No mass exit: German companies continue to engage with Turkey, but direct investments falling

 

Turkey is currently experiencing a tumultuous period as the country is wracked by continuous political strife and overall fears of instability. However, despite these events, Christian Himmighoffen, from the OWC-Verlag (East-West Publishing), has found that the overall effect on Turkey's economy has been largely negligible. That said, some observers still express some concerns about the what the immediate future holds for Turkey's economy.

The political and economic turmoil that Turkey has experienced since early summer of 2013 has evidently not yet had any measurable effects on German-Turkish economic relations. As such, German companies are sticking to their long-term commitments in the country. But the decilne in the lira's value could cause problems.

Frank Mastiaux is glad to be in Istanbul. While there in early February, Mastiaux, the CEO of the Karlsruhe-based energy group EnBW Energie Baden-Württemberg AG, and his joint venture partner Agah Ugur, CEO of the Turkish energy giant Borusan, gave the go-ahead to begin construction on five additional wind farms through their joint venture, Borusan EnBW Enerji. A total of 67 wind turbines will be installed at five different locations in Turkey - the biggest onshore project commissioned by EnBW to date and the largest so far in the Turkish wind energy market. Mastiaux emphasized his company's long-term commitment to the Bosphorus: "Our commitment in Turkey is an important component of our corporate strategy and is based on our long-term strategic assessment of the Turkish energy market with regards to the need for generation capacity and generation technologies, especially in the development of renewable energies."

Just days later, the Metro subsidiary Media-Saturn Holding GmbH announced its plans to open ten new Media Markt stores in Turkey in the coming year. According to Peter Leisten, the vice president of the holding company responsible for international sales, Turkey earned its place as part of the company's long-term investment plan because of its young population and the significant interest in technology products among its people. Media-Saturn has been active in Turkey since 2007, where it operates 34 electronics stores and employs over 2,400 employees.

Not measurably shaken

The political and economic turmoil that has shook Turkey starting in early summer 2013 have not seemed to have measurably affected German-Turkish economic relations. As the Fed's announcement that monetary policy woud be tightened and the subsequent flight of investors from emerging markets, as well as the domestic political upheavals in the wake of last summer's Gezi Park protests and government corruption scandals have sent the economy and currency into a decline, German companies seem to remain focused on Turkey's growing market. Last year, German exports to Turkey rose by 7.1 percent to a new record level of 21.5 billion euros.

Even Marc Landau, CEO of the German-Turkish Chamber of Commerce Abroad (AHK) in Istanbul, has so far not observed any German companies fleeing from the Bosphorus: "We haven't noticed any companies packing their bags. The companies that have settled and invested here have the Turkish market in their short and long-term plans, and they aren't pulling out now," he says. "There may be companies that are shelving current plans for engagement in Turkey, but as of now we haven't seen any such cases."

And yet at the start of the new year, there were cautionary words coming out of Germany. "German companies have invested billions in Turkey and view the impact of the government crisis with concern," said Volker Treier, Deputy Chief Executive and Head of Foreign Trade at the German Chambers of Industry and Commerce (DIHK), in late December. He warned that the country's business model, "which was dependent on the mercy of foreign investment," could break away. The foreign trade association BGA has also warned of possible consequences: "For a further increase in prosperity, the motivated, well-educated elites must be involved as well. If they turn away - due to authoritarian constraints, lack of freedoms, or lack of legal certainty - this will inevitably lead to depression, instability and an increase in poverty," BGA President Anton Boerner said.

Depreciation problems

Lawyer Senem Güclüer from Kunt & Partners in Istanbul, which advises foreign companies in Turkey, sees the depreciation of the lira as the biggest problem for companies: "As a result of the turmoil, there has been a sharp depreciation of the Turkish lira. This has certainly had the greatest impact on the economy," she says. Because of the sometimes long payment terms - particularly in the health sector - Turkish importers could have problems paying German manufacturers in euros for the goods purchased. And corruption scandals have made businesses especially aware of this issue: for the first time, a German client had asked for the inclusion of a compliance clause in a partnership agreement with a Turkish company, Güclüer reported.

The Turkish business community appears to be more worried than foreign businesses, as they openly yearn for more economic stability in the company. In a survey published by the Turkish magazine "Capital" in February, out of 139 managers of large firms, about 60 percent of respondents said that they would, given political and economic uncertainties, suspend or postpone their planned investments in personnel, new plants or other industries. Regardless, a quarter of respondents said that the chances of implementing their projects would improve after the local elections in late March.

Not an advertising campaign

One thing is for sure -- the current political and economic crisis is certainly not acting as an advertising campaign for Turkey. In the case of foreign direct investment, the turbulent events in the previous year actually did not have a huge effect. At 10.1 billion USD, investments fell by only 5 percent compared to the previous year. However, it was the second decline in a row. According to the Turkish Ministry of Economic Affairs, the number of start-ups making use of foreign capital fell to 3,000 in 2013, about 700 lower than 2012. "As part of our correspondence with foreign clients and acquaintances, we found that Turkey's image has very obviously suffered both politically and economically," lawyer Senem Güclüer says. However, AHK Managing Director Landau considers the damage done to the country's image to be exaggerated: "In the international media, Turkey has become the whipping boy among world economies, which is not justified."