Mitsubishi Conference

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Mitsubishi Conference

  1. 1. Turkey: Macroeconomic OutlookMay 17, 2013Mehmet ŞimşekMinister of Finance
  2. 2. OutlineShort-Term Economic OutlookReform AgendaReconciliation ProcessTurkey’s Long-Term Prospects2
  3. 3. Short-Term Outlook3
  4. 4. Outlook for 2013 and OnwardsFaster GrowthSlight Increasein C/A DeficitDecliningInflationLowerUnemployment4FallingDebt &Deficit
  5. 5. Faster Growth5RealGDP(2007=100)Source: Eurostat, IMF, Medum-Term Program133,3100,9111,890951001051101151201251301351402007 2008 2009 2010 2011 2012 2013 2014 2015Turkey Euro USAForecast
  6. 6. Real Economic Activity IndicatorsSource: CBRT, HSBC68085909510010511011512030354045505560 2007-13579112008-13579112009-13579112010-13579112011-13579112012-13579112013-13PMI (Left)Manufacturing Index (s.a.) (Right)
  7. 7. Confidence IndicesSource: CBRT, TURKSTAT750556065707580859050607080901001101201302007-13579112008-13579112009-13579112010-13579112011-13579112012-13579112013-13Real Sector Confidence Index (Left) Consumer Confidence Index (Right)
  8. 8. (%)8Looser Monetary PolicySource: CBRT3,56,54,53579111315 October11October11December11December11January12February12March12April12May12Jun12July12August12September12October12November12December12January13February13March13April13CBRT Funding Rate O/N Borrowing O/N Lending Policy Rate
  9. 9. (%)981012141618202224262804.01.200804.04.200804.07.200804.10.200804.01.200904.04.200904.07.200904.10.200904.01.201004.04.201004.07.201004.10.201004.01.201104.04.201104.07.201104.10.201104.01.201204.04.201204.07.201204.10.201204.01.201304.04.2013Personal Vehicle Housing CommercialSource: CBRTFalling Lending Rates
  10. 10. 1025,60510152025303540452011-Jan.Feb.Mar.MarApr.May.Jun.July.Aug.Sep.Oct.Nov.Dec.2012-Jan.Feb.Mar.MarApr.May.Jun.July.Aug.Sep.Oct.Nov.Dec.2013-Jan.Feb.Mar.MarApril* Credit Growth is adjusted for exchange rate movementsSource: CBRTStrong Credit Growth13weekmovingavg.,y-on-y%
  11. 11. 11Employment is Supportive of GrowthEmploymentsinceend-2007(MnPeople,s.a.)Source:TURKSTAT25,6202122232425262008-12009-12010-12011-12012-12013-1
  12. 12. Well-Capitalized Banking SectorCapitalAdequacyRatio,%Target Rate 12%Legal Rate 8%Source: BRSA12Capital adequacy ratio twice theminimum legal limit of 8%.051015202530352003-147102004-147102005-147102006-147102007-147102008-147102009-147102010-147102011-147102012-147102013-1
  13. 13. Low Household LeverageSource: CBRT, ECB(HouseholdLiabilities,%ofGDP,2012Q3)1365,720,30 20 40 60 80 100 120 140 160DenmarkNetherlandsIrelandUnited KingdomPortugalSwedenSpainEuro areaFinlandGreeceMaltaGermanyFranceBelgiumLuxembourgAustriaItalyEstoniaPolandLatviaHungaryCzech RepublicSloveniaSlovakiaLithuaniaTurkey
  14. 14. Moderate Corporate Liabilities1436,80 20 40 60 80 100 120LuxembourgSpainPortugalNetherlandsIrelandDenmarkItalySloveniaAustriaSwedenGreeceFranceLatviaEstoniaTurkeyGermanyFinlandBelgiumUnited KingdomHungaryLithuaniaSlovakiaCzech RepublicPoland(Corporateliabilities,%,GDP)Source: CBRT, Cetinkaya, March 2013, BRSA
  15. 15. Other Factors Supporting GrowthUrban Renewal 2B Removal ofReciprocityIncentives IG Credit RatingsReconciliationProcess15
  16. 16. InflationSource: TURKSTAT, Medium-Term Program16(y/y,%)107,2125,599,16,2 5,3 5,0 5,0020406080100120140198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015Forecast
