by Helen Sanders, Editor
With its strategic location between Europe, Asia and Middle East, Turkey has been a vital link in cross-continental trade routes and a melting pot of cultures for centuries. Increasingly, however, rather than passing through Turkey, corporations are giving the country a more prominent role as part of their growth strategy.
Since the start of this century, Turkey has experienced profound institutional and macroeconomic change, to become the world’s 17th largest economy. Turkey’s potential has in many ways been enhanced by the global financial crisis. Although its economy was hit by the crisis, the country rebounded quickly, and although growth since then has been steady rather than meteoric, with an average of 6% growth from 2013-2013 and a forecast growth rate of around 3.5% over the next five years (source: IMF), opportunities in Turkey are still more attractive than in many European states, particularly given that the Turkish lira (TRY) is fully convertible. With a large population, impressive GDP growth, structural reforms and a decline in poverty, therefore, Turkey has become an increasingly attractive destination for corporations of all sizes and industries.
Investment in Turkey
Although the geopolitical climate in Turkey has become more volatile in recent years, investor and consumer confidence in Turkey has largely remained steady. Ozlen Hudayioglu Gul, Cash Management Business Development Senior Manager, TEB (a strategic partner of BNP Paribas) explains,
“Foreign direct investment (FDI) continues to grow in Turkey, albeit not at the same rate as in 2011, with particular interest from companies in sectors such as energy, automotive, financial services, and information technology, amongst others.”
In addition to large multinationals, mid-cap and small to medium-sized enterprises recognise the strategic importance of Turkey as part of their international growth strategy. Sinem Saruhan, Cash Management Sales Manager, MNCs, TEB continues,
“In most cases, multinational corporations invest in Turkey through mergers and acquisitions of local firms. Treasurers are typically seeking to integrate cash and treasury operations and liquidity into group structures wherever possible, and align policies and processes with other regions.”
Taking an integrated approach
The digital agenda is at the forefront of development and enterprise in Turkey, reflecting the Turkish government’s commitment to reforming the economic fundamentals of the country to encourage long-term sustainable growth and investor confidence, but also to promoting efficient, transparent and automated financial transactions. However, one of the key challenges that companies doing business in Turkey experience is that although TRY is a tradable currency, cross-border cash pooling is subject to tax restrictions which makes it prohibitive. Notional pooling is not permitted. Consequently liquidity management is often a major issue that corporations of all sizes need to consider when launching or expanding business operations in Turkey. As Sinem Saruhan, TEB discusses,
“Before the global financial crisis, Turkey was a relatively small market for many multinational corporations; however, since then, Turkey has become more strategically important. Consequently, as the volume of business in Turkey has increased, we have seen a move towards treasury centralisation, but this can be challenging in Turkey given that the tax implications of cash pooling make this prohibitive. We provide technology solutions to provide complete visibility and monitoring of cash, both domestically and internationally. In addition, treasurers rely on our advisory services to find ways to optimise liquidity and risk management whilst respecting local conditions.”
It is not only foreign multinationals that need to consider the cash and treasury management implications of international expansion. Ozlen Hudayioglu Gul, TEB continues,
“Turkish corporations are also seeking to expand internationally, particularly into Africa, Middle East and in some cases, Central & Eastern Europe, which brings a broad range of cash and treasury management challenges given the diverse infrastructure, regulation, payment and collection methods and cultures that exist across these regions. As part of the BNP Paribas group, we can offer integrated solutions that provide regional and global visibility and control over cash and risk, as well as support for local payments, collections and cash management across our global footprint.”
