Hot money is exploiting us, but what about foreign direct investment?

Hot money is pouring into Turkey. Despite high inflation and a high foreign trade deficit, the dollar remains stable. Everyone with even the slightest connection to the economy is warning that “the end of hot money will not be good.” Let us recall that even Mehmet Şimşek, in his speech at his party's group meeting, said, “We cannot rely on hot money. Foreign direct investment is also necessary. In the near future, foreign direct investment inflows to Turkey will also increase.”

For countries with savings deficits and insufficient capital and technology accumulation, foreign direct investment is important. However, if you do not have a proper foreign investment policy with planned and correct targets, foreign direct investment is useless. Not only is it useless, but it can actually cause great harm to the country.

There are many examples of foreign investment that brought harm rather than benefit to the country. But when I remind you of the first two companies that come to mind, I think you will agree with me by saying “no further words are needed.”

One of them is Cargill... The then-President of the USA, J. George Bush, had personally requested from the then-Prime Minister Recep Tayyip Erdoğan that concessions be granted to Cargill for sugar production based on corn syrup. The request was not refused. In Turkey, sugar factories were closed and sold, and sugar beet production was destroyed. Planting with local corn seeds was banned. Prison sentences were introduced for those who attempted to plant them. Genetically modified corn and the associated corn syrup, through the partnership of the foreign-invested company Cargill and the then-favorite Islamic capital Ülker group, covered every corner of Turkey. (Ülker later separated and moved most of its investments abroad)

From the smallest pastry shop to the largest ready-made food companies all over Turkey, there are sweets and ready-made foods with corn syrup everywhere... Candies made from corn syrup...

The result is that obesity has increased in Turkey, including among children, and the population suffering from diabetes and high blood pressure has grown, regardless of age. The health of the Turkish society has been toyed with. Turkey's medicine and healthcare bill has inflated unnecessarily.

Another example. Alamos Gold, which does not have the power to even pluck a tree leaf in its own country, Canada, brutally massacred the forests in the Kaz Mountains, one of the seven regions in the world that produces the best oxygen, not just in Turkey, and polluted the forest and groundwater with cyanide. It caused irreparable damage to nature. Similarly, the gold mine in İliç, Erzincan, owned by a US company and its local partner, the Çalık Group, continues to poison both nature and the agricultural lands in the GAP, a multi-billion dollar public investment, as well as the waters of the Euphrates.

We could give other examples. However, there have certainly been foreign investments and partnerships that have contributed to the Turkish economy. Companies are profit-oriented, and the incoming foreign capital will earn and take away more than it invested. What is important here is whether the profit taken away is a share of the additional value created, or if it is taken from the country's resources. And of course, it is preferred that the incoming foreign capital works for exports and foreign markets rather than the domestic market. Because, in the end, the money transferred abroad as profit is foreign currency. For countries with foreign currency deficits, there is an additional cost to transferring profits earned from domestic activities abroad without earning foreign currency.

FOREIGN DIRECT INVESTMENT INCREASED BUT WE BECAME POORER

Now let's come to foreign capital in Turkey's 100-year adventure, hot or cold... In 1954, the foreign capital incentive law was enacted in Turkey.

From the founding of the Republic until 2003, when the AKP came to power, the Foreign Direct Investment that came to Turkey in 80 years was 10 billion 800 million dollars.

In the 21-year period from 2003, when the AKP came to power, to March 2024, the amount of foreign direct investment that came to Turkey was 262 billion 200 million dollars. (A little more than 24 times)

The period when foreign direct investment inflows were most intense was 2005, when full membership negotiations with the EU began. However, almost all of the foreign investment that came during this period was realized through the acquisition of domestic companies aimed at the domestic market, such as banks, insurance companies, energy, and large chain stores, rather than new investments. In other words, no extra added value was produced with NEW investments by the incoming foreign capital. As a result, the profit share of the value already created by Turkey was transferred abroad. It has been observed that the locals who sold their companies did not make new industrial investments aimed at exports with this money, but instead entered energy and construction businesses aimed at the domestic market, and transferred a significant portion of the money they brought in abroad.