  17. 17. Factors Supporting Lower InflationOutput gapNo repeat of administrative price hikesStable commodity prices17
  18. 18. Unemployment18Source:TURKSTAT, Eurostat, IMF, Medium-Term ProgramUnemploymentRate(2007=100)80100120140160180200220200720082009201020112012201320142015USA Euro Area TurkeyForecast
  19. 19. 10,87,94,10,1-1,30,21,65,53,00,41,3 1,5 1,2 0,9-2,00,02,04,06,08,010,012,02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Maastricht Criteria: 3%Medium-Term Program(2013-15)Achieved Maastricht Criteria except 2009Source: Ministry of DevelopmentBudgetDeficit-to-GDP,%19Strong Fiscal Position
  20. 20. 74,067,759,652,746,539,9 40,046,142,339,136,135,033,031,030,035,040,045,050,055,060,065,070,075,02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Medium-Term Program(2013-15)Public debt remains on a downward trendDebt-to-GDP,%Satisfying Maastricht Criteria since 2004Maastricht Criteria: 60%Source: Treasury20
  21. 21. Current Account Deficit21Source: CBRT, Turkstat, Medium-Term Program234567891011-9-6-303691215200720082009201020112012201320142015Domestic Demand Growth CA/GDPForecastCAD (%, GDP) , rhs
  22. 22. 0102030405060708001.200604.200607.200610.200601.200704.200707.200710.200701.200804.200807.200810.200801.200904.200907.200910.200901.201004.201007.201010.201001.201104.201107.201110.201101.201204.201207.201210.201201.201304.2013We have a Flexible Exchange Rate22Source: 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.Volatility*Emerging Economies**Turkey
  23. 23. We are Building Reserves23(Bn$)1306070809010011012013014004.05.20…04.08.20…04.11.20…04.02.20…04.05.20…04.08.20…04.11.20…04.02.20…04.05.20…04.08.20…04.11.20…04.02.20…04.05.20…04.08.20…04.11.20…04.02.20…04.05.20…04.08.20…04.11.20…04.02.20…04.05.20…04.08.20…04.11.20…04.02.20…
  24. 24. 83405101520253035402002 2012We have Diversified Export MarketsNumber of Export Markets over $1 billionSource: TURKSTAT24
  25. 25. Diversified Export MarketSource: TURKSTAT25Largest 5 in Total Exports (%)2002 2012Germany 16,3 Germany 8,6USA 9,3 Iraq 7,1United Kingdom 8,4 Iran 6,5Italy 6,6 United Kingdom 5,7France 5,9 BAE 5,4LARGEST 5 46,5 LARGEST 5 33,3
  26. 26. Europe56.6%Other43.4%2002Exports to Europe are on the FallEurope38.8%Other61.2%2012Source: TURKSTAT26
  27. 27. Source: TURKSTATExports to MENA are on the RiseExportstoMENA(%ofTotal)2712,131,651015202530352002 2012
  28. 28. 930051015202530352002 2012Number of Products over $1 billionWe have Diversified Product BundleSource: TURKSTAT28
  29. 29. Source: TURKSTATExport Diversification(Share of Largest 5 in Total Product Exports)Fruits &vegetables5.7Iron &steel; 7,9Machinery&Equipment4.7Autos; 8,8Textiles;22,42002(%)2012(%)Fruits &vegetables4.3Iron &steel; 8,6Machinery&Equipment5.9Autos; 9,6Textiles; 9,4
  30. 30. (%)1012141618202224262002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Current Account is a Structural ProblemSource: Ministry of Development30
  31. 31. -505101520252002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Public Savings/GDP Private Savings/GDP(%)Source: Ministry of DevelopmentSavings31
  32. 32. Reform Agenda32
  33. 33. 33Moving Up the Value Chain
  34. 34. Why is R&D so significant for us?The share of high and medium-hightechnology sectors in production and inexport is lowBoosting R&DSource: Ministry of Development27.672.435.664.401020304050607080High and Medium-High Low and Medium-LowProduction Export34