Managing foreign exchange risk is also a significant concern for many organisations, particularly those that have operated predominantly in Europe in the past. However, the techniques available to hedge this risk are common to those in other regions, so TRY can typically be managed as part of a foreign exchange risk management strategy. Sinem Saruhan, TEB continues,
“Given the volatile market conditions in Turkey, such as FX rates, we support clients of all sizes with innovative hedging techniques to mitigate risk in incoming and outgoing foreign currency flows; however, as in all areas of cash and treasury management, we are responsive to the unique nature of each client’s requirements.” [[[PAGE]]]
Overcoming obstacles to efficiency and centralisation
While cross-border liquidity and FX risk management continue to create challenges, the opportunities for both foreign and Turkish multinationals to achieve efficient, cost-effective and robust cash management processes, such as payments, are far greater. As in many other countries, centralisation is becoming a more important trend. The difference, however, from many other emerging or mid-level economies is that the efficient payment infrastructure and proactive digitisation agenda makes the opportunities for centralisation and optimisation increasingly achievable. Ozlen Hudayioglu Gul, TEB outlines,
“A growing number of companies are centralising financial processes such as payments (although not yet collections) through payment factories and shared service centres (SSCs), but as a recent development, the number is still small in absolute terms.”
Inevitably, there are some challenges when seeking to centralise and standardise payment flows, whether domestically or regionally, but these obstacles are becoming far less onerous with the emergence of new technology solutions. Erdoğdu Paker, Head of Cash Management & Trade Finance, Akbank emphasises,
“There is a strong trend towards digitisation in Turkey, driven by, and resulting in, the emergence of new business models. This is putting pressure on banks and infrastructure providers to respond, with a variety of initiatives to automate and improve efficiency and control in cash management.”
One challenge historically, for example, has been customs payments for imports. Goods were often left in customs for long periods while payments were arranged. Today, solutions such as mobile payments allow immediate payment, therefore accelerating the supply chain and reducing costs, such as storage. Ozlen Hudayioglu Gul, TEB explains,
“There are some challenges to overcome: for example, some cross-border payments need to be declared to local customs authorities, supported by correct documentation before imported goods can be released at port. We therefore work with clients to ensure that they achieve the payments efficiency they are seeking whilst adhering with these obligations.”
Erdoğdu Paker, Akbank continues,
“Akbank allows customs payments to be made via SMS message. This allows imports to be released immediately, rather than waiting for payments to be initiated and cleared, greatly accelerating the trade process.”
Another such example is for the automation of tax payments, as Erdoğdu Paker outlines,
“Although an online tax payment system has been set up by the Ministry of Finance, there is no standing order capability. Akbank offers a unique proposition in this area, providing an automated, convenient means of making tax payments.”
The shift from manual payment instruments
In addition to solutions to accelerate specific payment types, there is a general shift taking place away from manual payment instruments in favour of electronic payments. Currently, there continue to be a number of payment instruments that are very specific to the Turkish market, such as post-dated cheques. As Ozlen Hudayioglu Gul, TEB says,
“Treasurers and finance managers working in Turkey for the first time rely on TEB for support and advice on the unique features of the market, such as the use of post-dated cheques and instalment-based cards. By integrating local solutions closely with international electronic banking channels, we enable both Turkish and foreign multinationals to gain visibility and control over domestic and international transactions.”
Erdoğdu Paker, Akbank continues,
“Cheques have been the primary means of payment in Turkey; in addition, post-dated cheques have commonly been used as a credit instrument. In recent years, however, there has been significant growth in the use of electronic payment instruments, such as direct debits.”
Credit transfers, standing orders and direct debits are becoming increasingly prevalent in Turkey, in addition to substantial growth in the use of credit, debit and prepaid cards, including contactless cards, with use of electronic payment methods more than doubling between 2009 and 2013 (source: BIC). While this trend offers opportunities for more efficient payments, the same is also true for collections. Consequently, the trend towards efficient, predictable collection methods such as direct debits is now very strong amongst larger corporations, as Mehtap Yilmaz, Vice President, Corporate Marketing, Cash Management & Trade Finance, Akbank illustrates,
“This trend [towards direct debits] is even larger within the large corporate segment, both Turkish corporations and foreign multinationals, where the use of direct debits is twice that of cheques for collections. This is resulting in increasing demand for automated cash management solutions that complement the use of direct debits.”
