Examination of Witnesses (Questions 145-159)
TBBC AND MEA
1 APRIL 2008
In the absence of the Chairman, Mr Hoyle was called
to the Chair.
Q145 Mr Hoyle: Could I ask you to introduce
yourselves and then perhaps we could go on to the questions.
Sir Julian Horn-Smith: I am Julian
Horn-Smith, recent Chairman of the Turkish-British Business Council.
Mr Innes-Hopkins: I am Chris Innes-Hopkins.
I am with the Foreign and Commonwealth Office but on a secondment
to the Middle East Association which runs the Secretariat of the
Business Council.
Mr Thomas: I am Michael Thomas.
I am Director General of the Middle East Association. I have been
involved with the Business Council since 1994. I have been a former
Chairman of the Turkish-British Chamber of Commerce and Industry,
and we carry on with the Business Council.
Q146 Mr Hoyle: That is excellent.
I would like to go through some questions with you. Could you
explain to me the TBBC's role in UK-Turkey relations? What resources
do you have at your disposal to further the Council's work and
who funds you?
Sir Julian Horn-Smith: The Turkish-British
Business Council facilitates high level networking contacts for
members of TBBC; this is to say, British companies that do business
in Turkey. We interface, incidentally, with our Turkish opposites:
I am co-Chairman and we have a Turkish co-Chairman as well. We
try to identify, where we can, UK-Turkey collaboration opportunities
and we obviously try to contribute where we can to build a strategic
partnership with Turkey. However, our resources are extremely
limited. Over the last 18 months our funding has been a grand
total of £5,000, including VAT, which is not much if this
is a priority market. I personally have chaired now two meetings
of the TBBC—I am the voluntary Chairman, by the way.
Q147 Mr Hoyle: At that level, you
must be!
Sir Julian Horn-Smith: Exactly.
One cannot make a living out of it. In short, yesterday I had
quite a long discussion with members of how we could raise our
game, given the importance and size of the Turkish opportunity.
All the people there, including myself, have years of experience
of doing business in Turkey.
Q148 Mr Hoyle: Is the £5,000
for the secretariat?
Mr Innes-Hopkins: Yes, for the
costs of servicing the secretariat.
Mr Thomas: Perhaps I may interrupt,
Chairman, to say it is a contribution towards the secretariat.
The Middle East Association is covering the costs. This is a change
of circumstances. UKTI used to fund promotion for Turkey when
they made it a priority target—not very many years ago—to
£250,000 per year and this was a three-year deal. Of course
we raised our game very nicely then. Sadly, this money has vanished
and we are left trying to hold the fort ourselves with a minimum
payment from UKTI of £5,000 which includes VAT.
Q149 Mr Hoyle: What links do you
now have with UKTI?
Mr Thomas: Very good. We simply
do not have the funds. The funds have been directed in other areas,
particularly India, for example, which I believe has £1 million
a year.
Q150 Mr Hoyle: The links are good;
it is just the funding that is not there.
Sir Julian Horn-Smith: Yes.
Mr Hoyle: I would like to bring in my
colleague Anne Moffat now.
Q151 Anne Moffat: I would like to
ask about the meeting you had in London yesterday and for a summary
of what was discussed.
Sir Julian Horn-Smith: We went
through a wide range of issues. We talked about the future role
of TBBC, in particular what realistically can be set as objectives
for TBBC given that we have very limited resources. Clearly this
is against a background of trade with Turkey currently running
significantly below our global market share for trade and really
wishing to try to double the level of trade we have with Turkey.
Secondly, what type of specific specialisms could we have at TBBC.
I am thinking here of the problems that British companies have
experienced in Turkey—such as some of the legal and regulatory
issues that have been alluded to in the previous hearing you had.
Possibly some of the financial and fiscal problems—which
were not referred to—also need attention. We also talked
about how we could strengthen our links on the Turkish side and
also how we could raise funds for TBBC to try to raise our game.
I believe very clearly that we do need to raise our game if we
are to improve our share of trade with Turkey. I personally led
the bid for Vodafone in Turkey, which is the biggest British investment
today in Turkey, where we bought Telsim. It is my view that Turkey
is not a traditional market for British companies and therefore
we need to both widen the information about Turkey to British
companies that wish to invest there but also give them a little
more help, showing them how to be effective there. At the meeting,
these are the sorts of issues that were covered, and we also covered
some of the problems they are experiencing today and a wide number
of other things besides.
Q152 Anne Moffat: In response to
one of the questions you mentioned the lack of funding. Does that
mean that you are doing less now because of the lack of funding
than you used to do? What more could you do if you had better
funding?
Sir Julian Horn-Smith: I am not
qualified to talk about what TBBC did prior to six months ago
because my own involvement, which is voluntary, is only recent.
