Examination of Witnesses (Questions 160-179)
TBBC AND MEA
1 APRIL 2008
Q160 Mr Wright: That was of concern
to us, whether or not you were going to be consulting your own
members as well. It is one of the big issues. Going back to what
I asked earlier, why is it that British industry and British technology
seem to be missing the trick? The now Chairman mentioned earlier
about the Italian Government telecommunications being ahead of
the field. Why is it that we sometimes appear to be lagging behind?
Sir Julian Horn-Smith: I do not
think we are across the board. I can speak with authority on telecommunications
because I know that market very well. Vodafone acquired Telsim,
which is Turkey's second biggest telecom operator. The leading
operator there, which is called Turkcell, is owned partly by a
Turkish shareholder, partly by Swedish TELIA with a minority holding
and partly, with a small minority, by the Russian ALPHA. Telsim
is the only 100% foreign-owned telecommunication company in mobile
of substance—also there is a third, which is owned, in part,
by the Saudis—nevertheless, it is the second largest there
and a British subsidiary (of Vodafone), so that is not entirely
the case. However, there are areas, such as atomic power to which
you have referred, which is an agenda item for the Turkish Government,
and a number of other areas where privatisations may happen in
the future, where, unless we raise our game, we will not perform.
Why is it so? Partly tradition: British companies have not historically
traded in Turkey, so it is something new for them. Partly priorities:
of course something new brings with it unknown risks and, these
days, public companies, in particular, are under the spotlight
and need to be transparent about how they do business and therefore
do not want to make mistakes when investing their shareholders'
capital. It is a series of reasons but, of course, the familiarity
reason is the one, as far as British companies are concerned,
that perhaps is more significant than it would be for, let us
say, German companies or French, which are more accustomed to
doing business there than we are. That does not take away the
fact that there is an opportunity in the future and we need to
raise our game to put that right. I am firmly of the view, from
my own personal experience with a multi-billion pound investment
in Turkey, that we are capable of doing that, but we do need to
raise our game and we need to be more systematic about how we
use bodies such as the TBBC and how we interface with the Turks,
maybe learning some lessons from the Jetco example, in order to
get that, but we need to put some resources behind it and also
persuade industry to do so too.
Q161 Mr Wright: Obviously part of
the accession agreement is that Turkey has to go through some
significant changes. In terms of the next 12 months, which sectors
do you see will be seeing significant liberalisation within their
markets? What new legislation do you see coming forward?
Sir Julian Horn-Smith: Currently
there are things that have just happened within the pipeline.
BAT, for example, in tobacco need now to move forward and execute
their auction win. I am not familiar with how serious the legal
challenge is but it is not unusual to have a legal challenge after
an auction. We had one in Vodafone when Telsim was acquired. There
is potential business coming up in the electricity and power generation
and the atomic power sectors in Turkey.
Mr Innes-Hopkins: The environment
sector, as I said earlier, is very important: there is a massive
adaptation they need to do to meet EU environmental norms and
investment needed and I think there are big opportunities for
environmental technologies on the UK side. Then, as I say, more
generally, services, but that does tend to be a somewhat protected
area until the Customs Union is extended into that.
Sir Julian Horn-Smith: The opportunities
are not confined to privatisations themselves in Turkey. There
are also opportunities to invest and grow organically there as
well, such as the Tesco initiatives and so on.
Q162 Mr Bailey: Perhaps I could turn
to some of the constitutional/political issues and potential obstacles.
What do you think is the effect of the constitutional wrangle
between the constitutional court and the Government? Also, on
the issue of the constitutional court decision on the purchase
of property/real estate in Turkey, what effect do you think this
is having on the perception of Turkey and the willingness to do
trade with it?
Sir Julian Horn-Smith: Before
I hand to my two colleagues on that, because I am not a political
animal—
Q163 Anne Moffat: Yes, you are!
Sir Julian Horn-Smith: No, I am
not.
Q164 Mr Hoyle: Right, let us make
some progress. Let us move on.
Sir Julian Horn-Smith: Clearly
that type of uncertainty cannot be helpful to Turkey because it
creates doubts where people already may have doubts in their mind
about the certainty of doing trade with business in Turkey. The
reality is they are probably of very little relevance at all.
