Agricultural Investments - Fulfilling the Global Food Security Concerns

In the last three years, there has been a rebound in agricultural profitability as the global demand for fibre, fuel and food entered a golden era where agriculture gave highest profits as the market risks in agriculture soared amidst highly volatility and raising stuff prices. Although there has been a high volatility in the sector investors are happy about investing in agricultural land being of the balanced food consumptions and the increasing income of global population which is expanding the appetite for agricultural products.

Some of the circuitous problems matching as global warming, changes in food habits, climate change and poor agricultural outturn resulted in sharp increase in food prices across the world and the number of people who are either malnourished or hungry is increasing which has been a concern for policy makers.

Hunger crisis in Africa

For the third time Sahel region in West Africa is suffering poor harvest, droughts and soaring food prices. Last year Kenya, Somalia, Djibouti and Ethiopia were affected by worst hunger crisis and the government of the countries are promoting investment in agricultural land. Investors are seeing great values in investing in agricultural land and they are buying either farmlands outrights or targeting the subsectors in farming such as fertilizers. The main trick in investment is to be part of farming production which helps to generate high returns in the form of regular harvests as there is increasing demand for food grain harvests in the global market and also you get returns from the increasing price of the farmlands.

Increasing food demands

Investment in agriculture involves commodity trading and farmers are using agricultural contracts to offset losses in crop production. Agriculture has been a link for increasing friendship between China and Africa. By the year 2050 the global population will be 34 % higher than today ' s population as it will reach 9. 1 billion and the demand for food grains will increase by 50 % by 2030 as per UN statistics. Poor weather conditions and rising demand from the emerging market will make it difficult to regulate food prices.

The dangers of climate change and urbanisation

Climate change poses the major risk over long term food security. Climate change is having a negative impact on agricultural output and urbanisation also affects 70 % of the world population as it reduces the number of people who are into rural agricultural sector. To feed the growing population, which will get richer and earn more, an increased amount of food grains production is required and the world will need at least 70 % more food grains.

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Agriculture Investments - A Strategy to Maximise Return on Investment

Around 225, 000 people are exceeding to the global population every single clock, all of whom need food and fuel. At the same time, incomes in developing economies are rising, causing a shift toward a more respected and more resource powerful westernised slop based on meat. Considering that 1kg of meat requires the input of 7kg of grain as animal feed, this combination of more people and higher consumption per capita adds tremendous strain to current stretched agricultural productivity.

The amount of farmland on the planet is in fact falling. Urbanisation, soil degradation, water scarcity and climate change all associate to reduce the stock of land suitable for growing the essential crops we need.

In light of this on - going and increasing disparity between supplies of farmland and demand for agricultural commodities, investors are turning to farmland in order to capture financial gains as food prices rise and productive land becomes intrinsically more valuable.

There are a range of farmland investment strategies to consider, from simple acquisition of land and leasing to farmer, through to sharing crop revenues in a joint venture under a contract framing agreement. But certainly the most profitable agriculture investment strategy is greenfield development; the acquisition of land with agricultural potential and converting into productive agricultural assets through the establishment of infrastructure such as irrigation, storage facilities and road, as well as amending the soil profile to ensure maximum productivity.

Greenfield farmland developments add substantial capital value to previously unused land, as well as positively impacting the current black hole in agricultural productivity that leave over 1 billion people hungry around the world each year. Investors also benefit from on - going income from crop revenues as newly converted land produce an annual yield from the production of crops.

The majority of future growth is widely expected to come from developing regions including Asia, Africa and Latin America, where economic growth outpaces that of the west by a huge margin. It is these key growth regions that the appetite for agricultural commodities will grow the most. In fact, in Germany the population is expected to get smaller in the next 40 years, whilst in China the population is expected to expand by some 30 % in the same period.

