Navigating around business risks in Turkey. Cagdas Cataltas Control Risks







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Cagdas Cataltas|

Control Risks

Navigating around business risks in




• Investing in Turkey




• Understanding the country and your partners

• Case studies


Investing in Turkey: Benefits

• Successful economic performance

• Stable politics

• Strong, young labour force

• Ideal location

• Domestic market is large and growing, and tends to


• Turkish diaspora/Turkic connections

• Regional power


Investing in Turkey: Benefits

Successful economic performance:

• Stable macro-economic policies

• Decreasing trend in inflation (6.5%)

and increasing GDP (8.6%)

• Growth expected to decrease from

8.6% to 3.2% this year, but still

strong regionally

• Stronger global business

environment ranking (above Greece

and Italy from 2012 to 2016)

• GDP per head expected to be

USD16,000 in 2016 (just over 50%

of EU27 average)


Investing in Turkey: Benefits

• Stable politics: AK Party in power since 2002, landslide victory in 2011 with 50% of votes; no real contenders for 2015

• Labour force:

• Growth was 1% last year and forecast to be 0.9% from 2012 to 2016

• Young, in 2016 still 21.5% will be under 15 • Location: East and West

• Domestic market: Largest population (73m) in Europe after Russia (141m) and Germany (81m). Grows at a rate of 1.2%. Households tend to spend rather than save. • Turkish diaspora/Turkic connections: Azerbaijan,

Kazakhstan, Kyrgyzstan, Turkmenistan, Uzbekistan, Cyprus, diaspora in Germany, the Netherlands, France and the UK.


Investing in Turkey: Additional benefits

• EU candidate; Customs Union member since 1996

• Banking sector restructured after 2001

• Second-biggest reformer among OECD countries in

terms of restrictions on FDI since 1997

• Privatisation continues: oil and gas, tea production,

agriculture, postal services

• New developments in energy, especially

renewables: new law 2010, incentives

• New commercial code in 2012 brings more



Investing in Turkey: Sectors

• Manufacturing

• Finance

• Media

• Agriculture

• Services

In million dollars


Investing in Turkey: Sectors


Ease of Doing Business ranking


Investing in Turkey: Risks

Having an

umbrella is

the key

Rain is the hazard


Investing in Turkey: Risks

Macro risks:

• Cross-cultural differences • In-country differences

• PKK (outlawed Kurdish Workers Party) • Corruption

• Illiquid market for senior personnel • Weak Intellectual property rights

Micro risks:

• Financial risks

• Links to outlawed groups

• Anti-Corruption Regulations (UK Bribery Act, US FCPA), KYC • Compliance with rules and regulations


Investing in Turkey: Macro risks

• Cross-cultural differences: hierarchical culture; one-to-one relationships are important

• In-country differences: spans from Istanbul to Diyarbakir with different cultures and ways of doing business

• PKK: on-going problem, poses a security risk in Eastern Turkey

• Illiquid market for senior personnel: pool of highly skilled labour is not as scarce as in other emerging economies, but finding senior personnel can be a challenge • Corruption/bribery


Investing in Turkey: Micro risks

• Financial: off-the book finances, black market (unregistered) market

family businesses with patriarchal structures and opaque third party


• Links to outlawed groups: PKK, others

• Corruption, UKBA/FCPA, Know Your Customer, Know Your Partner:

necessary due diligence, especially for companies with UK or US


• Rules and regulations: the context, the compliance

• Sectoral risks: permits, regulations, specific risks


Case Study 1

A Singapore-based company interested in partnering with a Turkish firm in the agricultural sector asked Control Risks to conduct a market-entry report, including the key facts of the sector, regulatory aspects and benefits/risks of investing in the sector. The client also requested a background piece with regards to the potential Turkish partner.

Control Risks’ Global Risk Analysis and Corporate Investigation teams collaborated on this task to highlight macro and micro risks of the company investing in the niche market of agriculture in question. Based on Control Risks’ report, the company decided to go ahead with the investment.


Case Study 2

An investment fund asked Control Risks to investigate a Turkish energy company. The client was considering to acquire the firm but was concerned about fines for insider trading levied against the target company’s board members. The client wanted a precise understanding of the events that led to these fines and any further potential consequences.

We found the situation was more serious than the client had initially perceived. Certain senior employees appeared to be unsuitable to sit on the board of the company that would ultimately result from the transaction. Furthermore, the Turkish firm had relationships with public officials in a neighbouring country that might be considered improper by Western regulators, posing an additional risk to the client.

We gave the client a clear and detailed view of the risks involved. The client successfully made a deal that excluded the unsuitable individuals from the executive board of the new company.


Control Risks was asked by an international media company to investigate fraud allegations in the company’s Turkish branch. It came to the client’s attention that there were allegations in the sector that their CEO in Turkey was channelling funds from the company and bribing key personnel at other firms to win business.

We performed forensic investigation of internal and external communications of the Turkish branch and financial data. The results showed the type of ‘gifts’ given to key personnel at other firms by the CEO, and proved he was

channelling money from the company by subcontracting business to a third company owned by his mistress.


Case Study 4

A UK-based client informed Control Risks about its concerns that its long-term Turkish partner’s financial standing had begun to deteriorate. In particular, the Turkish partner’s separate business in Libya was

affected during the recent turmoil and it was uncertain payment would be received from the transitional government for infrastructure work commissioned by the previous government.

Control Risks made enquiries with market players in Libya and Turkey, and confirmed deterioration of the partner’s financial standing. The Client was able to reposition within its partnership accordingly.


• Crisis response

• Crisis management & business

continuity planning

• Crisis management training • Security design, audit and review • Embedded security management • Executive protection & event


• Security awareness training • KYC check / Due diligence: Bank

customers (private wealth clients, corporates, principals of corporates, political exposed person etc.); pre-IPO targets (for investment bank).

• Due diligence: business partners; investment targets

• Third-party screening: vendors and agents

• Pre-employment screening: Senior hires (e.g. critical function staff and senior managers) • Investigations: fraud, corruption,

kickbacks, conflict of interest • Forensics: Accounting and IT • Asset trace

• Whistle blowing hotline services • Anti-bribery & corruption




Political Risk Security Risk Integrity Risk

Global Risk Analysis

• Pre-investment threat/risk


• PRIME and Country Risk Forecast


Crisis & Security



Cagdas Cataltas

Associate Consultant





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