Administrative Problems

The presence of administrative problems can probably best be documented by the principle decision to adopt "The Program to Improve the Investment Environment in Turkey" by the Turkish government. This detailed program entails various administrative problems for foreign investors and suggestions for their solutions. One of these administrative problems, according to this report, is long and repetitive bureaucratic operations.

For example, if a foreign investor wants to establish a standard company in Turkey, he has to go through 19 stages, which last at least 2.5 months. According to the same report, the solution is nothing but the abolishment of unnecessary and repetitive bureaucratic operations. Another section in the same report points out that if the same foreign investor wants to acquire land belonging to Treasury and to turn it into land where investment is possible, he has to take receive lots of approvals and investment permissions from the state officials, which last at least 2 years.

If a foreign investor can set up a company in 2.5 months and has to wait for 2 years for matters about investment place, then he will refrain from investing in Turkey, since there are countries presenting the same facilities with fewer requirements. The report mentioned in the last two paragraphs also states that rights for intellectual property (RIP) are not being protected sufficiently. The reasons for this insufficient protection are loopholes in the legal system concerning RIP and long bureaucratic operations.

What is even more terrifying is that the same report suggests that laws and implementations violating the article no. 39/3 of "Agreement on Trade-Related Aspects of Intellectual Property Rights" (TRIPS). The terrifying aspect is not the article itself but the fact that the Turkish government is violating an agreement to which it is a party. A third administrative problem is not-well functioning legal system concerning FDI in Turkey. The first reason of this situation is the not updated Turkish Law of Encouragement of Foreign Capital, which was passed in 1954.

Because of being not updated, it doesn't talk about instruments that are today considered as "encouragement", such as investment discounts or loans. Economists argue that the makers of this law probably thought that passing a law specifically about foreign capital would mean an encouragement for foreign capital. As a second reason, one can show the general malfunctioning in Turkish judiciary, which affects the legal system concerning FDI as well. Corruption, in addition to being regarded as an economic problem, can as well be regarded as an administrative problem, too.

The reason is that state officials or officials of organizations with close relations to states can also be involved in corruption. Because it has been seen that this probability has come true in various parts of the world, Transparency International has developed "Corruption Perceptions Index" (CPI), which tries to measure the misuse of public power for private benefits. The scores are on a 10 point scale and it's considered that in the government and public administration of any country receiving a score of less than 5, there is a high level of corruption.

Turkey's score in CPI is unfortunately 3. 6. In a country with a high level of corruption, there will be less FDI. Thus, corruption becomes a reason for Turkey's failure to attract the desired level of FDI. To summarize, one can say that a number of problems, such as long and repetitive bureaucratic operations, corruption, insufficient property rights and not well functioning legal framework are the main administrative problems that prevent Turkey to attract more FDI.

They are by no doubt serious problems, because the importance of FDI in the development of a developing country can not be denied. (Indeed, most developing countries, unlike in the past, prefer to realize the investments they wish with foreign capital now. ) Thus, it is a must for Turkey to continue the efforts to persuade more foreigners to invest in Turkey. In the final section of this paper, I would like to express my thoughts about which actions could make Turkish authorities' efforts easier. Conclusion: How can Turkey attract more FDI?

If Turkey wants to persuade more foreign economic agents to invest in Turkey, it has to reduce the current high inflation. The reason is that the entrepreneurs will have to provide inputs at higher prices than the prices necessary to protect purchasing power, if they want to go on with production. Thus, they will have to sell their goods at higher prices, compared to prices of other countries. When this occurs, the foreign entrepreneur will be able to sell his goods only in Turkey and his business will not expand beyond a certain extent.

Seeing these, the investor will probably prefer initially to invest in countries other than Turkey, provided that high inflation exists in the future. Another action Turkey must take is to get rid of corruption. A number of steps have been taken in order to reach this goal, such as relatively quick legal action against people who are accused or convicted of corruption. However, a lot of things also need to be done, such as the reorganization of the salaries of public personnel and the establishment of a new evaluation system of this personnel's performance.

This will not only prevent corruption, but also will make it impossible to repeat the mistakes in the past. Turkey must, in addition, must urgently reconsider the bureaucratic operations it requires from foreign investors eliminate the repetitive and unnecessary operations. This will be mutually beneficial. The state will have relieved itself from checking whether unnecessary procedures have been completed, whereas the entrepreneur will be able to concentrate on his future investment and possible success more.