Concerning property and property investment, certainly talking
with some Turks and their own Ambassador last night it appears
that there is no prohibition for foreigners owning property in
Turkey, so I am not too clear where this has come from.
Mr Innes-Hopkins: I understand
there is a proposal that would limit the right of foreign companies
to own property but we do need to research that further. There
did not seem to be undue alarm at our meeting yesterday.
Sir Julian Horn-Smith: No. I was
told there is no difference from the rules that are proposed for
Turkish companies.
Mr Thomas: The Turks we met thought
it was a big misunderstanding.
Mr Innes-Hopkins: We are going
to have to look into that.
Mr Thomas: Of course it could
do a lot of harm.
Q165 Mr Bailey: It may or may not
be a misunderstanding but, certainly, on talking to a commercial
developer in Turkey they considered it to be a significant development
that needed to be sorted out. Talking to the diplomatic and business
staff, it tended to be waved away as one of the peculiarities
of Turkey that would be surmounted. The significant thing, whether
it is a real obstacle or not, is that potential developers in
Turkey thought it was. That is obviously a matter of some concern
because, as you say, it will affect people's perception.
Sir Julian Horn-Smith: Yes.
Q166 Mr Bailey: Are there any other
legal issues?
Sir Julian Horn-Smith: In relation
to those companies that have invested in Turkey to date, notwithstanding
we would like there to be more, there are really too many disputes
and too many disputes outstanding. They do not seem to be about
any one particular issue but a number of them have developed into
court cases. Certainly Diageo are currently in court appealing
a fiscal matter and they are getting to the point where they are
considering whether they really want to remain in Turkey, so I
am told by their people—in fact, they asked me if I would
mention it to you. You are familiar with the Scotch Whisky Association
story. Thames Water over the years have been involved in disputes—mostly
now resolved but they still have a tax dispute which will, I am
sure, be in time resolved. The European Nickel people also have
a dispute, which I think is being resolved, partly through legal
process, concerning environmental issues and the impact of mining
in Turkey. Consequently there are a number of legal cases in the
pipeline; however, one of the things the strategic partnership
can take under its wing—indeed, TBBC, if it were in a position
to have sufficient funding to conduct its role in a more effective
manner—would be to give a little guideline and a little
help to companies who are in this position, to help them find
resolution of their disputes. Also, maybe the strategic partnership
can encourage a fast track review of the position to try to ease
the situation for existing investors in Turkey. In short, I mentioned
to you much earlier that I felt we were underperforming in Turkey
and had the potential to double or maybe treble our position in
Turkey, and, while we need to have that vision, we also need to
take a realistic view of our point of departure: Where are we
today? In that regard, Mr Bailey, your question covered the legal
matters but, nevertheless, we need to be open with the Turks and
they themselves, perhaps through their inward investment team,
could be encouraged to participate in the strategic partnership.
This is the team headed by Alpaslan Korkmaz which encourages inward
investment into Turkey. He made a long speech when Prime Minister
Erdogan visited London encouraging inward investment and also
at the CBI conference here in London, but of course they need
to help inward investors overcome those issues as well.
Q167 Mr Bailey: Could I change the
emphasis from the legal side to the IMF and EU pressure on accession
in the context of promoting liberalisation with Turkey. Two different
perspectives emerged when we were over there. The first was that
it was essential for Turkey to have this pressure in order to
justify its continued liberalisation process. The other was a
suggestion from some that this was a slightly patronising attitude
and that the dynamics of the country's economic growth were, shall
we say, pushing this process independent of any pressure from
the IMF or EU. What is your perspective?
Sir Julian Horn-Smith: I really
have not had any discussions with anybody from IMF or EU about
this subject, so I am not sure I am the best candidate for a question
there, but I do know from meetings I have had with Minister Simsek
during, two long evening meetings, that he believes he is on a
mission to address transparency and openness in encouraging inward
investment to Turkey. Judging by the input I heard from him, I
think those two organisations will have to be quite sensitive
in how they talk to the Turks, who are, after all, a very proud
people and believe they are already trying very hard to address
this.
