Client Insight > MINT – The legal challenges of working and investing in emerging economies

MINT – The legal challenges of working and investing in emerging economies

Mexico, Indonesia, Nigeria and Turkey: the legal challenges of working and investing in emerging economies.

Global demographics are changing. Over the next 15 years, the global middle class is set to double with three billion people entering its ranks. Many of these new consumers will come from emerging markets. As the balance of global trade shifts away from G8 economies, businesses and investors are increasingly looking to diversify into emerging markets.

For much of the 2000s, discussion of emerging markets was centred on the Bric nations (BrazilRussiaIndia and China, with South Africa sometimes added as a fifth member of the group). The recent commodity price crash and Chinese slowdown has turned investors toward a second-generation of emerging markets characterised by favourable demographics and a rising middle class. The Mint nations – MexicoIndonesiaNigeria and Turkey – have become synonymous with this new focus.


The Mint nations’ demographic trends are set to become even more advantageous in the coming years. Fertility trends projected by the United Nations’ Department of Economic and Social Affairs suggest that by 2050 China will have one of the oldest populations on earth. The Mints will be among the youngest nations.

While many countries have large, young populations, the Mints also benefit from geostrategic or political influence: Mexico benefits from close trading relations with the US, its historical and linguistic ties to Latin America, and extensive coastlines along the Atlantic and Pacific oceans that allow it to access global markets with ease; Indonesia is the largest member of the Association of Southeast Asian Nations (ASEAN) and is one of the most developed economies in a region certain to become the next centre of global powerNigeria is now Africa’s largest economy and by far the dominant member of the Economic Community Of West African States (ECOWAS); while Turkey is a geographic connector between Europe and the Middle East that benefits from huge potential consumer growth.

The origin of the acronym

The birth of the Mint acronym is popularly attributed to Goldman Sachs banker Jim O’Neill, who selected Mexico, Indonesia, Nigeria and Turkey as the four most promising candidates from a list of countries with high-potential to grow rapidly in the twenty first century. Since that time, Turkey and Indonesia, have already been added to a less auspicious group: ‘the fragile five’, a group exposed to high risk of capital outflow from the US Federal Reserve’s proposed stimulus reduction. The fact that all of the fragile five were Bric and Mint economies shows just how precarious the emerging market business can be. As Warren Buffet once said, it’s only when the tide goes out that you can see who’s been swimming naked.

The coherence of the Mint grouping is further challenged by the economic differences between the four countries. Nigeria and Indonesia have largely commodity-driven economies. Turkey, which has little in the way of natural resources, depends largely on agriculture, and Mexico, though a significant exporter of hydrocarbons, is much more oriented toward manufacturing and value-added production. Indonesia and Nigeria are lower-middle-income economies by World Bank classification while Turkey and Mexico are upper-middle-income economies more solidly connected to global value chains. In many ways the Mint economies form a group in which every member is an outlier.

It would be more accurate to say that the Mint economies are connected by undesirable commonalities such as informality and corruption. All suffer from high levels of unemployment, growing security issues, low levels of education and development, and high levels of inequality. All fare poorly in Transparency International’s Corruption Perceptions Index: out of 167 countries ranging from Denmark in first place (most transparent) to North Korea and Somalia in joint last, the Mints rank 136 (Nigeria), 95 (Mexico), 88 (Indonesia) and 66 (Turkey).

A notable characteristic of the Mints is that each is now led by a strong, ambitious president who came to power promising to deliver sweeping structural reforms.

Mexico’s Enrique Peña Nieto has opened the market to foreign competition while promising to invest hundreds of billions in new infrastructure; Indonesian president Joko Widido came to power in 2014 promising to push through dozens of ambitious reforms in an attempt to open the country’s protectionist and heavily regulated markets; Recep Tayyip Erdoğan became President of Turkey in 2014 after more than a decade as Prime Minister, during which time he outlined ambitious reforms to make the country a world power; while Nigeria’s Muhammadu Buhari, who became the country’s first democratically elected opposition leader in 2015, is pledging to build new infrastructure and move the country’s economy away from resource dependence.

These reforms may look good on paper, but international and domestic businesses and their legal counsel will be more interested in following the steps to their implementation. What secondary legislation be passed to enact the reforms and how will this change the responsibilities of businesses operating in the market? Who will administer and enforce the laws? Will national champions that had formerly benefitted from closed markets change their behaviour in response?

In this report we offer insight and analysis from some of the leading market experts, investors, decision makers and general counsel in each of the Mint economies. Taking our cue from those who have gained extensive experience of the relevant markets, we get behind the data and look at the actual issues businesses and lawyers need to be aware of.


Don’t be a ‘Google advocate’

The most common mistake made by international counterparties and investors is assuming published laws and regulations offer a reliable guide to doing business in an emerging market. The Mint nations in particular tend to have rapidly changing laws and regulations. All four countries are currently undergoing significant reforms. The speed of this regulatory change can be baffling, even for local regulators. In-house counsel warned that knowing how a law or regulation will be applied is not something than can be discovered by reading the published law. In short, the text of the law is often a poor guide to knowing how it will be interpreted in practice.

Build relationships

The above makes establishing a working relationship with the regulator essential to doing business in these markets. This may not be practical for many international businesses, which makes finding a reliable and well-connected local partner or counsel all the more necessary. As joint venture remains the most common route to market in many emerging economies, close relations are also essential for successful commercial operations.

Expect delays

In-house counsel and investors frequently stated that the slow pace of legal processing came as a shock. Respondents advised those with limited experience of emerging markets to factor in significant delays when planning a deal and to anticipate bottlenecks and challenges well in advance.

Working in an emerging market is a two-way street

International investors that have decided to enter an emerging market must take the necessary steps to understand how it works. While emerging-market business partners are sympathetic to the challenges and frustrations international investors encounter in their jurisdictions, they often experience frustration when dealing with counterparties who expect to behave as they do in more developed markets.


Home jurisdiction of respondentMexicoIndonesiaNigeriaTurkey34%20%14%32%

Topping Slices
Mexico 34
Indonesia 32
Nigeria 14
Turkey 20

Role of respondentGeneral counselC-suiteSenior in-houselawyerOther (eg investoror analyst)38%17%21%24%

Topping Slices
General counsel 38
C-suite 24
Senior in-house lawyer 21
Other (eg investor or analyst) 17

Over 200 clients – general counsel, senior in-house lawyers, chief executives and other c-suite – provided their input on the main challenges, opportunities and legal risks they have faced. Many were based at companies operating in Mexico, Indonesia, Nigeria and Turkey, though some were foreign investors or international counsel with extensive experience of at least one of the four markets.

The fraction of respondents based in, or chiefly commenting on, each of the four countries was: Mexico, 34%; Indonesia, 32%; Nigeria, 14%; Turkey, 20%.

For the sample as a whole, 78% were based in the country they provided comments on while 22% were based elsewhere, either as a foreign investor, analyst or a GC/decision maker at an international organisation with significant experience of the Mint economies.

Just under half (47%) of those based in a Mint economy represented companies conducting the majority or all of its trade within the nation, with the rest dealing primarily with a regional partner/trading bloc (34%) or other international markets (19%).

This research was conducted by a mix of telephone interviews and written responses to questions about experiences in the Mint economies. In cases where respondents’ comments have been provided on condition of anonymity, their job title and organisation has been reported as accurately as possible within the confidentiality limits requested.

Across all four countries, those we spoke to can be classed as: general counsel, 38%; chief executive or other c-suite, 24%; senior in-house lawyer, 21%; other (including investor or analyst), 17%.

Respondents were drawn across a range of sectors and no single type of organisation dominated the sample.

MINT in numbers


* Source: World Bank


** Source: United Nations World Population Prospects, 2015 revision


* Source: World Bank


* Source: World Bank



* Source: The Legal 500


* Source: The Legal 500


* Source: The Legal 500


* Source: The Legal 500




The impact of reforms

The government of Enrique Peña Nieto entered office in December 2012 promising to introduce competition into key sectors of the economy, improve transparency, and tackle inequality. We speak to investors and in-house legal counsel to find out what impact Peña’s reforms have had and what more needs to be done.

In the face of a global and regional slump, Mexico has been one of the most resilient emerging-market economies. Not only did Mexico continue to grow at a modest rate in 2015, but it avoided the high capital outflows seen by other emerging markets and retained its investment-grade rating from the major credit ratings agencies.

Economic ties with the US and close integration with North American manufacturing supply chains have allowed Mexico to weather a Chinese slowdown and fall in commodity prices like few others. With wages rising steadily in China, the country is becoming even more attractive as a place to establish operations. Mexico’s automotive sector, which has traditionally been dominated by US manufacturers, is now attracting interest from European carmakers such as BMW, which has invested over $1bn in new operations in the central state of San Luis Potosi, and Audi, which has made a $1.5bn investment in a south-central state of Puebla.

This close economic co-operation has been key to Mexico’s recent resilience. Roughly 80% of Mexico’s manufactured exports now go to the US – totalling around $294bn worth of manufactured goods, roughly 23% of its GDP – with 50% of Mexico’s imports arriving from its neighbour. This has led to high levels of integration across North American supply chains, providing Mexico with an important buffer against the macroeconomic trends affecting other emerging economies (this close relationship has also helped lock US companies in to the Mexican supply chain by creating a mutually beneficial relationship: for example, 40% of the value in Mexican exports comes from US originated materials or products). In the past year, well-known US companies like Caterpillar and Chrysler have already moved jobs to Mexico, and many more are looking to set up operations there. The openness of Mexico’s economy – which is connected to more than 40 countries through free-trade agreements – has also helped to attract FDI.

Investments into Mexico have tended to gravitate toward the north of the country, where a large number of US companies have located their manufacturing operations.

Business challenges

(% of respondents)


compliance and regulatory


anti-bribery and corruption





Mexico will be boosted further by favourable demographics that will allow it to continue growing for many years to come. Its labour force is projected to increase by 10 million workers by 2030, during which time the number of middle-class households is set to double. Indeed, Mexico is widely expected to overtake Brazil as Latin America’s largest economy over the coming decade. Mexico’s potential is strong, but it faces many of the same challenges as other emerging economies.