It is fair to say then that agriculture investments based on the development of suitable land, in close proximity to key growth regions in Asia, Africa and Latin America offer investors the best opportunity to capture not only short term appreciation through development, but also long - term growth and income driven by population growth and rising incomes.

Agriculture Investments - A Warning to Investors

As stock portfolios project to spectacle volatility, many investors are now starting interrogate alternative investments, with one area of particular interest being agriculture investments, or specifically farmland investments.

I think it is now particularly relevant to say bring up that oft - used and scarcely heeded piece of investment advice; " Past performance is no guarantee of future performance and investors should of course be cautious in the use of historical data when making investment decisions. "

Now the reasons for investing in real assets that produce essential wares in perpetuity are sound. Population growth and rising incomes drive demand, whilst urbanisation, water scarcity, climate change and a host of other factors suppress supply, and these two fundamental trends stack up to drive up food prices and with them, farm revenues and the important value of farmland assets.

These, in my assessment, are the reasons to set up in agriculture, and although history and hindsight can demonstrate how these assets and markets have performed during certain conditions, the wise investor should perhaps look to the future, rather than the past to ascertain the likely performance of their holdings.

As witnessed recently in equity markets across the globe, the time frame used to provide data for predicting future events, is crucial. Rather than simply use the longest data set available, one is better positioned perhaps to use data from periods in time where economic conditions are most likely to be characteristic of future conditions.

A good example that has relevance to agriculture investments is the depression of commodity prices during the 1980 ' s, where a reduction in demand for food from developing countries resulted in the accumulation of large grain stocks. If you feel that in the future, demand from developing nations is likely to fall, then data from this period would be most relevant to use to project future commodity prices as you believe the same set of conditions will prevail. In this set of circumstance and taking this set of data, you would project that commodity prices and farmland prices would fall.

If you believe that demand for commodities such as food will continue to grow, as it did in the 1970 ' s, then you would expect commodity prices and farmland prices to rise as they did then, based on the assumption that the same set of circumstances in terms of supply and demand will ultimately prevail. Using this piece of historical data alone would lead you to believe that agriculture is a strong buy, and farmland investment assets will continue to rise in value.

Again, when making your own decision as to whether you feel farmland values will rise or fall ( they will surely do both over time ), you should base your answer on whether you feel that demand is likely to increase, and whether we have the capacity to increase supply accordingly. The answer to these questions lies in the present, not in the past and one could simply ask three very simple questions:

Will there be more people on Earth in 10, 20, 30 or 50 years? Is there more land to produce crops to feed this excess? If not, can we increase the amount of food we grow per hectare?

It is the answer to these questions that should define your opinion on asset values in the agricultural sector, standalone facts and statistics form the past.

Agriculture Investments - The Real Picture

As investors survive their search for alternative investment assets that proposition capital prolongation, income and inflation hedging characteristics, and that are supported by sound long - term fundamentals analogous as population growth and economic expansion, many institutional investors agnate as Pension Funds, Hedge Funds, Sovereign Wealth Funds, Family Offices and UHNW Individuals are turning to farmland investments to generate long - term gains without dramatically modification the overall risk embodiment of a balanced investment portfolio.

Currently, around 1 % of institutional investments assets sit in agriculture investment, and most think tanks and analysts predict that this will rise to over 5 % in the next five years, creating a spike in short - term demand and adding further upward pressure to demand and since prices. This might be described as the beginnings of a nightmare, much like many real - estate froth before, but the sharpened picture looks contrastive this time.

On one side of the equation we have an increasing demand for commodities such as food and biofuels as the population continues to expand at the fastest pace in history. To put this into context; up until around 1800, the global population had risen and fallen in line with our ability to produce food using the basic of agricultural techniques, yet since the introduction of hydrocarbons for energy and agriculture, the population has increased from only 800 million to over 7 billion in just over 200 years. At the time our grandparents were born there were around 1. 5 billion people to feed, and by the time we were born, that number had increased to around 5 billion.

