Economic Outlook & Financing of the Growth 
November 14 , 2013

Mehmet Şimşek
Minister of Finance
1
Outline

Short‐Term Economic Outlook
Financing of the Growth
Long‐Term Prospects
2
Short‐Term Economic Outlook

3
Growth in the Short‐Term

Growing at a moderate rate

No boom‐bust cycles

4
From Boom‐Bust Cycles to Stable Growth
 6.5
6.0

 6.0
 5.5
5.1

5.1
 5.0

4.4

 4.5
 4.0

4.0

3.7

 3.5
3.1
 3.0
1973‐198...
Turkey: Growth Outlook
6

5.0

5.0

Real GDP (%)

5

4.0
4
3.6

3
2013

2014

2015

2016

Kaynak: Medium‐Term Program (201...
Real GDP

Forecast

140
138.1
135

Turkey

Real GDP (2007=100)

130

Emerging 
Europe

125

125.0

120
115

USA

115.9

11...
Source: Central Bank of Turkey, Turkstat
* Annual percent change
** Annual difference 
Sep‐13

Jul‐13

May‐13

Mar‐13

Jan...
Source: HSBC
55

Oct‐13

Jul‐13

Apr‐13

Jan‐13

Oct‐12

Jul‐12

Apr‐12

Jan‐12

Oct‐11

Jul‐11

Apr‐11

Jan‐11

Oct‐10

J...
Source: Central Bank of Turkey, Turkstat
Real Sector Confidence Index (lhs)
Oct‐13

Jul‐13

Apr‐13

Jan‐13

Oct‐12

Jul‐12...
Source:Turkstat
Jan‐13

Jan‐12

Jan‐11

Jan‐10

Jan‐09

Jan‐08

Employment  since end‐2007 
(Mn People, s.a.)

Employment
...
Unemployment & Labor Participation Rate
16

52

15

51

14

50

13
12
48

(s.a., %)

(s.a., %)

49

11
47

10

Source: Tur...
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
20...
Low Deficit

Budget Deficit‐to‐GDP (%) 

12.0

10.8

10.0
8.0

7.9

5.5

6.0

Medium‐Term Program 
(2014‐16)

4.1
4.0

Maa...
Lower Public Debt
75

74.0

70
67.7
65

Debt‐to‐GDP (%)

60

Maastricht Criteria:  60%
59.6

55
52.7
50
45
40
35
30

46.5
...
C/A Deficit: High but Manageable

20
0
‐20
‐40
‐60
‐80
2002‐1
4
7
10
2003‐1
4
7
10
2004‐1
4
7
10
2005‐1
4
7
10
2006‐1
4
7
...
Flexible Exchange Rate
80
70

Volatility (%) *

60
50
40
Turkey

Emerging Economies**

30
20
10

Jul‐13

Jan‐13

Jul‐12

J...
2002
2013‐9

Source: Banking Regulation and Supervision Agency
18

Sep‐13

May‐13

Jan‐13

Sep‐12

May‐12

Jan‐12

Sep‐11
...
(2012, %, GDP)

Low Household Liabilities
TURKEY
Lithuania
Slovakia
Slovenia
Hungary
Czech Republic
Latvia
Poland
Estonia
...
Corporate liabilities (%, GDP)

Moderate Corporate Leverage
Poland
Czech Republic
Slovakia
Lithuania
Hungary
United Kingdo...
Financing of the Growth

21
Financing of Economic Growth

Tapping into Global Savings

Boosting Domestic Savings

22
Tapping into Global Savings

23
Maintaining Global Inflows
Sustaining a Solid Fiscal Outlook

Developing Corporate Debt Market

Deepening Capital Markets
...
Sustaining a Solid Fiscal Outlook

25
• PSBR
• Public Sector Debt
• FX Risk 
• Interest Rate Risk

• Maturity of Borrowing

Increasing

Downward Trend

Sustaini...
Public Sector Borrowing Requirement
12
10

10.0

PSBR (%, GDP )

8
6

Medium‐Term Program 
(2014‐16)

4
2
0.8

0.5

0

201...
Public Sector’s Net Debt
70
61.5
60

Public Sector Net Debt (%, GDP)