While Mexico’s economic ties to the US have insulated it from much of the volatility in financial markets, around a third of Mexico’s budget is based on oil: the dramatic oil price falls of the past year have had a big impact on its currency. The peso lost nearly 30% of its value over 2015 and hit its lowest ever level against the dollar by early 2016, bringing with it an unwanted reminder of the ‘tequila crisis’ of 1994.

The government’s promise of a National Infrastructure Program, which would see $590bn committed to the development of new roads, ports and train lines, has also fallen flat, with lower than expected returns from the early rounds of energy sell-offs and fiscal discipline delaying many of the projects. Rising Chinese labour costs have made Mexico an increasingly popular hub for manufacturing, the low level of Mexican wages has held back consumer demand, making it a less viable candidate for investments not tied to export manufacture. Indeed, the incidence of poverty continues to rise in spite of GDP growth, with over 46% of Mexicans now falling below the government’s official poverty line.

Labour is certainly cheaper than in the US, but may actually be less cost-effective due to skills-gaps in the workforce. While there has been a lot of publicity surrounding government-backed ventures in technologically advanced manufacturing, particularly in the automotives and aerospace sectors, the extent to which Mexico will be capable of finding the workers to move into these higher value operations remains an open question for many.

Further, the country’s problems with corruption and organised crime seem to be getting worse, with the flight of Joaquín Guzmán (‘El Chapo’) and the poorly managed investigation over the disappearance of 43 students taking attention away from the positive news surrounding the reforms. Violent crime in Guerrero (the state in which Acapulco is based) has already led to international companies scaling back their operations due to attacks on their workers and premises. In 2015 a US Congress House Committee on Foreign Affairs cited investors’ concerns over corruption and security as one possible reason for the lack of interest in Mexico’s oil assets following the energy reforms. Among those we spoke to, security was seen as one of the main barriers to doing business in Mexico. All of which explains why, in spite of Mexico’s many advantages as a place to do business, the government has paid so much attention to pushing through structural reforms.

‘Mexico’s future prospects were rated most favourably of all four Mint nations, with nearly two thirds of respondents believing the country would show strong growth.’

Domestically, however, the response has been muted. While hopes ran high in 2012, there have so far been few signs that the reforms will improve life for the average citizen. Ongoing problems with corruption and security have left Peña suffering his lowest approval ratings since taking office, weakening the government’s ability to push through further reforms.

The reforms’ impact has also failed to live up to expectations. An expected 5% boost in growth failed to materialise, and while an actual growth rate of 2.5% for 2015 represents an improvement on Mexico’s recent economic performance, it was largely based on a weak currency and a stronger US economy. The reforms have made little impact on Mexico’s ability to attract foreign direct investment (FDI). While FDI nearly doubled in the year that the reforms were introduced the rise was largely the result of Anheuser-Busch InBev’s $13bn acquisition of Grupo Modelo. In subsequent years FDI has been flat.

At least part of the problem, according to those we spoke to, is that the reforms have yet to address the real problems they see in the market. As one investor commented, the most successful of the reforms have been pushing at an open door: Mexico has never really been a closed market and, its energy sector aside, foreign companies have not been formally prevented from participating. The barriers companies have traditionally faced in Mexico have been practical, not legislative. For most foreign, and indeed domestic businesses, contending with oligopolies, corruption and a lack of skilled labour has presented far greater challenges than securing permits.

No one doubts a stronger rule of law and increased competition will help the country develop, but progress has been slow in many areas and there are concerns over whether new regulatory agencies will be able to develop quickly enough to make the changes stick. Sustaining the early momentum will be key if the current administration is to achieve its goal of building Mexico into a developed economy. While the reforms have not led to any significant increase in direct investment, our research shows they have been well received by foreign businesses: many reported that they would be more likely to invest in Mexico as a result, though most were waiting to see how reforms are implemented in the longer term.

The market in brief

Mexico tops emerging markets

Mexico’s future prospects were rated most favourably of all four Mint nations, with nearly two thirds of respondents (72%) believing the country would show strong growth in the medium term.

Mexican businesses and foreign investors respond positively to the reforms

Underscoring the optimism generated by structural reforms, Mexican businesses expect to benefit from growing FDI – 63% of those we surveyed said this was their outlook. Among foreign investors the response was even more positive, with 80% saying they would be more inclined to invest in Mexico as a result of the reforms.

But deeper structural changes must be implemented

While responses to economic reforms were positive, the bigger challenge to doing business in Mexico is its relatively weak rule of law. Ongoing reforms to political transparency and criminal justice will be crucial to sustaining investor confidence.

Compliance remains a challenge

Compliance was the single biggest issue faced by businesses in Mexico, with large multinationals and businesses exporting to the international market facing particular difficulties. However, many said a more even playing-field resulting from tougher domestic compliance laws would make the situation easier.

What issues are businesses and investors facing in the Mexican market?

What do investors and businesses think about the short-, medium- and long-term prospects of these reforms?

As part of our overview of the Mexican market we interviewed and put written questions to senior professionals at Mexican and international businesses with operations in the country. We also spoke to a selection of growth investment funds that have targeted the Mexican market.

Frequent changes in law and regulation

Compliance and regulation was seen as the biggest challenge facing businesses in the near term. Many respondents pointed out that recent reforms had significantly increased the amount of paperwork and uncertainty, though this was expected to be a short-term problem. Uncertainty of law and an unpredictable investment climate were also seen as a problem, but the criticism was muted when compared with other jurisdictions surveyed in this report.

‘Frequent changes in laws affect our initial forecasts for deciding to invest in a country and too much of it can be a bad thing, particularly if there is a lack of protection offered to foreign investment.’
Asia-Pacific based infrastructure investor

‘There is a continuous increase in domestic and international regulation so I would not claim it is a uniquely Mexican problem, but regulatory changes have made a bad situation worse for us. Contrary to the government’s intentions, which were to address regulatory issues in the industry in order to increase the foreign investments, we are seeing much more hesitancy across the market.’
CFO, automotive industry

‘We are definitely seeing new regulations slowing growth in the financial services sector. We can see this in the financial markets, mortgage markets, and retail financing markets.’
General counsel, financial services

Weak rule of law

Weak rule of law was seen as a far more serious problem for businesses and investors in Mexico. Respondents criticised the judicial system and said there was a lack of certainty over how the legal framework would be implemented. Complaints about difficulties enforcing dispute settlement rulings and questionable due process were also common.

‘The financial and banking sector, and Mexico overall, face a tremendous challenge with regards to the rule of law. There are many subjects that need attention, including anti-corruption, better and more sophisticated courts and judges and better education.’
Director, financial services sector

‘The reforms are meaningless if we continue to face difficulties in getting the authorities to enforce the law. Getting attention from the relevant authorities to prosecute to the full extent of the law can be a challenge in Mexico, particularly when we are dealing with employees who defraud the institution or common criminals. These represent a serious security risk for our employees and clients but are rarely taken seriously by the courts.’
General counsel, technology company

Corruption and a lack of transparency

The connection between corruption and rule of law is well known, and several respondents complained that Mexico’s economy was being held back by deliberately opaque tendering processes designed to serve well-connected businesses. The problem was felt to be particularly acute at the federal level.

‘In order to demonstrate that we have regulations that protect foreign investment we need to reinforce the rule of law through exemplary sanctions. A clean government and transparent actions are still lacking.’
General manager, technology company

‘Mexico has a constitution that, contrary to theory, is neither clear nor enforceable. This leads me to suspect that the reforms will end up being very similar: a wish list with incredibly detailed dispositions on matters that are not consistently applied.’
Europe-based investor

‘Unfortunately, perceptions of corruption and difficulties to starting a business have put off many investors. This is something I have seen time and again. Corruption is not as bad as people believe it to be, and investors feel the need to identify and join forces only with local big industry players because they think that is the only way to complete projects.’
CEO, Mexican manufacturing company

Measuring the impact of political and legal reform

Mexican presidents can become lame ducks very quickly, with a single six-year term – there is no prospect of re-election – making it especially difficult to leave a legacy. Those who have not accomplished much of what they set out to accomplish half way into their time in office, it is often said, will find themselves limping toward the end of their term.

Presidents wishing to leave a legacy of structural reforms face even greater challenges. They must outline a vision, grapple with an often factious party political system, ensure constitutional amendments and legislative approvals are secured, and establish new regulatory bodies and institutions. Mexico’s presidents have frequently pledged to reform the country’s institutions, but few have succeeded.

Trans-Pacific Partnership (TPP)

Mexico signalled its commitment to trade liberalisation when it signed the General Agreement on Tariffs and Trade (GATT) in 1986, since which time it has entered into more trade pacts than any other emerging-market nation. Mexico currently enjoys reduced or tariff-free access to 44 countries through 12 major trade deals, the most important of which historically has been the North American Free Trade Agreement (NAFTA). Introduced in 1994, NAFTA abolished intercontinental trade tariffs and other trade barriers between the US, Canada and Mexico.

Mexico’s commitment to trade liberalisation was furthered in February 2016 when it formally joined the Trans-Pacific Partnership (TPP) as one of 12 founding signatories along with Australia, Brunei Darussalam, Canada, Chile, Japan, Malaysia, New Zealand, Peru, Singapore, the United States and Vietnam (it is likely that South Korea, which already has a free trade agreement with the US, will seek to join TPP negotiations in the near future). When fully implemented, TPP will consolidate trading relations around the Pacific Rim, offering reduced barriers to trade between nations that collectively account for 40% of global GDP and 26% of global trade.

While TTP is not a radical departure from existing trade agreements to which Mexico is a signatory, it will introduce some novel features such as greater protections for IP rights along with common labour and employment standards. It is also the first such agreement to include provisions setting non-trade commitments for environmental protection and health standards while encouraging its members to co-operate more broadly on issues such as gender equality and disaster management.

