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  • 1. Turkey: Macroeconomic OutlookMay 17, 2013Mehmet ŞimşekMinister of Finance
  • 2. OutlineShort-Term Economic OutlookReform AgendaReconciliation ProcessTurkey’s Long-Term Prospects2
  • 3. Short-Term Outlook3
  • 4. Outlook for 2013 and OnwardsFaster GrowthSlight Increasein C/A DeficitDecliningInflationLowerUnemployment4FallingDebt &Deficit
  • 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. Real Economic Activity IndicatorsSource: CBRT, HSBC68085909510010511011512030354045505560 2007-13579112008-13579112009-13579112010-13579112011-13579112012-13579112013-13PMI (Left)Manufacturing Index (s.a.) (Right)
  • 7. Confidence IndicesSource: CBRT, TURKSTAT750556065707580859050607080901001101201302007-13579112008-13579112009-13579112010-13579112011-13579112012-13579112013-13Real Sector Confidence Index (Left) Consumer Confidence Index (Right)
  • 8. (%)8Looser Monetary PolicySource: CBRT3,56,54,53579111315 October11October11December11December11January12February12March12April12May12Jun12July12August12September12October12November12December12January13February13March13April13CBRT Funding Rate O/N Borrowing O/N Lending Policy Rate
  • 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. 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. 11Employment is Supportive of GrowthEmploymentsinceend-2007(MnPeople,s.a.)Source:TURKSTAT25,6202122232425262008-12009-12010-12011-12012-12013-1
  • 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. Low Household LeverageSource: CBRT, ECB(HouseholdLiabilities,%ofGDP,2012Q3)1365,720,30 20 40 60 80 100 120 140 160DenmarkNetherlandsIrelandUnited KingdomPortugalSwedenSpainEuro areaFinlandGreeceMaltaGermanyFranceBelgiumLuxembourgAustriaItalyEstoniaPolandLatviaHungaryCzech RepublicSloveniaSlovakiaLithuaniaTurkey
  • 14. Moderate Corporate Liabilities1436,80 20 40 60 80 100 120LuxembourgSpainPortugalNetherlandsIrelandDenmarkItalySloveniaAustriaSwedenGreeceFranceLatviaEstoniaTurkeyGermanyFinlandBelgiumUnited KingdomHungaryLithuaniaSlovakiaCzech RepublicPoland(Corporateliabilities,%,GDP)Source: CBRT, Cetinkaya, March 2013, BRSA
  • 15. Other Factors Supporting GrowthUrban Renewal 2B Removal ofReciprocityIncentives IG Credit RatingsReconciliationProcess15
  • 16. InflationSource: TURKSTAT, Medium-Term Program16(y/y,%)107,2125,599,16,2 5,3 5,0 5,0020406080100120140198019811982198319841985198619871988198919901991199219931994199519961997199819992000200120022003200420052006200720082009201020112012201320142015Forecast
  • 17. Factors Supporting Lower InflationOutput gapNo repeat of administrative price hikesStable commodity prices17
  • 18. Unemployment18Source:TURKSTAT, Eurostat, IMF, Medium-Term ProgramUnemploymentRate(2007=100)80100120140160180200220200720082009201020112012201320142015USA Euro Area TurkeyForecast
  • 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. 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. Current Account Deficit21Source: CBRT, Turkstat, Medium-Term Program234567891011-9-6-303691215200720082009201020112012201320142015Domestic Demand Growth CA/GDPForecastCAD (%, GDP) , rhs
  • 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. 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. 83405101520253035402002 2012We have Diversified Export MarketsNumber of Export Markets over $1 billionSource: TURKSTAT24
  • 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. Europe56.6%Other43.4%2002Exports to Europe are on the FallEurope38.8%Other61.2%2012Source: TURKSTAT26
  • 27. Source: TURKSTATExports to MENA are on the RiseExportstoMENA(%ofTotal)2712,131,651015202530352002 2012
  • 28. 930051015202530352002 2012Number of Products over $1 billionWe have Diversified Product BundleSource: TURKSTAT28
  • 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. (%)1012141618202224262002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Current Account is a Structural ProblemSource: Ministry of Development30
  • 31. -505101520252002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Public Savings/GDP Private Savings/GDP(%)Source: Ministry of DevelopmentSavings31
  • 32. Reform Agenda32
  • 33. 33Moving Up the Value Chain
  • 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. Source: The Scientific and Technological Council of TurkeyR&D Spending35• 3.00%2023• 0.86%2011• 0.53%2002
  • 36. Industrial Design Applications41,226 applications in 2012Up by 103% since 2002Source: TPI36
  • 37. Trade Mark ApplicationsSource: TPI• 36,5782002• 109,767201237
