Turkey’s Economic & Political Outlook
May 20, 2014
Mehmet Şimşek
Minister of Finance
1
Political Outlook
Economic Outlook
Investment Opportunities & Reforms
Long-Term Prospects
Outline
2
Is political stability at stake?
3
Importance of Political Stability
4
Political Stability
Political Stability
5
15 Months
138 Months
0
20
40
60
80
100
120
140
Average Lifetime of Governements during 1950-2002 AK ...
Key Messages from the Ballot Box
Political Stability is here to stay
Corruption allegations were politically motivated
Pre...
Local Election Results
Source: Anadolu Agency
AK PARTY: Justice and Development Party
CHP: Republican People’s Party
MHP: ...
2 More Elections Ahead
Presidential
• August 2014
Parliamentary
• June 2015
8
Low growth – the new normal?
9
Real GDP
Source: Turkstat, Eurostat
120
100,0
85
90
95
100
105
110
115
120
Q1-08
Q2
Q3
Q4
Q1-09
Q2
Q3
Q4
Q1-10
Q2
Q3
Q4
Q1...
Real GDP: Turkey vs AMs
Source: Turkstat, Eurostat
120
98
100,0
106
85
90
95
100
105
110
115
120
Q1-08
Q2
Q3
Q4
Q1-09
Q2
Q...
12
Real GDP: Turkey vs EMs
Source: TURKSTAT, IMF
168,8
100,0
152,8
153,0
180,4
159,0
143,8
95
105
115
125
135
145
155
165
...
Upside
• Stronger external demand
• EU pulling out of recession
• Arab Spring becoming less
disruptive
• TL depreciation
D...
Domestic Demand
14
Source: Turkstat, BRSA
0
5
10
15
20
25
30
35
40
45
55
60
65
70
75
80
85
Jan-08
Apr-08
Jul-08
Oct-08
Jan...
15
Source: Bloomberg, Turkstat
Index(monthly)
(6monthrolling)
20
22
24
26
28
30
32
34
36
30
35
40
45
50
55
60
65
Jan-09
Ap...
Manufacturing Output
16
Source: Turkstat, CBT
100
80
85
90
95
100
105
110
115
120
125
130
55
60
65
70
75
80
85
90
95
100
1...
PMI Remaining above 50
17Source: HSBC
51,150,0
30
35
40
45
50
55
60
Jan-07
Apr-07
Jul-07
Oct-07
Jan-08
Apr-08
Jul-08
Oct-0...
Job Creation
Employmentsince2007(mnpeoples.a.)
Source:TURKSTAT 18
25,8
20
21
22
23
24
25
26
27
Jan-08
Apr-08
Jul-08
Oct-08...
Unemployment & Labor Participation Rate
Source:TURKSTAT
44
45
46
47
48
49
50
51
52
8
9
10
11
12
13
14
15
16
Jan-08
May-08
...
Is the pick up in Inflation Temporary?
20
Inflation
0
20
40
60
80
100
120
140
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1...
2014 Inflation: Target vs Forecast
Energy
prices
0.1 ppt
Deterioration
in pricing
behavior
0.3 ppt
Tax hikes
0.5ppt
Food p...
CBRT’s Inflation Outlook
23
Inflation is to resume downward trend as base effects fade
Source: CBRT
Upside
• TL Depreciation
• Unprocessed food prices
Downside
• Monetary Tightening
• Output Gap
• Recent Macroprudential Me...
(%)
Tight Monetary Policy
Source: CBRT
25
8,00
12,00
10,00
3
5
7
9
11
13
15
Oct-11
Oct-11
Nov-11
Dec-11
Jan-12
Feb-12
Mar-...
(%)
26
Kaynak: TCMB
Interest Rates on Turkish Lira Bank Loans
7
9
11
13
15
17
19
21
23
25
27
29
January-08
April-08
July-0...
Macroprudential Measures
• Single limit for all credit cards
• Higher minimum payment
• Limit on # of installments
Credit ...
28
Source: CBRT
Credit Growth
13weekmovingavg.,y-on-y%
* Credit Growth is adjusted for exchange rate movements
10,5
0
5
10...
Turkey’s Soft Spot – Getting Fixed?