Mexico has been excluded from the first round of discussions on the Transatlantic Trade and Investment Partnership (TTIP), which together with TTP will bring nations worth over 75% of global GDP into reciprocal trade deals, but will likely be among the first new members once negotiations are concluded between the US and Europe. Nonetheless, parallel agreements between Mexico and the EU are set to be updated to improve Mexico’s already strong position on European trade.

Mexico was instrumental in negotiating changes to TTP that will mean only auto-producers using a large number of TPP-manufactured parts receive the benefits of the treaty, which should help further boost its position as an auto-manufacturing centre.

With Enrique Peña Nieto now past the half way stage of his time in office, few would say the president has become a lame duck. The present administration has opened Mexico’s energy and telecoms markets to investment, set new capital adequacy ratios for banks and introduced new provisions for competition, transparency, employment law, and tax. So far, 12 structural reforms have been approved, though more are pending.

These reforms required a cross-party consensus that is rarely seen in Mexico but, with the formation of the so-called ‘Pact for Mexico’ (Pacto), the ruling Institutional Revolutionary Party (PRI), the conservative National Action Party (PAN) and the leftist Party of the Democratic Revolution (PRD) were able to suspend their differences for a time. Building the political consensus required for these reforms to pass may end up being the most enduring part of Peña’s legacy. For investors looking at the Mexican market, proof that the country’s economic interest was deemed more important than party political affiliations is almost certain to be the reforms’ lasting legacy.

The most widely discussed reform has undoubtedly been the opening of oil and gas exploration to foreign investors. Interest in Mexico’s oil assets was not as keen as the government had hoped, with low oil prices deterring investors. A high minimum bid price – shielding the government from accusations of running a fire sale on prized assets – almost certainly acted as a further deterrent to investor interest. However, later rounds of bidding were much more positive, with successful bids by foreign investors changing the energy market after many decades of isolation.

The need to introduce new infrastructure and refining capacity is also clear. Although it is a major supplier of oil to the US, a lack of advanced refining facilities mean that Mexico itself suffers from frequent shortages of petrol and relies on imports to meet much of its demand for processed petroleum products. All of this suggests that the market is ready for change.

The liberalisation of Mexico’s electricity market introduced by these energy reforms will likely have a greater impact. The cost of electricity in Mexico is around 25% higher than in the US (although the US has benefited from cheap energy for a long time), and if greater competition translates into lower costs to end-users it will benefit both Mexican businesses and their supply chains.

Labour market reforms have also introduced a greater degree of flexibility for employers while providing a clearer framework for labour litigation. Competition reforms have introduced tougher penalties for those who do not comply, with the Federal Competition Commission empowered to investigate and punish monopolistic or anti-competitive practices and disincorporate companies in cases of serious infringement. Financial reforms have led to the adoption of BASEL III capital requirements to strengthen the financial system while also introducing stricter information requirements for non-bank financial intermediaries.

Plans to strengthen Mexico’s rule of law through reforms to the judicial system are also well underway. This will bring an end to closed-door trials and see presenting evidence in writing replaced by the oral presentation of arguments. When fully implemented, the reform should lead to faster and more visible legal processes. However, it will not be a simple change to introduce. The US Agency for International Development (USAID) is supporting the initiative by providing training to members of the judiciary and helping to develop legal education under the new system, but it will require the construction of many new courthouses and the retraining of an entire legal profession to succeed.

Mexico’s ongoing structural reforms

Reform Bill Constitutional amendment required Main provisions enacted? Secondary legislation approved? Requiring new or enhanced regulation? Further action required?
Recurso de amparo (habeas corpus) Yes Yes April 2013
Education Yes Yes Sep 2013 Yes Future implementation over several stages
Tax/Fiscal Yes Oct 2013
Financial Jan 2014 Yes
Transparency Yes Yes Feb 2014 Yes
Criminal Partial Mar 2014 All states to use new code by end of 2016 procedures
Telecoms Yes Yes July 2014 Yes
Electoral Yes Partial May 2014 Yes Implementation by 2018
Economic competition Yes Yes May 2014 Yes
Energy Yes Yes August 2014 Yes New binding rules to be issued
Criminal justice Yes Partial N/A All states should adopt outlined measured by end of 2016
Proposed Reform Bill Constitutional amendment required? Main provisions enacted? Secondary legislation approved? Requiring
new or enhanced regulator?
Further action required?
Anti-corruption and civil justice Yes Partial Yes Only partially introduced
Pensions and unemployment insurance N/A No Bill not passed
Health N/A No Bill not introduced
Agriculture N/A No Bill in draft stage



A Southeast Asian opportunity

In February 2016 Indonesia’s president unveiled plans to open the country to foreign investors, but with notoriously challenging regulations still in place, many are uncertain what the future will hold. We speak to investors and in-house counsel to find out whether the reforms are likely to succeed.

With Indonesia’s population of 250 million projected to rise to more than 400 million by 2050, the Southeast Asian country has the potential to become one of the world’s major powers. Unlike many emerging markets, Indonesia’s main source of growth over the past decade has been private consumption rather than exports. Its middle-class of over 70 million consumers is set to swell by nearly 100 million over the next 20 years, making the country an even more attractive destination for foreign investment.

Economic overview

President Joko Widodo (commonly known as ‘Jokowi’) came into office in October 2014 promising to implement reforms that would make the country more competitive and less bureaucratic while supporting much-needed infrastructure and implementing measures to reduce poverty. In a country that has long been known for protectionist policies, Jokowi’s announced reforms came as welcome news.

Jokowi’s election victory underscored Indonesia’s commitment to democratic rule 15 years after leaving behind the military-dominated government of General Suharto. It also represented the introduction of a political outsider with few ties to the traditional power factions into the government. The president has pressed ahead with a cabinet reshuffle to introduce new ministers supposedly more acceptable to international investors.

However, Jokowi’s first year in charge saw the country facing a number of fiscal deficits. While much of Indonesia’s growth has come from domestic consumption, its export earnings are still heavily dependent on commodities, particularly liquefied natural gas and thermal coal, of which Indonesia is the world’s largest exporter. A slowdown in China, continued stagnation in Japan, security concerns following terrorist attacks, and dire commodity markets all contributed to growth of just under 5% in 2015, a seven-year low for the Indonesian economy.

Business challenges

(% of respondents)


compliance and regulatory


inadequate infrastructure


anti-bribery and corruption


employment issues and disputes



Indonesia’s relatively undeveloped manufacturing sector is also surrounded by highly competitive economies, making it difficult for the country to change course. Poor infrastructure relative to export-driven Asian economies means substantial investment will be required to make Indonesian manufacturing viable. According to the Indonesia Chamber of Commerce and Industry, domestic manufacturers spend around 17% of their total production cost on transport and logistics. While logistics is always going to be a problem for a country whose population is spread over thousands of islands, infrastructure remains poor, even in larger cities, and port facilities are generally deemed inadequate.

The US policy of scaling back its quantitative easing programme has also had a big effect on Indonesia’s economy, with the rupiah dropping to its lowest rate since the Asian financial crisis of 1997/98 (Indonesia’s currency depreciation of around 10% is, however, modest relative to that of other emerging market economies: The Turkish lira lost nearly 30% its value between 2014 and 2015 while the Brazilian real fell by more than 40%).

Investment in Indonesian capital markets will continue to be at risk of flight in the face of macroeconomic pressures. This makes foreign direct investment (FDI) all the more important to the president’s reform agenda. To attract this type of investment, market watchers agree, a more predictable policy environment is needed. In the meantime, this leaves corporate counsel with a vital role in protecting their companies.

Above all, the new government will need to address the two main problems businesses commonly identify in the Indonesian market: A culture of protectionism associated with the large numbers of family businesses often very closely connected to the upper levels of Indonesia’s political establishment and the complex and frequently changing regulations that plague even well-established domestic businesses.

Local political interests and high levels of bureaucracy not only make business difficult for outsiders but present high barriers to country-wide reforms. Indonesia has pursued a policy of otonomi daerah (regional autonomy) since 2000. In many ways this policy has been a great success, helping to promote strong growth outside Jakarta by empowering rulers at the district level to deal with local problems, but it has increased the complexity of Indonesia’s political system by introducing frequent clashes between central and local regulations.

Will Jokowi’s reforms attract investors?

In early 2016, with Indonesia growing at its slowest rate in six years, Jokowi accelerated the pace of his proposed reforms by announcing plans to liberalise up to 50 sectors of the Indonesian economy, in a bid to usher in a ‘big bang’. The first step will see Indonesia remove a number of strategically important industries from the so-called ‘negative investment list’ in which foreign companies’ involvement was prohibited or severely limited.

Whether Jokowi has sufficient domestic backing to push through his reform agenda will be a significant question for investors.

President Jokowi’s pledge to reduce bureaucracy and attract investment has seen several ambitious reform packages unveiled in the past year. Proposed liberalisation of ownership laws in certain sectors will allow for direct ownership by foreign entities, while tax holidays have been lengthened and extended to more industries. Corporate tax is scheduled to be reduced from 25% to 18-20% in 2016. A fixed formula to determine labour costs based on inflation and productivity increases has been introduced to address some of the problems businesses have faced with Indonesia’s workforce.

It is not only the need for financial investment that has prompted this change. Indonesia suffers from weak technological capabilities and poorly trained workers relative to many Asian economies, scores poorly on global education and skills indexes and spends less on R&D than any other nation in the G20. Opening the market to foreign companies will not only bring in capital but help develop much-needed skills and knowledge. However, attempts to bring in more foreign capital are likely to come into conflict with competition from powerful (and in many cases phenomenally successful) state-owned enterprises (SOEs), of which Indonesia has over 140, accounting for around a fifth of its GDP.

Whether these reforms will lead to the promised ‘big bang’ remains an open question, but the measures have already convinced many investors that Indonesia will continue to open its market. That, combined with the opportunities it offers in terms of size and relative lack of development in certain key sectors, should prove to be a big draw.

An erratic policy environment is one of the perennial difficulties businesses face in Indonesia. A good example of the uncertain and often changing laws was seen in 2015 with the legal wrangling over Uber-style taxi apps. A ban by the Ministry of Transportation was repealed just one a day after the country’s police had been instructed to enforce it.

