Turkey Investment Conference  
New York
November 7, 2013
Mehmet Şimşek
Minister of Finance
Outline

Short‐Term Economic Outlook
Reform Agenda
Turkey’s Long‐Term Prospects
2
Short‐Term Economic Outlook

3
Source: Turkstat
120

Q2

2013‐Q1

Q4

Q3

Q2

2012‐Q1

Q4

Q3

Q2

2011‐Q1

Q4

Q3

Q2

2010‐Q1

Q4

Q3

Q2

2009‐Q1

Q4
...
Turkey
EU

120

105

Q2

2013‐Q1

Q4

Q3

Q2

2012‐Q1

Q4

Q3

Q2

2011‐Q1

Q4

Q3

Q2

2010‐Q1

Q4

Q3

Q2

2009‐Q1

Q4

...
From Boom Bust Cycles to Stable Growth
 7.5
6.9

 7.0
 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
...
Turkey: Growth Outlook
6

5.0

5.0

Real Growth Rates (%)

5

4.0
4
3.6

3
2013
Kaynak: Medium‐Term Program (2014‐16)

201...
Source:TURKSTAT
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

Ap...
Unemployment & Labour Participation Rate
16

52

15

51

14

50

13
12
48
11
47

10

Source: TURKSTAT

Unemployment Rate (...
Unemployment
220

Unemployment Rate, s.a.
(December 2007=100)

200
180
160
140
120
100

USA
Source: TURKSTAT, BLS, Eurosta...
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: CBRT, TURKSTAT
Real Sector Confidence Index (Left)
Oct‐13

Jul‐13

Apr‐13

Jan‐13

Oct‐12

Jul‐12

Apr‐12

Jan‐12
...
Downside Risks to Growth

Tighter monetary & financial conditions
Weaker external demand (fragile Eurozone recovery)
Geopo...
Source: CBRT
CBRT Funding Rate
O/N Borrowing
O/N Lending

Oct‐13

 Sep‐13

Aug‐13

Jul‐13

Jun‐13

May‐13

May‐13

Apr‐13
...
Source: CBRT
Personal
Vehicle
Housing
Oct‐13

Jul‐13

Apr‐13

Jan‐13

Oct‐12

Jul‐12

Apr‐12

Jan‐12

Oct‐11

Jul‐11

Apr‐...
Jan‐11
Feb‐11
Mar‐11
Mar‐11
Apr‐11
May‐11
Jun‐11
Jul‐11
Aug‐11
Sep‐11
Oct‐11
Nov‐11
Dec‐11
Jan‐12
Feb‐12
Mar‐12
Mar‐12
Apr...
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...
Risks to Inflation

Upside

Weaker 
exchange
rate

Downside

Widening 
output gap

Higher 
commodity 
prices
18
Fiscal Performance
12.0

10.8

Budget Deficit‐to‐GDP, %

10.0
8.0

7.9

5.5

6.0

Medium‐Term Program 
(2014‐16)

4.1
4.0
...
Political Stability
140

120

131 Months
100

2002‐12

1923‐2002
80

Average 
Lifetime of 
Governments: 
17 months

60

40...
Current Account Deficit: 
A Soft Spot

21
Savings
25

20

15

10

5

0

‐5
2002

2003

2004

2005

2006

2007

Public Savings/GDP

2008

2009

2010

2011

2012

201...
High but Manageable C/A Deficit
40

(12 Month Rolling, USD bn)

20
0
‐20
‐40
‐60
‐80

Jan‐13

Jan‐12

Jan‐11

Jan‐10

Jan‐...
Current Account
Jul-13

Apr-13

Jan-13

Oct-12

Jul-12

Apr-12

Jan-12

Oct-11

-40

Jul-11

-30

Apr-11

-20

Jan-11

Oct...
Jan‐07
Mar‐07
May‐07
Jul‐07
Sep‐07
Nov‐07
Jan‐08
Mar‐08
May‐08
Jul‐08
Sep‐08
Nov‐08
Jan‐09
Mar‐09
May‐09
Jul‐09
Sep‐09
Nov...
Sound Macroeconomic Fundamentals

Diversified Export 
Markets

Healthy Banking 
System

A Flexible Exchange 
Rate & Reserv...
Diversified Export Markets
40
34

35
30
25
20
15
10

8

5
0
2002

2012

Number of Export Markets over $1 billion
Source: T...
Exports to Europe are on the Fall
2002

Other
43.4%

Europe
56.6%

2012

Other
61%

Europe
39%

Source: TURKSTAT
28
But, Exports to MENA are on the Rise
35
31.6

Exports to MENA (% of Total)

30

25

20

15
12.1
10

5
2002

2012

Source: ...
Diversified Product Bundle
35
30

30
25
20
15
9

10
5
0

2002

2012

Number of Products over $1 billion
Source: TURKSTAT
3...
A Flexible Exchange Rate
80
70

Volatility*

60
Turkey

50
40

Emerging Economies**

30
20
10

Jan‐06
Apr‐06
Jul‐06
Oct‐06...
Jan-02
May-02
Sep-02
Jan-03
May-03
Sep-03
Jan-04
May-04
Sep-04
Jan-05
May-05
Sep-05
Jan-06
May-06
Sep-06
Jan-07
May-07
Sep...
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