29
Current Account Deficit
Source: CBRT 30
(12MonthRolling,USDbn)
-80
-60
-40
-20
0
20
40
Jan02
Jul02
Jan03
Jul03
Jan04
Jul04...
Factors behind high C/A Deficit (2011-13)
Strong domestic demand
Euro crisis
High energy prices
Arab Spring
31
Upside
• Geopolitical tensions
• Higher energy prices
Downside
• Faster recovery in Europe
• More stable MENA
• Softer dom...
Turkey's FX Position
Source: CBRT, BRSA, Treasury
* Assets: CBRT FX Deposits of Treasury+ CBRT Foreign Assets; Liabilities...
Firms
Source: CBRT
No FX
Loans
63%
FX Loan w/
export earning
25%
FX Loan w/o
export earning
12%
9,500 firms
Total net sale...
Firms: SMEs and Large Companies
Greater amount of FX debt belongs to LARGE COMPANIES
80% out of the 57% of large companies...
Households: Low Leverage
Source: CBRT, ECB
(HouseholdLiabilities,%ofGDP,June2013)
No FX exposure
65
23
20 40 60 80 100 120...
Banks: Safe & Sound
CapitalAdequacyRatio,%
2002 Mar-14
17,6
2,8
NPLRatioofLoans(%)
15,7
0
5
10
15
20
25
Jan-08
May-08
Sep-...
Turkey’s Banks - among the Strongest in EMs
38
Source: World Bank
Source: World Bank, IMF, BRSA
Banking Sector: Able to Absorb Shocks
Arm
Br
Bul
Col
Cro
Egy
Fr
Gre
Indo
Ire
Ita
Latv
Leb
Li...
Fiscally:
Room to Manoeuvre
40
10,8
7,9
4,1
0,1
-1,3
0,2
1,6
5,5
3,0
0,4
1,0 1,0 1,1
-2,0
0,0
2,0
4,0
6,0
8,0
10,0
12,0
2002 2003 2004 2005 2006 2007 200...
Budget Deficit (2014)BudgetDeficit-to-GDP,%
Source: IMF, OECD, Ministry of Development
4,0
2,9
2,3
1,1
0,5
1
1,5
2
2,5
3
3...
43
Upside
• Conservative revenue assumptions
• Outperformance in non-tax revenues
• Improving tax compliance
Downside
• We...
Source: IMF
Fiscal Strength in EMsGrossPublicDebt/GDP(%)
Fiscal Deficit /GDP (%)
Arm
Br
Bul
Col
Cro
Fr
Hun
Indo
Ire
Latv
L...
74,0
67,7
59,6
52,7
46,5
39,9
40,0
46,1
42,3
39,1
36,2 36,3
33,0
25
30
35
40
45
50
55
60
65
70
75
2002 2003 2004 2005 2006...
Public Debt (2014)
Source: IMF, OECD, Treasury
Debt-to-GDP,%
111,8
89,0
33,3 33,0
20
30
40
50
60
70
80
90
100
110
120
OECD...
Details of Treasury Guarantee Scheme
$3bn cap under 2014 Budget Law
PPPs under guarantee
• 3rd Bridge
• Euroasia Tunnel
• ...
48
(%)
Real & Nominal Interest Rates on Gov’t Debt
Source: Treasury
62,7
7,7 10,4
25,4
0,2
0,9
-5
5
15
25
35
45
55
65
2002...
(%)
Interest Payments
85,7
14,9
43,2
11,9
0
10
20
30
40
50
60
70
80
90
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2...
Investment Opportunities & Reforms
50
Investment Opportunities
51
Privatizations
Finance
Energy
Transportation Health
Education
Textiles
Machinery
Equipment
Tou...
Privatization Agenda
52
Privatization: Games of Chance
Total market in 2013, $1.1 billion
53
* Distribution of total revenue gained from games of ...
Privatization: Electricity Sector
Distribution of networks : $12,7 bn
Thermal power plants
• 2,213 MW privatized
• 8,000 M...
Privatization: Thermal Power Plants
Kemerkoy
Yenikoy
Çatalağzı
Yatağan
55
Privatization: Ports
Kemerköy
Kalamış
Derince
Ports
56
Muğla-Bodrum 483 th m2
Isparta-Eğirdir 360 th m2
Antalya- Alanya 237 th m2
İstanbul-Kadıköy 34 th m2
Aydın-Didim 33 th m2
...