  35. 35. Source: The Scientific and Technological Council of TurkeyR&D Spending35• 3.00%2023• 0.86%2011• 0.53%2002
  36. 36. Industrial Design Applications41,226 applications in 2012Up by 103% since 2002Source: TPI36
  37. 37. Trade Mark ApplicationsSource: TPI• 36,5782002• 109,767201237
  38. 38. Patent ApplicationsSource: TPI381.87411.5551.0002.0003.0004.0005.0006.0007.0008.0009.00010.00011.00012.0002002 2012
  39. 39. 39Deepening Capital Markets
  40. 40. A New Capital Markets Law•Increasing financial deepening & innovation•Strengthening investor rights•Improving corporate governanceNew legal framework inline with the best globalpractices40
  41. 41. Restructuring of Borsa IstanbulRegionalLeadershipRaisingMarketCap/GDP to80%1,000 newcompaniesto be listed41
  42. 42. Increasing Savings: Private Pensions25% State ContributionPenalty for EarlyWithdrawals42
  43. 43. Extending Maturity of DepositsMaturity Withholding Tax Rate (TL, %)0-6 Months 15%6-12 Months 12%1 year and over 10%Maturity Withholding Tax Rate (FX, %)0-6 Months 18%6-12 Months 15%1 year and over 13%43
  44. 44. Incentives for Global Fund ManagersA tax free environment forGlobal FundsMaking it easier to manage assetsin Turkey44
  45. 45. Incentives for Venture CapitalAllowing contributions to Venture Capital to bededucted from Corporate & Personal Income TaxBase, up to• 10% of VC Revenues• 20% of VC CapitalTax Relief on Dividends45
  46. 46. Incentives for Business Angels46
  47. 47. Developing Sukuk MarketSimilar to euro bonds, international holders Sukuk willnot be subject to withholding taxSep-12: First Sukuk issued for $1.5bn in internationalmarketOct-12: Sukuk denominated in TL issued for TL1.6bn indomestic marketFeb-13: Sukuk issued for TL1.5bn47
  48. 48. Combatting the Shadow Economy48
  49. 49. Informal Employment4952,1 51,750,148,247,045,443,5 43,843,342,139,036,435373941434547495153200220032004200520062007200820092010201120122013FebruarySource:TURKSTAT(%,TotalEmployment)
  50. 50. Size of Shadow Economy (%, GDP)32,231,530,730,429,128,428,928,327,727,226,5262728293031323320032004200520062007200820092010201120122013Source: Schneider, 201350Down 6 percentage points
  51. 51. Size of Shadow Economy (%, GDP)31,228,428,428,027,626,525,525,224,323,823,623,122,121,11918,618,516,415,51513,913,613131312,29,99,79,187,67,15101520253035BulgariaRomaniaCrotiaLithuaniaEstoniaTURKEYLatviaS.CyprusMaltaPolandGreeceSloveniaHungaryItalyPortugalSpainAverageBelgiumCzechRep.SlovakRep.SweedenNorwayDenmarkFinlandGermanyIrelandFranceUKNetherlandLuxemburgAustriaSwitzerlandSource: Schneider, 201351But still higher than EU average
  52. 52. Tax Loss (% GDP)7,87,37,47,57,57,16,86,35,75,35,35,73,63,43,43,43,53,43,33,12,92,62,52,823456789199920002001200220032004200520062007200820092010Turkey Sample Average3ppt higher than the EU averageSource: Schneider, 201252
  53. 53. 53Enhancing Human Capital Stock
  54. 54. Students (%, Total Population)54392215202530354045Turkey EUSource: TURKSTAT, Eurostat
  55. 55. 210102030405060708090GermanyFranceUnitedKingdomItalySpainPolandRomaniaTurkeyNetherlandsGreeceBelgiumPortugalCzechRepublicHungarySwedenAustriaSwitzerlandBulgariaDenmarkSlovakiaFinlandNorwayIrelandCroatiaLithuaniaMacedoniaSloveniaLatviaEstoniaCyprusMontenegroLuxembourgMaltaIcelandLiechtensteinTurkey’s Student Population55Source: Ministry of Development, EurostatPopulation,million
