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Direct investment in Turkey (2006)

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  1. General background.
    1. The economy.
    2. Sustainability of public debt.
    3. Significance.
    4. Foreign direct investment.
    5. Political environment.
  2. Sector performance.
    1. The increase in unit prices of chocolate confectionery in 2004.
    2. Unit prices 2002.
  3. Cash flow.
  4. Risks.
  5. Ways to manage exposure to loss.
    1. Internal techniques.
    2. External techniques.
  6. Conclusion.

We are currently investigating an investment proposal concerning the chocolate confectionery sector, in Turkey. Specifically the analysis concerns the chocolate tablets production. Below follows an explanation of the elements of the investment decision, the general aspects of the Turkish economy and an analysis of the risks that the project could potentially face. For some decades Turkish economy was characterized by certain aspects, which worsened much more during the 90's. After the 2001 crisis, the Government outlined a new economic program to bring about a rapid turnaround in the economy. The new program goes much deeper than previous attempts in addressing the structural roots of the crisis ? weak public finances and a fragile banking system ? while strengthening social programs. The program also aims at bringing Turkey closer to its goal of EU accession. The establishment of the new macroeconomic settings was of key importance for improving confidence. While interest and exchange rates continue to be heavily influenced by fiscal policies due to the large public sector borrowing requirements, the Central Bank has been successful in building up credibility over time and is increasingly shaping inflation and interest rate expectations.

[...] of intervened private banks and measures to reduce connected lending, Strengthening public sector management and governance, including improvements in public expenditure management, public procurement, accounting and auditing and anti-corruption measures, Market liberalization in energy telecommunications, together with establishment of independent regulatory bodies, Privatization of state-owned enterprises, including Turk Telekom, the national airline, petroleum refineries and iron and steel companies, Continuation of agriculture sector reform to liberalize the sector and raise rural incomes, shifting from price subsidies to direct income payments to farmers, Strengthening social assistance to help people adversely affected by the crisis. [...]


[...] Cash Flows The initial investment is expected to have the following costs: Capital Expenditures (in Construction Work Land and road improvement Factory renovation Warehouse renovation Equipment Transport Insurance of cost) Other Expenditures Maintenance & Assembly fees The retail sales value for chocolate tablets in 2004 was US$111,400,000 and the total volume 13,640 tons. By dividing these two, we can see that the average value for every ton of chocolate tablets is US$8,167. We consider that for the first year of production, the company can produce 300 tons for the average value of US$8,167 per ton. [...]


[...] Other main risks the investment could face are: Lack of fiscal discipline in the public sector. The company may find itself lost between several contradictory fiscal regimes and end up paying far more than what was predicted in the beginning. Serious structural problems in a wide range of economic sectors and especially banking. A very slow and inefficient banking system could potentially create problems as far as it concerns the procedures for the acquirement of the loan, very long delays and thus increase of the cost of capital or unfavorable terms for the interest and capital payments. [...]

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