Business and
Investment Climate Survey in Turkey
2014 - 2015
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Business and Investment Climate Survey in Turkey
2014 - 2015
Sponsored by
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Message from the Executive Director American Business Forum in Turkey (AmCham Turkey/ABFT) has been an important voice of American business in Turkey with a mission to strengthen the business and investment environment in Turkey and to improve the bilateral economic relations between Turkey and the U.S since its establishment. We have conducted our annual “Business and Investment Climate in Turkey� survey to provide a tool to support our work in order to improve and strengthen the business and investment environment in Turkey since 2007. The Survey accomplishes this goal by encouraging American investments in Turkey and the region, and also acting as a platform on which AmCham Turkey/ABFT members and non-members can share their views about the business climate in Turkey. Our purpose was to analyze the perceptions of U.S. company executives regarding the general investment climate, macroeconomic situation, infrastructure, taxation system, education system and workforce in Turkey in a comparable manner by soliciting their views, both today and in the future. The research and report are published every year, and the findings are shared with top stakeholders in both countries. We would like to express our gratitude to the U.S. company executives who have participated in our survey and the sponsors of this research for their contribution.
Elif Demircan Executive Director AmCham Turkey/ABFT
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About AmCham Turkey/ABFT The American Business Forum in Turkey (AmCham Turkey/ABFT) is a business association and NGO comprised of 125+ prestigious U.S. companies with investments of more than 50 billion USD having created over 60.000 jobs in Turkey. Founded in 2004, AmCham Turkey/ABFT operates with a mission to strengthen the business and investment environment in Turkey and to act as a bridge between Turkey and the U.S. to further improve bilateral trade, investment and relations. AmCham Turkey/ABFT supports Turkey’s reforms and works to strengthen the existing relations between institutions in Turkey and the U.S. business community through straightforward dialogue and cooperation. AmCham Turkey/ABFT endeavors to be a credible, respected and effective partner and the bridge between the public and private sectors in Turkey and the U.S. As an affiliate of the U.S. Chamber of Commerce, AmCham Turkey/ABFT is well positioned to improve the bilateral economic and trade relations and to represent its U.S. member companies with operations in Turkey. In the past 11 years of its operations, AmCham Turkey/ABFT has held a number of educational and service events, hosted numerous officials from the U.S. and Turkey, and conducted research on behalf of its members to develop and improve bilateral relations among Turkey and the U.S. It is also continuously engaged in the promotion of its members’ interests. This study has been conducted annually since 2007 to better understand the outlook and perceptions of senior executives of U.S. companies operating in Turkey regarding the business and investment climate. The survey was conducted by the Nielsen Company for 2014. This research outlines the key findings of AmCham Turkey/ABFT “Business and Investment Climate Survey in Turkey” for 2012, 2013 and 2014.
About Nielsen The Nielsen Company (NYSE:NLSN) is a global information and measurement company with leading market positions in marketing and consumer information, television and other media measurement, online intelligence, mobile measurement, trade shows and related assets. The company has a presence in approximately 100 countries, with headquarters in New York, USA. (www.nielsen.com)
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CONTENTS
4
PAGE
1.
Executive Summary
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2.
Methodology and Objectives
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3.
Business and Investment Climate in Turkey 2014 – 2015 Report
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3.1.
General Business Environment
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3.2.
Macroeconomic Conditions
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3.3.
Infrastructure
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3.4.
Taxation System
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3.5.
Education and Workforce
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3.6.
Future Expectations on Investment Trends
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4.
AmCham Turkey/ABFT Board of Directors
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5.
AmCham Turkey/ABFT Members
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1. EXECUTIVE SUMMARY AmCham Turkey/ABFT Business and Investment Climate in Turkey 2014-2015 Report findings are summarized as follows: • Overall, respondent companies have a strong tendency to continue their operations in Turkey and the future investment propensity is high. • Almost 60% of respondents agreed to the notion that Istanbul has the potential to become a regional financial center; and upon the realization of such, 65% of respondents acknowledged that their companies’ investment propensities would positively increase in the future. • The business world’s positive perceptions on the general business environment and the market advantages of Turkey have been maintained over the years. r
r
r
The most powerful elements of Turkey’s business environment are indicated as its market potential, geographical attractiveness as a hub for companies’ regional base of operations, and its priority market status for companies’ global headquarters. Comparative yearly scores also indicate that Turkey is consistently being seen as a more attractive market when compared with other similar emerging markets. Respondents have indicated levels of investment incentives and access to credit costs and expansion capital as areas for improvement in this domain.
