The role of regulatory governance to attract foreign direct investments

As the comprehensive literature on foreign direct investors is assessed, it is revealed that the political stability, and economic and social incentive mechanisms under the topic of attracting foreign investment are periodically explored, nevertheless the fact is that the relation between foreign direct investors and regulatory governance is not discussed adequately in both literature and political texts. Thereby, in this study, the fact whether the foreign investors take into consideration the existence of the regulatory governance in the country while especially making the decision of investment is evaluated. Developing countries with inadequate natural resources in particular has the need of foreign direct investors in order to compensate the lack of funding. Growing impact of the neoliberal policies since 1980s has advanced the increase in the foreign investment inflow in Türkiye. However, it is observed that foreign investors do not abide by Türkiye steadily, and incline towards nearby countries such as Romania, Poland and Czech Republic for new investments. All these processes were analyzed by the governments addressing the issue, and in every effort, the foreign investors were aimed to be attracted via separate incentive and support mechanisms. Increasing incentive items have not shown a distinctive impact on consistently attracting the foreign investors. The study intends to discuss and keep the track of law-making processes including people's involvement, negotiation and consultation, rather than the mindset of top-down imposition, and to set forth the role of this approach in encouraging national and foreign investors. Literature review, data analysis and semi-structured interview method were utilized in order to explore the effect of governance on attracting foreign direct investors in Türkiye and in the world. Face-to-face and online interviews were held with public institutions, voluntary non-governmental organizations, companies and employees of the Turkish Grand National Assembly. The study was conducted between March 2020 and June 2021. The fact that regulations are amended in a frequent and arbitrary manner, and new regulations are put into force without discussing with stakeholders results in loss of foreign investors' confidence in the country and adverse impacts on the market actors and conditions. The existence of regulatory governance practices such as publishing the legislation for opinion, gathering the opinions within reasonable time, ensuring stakeholder participation and granting transition period for legislations to be implemented has always been of vital importance for foreign investors. Besides, effectiveness of legal and regulatory process, transparency of the regulatory environment, absence of corruption are elements that play key role in site selection for investment. For this reason, a healthy investment policy, regulatory environment for the investment, competent institutions and feasibility of the laws are essential, when country intends to attract foreign investors. Türkiye enacted one of the most liberal foreign investor laws in 1954, which could be regarded as too early for those times, in order to transform itself into one of the most convenient countries for foreign investment in its region. Afterwards, regulations on foreign investments as well as on the many areas under economy were put forward through the well-known January 24th, 1980 Decisions. Following the military coup, the Foreign Capital Framework Decision, which is a crucial framework decision, was put into effect in 1995 in order to restore economic stability in the country and to attract foreign investments to the country. Upon the inadequacy confronted as the result of restoring only the investment environment, the Coordination Board for the Improvement of the Investment Environment (YOIKK), which is necessitous in the implementation of these legislations, was established by the Council of Ministers Decision No. 2001/10 dated 11.12.2001. Later on, in 2006, Investment Support and Promotion Agency of Türkiye was established with the Law no. 5523. The institutional infrastructure, which was completed with both the board and the agency, played a significant role in the increase in foreign investment during this period. Türkiye sustains the activities of Investment Support and Promotion Agency under the name of Investment Office of the Presidency subsequent to the transition to the Presidential Government System. However, the problems such as legislative preparation process conducted rapidly, decrease in stakeholder participation, deterioration in the language of the legislations experienced following the transition to the Presidential Government System in 2018 lowers the rate of foreign investment inflow to the country. The outcomes of the data analysis conducted within the scope of the study reveals that there is a critical relationship between foreign direct investments and regime type, participatory democracy, rule of law and regulatory governance.