Q168 Mr Bailey: This comes to the
crux of the matter. Even without this sort of pressure—and
you say, quite rightly, the Turks are very proud people—do
you think there is a compelling logic arising from their rapid
economic growth that would make for this liberalisation?
Sir Julian Horn-Smith: I think
so, yes, but it is purely an opinion.
Q169 Mr Bailey: We are asking for
your opinion.
Mr Innes-Hopkins: The IMF programme
did have very clear targets that were dependent on future financing:
if you did not meet the targets, you did not get the next tranche
of the IMF programme. It was indispensable at the time: as you
know, in 2001 there was an extremely serious economic crisis.
The IMF support has provided a framework and certain disciplines
for policymakers and I understand that that programme is now pretty
well at an end. I think the EU programme really comes on where
the IMF finished. The EU programme provides another framework,
but perhaps more carrots than incentives: "If you are going
to meet the accession requirements, this is what you have to do"
but, alongside that, there is considerable practical support and
funding that helps implementation. It is certainly an incentive
but I think there is increasing evidence that the reform programme
is being internalised and there has been tremendous progress over
the last five years on that front.
Q170 Mr Weir: We have heard a lot
about the potential barriers in Turkey to UK investment. You yourself
mentioned a hope of increasing Turkish investment in the UK. Are
there any major barriers to greater bilateral trade and investment
relationship on the UK side?
Sir Julian Horn-Smith: The matter
that is often raised after initial pleasantries is the visa question;
in particular, the difficulties both from the British side and
the Turkish side of having visas issued for senior business people
who wish to trade either in Britain or customers of British companies
wanting to visit here. They are required to answer a number of
sometimes quite personal questions about their financial situation
and all sorts of things. There may be other reasons but it is
certainly not helpful to trade and, frankly, all I can say is
that I personally would not want to have to go through that process
in doing business with a country.
Q171 Mr Weir: Are there any others
that you are aware of or is it visas that are the big issue?
Sir Julian Horn-Smith: In Britain?
Mr Innes-Hopkins: I think that
is the number one issue.
Mr Thomas: I think there are a
number of advantages for Turkish companies coming to Britain,
which they recognise. Visas, that is the problem.
Sir Julian Horn-Smith: There are
things they would like to have more of, but that is not really
your question—although I am happy to answer that if you
want to ask it.
Q172 Mr Weir: Is the UK doing enough
on education links with Turkey?
Sir Julian Horn-Smith: That is
the "more of" question that I was hoping you would ask
me.
Q173 Mr Weir: I am one step ahead!
Sir Julian Horn-Smith: You are.
The answer to that is yes. Something they have raised with us
is the wish to allow more Turkish students to attend British universities.
They say not necessarily at degree level but possibly HND level
but, either way, they are currently treated as non-EU members
and therefore charged fees for non-EU student status. The Turks
believe that obviously they would like us in the path to accession
to waive the non-EU part of the fee that is charged students when
they come to Britain and attend British educational institutions.
As far as visas for students is concerned, they have not raised
the same concerns—at least I have not heard them doing so—that
they have for business people. This is a rather different situation.
I think they are happy for their sons and daughters to queue up
in the rain—or the sunshine, as the case may be—but
the stronger links and waiving of the non-EU element of attendance
by students is something that they have mentioned. I would also,
incidentally, very much encourage that we take a look at examples
of networking and building bridges with other newly emerged European
EU members, and maybe some of the more established ones as well.
There are things that we do—and I will give you a practical
example or two in a moment—which work very well, not purely
in the business sector but also in political and educational sectors,
for networking, building bridges and getting to know each other
which help in business over the longer term. For example, you
would be familiar with the Tertulias that we run with Spain or
the Colloque with France or the Koenigswinter conferences with
Germany. Perhaps that is a bit grand for us today with Turkey
but, if we believe they are going to become members of the European
Union—which we do, and it is a priority for us which it
is—then putting in place some of those processes and some
of those institutions today or in the near future, akin to the
Tertulias example, is a practical and pre-emptive way of changing
our relationship with Turkey—which takes a number of years
to do: you cannot do it overnight—as they become a full
European member, getting not only business people but educational
people, scientists and political colleagues to become far more
familiar, as you are clearly after your visits to Turkey, with
the opportunity there and vice versa.