Last year, the government introduced a new rule that required businesses to hire ten local workers for every one foreign recruit, but quickly abolished the policy after widespread complaints. These new rules appeared to undermine the ambition to encourage foreign direct investment to help lift a weary economy.

This type of U-turn on policy and regulation was something many respondents pointed to as a difficulty of doing business in the country. While this will be relatively easy to address at a central level, the archipelago nation is famous for the wide variation in how laws are interpreted and applied across districts and administrative zones.

Jokowi has emphasised that his government will press ahead with deregulating the Indonesian market and breaking up the monopolies that had formerly dominated. Increasingly, this looks like an unavoidable policy. The World Bank’s 2016 Ease of Doing Business (EODB) index shows Indonesia is ranked 109th out of 189 countries globally.

The market in brief

Mexico tops emerging markets

Mexico’s future prospects were rated most favourably of all four Mint nations, with nearly two thirds of respondents (72%) believing the country would show strong growth in the medium term.

Indonesian businesses believe regulations present a barrier to investment

While 58% of Indonesian businesses said they were looking to work with foreign investors over the coming years, over 70% of this group said they felt the country’s rapidly changing regulations would present a significant obstacle to their ability to do so.

Protecting IP still a challenge

Many Indonesian businesses feel that the country’s weak IP protections will damage their ability to work with foreign partners, with 68% reporting this as a major challenge. Their concerns are matched by those of international businesses: of those surveyed, 82% said protecting IP was the biggest difficulty they faced when doing business in Indonesia.

Published regulations remain unreliable

While responses to economic reforms were positive, the bigger challenge to doing business in Mexico is its relatively weak rule of law. Ongoing reforms to political transparency and criminal justice will be crucial to sustaining investor confidence.

Commercial courts deemed inadequate

Typically, multinational companies access the Indonesian market through a local partner – when this relationship sours, few are confident in the courts’ ability to protect their rights: 74% of all respondents rated Indonesian courts as poor or very poor, with many choosing to avoid taking disputes to court entirely.

What issues are businesses and investors facing in the indonesian market?

As part of our overview of the market we interviewed and put written questions to senior professionals at Indonesian and international businesses with operations in the country. We also spoke to a selection of growth investment funds that have targeted the Indonesian market.

The four main challenges that Indonesian businesses faced were:

Frequently changing and unpredictable laws and regulations

Frequent and rapid changes in laws and regulations were by far the biggest difficulty faced by businesses operating in Indonesia. Even seasoned Indonesian counsel struggled to understand their reporting duties with respect to the regulators. This challenge presented itself in many ways: finding information on proposed regulatory changes; checking that published regulations are up-to-date; and ensuring each government ministry has the same understanding of the relevant regulations.

Almost all of those we interviewed had struggled at times with this problem and said they devoted significant time and effort to tracking regulations during a transaction. Several respondents noted examples in which regulations had changed more than once in the course of a single matter.

For investors, the shifting legal and regulatory landscape adds significant risk to long-term business strategy. There is also the perception that the interpretation of laws and regulations are inconsistently applied by the political classes, regulators and by the courts, leading to even greater uncertainty.

Many respondents pointed out that political factionalism and local political influence made business operations in multiple districts particularly challenging. Ensuring that regional lawmakers are prepared to go along with the central government’s initiatives will likely be a much longer process. Protectionism, particularly in remote areas of the country, presents a further barrier to many international companies.

Indonesia’s archipelago geography does not lend itself to standardisation. For this reason, it is imperative that international investors put considerable effort into localising their operations and developing domestic relationships.

‘The political system is too fragmented and needs to be changed, the business environment could be improved, and the corruption could be stamped out to a greater degree. But having the law operate as a genuinely trusted enforcer of rights would do more than anything to inspire confidence among businesses.’
General counsel, multinational bank

‘It is hugely confusing [to deal with the changing laws]. You need to have very good lawyers and work with the best lawyers in the jurisdiction to get the best advice.’
Senior executive, Asia-based technology business

‘The legal and regulatory landscape is improving, but it is often two steps forward and one step back. Indonesia introduced a ban on exporting raw minerals a few years ago, which proved unworkable and is now being adjusted. Policies are enacted without sufficient consideration of their practical effect. The annual revisions of the “negative list” creates further confusion. Over the past few years these revisions have generally been more accommodating to foreign investment, but the process remains an all-to-frequent moving of the goal-posts which leaves ongoing uncertainty about what sectors are and are not open for foreign investment.’
General counsel, ASEAN private equity fund

Regional differences

The chaotic nature of regulatory change means that government bodies often fail to keep on top of it, introducing problems with uneven law enforcement and tensions between national and regional regulators. More generally, regulators were accused of inconsistency, a complaint that covered everything from offering variable land compensation in formally similar cases to unannounced changes to permitting rules.

‘Regulatory compliance is a huge challenge. We have a presence in several countries and finding ways to balance domestic and global compliance, which is difficult at the best of times, can be an endless task when local regulators do not know the law.’
General counsel, multinational retailer

Leading ASEAN growth from the front

Indonesia is the largest economy in the Association of Southeast Asian Nations (ASEAN), a ten-nation bloc with a collective population of around 600 million and combined GDP of $2tn. While the potential economic might of the ASEAN bloc has been obvious since its first inception in 1967, it has been slow to implement collective policies.

In 1992 the expanded bloc signed up to the ASEAN Free Trade Area (AFTA), removing tariffs on a large number of goods but not services while keeping non-tariff barriers in place. Attempts at economic integration moved a step further with the formation of the ASEAN Economic Community (AEC) in 2015, which aims to establish a common market with harmonised regulations across the region.

This could potentially see Indonesia’s culture of local political influence and regulatory change swept away by new pan-ASEAN standards. However, there is much scepticism about the prospects of this happening anytime soon. There are wide differences among ASEAN nations, both in terms of population size and GDP per capita. The EU has been hampered by the difference between its core economies and the so-called PIGS (Portugal, Italy, Greece and Spain), but trying to unite Singapore and Cambodia under a collective economic regime will introduce a different level of complexity entirely.

The impending Trans-Pacific Partnership (TPP) could also complicate matters within the ASEAN bloc. While Singapore, Malaysia, Vietnam and Brunei have signed up to TPP, others remain cautious. Indonesia declared its official intention to join the partnership in 2015, though it will need to implement a significant number of new laws and repeal an even larger number of existing laws if it is to meet TPP’s requirements.

‘There are plans to standardise regulations and laws across ASEAN. It is an objective we are told about but it is too ambitious. There are a lot of local, internal conflicts and interests in the market. Even within Indonesia not everyone is singing the same song and to standardise the laws of one country, let alone many countries in this region is not easy.’ General counsel, financial services company

‘In some instances government departments have improved quite considerably and registrations can now be followed online. However, not all government institutions are following them or improving at the same speed, which can be a challenge.’
Senior counsel, financial services company

‘The big difference between multi-national companies and local companies is that the latter seem to have more success when dealing with local government. In spite of the huge sums we spend on trying to engage with and understand the various regulations, dealing with local government in provincial cities is still one of our biggest challenges. Just making them understand our position with respect to other regulators as an international company is difficult.’
General counsel, international energy company

‘The way things get done in Indonesia is very slow and it really needs to speed up. When I moved here it was a culture shock. Businesses in this country spend too much time monitoring regulations and making sure things have not changed’
Senior counsel, multinational bank

‘Making international companies understand the politics here is half our battle. You have to wear Indonesian glasses to see how things are! There are so many influences and leaders that look to play a game that you never know how a deal will turn out. It could be a regulatory body has changed the laws, it could be a change driven by a competitor with connections, it could be that a politician is trying to do something for the benefit of the country and that leads to a new way of doing things. It’s never clear and you have to do a lot of guessing, which is something international counterparties, particularly from the US or Europe, don’t seem to understand.’
General counsel, Indonesian retail company

Protecting intellectual property

Protecting, enforcing and exploiting intellectual property in Indonesia is an area where foreign multinationals have struggled. In February this year, the Swedish furniture giant IKEA lost its legal battle with PT Ratania Khatulistiwa, a company that plans to use the acronym for its own furniture business Intan Khatulistiwa Esa Abadi, having registered the trade mark in December 2013. Indonesia’s supreme court ruled that IKEA’s registration of the trade mark in 2010 had lapsed because it had not used it commercially for three consecutive years. Similar stories were common among those we spoke to.

‘Indonesia is an IP black-spot on my radar. There is a real lack of transparency. A branded company like mine struggles with the intellectual property rights of our products in that country.’ General counsel, luxury goods company

‘Protecting IP can be a big challenge but it goes beyond simply filing patents. It is a challenge that affects almost every area of business. It is not uncommon for people to set up fake websites or to approach clients as an agent of the brand. Those things do happen quite often in Indonesia. Every company will have several cases where customers pay for goods from a website or agent and the next day the website is closed or the contact can’t be reached. The problem businesses face is that the customer will then approach the real supplier and seek redress. It is very hard for us to determine the originator of the fraudulent claim and we are faced with suffering reputational damage or compensating someone for their error.’ Senior counsel, multinational distributor

‘Businesses struggle to protect a wide range of assets in Indonesia, but protecting IP rights can be a particular problem. If you have a good asset, then you may see third parties making claims to it. That is, you may think that you have a clear right and title to an asset, but then out of the woodwork come various claims and you then need to spend resources to protect your rights. This can go on as long as your opponent has the funding to continue the matter. Often, the claimant is just looking for a cash settlement; other times they are really trying to get the asset. The claimant will often prosecute its claims in court. I’ve said for a long time that the most important thing for an in bound investor is to find a trustworthy local partner, because if you don’t you could lose everything. In part this is because no matter how “air-tight” your contracts may be, you may not be able to get them enforced.’
Nicholas Serwer, general counsel, Ancora Capital Management

Dealing with corruption

Corruption is typically high on the list of concerns for businesses based in Indonesia. According to a 2011 Gallup poll, 56% of Indonesians were confident in the nation’s judicial system, up from 37% in 2010 and 43% in 2006. However, 92% of Indonesians report widespread corruption in government and 87% see corruption in business as a problem. In a clear sign of the government’s battle to crack down on corruption, Corruption Eradication Commission chairman Abraham Samad and deputy chairman Bambang Widjojanto were both suspended last year after being targeted in police investigations. In spite of these attempts to turn the tide, the businesses we spoke to remained concerned.

