After making important gains, how does the rise of the Turkish lira affect foreign investors?

Istanbul

- Since Turkish President Recep Tayyip Erdogan announced a series of economic measures nearly a week ago, the national currency has made significant gains, recovering most of the losses it incurred over the past weeks.

The Treasury Department was quick to officially announce the entry into force of these measures, which include a new mechanism that allows investors to achieve the same level of potential profits for savings in foreign currencies, by keeping assets in pounds, which protects local currency deposits from exchange rate fluctuations and ensures that the depositor in pounds obtains the declared interest, in addition to The difference in the dollar price between the time of deposit and withdrawal.

During the past week, the lira maintained a reasonable exchange rate between 10 and 12.5 pounds per dollar, and it fell yesterday to 13.4 before recovering to 13.00 by 16:30 GMT, after significant gains made last week, while facing The government is having trouble persuading savers to ignore currency fluctuations, fears of rising inflation and unconventional rate cuts.

While Finance Minister Noureddine Nabati says that citizens' dollar balances are declining, official data showed that local hard currency balances rose to a record level of $238.97 billion last week.

At the same time, the central bank's net international reserves, an effective buffer against the financial crisis, fell to their lowest level in nearly two decades.

Experts specialized in the Turkish economy believe that understanding exchange rate fluctuations and macro and micro economic indicators requires a special reading away from traditional economic analysis patterns, stressing that these readings are reflected on all tracks related to economic performance, especially foreign investments that bring hard currency to the country.

The new financial tool that the Turkish government has resorted to aims to get rid of the “dollarization” system that was stimulated during the past four years by many factors, including financial fragility, capital isolation, geopolitical pressure and the spread of the Covid-19 virus, which are factors that made the dollar a difficult hedge currency that Savers resort to it at the expense of the lira.

The assets of the Turkish economy are still very cheap, but foreign investments in the country carry some risks (Al-Jazeera)

The importance of exchange stability

According to experts, assets in the Turkish economy are still very cheap, but foreign investments in the country carry some risks related to inflation and the current account balance.

Tan Hascol, a Turkish economist and founding member of Intel Kit, confirms that foreigners' interest in Turkish assets is very high, but he does not believe that this is sufficient to attract investments unless it is accompanied by the stability of the local currency, noting that the foreign investor does not finance an investment that he cannot measure, whatever the prices. Assets are cheap, which requires a halt in exchange rate volatility for investments to be measurable in dollars.

He believes that "the new financial system that makes holding dollar deposits meaningless will significantly reduce exchange rate fluctuations, end the old absurd fluctuations in the lira, and thus increase foreign investors' interest in already attractive assets."

Hascoll indicates - in an interview with Al-Jazeera Net - that the first to be affected by the stability of the dollar exchange rate against the lira is the superstructure sector with low performance risks such as hotels, hospitals, housing and other investments that have long attracted the interest of foreign investors, stressing that he personally witnessed the cancellation of many projects and acquisitions in Contract stage due to exchange rate fluctuation.

It is also expected that the financing and banking sectors related to purchases and projects will achieve great profits after the stability of the dollar exchange rate, then the sectors related to the assets of the superstructure, where the momentum of acquisitions will increase, explaining that achieving gains from foreign investments will be gradual and positive on all sectors and investments.

Hascoll believes that it will take time for the lira to stabilize, "which will not be very long," as he believes that it will be accompanied by a gradual improvement in the credit system and the supply of the lira in the local market, as this accelerates growth by taking advantage of the current positive economic performance, expecting an economic expansion similar to that witnessed by Turkey during the period between 2003-2007.

investor cake

Despite the widespread belief that some see “the growing geopolitical conflict between Turkey and its old allies from Western countries,” Westerners still account for the largest share of asset prices in Turkey, as statistics show that the largest of these investments in 2020 belonged to the Netherlands with 15.9% and then the United States By 7.8%, and the Arab Gulf states collectively come in third with 7%, then Austria 6.4%, Germany 6.2%, Luxembourg 6%, Spain 5.8%, Belgium 5.3%, France 4.6%, Azerbaijan 4.3%, Greece 4.1%, and 19.5% are distributed among the rest of the countries.

Iranian, Syrian and Saudi companies occupy the first three ranks, respectively, in terms of the number of companies established in Turkey during 2019, followed by companies for investors from Iraq, Jordan, Egypt, Germany, the United Arab Emirates and Libya. The equivalent of about a billion dollars) at the time.

Hascoll hopes that the reality of foreign investments in Turkey will change in favor of increasing Arab investments and the investments of the Islamic world and the Arab Gulf countries, especially Qatar, calling on the investors of these countries to take advantage of the advantage of cheap asset prices and benefit from the feelings of brotherhood and sympathy that bind these countries to Ankara.

Khaled Diyarbakirli believes that the facilities provided by the state to foreign investors will encourage many to pump their money more (communication sites)

Investment Incentives

For his part, the investment expert in Turkey Khaled Diyarbakirli believes that the state’s facilities provided to foreign investors and the low cost of production will encourage many of them to pump their money more, especially with the conviction of many that the value of their investments will not decrease compared to the dollar, as the depreciation of the exchange rate of the lira was eating The capital of foreign investors and reduce their profits.

Diyarbakli says - in an interview with Al-Jazeera Net - that the non-productive sectors such as real estate and fixed assets will be the most beneficiaries of the stability of the exchange rate of the lira due to its ability to maintain the prices achieved by its market values ​​in recent months.

He believes that the most important investment problem in Turkey was the fluctuation in the exchange rate of the lira, as investors feared the erosion of their capital by the decline in this currency, expressing his conviction that the stability of the exchange rate would give them the motivation to raise their investments.

However, the Turkish expert points out that a significant improvement in the lira exchange rate will not be beneficial to the Turkish market, as local goods will lose their competitive advantage that brings hard currency from foreign markets.