...
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

‐5

‐3...
Healthy Banking System
35

20
15

15.9

Target Rate 12% 

10

Legal Rate 8% 

5

Jan‐13

May‐12

Sep‐11

Jan‐11

May‐10

S...
(Household Liabilities, % of GDP,  2012)

Low Household Leverage
TURKEY
Lithuania
Slovakia
Slovenia
Hungary
Czech Republic...
(Corporate liabilities, %, GDP)

Moderate Corporate Leverage
Poland
Czech Republic
Slovakia
Lithuania
Hungary
United Kingd...
Reform Agenda

38
Chapter ‐ 1

Moving Up 
the Value 
Chain

Deepening 
Capital
Markets

Combatting 
the Shadow 
Economy

Improving 
Infrastr...
Moving Up the Value Chain
40
Boosting R&D
Why is R&D so significant for us?
The share of high and medium‐high
technology sectors in production and in
e...
R&D Spending

2023 •3.0%
2018 •1.8%
2013 • 0.92%
2002

• 0.53%

Source: The Scientific and Technological Council of Turkey...
Industrial Design Applications
41,220 applications in 2012
Up by 103% since 2002

Source: TPI
Trade Mark Applications

2012
2002

Source: TPI

• 111,143

• 36,429
TURKEY

20

0

17
14

Poland

Switzerland

14

Norway

16

Portugal

44

United Kingdom

Spain

60

Italy

Germany

France...
Patent  Applications
11,599

12,000
11,000
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000

1,874

1,000
2002

Sour...
Deepening Capital Markets
47
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...
Increasing Savings: Private Pensions

25% State Contribution

Penalty for Early 
Withdrawals
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

54
Global Financial Centers Index
80

2013 
44th

70

66

(2013)

60

50

2009 
72nd

2018 
25th

77
73
71

68

44

40

31

3...
Combatting the Shadow Economy
56
Informal Employment (%, Total Employment)
52.1

52

51.7
50.1
48.2

48

47.0
45.4
43.5

44

43.8

43.3
42.1

40

39.0
37.9...
Size of Shadow Economy (%, GDP)
32.2

33

Down 6 percentage points

31

30.4

30.7

31.5

32

27.7

28.3

28.4

29

28.9

...
10

5

25

20

15
27.6

Estonia

23.6
23.1

Greece
Slovenia

18.4

EU Average

13.0
13.0
13.0

Denmark
Finland
Germany

Ne...
Tax Loss Due to Informal Economy (% GDP)

6.8

7.1

7.5

7.5

7.4

7.3

5.7

6

5.3

5.7

6.3

7

5.3

8

7.8

9

2.8

2.5...
Combatting informal economy

Action Plan for Fighting 
Informality  2011‐13
Strengthening Capacity of 
Revenue Administrat...
Improving Infrastructure
62
Dual Carriageway 
Network
(January 1, 2003)
1,714 Km
Total of Motorways

4,387 Km
Total of State and 
Provincial Dual 
Car...
High Speed Railway Projects
İSTANBUL

533 km
BURSA

BİLECİK

ANKARA

YOZGAT

SİVAS

105 km
ESKİŞEHİR
MANİSA
İZMİR

POLATLI...
Airports Available For Civil Aviation

2003

2013

• Number of airports serving 
scheduled flights =

26

• Number of airp...
Chapter ‐ 2

Enhancing 
Human Capital 
Stock

Improving 
Labor Market 
Flexibility

Reducing 
Energy Import 
Bill

Reconci...
Enhancing Human Capital Stock
67
Students (%, Total Population)
45

40

39

35

30

25
22
20

15
Turkey

Source: TURKSTAT, Eurostat
Note: Including Nonform...
Source: Ministry of Development, Eurostat
Note: Formal education only
69

Liechtenstein

Iceland

Malta

Luxembourg

Monte...
Share of Education Budget
20
18

18

16

%

14

12

10

9.4

8

6
2002
Source: Ministry of Finance

2014

70
Investment in Education

Over the last 
decade, we have
• Built 205,000 
classrooms
• Hired 400,000 teachers

Source: Mini...
Gross Schooling Rates
130

107.6

110

96.8

96.5
90

92.1

80.8

70

50

44.0
35.8

30
11.7
10
Preschool
(age of 4‐5 )

P...
Indonesia

Brazil

Argentina

Mexico

Bulgaria

450

Turkey

Croatia

Greece

Russia

İtaly

Hungary

Poland

France

Slov...
Indonesia

Argentina

Brazil

Mexico

Bulgaria

470

Turkey

Greece

Russia

Croatia

İtaly

France

Hungary

Poland

Slov...
Fatih to help reduce the Gap b/w Turkey & OECD
(PISA Results)
80

70

60

50

40

30
science

math
2006

2009

Source: OEC...
Improving Quality of Education

With Fatih Project, we are providing our children with
Broadband Internet Access
Smart Boa...
Improving Labor Market Flexibility

77
Low Employment Rate
Early retirement
Low rate of female labor 
force participation
Rigidities in labor force 
market 

78
Average Retirement Age
65

63.3

61.9
60
55
50
44.9

45
41.0
40
35
30
Female

Male
Turkey

OECD

Source: OECD
79
Labor Participation Rate, Female
80
71.1

Labor Participation Rate by Education
(2013  July)