Economic expansion in developing economies also contributes as wealthier populations shift toward a more protein based diet consuming more meat. In China alone, 50, 000 people move from rural areas to urbanisations, and their diets gradually shift towards meat. According to a report by the Centre for World Food Studies in Amsterdam, meat consumption in China was around 20kg per person in 1985, reaching over 50kg per person by 2000, and projected to reach 85kg per person by 2030. As 1kg of meat requires the input of around 7kg of grain, the growing pressure on global cereal supplies is immense. If everyone in the world consumed as many calories as the average American, we would need to find farmland equal to 2. 2 Earth sized planets simply to keep up with demand.

One the flip side of this equation we have supply of food, and ultimately the farmland that produces our food. At every point in the 38 year commodity price cycle where real assets have undergone sharp re - pricing due to shock increases in demand at a time of limited supply, there has been opportunity to increase supply, either through the development of new farmland, or through the developments and application of new technology such as the use of fertilisers during the Green Revolution which led to a significant on - going annual increase in agricultural yields.

Currently, population growth outstrips output growth at a time where little or no new farmland is available to bring to cultivation, and yield increases from the use of fertilisers are diminishing towards zero. This unique set of circumstances dictate that there is no obvious remedy to the supply demand problem, supporting the theory that higher food prices are here to stay as little can be done to increase supply yet demand continue to grow.

Those investors choosing agriculture investments in the form of the acquisition of quality farmland assets, are likely to be best positioned to benefit from the underlying fundamental trends such as population growth and economic expansion. Investors that acquire quality farmland at today ' s price are likely to enjoy inflation - linked capital growth in the long term, as well as an expanding income stream from rentals or the production and sale of food crops.

Agriculture Investments - The Effect of Population Growth on Farmland Investments

It has been duly noted time and again that population growth is a key driver in demand for food and other agricultural wares including feedstock for biofuels and biomass. As demand for lines grows, and supplies do not increases, prices rise and competition for existing produce increases. This bodes well for those in control of productive agricultural land as not individual do incomes from harvesting crops increase, so awfully do does the important value of the land on which they are grown.

In this brief article we will regard at the facts surrounding population growth and the likely impact on the performance of agriculture investments, with particular bias towards farmland as an alternative investment asset class.

Monday 31st October 2011 marked the birth of Danica May Camacho in the Philippines. At 5. 5lbs, Danica May is a tiny person that represents an enormous global milestone as she was chosen by the United Nations to symbolically mark the global population reaching 7 billion people.

In fact, the human population has increased by almost 400 % in the past 100 years alone with a net increase of 225, 000 new people per day during the last decade. Currently, more than 5 % of the total number of people that have ever lived are alive today, and over 1 billion people have been added to the global population in the last 12 years. On current trend, the global population is projected to be roughly 40 % higher than today by 2050 ( UN Population Division, 2007, UN 2006 population revision ).

To put this in perspective, this is the equivalent of adding the total population of Greater London ( 7, 556, 900 people ) to the world ' s headcount every month ( Wikipedia, 2011 ).

Whilst a range of scenarios and population forecasts exist, it is widely agreed that growth in demand for grain will double in the run up to 2050 and that the impact on food prices will be substantial ( UN Environment Programme Rapid Response Assessment, 2009, The Environmental Food Crisis: The environments role in averting future food crises ).

At the same time as demand is increasing, our ability to meet that demand with produce is diminishing every year. Put simply, the vast majority of suitable land is already being cultivated, with very little remaining to expand land under cultivation, and at the same time, soil degradation, urbanisation and water scarcity all combine to prevent further increases in production.

In summary, agriculture investments based on the identification, acquisition and operation of productive agricultural land offers Investors the opportunity to decorrelate a portion of their portfolios from financial markets, and capture both growth and income that is fuelled by undeniable demographic trends rather than the dynamics of financial markets.