  56. 56. 9,417810121416182002 2013Source: Ministry of FinanceShare of Education Budget%56
  57. 57. Investment in EducationOver the lastdecade, we have• Built 188,000classrooms• Hired 357,000 teachers57Source: Ministry of Education
  58. 58. Gross Schooling RatesSource: Ministry of Development11,296,580,835,846,4108,492,681,61030507090110130Preschool(age of 4-5 )Primary School Secondary School Higher Education2002-2003 2011-201258
  59. 59. Source: OECD, PISA 2009PISA Results - Mathematics43rd (among 65 countries)59445350375400425450475500525550
  60. 60. Source: OECD, PISA 2009PISA Results - Science43rd (among 65 countries)60454350370390410430450470490510530550KoreaEstoniaGermanyLiechtensteinSloveniaPolandHungaryFranceİtalyCroatiaRussiaGreeceTurkeyBulgariaMexicoBrazilArgentinaIndonesia
  61. 61. Improving Quality of EducationWith Fatih Project, we are providing our children withBroadband Internet AccessSmart BoardsTablet PCsOther Information Technology Tools61
  62. 62. Source: OECDFatih to help FURTHER reduce the Gap between Turkey & OECD(PISA Results)62304050607080science math2006 2009
  63. 63. Reducing Regional Development Gaps63
  64. 64. New Investment Incentive SchemeObjectives:- Reduce regional development gaps- Reduce current account deficit- Promote efficient allocation of resources to high value-added investmentsGeneralIncentivesRegionalIncentivesIncentives forLarge-ScaleProjectsIncentives forStrategicInvestments64
  65. 65. Regional Development65• GAP, DAP, KOP, DOKAP• Help create 2,5 million jobs• Annual contribution of $8 billion to the economyRegional development programs• BELDES, KOYDESLocal development schemesImproving local governments’ legislative rights
  66. 66. Improving Labor Market Flexibility66
  67. 67. Low Employment RateEarly retirementLow rate of female laborforce participationRigidities in labor forcemarket67
  68. 68. Average Retirement Age41,044,961,963,33035404550556065Female MaleTurkey OECDSource: OECD68
  69. 69. Labor Participation Rate, FemaleOECD Average: 62.3Source: TURKSTAT, OECD69LaborParticipationRatebyEducation(2013February)29,616,124,832,139,473,01020304050607080Total Illeterate Less than highschoolHigh school Vocational highschoolHigher education
  70. 70. Improving Girls’ Education200291.1 girls per100 boys2012101.8 girlsper 100 boys70
  71. 71. Source: OECDHighest among OECD countries71Average Usual Weekly Hours Worked on the Main Job48,93032343638404244464850TurkeyKoreaMexicoGreeceCzechRepublicIsraelSlovakRepublicPolandIcelandSloveniaHungaryPortugalChileCanadaEstoniaSpainFranceAustriaItalyNewZealandFinlandLuxembourgBelgiumSwedenUnitedKingdomAustraliaGermanySwitzerlandIrelandNorwayDenmarkNetherlandsHighest among OECD countries
  72. 72. 72Improving Infrastructure
  73. 73. 1,714 KmTotal of Motorways4,387 KmTotal of State andProvincial DualCarriagewaysTotal: 6,101 KmDual CarriagewayNetwork(January 1, 2003)2,244 KmTotal of Motorways20,017KmTotal of State andProvincial DualCarriagewaysTotal: 22,261 KmDual CarriagewayNetwork(May 11, 2013)73
  74. 74. İSTANBULESKİŞEHİR POLATLIANKARAKONYASİVAS212 km533 km405 kmYOZGATYerköyAFYONİZMİRMANİSA624 kmBURSABİLECİK105 kmUnder ConstructionCompletedHigh Speed Railway Projects74Source: Ministry of Transport