70

60

OECD Average: 62.3

...
Improving Girls’ Education

2002

2012

91.1 girls per 
100 boys

101.8 girls 
per 100 boys
81
Netherlands

Denmark

Norway

Ireland

Switzerland

Germany

Australia

United Kingdom

Sweden

Belgium

40

Luxembourg

F...
Reducing Energy Import Bill
83
Energy Import Bill
120

60

100
60.1

50

56.9
80

40
60
30
40

20

(Brent, $ pbl)

Energy Imports (Bn $)

70

20

10
9.2
...
High Dependence on Energy Imports

72%
Total Energy

92%

98%

Oil

Natural‐Gas

85
Current Installed Capacity

MW
Current Installed Capacity 2012

57,059

Renewable Energy in Current Installed Capacity 201...
Building the Nuclear Capacity

Akkuyu: 
JW with Russia

Sinop
JW with a Japanese‐French consortium

Working on a 3rd plant...
Improving Energy Efficiency

Construction 
30%

Industry 
20%

Transportation 
15%

88
Privatization
• Distributions: Done
• Generation: 16,530MW on sale

Hamitabat Termal Power Plant
Seyitömer Termal Power Pl...
Reconciliation Process
90
Lost Decades

About 40,000 deaths

About $350 billion spent on fighting 
terrorism
Indirect cost is more than $1 trillion
...
Investment in Southeastern Anatolia Project
40
36.1

(Billion TL, 2013 prices)

35

30

25

23.6

20

15
1990‐2002

2003‐1...
New Initiatives
A New Democratization Package

A New Constitution

93
Benefits of Reconciliation Process
TURKEY
A more respectable actor
in the region & the world

A better functioning
democra...
Turkey’s Strong Long‐Term Prospects

95
Average Real GDP Growth Rates
6

Reforms to increase potential growth
5.5
5.1

5

%

4.5

4

3.1
3

2
1924‐2002

1993‐2002...
GDP Per Capita

Nominal, $

11,000

10,504

PPP, $ 
9,000
18,000

17,375
7,000

15,000

Real, ¨
1,573

1,600

5,000
12,000...
Real Convergence
60
56.0

Turkey /USA

55

Turkey /European Union

% of GDP per Capita (PPP, $) 

50

45

40
36.0
35

34.8...
Determinants of Long‐Term Growth

Quality of Institutions
Demographics
Productivity

99
Improving Quality of Institutions
Doing Business

OECD‐FDI
Regulatory
Restrictiveness
Index

Corruption
Perception Index

...
EU Accession Process (Chapters)
25
20

20

14

15

10

5

0
Opened
Source: Ministry of EU Affairs

Remaining
101
Corruption Perceptions Index (2002)
(65th among 102 countries)
100

96

90
80
70
58

73

74

59

China

40

44

45

Brazil...
Corruption Perceptions Index (2012)
(54th among 176 countries)
140

133

130

118

120
110

102
94

100
90

105

94

80

8...
Global Competitiveness Index (2005)
st

(71 among 117 higher than Russia, Argentina and Greece.
Within the period of 2005‐...
Global Competitiveness Index (2013)
(44th among 148 countries)
95

91
84
76

78

Romania

Slovak Rep.

85
75
65
55

49
42
...
Ease of Doing Business (2006)
(84th among 175 countries)
138

140
131
130

122

120

111
108

110
97

100

93

90

84

69
...
Ease of Doing Business (2013‐14)
(69th among 189 countries)
120

Argentina

112

120

116

126

Indonesia

140

134

88

8...
Share of 15‐24 years old in Total Pop. (%)

Favorable Demographics
Azerbaijan
Moldova
Turkey
Georgia
 Macedonia
Iceland
Li...
Growth Rate of Working‐Age Population
2.0

2.0

Annual Average Population Growth Rate 
(%, 2001‐11)

1.8
1.6
1.4
1.2
1.0
1...
Ambitious Targets
2012 (GDP‐PPP)

6th

in Europe

16th in the World

1. USA
2. China
3. India
4. Japan
5. Germany
6. Russi...
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...
Have Investors Noticed the 
Transformation?

113
(Billion dollar)

Foreign Direct Investment Inflows

Source: CBRT
114
(2003=100)

REER Appreciation

Source: CBRT
115
THANK YOU…

116
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Turkey Investment Conference

