Business in Turkey

Business investment refers to the commitment of funds to a business either in an active capacity or as a passive investor. An active investor would provide seed capital or startup capital, pre-IPO funds or franchising finance. However, most people seek business investment opportunities as passive investors, purchasing stocks and bonds. Business investment decisions require a risk-return tradeoff analysis.

Business Investment: Returns

Business investment opportunities are largely contingent on the prospective rate of return or profit of a proposed business venture. The return on investment (ROI) is the ratio of money gained to the amount of funds invested. In case of passive investing (into shares and bonds), the ROI (or rate of return) includes a stream of income (dividends for shares and interest for bonds) as well as capital gains (appreciation in share or bond prices over time). The rate of return from a business investment is more than a function of the expected cash flows and capital appreciation. Since inflation erodes the value of money, it is important to consider the time value of money. The annual percentage return realized on an investment and adjusted for changes in prices on account of inflation or other external effects is known as the real rate of return.

Creation of Business Investment Opportunities

At the international level, the World Bank Group lends around $15-20 billion every year to finance developmental projects in the third world countries. The International Bank for Rural Development (IBRD), International Finance Corporation (IFC) and Multilateral Investment Guarantee Agency (MIGA) offer specific products, such as bonds, loans and guarantees, to potential investors for financing development in the emerging and underdeveloped economies. The IFC aids small and medium enterprises (SMEs) in the developing world by providing capital, equipment, technical assistance and guidance to fund these projects.

The European Bank for Reconstruction and Development (EBRD) and European Investment Bank (EIB) promote the basic and infrastructural sectors in Southeastern Europe in countries like Bosnia and Serbia. The Clean Development Mechanism (CDM) of the Kyoto Protocol, which has been put into operation by the United Nations Conference on Trade and Development (UNCTAD) in the developing countries, also promotes a greener and cleaner world for sustainable development.

Turkey became a Important Business Investment Destination

Turkey offers excellent business investment opportunities. The Turkish government can be credited with the surge in investment opportunities in the country. Liberalization of the economy since 2001 has opened up sectors such as food processing, chemicals, automobiles, oil and natural gas and telecommunications. Besides, a slew of incentives are being offered to promote investments in the country, including the relaxation of norms for external borrowing, capital goods imports and customs duty reduction and tax deductions for certain sectors.

Investment opportunities in the infrastructural sector, such as roads, ports and civil aviation, are huge in countries like Turkey, as is in the power, coal and renewable energy sectors. With the government allowing most of the Foreign Direct Investment (FDI) via the automatic route in these sectors, business investment opportunities have emerged enabling foreign investors to garnering good returns. An FDI cap in the telecommunications sector has been raised to 100% in case of Internet service providers according to the latest investment policy followed by the Turkish government.

The development of the non-oil sector in the Gulf countries entails attractive inward investments. Countries such as Bahrain have various sectors that are attractive for business investment. These include the finance industry, manufacturing and tourism. The government of Bahrain has been actively involved with the private sector for creating investment avenues for investors from across the world. Most of the GCC countries that attract business investment offer a tax-free environment. Investors are permitted to own 100% of the enterprise and there are no restrictions on the movement of capital.

Investing & Investments

Investment refers to the concept of deferred consumption which may involve purchasing an asset, giving a loan or keeping funds in a bank account with the aim of generating future returns. Various investment options are available, with differing risk-reward trade offs. An understanding of the core concepts and a thorough analysis of the options can help an investor create a portfolio that maximizes returns while minimizing risk exposure.

Types of Investments

The various types of investment are:

Cash investments: These include bank savings accounts, certificates of deposit (CDs) and treasury bills. These investments generally pay a low rate of interest and are risky options in periods of inflation.

Debt securities: This form of investment provides returns in the form of fixed periodic payments and possible capital appreciation at maturity. It is a safer and more ‘risk-free’ investment tool than equities. However, the returns are also generally lower than other securities.

Stocks: Buying stocks (also called equities) makes you a part-owner of the business and entitles you to a share of the profits generated by the company. Stocks are more volatile and therefore riskier than bonds.

Mutual funds: This is a collection of stocks and bonds and involves paying a professional manager to select specific securities for you. The prime advantage of this investment is that you do not have to be involved in tracking the investment. There may be bond, stock- or index-based mutual funds.

Derivatives: These are financial contracts which are derived from the value of the underlying assets, such as equities, commodities and bonds, on which they are based. Derivatives can be in the form of futures, options and swaps. Derivatives are used to minimize the risk of loss resulting from fluctuations in the value of the underlying assets (hedging).

Commodities: The items that are traded on the commodities market are typically agricultural and industrial commodities. These items need to be standardized and must be in a basic, raw and unprocessed state. The trading of commodities is associated with high risk and high reward. Trading in commodity futures requires specialized knowledge and in-depth analysis.

Real estate: This investment involves a long-term commitment of funds and gains that are generated through rental or lease income as well as capital appreciation. This includes investments into residential or commercial properties.