Leading the digital agenda
The shift that we are now seeing in the adoption of electronic payment methods is a cultural rather than a technology change. Although – and largely because – Turkey has been later in embracing electronic payments than parts of Europe, payment systems and infrastructure are already highly efficient and automated. Erdoğdu Paker, Akbank explains,
“Turkey has a very advanced payments system, with real-time interbank electronic funds transfers since 1993, and a continuous process of improvement and refinement. This real-time capability has since been extended to customers’ high value payments, and now bulk payments in line with demand from institutional customers.”[[[PAGE]]]
Furthermore, as Mehtap Yilmaz, Akbank emphasises, payment (and collection) processes and formats can also be harmonised, and therefore more closely integrated, with those in other parts of the world, particularly Europe:
“Although Turkey is not part of SEPA, ISO 20022 formats are now widely supported to meet the demands of multinational corporations, including within the Turkish clearing system, supporting centralisation and harmonisation of payment processing.”
With efficient payment systems in place, banks, technology vendors and their corporate clients can therefore focus on leveraging new adaptive technologies to support emerging, digital business models. As Ozlen Hudayioglu Gul, TEB discusses,
“Turkey is ahead of many other countries in the use of eCommerce solutions and innovative business models, not least as there are fewer legacy technology issues to overcome. Corporations of all sizes are engaging with their customers, both retail and business customers, through digital channels, supported with solutions such as electronic signatures, including with mobile payments. These make payments legally binding, therefore ensuring certainty of cash.”
Erdoğdu Paker, Akbank continues,
“As globalisation continues, treasurers are seeking greater mobility in their treasury processing. Consequently, Akbank has invested heavily in alternative distribution channels, such as its award-winning web and mobile channels, allowing treasurers to conduct treasury activities, such as authorising payments, remotely.”
The ability to establish efficient, centralised payment (and collection) processes has wider implications, particularly for working capital and financial supply chain optimisation. Firstly, implementing working capital financing programmes relies on efficient, electronic, robust financial flow management as Mehtap Yilmaz, Akbank notes,
“With the growth of electronic payment and collection methods, the opportunity to monetise financial flows through supply chain finance programmes is increasing. These programmes are well-established in Turkey, which Akbank supports through a digital supplier platform that enables suppliers to see their collections and discount them automatically for early payment.”
Automating the financial supply chain
Secondly, the corporate, government and regulatory focus on efficiency, automation and transparency is not restricted to payments, but the financial supply chain as a whole. For example, the Turkish government has a major focus on electronic invoicing (eInvoicing) which has, and will continue to have, important implications for corporations both headquartered and operating in Turkey. Sinem Saruhan, TEB outlines,
“eInvoicing is becoming increasingly important in Turkey, due in part to a government-led initiative to make eInvoicing mandatory for an initial 20,000 companies for transactions amongst each other, a number that is expected to double next year. Furthermore, companies are obliged to keep duplicate invoices for ten years, which is very resource- and storage-intensive if these are held in hard copy: consequently, the opportunity to hold these invoices digitally through an electronic archiving facility is a major advantage for businesses of all sizes. To take advantage of this opportunity, companies need to modify processes and formats.
TEB is being proactive in supporting both eInvoicing and eArchive, through a combination of advisory services and integrated solutions to support visibility, efficiency and control throughout the purchase-to-pay cycle, and connect into working capital financing solutions.”
Erdoğdu Paker, Akbank concurs,
“eInvoicing is set to grow substantially, and is fundamentally changing the purchase-to-pay and order-to-cash processes. Although only 5% of invoices are currently electronic, this is above 80% amongst large corporates, reflecting its enormous potential in this market. Akbank has invested heavily in eInvoicing, and has integrated eInvoicing within its payments, supply chain finance and direct debit solutions, a significant differentiator.”
Enhancing treasury confidence
These initiatives play an essential role in building investor confidence and enabling treasurers and finance managers to connect Turkey within a regional cash management strategy or, in some cases, use Turkey as a blueprint for other countries. In particular, solutions developed for, and with proven success in Turkey have applicability in regions such as emerging Asia, Middle East and Africa. Consequently, Turkey’s historic role as the meeting point between continents, now evolved to reflect new, digital global trading models, is as relevant today as it ever was.
