Automotive Industries interview with Kaya Tuncer, founder and chairman of ESBAS
The Aegean Free Zone or Ege Serbest Bolgesi A.S (ESBAS), is one of the best places to do business in Turkey for foreign companies. Located in Izmir, ESBAS is an American-owned industrial park that is spread over 550 acres. Nearly 100 international and 300 local manufacturing and trading companies have set up shop there. Set up in 1990, some of the companies in ESBAS include Volvo, Samsung, Eldor Electronics, Delphi Packard, Hugo Boss and FTC Lockheed.
ESBAS was founded by Kaya Tuncer, a Turkish-American businessman. Tuncer, an engineer, worked for over 40 years with major construction, architectural and engineering companies including Bechtel Corporation, Daniel, Mann, Johnson and Mendenhall as well as with consultancies prior to setting up the Aegean Free Zone. His vision to build a world-class industrial park in Turkey was far-sighted.
Turkey offers companies easy access to markets in Europe, Russia, Ukraine, Central Russia and the Middle East. According to ESBAS, in 2006, companies in the industrial park generated more than USD 4 billion in international trade. ESBAS says that it will soon reach USD 4 billion. Currently 12,500 workers are employed in companies in ESBAS and this is expected to go up to 30,000 workers in 10 years time.
ESBAS attractiveness lies also in its proximity to Izmir’s international airport as well as Izmir Port. The Aegean Free Zone Development and Operating Company (ESBAS), built the entire infrastructure and facilities in the zone. The company says that buildings for lease in the zone are provided on a turnkey basis, satisfying the most demanding tenant requirements from form height, floor capacity and lighting to heating and ventilation. ESBAS has long stressed corporate security, adding to the comfort and peace of mind for those living and working in the zone. ESBAS is a secure, fenced-in development, staffed by its own industrial security of 40 uniformed officers, who patrol the zone around the clock. Additionally, ESBAS has its own fire department, and customs services at the entry gates.
The company also provides and maintains all telecommunications, utilities, and catering. Their services include leasing of land, office space, industrial and warehouse buildings utilities such as water, telecommunications and sanitation. Plus, the main advantages of the AFZ are 100 per cent corporate tax exemption for manufacturing companies, no customs duties for goods, equipment and machinery brought into the zone, warehousing for an unlimited time in a customs-free area and the ability to sell in Turkey immediately upon demand. And exemption from value added tax or VAT when buying Turkish products at export prices.
ESBAS hopes to attract companies from various industries, especially the automotive industry. Turkish automotive exports in 2006 stood at around USD 11 billion. Plus Turkey has applicant status to the European Union, which is encouraging for international investors. The country is the EU’s largest bus and coach manufacturer and its third largest light commercial vehicle and truck manufacturer. Turkey manufactures 1.2 million vehicles annually. The Turkish government and industry have targeted to manufacture 2 million vehicles by 2015 and become the world’s tenth largest and the EU’s third largest vehicle manufacturer by then. Another goal Turkey is working on is to be listed amongst the top five EU countries for research and development.
Automotive Industries interview with Kaya Tuncer, founder and chairman of ESBAS
Q1. What are the main reasons you, as an American entrepreneur, decided to do development in Turkey? What were the big challenges in getting the free zone in place? Who was and is your role model in terms of how to set up the services and management in the free zone?
A. In the 1980’s I was working on the construction of an industrial city in Saudi Arabia. During one of my trips, in 1984, on my way back to the US, I stopped over in Turkey and inquired as to whether we could do something similar in Turkey. At the time Turkey was working on the free zone program. I had seen how industrialization created jobs in other places and I told the government I would be interested in developing the Aegean Free Zone (AFZ) in Izmir. This action on my part was mostly motivated by my desire to contribute to the development of my country of origin.
