“The ones who underestimate experience, pay a high price for inexperience.”
June 2020

Globalturk Capital's Webinar - Investment Environment in Turkey Going Forward – Government’s Perspective | 12.06.2020


Ahmet Burak Dağlıoğlu, President of the Investment Office of the Presidency of the Republic of Turkey 

Mehmet Fatih Kacır, Deputy Minister of Industry and Technology

Rıza Tuna Turagay, Deputy Minister of Trade


Baris OneyFounder and Managing Partner, Globalturk Capital, and EMPEA Turkey Representative



In this Webinar the following key questions were addressed by the participants: 

-        How the Government responded to this unprecedented pandemic and what were the immediate measures taken? What were the key success factors behind Turkey’s good management of the pandemic?

-        How did many companies who were already indebted even before the corona crisis managed to survive during this period? Were the Government incentives sufficient? 

-        How did the Turkish industry in general was able to manufacture very rapidly, medical equipment in large volumes? 

-        What are the strategies for the next 3-5 years on value added manufacturing and technology investments and how does Turkey plan to improve on this area? Which sectors will rise in Turkey and which ones should investors monitor? 

-        How the trade relations of Turkey got affected during this period? How is the relations with the EU, the US and other countries as far as trade is concerned? How will Turkey get effected by the US-China and EU-China trade tensions if escalates post-pandemic? 

-        How will the duties on some imports affect Turkish exports?

-        How will Turkey get affected from the supply chain diversification and is the industry as a whole ready for such a shift? 

-        What can Turkey offer to investors and what would be Turkey’s new strategy?

-       How is the situation on investments and exits? Are there any plans on incentivizing mergers and acquisitions of companies within similar sectors?

-     Will Turkish high net worth individuals, family offices and corporates put money into private equity or venture capital funds post-pandemic, since it was pretty lacking in the past?


It was a very informative fact and idea sharing session for the investment and the business community, where we found it very useful and had a number of key takeaways.


Turkey’s Fight Against the Pandemic:

Turkey’s main success lies in her healthcare policies and targeted measures. It is highly recognized internationally and academically, where the Economist journal recently published an article on this very fact. MIT Professors further published a paper on how the optimal targeted lockdowns Turkey implemented, have proven very successful not only on low death rates but also minimized economical losses and helped the society socially. 

Healthcare Aspects:

One of the main success factors is that Turkey was not caught unprepared. It already had a modern healthcare infrastructure built over the years through PPP model. Many city hospitals were built within this program. International providers of finance have played a crucial role on this program. 

There are almost 35,000 ICUs in Turkey, highest in Europe with Germany. The number of deaths per million people was only 57, one of the lowest numbers in the region. 

The preparations started even before the pandemic hit Turkey. The products such as masks, disinfectants and ICU ventilators that would be necessary during the pandemic and their supply planning were made. These products were manufactured within 14 days in Turkey. The private companies got together under the coordination of the Government, and combined their resources to manufacture these. One start-up, two high tech companies in the defense sector, one manufacturing company joined their forces and did wonders. 5000 ICU ventilators to date were manufactured and even exported to many countries. 

Another example was masks. During the first few days of the pandemic, the total production capacity of masks in Turkey was a few million, where it has grown to be 40 million a day, almost 40 times in few weeks. This shows the agility of the production infrastructure. The close coordination between the private sector and the Government played an important role here as well. 

The drug and vaccine R&D project got kick-started and to come up with new drugs and vaccines to fight corona virus, which is intensely underway. It got built over the world class drug infrastructure built over the years.

During this pandemic, the aspects of the new industrial strategy of Turkey announced in September 2019 allowed for open innovation and collaboration in new technologies, were able to be tested and proven positive. Turkey is now adjusting to the new normal or great reset on dealing with such dire situations and believes it is in an advantageous situation.

Economic Aspects:

On the economic side, the Treasury immediately provided a 100 billion TL support package. This was further increased to 250 billion TL. This helped prevent employment losses. International trade slowed down but did not stop. It was perfectly managed remotely by the Trade Ministry.

The Government continued to support crucial industries and supported targeted industries like chemicals, iron and steel, petrochemicals and the like.


The 2023 Strategy:

Once the pandemic eases up, Turkey will initiate its next big growth period. One of the main pillars of this growth will come from manufacturing, since it is Turkey’s core competence. The fundamentals in manufacturing and R&D in the country are pretty strong. The main target for 2023 Industry Strategy is moving more on the value-added side of the production geared towards exports

The share of value add on the production lately has reached to 17% of GDP, but the target is 21% thru innovation and manufacturing high-tech products within 4 years. Further the value-add to be increased from $28,000 to $35,000 per industry worker and increase the share of medium and high-tech products in the industrial output from 40% to 50% thru digital transformation.