  • 38. Patent ApplicationsSource: TPI381.87411.5551.0002.0003.0004.0005.0006.0007.0008.0009.00010.00011.00012.0002002 2012
  • 39. 39Deepening Capital Markets
  • 40. A New Capital Markets Law•Increasing financial deepening & innovation•Strengthening investor rights•Improving corporate governanceNew legal framework inline with the best globalpractices40
  • 41. Restructuring of Borsa IstanbulRegionalLeadershipRaisingMarketCap/GDP to80%1,000 newcompaniesto be listed41
  • 42. Increasing Savings: Private Pensions25% State ContributionPenalty for EarlyWithdrawals42
  • 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. Incentives for Global Fund ManagersA tax free environment forGlobal FundsMaking it easier to manage assetsin Turkey44
  • 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. Incentives for Business Angels46
  • 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. Combatting the Shadow Economy48
  • 49. Informal Employment4952,1 51,750,148,247,045,443,5 43,843,342,139,036,435373941434547495153200220032004200520062007200820092010201120122013FebruarySource:TURKSTAT(%,TotalEmployment)
  • 50. Size of Shadow Economy (%, GDP)32,231,530,730,429,128,428,928,327,727,226,5262728293031323320032004200520062007200820092010201120122013Source: Schneider, 201350Down 6 percentage points
  • 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. 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. 53Enhancing Human Capital Stock
  • 54. Students (%, Total Population)54392215202530354045Turkey EUSource: TURKSTAT, Eurostat
  • 55. 210102030405060708090GermanyFranceUnitedKingdomItalySpainPolandRomaniaTurkeyNetherlandsGreeceBelgiumPortugalCzechRepublicHungarySwedenAustriaSwitzerlandBulgariaDenmarkSlovakiaFinlandNorwayIrelandCroatiaLithuaniaMacedoniaSloveniaLatviaEstoniaCyprusMontenegroLuxembourgMaltaIcelandLiechtensteinTurkey’s Student Population55Source: Ministry of Development, EurostatPopulation,million
  • 56. 9,417810121416182002 2013Source: Ministry of FinanceShare of Education Budget%56
  • 57. Investment in EducationOver the lastdecade, we have• Built 188,000classrooms• Hired 357,000 teachers57Source: Ministry of Education
  • 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. Source: OECD, PISA 2009PISA Results - Mathematics43rd (among 65 countries)59445350375400425450475500525550
  • 60. Source: OECD, PISA 2009PISA Results - Science43rd (among 65 countries)60454350370390410430450470490510530550KoreaEstoniaGermanyLiechtensteinSloveniaPolandHungaryFranceİtalyCroatiaRussiaGreeceTurkeyBulgariaMexicoBrazilArgentinaIndonesia
  • 61. Improving Quality of EducationWith Fatih Project, we are providing our children withBroadband Internet AccessSmart BoardsTablet PCsOther Information Technology Tools61
  • 62. Source: OECDFatih to help FURTHER reduce the Gap between Turkey & OECD(PISA Results)62304050607080science math2006 2009
  • 63. Reducing Regional Development Gaps63
  • 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. 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. Improving Labor Market Flexibility66
  • 67. Low Employment RateEarly retirementLow rate of female laborforce participationRigidities in labor forcemarket67
  • 68. Average Retirement Age41,044,961,963,33035404550556065Female MaleTurkey OECDSource: OECD68
  • 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. Improving Girls’ Education200291.1 girls per100 boys2012101.8 girlsper 100 boys70
  • 71. Source: OECDHighest among OECD countries71Average Usual Weekly Hours Worked on the Main Job48,93032343638404244464850TurkeyKoreaMexicoGreeceCzechRepublicIsraelSlovakRepublicPolandIcelandSloveniaHungaryPortugalChileCanadaEstoniaSpainFranceAustriaItalyNewZealandFinlandLuxembourgBelgiumSwedenUnitedKingdomAustraliaGermanySwitzerlandIrelandNorwayDenmarkNetherlandsHighest among OECD countries
  • 72. 72Improving Infrastructure
  • 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. İSTANBULESKİŞEHİR POLATLIANKARAKONYASİVAS212 km533 km405 kmYOZGATYerköyAFYONİZMİRMANİSA624 kmBURSABİLECİK105 kmUnder ConstructionCompletedHigh Speed Railway Projects74Source: Ministry of Transport
  • 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. 76Telecommunication0,0220,7405101520252003 Mar.13NumberofBroadbandSubscribers(Million)27,967,8203040506070802003 Mar.13NumberofMobileSubscribers(Million)
  • 77. Health CareTotal Closed Area Allocated to HealthcareInvestments (million m2)HealthcareFacilitiesHospitals andNew BuildingsPrimary HealthCare FacilitiesTotal