55.2
49.1

50
35.4

41.7

23.9

40

19.1
10.4

34.0
...
Public Sector’s Net External Debt Stock 
100 25.2

30

60

20

40

15

20

10

0

5

‐20

(Billion TL)

25

0

‐40

(%)

8...
FX Risk
Central Government Debt Stock (%, Total)

100
90

29.2
80
70

58.1

60
50
40

70.8
30
20

41.9

10
0
2002

2013‐ S...
Interest Rate Risk
Sep‐13

2003
9%
22%
44%

53%

47%

25%

Fixed

Source: Treasury

Floating

CPI Indexed

Fixed

Floating...
Real Interest Rates
30

25.4

25

(%)

20

15

10

5
0.7
2013

2012

2011

2010

2009

2008

2007

2006

2005

2004

2003
...
Interest Payments
90

17
85.7

80
14.8

13

(%)

60

11

50

Medium‐Term Program 
(2014‐16)

40

9

(%)

70

15

7

30

5
...
Maturity of Domestic Borrowing
75

74.1

65

(Months)

55
45

43.7

35
25
15

12.8
9.4
2012

2011

2010

2009

Time to Mat...
Source: Treasury
9.5

2013
Sep‐13
September

2012

2011

2010

2009

2008

2007

5.5

2006

2005

Time to Maturity  of Cen...
Source: Bloomberg

Moody's
Fitch
Jan‐13

Aug‐12

Mar‐12

Oct‐11

May‐11

Dec‐10

Jul‐10

Feb‐10

Sep‐09

Apr‐09

Baa3/BBB‐...
Developing Corporate Debt Market
Investment 
Grade is 
helping 
corporates

Corporate Bond 
Stock
Corporate 
Bond Stock

•...
Tax Incentives for Intern’l Corporate Bond Issuance
Up to 1 year: 10%

1‐to‐3 years: 7%

3‐to‐5 years: 3%

5 years and bey...
Incentives for Global Fund Managers
Making it easier to manage assets 
in Turkey

A tax free environment for 
Global Funds...
Incentives for Venture Capital
Allowing contributions to Venture Capital to be 
deducted from Corporate & Personal Income ...
Incentives for Business Angels

41
Deepening Capital Markets

Capital markets are rather shallow

Banks dominate financial markets

42
Banking Sector dominates Financial Sector

87.4%

3.2%

Insurance

Share of Banks in
Financial Sector

Source: Central Ban...
Market Capitalization
60

48

50

(%, GDP)

40

30

27

20
15
10

0
Turkey
2002

Turkey
2013‐9

EM Average
2013‐9

Source:...
Investment Funds’ Net Asset Value
16
14

14

(2012, %, GDP)

12
10
8
6
4
2
2
0
Turkey

Source: Capital Markets Board

EM A...
Free‐Floats
80
70

70

(%)

60
50
40
30

28

20
10
Turkey

EM Average

Most Turkish companies are privately owned
Source: ...
A New Capital Markets Law

New legal framework in 
line with the best global 
practices
•Increasing financial deepening & ...
Restructuring of Borsa Istanbul

Regional 
Leadership

Raising 
Market 
Cap/GDP to
80%

1,000 new 
companies
to be listed
...
Istanbul as a Financial Center
Financial sector currently employs 200 thousand people

Istanbul Finance Center is likely t...
Introducing New Instruments: Sukuk

Similar to eurobonds, internat’l holders aren’t subject to w/holding tax
Sep‐12: Sukuk...
Improving Investment Climate (FDI)
132.0

135
120

FDI ınflows (Bn $)

105
90
75
60
45
30
15

14.8

0
1980‐2002

2003‐2013...
Raising Domestics Savings

52
Savings
25

20

15

10

5

0

‐5
2002

2003

2004

2005

2006

2007

Public Savings/GDP

2008

2009

2010

2011

2012

201...
Determinants of Savings
Increasing Employment
Improving Labor Market Flexibilty

Increasing Labor Participation

Productiv...
Increasing Employment

55
Source: OECD
Netherlands

Denmark

Norway

Ireland

Switzerland

Germany

Australia

United Kingdom

Sweden

Belgium

40

...
Netherlands
Switzerland
Ireland
United Kingdom
Australia
New Zealand
Germany
Japan
Norway
Mexico
Denmark
Austria
Canada
Be...
Retirement Age*
70