Indonesian M&A volume increasing

Foreign companies are stepping up their interest in Indonesia. M&A activity, most of which has come from in-bound deals, has increased sharply, with 105 deals in 2015, up from 75 in the previous year. The value of these deals was, however, significantly lower than in recent years, suggesting that much of this activity was the result of a slowing economy and the need for Indonesian companies to pay down debt. Private equity houses with shorter-term investment horizons have been notably active in recent months.

However, Japanese trading houses that have been active in Indonesia for decades are also increasing their interest. Sumitomo Corporation announced last year that it had acquired an additional 17.5% stake in Indonesian commercial bank PT Bank Tabungan Pensiunan Nasional, a deal valued at $461m.

Lazeena Rahman, an Indonesia investment specialist at Asian Development Bank, says that people can be swayed by Indonesia’s huge population and plentiful resources, but eager investors should not ignore the effort required to exploit these fundamentals. Rahman believes that experience, knowledge and connections will always give the investor the best hope of success: ‘You have to be here for a long time to see relationships develop. You need to go and see the client ten to 30 times before that trust develops and the business opportunities arise. That is the culture.’

‘Given that most private foreign investment into Indonesia is done via some form of joint venture, the most important factor is the choice of local partner. Most Indonesian business people make great partners, but there are a few local groups that have made life hard for their foreign partners. The legal landscape can be challenging to navigate and is somewhat stacked against foreigners, as such, if a local partner does not want to co-operate, it can be rather difficult.’ General counsel, ASEAN private equity firm

One area where analysts expect to see increased M&A activity is the renewable energy sector. While falling commodity prices have hit Indonesia’s export earnings, they have helped reduce the cost of fuel imports, freeing the government to move infrastructure and renewable energy to the top of its development agenda. For a country that has 40% of the world’s geothermal resources, Indonesia is well positioned to become a leader in renewable energy.

‘Low oil prices have reduced the government’s burden significantly. It means more money for these new infrastructure programmes,’ observes Edgare Kerkwijk, managing director of Asia Green Capital Partners, a renewable energy developer that is developing 182.5 MW of wind farm projects in Indonesia, including 162.5 MW on the island of Sulawesi and 20 MW on West Timor.

Last year, Jokowi announced the intention to add 35,000 MW of new generation capacity during his five-year term of office. Few expect this to be achieved, but many expect foreign capital and expertise to be pivotal to this ambition. According to Kerkwijk: ‘If you go to Thailand, Vietnam or Malaysia, the infrastructure is much more modern. In Indonesia, the infrastructure is still very poor and it needs foreign expertise to help the local players learn.’

Investors and developers have been impressed by the government’s efforts to modernise infrastructure and diversify energy supply. ‘Indonesia has a lot of natural resources, a lot of gas reserves, and the government is moving away from the dirty power of coal. It has a lot of potential,’ comments Guy Markham, general counsel and corporate secretary at MAXpower Group, a South East Asia-focused gas to power specialist developer and the owner and operator of small and medium-size gas-fired power plants. For Markham, the company’s commitment to the jurisdiction is paying dividends: ‘The abundance of gas and the underdeveloped market of gas to power is what attracts us.’

‘The way Indonesia operates is generally a blockage to the development of its economic potential. There is an ingrained corrupt habit. Even if you don’t meet with corruption you will find that a public servant is unwilling to perform or provide good service out of principle. We have to deal with corruption, collusion and nepotism here and expatriates seem to take the view that if you can’t beat them, join them and do business at any cost.’
General counsel, Indonesian retailer

‘The one big problem Indonesia has is corruption. The Indonesian Corruption Eradication Commission (KPK) is taking more and more cases to court, but corruption remains a big problem.’
Edgare Kerkwijk, Asia Green Capital Partners

Perceptions of corruption and inconsistency also shaped attitudes when it came to settling commercial disputes, with many respondents saying that courts were unreliable and therefore best avoided.

‘Commercial disputes can go many ways and I think an out of court settlement is always the best solution, but I am that kind of lawyer. At the end of the day what’s the point of going to court and appealing again and again only to find out that a political decision means the whole trial was irrelevant and no one gets anything. It’s a frustrating environment and I always do my best to lead the company to an amicable out of court settlement.’
General counsel, Indonesian conglomerate

‘For publicity reasons it’s better to settle outside of court. The trial court in Indonesia is considered as a public event. The trial is open to the public and anyone can step in and watch it. If you’re a multinational company or a big player you’re not going to look good whatever happens. There’s just too much at stake for these type of companies so it’s better to just avoid it.’
Litigation counsel, telecoms company

‘Challenges are presented by matters pertaining to labour, logistics and supply chain, inadequate infrastructure, and governmental regulation and bureaucracy among other things. There also continue to be issues with corruption and obtaining just judicial remedies is not a certainty. I think it’s fair to say that most people don’t have much confidence in the judicial system.’
Nicholas Serwer, general counsel, Ancora Capital Management

Commercial disputes, in the Indonesian market, introduce their own complexities:

‘In every legal proceeding there is a party that will object to what the other party does. It’s just so common here to object that one never sees a smooth resolution of disputes. The bigger challenge, however, is executing a settlement if it involves assets. It can be a challenge if you want to secure assets in this country because there is no database or centralised information that make it possible to check which assets the other side holds. Even within the legal enforcement framework there is no such provision. This makes it very difficult to settle a commercial dispute. You may technically be entitled to enforce on a settlement but you can’t enforce on it in practice if the assets are hidden from the lawyers’ eyes.’
Fitria Disah Djemat, special project and regulatory counsel, PT Great Eastern Life

While no one doubted that corruption was a problem in the Indonesian market, some felt its prevalence had been exaggerated and that its impact on business was not as serious as generally perceived.

‘The anti-corruption body is working so hard that people are afraid to do business in case they are caught for corruption. It is kind of ridiculous that projects are really slow to kick off because nobody wants to take a risk. I’m not saying corruption is not happening in the market, of course it is. But it is not happening on the scale that is imagined. The fear of corrupt practices is slowing business down too much and I think that is a bad thing for the country.’
General counsel, industrials company



Following a recalculation of its economic data, Africa’s largest country by population also became its largest economy. Evidence that Nigeria is home to a much more complex and diverse economy than previously imagined has intrigued investors, but to capitalise on its obvious potential they will need to overcome a number of challenges. What role will legal counsel play in overcoming these difficulties?

Nigeria gained independence from British rule in 1960 and declared itself a republic three years later. At the time many believed the country would transform itself into a superpower, but years of internal conflict and military rule gradually dampened expectations. Now, more than five decades later, another landmark political change – the peaceful transfer of power to an opposition party, achieved in 2015 when Muhammadu Buhari became the first opposition candidate to win a presidential election since the country returned to civilian rule in 1999 – has again raised hopes that Nigeria can develop into a major world economy.

Nigeria’s demographic indicators, particularly its large, young population, point convincingly to its future economic strength. The world’s seventh most populous country is projected to become its fourth most populous within the next 20 years, making Nigeria one of the most notable exceptions to the global slowdown in population growth. Further, with a median age of around 18 years, Nigeria has one of the youngest populations on earth and offers the prospect of a market that is almost certain to increase in size, regardless of consumption trends.

According to information and advisory services firm Frontier Strategy Group, Nigeria is now viewed as the most attractive emerging economy by international corporates. As the pace of urbanisation looks set to push more of Nigeria’s young population into productive industries, the country’s economic prospects have become a magnet for foreign investors and a cause of bullishness among Nigerian businesses.

The opportunities are clear, but Nigeria’s path to growth will not be an easy one. The list of challenges to doing business in Nigeria is well known – poor infrastructure, a lack of integration across the region as whole, inadequate and unreliable power supply, a chaotic bureaucracy and widespread corruption– and the ongoing conflict with Boko Haram has drawn attention to the lack of security in the north of the country, underscoring the weakness of Nigeria’s governing institutions.

Business challenges

(% of respondents)




inadequate infrastructure


anti-bribery and corruption

In spite of the diversity of its economy, Nigeria continues to rely on oil for 95% of its foreign-exchange earnings. Oil price falls of around 70% since mid-2014 have dented the country’s export revenues and left it facing a budget deficit for 2016 of 3 trillion naira (N3tn, or $15bn, around 3% of Nigeria’s GDP). The oil glut has affected Nigeria’s economy in other ways too. The naira has lost 25% of its value against the dollar over the past two years while the Nigerian stock market has lost around 30% of its value.

In July 2015 President Buhari was asked to approve a $2bn bail out for payment of government salaries in the federal states. In the early months of 2016 Nigeria sought emergency loans from China, the World Bank and the African Development Bank (AfDB). It has also had to reduce spending plans, scrap fuel subsidies and implement new monetary policies to help prop up the naira, measures which have seen GDP growth projections revised downward.

In response to these budget pressures, the government is now making sustained efforts to increase the revenues it receives from tax. Last year, Babatunde Fowler, the highly respected former executive chairman of the Lagos State Board of Internal Revenue, was appointed chairman of the Federal Inland Revenue Service (FIRS). The African Development Bank has calculated that Nigeria could generate $11bn in non-oil sector tax revenue by implementing relatively minor changes in its collection practices.

According to the Nigerian Infrastructure Concession and Regulatory Commission, around $300bn of investment will be required to bring infrastructure up to the standard of similarly sized middle-income countries, a figure which exceeds Nigeria’s entire foreign currency reserves. Nigeria’s faltering energy supply must also be urgently addressed. While the population of Nigeria has increased sharply in the last 20 years, the country’s generating capacity has barely risen at all. Nearly half the population has no access to electricity and supplies remain erratic even in the cities. Nigeria, by some estimates, meets less than 5% of its latent electricity demand. As a result, most businesses continue to rely on expensive portable power generating units, meaning around 40% of the manufacturing cost in Nigeria is absorbed by electricity. For a country that is hoping to compete on a global stage, high manufacturing costs and severe difficulties in transport goods are severe obstacles.

