Legal uncertainties biggest concern for foreign investors

Legal uncertainties biggest concern for foreign investors

ISTANBUL – Hürriyet Daily News
Legal uncertainties biggest concern for foreign investors

‘There is a rush and in that rush sometimes the needs and dynamics of the sector are neglected. When a problem emerges, we again rush to fix it, and this disrupts the systematics,’ lawyer Herdem says. DAILY NEWS photos, Hasan ALTINIŞIK

Foreign investors see huge opportunities in Turkey, but legal uncertainties remain their most important concern, according to a lawyer working with investors from abroad. 

“The problem is that the changes are too fast. Anything can happen at any time in some commission in Parliament. So investors are confused on the issue of the legal framework, wondering about what kind of new changes they will again be facing,” Şafak Herdem told the Hürriyet Daily News in a recent interview.

What is the current analysis of foreign investors about Turkey?

It is currently indexed to the elections. They are questioning whether the upcoming elections will affect stability or not. There is a group that continues to see Turkey as a land of growing opportunities. These are mainly made up of investment funds. Those who are willing to fund big infrastructure and energy projects seem not to be affected by the prospect of the upcoming elections.

Elections affect all countries, but is there any particular aspect to Turkey this time?

Some of the anxiety stems from the Gezi events [anti-government demonstrations initially sparked by an environmentalist protest]. Some, especially investors in the U.K., believe the Gezi events will flare up and play an important role in the upcoming elections.

What is your take on the effects of the Gezi events?

We don’t believe investment opportunities will be affected. Not much will change on the economic front. The state has aggressive policies in strategic sectors and encourages development everywhere. We have tremendous difficulty trying to follow the legislation. Look at how long it took to construct the Bolu Tunnel [on the road between Istanbul and Ankara] and look how long it took to construct the Marmaray Tunnel. There is a fast implementation of policies in sectors like telecommunications and transport. The state is very fast in taking regulatory decisions and implementing them. In the face of such huge potential I therefore think the effects of the Gezi events will be limited to the political domain and won’t have any influence on the economy.

You said that you have difficulty following legislation. There is an impression that the government is rushing to enact regulation and then constantly makes changes on the road, instead of coming up with an all-encompassing regulation based on intensive preparation.

There are sectors, like education, where there is constant change. There is a hierarchy in the justice system, where there are laws, acts, statutes, regulations, and bylaws. However, circulars and notifications have started to gain unbelievable importance because they have become the “ABC” of practical life. In 2012, the prime ministry issued a circular saying that everything pertaining to land under public economic enterprises would depend on the authorization of the prime ministry. This led to the exit of foreign investors from the mining sector. This is because, looking from the legal point of view, they do not know the prime ministry’s criteria; and once some applications started being turned down, foreign investors started pulling out.

So there is a problem with the legal infrastructure.

The problem is that the changes are too fast. There is a perception of “midnight ruling” [laws passed by Parliament at night]. Anything can happen at any time in some commission in Parliament. There is a rush and in that rush sometimes the needs and dynamics of the sector are neglected. We keep having omnibus laws. On the one hand we want to develop fast, so enact a regulation. When a problem emerges, we again rush to fix it, and this disrupts the systematics. So, investors are confused on the issue of the legal framework. They wonder about what kind of new changes they will yet again be facing. No matter what you do to minimize the risks, there is not much you can do when everything changes too fast, all of a sudden.

So perhaps Turkey is becoming a victim of its rush for fast growth?

Let’s say that this creates uncertainty in investors. Fast legal amendments don’t necessarily contribute to legal stability. What is important is to establish a system that has well-established judicial rulings and implementations. Too much interference won’t fix the legal system. The volatility in the judicial framework stands out as an important risk factor for foreign investors. The government should look at it also from the perspective of foreign investors. You cannot simply handle this issue by revising the foreign investment law or by lifting some financial burdens from investors.

What is the main factor that makes Turkey attractive for foreigners, apart its growth potential?

Its location, and the perception that investment in Turkey will not stay limited to Turkey but will also go beyond; to Russia, to the Middle East, and to Central Asia. The perception that Turkey is a hub for investment has now taken root.

What makes you say that?

The structuring of the companies we work for. They start with a simple branch or representation and become “anonim şirket,” and then expand to Russia, or to the Gulf region.
What is it that the sectors’ foreign investors are eyeing?

The sectors that are newly regulated - food, education, and health - will be the sectors on the rise, especially due to the population factor. We have a young population, and this brings with it an economic potential. Big infrastructure projects, as well as energy projects, are also attractive for foreign investors. There is constant questioning about how they can enter the Turkish market. Foreign investors are confident that stability will continue. The only fragile point is the legal uncertainties that create the potential for risk.

It seems that we still need to go a long way to understanding the mentality of foreign investors.

We need to see more foreign investors in Anatolia. Currently, what we call the Anatolian tigers, the industrialists in Anatolia, have certain concerns and doubts about foreign investors. They keep asking, “What are these funds? Why have they come to me? Why should I sell my company to them?” These are usually companies run by families, with children who have graduated from foundation universities. That creates a different dynamic. All right, they do big business, in Gaziantep and Kayseri they are very successful. But when a foreign investor approaches them for a partnership they enter into a cultural questioning. They need to get rid of that. They need to be told about it. The mentality is, “If the Americans are coming, they are coming to exploit us.” But they need to be more courageous and more entrepreneurial. Our problem is a lack of self-confidence. We are not aware of our potential and therefore we don’t promote it.

So you claim that the Anatolian tigers have a problem of globalizing.

Exactly. Actually, they even have a problem coming to Istanbul. The problem is even there when they go beyond their native city - they grow but they do not develop.

Who is Şafak Herdem

A lawyer and managing partner of HERDEM & Co, Şafak Herdem has a broad legal background in corporate and business law in the global market. His experience includes representing clients in dispute where the International Chamber of Commerce Arbitration Rules are applied.

He worked in Tüprag, a subsidiary of the Eldorado Gold Corporation (Canadian Gold Mining Company), from 2005 to 2006 and in the GBS Law Firm between 2007 and 2008. 

His certificates include advanced training in comparative lawyer and advocacy skills (William Mitchell College of Law), the American Criminal Law (Kansas University School of Law), as well as money laundering in European Union law.

He is a member of the Istanbul Bar Association, the International Bar Association and the American Society of International Law. Among the list of his memberships and listings is also the European Business Aviation Association and the American Wind Energy Association.