  1. 1. Turkey Investment Conference   New York November 7, 2013 Mehmet Şimşek Minister of Finance
  2. 2. Outline Short‐Term Economic Outlook Reform Agenda Turkey’s Long‐Term Prospects 2
  3. 3. Short‐Term Economic Outlook 3
  4. 4. Source: Turkstat 120 Q2 2013‐Q1 Q4 Q3 Q2 2012‐Q1 Q4 Q3 Q2 2011‐Q1 Q4 Q3 Q2 2010‐Q1 Q4 Q3 Q2 2009‐Q1 Q4 Q3 Q2 2008‐Q1 Q4 100 Q3 Q2 2007‐Q1 Real GDP (2007 Q4=100, s.a.) Moderate Economic Growth 118.4 115 110 105 100.0 95 90 85 4
  5. 5. Turkey EU 120 105 Q2 2013‐Q1 Q4 Q3 Q2 2012‐Q1 Q4 Q3 Q2 2011‐Q1 Q4 Q3 Q2 2010‐Q1 Q4 Q3 Q2 2009‐Q1 Q4 Q3 Q2 2008‐Q1 Q4 100 Q3 Q2 2007‐Q1 Real GDP (2007 Q4=100, s.a.) Real GDP Growth 118.4 115 110 104.3 100 98.2 95 90 85 USA Source: Turkstat, Eurostat 5
  6. 6. From Boom Bust Cycles to Stable Growth  7.5 6.9  7.0  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 3.2 3.1  3.0 1973‐1982 1983‐1992 Pre‐AK Party Source:TURKSTAT, Medium‐Term Program *GFC: Global Financial Crisis 1993‐2002 Pre‐GFC (2003‐07) AK Party Post‐GFC (2008‐12) Medium‐Term Long‐Term (2014‐16) (2016‐23)
  7. 7. Turkey: Growth Outlook 6 5.0 5.0 Real Growth Rates (%) 5 4.0 4 3.6 3 2013 Kaynak: Medium‐Term Program (2014‐16) 2014 2015 2016
  8. 8. Source:TURKSTAT 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 Employment  since end‐2007  (Mn People, s.a.) Employment 26 25.4 25 24 23 22 21 20 8
  9. 9. Unemployment & Labour Participation Rate 16 52 15 51 14 50 13 12 48 11 47 10 Source: TURKSTAT Unemployment Rate (Left Axis) Labor Force Participation Rate(Right axis) 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 (s.a., %) (s.a., %) 49
  10. 10. Unemployment 220 Unemployment Rate, s.a. (December 2007=100) 200 180 160 140 120 100 USA Source: TURKSTAT, BLS, Eurostat EU‐27 Turkey Jan‐13 Jan‐12 Jan‐11 Jan‐10 Jan‐09 Jan‐08 80
  11. 11. 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 11
  12. 12. Source: CBRT, TURKSTAT Real Sector Confidence Index (Left) 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 (Right) 12
  13. 13. Downside Risks to Growth Tighter monetary & financial conditions Weaker external demand (fragile Eurozone recovery) Geopolitical tensions Higher international energy prices 13
  14. 14. Source: CBRT CBRT Funding Rate O/N Borrowing O/N Lending Oct‐13  Sep‐13 Aug‐13 Jul‐13 Jun‐13 May‐13 May‐13 Apr‐13 Mar‐13 Feb‐13 Jan‐13 Dec‐12 Nov‐12 Oct‐12 Sep‐12 Aug‐12 Jul‐12 Jul‐12 Jun‐12 May‐12 Apr‐12 Mar‐12 Feb‐12 Jan‐12 Dec‐11 Nov‐11 Oct‐11 Oct‐11 ( %) Monetary Policy is Tightening 15 13 11 9 7.75 7 5 4.5 3 3.5 Policy Rate 14
  15. 15. Source: CBRT Personal Vehicle Housing 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 ( %) Lending Rates are Rising 28 26 24 22 20 18 16 14 12 10 8 Commercial 15
  16. 16. Jan‐11 Feb‐11 Mar‐11 Mar‐11 Apr‐11 May‐11 Jun‐11 Jul‐11 Aug‐11 Sep‐11 Oct‐11 Nov‐11 Dec‐11 Jan‐12 Feb‐12 Mar‐12 Mar‐12 Apr‐12 May‐12 Jun‐12 Jul‐12 Aug‐12 Sep‐12 Oct‐12 Nov‐12 Dec‐12 Jan‐13 Feb‐13 Mar‐13 Mar‐13 Apr‐13 May‐13 Jun‐13 Jul‐13 Agu‐13 Sep‐13 Oct‐13 13 week moving avg., y‐on‐y % Credit Growth is Slowing 45 40 35 30 25 20 20.6 15 10 5 0 * Credit Growth is adjusted for exchange rate movements Source: CBRT 16
  17. 17. 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 Source: TURKSTAT, Medium‐Term Program (2014‐16) 99.1 107.2 Inflation 80 60 40 20 0
  18. 18. Risks to Inflation Upside Weaker  exchange rate Downside Widening  output gap Higher  commodity  prices 18
  19. 19. Fiscal Performance 12.0 10.8 Budget Deficit‐to‐GDP, % 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 19
  20. 20. Political Stability 140 120 131 Months 100 2002‐12 1923‐2002 80 Average  Lifetime of  Governments:  17 months 60 40 Political  Stability 2023  Targets 20 15 Months 0 Average Lifetime of Governements during 1950‐2002 AK Party Governments Since 2002 20
  21. 21. Current Account Deficit:  A Soft Spot 21
  22. 22. 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 22
  23. 23. High but Manageable C/A Deficit 40 (12 Month Rolling, USD bn) 20 0 ‐20 ‐40 ‐60 ‐80 Jan‐13 Jan‐12 Jan‐11 Jan‐10 Jan‐09 Jan‐08 Jan‐07 Jan‐06 Jan‐05 Jan‐04 Jan‐03 Jan‐02 ‐100 Current Account Current Account excl. Energy Current Account + Net FDI + Net Errors and Omissions Source: CBRT 23