Agriculture Investments - The Potential and Performance of Equity and Real - Asset Investments

The investment performance of the agriculture sector can be monitored via a symbol of devices and measures that pathway the performance of median investment assets selfsame as quoted equities, as well as a reach of measures that take after price movements in alternative investment assets within the agriculture space homologous as farmland.

In reality, the agriculture sector as a whole relies on a combination of demand for its products, weighed against agricultural productivity. When demand for food, livestock feed and biofuels is high inasmuch as soft - information prices rise, as is also the occasion when poor productivity creates the same widening of the gap between supply and demand. On the other hand, if demand falls back, or bumper harvests create an oversupply of produce, prices fall.

If one is able to gain an understanding of current productivity and demand dynamics, then one is best able to predict the true performance of the sector as a whole.

The performance of agricultural equities alone - as measured by agricultural indices - does not truly reflect the state of fundamentals that support the sector. In many cases, individual issues that affect specific companies can either boost or lessen demand for the stock resulting in movement in the stock price regardless of the performance of the sector as a whole.

Indeed, many consider that the most efficient method of capturing financial gains resultant of the boom in demand for commodities from a population that is growing exponentially is to acquire farmland as an investment. The value of farmland is driven at the most fundamental level by the net revenue earning capability of the individual asset in question. As an example; a one hectare lot capable of generating a net annual income after costs of 1, 000, will be worth more to a Farmer than a similar plot capable of earning only 500.

Farmland values are recorded by different indices in different regions. In the U. S. the National Council of Real Estate Investment Fiduciaries ( NCREIF ) records the quarterly investment performance of farmland. In the UK the Land Registry offers the most accurate picture, although anecdotal evidence from estate agents such as Knight Frank offer some insight, although on a very broad, national basis.

Agricultural equity indices include Standard and Poors GSCI Agriculture Index; S - Network ITG Agriculture Index; Dow Jones - UBS Commodity Index and Socit Gnrale Index Global Agriculture, all of which provide a different viewpoint as they measure a different set of equities or commodities and use different weightings.

Overall, agriculture investments can best be assessed individually, and conclusions drawn as to the potential for each project as a standalone entity, be it an equity investments or acquisition of tangible assets. Investing in any business should not be simply because it operates in a particular sector, farmland should not just be bought simply for its agricultural status, and alternative investments are not going to be profitable just because they are alternative.

Agriculture Is Booming - Don ' t Overlook Adding Farmland Investments to Your Portfolio

Many investment professionals, including the chimerical Jim Rogers, suppose agriculture wares are matchless in the early - to - middle innings of a higher " super circuit " of increasing prices. The argument for this is fairly smooth. The unit of people in the world is increasing, and projected to reach halfway 9. 1 billion by 2050 according to the United Nations. Meanwhile, the amount of arable farmland has been decreasing.

In addition, as with many chief trends in the world today, a sizeable reason late the rapid scuttle - up in food prices is China ' s development. As investors we always fancy to be on the correct side of global macro trends, and whatever China needs or is buying lots of, we need to own as investments.

The matter is what are the best ways for making money from the agricultural sector? One way is to originate directly into agriculture stocks such as farm equipment maker John Deere ( DE ), global seed giant Monsanto ( MON ) or fertilizer company Potash Corp of Saskatchewan ( POT ). Another method is to invest in agricultural futures through Exchange Traded Funds ( ETFs ) such as AIGA on the London Stock Exchange or DBC in the US which tracks an entire basket of agricultural commodities including corn, soybeans, wheat, cotton, sugar, coffee, cattle and pigs. These commodities ETFs try to track the spot price of the various commodities they include.

The advantage of these stocks or ETFs is that they are easily trade - able by anyone who has an online brokerage account. The disadvantage, however, is that they are still financial instruments, and as such can fluctuate widely in price.