• In general, satisfaction with the macroeconomic environment in Turkey remained at a median level. r
The interest rate environment in Turkey, TL exchange rate and control of inflation are highlighted as priorities for improvement in this domain.
• Comparative yearly scores on infrastructural quality in Turkey demonstrate a consistent positive trend in this domain since the year 2012. r
r
The key strengths of Turkey’s infrastructure system are indicated as its airport, road and highway networks as well as the internet speed and quality in the country. More than half of the respondents opined that the electrical power infrastructure and railroad networks in Turkey are sufficient for their business needs and operations.
r 55%
of the respondents expressed confidence that the long-term infrastructure development agenda will be carried out successfully.
r
Port infrastructure is highlighted as an improvement area in this domain.
• Respondents’ assessments of the taxation system in Turkey overall remained at a median. r
r
The levels of individual income and corporate taxes and their calculations and payments are acknowledged as key improvement areas. While still considered as an improvement area, comparative yearly results demonstrate a positive trend on respondents’ views regarding increased equal implementation of tax laws across all businesses in the country.
• Comparative yearly scores on the education system and workforce demonstrate a continuous positive trend in this domain since the year 2012. r
r
The most powerful aspects of the Turkish labor market are indicated as its level of productivity, ability to provide skilled white-collar and clerical-level employees in line with the business community’s needs as well as the labor market’s ability to provide workers that have satisfactory customer service and soft communication skills. While 52% of respondents agreed to the notion that the high-school education system needs to be improved so that it can better serve the business community needs, 53% shared the perception that the availability of skilled blue-collar employees is a challenge for businesses, requiring attention as an area for improvement. 5
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2. METHODOLOGY AND OBJECTIVES The project objectives are defined as collecting information about the perceptions of U.S. company executives on the business and investment environment in Turkey on following topics: General Business Environment, Macroeconomics, Infrastructure, Taxation System, Education and Workforce, and Future Expectations on Investment Trends. The study has two main components: The Survey with questions related to the business and investment climate in Turkey and the Report, which analyzes and presents the survey results in a comparable format over the years. After the approval of the questionnaire as prepared by The Nielsen Company, the survey was transferred to an online survey platform and participants were invited to take the survey. The Survey was conducted online from November 2014 to January 2015 and ended by February 2015. It was conducted with 90 participants from AmCham Turkey/ABFT member and non-member U.S. company executives, requesting their opinions on the business and investment environment in Turkey for the past year (2014) and their projections for the current year (2015). Questionnaire is typically composed of 4 item Likert scales ranging from “totally agree” to “totally disagree”. Scores presented in this report are computed by calculating the weighted averages and transforming them to a 100 scale. As the scores approach to 100, it represents total agreement, and in the opposite case, it presents total disagreement. The pink bars indicate each component’s averages, calculated with the assumption that each question has an equal weight. Response Rate and Respondents’ Profile The total number of companies that participated the survey was 90, including both AmCham Turkey/ABFT members and non-members. It was exclusively addressed to high-level business executives of U.S. companies in Turkey comprised of CEOs/General Managers as well as Directors with in-depth country experience and information about the overall business and investment environment in Turkey.
