A Global Outlook to Foreign Direct Investments In Turkey

Flows In respect of global investment flows, a significant slowdown can be observed between 2000- 2003. Global foreign direct investment flows declined sharply in 2001. Inflows fell by 45 percent and outflows by 50 percent. This reversal -after a steady growth since 1991 and large rises in 1999 and 2000- reflects two factors: the slowing of economic activity in major industrial economies and the sharp decrease in their stock market activity. These combined to slow down new international investments, particularly new cross-border mergers and acquisitions (M&As). 

FDI inflows fell by 45% in 2001, and by a further 20,5% in 2002. FDI inflows declined for the third consecutive year in 2003. No previous FDI dowturn in recent decades excended two years. Global FDI inflows fell by 12% in US$ terms in 2003, to an estimated US$ 575 bn. The global slowdown, political risks, stock market collapse and corporate scandal have all taken their toll on global foreign direct investment. The run-up to the war in Iraq, and the ensuing uncertainty, contributed to the overall decline in FDI in 2002. The high oil risk premium and the impact on overall confidence shaved about half a percentage point off world growth over the past year. It also reinforced the already existing investor caution around the globe. The impact of recent geopolitical uncertainty on FDI is in strong contrast to the negligible economic impact of the September 11th 2001 attacks on the US and subsequent fears of terrorism. The steep decline in global FDI in 2001 and the sharp global slowdown predated the events of September 11th. 

However, despite the likelihood of continuing international political tensions, FDI will recover strongly over the next five years, according to World Investment Prospects, annual analysis of global investment trends, published by the Economist Intelligence Unit.

Over the longer term, international production seems set to raise its share of global economic activity. The trend towards better business environments; regional integration; technological change; industrial consolidation; sharper global competition; and opportunities in emerging markets will all underpin renewed strong expansion in FDI. A recovery will begin during 2004, and accelerate from 2005. The growth in global FDI in 2004- 08 will be much stronger than the growth in world trade or GDP.  In today’s challenging economic environment all of the countries try to utilize domestic and international resources to maintain a sustainable growth. Since the developing countries can be identified as more capitalscarce compared to developed countries, they need more external resources to expand their productive capacity and maintain a sustainable growth. FDI is the most stable external resource among the other forms of capital flows. Unlike portfolio investments, investment in stock market and loans to the private sector, FDI involves direct equity ownership plus significant ownership control. FDI is more integrated with domestic economy as directly being a part of it and does not easily flee in a down turn of domestic market.

The impact of FDI on development and growth is not confined with the simply expansion of the production base and requires a more detailed look to understand its gains to the domestic economy. Briefly we can specify the contribution of FDI to domestic economy as follows: 

• Technology transfer	• Expansion of capital stock
• Creation of new jobs	• Raise the investment rate
• Management know- how	• Increased productivity
• Skilled labour	• Improved R&D activity
• Access to international production networks	• Intensified domestic market competition
• Access to major markets	• Improving exports in both volume and composition
• Modernisation of the national economy

One of the important aspects of the FDI is the export orientation. Export oriented FDI contributes to the domestic economy more than the domestic market oriented FDI by not only increasing the export volume but also establishing a more value added production base and transforming the export good composition. Technology diffusion and increase in the productivity will be enhanced by horizontal and vertical spill over effects. FDI contributes to the domestic economy by both increasing the competition among the domestic firms and transferring technology and/or know-how to the domestic firms by backward and forward linkages.