70
65

60
Men (Age)

60
Woman (Age)

65.6

65

65

55
50

55
50
45

45

40

40
1993

2010
Turkey

2050...
Employment Rate 
70
65.1

65
60

(%)

55
50
46.9
45
41.3
40
35
30
Turkey
2004

Turkey
Jul‐2013

OECD Average
Q2‐2013

Sour...
Productivity

60
Enhancing Human Capital Stock: Education Budget
19
18

18

Education Budget (% of Total)

17
16
15
14
13
12
11
10

9.4

9
...
Enhancing Human Capital Stock: Schooling Rates
130

107.6

110

96.8

(Gross Rates)

96.5
90

92.1

80.8

70

50

44.0
35....
Enhancing Human Capital Stock: 
PISA Results, Gap b/w Turkey & OECD
80

70

60

50

40

30
science

math
2006

2009

Sourc...
R&D Spending

2023 •3.00%
2018 •1.8%
2013 • 0.92%
2002

• 0.53%

Source: The Scientific and Technological Council of Turke...
Patent, Industrial Design & Trade Mark Applications

Trade Mark 
applications
Industrial design 
applications

2012: 111,1...
Improving Infrastructure
High Speed Railway Projects
Completed: 

888 km

Under Construction: 1,748 km
Planned: 

1,356 km...
Dual Carriageway 
Network
(January 1, 2003)
1,714 Km
Total of Motorways

4,387 Km
Total of State and 
Provincial Dual 
Car...
Propensity to Save

68
Propensity to Save: Increasing Private Pensions

25% State Contribution

Penalty for Early 
Withdrawals

69
10/2013

10/2013

09/2013

09/2013

08/2013

08/2013

08/2013

07/2013

07/2013

06/2013

06/2013

05/2013

05/2013

04/20...
Strong Long‐Term Prospects

71
GDP

2050
$ 5 trillion

2002

2023
$ 2 trillion

2002
$ 230 
billion

2012
$ 786 billion

Source: TURKSTAT, Medium‐Term Pr...
GDP per Capita
2002

2050

$ 50,000
2023 

$ 25,000
2012
$10,497
2002
$ 3,492

2050

Source: TURKSTAT, Medium‐Term Program...
Determinants of Long‐Term Growth

Quality of Institutions
Demographics
Productivity

74
Improving Quality of Institutions

Corruption 
perception: 
2012: 54th in 176 
2002: 65th in 102

Ease of Doing 
Business:...
EU Accession Process (Chapters)
25
20

20

14

15

10

5

0
Opened
Source: Ministry of EU Affairs

Remaining
76
Annual Average Growth Rate (%, 2001‐11)

Growth Rate of Working‐Age Population
2.0

2.0

1.8
1.6
1.4
1.2
1.0
1.0
0.8

0.7
...
THANK YOU…

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Economic Outlook & Financing of the Growth, (Bonds, Loans & Sukuk Turkey Conference 2013)

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Economic Outlook & Financing of the Growth, (Bonds, Loans & Sukuk Turkey Conference 2013)