At the same time the GDP spent on R&D expenditures is aimed to be increased from 1% to 1.8% by 2023. In the worldwide R&D Leadership Scoreboard among 2500 companies, there were only 4 Turkish companies in 2018, and the plan is to increase this number to 23. Thru focusing on this, currently the number got increased to 5, and there are 3 more on track for next year in the automotive, white goods and telecoms sectors. 

Turkey’s young population with a median age of 31 and excellent human resources are key to these targets. A little support could accelerate this success. In Turkey the number of software developers are 170,000, may seem low, but in the last 2 years the growth rate was the highest in Europe, and the target is to increase this number to 500,000. 

Also, the target is to have 10 unicorns by 2023, where we already had the first one Peak Games for $1.8 billion sale to Zynga. 

The Government supports the game development industry, almost $62 million were allocated for this sector. This industry will have a spill over to other industries such as education, mobility, AI, medical equipment as well. 

Microsoft, Sequoia, Pay-U, Alibaba, T-Pay, and many others invested already to successful Turkish companies started-up with young entrepreneurs. There are 80 techno-parks in Turkey which facilitates such start-ups to grow. More than 1600 R&D and design centers exist in private sector. Therefore, these targets are believed to be very achievable. 


Trade Relations during the Pandemic and Expectations:

Turkey has more than 20 free trade agreements and a Customs Union Agreement with the EU which allows Turkey to freely do business worldwide with its highly skilled labor force. 

Turkey’s total trade volume in 2019 was $390 billion equating to 40% of GDP, out of which $180 billion was exports. The year 2020 started very good but hits pandemic. 

All the borders were closed, but Turkey created a new model, which was “contactless trade” to keep the affects at its lowest. April was the worst, but in May, things started to move forward. Tourism revenues, where Turkey generated $34,5 billion in 2019, were adversely affected. Tourism has a very positive affect on the current account deficit. In fact, in 2019, Turkey had a current surplus, which equated to 1.2% of GDP. In the last quarter of 2019, Turkey had 6% of growth rate and in the 1st quarter of 2020 the growth rate was 4.5%, showing that Turkey was moving on the right track just before the pandemic.

According to WTO, the world trade volume is expected to get contracted anywhere from 12.9% to 31.9%. According to OECD, it is expected to get contracted by 11.4%. Therefore, the whole world is going to get hit hard from the pandemic.

However, there are good signals for Turkey, like the PMI index, capacity utilization rate and economic confidence index are going up. All the borders were opened recently. And comparing May with April, positive increases are being observed. Turkish Airlines is about to start flying outside Turkey. Nevertheless the 2nd quarter with no tourism revenues and lockdowns, will definitely be a negative, but during the 3rd and 4th quarters, growth is expected to pick up and the expectation is to close the year with a positive growth, contrary to the expectations of international institutions’ forecasts. The main asset Turkey bets on is its dynamism and flexibilities in manufacturing.

Turkey is also taking some measures to protect its companies and encourage domestic production, where certain countries are cutting down their prices on their exported products to outrageous levels, to even below their production costs to sell off their accumulated inventories. Therefore, there are import duties imposed on certain products coming from certain countries. However, these duties are not applied to EU or countries with free trade agreements.

Many companies are shifting their supply chain and diversifying. US, Europe and China are and will experience trade wars at various degrees. With the US, out target is to increase our trade volumes from $20 billion to $100 billion, a 5-fold increase. Our exports to US in their total imports are miniscule, only 0,04%. Turkey’s share in all exports in the word is 0.9%, which is still very low. So, the objective is to increase these numbers with scale, and this shift of production from certain countries will certainly help. 


Incentive Mechanisms to Promote Collaboration and Mergers & Acquisitions between Companies:

The COVID-19 crisis will definitely change the global production dynamics. Many US and European multinationals have already started to look for new production geographies. 

Turkey is prioritizing high scale and competitive investments with its new smart incentive scheme mechanisms. This is allowing companies to get together and set-up JVs and mergers or acquisition.  Before the pandemic, an end to end incentive program from R&D to exports was initiated, which covered the full value chain from producers to suppliers and the customers. First pilot application was in the machinery sector and was very successful, where the companies found new customers for example. The name of this program is technology focused industrial movement program and it is planned to continue on.

Nearshoring, reshoring and piling-up on inventories of critical goods and human talent are becoming very important as a result of this pandemic. 