The Aegean Free Zone that I have developed and am operating is the first privately developed free zone as well as the first privately developed industrial park in Turkey. So we had to create new rules and regulations for it. At the time, Prime Minister Turgut Özal was introducing privatization in Turkey, so the government was very accommodating and forward looking.
With my vast experience over the years in the development and operations of industrial parks in the international arena, I organized the financing, the infrastructure, the marketing, the services and, the management in for the AFZ.
Q2. Could you please detail ESBAS’ strategy for attracting foreign direct investment? Which sectors are being targeted most heavily and why? And which source countries are being wooed most actively?
A. At the Aegean Free Zone, we have the capacity to create employment for some 30-35 thousand people. This indeed would be a very important employment base anywhere in the world. The Aegean Free Zone has the management, the necessary infrastructure and the operational capabilities to service hi-tech manufacturing companies employing large numbers of workers.
Additionally, the so-called social infrastructure–including the food-serving capability, the child care center, medical facilities, sports facilities and the very pleasantly landscaped grounds–all help create a pleasant working environment for workers and management.
Electronics, automotive parts, machinery, textiles/garments, food packaging, IT and aviation are our main target sectors. Until now we have been able to attract internationally-known companies. Some of these firms are: Eldor Electronics-Italy, Delphi Packard and Delphi Diesel-U.S.A., McCormick-UK, Hugo Boss-Germany, PFW- Germany and Lisi- France among others, in the high-tech manufacturing sector.
The Aegean Free Zone is a gateway to the Middle East, Central Asia, and Eastern Europe. So the companies in the world including American companies planning to do business in these regions would find the Aegean Free Zone a good place to base their operations.
Q3. Do you expect this strategy to change in the near future with the changes in Turkey’s investment laws?
A. In February 2004 certain tax advantages of Turkish free zones were changed with law 5084. This has caused an adverse reaction for foreign investment in free zones as well as in the rest of the country with a considerable decrease in grass roots foreign direct investment. We are making every effort with the government to rectify this action in order to show Turkey as a stable place for investment with a government that honors contracts. The prime minister, in his visit to our zone, a couple years ago, promised that corrections would be made. We are hopeful and waiting. That the new government will tend to this matter expeditiously.
Q4. What role has ESBAS played in the surrounding region’s development? On a broader scale, what about Turkey’s development? And to what extent will it continue to play a role?
A. ESBAS and the Aegean Free Zone are already being recognized as business models for developing countries. With 16 successful years of history, the AFZ is an inspiring enterprise that demonstrates the vast potential for initiatives that equally benefit both employees and the local environment as much as the investors.
The sub-municipality of Gaziemir where the zone is located in Izmir, has experienced a great development in parallel to ESBAS’ growth. There are now three major supermarkets and numerous car sales showrooms. The one story village type houses have been replaced by eight story mid-rise apartment buildings. There are new schools, medical facilities, parks and other amenities.
About half of the worker population of the zone lives in Gaziemir. When one considers that today’s workers earn some $75 million per year, the impact of this income is very important to the surrounding region. When you add the value of goods and services needed for the zone from the region, you can see the economic importance the zone plays for the region and for Turkey in its development and sustainability.
The training that comes along with the various hi-tech companies adds a very important input to the development of the country. We hope that we can progress to our ultimate capacity of 35,000 workers soon. With this, the impact of incomes, local purchase of goods and services will surpass hundreds of millions of dollars and play a very important role in the lives of the population of the region.
The Aegean Free Zone and ESBAS have demonstrated that the private sector can be very effective in developing and operating industrial parks. Turkey has since passed laws allowing the creation of free zones and industrial estates by the private sector.
Q5. Who do you see as ESBAS’ key competitors within Turkey itself, within Europe, within Central Asia and elsewhere in the world?
A. As a developing country that is hopeful to enter the EU in some 10-15 years, Turkey needs to attract foreign direct investment for a number of different reasons, one of which is to create employment. So it needs to provide a number of incentives, tax-wise and otherwise. These incentives are necessary to attract investment. We observe similar incentives in other parts of the EU such as Portugal, Spain’s Madera Island, and Malta as well as Poland, Hungary, Romania, and even Germany, and now in Macedonia.