With such intense foreign direct investment, Turkey was expected to make a tremendous leap. Despite such foreign capital inflows, while the Turkish economy was the 17th largest economy in the world, it has sometimes fallen to 21st and sometimes returned to 17th during this process. In this respect, it has stood still, but if we look at it through per capita national income, our situation has worsened.

Despite the 1999 earthquake and the crises we experienced in 2000 and 2001, Turkey, which was 71st in the world in terms of per capita national income, fell to 81st at the end of 2022. (IMF calculations) Moreover, the 2022 data is misleading. If the per capita national income for this year were calculated based on an unsuppressed, fair dollar exchange rate, it would come out lower. On top of that, if it were divided by the real population living in Turkey, including over 10 million refugees, rather than the 85 million population, Turkey's place in per capita national income would not be 81st, but below 100th place.

It is difficult to say that the foreign direct investment that came to Turkey during the AKP era made a positive contribution to the country's development, foreign trade, and employment. On the contrary, it took away more than it brought. Let us also state this. Of course, the factor in this is not just foreign capital, but also the conscious bad choices of the economic management in Turkey despite such intense capital inflows, and on top of that, poor economic management. Compared to other countries in the world, Turkey has not grown in terms of per capita income and the welfare level of its people; on the contrary, it has shrunk. This is the natural result of a plunder economy based on cronyism and enriching supporters, instead of a planned economy that observes market dynamics.

Foreign capital does not look at democracy. It does not hesitate to go to countries under fascist and authoritarian rule. But even if it is authoritarian, it seeks stability and trust in the judiciary in the countries it goes to. China is not a democratic country, but its legal system is stable.

On the other hand, is foreign capital coming to the domestic market of the country it goes to, or is it coming to use the advantages provided by that country for production for world markets? This is also important. Choosing a country as a production base and investing in that country based on rules, not through bribery, usually yields positive results for the country. But for this, a stable judicial system alone is not enough. Well-educated human resources are also required.

The state of education and the quality of human resources with this education system is obvious. 40 percent of the population does not understand what they read in their own language. More than 40 percent of the population does not have basic skills. (This rate is between 7 and 11 percent in countries like Germany, China, Greece, Korea, and Norway) With this education system and this human material, economic development is a dream... With the new education curriculum, the current situation will deteriorate even further. Unfortunately, there is neither law nor good education and well-trained human resources in Turkey. Therefore, foreign direct investment comes to Turkey, but instead of seeing the country as a production base, it comes to exploit the country's resources, market, or labor.

THE WILD TRANSFER OF HOT MONEY

Supporters and marketeers are very happy because hot money is coming. The bill will be heavy when it leaves. We have experienced this, but unfortunately, as a nation, we are either very forgetful or society does not want to understand this. We will pay a very heavy price for hot money. Look at what hot money has taken from Turkey during the AKP era?

If we look at the hot money movements during the AKP era, we encounter an unprecedented example of exploitation. The total amount of portfolio investments that entered and exited between 2003 and the end of 2023 is 178 billion 585 million dollars. Together with short-term bank loans and deposits, the amount of hot money currently in Turkey is 277 billion dollars. The profit transfer made by hot money from 2003 to the end of 2023 is 119 billion dollars. Its profit in dollar terms is approximately 42 percent. Considering that the dollar provides an interest return of around 5 percent in the world, Turkey has surrendered to a tremendous exploitation cycle with hot money. (Naki Bakır, May 30, 2024, Dünya Newspaper)

Including hot, cold, and housing sales, the total foreign investment that came to Turkey during the AKP era is 440 billion dollars. With a capital inflow of this magnitude, Turkey could have truly moved up to a higher league from the countries it is currently in.