Weekly actual topics in Azerbaijan (Dec.10-14)

Analysis Materials 18 December 2012 11:52 (UTC +04:00)

Turkey invests in future

Kocaeli province is among five Turkish areas in terms of a large volume of foreign investments. Besides the fact that this area is one of the most economically developed and there are a lot of light, food and chemical enterprises, the province obtained the status of one of essential areas for making investments after its was chosen as the site for the construction of the first nuclear power plant in Turkey.

Russian company "Rosatom" has started investing in Turkish Akkuyu NPP Project. Turkish Prime Minister, Recep Tayyip Erdogan said that the investments in this project is the largest direct investment, which has so far been made in the implementation of a project in Turkey.

The total volume of investments in the project implementation will amount to $ 20 billion. At the initial stage, around $ 2.5 billion will be invested. At present, some $ 700 million have been invested. Some $800 million more are expected to be invested soon.

The Turkish government gives tax benefits for its large foreign investors, including SOCAR with its Star refinery project in Izmir within the package stimulating the Turkish economy, adopted by the Parliament in June 2012.

According to the package, Turkey will give tax incentives to 925 investors and investment projects, with a total sum worth $ 20 billion.

As it can be seen, the costs for these benefits are estimated today to tens of billions of dollars, but the effect will be measured by hundreds of billions. These benefits are rather moral, organizational and bring significant effect. If one thoroughly considers the structure of the investment projects which have obtained tax incentives, one can conclude that the stimulation of foreign investments in these projects will ensure a variety of effects, allowing Turkey to successfully resolve a number of key socio-economic issues (sustainable and significant GDP growth, access to the world's technologies, the achievements of modern management, increasing employment, etc.). The most important thing is that foreign investors gradually enter the larger area of the country, new spheres of the economy.

For example, Akkuyu NPP will be the first nuclear power plant in Turkey. The purpose of its construction is to ensure reliable and economic generation of electricity and thermal energy in accordance with the requirements of the world nuclear community.

This nuclear power plant in Turkey is the world's first nuclear power plant project implemented by the BOO model (build-own-operate). This means the project company undertakes obligations on the design, construction, maintenance, operation, and decommissioning of the station. The bulk of equipment and high-tech product deliveries for the project will be provided by Russian companies. At the same time, the project envisages maximum participation from Turkish companies in the plant's construction and assembly work. Later, Turkish experts will be involved in operating nuclear power plants at all stages of their life cycle. Students who were tested are already enrolled in the National Research Nuclear University's 'MIFI' branch in Obninsk. Today, hundreds of Turkish citizens are enrolled in the Russian university. After receiving education and training in educational and technical centers at Rosatom, they will become members of the Akkuyu nuclear power plant's operating personnel. Therefore, the current well-deserved support of investors promises benefits as Turkey plans construction of two more NPP's in the future. The second plant will presumably be constructed by China, and the third will be built by another investor. Through gaining sufficient experience, in 30 years, Turkey will be able to build a nuclear power plant on its own.

As for the SOCAR refinery in Izmir, which has received generous tax breaks over a large investment project in Turkey (six billion dollars), it too will play a major role in Turkish energy security. While more than 80 percent of Turkey's needs are met through imports, the largest Turkish petrochemical complex, Petkim will boost production by opening a new refinery causing dependence on imports to be reduced to zero. Naphtha and fuel oil produced at the refinery will be supplied for the production of chemical products through hydrocracking, while diesel fuel, jet fuel and other energy products will be sold on Turkish and European markets which will eventually lead to Turkey becoming a major exporter of petrochemical products to Europe.

It is important to note that two southern provinces (Hatay and Kahramanmarash) are among the top five Turkish provinces and cities in terms of investments, along with the north-western regions (Izmir, Istanbul and Kodzheli). It is noteworthy to say that these provinces are among the unstable regions of the country with a very high investment risk. Nevertheless, given that Hatay is a tourist heaven, and Kahramanmarash has long been known for its gold mining, they are of interest to investors, regardless of their economic and political stability. Through new jobs, an increase in tax revenues, more efficient ways of developing business and forms of work organization, and other tricks of the trade, investors usually provide a better standard of living for local population in such regions. Therefore, the Turkish government's tax breaks will give impetus for foreign investors to be engaged in business in the country, bringing mutual benefits.

