Turkey business risk

Despite the little competition in Turkey, country risk analysis is important as it will inform the Frost ltd, of the transaction exposures, economic exposures, and the political risks which need to be factored in the capital budgeting analysis. This analysis assumes that Frost ltd, has the ability to conquer the market and the operations of the subsidiary can be sustainable given a favorable economic and political condition of the host country. To start with, Turkey and Australia had had a productive and steadily developing relationship that has been coupled with substantial dialogue across a wide range of issues and bilateral agreements that has seen an expansion of bilateral investment and trade (Haggard et al. Formal bilateral relationships between the duos took roots in the ratification of the bilateral agreement on the exchange of ambassadors in the year 1968 and on assisted migration in the year 1967.

Since 1990, there has been a mutual desire to boost investment and trade ties in an addition to strengthening cooperation of the two countries in critical issues of international concern. There has been series of war, for example, Turkey’s battle for northern Syria and the ever-uneasy relationship between Turkey and Greece that makes the possibility of a war almost inevitable as the two has been involved in series of war in the 20th century. This year, “a secret war” and almost a cold one between the two countries turned deadly following a long history of dogfights over the Aegean Sea (Brimelow 8). In 2015, there was an eruption of fighting in a bloody insurgency between the PKK (the Kurdistan Workers’ Party) and the Turkish government.

This led to many TAK/PKK attacks in many locations in 2016. This presents a threat to Frost Company’s intended subsidiary due to this stench of war in the atmosphere. It has been drawing closer to China, Russia, and Iran while deteriorating its relations with the western allies. There have been concerns about the risk of Turkey leaving the NATO relations as the relationship of the former with the alliance grows sour. This started in September last year where Turkey signed a controversial deal with Russia on armaments. Following the blackmail of the USA with Sanctions, Turkey has been angered and is meticulously considering leaving the alliance. There are unprecedented tensions between the United States and Turkey in addition to weakening of the relations between the European Union and Turkey as many EU countries ate outraged by the arrest of several citizens of EU countries by Turkey (Arikan 24).

The large current account deficit may cause depreciation in exchange rate and also a cost push inflation. The graph below shows Turkey’s current account deficit. Source: Thomson Reuters Datastream There has been volatility of inflation and this may pose a risk of uncertainty of what could happen in the future. Further, the Central bank of Turkey has not been convincing in its policy responsiveness. In addition to being hesitant, or politically restrained in taking appropriate measures of tackling negative currency and price developments, it has been observed to shift back and forth between unorthodox and orthodox measures. There is also a relatively high-interest rate implying a high cost of funds in the country. The decision to undertake the project should and will be informed by this analysis and the capital budgeting analysis.