Turkey’s Fast Track to Digitisation
by Helen Sanders, Editor
With its strategic location between Europe, Asia and Middle East, Turkey has been a vital link in cross-continental trade routes and a melting pot of cultures for centuries. Increasingly, however, rather than passing through Turkey, corporations are giving the country a more prominent role as part of their growth strategy.
Since the start of this century, Turkey has experienced profound institutional and macroeconomic change, to become the world’s 17th largest economy. Turkey’s potential has in many ways been enhanced by the global financial crisis. Although its economy was hit by the crisis, the country rebounded quickly, and although growth since then has been steady rather than meteoric, with an average of 6% growth from 2013-2013 and a forecast growth rate of around 3.5% over the next five years (source: IMF), opportunities in Turkey are still more attractive than in many European states, particularly given that the Turkish lira (TRY) is fully convertible. With a large population, impressive GDP growth, structural reforms and a decline in poverty, therefore, Turkey has become an increasingly attractive destination for corporations of all sizes and industries.
Investment in Turkey
Although the geopolitical climate in Turkey has become more volatile in recent years, investor and consumer confidence in Turkey has largely remained steady. Ozlen Hudayioglu Gul, Cash Management Business Development Senior Manager, TEB (a strategic partner of BNP Paribas) explains,
“Foreign direct investment (FDI) continues to grow in Turkey, albeit not at the same rate as in 2011, with particular interest from companies in sectors such as energy, automotive, financial services, and information technology, amongst others.”
In addition to large multinationals, mid-cap and small to medium-sized enterprises recognise the strategic importance of Turkey as part of their international growth strategy. Sinem Saruhan, Cash Management Sales Manager, MNCs, TEB continues,
“In most cases, multinational corporations invest in Turkey through mergers and acquisitions of local firms. Treasurers are typically seeking to integrate cash and treasury operations and liquidity into group structures wherever possible, and align policies and processes with other regions.”
Taking an integrated approach
The digital agenda is at the forefront of development and enterprise in Turkey, reflecting the Turkish government’s commitment to reforming the economic fundamentals of the country to encourage long-term sustainable growth and investor confidence, but also to promoting efficient, transparent and automated financial transactions. However, one of the key challenges that companies doing business in Turkey experience is that although TRY is a tradable currency, cross-border cash pooling is subject to tax restrictions which makes it prohibitive. Notional pooling is not permitted. Consequently liquidity management is often a major issue that corporations of all sizes need to consider when launching or expanding business operations in Turkey. As Sinem Saruhan, TEB discusses,
“Before the global financial crisis, Turkey was a relatively small market for many multinational corporations; however, since then, Turkey has become more strategically important. Consequently, as the volume of business in Turkey has increased, we have seen a move towards treasury centralisation, but this can be challenging in Turkey given that the tax implications of cash pooling make this prohibitive. We provide technology solutions to provide complete visibility and monitoring of cash, both domestically and internationally. In addition, treasurers rely on our advisory services to find ways to optimise liquidity and risk management whilst respecting local conditions.”
It is not only foreign multinationals that need to consider the cash and treasury management implications of international expansion. Ozlen Hudayioglu Gul, TEB continues,
“Turkish corporations are also seeking to expand internationally, particularly into Africa, Middle East and in some cases, Central & Eastern Europe, which brings a broad range of cash and treasury management challenges given the diverse infrastructure, regulation, payment and collection methods and cultures that exist across these regions. As part of the BNP Paribas group, we can offer integrated solutions that provide regional and global visibility and control over cash and risk, as well as support for local payments, collections and cash management across our global footprint.”
Managing foreign exchange risk is also a significant concern for many organisations, particularly those that have operated predominantly in Europe in the past. However, the techniques available to hedge this risk are common to those in other regions, so TRY can typically be managed as part of a foreign exchange risk management strategy. Sinem Saruhan, TEB continues,
“Given the volatile market conditions in Turkey, such as FX rates, we support clients of all sizes with innovative hedging techniques to mitigate risk in incoming and outgoing foreign currency flows; however, as in all areas of cash and treasury management, we are responsive to the unique nature of each client’s requirements.”