The Government initiated a study to analyze Turkey’s product competencies to be competitive globally. This includes setting-up new strategies for markets like the US and the EU. Turkey has already a proven track record in the EU. Today 20% of all automotive products used in the EU are from Turkey. Currently the focus will be on the white goods, automotive, chemicals, electronics, machinery and medical devices.

There was a communique in 2017 to provide tax incentives on mergers of SMEs, where the Cabinet was authorized to grant a discount of up to 75% on the corporate income tax for the merged entity. This could have been a good tool for SMEs to merge, but unfortunately a secondary law was never prepared. The Investment Office is focusing on this topic to move this incentive forward. 


The Investment and Exit Environment for the Private Equity Funds:

During the first wave in the two-thousands, consumer businesses were attractive and many private equity investors had very profitable exits. During the second wave, the trend was on the technology and digitalization and a bit on export investment themes and there were many highly profitable exits. However, for those investments made later on the cycle of the consumer businesses or caught on the high devaluation hit with TL revenues, the exits were not so successful or not made. It seems now that there is the third wave coming and this will now be largely on exports

The exchange rate volatilities might be overcome via some natural hedging by investing in export-oriented companies and high technology sectors rather than just on consumers in the portfolio. Since 2017, the technology companies based in Turkey but generating hard currency earnings have been enjoying successful exits. Not only those, but during the same period some logistics companies and exporting manufacturers have allowed funds to successfully exit from their companies. 

GPs in Turkey are pretty successful and therefore it is highly advisable to invest in Turkey thru these very talented GPs in private equity and venture capital.

Turkey is a very foreign investor friendly market and the Government fully supports it including private equity and venture capital investments, since they are not only bringing their capital but also helping Turkish companies by transferring their know-how and help them grow. The key is to pick-up the right sectors and companies to invest in.  At times like this, the best way to hedge investments is investing in companies whose 50-70% of revenues are coming thru exports. 

For foreign investors, Turkey, with its huge domestic market and export capabilities, coupled with the Customs Union and free trade agreements, poses significant opportunities. There are further export incentives with Exim Bank financings as well as other investment incentives investors could benefit a lot from such side positives as well. 

It is true that there is a lack of interest from Turkish companies acquiring other Turkish companies, which is believed to be either a cultural or a financing issue. Investing even in start-ups is extremely limited. However, after the last three years of successful tech exits, big groups started to get interested in this ecosystem. Therefore, in the near future, this picture may change. 

One of the priorities for the Investment Office is to focus on the sectorial consolidations since many of Turkey’s sectors are highly fragmented and posing inefficiencies. After the Peak Game exit, Turkish corporates and high net worth individuals started to ask on how they could invest in such companies. It is suggested to them to approach the GPs on this since it is a profession to invest in such companies.  The Turkish GPs have already proven their track records since 2000. 

On another note, real estate investment funds should also be focused since Turkish culture is highly inclined into real estate investments. Both venture capital and reals estate funds are financial investments. An awareness needs to be raised and this is also being taken as a priority. 


New Areas of Focus:

High importance is attached to domestic high-tech production, named as the National Technology Initiative, and the objective is to increase the share of Turkey’s exports in the value-added products in the global trade. Alongside this strategy, pilot projects were initiated. For example, the Turkish Auto Project is expected to transform the whole auto industry. In Turkey 2 million cars are manufactured annually and $30 billion of exports are realized. Since the whole auto industry is going thru a paradigm shift globally, where electric cars, connected cars, autonomous cars and shared car platforms are emerging, such an initiative was quite crucial.

The New Artificial Intelligence Strategy Document is expected to be published within 2020. The sectors being focused will kind of get reoriented. For example, instead of focusing on the auto industry, the focus will be on mobility and AI, which will be across the board in all sectors. Another area to be focused is the railway infrastructure and high-speed trains with its full supply chain. Ceyhan Petrochemical Industry Zone is being built for example and in this zone, there will be a cluster zone for manufacturers where foreign manufacturers can also take place.

Therefore, Turkey’s pilot projects as such, and the full value chain around them should be watched carefully by the investors. 



To recap, Turkey is the right country to invest. The Government Offices are working with great collaboration continuously to take the right measures to grow the Turkish economy. Inflation and currency are pretty much under control and it is highly unlikely that there will be another sudden depreciation on the TL. The objective is to get the inflation into single digit numbers as well. 

There is an ample liquidity in the world and this liquidity could well be diverted to Turkey. The Government is fully on Board to support foreign direct investments.

Self-sufficiency and digital transformation were the 2 very facts emerged in this pandemic and Turkey will strengthen further its position as one of the top key value-added manufacturing hubs for many products in many sectors. And with the strong R&D infrastructure and tech development ecosystem, digital transformation will be one the key investment themes going forward.  

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