Profile of Participating Companies
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3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT 3.1. General Business Environment Figure 1. Components of the General Business Environment 75% 70% 62% 62% 52% 54% 59% 46% 41% 31%
The above figure shows the positive answers given to questions regarding the business environment in Turkey. When the general average section score is considered, it is observed that the majority of the business environment components scored well. Based on the scheme, the most powerful elements of the business environment in Turkey are indicated as follows: • Turkey’s market potential and its geographical attractiveness as a hub for global companies’ regional base of operations scored exceptionally well, with 75% and 70% of the respondents, respectively, agreeing with these statements. Turkey’s market potential received the highest score in the General Business Environment section. • 62% of respondents’ share the perception that Turkey is a priority market for their companies’ global headquarters. • Turkey’s level of observation of its international obligations (62%) and the decrease in its informal economy (59%) are acknowledged as the positive factors in the domain of regulations. • More than 50% of respondents agree that Turkey’s business environment is conducive to the development of U.S. businesses and the business and investment environment of Turkey is more attractive compared to other similar emerging markets, each scoring above the section average. On the other hand, the below issues scored under the section average and are highlighted as areas for improvement: • 59% of respondents share the perception that investment incentives need to reach an adequate level in Turkey to attract and maintain more foreign direct investments, and 54% agree that the cost of credit and access to expansion capital must be improved. • The score in the public-private partnerships signals a need for improvement of agency-related issues, rather than major structural changes in Turkey. 7
3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT Figure 2. Components of Business Environment in Comparative Perspective
52%
58%
64%
75%
77%
62%
68%
70%
67%
46% 41%
59% 46%
54%
58% 43%
60%
62%
70%
59% 31%
81%
54% 67%
62% 42%
40%
The above figure reflects the changes observed in the views of U.S. company executives on the general business environment in Turkey for the years 2012, 2013 and 2014. • No significant changes are observed on the positive perceptions of respondents’ regarding the market advantages of the country in the past three years. • It is observed that Turkey’s market potential, its attractiveness as a hub for companies to use as their regional base of operations, and its priority status as a base for companies’ global headquarters are scoring consistently well and above the section averages over the years. • The 2012, 2013 and 2014 comparative scores indicate that more than half of the participants see the business environment in Turkey as conducive to the development of businesses and, as such, Turkey is consistently seen as a more attractive market when compared to other similar emerging markets. • Respondents acknowledge that Turkey’s increased observation of its international obligations and the continued decrease in the scale of informal economy are among the key drivers of international investments in the country.
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3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT 3.2. Macroeconomic Conditions Figure 3. Components of Perceptions about Macroeconomic Conditions 53% 45% 45% 43% 33% 49%
The above graph shows respondents’ assessments about macroeconomic conditions in Turkey. When the general average section score of 45% is considered, it can be stated that satisfaction with the macroeconomic conditions in Turkey remained at a median level, in general. • More than half of the respondents indicated their satisfaction with the current macroeconomic conditions in Turkey, followed by respondents’ acknowledgement of Turkey’s potential to become one of the world’s largest economies by 2023. • 45% of respondents expressed confidence in the stability of the macroeconomic environment for the next year and shared the perception that inflation is under control. • Areas for improvements in this domain have been indicated as the TL exchange rate, the interest rate environment in Turkey as well as the control of inflation. Figure 4. Macroeconomic Environment in Comparative Perspective 53%
55%
45%
50%
59%
43%
53%
57%
33%
45%
49%
38%
56%
50%
58%
51%
The above graph allows us to make a comparison with the previous years’ results on the macroeconomic environment in Turkey. While satisfaction with the macroeconomic conditions in general experienced a small decline of 2% in comparison to 2013 results, confidence in the stability of macroeconomic environment has declined 5%. Since the year 2012, a consistent pattern is observed for necessary improvements in three specific areas: the interest rate environment in Turkey, inflation to be under control as well as the TL exchange rates. 9
3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT 3.3. Infrastructure Figure 5. Components of Perceptions about Infrastructure 55% 63% 46% 59% 62% 67% 41%
The above figure shows the components of perceptions on infrastructure in Turkey. Overall, assessments on infrastructural quality in Turkey demonstrate that the airport, road and highway networks as well as internet speed and quality are among the key strengths of the country. More than half of the respondents opined that the electrical power infrastructure and railroad networks in Turkey are sufficient to serve the business needs and operations. While 55% of respondents have indicated their confidence for the long-term infrastructure development agenda to be carried out successfully, the port infrastructure quality was highlighted as an area for improvement in this domain. Figure 6. Perceptions about Infrastructure in Comparative Perspective 59% 55%