One option most individual investors tend to overlook is direct investment in farmland. In many ways, a farmland investment is more secure, stable and tangible then putting money into stocks. Farmland allows investors to still benefit from the global trends in agriculture we have discussed, whilst providing much greater stability then agriculture stocks or commodities which can fluctuate wildly.

Just to take one example, in the last 20 years farmland in the United States has never had a down year according to the National Council of Real Estate Investment Fiduciaries ( NCREIF ) in the US demonstrates. Not surprisingly, many large institutional investors have been investing heavily in farmland the last several years. For example TIAA - CREF, one of the largest pension funds in the world, has recently made a large move into farmland investing.

Prices for farmland in the West - particularly in Europe - have already moved up considerably, reaching as high 17, 300 per hectare in the northwest of England to take just one example. Whilst there are considerable advantages in terms of political stability to farmland investment in Europe or the US, the real opportunities for spectacular gains lie in emerging markets, especially in Africa, which holds 60 % of the world ' s remaining arable land suitable for farming.

Whilst farmland investment has been dominated by larger institutions historically, in just the last two years a number of options have been developed for individuals. The most common is to pool a number of individual investors ' capital together to purchase a large parcel of land, and then divide it into individual freehold parcels. Farmland investments for individuals generally pay a regular yearly dividend from the sale of crops, and also provide the opportunity for long - term capital gains as farmland continues to increase in value.

We are now starting to see options starting as low as 1, 950 / hectare for high quality farmland in Africa, making it easily accessible by individuals and a great way to diversify. There are, of course, risks with any investment, but by doing one ' s due - diligence and investing in the right structure with the right people and institution, farmland investment can be both safe and profitable for individual investors as well as large institutions.

Farmland Investments in Africa - Can They Be Both Profitable and Sustainable

As global stock markets delay wildly, individual investors, private equity funds and other mammoth institutions are increasingly looking to alternative investments to store account and stability to their portfolios.

Addicted the rapid scuttle - up in agricultural produce and food prices recently, farmland investments are becoming an increasingly attractive asset class. For both institutional and individual investors with long time horizons, agricultural land is an ideal method for diversifying beyond a portfolio of in truth stocks and bonds, whilst also providing a steady flash of good velvet income and offering estimable upside potential for chief gains due to the upping agricultural " super path " as coined by noted farmland and merchandise tycoon Jim Rogers.

In the UK for copy, over the last ten years, agricultural land has important roughly 13 per cent per year in the according to Investment Property Databank ( IPD ). The US and other Western countries have empitic companion farmland investment returns. Farmland prices have wherefore skyrocketed, drawing near as high as 17, 300 ( approximately $30, 000 ) per hectare in the northwest of England to take right one exemplar.

As a repercussion, investors are increasingly turning their interest in agricultural land investing to areas of the world where farmland prices are starting from a much lower base, thereby providing much greater upside potential. One area where this has been particularly prevalent is Africa, where hedge funds and other large institutions have been making large agricultural farmland investments. Hedge funds and private equity funds alone have purchased 148 million acres of farmland in just the last three years. Just to take one example, the UK ' s well known Guardian newspaper just outlined how major a full 5pc of African agricultural land had been purchased or leased by outside investors, and that more than 200m hectares ( 495m acres ) of land - roughly eight times the size of the UK - were sold or leased between 2000 and 2010.

Given the long history of colonial exploitation in Africa, there has been increasing resistance to what is perceived by many western Non - Governmental Organisations as well as Africans as a " foreign land grab. " Whilst some of these feelings may be based on old stereotypes rather than current conditions, there is no question that some abuses have occurred. Just to take one example, farmlandgrab. org just published an article arguing that a US firm was running roughshod over the local population in Cameroon with one of its agriculture investment.

It is undoubtedly true that frequently large institutional investors make deals directly with the central governments of African countries. Given the amount of corruption and generally poor governance that still exists in Africa, the investment capital frequently disappear into the pockets of corrupt local officials whilst local farmers are forcibly removed from their homes and lands.