The rebasing of Nigeria’s economy

In 2014 the International Monetary Fund (IMF), World Bank, and African Development Bank rebased their assessment of Nigeria’s GDP to include 2010 constant prices. While countries typically rebase their economies every five years to reflect updated household and price data, Nigeria had not revised its projections since 1990. The revised calculations showed Nigeria’s GDP was around $510bn, 89% higher than the previous estimate of $270bn. It also showed Nigeria’s GDP per capita had almost doubled to just under $3,000, raising the country to lower-middle income status by World Bank measures. Nigeria’s share of sub-Saharan African GDP rose around 10% to 31.7%, suggesting the country is even more integral to the continent’s economic activities than previously thought.

The rebased data showed Nigeria’s economy was less dependent on agriculture and commodities and more balanced by retail and services. Further rebasing exercises due to commence this year will likely show even greater diversity in the Nigerian economy.

The significance of this rebasing should not be overstated though. While Lagos has a diversified economy, the same is not true of many other states. Indeed, Lagos alone generates twice as much tax as Nigeria’s 19 northern states combined. The persistence of severe poverty, with 70% of the population living on less than $1.25 a day, is also unchanged by this rebasing. This poverty is particularly pronounced in the north of the country, where it serves as both a cause and consequence of worsening security.

Further, many of the ‘hidden’ sectors were already highly visible. For example, ‘Nollywood’, the world’s second largest film industry, employing over a million people and valued at around $5bn, was almost completely absent from previous government statistics. If investors targeting the Nigerian market were unaware of this, they should probably consider a different career.

Given that the flows of people, goods and currencies through Nigeria’s porous borders often go unrecorded, it is likely that the actual level of cross-border trade in West Africa is far higher than official statistics report. Indeed, Nigeria’s undocumented, informal economy is widely suspected to be larger than its formal economy.

It is not just criminal activity that drives informality and corruption, but the lack of effectiveness of Nigeria’s formal institutions. A large amount of ‘corruption’ is related to completing routine activities in a more efficient way as businesses – both small and large – try to operate in a country where formal channels can often be restrictive. The lack of information on what economic activities are taking place in Nigeria is bad news for the government, which may struggle to draft useful policies or increase its tax base, but good news for investors, who may see undervaluation in the market.

Technology is likely to help Nigeria avoid at least some of the infrastructural bottlenecks it currently faces. This has been clearly demonstrated by the rise of mobile banking, and it is possible that similar initiatives will allow economic development to bypass the need for physical infrastructure.

Following the presidential elections in March 2015, the newly elected All Progressives Congress (APC) outlined a reform agenda to improve infrastructure, eliminate corruption, reduce poverty, and increase security. These are problems that businesses in the country are desperate to see fixed, as they were ten years ago.

The World Bank’s ease of doing business index ranks Nigeria 159th out of 189 countries for ease of cross-border trade. The complexity of Nigeria’s customs regime is notorious, complaints over bureaucracy are widespread, and burdensome procedures such as obtaining documents from multiple agencies are required to ship goods to or from the country.

As those who have spent a long time working in the country like to point out, Nigeria always seems to face the same problems, it is only their intensity that varies.



80% of those we spoke to said they were actively exploring new commercial partners.


However, almost all said that outdated laws, the poor quality of Nigeria’s commercial courts and a lack of experience among regulators and lawyers would be a serious barrier to their ability to find the right partner.


For foreign investors and multinational businesses, spending time on finding a reliable partner was key. Negotiating a deal that would suit both sides was deemed essential to preserving the investment in the long term.


For both Nigeria-based businesses and foreign investors, the central lesson was that knowing the law was less important than understanding policy and speaking to the right people.


As part of our overview of the Nigerian market we interviewed and put written questions to senior professionals at Nigerian and international businesses with operations in the country. We also spoke to a selection of growth investment funds that have targeted the Nigerian market.

Almost all of the businesses we spoke to had encountered significant challenges with the Nigerian legal system, whether through prolonged court proceedings, a lack of legal and advisory expertise, or difficulties establishing how regulations would be interpreted.

The reluctance of emerging-market investors to settle disputes in local courts is well known, but even for Nigeria-based businesses the quality of commercial courts stood out as the most pressing problem they faced in the market.

Respondents complained that a lack of commercial experience on the part of regulators and judges made everything from M&A to settling disputes problematic and called for the creation of courts capable of handling sector-specific disputes. Many respondents noted that a lack of enabling legislation made it difficult to appeal to the law in regional courts.

Nigeria’s place in the African economy

Nigeria is the dominant player in the Economic Community of West African States (ECOWAS), a 15 country union designed to boost integration in the West Africa region. Nigeria accounts for more than half of the collective GDP of ECOWAS meaning its economic future will play a large part in that of the region itself. While Nigeria’s trade with China and India has increased significantly over the past decade and trade with the EU, its largest trading partner, has remained strong, intra-African trade has continued to struggle.

There is a desperate need to monetise the vast potential of the country’s regional relations but, in spite of Nigeria’s obvious economic significance to the West Africa region, colonial history has left it poorly integrated with its neighbours. The Nigerian banking system does not mesh well with that of its neighbours and is framed by different legal and financial traditions. The four francophone countries with which it shares a border – Benin, Chad, Cameroon and Niger – belong to the African Financial Community (CFA) and use currencies pegged to the euro and underwritten by the French treasury.

The introduction of a Common External Tariff (CET) customs union in 2015 marked the second phase of ECOWAS integration, but tariff-free access to markets remains limited and non-tariff barriers are still widely present across the region. ECOWAS was supposed to bring about greater economic integration in the region but it has struggled to match the results of East-African trade deals. Legal integration of the francophone countries through OHADA (Organisation pour l’Harmonisation en Afrique du Droit des Affaires) has been much more successful, but a geographical connector like ECOWAS ought, in theory, to be even stronger.

A large number of businesses said they were planning to increase their in-house tax expertise or seek advice from external tax specialists following a new, tougher stance on tax evasion.

‘The [legal] system will be familiar to English-qualified lawyers but the challenges for me as a corporate counsel are more to do with understanding the regulatory environment than knowing which regulations apply. As with most emerging markets, the law as written and the law as practiced are about as far apart as they could be.’
EMEA counsel, multinational telecommunications company

‘It’s a really interesting place to do business but it’s definitely one where you need to be hands on and on the ground in every aspect. All the usual features of an M&A deal in a developed jurisdiction go out the window so you really need to be prepared to negotiate your deals on the ground. Don’t do things remotely is my biggest tip to anyone looking at the Nigerian market.’ 
Senior M&A counsel, multinational consumer goods company

‘The laws to back up the ICT sector are seriously crawling behind and it is a limiting factor to growth in key sectors such as e-commerce and other forms of mobile and electronic payments that will enable entrepreneurs to bypass bottlenecks in the market. E-commerce basically grows when consumers are confident in it, and as much as we innovate and create better products we cannot instil that confidence in Nigeria without support from the law.’ 
Senior counsel, Nigerian bank

‘The courts are too slow in the proceedings adopted in the determination of affecting commercial transactions and businesses. These delays cost business a great amount of money, time and resources.’ 
General counsel, Nigerian energy company

While Nigeria’s courts were widely criticised, it should not be overlooked that many members of the in-house community felt they had improved significantly in recent years. President Buhari recently approved the appointment of 30 new judges to the Federal High Court. This move has been well received by Nigerian businesses and many believes it represents an important step in Nigeria’s bid to become a transparent place in which to invest and do business.

‘The courts have time and again exerted their independence and demonstrated their clear understanding of commercial issues. There is of course room for improvement as with everything in life, but the efforts of the Federal and State Ministries of Justice to overhaul the system, and develop an effective and independent judicial system at all levels is indeed heart-warming for investors.’ 
Edith Unuigbe, general counsel and company secretary, Nigeria LNG Ltd

‘[Judicial reform] is something we commend the government for. It solidifies the base of the judiciary as most of [the new judges]are well regarded within the profession. The judiciary has developed and matured over the years to the point where the law is settled and this makes it easier to identify the possible direction that a ruling might go. You have a greater degree of certainty in the way issues are decided. It provides comfort to businesses and investors and to society as a whole.’ 
Dapo Otunla, general counsel, Notore Chemical Industries

‘The efficiency of the courts in Nigeria has improved significantly in the last few years. The quality of decisions and judgments has improved, the judges are improving and are deciding cases much quicker than they did
ten years ago’.

Ned Mojuetan, general counsel, Chevron Nigeria


With substantial fines now being levied in compliance and corruption cases, Nigeria’s government is stepping up its efforts to change the country’s reputation.

Cultural aspects of dispute resolution

Emilia Onyema is a senior lecturer in international commercial law, international trade law and international commercial arbitration at the School of Oriental and African Studies (SOAS), University of London. Onyema, a fellow of the Chartered Institute of Arbitrators and formerly a research fellow at the School of International Arbitration, Queen Mary University of London, is currently engaged in a major project to examine the role arbitration can play in the economic development of African nations. ‘There is lots of international arbitration that affects African businesses but which is not resolved within the continent. Nigeria, like more than half the African continent, is a signatory to the New York Convention. It has also incorporated UNCITRAL model law through the Nigerian Arbitration and Conciliation Act, which applies to all arbitrations with their seat in Nigeria except ICSID cases. That raises a question: even though there is a positive legal environment for arbitration in Nigeria, the country still fails to attract many cases. I wanted to find out why we are not attracting it and, more importantly, what domestic businesses are doing to settle disputes.’

‘There are many African companies that invest in the Nigerian market and there are many sectors – telecoms, banking, retail – that depend on cross-border transactions. Clearly, when business grows disputes grow, and arbitration should thrive outside the court system, but that is not happening. Courts are still inundated with loads of cases, and while alternative dispute resolution (ADR) is making inroads, arbitration is still not a popular choice.’