60% 50%
63% 46% 62%
65% 63% 50%
67% 41%
61%
60%
63% 64%
66% 63%
The above figure presents the changes in perceptions on the infrastructural quality in Turkey since the year 2012. The overall observation is that, except for the port infrastructure, assessments for all the components under investigation have positively increased over the years as well as the confidence in the long-term infrastructural development agenda to be carried out successfully. The most significant positive changes on perceptions about infrastructural quality are observed in the areas of airport, rail, road and highway networks. The biggest positive change was observed particularly for the road and highway networks infrastructural quality which encountered an increase of 12% in comparison to the 2013 yearly results. 10
3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT 3.4. Taxation System Figure 7. Components of Perceptions about Taxation System 44% 61% 61% 77% 57% 63%
Individual income and corporate tax rates as well as tax calculations and payment procedures particularly for individual income tax are highlighted as the main improvement areas. The level of predictability in tax rates and the equal applicability of tax laws on businesses demand further attention as improvements in this domain. Figure 8. Components of Perceptions about Taxation System in Comparative Perspective
44%
61%
61%
36%
44%
61%
68%
77%
57%
63%
57%
79%
66%
67%
76%
55%
65%
The above figure depicts the changes observed in perceptions on the taxation system in Turkey. While still seen as an area for improvement, a comparative analysis demonstrates that respondents increasingly assert the belief that tax laws are being more equally implemented across all businesses. While 36% of respondents agreed to this statement in the year 2013, for the year 2014, this has increased to 44%. Positive changes are also observed in the calculation and payment processes of individual income and corporate taxes. Accordingly, respondents share the belief that these procedures have become more simplified as can be witnessed with the increases of 7% and 9% in agreements in comparison with the previous year’s scores. Perceptions on the corporate tax and individual income tax ratios have also improved, each scoring positive changes of 2% and 4%, respectively. 11
3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT 3.5. Education and Workforce Figure 9. Components of Perceptions about Education and Workforce 53% 59% 53% 54% 62% 58% 60% 56% 47% 57% 48%
The above figure shows that the most powerful aspects of the Turkish labor market is its level of productivity, its ability to easily provide skilled white-collar and clerical-level employees in line with the U.S. business community’s needs as well as labor market’s ability to provide workers that have satisfactory customer service and soft communication skills. Perceptions on the adequacy of university level education system to match the business community needs also scored above the general section average of 56%. Respondents’ assessments regarding the ability of Turkey to produce sufficient number of workers with entrepreneurial talent, the workforce’s foreign language proficiency, and the capacity of the workforce to support cutting-edge research and development remained at a median. While 52% of respondents agreed to the notion that the high-school education system needs to be improved so that it can better serve the business community needs, 53% shared the perception that the availability of skilled blue-collar employees is a challenge for businesses, requiring further attention as an improvement in this domain.
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3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT Figure 10. Perceptions about the Education and Workforce in Comparative Perspective 58%
61%
59%
53%
53%
41%
57%
53%
54%
62%
50%
62%
67%
60%
54%
61%
56%
57%
64%
47%
51%
57%
48%
60%
46%
33%
58%
42%
The above figure represents the changes observed in perceptions about the education system and workforce in Turkey. Major positive trends are observed on perceptions regarding the capability of university and high-school level of education system to support the business community needs, representing 11% and 15% of increases, respectively. In comparison to 2013 results, significant positive changes are also observed in respondents’ assessments on the quality of labor force in Turkey. Accordingly, participant companies indicated that workers in Turkey have satisfactory customer service and soft communication skills (6% of increase), satisfactory English language proficiency (12% of increase), and the capacity to support cutting-edge research and development (4% of increase). While assessments regarding the availability of skilled white-collar employees have increased by 6%, perceptions regarding the availability of clerical-level employees have remained almost the same in comparison to 2013 scores.
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3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT 3.6. Future Expectations on Investment Trends Figure 11. Components of Investment Tendencies
79%
64%
57%
65%
58%
Based on the above figure, participant companies have a strong tendency to stay in Turkey in the coming years (79%) and the propensity for more investments is high (64%). Almost 60% of the respondents agree that Istanbul has the potential to become a regional financial center; upon the realization of such, 65% of respondents acknowledge that their companies’ investment propensities would positively be affected. Figure 12. Perceptions about Investment Tendencies in Comparative Perspective
64%
71%
79%
57%
65%
58%
70%
81%
56%
80%
65%
60%
66%
The above figure represents the changes observed in perceptions regarding investment tendencies of companies over the years. Overall, there has not been a significant change on the positive tendency of companies to continue their business operations and deepen and further expand their investments in Turkey.