  1. 1. Economic Outlook & Financing of the Growth  November 14 , 2013 Mehmet Şimşek Minister of Finance 1
  2. 2. Outline Short‐Term Economic Outlook Financing of the Growth Long‐Term Prospects 2
  3. 3. Short‐Term Economic Outlook 3
  4. 4. Growth in the Short‐Term Growing at a moderate rate No boom‐bust cycles 4
  5. 5. From Boom‐Bust Cycles to Stable Growth  6.5 6.0  6.0  5.5 5.1 5.1  5.0 4.4  4.5  4.0 4.0 3.7  3.5 3.1  3.0 1973‐1982 1983‐1992 Pre‐AK Party 1993‐2002 2003‐12 Medium‐Term (2014‐16) Long‐Term (2016‐23) AK Party Source: Turkstat, Medium‐Term Program *GFC: Global Financial Crisis 5
  6. 6. Turkey: Growth Outlook 6 5.0 5.0 Real GDP (%) 5 4.0 4 3.6 3 2013 2014 2015 2016 Kaynak: Medium‐Term Program (2014‐16) 6
  7. 7. Real GDP Forecast 140 138.1 135 Turkey Real GDP (2007=100) 130 Emerging  Europe 125 125.0 120 115 USA 115.9 110 EU 105 104.1 100.0 100 95 2007 Source: Turkstat, IMF 2008 2009 2010 2011 2012 2013 2014 2015 2016 7
  8. 8. Source: Central Bank of Turkey, Turkstat * Annual percent change ** Annual difference  Sep‐13 Jul‐13 May‐13 Mar‐13 Jan‐13 Nov‐12 Sep‐12 Jul‐12 May‐12 Mar‐12 Jan‐12 Nov‐11 Sep‐11 Jul‐11 May‐11 Mar‐11 Jan‐11 Nov‐10 Sep‐10 Jul‐10 May‐10 Mar‐10 Jan‐10 Nov‐09 Sep‐09 Jul‐09 May‐09 Mar‐09 Jan‐09 Nov‐08 Sep‐08 Jul‐08 May‐08 Mar‐08 Jan‐08 Real Economic Activity Indicators 25 20 15 10 5 0 ‐5 ‐10 Industrial Production Index*(c.a.) ‐15 ‐20 Capacity Utilization** ‐25 8
  9. 9. Source: HSBC 55 Oct‐13 Jul‐13 Apr‐13 Jan‐13 Oct‐12 Jul‐12 Apr‐12 Jan‐12 Oct‐11 Jul‐11 Apr‐11 Jan‐11 Oct‐10 Jul‐10 Apr‐10 40 Jan‐10 Oct‐09 Jul‐09 Apr‐09 Jan‐09 Oct‐08 Jul‐08 Apr‐08 Jan‐08 Oct‐07 Jul‐07 Apr‐07 Jan‐07 PMI 60 53.3 50 45 Above 50 last ten months 35 30 9
  10. 10. Source: Central Bank of Turkey, Turkstat Real Sector Confidence Index (lhs) Oct‐13 Jul‐13 Apr‐13 Jan‐13 Oct‐12 Jul‐12 Apr‐12 Jan‐12 Oct‐11 Jul‐11 Apr‐11 Jan‐11 Oct‐10 Jul‐10 Apr‐10 Jan‐10 Oct‐09 Jul‐09 Apr‐09 Jan‐09 Oct‐08 Jul‐08 Apr‐08 Jan‐08 Oct‐07 Jul‐07 Apr‐07 Jan‐07 Confidence Indices 130 90 120 85 110 80 100 75 90 70 80 65 70 60 60 55 50 50 Consumer Confidence Index (rhs) 10
  11. 11. Source:Turkstat Jan‐13 Jan‐12 Jan‐11 Jan‐10 Jan‐09 Jan‐08 Employment  since end‐2007  (Mn People, s.a.) Employment 26 25 25.5 24 23 22 21 20 11
  12. 12. Unemployment & Labor Participation Rate 16 52 15 51 14 50 13 12 48 (s.a., %) (s.a., %) 49 11 47 10 Source: Turkstat Unemployment Rate (lhs) May‐13 Jan‐13 Sep‐12 May‐12 Jan‐12 Sep‐11 May‐11 Jan‐11 Sep‐10 May‐10 Jan‐10 Sep‐09 May‐09 Jan‐09 45 Sep‐08 8 May‐08 46 Jan‐08 9 Labor Force Participation Rate(rhs) 12
  13. 13. 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 6.2 6.8 5.3 5.0 5.0 CPI (Annual, %) 120 125.5 140 100 99.1 107.2 Inflation 80 60 40 20 0 Source: Turkstat, Medium‐Term Program (2014‐16) 13
  14. 14. Low Deficit Budget Deficit‐to‐GDP (%)  12.0 10.8 10.0 8.0 7.9 5.5 6.0 Medium‐Term Program  (2014‐16) 4.1 4.0 Maastricht Criteria: 3%  3.0 1.6 2.0 0.1 0.2 0.4 1.0 1.0 1.1 0.8 0.5 0.0 ‐2.0 ‐1.3 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Achieved Maastricht Criteria except 2009 Source: Ministry of Development 14