By the same token, it is far from true that all foreign investments in African farmland are predatory and exploitive. Global consultancy McKinsey recently produced a report on the future of Africa which noted that the continent had over 25 per cent of the globe ' s arable land yet produced only ten per cent of agricultural output. McKinsey argued that up to $50bn / year of African agricultural farmland investment would be needed to bring the sector up to global standards and allow African agriculture to maximize its potential output.

One reason to consider outside investments in African farmland is that the amount arable land globally has been decreasing. As farmland continues to be lost to urbanization, transportation networks and real estate development, the world must try to feed more people on less farmland. Africa, however, holds approximately 60 % of the world ' s remaining uncultivated land that is suitable for farming, so looking at food security from a broader perspective, Africa has a an opportunity to feed both itself and the world in the coming decades.

Given the need for investment in African agriculture, there is no reason that foreign farmland investments on the continent cannot be structured as a win - win for both private investors and the host country populations. With the right guidelines and intentions, foreign investment in African farmland can be both ethical and profitable. The major issue is whether a set of basic principles for " win - win " farmland investment in Africa can be developed. Just as an example, we believe that the following principles can be used to evaluate the fairness of foreign farmland investment in Africa:

1. The investment was directed at completely unused land, and none of the local population has been removed from any of the land since it was not in use as a food source;

2. The farmland investment was negotiated directly with local villagers and tribal chiefs, so there was no chance for corruption at senior government levels;

3. Farmland investments in developing countries should not simply be premised on food security concerns by the foreign investors, who may want to simply ship the entire crop production back to their home countries;

4. The workforce should as much as possible be local hires who should be paid a fair wage well above the minimum for that country; and

5. Finally, foreign investors in African farmland should also have at least some kind of community re - investment programme in the host country.

Whilst these principles will not solve every concern of local African NGOs, they are at least a starting point for considering examining whether a farmland investment is structured as a win - win for both the investor and the local population, or if the investor is behaving in an inherently exploitative manner. One other interesting factor is that when farmland investment projects are structured such that retail investors can participate, we have seen that these types of individual investors demand that any project they are involved with be both ethical and profitable.

Foreign Direct Investments In Turkey

Legal Framework for FDI in Turkey

Able - business foreign investment policies have been introduced as part of the liberalization of the Turkish economy. The foreign investment legislation provides a more secure environment for foreign finance by providing support from several bilateral and multilateral agreements and organizations, granting foreign cash the twin rights and obligations as local finance, and guaranteeing the transfer of profits, fees and royalties and the repatriation of money.

The foreign direct investment Law No. 4875, which has been in tension since June 17, 2003, emphasizes the key elements of the liberal investment environment in Turkey, and represents a " legal guide " to international investors about their rights and obligations. Since all companies established in Turkey within the framework of the Turkish Petition Code are considered Turkish companies, all duties and responsibilities are the same, regardless of the nature of the finance structure of the company..

Law No. 4875 provides:

sweep to form by eliminating all former FDI - related screening, trial, share transfer and minimum central requirements;

reassurance of existing guarantees in one transparent and stable document;

upgrading to accepted international standards for definitions of " foreign capitalist " and " foreign direct investment "; and

a policy shift from ex - ante control to a promotion and facilitation approach with scant ex - post vigil.

Turkey has been a party to several international organizations and bilateral and multilateral agreements, which ready a more secure investment environment for foreign investors, resembling as:

Turkey is a slab of OECD, WTO,

IMF, World Bank and organizations of the World Bank, including Worry International Guaranty Agency ( " MIGA " ).

Agreements to protect and promote investment have been signed with 77 countries, and 62 of these near agreements are currently in stimulus.

Agreements to avoid double taxation are currently in effect with 61 countries.

Turkey has been a party to OECD Codes of Chief Movements and Invisible Transactions and the assemblage on the International Nerve center for Settlement of Disputes.