To understand the behaviour of businesses in the region, says Onyema, it is necessary to move beyond the text of the law. ‘Black letter law is useful, one needs to have laws in place to create a formal set of expectations. However, the way people usually approach discussions of Nigeria is slightly too abstract. They say the laws have to be fit for purpose and need to be modernised – which is normally the starting point for societal reform – but we know that the way a law gets interpreted is highly dependent on the agency involved and can vary from context to context. There is often a significant disconnect between the letter and spirit of the law in Nigeria and policy considerations need to be guided by what is done in practice, not what is written down. A law or regulation can be perfect, but the way it is understood and enacted by government bodies is often not.’

For businesses that already take anti-corruption and governance incredibly seriously, the pressure has been turned up. Bidemi Ademola, general counsel for Unilever’s West Africa business, says that governance and compliance is a major priority for businesses in Nigeria: ‘As GCs and heads of legal and compliance, we must absolutely be on top of our game to ensure that our businesses are in compliance with legal and regulatory requirements. We have to follow through on legal advice we give and creatively guide our organisations to implement compliance actions so there are no surprise infractions.’

Edith Unuigbe, general counsel and company secretary at Nigeria LNG Limited, believes that the agenda to eradicate corruption is pivotal: ‘To improve Nigeria’s investment profile, the fight against corruption must be sustained and intensified in order to earn and retain the trust of local and international business. Government must ensure that it’s economic blueprint and direction is clear and consistent.’

More generally, tighter financial conditions have led businesses in the country to improve their efficiency and find significant cost savings: ‘A tough operating environment and the inability to fully pass rising costs to consumers forces organisations to look inwards to find internal efficiencies and to operate in a more efficient way, says Unilever’s Ademola. ‘Most companies are looking at ways to be a leaner and more agile organisation.’ Last year Unilever reflected signs of increasing confidence in the consumer sector by increasing its stake in Unilever Nigeria to 75% in a transaction valued at $216m.

Ned Mojuetan, general counsel at Chevron Nigeria, says economic and political reform is necessary and recognises that foreign onlookers may naturally come to the conclusion that Nigeria is in a dire position, but he is convinced that the outlook is not as grim as many might imagine: ‘I’ve been in the industry for 24 years now and I am optimistic. The oil industry is very resilient and things come in cycles. The oil and gas industry in Nigeria is the government’s main income earner and the industry in which the government has the largest investment, so the government has a genuine interest in getting it right. With the new government, we are seeing signs that they are willing to listen and engage, and they are taking steps to streamline the necessary processes. We think they have the right mind-set.’

Dapo Otunla, general counsel at Nigerian fertilizer company Notore Chemical Industries, is confident that the government is heading in the right direction by breaking away from reliance on exports: ‘The federal government appears to be pushing towards an introspective approach to development, when historically we have been an import reliant nation.’ Sadiq Abu, country chief operating officer for Barclays in Nigeria, is also sanguine about the future: ‘The government has an economic policy to use infrastructure and deficit spending and to clamp down on corruption. We are expecting a very painful 2016, but as the government’s plans take shape we should see stability across the economy.’



Turkey’s government has outlined plans to make it the tenth largest economy in the world by 2023, but as a decade of rapid growth comes to an end the country is facing growing economic challenges. We speak to some of the leading experts on the Turkish market to find out what issues businesses and in-house counsel are facing.

Turkey spent much of the 2000s being hailed as a success story among emerging markets, with surging foreign direct investment (FDI), falling national debt and continuous rises in the standard of living. Under president Recep Tayyip Erdoğan, Turkey became one of the most popular destinations for FDI. However, the growth Turkey experienced was based on easily exploitable factors including currency fluctuation, a policy of shifting labour to more productive industries, low wages relative to the EU, and adopting new technology in industries that had been starved of investment for decades. That road has come to an end, and the once fast-growing Turkish economy is facing a prolonged slowdown.

The Turkish success story of a young, dynamic country with high investment and capital growth has changed significantly over the last three years.

The foreign capital that drove investments has evaporated to expose the underlying problems of the Turkish economy. Uncompetitive labour, low levels of education relative to the EU, a high current account deficit and a loss of confidence in the country’s rule of law among both domestic and foreign investors have led many to conclude that change is needed to reinvigorate the once booming economy. Such change seems increasingly unlikely. The political situation has deteriorated and produced disagreements over the best course of action to restore the country to growth.

Business challenges

(% of respondents)


political unrest


compliance and regulatory


anti-bribery and corruption

The Turkish lira had been relatively stable throughout Erdoğan’s time in office but in early 2015 it started to fluctuate once again. Over the course of the last year the Turkish lira depreciated by about 30% against the dollar, euro and pound.

While the consensus view is that, in the short-term, Turkey’s currency will stabilise, this is mainly because it has depreciated so much already that it cannot fall further.

Inflation is also making an unwelcome return. In 2015 inflation was 8.81%, exceeding the government’s target of 5% and providing a worrying reminder of Turkey’s pre-Erdoğan economic problems. The country is also suffering from high unemployment, with unofficial figures suggesting around 10.5% of people were out of work in 2015, leading many economists to believe Turkey is stuck in a period of ‘stagflation’.

A slowing economy is not the only problem facing those looking to do business in Turkey. A general political climate of increased attempted (if not actual) government interference in institutions is deterring business. Turkey’s judicial system has been reformed recently but allegations of government interference in permitting and regulatory enquiries are rife. Finance minister Mehmet Simsek stated publicly in 2014 that the country needed to ‘address rule of law’ in order to shore up confidence in the business community, but a recent surge in populism has done little to encourage sceptics that the country is about to turn a corner.

Objective 2023 and Turkey’s future plans

In 2011, Recep Tayyip Erdoğan, leader of the Justice and Development Party (Adalet ve Kalkinma Partisi, or AKP), outlined his ambitions of making Turkey the tenth largest economy in the world in time for the Turkish republic’s centenary in 2023.

Turkey’s remarkable growth since Erdoğan came to power in 2003 had encouraged its leaders to believe that it could triple the size of its economy and achieve projected per capita income of $25,000 a year. For the world’s 18th largest economy to make the gains Erdoğan initially hoped for it will need to increase annual exports from around $165bn to $500bn and grow its GDP from $800bn to $2trn, outperforming all but the very highest-growth global economies consistently for the next seven years.

Erdoğan’s first decade in power saw Turkey record one of the highest rates of growth in the world while reducing unemployment and levels of poverty. The 2000s were marked by optimism. Turkey seemed destined to join the EU, build closer links with the countries around it and strengthen its political and legal institutions. It is rare to hear these sentiments in Turkey now.

The proposed construction of a shopping mall in Taksim square park led to the Gexi protests and exposed cracks in the ruling AKP’s popularity. Indeed, while the AKP remains popular, it rules with the backing of only slightly more than half the population and Turkey seems to be witnessing a similar phenomenon to Putinism in Russia, with a growing populism fuelled by a lack of credible alternative.

Turkey fares poorly on most measures of political transparency. The country ranks 64th out of 144 countries on the World Economic Forum’s Global Competitiveness Report 2012-2013, ranks 149 out of 160 in the World Press Freedom index and has consistently been ranked as “partially free” by Freedom House during Erdoğan’s time in office.

The evidence of direct political interference in judicial processes is also growing. In November 2015 two journalists from the Cumhuriyet newspaper were detained after they published a piece alleging that the Turkish government had tried to provide weapons to Islamists in Syria. After the pair were released in February 2016 by Turkey’s highest court, the Constitutional Court, the country’s Justice Minister, Bekir Bozdağ, announced plans to change the system under which individuals detained can apply to the Constitutional Court. Pessimism over the growing culture of one-man rule was notable among many we spoke to.

‘Political instability is our current issue. Due to political instability, foreign investors abstain. Confidence indexes have deteriorated and there is a widespread belief that structural reforms must be passed to help lure investors back. The tax system is subject to frequent change and can erase margins without warning. More worryingly, there is an increased tendency to use national security as a pretext to seize assets and close companies.’

Managing director, Turkish bank

‘Turkey’s biggest problem is a one party government acting as a kingdom. There is political influence on any state and government-related economic and administrative matter. We have a weak and incapacitated educational system that can no longer effectively produce and develop human resources. We are lacking an effective judicial system. More generally, we lack a culture of constructive thinking and behaviour.’

CFO, Turkish energy company

Turkey is often described as the bridge between east and west, north and south, but it also finds itself at a political crossroads.

Turkey’s relations with Europe have come under strain and ongoing problems over the country’s proposed entry into the EU have led to a more anti-EU stance from the government. Turkey started its EU accession process in 2003 but its leaders are now indicating that European integration is no longer a desirable path for the country to take. Compounding this political tension, economic hardships of the Eurozone have taken their toll on the Turkish market, with FDI falling by around 50% since 2007, largely as a result of lower investment from the EU. Problems on one side of Turkey’s continental bridge have been matched by catastrophe on the other.

The Near and Middle East has become less, not more promising ground for business since the Arab Spring, and political instability right on Turkey’s borders means the situation is unlikely to change in the short term.

The Syrian uprising of 2011 has produced a Kurdish state that controls half of Turkey’s southern border, while more general problems with political instability, including the Kurdistan Workers’ Party (PKK) and ISIS terror attacks in the east of the country, have made Turkey less confident about its place in the region.

The conflict in Syria has seen over $1bn a year in lost trade and led Turkey to play host to the world’s largest population of refugees, at an estimated cost of $8bn since the Syrian refugee crisis started. Recent clashes with Russia have also seen Turkey’s plans to build closer parallel relations with non-EU regional powers grind to a halt. Between 2013 and 2014 Turkey’s exports to Russia fell by 15% and with the 2015 downing of a Russian jet in Turkish airspace it seems that hostilities will continue for the foreseeable future.

However, these problems should not be overstated. Turkey has a strong economy for an emerging market. Per capita spending of over $8,000 per year is high compared to other emerging economies and a population of around 76 million – the 18th largest country globally and, in population terms, a market larger than any European country except Germany – makes it an attractive place for companies looking to tap into growing consumer spending.



Reflecting the growing pessimism over a culture of one-man rule in the country, most Turkish respondents (77%) expressed concerns that political unrest would prevent investors from exploring the market.