  15. 15. Lower Public Debt 75 74.0 70 67.7 65 Debt‐to‐GDP (%) 60 Maastricht Criteria:  60% 59.6 55 52.7 50 45 40 35 30 46.5 Medium‐Term Program  (2014‐16) 46.1 42.3 39.9 40.0 39.1 36.2 35.0 33.0 31.0 30.0 25 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Satisfying Maastricht Criteria since 2004 Source: Treasury 15
  16. 16. C/A Deficit: High but Manageable 20 0 ‐20 ‐40 ‐60 ‐80 2002‐1 4 7 10 2003‐1 4 7 10 2004‐1 4 7 10 2005‐1 4 7 10 2006‐1 4 7 10 2007‐1 4 7 10 2008‐1 4 7 10 2009‐1 4 7 10 2010‐1 4 7 10 2011‐1 4 7 10 2012‐1 4 7 10 2013‐1 4 7 (12 Month Rolling, USD bn) 40 Current Account Current Account excl. Energy Imports Current Account without Energy Import Current Account + Net FDI + Net Errors and Omissions Source: Central Bank of Turkey 16
  17. 17. Flexible Exchange Rate 80 70 Volatility (%) * 60 50 40 Turkey Emerging Economies** 30 20 10 Jul‐13 Jan‐13 Jul‐12 Jan‐12 Jul‐11 Jan‐11 Jul‐10 Jan‐10 Jul‐09 Jan‐09 Jul‐08 Jan‐08 0 Source: Bloomberg  * Volatility is calculated using 30‐day moving average.  ** Emerging Markets  include Brazil, Chile, Colombia, Czech Republic, Hungary, Indonesia, Malaysia, Mexico, Philippines,  Poland, Romania, South Africa, Korea, and Turkey.  17
  18. 18. 2002 2013‐9 Source: Banking Regulation and Supervision Agency 18 Sep‐13 May‐13 Jan‐13 Sep‐12 May‐12 Jan‐12 Sep‐11 May‐11 Jan‐11 Sep‐10 May‐10 Jan‐10 Sep‐09 May‐09 Jan‐09 10 Sep‐08 15 May‐08 Capital Adequacy Ratio (%)  2.7 Jan‐08 NPL Ratio of Loans (%) Healthy Banking System 17.6 25 20 15.74 Target Rate 12%  Legal Rate 8%  5 0
  19. 19. (2012, %, GDP) Low Household Liabilities TURKEY Lithuania Slovakia Slovenia Hungary Czech Republic Latvia Poland Estonia Italy Austria Luxembourg Belgium France Germany Malta Greece Euro Area Finland Spain Sweden Portugal United Kingdom Ireland Netherlands Denmark 0 20 Source: Central Bank of Turkey, ECB 21.2 65.4 40 60 80 100 120 140 19
  20. 20. Corporate liabilities (%, GDP) Moderate Corporate Leverage Poland Czech Republic Slovakia Lithuania Hungary United Kingdom Belgium Finland Germany Estonia Latvia TURKEY France Average Greece Sweden Austria Slovenia Italy Denmark Ireland Netherlands Portugal Spain Luxembourg 43.3 47.2 0 20 Source: Central Bank of Turkey, Cetinkaya, BRSA 40 60 80 100 120 140 20
  21. 21. Financing of the Growth 21
  22. 22. Financing of Economic Growth Tapping into Global Savings Boosting Domestic Savings 22
  23. 23. Tapping into Global Savings 23
  24. 24. Maintaining Global Inflows Sustaining a Solid Fiscal Outlook Developing Corporate Debt Market Deepening Capital Markets Improving Investment Climate (FDI) 24
  25. 25. Sustaining a Solid Fiscal Outlook 25
  26. 26. • PSBR • Public Sector Debt • FX Risk  • Interest Rate Risk • Maturity of Borrowing Increasing Downward Trend Sustaining a Solid Fiscal Outlook 26
  27. 27. Public Sector Borrowing Requirement 12 10 10.0 PSBR (%, GDP ) 8 6 Medium‐Term Program  (2014‐16) 4 2 0.8 0.5 0 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 ‐2 Source: Ministry of Development 27
  28. 28. Public Sector’s Net Debt 70 61.5 60 Public Sector Net Debt (%, GDP) 55.2 49.1 50 35.4 41.7 23.9 40 19.1 10.4 34.0 29.5 28.2 3.3 2.9 6.4 30 32.5 2.7 28.9 0.9 22.3 0.7 20 26.2 31.3 30.0 31.3 17.0 27.6 26.2 10 25.3 29.9 28.1 21.6 20.3 15.8 14.7 18.9 ‐4.3 0 20.1 ‐4.2 ‐3.3 ‐10 2002 2003 2004 2005 2006 2007 Net TL Source: Treasury 2008 Net FX 2009 2010 2011 2012 2013 Q1 2013 Q2 Total Net 28