Turkey has been a party to investment - related agreements on WTO platforms double as TRIMs ( Trade Related Investment Measures ) and TRIPs ( Trade Related Intellectual Property Rights ).

In 1999, the Grand National Assembly passed a Constitutional amendment permitting national and international arrangement of certain business disputes involving ok agreements for public services. In 2000, the related implementation laws allowing international judgment in contracts involving Turkey and foreign investors were pleasurable by the Parliament.

In addition, regulated markets for electricity and natural gas were introduced to address the shortcomings of the current centralized model. The telecommunications sector has also undergone changes, transforming the formerly monopolistic structure to a regulated and competitive sector. The High Council of Telecommunications was established in 2000 as a supervisory body for the telecommunication industry. The last step towards a full liberalization of the sector began on January 1, 2004 following the termination of the power of Turk Telekom on vocalization telephony services and telecommunication infrastructure, Following full liberalization, the Telecommunication Authority just so the first licenses for territorial data transmission.,

FDI Statistics

According to the balance of payment statistics published by the Central Bank of the Republic of Turkey, the capital ( inflow ) of US $ 1. 752 million in 2003 has increased by 55, 9 % in 2004 and reached to US $ 2. 837 million. In 2000, 2001 and 2002 total direct foreign capital ( inflow ) are US $ 982 million, US $ 3. 352 million and US $ 1. 137 million respectively.

In line with the recovery of the main economic indicators and efforts to improve investment environment, FDI inflows continued to rise in 2005. Net FDI inflows into Turkey totaled $ 9. 667 million in 2005, implying more than three fold increase compared to 2004.

As of 2005, there are 11. 685 companies with foreign capital in Turkey. Out of these, 9. 684 are of new company and branch establishment and 2. 001 are of foreign capital participations into existing companies.

Investments in the services sector accounted for 91 % of total foreign direct investment for 2005, while manufacturing accounted for 8, 5 % of such total.

In the year of 2005, 209 incentive certificates were issued for investments to be carried out by companies with foreign capital, and the estimated total value of these investments within these certificates amount to US$ 3, 49 million, of which 51 % will be undertaken by foreign shareholders.

In terms of accumulated foreign capital commitment up to today; the leading investors are Germany, USA, the Netherlands, Greece, United Kingdom, Switzerland, Belgium and Russian Federation.

Within the manufacturing industries, the leading sectors are;

Automotive and transportation equipment

Food, beverage and tobacco industries

Chemical and petroleum products

Electrical machinery and electronics Within services sector, the leading sectors are;

Banking

Trade & retail chain stores

Telecommunications

Tourism

Policy Reforms to Increase the FDI Inflows to Turkey

Strengthening private sector activity in the Turkish economy is an integral part of the Government ' s overall macroeconomic stabilization program. The aim of the program is to achieve a sustainable growth level with a vibrant private sector and a smaller but more effective public sector. Key structural reforms in major markets such as agriculture, pensions, banking, telecommunications and energy and accelerated privatisation program have been adopted, which will pave the way for a more dynamic private sector.

Despite its competitive advantages and diverse market opportunities, FDI inflows have not lived up to the potential of an economy of that size. Recognizing the importance of this issue, the Government placed efforts for improving the investment environment at the top of the political agenda.

The Government of Turkey has therefore initiated a comprehensive reform program in December 2001, to streamline all investment - related procedures and to attract more private direct domestic and foreign investment and besides legal allowance preformed in 2003, providing real people and corporate assets of foreign origin to acquire property in Turkey, was overturned by the Turkish Court in 2005.. The Government has established a Co - ordination Board for Improving the Investment Environment ( YO - IKK ). The Board assigned specialized technical committees to work on developing concrete proposals and strategies in order to overcome all main obstacles. Productive collaboration between the public and the private sector is the key in this process. To ensure that policy reforms truly reflect and address private sector concerns, intensive and direct involvement of companies and investors in this process is critical. Each technical committee therefore consists of private sector and government agencies ' representatives. The Board ' s mandate is to make specific recommendations to the Council of Ministers who will take the required political decisions to remove the obstacles impeding the improvement of the investment climate.