  24. 24. Current Account Jul-13 Apr-13 Jan-13 Oct-12 Jul-12 Apr-12 Jan-12 Oct-11 -40 Jul-11 -30 Apr-11 -20 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 (12 Month Rolling, USD bn) Gold Effect 0 -10 Net Gold Exports • 2011: ‐$4.8 billion • 2012: +$5.7 billion • 2013 Aug.: ‐$6.3 billion -50 -60 -70 -80 Current Account excl. Gold Source: CBRT 24
  25. 25. Jan‐07 Mar‐07 May‐07 Jul‐07 Sep‐07 Nov‐07 Jan‐08 Mar‐08 May‐08 Jul‐08 Sep‐08 Nov‐08 Jan‐09 Mar‐09 May‐09 Jul‐09 Sep‐09 Nov‐09 Jan‐10 Mar‐10 May‐10 Jul‐10 Sep‐10 Nov‐10 Jan‐11 Mar‐11 May‐11 Jul‐11 Sep‐11 Nov‐11 Jan‐12 Mar‐12 May‐12 Jul‐12 Sep‐12 Nov‐12 Jan‐13 Mar‐13 May‐13 Jul‐13 (12 Month Rolling, USD bn) Financing of Current Account Deficit 90 80 70 60 50 40 30 20 10 0 ‐10 FDI Inflows and Long‐Term Portfolio and Short‐Term Current Account Deficit Source: CBRT 25
  26. 26. Sound Macroeconomic Fundamentals Diversified Export  Markets Healthy Banking  System A Flexible Exchange  Rate & Reserve Management Policies Low Household  Leverage Low & Declining Public  Debt Moderate Corporate  Leverage
  27. 27. Diversified Export Markets 40 34 35 30 25 20 15 10 8 5 0 2002 2012 Number of Export Markets over $1 billion Source: TURKSTAT 27
  28. 28. Exports to Europe are on the Fall 2002 Other 43.4% Europe 56.6% 2012 Other 61% Europe 39% Source: TURKSTAT 28
  29. 29. But, Exports to MENA are on the Rise 35 31.6 Exports to MENA (% of Total) 30 25 20 15 12.1 10 5 2002 2012 Source: TURKSTAT 29
  30. 30. Diversified Product Bundle 35 30 30 25 20 15 9 10 5 0 2002 2012 Number of Products over $1 billion Source: TURKSTAT 30
  31. 31. A Flexible Exchange Rate 80 70 Volatility* 60 Turkey 50 40 Emerging Economies** 30 20 10 Jan‐06 Apr‐06 Jul‐06 Oct‐06 Jan‐07 Apr‐07 Jul‐07 Oct‐07 Jan‐08 Apr‐08 Jul‐08 Oct‐08 Jan‐09 Apr‐09 Jul‐09 Oct‐09 Jan‐10 Apr‐10 Jul‐10 Oct‐10 Jan‐11 Apr‐11 Jul‐11 Oct‐11 Jan‐12 Apr‐12 Jul‐12 Oct‐12 Jan‐13 Apr‐13 Jul‐13 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.  31
  32. 32. Jan-02 May-02 Sep-02 Jan-03 May-03 Sep-03 Jan-04 May-04 Sep-04 Jan-05 May-05 Sep-05 Jan-06 May-06 Sep-06 Jan-07 May-07 Sep-07 Jan-08 May-08 Sep-08 Jan-09 May-09 Sep-09 Jan-10 May-10 Sep-10 Jan-11 May-11 Sep-11 Jan-12 May-12 Sep-12 (2003=100) Real Effective Exchange Rate 150 140 130 120 110 100 90 80 CPI Based REER CPI (Developing Countries) Based REER CPI (Developed Countries) Based REER Source: CBRT 32
  33. 33. 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 33
  34. 34. 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 ‐5 ‐3.9 Public Net External Debt Stock (Left Axis) Source: Treasury 2013 Q2 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 ‐10 2002 ‐60 Public Net External Debt Stock/GDP (Right Axis) (%) 80
  35. 35. Healthy Banking System 35 20 15 15.9 Target Rate 12%  10 Legal Rate 8%  5 Jan‐13 May‐12 Sep‐11 Jan‐11 May‐10 Sep‐09 Jan‐09 May‐08 Sep‐07 Jan‐07 May‐06 Sep‐05 Jan‐05 0 May‐04 Jul‐13 25 Sep‐03 Dec‐02 30 Jan‐03 2.8 Capital Adequacy Ratio, % NPL Ratio of Loans (%) 17.6 * Latest data, monthly Source: Banking Regulation and Supervision Agency 35
  36. 36. (Household Liabilities, % of GDP,  2012) Low Household Leverage TURKEY Lithuania Slovakia Slovenia Hungary Czech Republic Latvia Poland Estonia Italy Austria Luxembourg Belgium France Germany Malta Greece Finland Euro area Spain Sweden Portugal United Kingdom Ireland Netherlands Denmark 21.2 65.5 0 Source: CBRT, ECB No FX exposure 20 40 60 80 100 120 140 160 36
  37. 37. (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 Source: CBRT, Cetinkaya, BRSA 20 40 60 80 100 120 140 37
  38. 38. Reform Agenda 38
  39. 39. Chapter ‐ 1 Moving Up  the Value  Chain Deepening  Capital Markets Combatting  the Shadow  Economy Improving  Infrastructure 39
  40. 40. Moving Up the Value Chain 40
  41. 41. Boosting R&D Why is R&D so significant for us? The share of high and medium‐high technology sectors in production and in export is low 80 72.4 70 64.4 60 50 35.6 40 27.6 30 20 10 0 High and Medium‐High Production Source: Ministry of Development Low and Medium‐Low Export 41
  42. 42. R&D Spending 2023 •3.0% 2018 •1.8% 2013 • 0.92% 2002 • 0.53% Source: The Scientific and Technological Council of Turkey 42
  43. 43. Industrial Design Applications 41,220 applications in 2012 Up by 103% since 2002 Source: TPI
