Q What are the main reasons you, as an American investor, decided to invest in Turkey? What were the big challenges in getting the free zone in place? Who was and is your role model in terms of how to set up the services and management in the free zone?
A In the 1980s I was working on the construction of an industrial city in Saudi Arabia. During one of my trips, in 1984, on my way back to the US, I stopped over in Turkey and inquired as to whether we could do something similar there. At the time Turkey was working on the free zone programme. I had seen how industrialisation created jobs in other places and I told the government I would be interested in developing the Aegean Free Zone [AFZ] in Izmir. This action on my part was mostly motivated by my desire to contribute to the development of my country of origin.
The AFZ that I developed and am operating was the first privately developed free zone as well as the first privately developed industrial park in Turkey. So we had to create new rules and regulations for it. At the time, prime minister Turgut Özal was introducing privatisation in Turkey, so the government was very accommodating and forward looking.
With my vast experience over the years in the development and operation of industrial parks in the international arena, I organised the infrastructure, services and management in the AFZ.
Q What is the Aegean Free Zone Development and Operating Company [ESBAS]’s strategy for attracting foreign direct investment? Which sectors are being targeted most heavily and why? And which source countries are being wooed most actively?
A At the AFZ, we have the capacity to create employment for some 30,000-35,000 people. This indeed would be a very important employment base anywhere in the world. The AFZ has the management, the necessary infrastructure and the operational capabilities to service high-tech manufacturing companies employing many workers.
Additionally, social infrastructure – including the food-serving capability, child care centre, medical facilities, sports facilities and the very pleasantly landscaped grounds – all help create a satisfactory working environment for workers and management.
Electronics, automotive parts, machinery, textiles/ garments, food packaging, IT and aviation are our main target sectors. Until now we have been able to attract internationally known companies, including Eldor Electronics from Italy, Delphi Packard and Delphi Diesel from the US, the UK’s McCormick, Hugo Boss and PFW from Germany and France’s Lisi, among others, in the manufacturing sector.
The AFZ is a gateway to the Middle East, central Asia and eastern Europe. Hence, companies from around the world, including US companies, planning to do business in these regions find the AFZ a good place to base their operations.
Q Do you expect this strategy to change in the near future in light of changes to Turkey’s investment laws?
A In February 2004, certain tax advantages of Turkey’s free zones were changed through law 5084. This has had an adverse effect on foreign investment in free zones as well as in the rest of the country with a considerable decrease in grassroots FDI. We are making every effort with the government to rectify this in order to show that Turkey is a stable place for investment with a government that honours contracts. The prime minister, after visiting the zone a couple years ago, promised that corrections would be made. We are hopeful and waiting.
Q What role has ESBAS played in the surrounding region’s development? On a broader scale, what about Turkey’s development? And to what extent will it continue to play a role?
A ESBAS and the AFZ are already being recognised as business models for developing countries. With 15 successful years behind it, the AFZ is an inspiring enterprise that demonstrates the vast potential for initiatives that equally benefit both employees and the local environment as much as investors.
The sub-municipality of Gaziemir, where the zone is located in Izmir, has experienced huge growth in parallel with ESBAS’ development. There are now three major supermarkets and numerous car showrooms. The one-storey village-type houses have been replaced by eight-storey mid-rise apartment buildings. There are new schools, medical facilities, parks and other amenities.
About half of the zone’s worker population lives in Gaziemir. When one considers that today’s workers earn some $75m per year, the impact of this income is very important on the surrounding region. When you add the value of goods and services needed for the zone from the region, you can see the economic importance the zone has for the region and for Turkey in its development and sustainability.The training that comes along with working for hi-tech companies also helps Turkey’s development.
We hope we can progress to our ultimate capacity of 35,000 workers soon. With this, the impact of incomes, local purchase of goods and services will surpass hundreds of millions of dollars and play a very important role in the lives of the region’s population.