Q174 Mr Weir: Specifically as regards
education, we find that in India, for example, a lot of the universities
are making a lot of effort to get into the Indian market and attract
Indian students. Is the same process beginning to happen in Turkey?
Are you finding universities coming on board and specifically
trying to attract Turkish students to the UK?
Sir Julian Horn-Smith: I should
declare that I have just been appointed as Chairman of the Advisory
Committee of the School of Management at Bath University.
Q175 Mr Hoyle: This could be a Turkish
Bath!
Sir Julian Horn-Smith: Yes. I
am not aware that Turkey is specifically targeted but, frankly,
it is a question I have not asked, so I would have stumbled across
it. They are certainly targeting overseas students at the top
management schools now in Britain. Indeed, a large percentage
of the students attending, for example for MBA, MSc and doctorates,
in other words post-graduate courses, come from overseas now,
mostly from outside of the European Union.
Mr Innes-Hopkins: In relation
to students coming to the UK, my old university Exeter has been
quite successful. President Gul studied there for an MA and they
are now taking quite a lot of Turkish administrators on short
courses related to the EU Acquis, so that is a growing area. Obviously
it is not just a question of bringing students to this country;
it is forming partnerships in country and I think the promising
area is technical and vocational training, where we have a number
of skills, awarding bodies, who could be very relevant to Turkish
skills needs. I know Bill Rammell took a delegation to Turkey
late last year. We would like to work on the follow-up with the
DIUS and see how the Business Council can build on that because
it certainly was an area that came up at our meeting yesterday.
Sir Julian Horn-Smith: Yes, and
the fees were the number one issue.
Q176 Mr Weir: The CBI told us that
many British companies are having a difficulty with technical
people. Is that an area where British universities perhaps could
set up something in Turkey, as awarding bodies with Turkey?
Sir Julian Horn-Smith: Quite possibly
so, yes. Obviously the devil will be in the detail as to where
it is and what it is.
Q177 Mr Bailey: I thought you would
like to know I am a fellow graduate from Exeter.
Sir Julian Horn-Smith: I have
a son there as well. He is captain of the rugby team.
Q178 Mr Bailey: Excellent. Could
we turn to the government-to-government forum. The details on
this are fairly scarce. Can you shed any light on it? How do you
think your organisation can work with it?
Sir Julian Horn-Smith: We have
received a copy, obviously, and have been looking at it. We are
discussing with our members—we did yesterday at the meeting
we had—how we can interface with it and input into it because
we see that as a big opportunity to try to raise their game in
the export market to Turkey and also TBBC taking on a more significant
role, which I am sure it is capable of doing—with proper
resource, of course. In answer to questions you have been asking,
we have already talked about the sorts of things that we could
do as a subset of the strategic partnership. We think it is a
positive thing. We very much hope it is not just another thing
that is signed and then forgotten about.
Q179 Mr Bailey: Very much so. What
potentially do you think are the issues that could be resolved
through the forum?
Sir Julian Horn-Smith: First of
all, we have touched on having a more formal structure in TBBC.
For example, we would like our members now to start paying for
membership of TBBC. We would also like to see some financial encouragement
from Government, either at the Foreign Office or from BERR, to
increase funding in a more systematic way. As mentioned earlier,
the funding, for example, in India is £1 million a year and
we have had £5,000 including VAT. It seems somewhat disproportionate.
By the way this is not intended as a criticism because those who
have helped us have been very helpful and very positive, but the
money is not there. We would see this as an opportunity to have
a more formal, better structure which also can interface with
our Turkish colleagues and help British companies as part of the
process of improving our market share there. Also, we can specialise,
as I mentioned earlier, in particular areas, such as legal, financial
reform and so on, where we have several members who could help
with the process of improving understanding and fast-tracking
some of the issues and problems of current investors. We would
also encourage the Turkish side to work in a more systematic way
when interfacing with us. For example, the inward investment people
under Mr Korkmaz would work more closely with the Embassy people
here, so we would have one voice, if you like, from the Turkish
side rather than a series of initiatives which sometimes are not
joined up.
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