  44. 44. Trade Mark Applications 2012 2002 Source: TPI • 111,143 • 36,429
  45. 45. TURKEY 20 0 17 14 Poland Switzerland 14 Norway 16 Portugal 44 United Kingdom Spain 60 Italy Germany France (2012, Thousand) Trade Mark Applications 120 111 100 86 80 64 54 40 41 Source: TPI 45
  46. 46. Patent  Applications 11,599 12,000 11,000 10,000 9,000 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1,874 1,000 2002 Source: TPI 2012
  47. 47. Deepening Capital Markets 47
  48. 48. 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 48
  49. 49. Restructuring of Borsa Istanbul Regional  Leadership Raising  Market  Cap/GDP to 80% 1,000 new  companies to be listed 49
  50. 50. Istanbul as a Financial Center Financial sector currently employs 200 thousand people Istanbul Finance Center is likely to add 150 thousand 50
  51. 51. Increasing Savings: Private Pensions 25% State Contribution Penalty for Early  Withdrawals
  52. 52. Incentives for Global Fund Managers Making it easier to manage assets  in Turkey A tax free environment for  Global Funds 52
  53. 53. 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 53
  54. 54. Incentives for Business Angels 54
  55. 55. Global Financial Centers Index 80 2013  44th 70 66 (2013) 60 50 2009  72nd 2018  25th 77 73 71 68 44 40 31 30 20 Rio de Jeneiro ISTANBUL Mexico City Mauritius Warsaw Prague Budapest Source: Global Financial Centers Index 55
  56. 56. Combatting the Shadow Economy 56
  57. 57. Informal Employment (%, Total Employment) 52.1 52 51.7 50.1 48.2 48 47.0 45.4 43.5 44 43.8 43.3 42.1 40 39.0 37.9 36 Jul‐13 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 32 Source:TURKSTAT 57
  58. 58. Size of Shadow Economy (%, GDP) 32.2 33 Down 6 percentage points 31 30.4 30.7 31.5 32 27.7 28.3 28.4 29 28.9 29.1 30 27.2 28 26.5 27 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 26 Source: Schneider, 2013 58
  59. 59. 10 5 25 20 15 27.6 Estonia 23.6 23.1 Greece Slovenia 18.4 EU Average 13.0 13.0 13.0 Denmark Finland Germany Netherlands Austria 7.5 8.0 9.1 United Kingdom Luxemburg 9.7 France 12.2 13.6 Norway Ireland 13.9 15.0 Slovakia Sweeden 15.5 Czech Rep. 16.4 18.6 Spain Belgium 19.0 21.1 Portugal Italy 22.1 23.8 Poland Hungary 24.3 25.2 S. Cyprus Malta 25.5 Lithuania 26.5 28.0 Latvia TURKEY 28.4 Crotia 9.9 30 Romania 31.2 35 28.4 Bulgaria Size of Informal Economy (2013, %, GDP) Size of Shadow Economy (%, GDP) But still higher than EU average Source: Schneider, 2013 59
  60. 60. Tax Loss Due to Informal Economy (% GDP) 6.8 7.1 7.5 7.5 7.4 7.3 5.7 6 5.3 5.7 6.3 7 5.3 8 7.8 9 2.8 2.5 2.6 3 2.9 3.1 3.3 3.4 3.5 3.4 3.4 3.4 4 3.6 5 Turkey 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 2 Sample Average 3ppt higher than the EU average Source: Schneider, 2012 60
  61. 61. Combatting informal economy Action Plan for Fighting  Informality  2011‐13 Strengthening Capacity of  Revenue Administration &       Tax Audit Board Income Tax Reform and Tax  Procedural Law 61
  62. 62. Improving Infrastructure 62
  63. 63. 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 (July 1, 2013) 2,244 Km Total of Motorways 20,152 Km Total of State and  Provincial Dual  Carriageways Total: 22,396 Km 63
  64. 64. High Speed Railway Projects İSTANBUL 533 km BURSA BİLECİK ANKARA YOZGAT SİVAS 105 km ESKİŞEHİR MANİSA İZMİR POLATLI Yerköy 405 km 212 km 624 km AFYON KONYA Completed Under Construction Source: Ministry of Transport   64
  65. 65. Airports Available For Civil Aviation 2003 2013 • Number of airports serving  scheduled flights = 26 • Number of airports serving  scheduled flights =  52 Airports serving Scheduled  Flights (52) Airports under Construction (3) Airports Planned (1) 65
  66. 66. Chapter ‐ 2 Enhancing  Human Capital  Stock Improving  Labor Market  Flexibility Reducing  Energy Import  Bill Reconciliation  Process 66
  67. 67. Enhancing Human Capital Stock 67
  68. 68. Students (%, Total Population) 45 40 39 35 30 25 22 20 15 Turkey Source: TURKSTAT, Eurostat Note: Including Nonformal Education EU 68