  29. 29. Public Sector’s Net External Debt Stock  100 25.2 30 60 20 40 15 20 10 0 5 ‐20 (Billion TL) 25 0 ‐40 (%) 80 ‐5 ‐3.9 Public Net External Debt Stock (lhs) Source: Treasury 2013 Q2 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 ‐10 2002 ‐60 Public Net External Debt Stock/GDP (rhs) 29
  30. 30. FX Risk Central Government Debt Stock (%, Total) 100 90 29.2 80 70 58.1 60 50 40 70.8 30 20 41.9 10 0 2002 2013‐ Sept. TL Stock FX Stock Source: Treasury 30
  31. 31. Interest Rate Risk Sep‐13 2003 9% 22% 44% 53% 47% 25% Fixed Source: Treasury Floating CPI Indexed Fixed Floating CPI Indexed 31
  32. 32. Real Interest Rates 30 25.4 25 (%) 20 15 10 5 0.7 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 0 ‐5 Source: Ministry of Development, Treasury Note: Latest data for real interest rate of the domestic debt stock is as of October 2013. 32
  33. 33. Interest Payments 90 17 85.7 80 14.8 13 (%) 60 11 50 Medium‐Term Program  (2014‐16) 40 9 (%) 70 15 7 30 5 20 15.5 10 12.3 3.2 3 2.4 0 Interest Payments/Tax Revenues Source: Ministry of Finance, Ministry of Development, Treasury Note: Real interest rate of the domestic debt stock is as of October 2013. 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 1 Interes Payments/GDP (rhs) 33
  34. 34. Maturity of Domestic Borrowing 75 74.1 65 (Months) 55 45 43.7 35 25 15 12.8 9.4 2012 2011 2010 2009 Time to Maturity of Domestic Debt Stock 2013 Sept. Average Maturity of Domestic Borrowing 2008 2007 2006 2005 2004 2003 2002 5 Source: Treasury Note:  Average maturity of domestic borrowing is as of October 2013. 34
  35. 35. Source: Treasury 9.5 2013 Sep‐13 September 2012 2011 2010 2009 2008 2007 5.5 2006 2005 Time to Maturity  of Central Gov. External Debt Stock (Years) Maturity of External Debt 10.0 9.6 9.0 8.5 8.0 7.5 7.0 6.5 6.0 5.7 5.0 35
  36. 36. Source: Bloomberg Moody's Fitch Jan‐13 Aug‐12 Mar‐12 Oct‐11 May‐11 Dec‐10 Jul‐10 Feb‐10 Sep‐09 Apr‐09 Baa3/BBB‐ Nov‐08 Jun‐08 Jan‐08 Aug‐07 Mar‐07 Oct‐06 May‐06 Dec‐05 Jul‐05 Feb‐05 Sep‐04 Apr‐04 Nov‐03 Jun‐03 Jan‐03 Investment Grade Baa2/BBB Investment Grade Ba1/BB+ Ba2/BB Ba3/BB‐ B1/B+ B2/B B3/B‐ S&P 36
  37. 37. Developing Corporate Debt Market Investment  Grade is  helping  corporates Corporate Bond  Stock Corporate  Bond Stock • 2013: TL13.7bn • 2006: TL0.1bn  37
  38. 38. Tax Incentives for Intern’l Corporate Bond Issuance Up to 1 year: 10% 1‐to‐3 years: 7% 3‐to‐5 years: 3% 5 years and beyond: 0% Source: Ministry of Finance 38
  39. 39. Incentives for Global Fund Managers Making it easier to manage assets  in Turkey A tax free environment for  Global Funds 39
  40. 40. Incentives for Venture Capital Allowing contributions to Venture Capital to be  deducted from Corporate & Personal Income Tax  Base, up to • 10% of VC Revenues • 20% of VC Capital Tax Relief on Dividends 40
  41. 41. Incentives for Business Angels 41
  42. 42. Deepening Capital Markets Capital markets are rather shallow Banks dominate financial markets 42
  43. 43. Banking Sector dominates Financial Sector 87.4% 3.2% Insurance Share of Banks in Financial Sector Source: Central Bank of Republic of Turkey 2.0% Mutual  Funds 43