At the same time, talk of opportunities in energy, agriculture, digital technologies and consumer goods were widespread.


Turkey’s laws and regulations have been subject to frequent change recently, leaving many to fear investors will delay plans until they see greater certainty in the country’s laws.


Turkish businesses complained that investors were unwilling to put in the effort to understand their business culture. Turkish courts and regulations may be difficult to deal with, but investors who expect to work according to their own domestic standards can be equally burdensome to their Turkish venture partners.


As part of our overview of the Turkish market we interviewed and put written questions to senior professionals at Turkish and international businesses with operations in the country. We also spoke to a selection of growth investment funds that have targeted the Turkish market.

While frequently changing laws were seen as a problem in Turkey even during the boom years, for many respondents an increasingly challenging political climate made the lack of legal stability even more dangerous. Many felt that the problem of regulatory change and the growing issue of corruption were related.

Turkey’s coming energy crisis

In spite of the economic slowdown, Turkey’s economy continues to grow in real terms. To sustain this growth, the country must meet energy demands that are already outstripping available capacity.

A demographic shift toward living arrangements with fewer persons per household is set to place a heavier burden on the grid over the coming years. Turkey’s energy demand is growing around 6-7% per year, far higher than the EU average energy demand growth of around 1% a year.

The Turkish government has announced plans to privatise 15GW of energy generation assets, creating a potential boom for foreign investors, and has outlined its vision of making Turkey an ‘energy hub’ that profits from the transit and trade of gas by connecting Europe, North Africa and Eurasia.

Gareth Winrow is an independent analyst and energy expert who has presented his research on Turkey at a number of international policy forums and think tanks: ‘There is lots of big talk about Turkey being an energy transit state and energy hub but it’s very vague indeed. It’s rhetoric that sounds nice but which doesn’t address the economic, political, technical and legal challenges that are faced. There is very little serious attempt to define the concept of an energy hub and how this is linked with infrastructure and regulations or how this is linked to technical issues like subsidies.’

According to Winrow, Turkey will require around $12bn of investment a year to meet its proposed energy targets by the country’s centenary in 2023, but may struggle to achieve this in the face of a changing political climate. ‘The wider concern for investors is that there is a growing culture of one-man rule in Turkey. That has knock-on effects on whether you can trust Turkey as an energy transit state. Given that one man can override everything investors might stand off a bit. More generally there is a lot of confusion and contradiction in Turkey’s rhetoric. It talks about liberalisation of the energy market and its need to bring in new capital, but there is a striking lack of transparency elsewhere in Turkey. This type of concern has been there for some time but given what’s going on now with the domestic political situation one would expect to see much more reticence on the part of investors.’

Geopolitical events have also called into question many new energy transit projects involving Turkey. The creation of a Southern Gas Corridor has been high on the EU policy agenda for some time and would boost European energy security by bringing Caspian and Gulf supplies to Europe via the Turkish Trans Anatolian pipeline, but shifting political allegiances have led to repeated delays.

Similar concerns apply to other projects seeking to diversify Turkey’s energy supply away from oil. The Turkish government has stated that it intends to generate 10% of its energy from nuclear power by 2023. Turkey’s first nuclear facility, the Akkuyu Nuclear Power Plant, is due to be completed by the Russian state-backed entity Rosatom. Both countries remain publicly committed to the deal and it is unlikely a strategically important $20bn project in an advanced stage of planning will be cancelled due to sabre-rattling, but the recent political standoff has brought Turkey’s nuclear energy strategy into sharper focus, particularly as the need to purchase enriched uranium from Russia during the plant’s lifecycle will make Turkey even more dependent on Russia for its energy security.

Exploiting Turkey’s rich potential for renewables would seem to be the best way to meet the country’s energy demand quickly. The potential for solar, hydro and wind energy in Turkey is significant. The sector has, however, been fraught with problems. Dams have been built without adequate engineering reviews and many smaller projects have failed. Financing from domestic banks is also becoming harder to come by, according to one investor. ‘Many of the smaller hydropower projects were financed by Turkish banks on generous terms but this is changing now. Turkish banks have other ways of generating profit and are getting more sophisticated. As in the rest of the world, there is no need for a bank to take business risks on a construction project if it can make money through financial transactions.’

The laws governing the generation of electricity in Turkey have been amended several times in a bid to encourage increased investment, including the 2005 Renewable Energy Law offering incentives in renewable energy projects. However, the renewables sector still faces big challenges in attracting sufficient capital, according to Winrow. ‘There are problems with bureaucracy and red tape in Turkey and it really needs to streamline the decision making processes for renewable energy to take off. Turkey has been slow in developing wind and solar energy. It has great potential but bureaucratic problems and lack of proper incentive means it’s going slowly.’

While renewables have been slow to take off, there has been a great political emphasis on boosting the coal industry, with ministries encouraged to cut red tape and offer tax incentives for the extraction of coal and construction of coal-fired power plants. While Turkey has significant coal deposits, most are lignite of very poor quality. If these deposits were exploited as an energy source Turkey’s emissions would go up quite considerably at a time when environmentalism is becoming a growing issue in the country.

If Turkey is to fulfil its ambitions of breaking away from expensive gas imports and becoming an energy transit state it will not only need to develop new infrastructure but address concerns over the way its energy market is regulated and monitored. The Turkish Ministry of Foreign Affairs and Turkish Ministry of Energy and Natural Resources are jointly involved in decisions about strategically important energy projects in the country, leading to frequent conflicts between the energy needs and foreign policy objectives of the Turkish state. There have also been
high-profile energy exits in recent years.

Geopolitical and macroeconomic issues may have called into question plans to turn Turkey into an energy hub, but it is clear that some very substantial form of government incentive will have to be introduced if the country is to avoid encountering energy security issues in the near future.

‘Turkey needs time to stabilise and harmonise its laws so investors are given comfort, but the regulations are changing every day. The problem is bureaucracy. In order to get a license to develop a site you have to get maybe 30 approvals from different offices – from the forestry department, the army, the municipality and so on. The process goes on and on and it is very difficult for a foreign company to invest. Yes, a foreign company can come and open office in Turkey and apply for licenses in order to complete its projects, but it is very difficult for a foreign company to do this alone. The legal complexities are just too high and that means you need to find a local partner whom you can trust.’ 
Middle East-based investor

‘Maybe as a jurist I am a little bit cautious here, but I think there are big risks facing investors in Turkey now. The regulations are changing. There is no stable regulatory area right now in Turkey.’ 
General counsel, energy company

‘Regulations are changing mostly due to the demands of the sector, but the general legal structures have also changed rapidly. In the past four years we have seen changes to the commercial code, the code of obligation, code of procedure. Maybe it will stabilise, but for now it is a problem for those looking to invest.’ 
Regional counsel, multinational retailer

‘There is a lack of transparency. No one wants to work for a company if they don’t know what its long term plans are. How can an investor act if he doesn’t know or follow the business plans of a country? In Turkey, government business plans are changing on a day-day basis. Timing is everything and we are living in a chaotic (or, if you’re optimistic, dynamic) global business environment. Companies deserve to know the central government’s long-term plans rather than a state minister’s short and long-term personal agenda.’
Company director, retail

‘The biggest challenge right now is the protectionist approach providing advantages for local market players over international market players. Compliance related issues should be introduced more to the market and unfair applications should be prohibited by the government. Individual rights should be considered far more than they are. We have an ineffective judicial system and the available regulations and procedures are ineffective for defending one’s case against the state.’
CFO, mining company

‘Many administrative and bureaucratic tasks that have been simplified or removed in the West can still be very time consuming, such as registration of a business in multiple districts.’
Managing director, Turkish bank

‘A big obstacle for investors is corruption and bribery. Overall the political situation is just not good for investors. There is no political stability in Turkey nowadays. There is a very strong political effect on the courts even. Yes, it is a growing economy and the market is quite attractive to investors, but then there are these unfortunate obstacles that really do not work in Turkey’s interests.’
General counsel, retail


While many Turkish respondents despaired over national laws, they also felt international counterparties too often failed to appreciate the Turkish way of doing things.

‘Many business practices in Turkey do not always follow to commonly recognised international standards. You need to be flexible and adjust to “Turkish way of doing business” that practices business according to traditions. Most of the large businesses are run by families. Depending upon the willingness and motivation, family members have tendency to overestimate benefits and underestimate costs and hence foolishly to take on risky projects. It is difficult to understand the dynamics of the family business and a lack of appreciation of this leads a lot of international companies to make huge mistakes.’ 
General counsel, mining company

Problems finding skilled labour were also common. Favourable demographics have contributed a large part of the productivity increase in Turkey over the past 20 years, but this one-off demographic bonus, in which the working age population is large relative to the population of young and elderly, will soon lapse.

Turkey has made inefficient use of the opportunities presented by this demographic bonus so far. Low levels of female participation in the labour force have, according to one estimate, led to an annual loss of $574bn to Turkey’s economy, a figure higher than the total GDP gains it has accumulated over the last decade. A low quality of human capital more generally has meant that Turkey struggles to develop beyond basic production into knowledge intensive industries.

The Turkish government is making belated attempts to increase the skill level of the young population with a rapid increase in the number of universities in the country accompanied by a big drive toward investment in product innovation and R&D. For example, Arçelik, the parent company of Beko, one of the largest white goods producers in Europe, recently opened an R&D centre in Cambridge, UK, as part of the government’s drive to move the working population higher up the value chain.

‘Turkey is not an effective part of the global value chain (GVC) which means there is a lack of value added in the local manufacturing process. As a result, the country is mostly reliant on imports which results in current account deficits and limited opportunities for local manufacturers.’ 
Hakan Bekiroğlu, chief legal officer, Tofaş

‘The Turkish public is very much interested in digital market. Even the public offices, courts are adjusting themselves for all sort of communications by electronic means and establishing digital platforms to be able to serve faster, cheaper and easier way. Also with a significantly young population who is very much interested in mobile and digital devices in a wide range, I believe that Turkish market is shining for investors in those areas.’ 
Chief legal counsel, multinational bank