Economic data for 2014 showed that foreign direct investment in Turkey is on the decline and the country’s own investors are increasingly doing business abroad. Regional conflicts and economic decisions in the United States are also affecting investor confidence. CCTV’s Natalie Carey reported the story from Istanbul.
Turkey needs more investment if it has any chance of curbing rising unemployment and falling growth targets.
Turkey sees drop in foreign investment, but low oil prices may be a boostEconomic data for 2014 showed that foreign direct investment in Turkey is on the decline and the country’s own investors are increasingly doing business abroad. Regional conflicts and economic decisions in the United States are also affecting investor confidence. CCTV’s Natalie Carey reported the story from Istanbul.
Turkey’s economy is estimated to have grown about 3 percent in 2014 to just over $880 billion with a year-end account deficit of $45 billion.
It’s a growth model that depends on other people’s money,” Murat Ucer and adviser for Turkey with business intelligence firm GlobalSource said.
“Basically we have a current account deficit, we have a savings shortfall. In order to grow, we have to import savings of other people,” he said.
However, this has not happened at a level pleasing enough to the central bank. Foreign investment in the first nine months of 2014 stood at just over $9 billion, a shortfall from the $12.7 billion reached in 2013 and the $13.2 billion from 2012.
Additionally, inflation reached more than 8 percent last year while the Turkish Lira lost over 15 percent against the dollar. Moreover, the foreign direct investment is likely to slow further amid expectations of rate hikes in the United States.
One silver lining for the Turkish economy is the price of oil which is now hovering around $50 a barrel, the lowest levels in five years. This is good news for Turkey, as the country is dependent on energy imports.
“If today’s oil prices continue in 2015, our inflation will decrease to 5 percent from what is now 8 percent,” Mehmet Simsek, the Turkish finance minister said.
Economists have said that every $10 drop in the oil price improves Turkey’s mounting account deficit by $4.5 billion.
“When we see the Fed increasing its rate, we will see some dollars going back to the U.S.,” Murat Sagman, managing director of Notus Asset Management said. “Of course Turkey finances growth through investment from abroad…but the oil going down is better for the growth. The oil going down is better for the current account deficit. Its why, what the Fed will do will of course affect Turkey, but what we see with the oil, it could be a buffer for what the Fed is doing.”
Turkey’s Central Bank sees this vulnerability as temporary.