Can Teoman
Jan 25 2018

Exodus: A new record as 66 international brands leave Turkey

When the Turkish government blocked access to YouTube and Twitter in the wake of the widespread 2013 Gezi Park protests and a corruption scandal months later, then U.S. Assistant Secretary of State for Public Affairs Douglas Frantz held a remarkable meeting with a number of Turkish journalists.

"I think that (censorship) is damaging to the Turkish democracy … it’s damaging to Turkey’s image in the world. And the image of Turkey, just like the image of the United States, is a valuable commodity," Frantz said.

."Outside investors and Turks themselves who are investing, who are going to make this economy grow, make it get healthier even, improve the lives of everyday Turks, they want to know that the rule of law exists here, that leaders don’t choose which laws they choose to follow. And the most important way they can know that is if you have an open press that serves as a check on the government," he said.

"I think that some of the issues I’ve heard raised in the last couple days when I’ve had meetings here in Turkey are that there are concerns about whether checks remain on the government in Turkey. Well, the press is one important check that should be, should be, outside the control of the government."

Even though Frantz only really said, “be careful, do not mess with the democratic system and the rule of law in your country”, the Turkish government reacted furiously. Journalist Kadri Gürsel, who reported the meeting, was persecuted both in the media and on social media.

Over the last four years, Frantz's name has been forgotten in Turkey, but the financial effects of his warnings are widening. Foreign Direct Investment (FDI) inflows to Turkey have decreased rapidly and dozens of foreign companies have shut down their operations. According to Turkish central bank data, the FDI dropped by $1.8 billion in 2017.

FDI, according to official figures:

YEAR

FDI (Excluding Real Estate Purchases by Foreigners) ($ Million)

2004

1092

2005

8134

2006

16982

2007

18394

2008

14713

2009

6184

2010

6221

2011

14145

2012

10128

2013

9322

2014

8370

2015

11710

2016

6913

2017

(Jan-Nov)

4811

Source: Central Bank Balance of Payments Statistics

The above table shows that the FDI inflows - the kind of foreign investment that creates employment – have rapidly declined. In 2017, FDI plummeted to $4.8 billion, its lowest level since 2004. Among other factors, Turkey's international policies and deteriorating relationship with the Western world are no doubt playing a significant role. Particularly in the last year, as Turkey's relations with the United States and Germany entered a new low, FDI followed.

Foreign Direct Investments from European countries plunged:

COUNTRY

2016 (FDI $ Million)

2017(FDI $ Million)

DIFFERENCE

($ Million)

United Kingdom

974

161

-813

Russia

723

2

-721

Qatar

420

94

-326

Switzerland

339

44

-295

Luxembourg

335

99

-236

Germany

440

235

-205

USA

338

134

-204

Japan

454

271

-183

Azerbaijan

661

496

-165

Lebanon

152

2

-150

Austria

345

299

-46

Kuwait

73

47

-26

Saudi Arabia

21

7

-14

United Arab Emirates

26

15

-11

Greece

0

0

0

France

90

104

14

Italy

87

115

28

Belgium

13

226

213

Netherlands

1024

1597

573

Spain

318

1005

687

Source: Ministry of Economy

According to these numbers, FDI fell in 2017, not only from Western countries, but Russian, Qatari and other Arab countries' investment in Turkey tumbled as well. Of course, these investors look at the same criteria that their Western counterparts do. Hence 14 of Turkey's 20 most significant investors reduced their investments in Turkey in 2017.

Central bank data shows that FDI outflows also set a record. In 2017, FDI outflows surpassed a quarter of total FDI inflows for the first time:

 

YEAR

FDI INFLOWS

FDI OUTFLOWS

%

2003

696

8

1.15

2004

1190

98

8.24

2005

8535

401

4.70

2006

17639

657

3.72

2007

19137

743

3.88

2008

14748

35

0.24

2009

6266

82

1.31

2010

6256

35

0.56

2011

16136

1991

12.34

2012

10761

633

5.88

2013

9890

568

5.74

2014

8631

261

3.02

2015

12074

364

3.01

2016

7534

621

8.24

2017 (Jan-Nov)

6608

1797

27.19

 

Many international companies are leaving Turkey. In the last few weeks, the credit rating agency Fitch, Canadian technology company SOTA, and Italian restaurant chain Carluccio's have decided to withdraw from the Turkish market. There are media reports that department store chains including H & M, Zara and Mango are planning to downgrade their Turkish operations.

Why are these companies leaving Turkey? Each has a different story. Some cannot achieve their growth goals, some are worried about the volatility of exchange rates, and some blame unfair competition.

Susan Docherty, CEO of Canyon Ranch, spoke candidly about her reasons for closing her hotel in Turkey last year said:

"I need to be honest with you, my heart cries for the Turkish people. I spent a lot of time in my first two years in this role travelling to Turkey, and it just breaks your heart to see what’s going on in the country right now. The location is beautiful, on the edge of the Aegean Sea overlooking the Greek isles, but with everything happening there, the tourism and travel industry in Turkey has received a significant blow."

The tourism sector is not the only sector losing foreign investors, some of the companies that have left Turkey in recent years include:

Brands