Thus, by providing tax incentives to investors in the country, Turkey chose the right path for attracting foreign investments.

Western sanctions radically change trade relations of Iran

An illegible situation has been observed in Iran's foreign trade for some time. Iran's foreign trade situation has been traced illegible as it periodically imposes restrictions on export-import operations in response to the U.S. and European sanctions which aggravates the situation.

In early November, the Iranian government banned the import of luxury and other goods into the country in order to save money. The list of prohibited goods included 77 items from cars and computers, watches, home appliances, mobile phones to coffee and toilet paper. People in the country were called on to abandon the purchase of items produced abroad and enjoy similar products produced locally. Presumably, the ban on imports of the Iranian government would save some $4 billion.

Prior to that, the Iranian government withdrew all imports into 10 categories according to their need. The first category consists of goods and mainly food products, particularly meat, butter, sugar, milk, corn, and barley. The second group includes drugs and materials for the manufacture of medicines and medical technologies. The third category covers livestock and poultry, cereals, matches and agricultural fertilisers. With each number belittled, the importance of the goods, although their importance is no less important: furniture, soft drinks, cocoa, coffee, sweets, some petroleum gas, candles, plastic products, washing machines, carpets, shoes, umbrellas, construction materials (bricks, tiles , mosaic), jewellery and ornaments, hand tools (pliers, wrenches), bicycles, some toys, car batteries and aluminium products. Mobile phones, computers, cars, pictures, clothes, cosmetics and handbags complete this list.

The company which was involved in the import of items from the first two categories of necessity received the opportunity to buy U.S. dollars at a reduced price; that is at the official exchange rate of 12,260 rials. Goods with an investment focus were bought for dollars at the exchange rate of 15,000 rials, but the importers of goods from the latter category such as VIP goods have to pay for the U.S. currency over the price on the open market.

This measure has already helped to create dissatisfaction and the voluntary refusal of local people from imported non-consumer goods because of their incredible cost. On the other hand, the prohibition and new requirements for import transactions contributed to the growth of smuggling of prohibited goods from neighbouring countries.

The Iranian government had to exclude a number of goods, such as spare parts for computers, from its prohibited items list. These goods are either not produced in the country, or if they are, do not meet set requirements. Several days later, Iran lifted the ban on the import of cars, cell phones and computers.

However, this did not remedy the situation and the companies that previously legally dealt with the import of now banned products are still without work. Partnership relations with foreign companies were also threatened.

Apart from the recently weakened ban of some imported products, the export of certain goods is also prohibited in Iran as a measure to 'support domestic production'. A total of 50 industrial and agricultural products are included in the list of goods banned for export. Petrochemical products, including varieties of polymers, are listed among the banned products. However, some time later, Iranian Oil Minister Rostam Qasemi lifted the ban on the export of petrochemical products, and ordered the settlement of the issue. According to this decision, the export of a number of Iranian petrochemical products, meeting the requirements of the domestic market, is now allowed. As for oil, although the export of oil from the country was reduced, it was never stopped.

In short, in its export policy, Iran decided to prioritize the needs of the domestic market by exporting only surplus. As a result, importing countries cut off from a steady supply of Iranian goods faced a number of internal problems. Subsequently, the confidence of countries in Iran as a reliable trading partner was undermined.

As consequences of international sanctions against the country, the restrictions, imposed on Iran's foreign trade by the country itself, the lack of funds allocated to pay for imports, the inability to pay for imports through bank transactions, and transfer to barter operations have radically changed the country's trade relations. Although Tehran says that, in spite of everything, turnover in the country is growing and the number of trading partners is stable, analysis of Iran's foreign trade shows that this sector has undergone significant changes: the volume of trade with Europe has fallen, while trade turnover with Asian countries has increased. Moreover, Iran has to carry out barter trade operations with a number of Asian countries, even though that this is sometimes not in the interests of Iran. As for trade cooperation between the Arab States of the Persian Gulf and Iran, according to the latest news, chambers of commerce in these countries have decided not to renew trade agreements with Iran, citing Western sanctions adopted against Iran, and a sharp depreciation of the Iranian Rial as the reason.