Economic instability is edged out of foreign investors' minds by new worries over Turkey’s legal framework and its enforcement, according to the biannual Barometer survey by the Foreign Investors Association. At least one analyst ties the shifting mood to the record tax levy against the Doğan Media Group



YASED Chairwoman Piraye Antika.
The record $3.2 billion tax levy imposed on the Doğan Media Group, or DMG, heightened concerns for foreign investors, as problems in legal framework and its enforcement rose to being a top issue, a survey showed.

The latest Barometer survey, announced Tuesday at a press conference by the International Investors Association, or YASED, showed that the top concern for foreign investors has become “legal framework and its enforcement.” Economic instability followed with 48 percent, while 47 percent said they are concerned about the unregistered economy.

In the previous survey, conducted biannually, “economic instability” was the top concern, followed by concerns on legal framework.

Reflecting on this new top concern of investors, Piraye Antika, the chairwoman of YASED, said it is important to guarantee predictability in auditing in business. “Investors should have no doubt on rules and responsibilities,” Antika said.

“Stories on the tax penalty were reported extensively by the media,” Güldem Atabay, chief economist at investment house Ekspres Invest, told Hürriyet Daily News & Economic Review. “European newspapers also took notice. Regarding the dates on which the survey was conducted, this levy might well affect the opinions of foreign investors. Some of the investors might hesitate to make investments.”

The survey was conducted between the third week of August and the second week of September. The second tax levy against the DMG was announced on Sept. 8. YASED did not link the results to the Doğan tax issue at the press conference Tuesday. The unregistered economy remains a great obstacle, Antika said. “Turkey is in a key position to be an attractive destination for investments. We should protect this attractiveness.”

Effects of global turmoil

The survey also showed that effects of the global turmoil continue to rattle foreign investors, as 61 percent of them expect the economy to get better only after 2010. The study, however, revealed that 40 percent of foreign investors planned to continue investments in the next six months.

According to the survey, 33 percent of foreign investors expected economic growth in Turkey to slow down further. A total of 44 percent of those interviewed said they believed stability would come soon, while 23 percent said they expected economic growth to accelerate.

The Turkish economy contracted 7 percent in the second quarter of the year, dampening hopes of a revival. Expectations of a quick recovery are low, the survey said. Forty percent of foreign investors expected the environment in Turkey to “worsen” in terms of the investment climate, while 63 percent thought that the new incentives announced by the government would not affect their future investment plans. The new incentive system, dividing the country into four economic zones, aims to enhance investments in the most poor and underdeveloped areas.

Reasons to freeze investments

Key factors leading foreign investors to postpone investments are, respectively, the deepening crisis, new fluctuations in global markets, domestic political problems, possible bottlenecks during Turkey’s European Union accession process, and the rising political tension in the Middle East.

According to the survey, some 74 percent of the international investors in Turkey said the Justice and Development Party, or AKP, government was “not doing enough” against unemployment, while 26 percent said what was being done was adequate. The unemployment rate stood at 13 percent in June, according to official figures. The rate declined from a record high of 16.1 percent in February.

The priority of the government should be reducing unemployment, followed by structural reforms, an agreement with the International Monetary Fund and attaining sustainable growth, according to some 60 percent of foreign investors.

Meanwhile, 61 percent expected global economic growth to remain weak in the next six months. Twenty-one percent thought that growth would accelerate, but 18 percent expected further contraction. Some 29 percent thought that the global environment for foreign direct investments would worsen, while 34 percent of them said they believed the situation would remain stable. Only 37 percent said the environment would be more favorable than it is now.

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