  • 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. 79Reducing Energy Import Bill
  • 80. Source: TURKSTAT, BloombergEnergy Import Bill(Brent,$pbl)EnergyImports(BillionDollars)809,260,1 58,723,4110,5020406080100120010203040506070200220032004200520062007200820092010201120122013Q1Energy Import Oil Prices
  • 81. High Dependence on Energy Imports72%Total Energy92%Oil98%Natural-Gas81
  • 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. Building the Nuclear Capacity83Akkuyu:JW with RussiaSinopJW with a Japanese-French consortiumWorking on a 3rd plant
  • 84. Improving Energy Efficiency84Industry20%Transportation15%Construction30%
  • 85. Privatization• Distributions: Almost done85Hamitabat Termal Power PlantSeyitömer Termal Power PlantKangal Termal Power Plant• Generation: 16,530MW on sale
  • 86. Coal86$12 Billion Investment85 million tons ofcoal per year45 billion kWh ofenergy per yearEmployment for 15thousand peopleTurkey-UAE
  • 87. 87Reconciliation Process
  • 88. Lost Decades88About 40,000 deathsAbout $350 billion spent on fightingterrorismIndirect cost is more than $1 trillion
  • 89. Lost DecadesOECD ülkeleri arasında en yüksek890200400600800100012001400160018002000 19801982198419861988199019921994199619982000200220042006200820102012201420162018Korea Turkey80s: at par w/ Korea 90s: Lost Decade AK Party: Rapid GrowthGDP,million$Source: IMF
  • 90. Instead of Money Spent on Fighting Terrorism, wecould have…400,000 kmdualcarriageway10,000 kmhigh-speedrail line3,000,000classrooms90
  • 91. Turkey’s Strong Long-Term Prospects91
  • 92. GDPSource: TURKSTAT, Medium-Term Program,PwC200220502002$ 230billion2050$ 5 trillion2012$ 786 billion2023$ 2 trillion92
  • 93. GDP per CapitaSource: TURKSTAT, Medium-Term Program,PwC200220502002$ 3,4922012$10,5042023$ 25,0002050$ 50,00093
  • 94. Determinants of Long-Term GrowthQuality of InstitutionsDemographicsProductivity94
  • 95. Quality of InstitutionsCombattingcorruptionCreating a levelplaying fieldImprovinginternationalcompetitiveness95
  • 96. Quality of Institutions96Doing BusinessCorruptionPerception IndexGlobalCompetitivenessIndexHumanDevelopment IndexOECD-FDIRegulatoryRestrictivenessIndexPast Present2023Source: WB, WEF, Transparency International, OECD
  • 97. Corruption Perceptions Index (2002)(65th among 102 countries)3144 4558 59657073 74962030405060708090100ItalyGreeceBrazilMexicoChinaTURKEYArgentinaIndiaRussiaIndonesiaSource: Transparency International97
  • 98. Corruption Perceptions Index (2012)(54th among 176 countries)Source: Transparency International5469728094 94102105118133405060708090100110120130140TURKEYBrazilItalyChinaGreeceIndiaArgentineMexicoIndonesiaRussia98
  • 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. (43rd among 144 countries)Source: World Economic ForumGlobal Competitiveness Index (2012)294142 434849505359 6067717378942030405060708090100ChinaPolandItalyTURKEYBrazilPortugalIndonesiaMexicoIndiaHungaryRussiaSlovakRepublicUkraineRomaniaArgentinaMoved up 16 places in a year2nd fastest rising country100
  • 101. (20th among 38 countries)Source: DeloitteGlobal Manufacturing Competitiveness Index (2013)1018121415192021232526282932333538510152025303540 BrazilMexicoPolandUKCzechRep.TURKEYSwedenNetherlandsFranceArgentinaRussiaRomaniaItalySpainPortugalGreece
  • 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. (84th among 175 countries)Source: World BankEase of Doing Business (2006)6269 707184939710811112213113860708090100110120130140MexicoItalyUruguayRomaniaTURKEYArgentinaRussiaChinaGreeceBrazilIndonesiaIndia103
  • 104. (71st among 185 countries)Source: World BankEase of Doing Business (2012)4871 727378848991112124128130 13213720406080100120140MexicoTURKEYRomaniaItalyGreeceCrotiaUruguayChinaRussiaArgentinaIndonesiaBrazilIndiaUkraine104
  • 105. Favorable DemographicsSource: EurostatShareof15-24yearsoldinTotalPop.(%)16,87 9 11 13 15 17 19 21AndorraItalyGreeceSpainPortugalGermanySloveniaIrelandBulgariaLuxembourgSwitzerlandCroatiaCzech RepublicAustriaLiechtensteinSerbiaHungaryNetherlandsFinlandFranceDenmarkUnited KingdomNorwaySwedenEstoniaUkraineMaltaPolandLatviaSlovakiaMontenegroLithuaniaIcelandMacedoniaGeorgiaTurkeyMoldovaAzerbaijan105
  • 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. Have Investors noticed theTransformation?107
  • 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. Foreign Direct Investment InflowsSource: CBRT(Billiondollar)14.8122.70204060801001201401980-2002 2003-2012109
  • 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. THANK YOU…111