General Incentive Regime

The principal purpose of incentives is to eliminate inter - regional imbalances, facilitate a larger capital contribution by the public and support activities that have a positive effect on employment. Furthermore, inflow of foreign currency and advanced technology and improvement of international competitiveness are also aimed without breaching international obligations.

Incentives for investments to be realized in the priority and least developed regions simply aim to increase employment in these regions through tax exemptions and other financial incentives.

Major Incentive Instruments

Exemption from customs duties and fund levies: This incentive measure ensures that the imported machinery and equipment for investment purposes are exempted from customs duties and fund levies. Such machinery and equipment must be included in the imported machinery and equipment list to be approved by General Directorate of Foreign Investment ( GDFI ). Raw materials and intermediate goods cannot be imported under this provision.

Value Added Tax ( VAT ) exemption: The VAT, payable for both imported and locally purchased machinery and equipment, is exempted under this incentive measure. Such machinery and equipment must be included in the import machinery list and approved by GDFI. The locally purchased machinery and equipment should be included in the locally procured machinery list and approved by the GDFI.

Credit Allocation from the Budget: Credits can be allocated from the budget to the following investments: Research and Development ( R&D ) investments, Technopark Establishment, Investments in Technoparks, Investments for Environmental Protection, Priority Technological Investments which are determined by the Supreme Council of Science and Technology or Scientific and Technological Research Council of Turkey ( TUBI - TAK ). ln addition to the above investments to be moved to provinces specified for regional development and investments to be moved to priority regions and other organized zones from developed regions and manufacturing, agro - industry and mining investments to be realized in the priority regions in compliance with the legislation on State Subsidies for Investments.

Turkey has three types of regions with regard to implementation of incentive regime

Developed regions - the Provincial boundaries of Istanbul and Kocaeli, and the municipality boundaries of Ankara, Izmir, Bursa, Adana and Antalya.

Priority Turkish regions - 50 provinces determined by the Council of Ministers; Adyaman, Aksaray, Amasya, Ardahan, Artvin, Batman, Bartn, Bayburt, Bingl, Bitlis, anakkale ( only the provinces of Bozcaada and Gkeada ) orum, Erzincan, Erzurum, Giresun, Hakkari, Karabk, Karaman, Kars, Kastamonu, Kilis, Malatya, Mardin, Ordu, Osmaniye, Rize, Samsun, Siirt, Sinop, Sivas, Tokat, Trabzon, Tunceli, Van, Yozgat and Zonguldak.

Normal regions - the remaining provinces.

Eligibility criteria for the incentives

The minimum amount of fixed investment must be YTL 400. 000 for developed regions and normal regions, YTL 200. 000 for priority regions.

Incentives for the Least Developed Regions

According to the Law for the Encouragement of Investments and Employment, No. 5084, dated February 6, 2004, and Law on Amendments of the Law No. 5084, No. 5350, dated May 12, 2005 additional incentives are granted to the investors that invest in the following provinces, which have per capita income equal to or less than $ 1, 500 or the provinces with a minus index value on the socio - economic development ranking: Sinop, Giresun, Amasya, Malatya, Sivas, Tokat, Afyon, Erzincan, Osmaniye, Dzce, Siirt, Ordu, Erzurum, Batman, Bayburt, Mardin, Aksaray, Adyaman, Kars, Van, Yozgat, Ardahan, Hakkari, Bingl, Bitlis, Artvin, orum, Karaman, Kastamonu, Rize, Tunceli, Kilis, Ktahya, Trabzon.

Additional incentives granted in the aforementioned provinces are as follows:

Incentive on witholding of income tax,

Insurance premium incentive for employers,

Energy support,

Free land allocation.