  75. 75. • The number of airports servingscheduled flights = 262003• The number of airports servingscheduled flights = 492012Airports Available For Civil Aviation Traffic inTurkeyAirports serving ScheduledFlights (49)Airports under Construction (6)Airports Planned (1) 75
  76. 76. 76Telecommunication0,0220,7405101520252003 Mar.13NumberofBroadbandSubscribers(Million)27,967,8203040506070802003 Mar.13NumberofMobileSubscribers(Million)
  77. 77. Health CareTotal Closed Area Allocated to HealthcareInvestments (million m2)HealthcareFacilitiesHospitals andNew BuildingsPrimary HealthCare FacilitiesTotal
  78. 78. 78Improved Public Health Services5,825,64,73,6051015202530Life expectancy at birth Mortality rate, infant (per 1,000 live births)2002 201175 31,5 7,7Source: OECD72DifferencebetweenTurkey&OECDaverage
  79. 79. 79Reducing Energy Import Bill
  80. 80. Source: TURKSTAT, BloombergEnergy Import Bill(Brent,$pbl)EnergyImports(BillionDollars)809,260,1 58,723,4110,5020406080100120010203040506070200220032004200520062007200820092010201120122013Q1Energy Import Oil Prices
  81. 81. High Dependence on Energy Imports72%Total Energy92%Oil98%Natural-Gas81
  82. 82. Developing Local & Renewable ResourcesSource: Ministry of Energy and Natural ResourcesElectricity Generation Installed CapacityMW % of TotalCurrent Installed Capacity (Sept, 2012) 55,663- Renewable Energy 20,963 37.7Power Plants Under Construction 23,396- Renewable Energy 15,879 67.9TOTAL 79,029- Renewable Energy 36,843 46.682
  83. 83. Building the Nuclear Capacity83Akkuyu:JW with RussiaSinopJW with a Japanese-French consortiumWorking on a 3rd plant
  84. 84. Improving Energy Efficiency84Industry20%Transportation15%Construction30%
  85. 85. Privatization• Distributions: Almost done85Hamitabat Termal Power PlantSeyitömer Termal Power PlantKangal Termal Power Plant• Generation: 16,530MW on sale
  86. 86. Coal86$12 Billion Investment85 million tons ofcoal per year45 billion kWh ofenergy per yearEmployment for 15thousand peopleTurkey-UAE
  87. 87. 87Reconciliation Process
  88. 88. Lost Decades88About 40,000 deathsAbout $350 billion spent on fightingterrorismIndirect cost is more than $1 trillion
  89. 89. Lost DecadesOECD ülkeleri arasında en yüksek890200400600800100012001400160018002000 19801982198419861988199019921994199619982000200220042006200820102012201420162018Korea Turkey80s: at par w/ Korea 90s: Lost Decade AK Party: Rapid GrowthGDP,million$Source: IMF
  90. 90. Instead of Money Spent on Fighting Terrorism, wecould have…400,000 kmdualcarriageway10,000 kmhigh-speedrail line3,000,000classrooms90
  91. 91. Turkey’s Strong Long-Term Prospects91
  92. 92. GDPSource: TURKSTAT, Medium-Term Program,PwC200220502002$ 230billion2050$ 5 trillion2012$ 786 billion2023$ 2 trillion92
  93. 93. GDP per CapitaSource: TURKSTAT, Medium-Term Program,PwC200220502002$ 3,4922012$10,5042023$ 25,0002050$ 50,00093
  94. 94. Determinants of Long-Term GrowthQuality of InstitutionsDemographicsProductivity94
  95. 95. Quality of InstitutionsCombattingcorruptionCreating a levelplaying fieldImprovinginternationalcompetitiveness95
  96. 96. Quality of Institutions96Doing BusinessCorruptionPerception IndexGlobalCompetitivenessIndexHumanDevelopment IndexOECD-FDIRegulatoryRestrictivenessIndexPast Present2023Source: WB, WEF, Transparency International, OECD