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3. BUSINESS and INVESTMENT ENVIRONMENT in TURKEY 2014-2015 REPORT Figure 13. Components of Future Expectations
48%
41%
38%
26%
The above figure depicts respondents’ future expectations about investment trends. While 41% of respondents shared the perception that Turkey would be a more attractive place for foreign investors in 2015, 48% of respondents indicated their confidence on the maintenance of macroeconomic stability for the next year. Figure 14. Perceptions on Future Expectations in Comparative Perspective
48%
58%
41%
52%
38%
26%
58%
45%
34%
56%
46%
32%
The above figure depicts the changes observed in respondents’ assessments as to future expectations in Turkey. The overall observation is that all components under investigation in this domain have encountered an average decline of 9%. Respondents’ confidence in the creation of a strengthened macroeconomic environment and a more attractive business environment in Turkey for the next year remained at a median. 15
AmCham Turkey/ABFT Board of Directors
Serra Akçaoğlu AmCham Turkey/ABFT Chairwoman
Citibank Turkey CEO & Board Member
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Tankut Turnaoğlu Procter & Gamble Chairman of the Board Turkey and Caucasus
Canan Özsoy General Electric Turkey President & CEO
Tamer Özmen Microsoft Turkey CEO
İhsan Necipoğlu Dow, General Manager Turkey & Central Asia
Mine Öztürk Baxter International General Manager
Neil Pryor PepsiCo General Manager
Daniel R. Matthews Baker & McKenzie Managing Partner
Haluk Yalçın PwC Territory Senior Partner
Dilek Mutuş Wells Fargo Bank Executive VP & GFI Head TRAMS
AmCham Turkey/ABFT Board of Directors
Bernard J. Dunn Boeing President Turkey, Middle East & North Africa
Andrei Holban 3M Managing Director
Çiğdem Ertem Intel Regional Director Middle East, Turkey and Africa
Hüseyin Gürer Deloitte Turkey CEO
Christophe Merkel Nike General Manager
Asgar Rangoonwala Janssen Managing Director
Nilgün Langenberg Korn Ferry Managing Director
Ufku Akaltan UPS General Manager
Roberto Pedretti The Nielsen Company CEO
Gökhan Toğrul Hay Group General Manager
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AmCham Turkey/ABFT Members AUTOMOTIVE/TRANSPORTATION Ford Goodyear Hertz INDUSTRIES 3M Amec Foster Wheeler Bimaş Axalta Coating Systems Boeing International Borusan Makina Crown Bevcan DuPont ESBAS General Electric Honeywell Lockheed Martin McCormick Kütaş Miyamoto International Sikorsky FIGES Engineering The Dow Chemical Company BANKING/FINANCIAL SERVICES/INSURANCE AIG Bank of America Merrill Lynch Citibank Dubai Starr Sigorta JPMorgan Chase Liberty Sigorta Marsh MetLife Wells Fargo Bank Ulusal Faktoring IT TECHNOLOGIES / E-COMMERCE Apple Brightstar Cisco Systems eBay HP IBM Intel Microsoft PayPal Qualcomm Telcotank Xerox CONSUMER GOODS & SERVICES Amway Cargill Coca Cola Estee Lauder Kimberly Clark Mondelez International Nike PepsiCo Philip Morris / Sabanci Procter&Gamble DELIVERY SERVICES / LOGISTICS Brink’s CEVA Logistics CHEP UPS EDUCATION ELS Educational Services ETS Global Istanbul Bilgi University Laureate Wall Street English 18
ENERGY / OIL & GAS Aladdin Middle East BP ENGINEERING / CONSTRUCTION / PROPERTY City’s Property Development Corp. Cushman & Wakefield Jones Lang LaSalle Kolin Opalit Stearns International Tishman Speyer Turner International HEALTHCARE Amgen Baxter International Beckman Coulter Bristol Myers Squibb Boston Scientific Celgene Forever Living Herbalife Janssen Johnson & Johnson Lilly Medtronic Pfizer Sandoz SC Johnson Smith & Nephew HOME APPLIANCES / FURNITURE BMS-Herman Miller Steelcase HOSPITALITY / ENTERTAINMENT/ F&B SERVICES Conrad Grand Hyatt Istanbul Hilton Worldwide Hilton Istanbul Bomonti Hotel Istanbul Marriott Hotel Sisli Yum! Brands NGOs Junior Achievement Make-A-Wish Foundation PROFESSIONAL / LEGAL/ CONSULTANCY SERVICES Baker & McKenzie BTS & Partners Chadbourne & Parke Curtis Mallet-Prevost Colt & Mosle LLP Deloitte. EY Hay Group Herrick, Feinstein LLP Kinstellar Korn & Ferry International KPMG Locke Lord Edwards Moroglu Arseven Pera International PwC Serap Zuvin Law Offices Spencer Stuart TBWA Istanbul The Nielsen Company