Financial Markets
58
EMs: Deepening Financial Markets
59
0
50
100
150
200
250
300
350
Bank private credit
Nonbank private credit
Stock market c...
Turkey: Financial Sector
Share of Banks
in Financial
Sector
87.4%
60Source: Central Bank of Republic of Turkey
Insurance
C...
Strengthening the legal framework
Improving physical infrastructure
Simplifying tax system
Providing financial education
I...
Strengthening the Legal Framework
Enhancing regulatory and supervisory framework
Adopting the best global practices & the ...
Improving Physical Infrastructure
Istanbul is a 24-7 living city
• An exciting place to live & work
• Largest city in Euro...
Simplifying Tax System
Building a Simple and Effective Tax system
• Boosting competitiveness
• Widening tax base
• Increas...
Improving Financial Literacy
State run programs in countries
like Australia, Japan, USA & UK
65
It is all about perception...
Istanbul as a Financial Center
Financial sector currently employs 200 thousand people
Istanbul Finance Center is likely to...
A New Capital Markets Law
•Increasing financial deepening & innovation
•Strengthening investor rights
•Improving corporate...
Restructuring of Borsa Istanbul
Regional
Leadership
Raising
Market
Cap/GDP to
80%
1,000 new
companies
to be listed
68
2009
72nd
2014
47th
2018
25th
Global Financial Centres Index
Source: Global Financial Centres Index 15
45
47
60
63
70
75
7...
Sukuk
70
Sep-12: Sukuk issued for $1.5bn in international market
Oct-12: Sukuk denominated in TL issued for TL1.6bn
Feb-13...
Increasing Savings: Private Pensions
25% State
Contribution
1.4 million
new
participants
and TL7.7bn
funds since
end-2012
...
Insurance Market Density
72
$146
$-
$200
$400
$600
$800
$1.000
$1.200
$1.400
$1.600
UAE
Cyprus
Malta
Trin&Tobag
Chile
Mala...
Incentives for Global Fund Managers
A tax free environment for
Global Funds
Making it easier to manage assets
in Turkey
73
Incentives for Venture Capital
Allowing contributions to Venture Capital to be
deducted from Corporate & Personal Income T...
Incentives for Business Angels
75
Entrepreneurial Spirit & Talent
76
Source: World Bank calculation
Energy
77
High Dependence on Energy Imports
72%
Total Energy
92%
Oil
98%
Natural-Gas
78
Source: TURKSTAT, Bloomberg
Energy Import Bill
(Brent,$pbl)
EnergyImports(BillionDollars)
79
Energy Prices to Trend down in the Long-Run
BRIC slowing down
Renewables
Shale gas revolution
Energy
efficiency gains
80
Energy Prices
81
95
100
105
110
115
120
125
75
80
85
90
95
100
2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024...
Developing Local & Renewable Resources
Source: Ministry of Energy and Natural Resources
Electricity Generation Installed C...
Renewable Energy OutlookOverthenext
decadeinTurkey,
• 20,000 MW, wind power generation
• 3,000 MW, solar power plants
• 60...
84
0
6
12
18
24
2010 2011 2012 2013
Module Inverter Other Hardware Soft Cost
Costofelectricity,centsperkWh
Source: DOE/NRE...
Turkey’s Solar Energy Potential Atlas
85
Building Nuclear Capacity
Akkuyu:
JW with Russia
Sinop
JW with a Japanese-French consortium
Working on a 3rd plant
86
Improving Energy Efficiency
Industry
20%
Transportation
15%
Construction
30%
87
Transportation
88
1,714 Km
Total of Motorways
4,387 Km
Total of State and
Provincial Dual
Carriageways
Total: 6,101 Km
January 1, 2003
2,244...
İSTANBUL
EDİRNE
ESKİŞEHİR
Polatlı
ANKARA
KONYA
İZMİR
SİVAS
AFYONKARHİSAR
KAYSERİ
BURSA
ERZİNCAN
ERZURUM
KARS
MERSİN ADANA
...
Future Railways Investments
By 2023 $ 45 billion worth of investment
10,000 km worth of new high speed railway
network
4,0...
