bne -

Turkey unveiled a set of measures aimed at reviving investment in its auto sector on February 15 as it tries to shake up a sector that has become a vital contributor to exports in recent years.

The scheme was published in the government's Official Gazette, detailing incentives for car parts producers investing TRY20m (€8.5m) or more through to carmakers putting TRY300m on the table in Turkey.

According to an unnamed industry official speaking to Reuters the previous day, tax breaks of up to 60% and incentives including deductions on employee costs are also available under the scheme, which is an extension of the wide-ranging investment incentives programme launched last year. Under that plan, investment in the country's less developed regions is given particular emphasis.

However, Ankara continues to fight the wide current account deficit that is the largest risk to the economy. While figures this week revealed that it managed to bring the imbalance in to an equivalent of just above 6% of GDP from around 10% a year earlier, the Central Bank of Turkey has noted that consumer credit is taking off once again.

While the central bank is trying to avert a revival of the huge import demand that risked causing the economy to overheat in 2011, Ankara is also hoping to give momentum to the growth in exports seen in 2012. Serving the rapidly developing domestic economy and the evolving region, as well as leveraging cheap labour costs to serve European markets, carmakers have been keen to set up in Turkey in recent years to make it a key export sector.

However, like its peers in countries across Europe, the Turkish auto sector has been hit hard by the Eurozone crisis. Sales fell 10% to 818,000 units in 2012, according to Reuters, with exports sagging 8%. "We regard the incentive program as highly supportive for the automotive sector," write analysts at Erste, who anticipate that the measures "will induce new investments to the sector."

Incentives in the lowest bands under the scheme will include VAT and customs rebates, employee cost contributions and subsidies on land purchases. Manufacturers already in Turkey, including Ford Otosan, Oyak Renault, Tofas, Hyundai and Toyota could all benefit from the government scheme, the source claims.