  97. 97. Corruption Perceptions Index (2002)(65th among 102 countries)3144 4558 59657073 74962030405060708090100ItalyGreeceBrazilMexicoChinaTURKEYArgentinaIndiaRussiaIndonesiaSource: Transparency International97
  98. 98. Corruption Perceptions Index (2012)(54th among 176 countries)Source: Transparency International5469728094 94102105118133405060708090100110120130140TURKEYBrazilItalyChinaGreeceIndiaArgentineMexicoIndonesiaRussia98
  99. 99. Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.(71st among 117 countries)384547 48535457 59697130354045505560657075ItalyIndiaGreeceChinaRussiaArgentinaBrazilMexicoIndonesiaTURKEYSource: World Economic ForumGlobal Competitiveness Index (2005)99
  100. 100. (43rd among 144 countries)Source: World Economic ForumGlobal Competitiveness Index (2012)294142 434849505359 6067717378942030405060708090100ChinaPolandItalyTURKEYBrazilPortugalIndonesiaMexicoIndiaHungaryRussiaSlovakRepublicUkraineRomaniaArgentinaMoved up 16 places in a year2nd fastest rising country100
  101. 101. (20th among 38 countries)Source: DeloitteGlobal Manufacturing Competitiveness Index (2013)1018121415192021232526282932333538510152025303540 BrazilMexicoPolandUKCzechRep.TURKEYSwedenNetherlandsFranceArgentinaRussiaRomaniaItalySpainPortugalGreece
  102. 102. (16th among 38 countries)Source: DeloitteGlobal Manufacturing Competitiveness Index(In the Next 5 Years)10231316181921222324262729313437380510152025303540BrazilMexicoTURKEYPolandUKSwedenCzechRep.RussiaNetherlandsArgentinaFranceRomaniaSpainItalyPortugalGreeceIn the next 5 years, Turkey will move up to 16th in the world and2nd in Europe, overtaking the UK, Poland and Czech Rep.
  103. 103. (84th among 175 countries)Source: World BankEase of Doing Business (2006)6269 707184939710811112213113860708090100110120130140MexicoItalyUruguayRomaniaTURKEYArgentinaRussiaChinaGreeceBrazilIndonesiaIndia103
  104. 104. (71st among 185 countries)Source: World BankEase of Doing Business (2012)4871 727378848991112124128130 13213720406080100120140MexicoTURKEYRomaniaItalyGreeceCrotiaUruguayChinaRussiaArgentinaIndonesiaBrazilIndiaUkraine104
  105. 105. Favorable DemographicsSource: EurostatShareof15-24yearsoldinTotalPop.(%)16,87 9 11 13 15 17 19 21AndorraItalyGreeceSpainPortugalGermanySloveniaIrelandBulgariaLuxembourgSwitzerlandCroatiaCzech RepublicAustriaLiechtensteinSerbiaHungaryNetherlandsFinlandFranceDenmarkUnited KingdomNorwaySwedenEstoniaUkraineMaltaPolandLatviaSlovakiaMontenegroLithuaniaIcelandMacedoniaGeorgiaTurkeyMoldovaAzerbaijan105
  106. 106. 2,01,00,30,70,20,40,60,81,01,21,41,61,82,0Turkey USA EU-27 OECDAnnualAveragePopulationGrowthRate(%,2001-11)Growth Rate of Working-Age PopulationSource: OECD, Eurostat, TURKSTAT 106
  107. 107. Have Investors noticed theTransformation?107
  108. 108. International Companies Operating in Turkey(1000s)Source: Ministry of Economy1085,66,78,811,715,016,119,221,925,229,633,1 33,30510152025303540200220032004200520062007200820092010201120122013Feb
  109. 109. Foreign Direct Investment InflowsSource: CBRT(Billiondollar)14.8122.70204060801001201401980-2002 2003-2012109
  110. 110. REER AppreciationSource: CBRT(2003=100)5565758595105115125135 1989-171990-171991-171992-171993-171994-171995-171996-171997-171998-171999-172000-172001-172002-172003-172004-172005-172006-172007-172008-172009-172010-172011-172012-172013-1Linear Trend110
  111. 111. THANK YOU…111

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