  44. 44. Market Capitalization 60 48 50 (%, GDP) 40 30 27 20 15 10 0 Turkey 2002 Turkey 2013‐9 EM Average 2013‐9 Source: Capital Markets Board Emerging Economies: Chile, Thailand, Colombia, India, Brazil, China, Indonesia, Mexico, Russia,  Sri Lanka, Hungary, Argentina 44
  45. 45. Investment Funds’ Net Asset Value 16 14 14 (2012, %, GDP) 12 10 8 6 4 2 2 0 Turkey Source: Capital Markets Board EM Average 45
  46. 46. Free‐Floats 80 70 70 (%) 60 50 40 30 28 20 10 Turkey EM Average Most Turkish companies are privately owned Source: Capital Markets Board, Central Securities Depository 46
  47. 47. A New Capital Markets Law New legal framework in  line with the best global  practices •Increasing financial deepening & innovation •Strengthening investor rights •Improving corporate governance 47
  48. 48. Restructuring of Borsa Istanbul Regional  Leadership Raising  Market  Cap/GDP to 80% 1,000 new  companies to be listed 48
  49. 49. Istanbul as a Financial Center Financial sector currently employs 200 thousand people Istanbul Finance Center is likely to add 150 thousand 49
  50. 50. Introducing New Instruments: Sukuk Similar to eurobonds, internat’l holders aren’t subject to w/holding tax Sep‐12: Sukuk issued for $1.5bn in international market  Oct‐12: Sukuk denominated in TL issued for TL1.6bn Feb‐13: Sukuk issued for TL1.5bn Aug‐13: Sukuk issued for TL1.8bn Oct‐13: Sukuk issued for $1.3bn in international market  50
  51. 51. Improving Investment Climate (FDI) 132.0 135 120 FDI ınflows (Bn $) 105 90 75 60 45 30 15 14.8 0 1980‐2002 2003‐2013 September Source: Central Bank of Turkey 51
  52. 52. Raising Domestics Savings 52
  53. 53. Savings 25 20 15 10 5 0 ‐5 2002 2003 2004 2005 2006 2007 Public Savings/GDP 2008 2009 2010 2011 2012 2013 Private Savings/GDP Source: Ministry of Development 53
  54. 54. Determinants of Savings Increasing Employment Improving Labor Market Flexibilty Increasing Labor Participation Productivity Enhancing Human  Capital Stock Competition R&D Improving  Infrastructure Propensity to Save Increasing Private Savings 54
  55. 55. Increasing Employment 55
  56. 56. Source: OECD Netherlands Denmark Norway Ireland Switzerland Germany Australia United Kingdom Sweden Belgium 40 Luxembourg Finland New Zealand Italy Austria France Spain Estonia Canada Chile Portugal Hungary Slovenia Iceland Poland Slovak Republic Israel Czech Republic Greece Mexico 50 Korea Turkey (2011,  hour) Average Usual Weekly Hours Worked on the Main Job 48.9 48 46 44 42 OECD Average: 38.5 38 36 34 32 30 56
  57. 57. Netherlands Switzerland Ireland United Kingdom Australia New Zealand Germany Japan Norway Mexico Denmark Austria Canada Belgium Italy Iceland Chile Luxembourg Israel Sweden Spain France United States Finland Portugal Turkey Korea Greece Estonia Poland Slovenia Hungary Czech Republic Slovak Republic (2012,  %, Total Employment) Part Time Employment 40 35 30 25 20 OECD Average: 16.9 15 11.8 10 5 0 Source: OECD 57
  58. 58. Retirement Age* 70 70 65 60 Men (Age) 60 Woman (Age) 65.6 65 65 55 50 55 50 45 45 40 40 1993 2010 Turkey 2050 1993 2010 Turkey OECD 2050 OECD Various OECD countries linked pension age to life expectancy France by 2012 Greece by 2020 Source: OECD Pensions Outlook 2012 *Pensionable Age in OECD Countries Italy by 2026 Denmark by 2027
