Pekin Bayar Mizrahi Senior Partner Selin Bayar discusses Turkiye’s economic challenges, rising labor costs, and evolving regulatory landscape in the financing world.
"The Turkish government is actively working to bring down inflation and stabilize the economy," Bayar begins."Inflation is lower than it was a year ago, but at 50%, it remains quite high. From a business and legal perspective, this creates a challenging environment. Labor costs, for example, have risen significantly, and many companies are facing employment-related legal issues, including layoffs and union pressures," she outlines.
"At the same time, we are seeing a wave of new legislation in various practice areas, such as compliance and data protection or banking and fintech, which is constantly evolving," Bayar continues. "Clients – especially large conglomerates – are working hard to stay compliant with shifting regulatory frameworks – the regulatory landscape remains fluid, requiring businesses and legal advisors to stay adaptable."
Bayar goes on to say that the rising cost of labor has had significant impacts. "Historically, Turkiye has been an attractive destination for foreign investment due to its relatively cheap labor market and stable economy. Now, foreign companies that are not accustomed to operating in a high inflationary market and suffering from high labor costs are considering exit strategies, and exploring asset sales and we’re seeing an uptick in M&A transactions to that end." Still, Bayar reports that local investors are stepping in, particularly in sectors like "automotive, mining, and energy. While capital may be leaving in some areas, domestic players remain highly engaged, and we expect to see transactions continue despite these market adjustments." And, on the private equity front, she reports that "there is still deal activity, but transactions are not particularly sizable. Foreign investors remain cautious due to inflation and ongoing political risks, both of which need to stabilize before confidence rebounds."
Moreover, Bayar reports that the "financing sector is not very active right now, but large private deals are still happening – just not as frequently as before. Compliance, data protection, and employment law remain major areas of focus, and we’re also seeing a lot of activity in antitrust law." Specifically, she reports that the "Turkish Competition Authority has been investigating various sectors, leading to an increase in dawn raids, investigations, and regulatory scrutiny. This has kept legal teams quite busy, as companies navigate compliance requirements and potential penalties."
Focusing on the sectors that continue to boom, Bayar indicates that "gaming, technology, and fintech are particularly active, with startup activity increasing in these areas. However, startups present their own challenges – while they generate a lot of legal work, fees tend to be lower, and the evolving nature of startup legislation requires legal advisors to stay on top of new regulations."
Finally, looking at legislative updates, Bayar reports that there have been several that have impacted the market. "A new crypto law passed in the past year, and we’ve seen ongoing regulatory developments affecting both the banking and capital markets sector. These changes should help pave the way for new investments, both inbound and outbound," she says. "In banking regulation, foreign exchange limitations continue to be a key issue. Companies engaged in cross-border transactions need to carefully navigate these regulations, particularly in how they impact the Turkish lira," she explains.
