The latest balance sheet in incentives

There were lengthy discussions and different opinions were sought. The aim was to shift incentives to the provinces which needed them. But the Incentives Law which was promulgated in 2004 and which covers 49 provinces has not completely achieved its target. Some provinces are ‘drowning in investments’ but many provinces are suffering a huge ‘disappointment’. The provinces which have realized a miracle in terms of production and exports include Düzce, Kahramanmaraş, Uşak, Sivas, Afyon and Osmaniye. But the others have almost given up hope. Everybody is waiting for a new incentives regime.

“The Incentives Law has not worked effectively. Because 49 provinces is too many. The principal aim should be to shift investments to the eastern provinces of Turkey.”
This criticism belongs to one of the leading representatives of the business world. Indeed, it is possible to hear similar criticism from business people in many sectors from textiles to ceramics.

In fact, the Investment and Employment Incentive Law No 5084 which was introduced three years ago raised hopes in many provinces. It boosted investments in some provinces and resulted in them achieving significant increases in production or a boom in exports. But some provinces suffered a bitter disappointment. But this was not how it was meant to be. The new law was designed to shift investments to the 49 provinces where per capita national income was less than $1,500.

The incentives included benefits such as the provision of free land, the Treasury meeting the employers’ share of insurance premiums, energy support and exemptions from withholding tax on income tax. But with the passage of time a different picture has emerged. While the fate of some provinces changed, the expectations of other provinces proved groundless. Indeed hope turned to protest.

What Did The Incentives Bring?
It is over three years since the Incentives Law was introduced. During this time, 155,624 employees at 32,461 workplaces in the provinces covered by the law have benefited from the support for insurance premiums. The Treasury met a total of YTL 12.7 million in employers’ insurance premiums. In the period March 2004 to September 2006, 489 new plants benefited from the energy support and jobs for 108,993 people were created. In the period March 2004-September 2005, there were 110,575 exemptions from withholding tax on income tax and the state forewent around YTL 35 million in income tax.

According to the Treasury’s annual report for 2006 which was published in May 2007, between March 2004 and September 2006, businesses in the 49 provinces covered by Laws No 5084 and No 5350 received YTL 235 million in energy support via the Central bank. During this period, energy support was provided to 1,123 existing plants and 357 new facilities. This resulted in the creation of new jobs for 74,047 people. The provinces which received the most in energy support were, in order: Kahramanmaraş, Adıyaman, Malatya, Uşak and Şanlıurfa. These provinces accounted for 57 percent of the total energy support provided.

272 Pieces Of Real Estate Were Handed Over
The National Real Estate General Directorate announced that, as of 20 September 2006, it had transferred free of charge under the incentive law 272 plots of real estate, covering 9,556.762 m2 and worth YTL 100 million to 132 real and legal entities. In return for the real estate, investors had promised investments of YTL 1.8 billion and the creation of jobs for 14,532 people. In 2005, at a time when it cost YTL 133,000 to create a job for one person, entrepreneurs could, as a result of the incentives, create a job for YTL 7,000.

But in addition to these impressive figures, the incentives law also triggered a number of discussions. First were claims that the figure of per capita national income of $1,500 was very low and protests from provinces which had been unable to benefit from the incentives by a few hundred dollars. Then came complaints that that, because they were not on a regional or sectoral basis, the incentives led to unfair competition. Many of the provinces which were included in the incentive law were unable to attract any investments because they had insufficient infrastructure.

The New Magnets
The provinces which benefited most from the law were those which were closest to major cities, such as Düzce, Afyon, Uşak and Osmaniye. The main criticism of Law No 5084 was that it was not on a regional or sectoral basis. There were also discussions about whether the 49 provinces covered by the law did or did not have per capita national income of less than $1,500. Criticisms focused on these points and the consensus was: “If they are to be successful, incentives should be on a regional and sectoral basis. They should be for specific sectors and developed provinces could receive less than underdeveloped ones. Are Uşak, Afyon, Düzce and Hakkari able to compete on equal terms?”

In fact, the criticism have proved justified. Even if there are provinces in the east which, like Batman, have increased exports from $20 million to $70 million, doubled their workforce and where 61 of 76 plots of land been given to entrepreneurs, a significant proportion of investments have remained in the West.

The Incentives Have Not Benefited The Black Sea Region

Artvin
 No investments have gone to Artvin, which does not have an organized industrial region. According to the Chamber of Trade and Industry, seven companies received support for a total investment of YTL 1.6 million. Six of these were existing companies. One was privatized and received investment support of YTL 1.1 million. Instead of employment rising, it actually fell.

Trabzon
A total of YTL 80 million worth of investments were realized in Trabzon under the scope of the incentive scheme. In return, 25 plots of land were donated and 46 new businesses opened. There are another 19 investments in the city still being constructed. Once they are completed, the new investments are expected to provide jobs for 1,243 people.

Gümüşhane
It was one of 36 provinces originally included in the incentive law. It has an established infrastructure and 8 plots of land were donated in its Organized Industrial Zone. Six of these had begun their investments when another 13 provinces were added to the coverage of the law. Six of these companies had begun their investments in the province when a further 13 provinces were added to the scope of the incentive scheme. As a result, those who had decided to make investments either cancelled or suspended their plans.

Rize
Energy support worth a total of YTL 4.3 million was provided to a total of 78 plants in the province, employing 9,802 people. Ömer Faruk Ofluoğlu, the chairman of the Rize Board of Trade and Industry, said that the figures demonstrated that the province had not benefited from the incentives. “Fourteen companies wanted us to give them some land under the incentive programme. But we were unable to give them anything because the Organized Industrial Zone has yet to be completed. We were only able to donate one plot of land and the investment there is still being constructed. When it is completed we expect it to provide 120 jobs.”

Özlem Aydın
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