- The Writer holds an MSc in Eurasian Political Economy & Energy from King’s College London and also an MA in European Studies from Sabancı University.
As the Chairman of the Board of Borsa Istanbul rang the opening bell on January 24 to signal the start of Nasdaq trading, which was broadcast live in New York Times Square, the gong also represented the introduction of Turkey’s Wealth Fund (TWF).
The TWF is set to provide product diversification for capital markets while positively influencing the deepening of the markets by accelerating investment industry and diversifying funding sources in the form of securities, insurance, asset and wealth management, and thereby capital market development would be more compatible with economic development. A more integrated capital market would create the financial tools for greater access to long term financing of various sectors, including megaprojects.
Turkey has transferred government stakes worth billions of dollars and treasury shares in key state-run institutions extending from banks, energy companies to airline, telecommunication as well as stock exchange market shares. The establishment of Turkey’s Wealth Fund Company, numbered 6741, was published in the Official Gazette dated August 2011 and introduced on August 26, 2016. With a primarily domestic focus, the establishment of the TWF aims to generate long-term, low cost, strategic investments with the intention of spurring developments. It also is expected to operate in a similar way to an ordinary joint stock company and function as a “parallel budget” with the view to warding off speculative attacks while taking over budget deficits when necessary. It is forecast that the TWF will reach 200 billion TL in the years to come.
Based on the legal framework of the wealth fund, the qualifications and aims of this fund are as follows:
· A Turkey Wealth Fund Management Company was established as a joint-stock company with a capital of 50 million Turkish lira,
· The capital of the company, which will be overseen by the Prime Ministry, will be pooled by the Privatization Administration,
· The board of directors of the company will be composed of at least five persons, the president, and the general manager and members of the company will be appointed by the Prime Minister,
· The wealth fund is subject to the provisions of private law,
· Fund managers are responsible for preparing the Internal Audit Rule of the Turkish Wealth Fund and, if deemed necessary, sub-funds under the Turkish Wealth Fund will be established.
In light of recent developments and with the approval of the Prime Minister Binali Yıldırım and the Council of Ministers, the state-run lender Turkish Republic Ziraat Bank, Petroleum Pipeline Cooperation, Turkish Petroleum, General Directorate of Post and Telegraph Organization, Stock Exchange Istanbul, Communication Services and Satellite Technology Company TURKSAT, General Directorate of Eti Mining Operations and General Directorate of Tea Enterprises, and 6.68 percent of the shares of Turk Telecommunication Company belonging to the Treasury as well as a 49.12 percent stake in Turkish Airlines and a 51.11 percent stake in Halkbank will be transferred to the Wealth Fund.
The following operations can be performed on behalf of the Turkey’s Wealth Fund:
· Buying and selling of public, private sector and public debt instruments that can be traded,
· Deposit account and participation account transactions,
· Trading of treasury real estate and deposit certificates, gold and other precious metals and capital market instruments based on these mines,
· Transactions to fund participation shares, repo and reverse repo transactions, rent certificates, real estate certificates, warrants and certificates, cash guarantees and premiums of derivative transactions, specially designed foreign investment instruments and loan participation certificates,
· Buying and selling of shares of domestic and foreign companies in Turkey, including shares, privatization scope and programs,
· Participating in national investments and in investments by other states and/or foreign companies in international areas.
It is also vital to review how the TWF has planned to be audited and in what aspect it would differ from other established funds. TWF and other companies to be established by the fund, as well as sub-funds to be established within the fund plan not to be subject to audit by the state’s Court of Accounts, but rather these companies and funds propose to be subject to independent audit under the Capital Markets Law. Wealth funds and companies and sub-funds established under this law will be exempted from income and corporation tax, and some of the transactions made will be exempt from taxes such as VAT and Corporation Tax.
When considering the rationale behind the establishment of Turkey’s Asset Fund, its expectations are high with the possibility of the following provisions when fully operational:-
· Economic growth rate is expected to increase
· The integration of capital markets are set to accelerate to actively support domestic capital market development by providing resilience against financial shocks
· To ensure security of supply, and without being subject to bureaucratic restrictions, direct investment in strategic sectors abroad in petroleum and natural gas, which is significant for Turkey, will be possible.
· The use of Islamic financing assets will become more widespread.
· Greater employment opportunities will be available.
· In addition to contributing to overcoming structural problems in the economy, the Fund will contribute to the strengthening of Turkey’s position in the international arena and as an important instrument in foreign policy.
· Domestic companies operating in software, aerospace and the defense sectors will be supported by capital in their projects with the aim of propelling them into the league of global players.
- Opinions expressed in this piece are the author’s own and do not necessarily reflect Anadolu Agency's editorial policy