  69. 69. Source: Ministry of Development, Eurostat Note: Formal education only 69 Liechtenstein Iceland Malta Luxembourg Montenegro Cyprus Estonia Latvia Slovenia Macedonia Lithuania Croatia Ireland Norway Finland Slovakia Denmark Bulgaria Switzerland Austria Sweden Hungary Czech Republic Portugal Belgium Greece Netherlands Turkey Romania Poland Spain Italy United Kingdom France Germany Population, million Turkey’s Student Population 90 80 70 60 50 40 30 20 21 10 0
  70. 70. Share of Education Budget 20 18 18 16 % 14 12 10 9.4 8 6 2002 Source: Ministry of Finance 2014 70
  71. 71. Investment in Education Over the last  decade, we have • Built 205,000  classrooms • Hired 400,000 teachers Source: Ministry of Education 71
  72. 72. Gross Schooling Rates 130 107.6 110 96.8 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 72
  73. 73. Indonesia Brazil Argentina Mexico Bulgaria 450 Turkey Croatia Greece Russia İtaly Hungary Poland France Slovenia Estonia Germany Liechtenstein Korea PISA Results ‐ Mathematics 43rd (among 65 countries) 550 525 500 475 445 425 400 375 350 Source: OECD, PISA 2009 73
  74. 74. Indonesia Argentina Brazil Mexico Bulgaria 470 Turkey Greece Russia Croatia İtaly France Hungary Poland Slovenia Liechtenstein Germany Estonia Korea PISA Results ‐ Science 43rd (among 65 countries) 550 530 510 490 454 450 430 410 390 370 350 Source: OECD, PISA 2009 74
  75. 75. Fatih to help reduce the Gap b/w Turkey & OECD (PISA Results) 80 70 60 50 40 30 science math 2006 2009 Source: OECD 75
  76. 76. Improving Quality of Education With Fatih Project, we are providing our children with Broadband Internet Access Smart Boards Tablet PCs Other Information Technology Tools 76
  77. 77. Improving Labor Market Flexibility 77
  78. 78. Low Employment Rate Early retirement Low rate of female labor  force participation Rigidities in labor force  market  78
  79. 79. Average Retirement Age 65 63.3 61.9 60 55 50 44.9 45 41.0 40 35 30 Female Male Turkey OECD Source: OECD 79
  80. 80. Labor Participation Rate, Female 80 71.1 Labor Participation Rate by Education (2013  July) 70 60 OECD Average: 62.3 50 40.0 40 31.9 31.6 30 27.5 18.5 20 10 Total Illeterate Less than high school High school Vocational high school Higher education Source: TURKSTAT, OECD 80
  81. 81. Improving Girls’ Education 2002 2012 91.1 girls per  100 boys 101.8 girls  per 100 boys 81
  82. 82. 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 Korea 50 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 82
  83. 83. Reducing Energy Import Bill 83
  84. 84. Energy Import Bill 120 60 100 60.1 50 56.9 80 40 60 30 40 20 (Brent, $ pbl) Energy Imports (Bn $) 70 20 10 9.2 Energy Import Sep-13 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 0 2002 0 Oil Prices Source: TURKSTAT, Bloomberg 84
  85. 85. High Dependence on Energy Imports 72% Total Energy 92% 98% Oil Natural‐Gas 85
  86. 86. Current Installed Capacity MW Current Installed Capacity 2012 57,059 Renewable Energy in Current Installed Capacity 2012 22,191 Power Plants Under Construction 21,323 Renewable Energy in Power Plants Under Construction  14,210 Source: Ministry of Energy and Natural Resources 86
  87. 87. Building the Nuclear Capacity Akkuyu:  JW with Russia Sinop JW with a Japanese‐French consortium Working on a 3rd plant 87
  88. 88. Improving Energy Efficiency Construction  30% Industry  20% Transportation  15% 88
  89. 89. Privatization • Distributions: Done • Generation: 16,530MW on sale Hamitabat Termal Power Plant Seyitömer Termal Power Plant Kangal Termal Power Plant 89
  90. 90. Reconciliation Process 90
  91. 91. Lost Decades About 40,000 deaths About $350 billion spent on fighting  terrorism Indirect cost is more than $1 trillion 91
  92. 92. Investment in Southeastern Anatolia Project 40 36.1 (Billion TL, 2013 prices) 35 30 25 23.6 20 15 1990‐2002 2003‐13 Source: Ministry of Development, Southeastern Anatolia Project Regional Development Administration 92
  93. 93. New Initiatives A New Democratization Package A New Constitution 93
  94. 94. Benefits of Reconciliation Process TURKEY A more respectable actor in the region & the world A better functioning democracy Narrowing regional  development gap Faster growth  94
  95. 95. Turkey’s Strong Long‐Term Prospects 95
  96. 96. Average Real GDP Growth Rates 6 Reforms to increase potential growth 5.5 5.1 5 % 4.5 4 3.1 3 2 1924‐2002 1993‐2002 2003‐2012 2014‐2018 Source: Turkstat, Ministry of Development 96
