Navigating around business risks in Turkey Cagdas Cataltas Control Risks
Outline Investing in Turkey Benefits Sectors Risks Understanding the country and your partners Case studies
Investing in Turkey: Benefits Successful economic performance Stable politics Strong, young labour force Ideal location Domestic market is large and growing, and tends to spend Turkish diaspora/turkic connections Regional power
Investing in Turkey: Benefits Successful economic performance: Stable macro-economic policies Decreasing trend in inflation (6.5%) and increasing GDP (8.6%) Growth expected to decrease from 8.6% to 3.2% this year, but still strong regionally Stronger global business environment ranking (above Greece and Italy from 2012 to 2016) GDP per head expected to be USD16,000 in 2016 (just over 50% of EU27 average)
Investing in Turkey: Benefits Stable politics: AK Party in power since 2002, landslide victory in 2011 with 50% of votes; no real contenders for 2015 Labour force: Growth was 1% last year and forecast to be 0.9% from 2012 to 2016 Young, in 2016 still 21.5% will be under 15 Location: East and West Domestic market: Largest population (73m) in Europe after Russia (141m) and Germany (81m). Grows at a rate of 1.2%. Households tend to spend rather than save. Turkish diaspora/turkic connections: Azerbaijan, Kazakhstan, Kyrgyzstan, Turkmenistan, Uzbekistan, Cyprus, diaspora in Germany, the Netherlands, France and the UK. Regional power
Investing in Turkey: Additional benefits EU candidate; Customs Union member since 1996 Banking sector restructured after 2001 Second-biggest reformer among OECD countries in terms of restrictions on FDI since 1997 Privatisation continues: oil and gas, tea production, agriculture, postal services New developments in energy, especially renewables: new law 2010, incentives New commercial code in 2012 brings more transparency
Investing in Turkey: Sectors Manufacturing Finance Media Agriculture Services In million dollars
Investing in Turkey: Sectors FDI per sector 2010
Ease of Doing Business ranking World Bank 2012
Investing in Turkey: Risks Rain is the hazard Getting wet is the risk Having an umbrella is the key
Investing in Turkey: Risks Macro risks: Cross-cultural differences In-country differences PKK (outlawed Kurdish Workers Party) Corruption Illiquid market for senior personnel Weak Intellectual property rights Micro risks: Financial risks Links to outlawed groups Anti-Corruption Regulations (UK Bribery Act, US FCPA), KYC Compliance with rules and regulations
Investing in Turkey: Macro risks Cross-cultural differences: hierarchical culture; one-to-one relationships are important In-country differences: spans from Istanbul to Diyarbakir with different cultures and ways of doing business PKK: on-going problem, poses a security risk in Eastern Turkey Illiquid market for senior personnel: pool of highly skilled labour is not as scarce as in other emerging economies, but finding senior personnel can be a challenge Corruption/bribery Weak Intellectual property rights
Investing in Turkey: Macro risks
Investing in Turkey: Micro risks Financial: off-the book finances, black market (unregistered) market family businesses with patriarchal structures and opaque third party transactions Links to outlawed groups: PKK, others Corruption, UKBA/FCPA, Know Your Customer, Know Your Partner: necessary due diligence, especially for companies with UK or US presence Rules and regulations: the context, the compliance Sectoral risks: permits, regulations, specific risks
Case Study 1 A Singapore-based company interested in partnering with a Turkish firm in the agricultural sector asked Control Risks to conduct a market-entry report, including the key facts of the sector, regulatory aspects and benefits/risks of investing in the sector. The client also requested a background piece with regards to the potential Turkish partner. Control Risks Global Risk Analysis and Corporate Investigation teams collaborated on this task to highlight macro and micro risks of the company investing in the niche market of agriculture in question. Based on Control Risks report, the company decided to go ahead with the investment.
Case Study 2 An investment fund asked Control Risks to investigate a Turkish energy company. The client was considering to acquire the firm but was concerned about fines for insider trading levied against the target company s board members. The client wanted a precise understanding of the events that led to these fines and any further potential consequences. We found the situation was more serious than the client had initially perceived. Certain senior employees appeared to be unsuitable to sit on the board of the company that would ultimately result from the transaction. Furthermore, the Turkish firm had relationships with public officials in a neighbouring country that might be considered improper by Western regulators, posing an additional risk to the client. We gave the client a clear and detailed view of the risks involved. The client successfully made a deal that excluded the unsuitable individuals from the executive board of the new company.
Case Study 3 Control Risks was asked by an international media company to investigate fraud allegations in the company s Turkish branch. It came to the client s attention that there were allegations in the sector that their CEO in Turkey was channelling funds from the company and bribing key personnel at other firms to win business. We performed forensic investigation of internal and external communications of the Turkish branch and financial data. The results showed the type of gifts given to key personnel at other firms by the CEO, and proved he was channelling money from the company by subcontracting business to a third company owned by his mistress.
Case Study 4 A UK-based client informed Control Risks about its concerns that its long-term Turkish partner s financial standing had begun to deteriorate. In particular, the Turkish partner s separate business in Libya was affected during the recent turmoil and it was uncertain payment would be received from the transitional government for infrastructure work commissioned by the previous government. Control Risks made enquiries with market players in Libya and Turkey, and confirmed deterioration of the partner s financial standing. The Client was able to reposition within its partnership accordingly.
Corporate Investigations KYC check / Due diligence: Bank customers (private wealth clients, corporates, principals of corporates, political exposed person etc.); pre-ipo targets (for investment bank). Due diligence: business partners; investment targets Third-party screening: vendors and agents Pre-employment screening: Senior hires (e.g. critical function staff and senior managers) Investigations: fraud, corruption, kickbacks, conflict of interest Forensics: Accounting and IT Asset trace Whistle blowing hotline services Anti-bribery & corruption training Political Risk Security Risk Integrity Risk Global Risk Analysis Pre-investment threat/risk assessment PRIME and Country Risk Forecast subscriptions Crisis & Security Consulting Crisis response Crisis management & business continuity planning Crisis management training Security design, audit and review Embedded security management Executive protection & event security Security awareness training
Cagdas Cataltas Associate Consultant Cagdas.cataltas@controlrisks.com