these parameters, it may be concluded that Turkey is one of the most favourable options for investment, specifically in automotive sector. (Words: 850)