I will put that to my colleagues in a moment. But we could be
doing an awful lot more. For example, the collaboration agreement
to which you referred earlier, which was signed recently, surely
must have as its backbone much stronger trade links with Turkey.
After all, a strong economic mutual interest is a driver of all
the other things that we would like to do in the future and certainly
gives us far more credibility in Turkey. TBBC could provide part
of the input to that forum—and in fact would very much like
to do so—but of course we cannot do it for nothing. Would
you like to say how it was?
Mr Innes-Hopkins: I would prefer
to look to the future and what we could do. I think the strategic
partnership agreement that was signed by the Prime Minister Erdogan
and Prime Minister Brown last October provides a very good framework
to which we could input, given some more resources. It is a very
wide-ranging document, with co-operation opportunities across
the board, and a lot of the activities mentioned there could positively
affect the business environment eventually. One example I discussed
last night with the Chairman of the Istanbul Stock Exchange is
corporate governance. They would like to raise the standards of
corporate governance in Turkey for the companies under the stock
exchange. So far only eight have met these EU requirements. I
think we could do a seminar, for example, bringing in UK expertise
on that front and pooling resources. There are a lot of practical
initiatives we could take, given a bit more resource.
Sir Julian Horn-Smith: That is
precisely in the context of the point we were making right at
the beginning as to what is the role of the TBBC. We are capable
of picking up particular themes where the UK is very strong. Financial
reform is one of them—notwithstanding Northern Rock—and
in particular things such as Chris has mentioned, but also some
of the stock exchange rules, such as squeeze-out provisions. I
am not sure if you are familiar with what I mean by squeeze-out
provisions; that is to say, when you take over a public company,
if only a small number of shares are still quoted in the company
there is a means of squeezing it out and ensuring that you would
have full ownership. It is simple things like that, which exist
in London, Frankfurt and New York, which do not happen to exist
yet in Turkey. Those sorts of things we can help the Turks with
but also help promote more trade with Turkey.
Q153 Anne Moffat: Are you going to
be involved with Lord Jones's visit in September?
Sir Julian Horn-Smith: I am not
sure yet. We would very much like to do so. We have worked with
Digby on that one. I am quite convinced that there are issues
in Turkey which are capable of being far better.
Mr Hoyle: We hope it will be a successful
visit.
Q154 Mr Wright: In terms of the opportunities
and the barriers, we certainly saw that there were opportunities
over there but how big are those opportunities compared with some
of the risks that are involved for the companies? To which types
of companies would you recommend Turkey?
Sir Julian Horn-Smith: I think
a wide range of companies have opportunities to invest in Turkey.
Clearly, as the last witness mentioned, companies involved in
the operation of infrastructure and companies involved in provision
of infrastructure, such as power generation companies, but also
in the private sector, such as retailing. For example, Tesco are
beginning to invest; BAT, as was mentioned earlier, are investing
there; Diageo are investing there but have a few issues; Thames
Water, back to the infrastructure, are an investor there; Vodafone,
as you know, which recently bought Telsim, are an investor there;
in mining, European Nickel are an investor there, with some issues.
Q155 Mr Hoyle: A bit of a rough time.
Sir Julian Horn-Smith: And of
course the Scotch Whisky Association. There is a wide range. Both
manufacturing but also service companies have the potential—and
of course Britain is particularly strong in the service sector.
That is why we see now people like Tesco and Vodafone becoming
involved there. There are plenty of opportunities there. Did you
ask about some of the barriers as well?
Q156 Mr Wright: Yes, in terms of
some of the risks that may well be involved with the companies.
To be perfectly honest, not just in Turkey but when we have been
to other European destinations and further afield, we have seen
that one of the issues tends to be that British industry is a
bit reluctant in some cases to take certain risks that other countries,
such as Germany and France, may well take. Some of it is the perception
of a risk rather than the reality.
Sir Julian Horn-Smith: Of course,
part of it is a lack of knowledge about Turkey and the Turkish
market. British companies tend to be more familiar with closer
European countries and markets, English speaking countries, and
maybe the Middle East, and now of course, after the promotions,
India and China. Turkey is a market which not many British companies
are familiar with and therefore there is the risk of the uncertainty
and not knowing how to do business. Is Turkey in the Middle East?
Is Turkey in Europe? What are the business practices that require
success in Turkey? As you have observed on your visit there, the
structure of Turkish business is utterly different from the way
we structure our own, with compulsory membership of chambers of
commerce, for example, and the way they structure their foreign
trade, so, therefore, there is a difference in perceptions. The
slow movement of the Turkish legal system is one area which is
problematic for some British investors there. There are also problems
with some British investors in the fiscal arena. To take Diageo,
they are in dispute—not only the Scotch Whisky Association,
as always mentioned, but Diageo are in dispute—about duties.