  59. 59. Employment Rate  70 65.1 65 60 (%) 55 50 46.9 45 41.3 40 35 30 Turkey 2004 Turkey Jul‐2013 OECD Average Q2‐2013 Source: Turkstat, OECD 59
  60. 60. Productivity 60
  61. 61. Enhancing Human Capital Stock: Education Budget 19 18 18 Education Budget (% of Total) 17 16 15 14 13 12 11 10 9.4 9 2002 Source: Ministry of Finance 2014 61
  62. 62. Enhancing Human Capital Stock: Schooling Rates 130 107.6 110 96.8 (Gross Rates) 96.5 90 92.1 80.8 70 50 44.0 35.8 30 11.7 10 Preschool (age of 4‐5 ) Primary School 2002‐03 Source: Ministry of Development Secondary School Higher Education 2012‐13 62
  63. 63. Enhancing Human Capital Stock:  PISA Results, Gap b/w Turkey & OECD 80 70 60 50 40 30 science math 2006 2009 Source: OECD 63
  64. 64. R&D Spending 2023 •3.00% 2018 •1.8% 2013 • 0.92% 2002 • 0.53% Source: The Scientific and Technological Council of Turkey 64
  65. 65. Patent, Industrial Design & Trade Mark Applications Trade Mark  applications Industrial design  applications 2012: 111,143 2002: 36,429 2012: 41,220 Patent  applications  2012: 11,599 2002: 1,874 2002: 20,302 65
  66. 66. Improving Infrastructure High Speed Railway Projects Completed:  888 km Under Construction: 1,748 km Planned:  1,356 km  Airports  avaible for civil  aviation  2003: 26 Airports 2013: 52 Airports  66
  67. 67. Dual Carriageway  Network (January 1, 2003) 1,714 Km Total of Motorways 4,387 Km Total of State and  Provincial Dual  Carriageways  Total: 6,101 Km Dual Carriageway  Network (September 30, 2013) 2,244 Km Total of Motorways 20,350 Km Total of State and  Provincial Dual  Carriageways Total: 22,594 Km 67
  68. 68. Propensity to Save 68
  69. 69. Propensity to Save: Increasing Private Pensions 25% State Contribution Penalty for Early  Withdrawals 69
  70. 70. 10/2013 10/2013 09/2013 09/2013 08/2013 08/2013 08/2013 07/2013 07/2013 06/2013 06/2013 05/2013 05/2013 04/2013 04/2013 03/2013 03/2013 03/2013 02/2013 02/2013 01/2013 01/2013 Total Amount of Participant´s Funds (TL, Bn) Propensity to Save: Increasing Private Pensions 26 25 25.1 24 23 22 21 20 Source: Pension Monitoring Center 70
  71. 71. Strong Long‐Term Prospects 71
  72. 72. GDP 2050 $ 5 trillion 2002 2023 $ 2 trillion 2002 $ 230  billion 2012 $ 786 billion Source: TURKSTAT, Medium‐Term Program,PwC 2050 72
  73. 73. GDP per Capita 2002 2050 $ 50,000 2023  $ 25,000 2012 $10,497 2002 $ 3,492 2050 Source: TURKSTAT, Medium‐Term Program,PwC 73
  74. 74. Determinants of Long‐Term Growth Quality of Institutions Demographics Productivity 74
  75. 75. Improving Quality of Institutions Corruption  perception:  2012: 54th in 176  2002: 65th in 102 Ease of Doing  Business:  2013‐14: 69th in 189 2006: 84th in 175 Global  competitiveness:  2013: 44th in 148  2005: 71st in 117 75
  76. 76. EU Accession Process (Chapters) 25 20 20 14 15 10 5 0 Opened Source: Ministry of EU Affairs Remaining 76
  77. 77. Annual Average Growth Rate (%, 2001‐11) Growth Rate of Working‐Age Population 2.0 2.0 1.8 1.6 1.4 1.2 1.0 1.0 0.8 0.7 0.6 0.3 0.4 0.2 0.0 Turkey Source: OECD, Eurostat, TURKSTAT USA OECD EU‐27 77
  78. 78. THANK YOU… 78

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