The AFZ and ESBAS have demonstrated that the private sector can be very effective in developing and operating industrial parks. Turkey has since passed laws allowing the creation of free zones and industrial estates by the private sector.
Q Who do you see as ESBAS’ key competitors, both inside and outside of Turkey in the pursuit of foreign investment ?
AAs a developing country that will hopefully enter the EU in 10-15 years, Turkey needs to attract FDI for several reasons, one of which is to create employment. So it needs to provide numerous incentives – tax and otherwise. These incentives are necessary to attract investment. We observe similar incentives in other parts of the EU such as Portugal, Madeira and Malta as well as Poland, Hungary, Romania and even Germany.
Furthermore, it is interesting that countries such as France, where unemployment was rising, were considering establishing in 2005 areas labelled ‘competition zones’ that have tax advantages and/or certain subsidies to attract and maintain investment. Therefore, it is natural that Turkey should continue providing incentives for investment in order to be competitive, and to show that it respects its commitments to FDI.
Dresden in Germany provides extensive investment incentives for hi-tech companies wishing to set up manufacturing facilities that create employment.
Consequently, one can see that Turkey and ESBAS have many competitors, not only in emerging markets but also in developed nations. We conduct road shows in Germany to encourage investment in Turkey, and the Germans put on road shows in Turkey to attract investment there. The world is changing rapidly.
Also there is the issue of China and India, which provide low-cost labour and a number of incentives for FDI. China is by far the champion country for attracting FDI, with India number two.
Q In your opinion, what are ESBAS’s competitive advantages for attracting investment compared with its competitors?
A The AFZ is primarily a modern industrial park where we provide high quality infrastructure in terms of utilities, roads and landscaping. In addition, we provide companies with other services such as food and catering, feeding some 14,000 people a day. Since most of our large companies work three shifts a day, these services are provided on a 24-hour basis.
We also have a child care centre where zone employees can drop their children off in the morning and pick them up at the end of the day; the facility has the capacity to care for 150 children. We also provide zone employees with a number of outdoor and indoor sports and recreation facilities, and a medical centre staffed by three doctors, a primary care physician, a specialist for emergency care, a general practitioner and a dentist.
As indicated earlier, the AFZ is a modern industrial park similar to those in the US and Europe. Therefore, AFZ is an attractive place for European and US companies to come and set up shop, ensuring them the same standards of facilities and services in their own countries at very competitive prices. That is why during the 1990s, the AFZ has attracted some 10% of all FDI into Turkey and more than 50% of FDI relating to exports from Turkey. Although the absolute numbers are small compared to those of other European countries such as Poland and Hungary, it is significant that the AFZ was able to attract a proportionately large percentage of foreign and Turkish investment.
We should also remember that the Turkish Free Zone Law and the workings of ESBAS minimise the bureaucracy, making it very easy for companies to get established in the AFZ and start operations in an expeditious manner.
Q How many companies operate in ESBAS? How much more capacity do you have for growth? How much investment did it attract last year? How much has it attracted since its inception?
A Currently, some 230 local and 70 foreign companies are operating at the zone, employing almost 15,000 people. The stated goal of the AFZ is to be operating at full capacity by 2012 when there will be up to 35,000 employees and 500 companies. Since its inception it has attracted almost $500m of investment.
Q What are the biggest challenges facing free zones around the world and how can they be overcome?
A The fact that the EU started accession negotiations with Turkey is a positive development. This will give Turkey an opportunity to upgrade its laws, rules and regulations to western standards and criteria, enabling Turkey to be up to par with the western world. Such an event would thus enhance Turkey’s desirability for investment and increase the credibility of Turkey as a stable investment milieu. This is an important challenge.
Another important challenge, for free zones in general, is the ability to observe the rules of fair competition within the country as well as internationally. Manufacturing free zones will need to transform smoothly into export processing zones and eventually into exemplary modern industrial parks. This will ensure the continuity of manufacturing thus giving a sustainable employment base to the regions and countries the parks serve.