  97. 97. GDP Per Capita Nominal, $ 11,000 10,504 PPP, $  9,000 18,000 17,375 7,000 15,000 Real, ¨ 1,573 1,600 5,000 12,000 3,492 3,000 1,400 9,000 8,667 2002 2012 1,200 6,000 1,099 2002 2012 1,000 800 2002 Source: TURKSTAT 2012 97
  98. 98. Real Convergence 60 56.0 Turkey /USA 55 Turkey /European Union % of GDP per Capita (PPP, $)  50 45 40 36.0 35 34.8 30 25 23.5 20 2002 Kaynak: IMF, TURKSTAT, Eurostat 2012 98
  99. 99. Determinants of Long‐Term Growth Quality of Institutions Demographics Productivity 99
  100. 100. Improving Quality of Institutions Doing Business OECD‐FDI Regulatory Restrictiveness Index Corruption Perception Index 2023 Human Development Index Global Competitiveness Index Past Source: WB, WEF, Transparency International, OECD Present 100
  101. 101. EU Accession Process (Chapters) 25 20 20 14 15 10 5 0 Opened Source: Ministry of EU Affairs Remaining 101
  102. 102. Corruption Perceptions Index (2002) (65th among 102 countries) 100 96 90 80 70 58 73 74 59 China 40 44 45 Brazil 50 Greece 60 Mexico 65 70 31 30 Indonesia Russia India Argentina TURKEY Italy 20 Source: Transparency International 102
  103. 103. Corruption Perceptions Index (2012) (54th among 176 countries) 140 133 130 118 120 110 102 94 100 90 105 94 80 80 69 72 70 60 54 50 Russia Indonesia Mexico Argentine India Greece China Italy Brazil TURKEY 40 Source: Transparency International 103
  104. 104. Global Competitiveness Index (2005) st (71 among 117 higher than Russia, Argentina and Greece. Within the period of 2005‐2012, Turkey has rankedcountries) 75 69 70 71 55 53 47 50 54 57 59 Mexico 60 Brazil 65 48 45 45 38 40 35 TURKEY Indonesia Argentina Russia China Greece India Italy 30 Source: World Economic Forum 104
  105. 105. Global Competitiveness Index (2013) (44th among 148 countries) 95 91 84 76 78 Romania Slovak Rep. 85 75 65 55 49 42 45 51 55 56 60 63 64 44 38 35 29 Source: World Economic Forum Greece Ukraine Russia Hungary India Brazil Mexico Portugal Italy TURKEY Poland Indonesia China 25 105
  106. 106. Ease of Doing Business (2006) (84th among 175 countries) 138 140 131 130 122 120 111 108 110 97 100 93 90 84 69 Uruguay 70 70 Italy 80 71 62 Source: World Bank India Indonesia Brazil Greece China Russia Argentina TURKEY Romania Mexico 60 106
  107. 107. Ease of Doing Business (2013‐14) (69th among 189 countries) 120 Argentina 112 120 116 126 Indonesia 140 134 88 80 65 60 69 72 89 Crotia 100 Uruguay 96 92 73 53 40 Source: World Bank India Brazil Ukraine China Russia Romania Greece TURKEY Italy Mexico 20 107
  108. 108. Share of 15‐24 years old in Total Pop. (%) Favorable Demographics Azerbaijan Moldova Turkey Georgia  Macedonia Iceland Lithuania Montenegro Slovakia Latvia Poland Malta Ukraine Estonia Sweden Norway United Kingdom Denmark France Finland Netherlands Hungary Serbia Liechtenstein Austria Czech Republic Croatia Switzerland Luxembourg Bulgaria Ireland Slovenia Germany Portugal Spain Greece Italy Andorra 16.8 7 Source: Eurostat 9 11 13 15 17 19 21 108
  109. 109. Growth Rate of Working‐Age Population 2.0 2.0 Annual Average Population Growth Rate  (%, 2001‐11) 1.8 1.6 1.4 1.2 1.0 1.0 0.8 0.7 0.6 0.3 0.4 0.2 Turkey Source: OECD, Eurostat, TURKSTAT USA EU‐27 OECD 109
  110. 110. Ambitious Targets 2012 (GDP‐PPP) 6th in Europe 16th in the World 1. USA 2. China 3. India 4. Japan 5. Germany 6. Russia 7. Brazil 8. UK 9. France 10. Italy 11. Mexico 12. South Korea 13. Canada 14. Spain 15. Indonesia 16. TURKEY 17. Iran 18. Australia 19. Saudi Arabia 20. Taiwan Target Top 10 in the World Top 3 in Europe Source: IMF, PricewaterhouseCoopers 110
  111. 111. GDP 2050 $ 5 trillion 2002 2023 $ 2 trillion 2002 $ 230  billion 2012 $ 786 billion Source: TURKSTAT, Medium‐Term Program,PwC 2050 111
  112. 112. GDP per Capita 2002 2050 $ 50,000 2023  $ 25,000 2012 $10,497 2002 $ 3,492 2050 Source: TURKSTAT, Medium‐Term Program,PwC 112
  113. 113. Have Investors Noticed the  Transformation? 113
  114. 114. (Billion dollar) Foreign Direct Investment Inflows Source: CBRT 114
  115. 115. (2003=100) REER Appreciation Source: CBRT 115
  116. 116. THANK YOU… 116

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