Indeed, Thames Water has a tax dispute as well. It is not unusual
to have a tax dispute, even, dare I mention it, in the United
Kingdom, and appeals take place and companies and authorities
have to come to a conclusion, but the manner in which they are
dealt with, of course, is different and perceptions are different
as well, and, consequently, a better understanding is needed of
how they are dealt with. One of the things the strategic partnership
can build on is trying to fast-track some of those disputes and
point British investors and perhaps Turks in Britain as well in
the right direction to know how to deal with these problems in
a more practical manner. There is no question that these obstacles
are referred to and of course some of the things that will come
into play when Turkey joins the EU, such as intellectual property
rights (IPR), and maybe we will benefit from stronger educational
links with Turkey as well. Certainly the Turks are very keen for
that, which presents us with an opportunity. There is lots and
lots to be done. Nevertheless, the big picture is that the opportunity
is bigger than the perception amongst British industry today,
and, therefore, there is a need to take action.
Q157 Mr Wright: You have touched
on an awful lot of sectors. What you would say is that it really
is an open market for every single sector that we have within
the UK. Obviously energy is not just an issue there; it is an
issue across the whole of the European Union and, indeed, across
the globe. Is there one sector in relation to which you think
the UK is really at the top of the game? Could you say in terms
of a particular sector that it is one where we have more to offer
to Turkey?
Sir Julian Horn-Smith: I would
like to remark a little on what you have said. We have had Minister
Simsek along here twice talking about the encouragement of foreign
investment in Turkey, and we have had the heads of major fund
managers and some of the biggest private equity fund managers
looking at Turkish investment possibilities, and very interested
to do so. Is there one in particular? There is not, no. There
is a wide number of opportunities in Turkey. By and large, I would
agree with the previous witness that the medium to large organisations
would find it a little easier. A small organisation might find
they get lost trying to penetrate the Turkish market—with
the exception of tourism, which is quite different, and real estate
possibly. The larger sectors are the ones that are likely to be
successful. In particular, from the UK, finance and banking is
an area where I think we could take a stronger role, given the
role of the City of London, where we are highly respected.
Q158 Mr Wright: They are the most
protected areas, are they not, finance, banking, consultancy?
Sir Julian Horn-Smith: Yes, of
course. They are heavily regulated and to some extent protected;
however, the Turkish Government have over the years been allowing
the sale of Turkish banks to foreign companies. We see HSBC, for
example, as a major investor in Turkey. You cannot fail to have
noticed them if you were there. Indeed, there may be future opportunities
not only in retail banking but also investment banking in that
market from London, and opportunities also for the London Stock
Exchange (LSE) and the FSA to help with regulatory rules in Istanbul,
which will help to integrate Istanbul into the EU in an open financial
market in the future. I would pick on finance, but, frankly speaking,
there are opportunities for many others as well besides.
Mr Innes-Hopkins: Could I add
on one area: EU funded opportunities. There is massive funding
behind the EU accession process. I do not know if you visited
the EU delegation in Ankara—I think it is the largest in
the world. I think it is extremely important for us to tap into
those opportunities, whether they are consultancies or some of
the adaptations in the environmental sector. Generally speaking,
there is a big opportunity for UK expertise across the board but
it does mean getting abreast of EU tendering requirements and
getting early warning of when opportunities are coming up.
Mr Thomas: I do not think we should
lose sight of the fact that Turkey is a very important regional
export hub, particularly to the Middle East and the central European
countries. There are great advantages for British companies to
set up their own manufacturing units on a joint venture basis
with Turkey locally. They have good employees, who are well trained
and up to the mark, and it makes an awful lot of sense to set
up a manufacturing outfit down there for onward export.
Q159 Mr Wright: Turkey looks at us
as a good export market as well because the balance is in their
favour rather than ours. One of the companies we visited was a
refrigeration company. Because of their market, it is now setting
up a business in the Midlands to assemble refrigerators and creating
probably up to 30 jobs. How much of that do you see coming this
way? Because obviously it is not going to be a one-sided affair.
We need to have the benefits not just for British industry but
also for the UK economy as well.
Sir Julian Horn-Smith: I would
agree with that. As you rightly point out, it must be reciprocal
and, further more, the balance at the moment is something in the
region of 2:1, about £2.5 billion to £4.5 billion, so
we are on the downside from the UK perspective. I think we are
underperforming on the British side. I think we really should
be setting an objective to double or possibly treble our position
there, at least to achieve our share of world trade within the
Turkish market but really we ought to be going beyond that. I
think we really ought to have a vision—and would set a vision,
certainly, through TBBC and encourage members to do so—of
what we wish our position in Turkey to be, and then put in place
the resources to enable that to happen which is not entirely from
government but is partly from government.
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