Furthermore, it is interesting that countries such as France, where unemployment rates were rising, were considering establishing, starting 2005, certain areas which they would call “competition zones” that will have tax advantages and/or certain subsidies to attract and maintain investment. Therefore, it is very natural that Turkey should continue providing incentives for investment in order to be competitive, and to show that it respects its commitments to FDI.
Dresden in Germany provides extensive investment incentives for hi-tech companies wishing to set up manufacturing facilities which create employment. Macedonia advertises in the USA, in Business Week, in Wall Street Journal, in New York Times and Financial Times!
Consequently, one can see that Turkey and ESBAS have quite a number of competitors, not only in developing nations but also in developed nations. We make road-shows in Germany for them to come and invest here, Germans make road-shows in Turkey to attract investment there. The world is changing rapidly!
Also there is the issue of China and India that provide low-cost labor and a number of incentives for FDI. As you know China is by far the champion country in attracting FDI, with India following it. But now, these countries themselves are becoming investors in other countries, for example China’s interest in Turkey.
Q6. In your opinion, what are ESBAS’ competitive advantages for attracting investment compared to its competitors?
A. The Aegean Free Zone is primarily a modern industrial park where we provide high quality infrastructure in terms of utilities, roads and landscaping. In addition, we also provide companies with other services such as food and catering, feeding now approximately 15,000 people a day. Since most of our large companies work three shifts a day, these services are provided on a 24-hour basis, including week-ends.
We also have a child care center where zone employees can drop their kids off in the morning and pick them up at the end of the day; the facility has the capacity to care for 150 children. We also provide zone employees with a number of outdoor and indoor sports and recreation facilities, and a medical center staffed by four doctors, an internist, a specialist for emergency care, and two general practitioner as well as a dentist.
As indicated earlier, the Aegean Free Zone is a modern industrial park very similar to those in the US and Europe. Therefore, AFZ is an attractive place for European and U.S. companies to come and set up shop, ensuring them the same standards for facilities and services in their own countries and at very competitive prices. That is why during the 1990’s, the Aegean Free Zone has attracted some 10% of all foreign direct investment in Turkey and over 50% of foreign direct investment relating to manufactured goods exports from Turkey. Although the absolute numbers are small compared to those of other European countries such as Poland and Hungary, it is significant that the Aegean Free Zone was able to attract a proportionately large percentage of foreign and Turkish investment.
We should also remember that the Turkish Free Zone Law and the workings of ESBAŞ minimize the bureaucracy making it very easy for companies to get established in the Aegean Free Zone and start operations in an expeditious manner.
Q7. How many companies operate in ESBAS? How much more capacity do you have for growth? How much has it attracted since its inception?
A. Currently, some 219 local and 75 foreign companies are operating at the zone and the employment is almost 15,000 people. The stated goal of the AFZ is to be operating at full capacity by the year 2012 when there will be up to 30,000 employees and 500 companies. Since its inception it has attracted almost half a billion US dollars of investment.
Q8. What are the biggest challenges that free zones around the world face and how can they be overcome?
A. The fact that the EU started negotiations with Turkey for accession to the union is a positive development. This will give Turkey an opportunity to upgrade its laws, rules, and regulations to western standards and criteria, enabling Turkey to be up to par with the western world. Such an event would thus enhance Turkey’s desirability for investment and increase the credibility of Turkey as a stable investment milieu. This is an important challenge.
Another important challenge, for free zones in general, is the ability to observe the rules of fair competition within the country as well as internationally. Manufacturing free zones will need to transform smoothly into export processing zones and eventually into exemplary modern industrial parks. This will ensure the continuity of manufacturing thus giving a sustainable employment base to the regions and countries the parks serve.