PPP in Ports
Dalaman Marina
Datça Marina
Gazipaşa Marina
Muğla-Ören Marina
Kumkuyu Marina
Karasu Port Project
PPP in Proje...
The 3rd Airport in Istanbul, Largest of All
150 million passengers
An area of 90 million m2
Construction Cost: €10 billion...
Projects of the Century - Under Construction
Tube Tunnel 3rd Bridge
Izmit Gulf Transit Istanbul-İzmir Highway
High-Speed T...
Projects of the Century – Planned
Channel Istanbul
95
Healthcare
96
Healthcare: Targets
Increase the number of healthcare facilities
Enhance the quality of the healthcare services
Apply stat...
Healthcare Expenditures
Source: The Ministry of Finance
98
Medical Sector in Turkey
99
Turkey’s pharmaceutical market
• 6th largest market in Europe
• 16th largest in the world
(in ...
• Rehabilitation centers
• Thermal tourism facilities
• Nursing houses
• Health techno-cities
• R&D centers
Medical
«Free
...
Tax Incentives for Healthcare Investments
18% VAT down to 8%
50% tax relief on CIT & PIT for exports in healthcare
PIT and...
PPP in Healthcare
102
Projects in Funding Phase
• Kayseri
• Ankara Etlik
• Ankara Bilkent
• İkitelli
• Elazığ
• Yozgat
• M...
Education
103
Education: Targets
Improving access to and quality of education
Having mandatory pre-school education
FATiH: Furnishing ea...
Students (%, Total Population)
105Source: TURKSTAT, Eurostat
Included Informal Education
Source: Ministry of Finance
Share of Education Budget(%)
106
12 Years of Mandatory Education
Austral.
Austria
Belg.
Canada
Chile
Czech R.
Den.
Estonia
Finland
France
Italy
Japan
Lux
M...
Improving Quality of Education
With Fatih Project, we are providing our children with
Broadband Internet Access
Smart Boar...
Investment Incentives in Education Sector
18% VAT down to 8%
50% tax relief on CIT & PIT for exports in education
PIT and ...
From Crammer Schools to k12 Schools
A flexible transition time
Tuition support based on parents’ income & regional develop...
Build-Lease-Transfer Model in Education
40,000 additional classrooms by end-2016.
42 education campuses in 22 cities
111
Textiles
112
Textiles
113
Target: 10 Global Brand in 10 years
7th in the world
Exportsintextilesector
(Bn$)
7,1
11,1
4
5
6
7
8
9
10
11
...
Machinery Equipment
114
Machinery Equipment
115
The machinery industry in Turkey has been growing
• 20% per year since 1990
• 30% per year since 2...
Machinery and transport equipment
116
Machinery&transportequipmentExports(Bn$)
8,6
41,0
0
5
10
15
20
25
30
35
40
45
2002 2...
Machinery Equipment - Opportunities for
Investors
117
Competitive input costs, esp in land & labor
• China like wages in S...
Tourism
118
TouristArrivals(Millionpeople)
119
Tourism
Source: Ministry of Culture and Tourism
120
Tourism
Source: Ministry of Culture and Tourism
TouristArrivals(WorldRanking)
TourismIncomes(Bn$)
121
Tourism Income
Source: TURKSTAT
12,4
13,9
17,1
20,3
18,6
20,9
25,4 25,1
24,9
28,1
29,0
32,3
10
15
...
Investment Incentives in Tourism Sector
18% VAT down to 8%
PIT, CIT tax relief and other Incentives
• Partial personal wit...
Agriculture
123
Agricultural GDP
2002
$23,7 billion
11th
2011
$61,8 billion
7th
2023
$150 billion
5th
Source: World Bank
Total Agricultural Support
Source: Ministry of Finance
TotalAgriculturalSupport(BnTL)
125
3,0
13,2
0
2
4
6
8
10
12
14
2002...
Agricultural Support
Source: OECD
AgriculturalSubsidies(2012,%,GDP)
126
0,1
0,3 0,3
0,4
0,6
0,7 0,7
0,9 0,9 1,0 1,0
1,2 1,...
Southeastern Anatolian Project (GAP)
127
23,6
36,1
15
20
25
30
35
40
1990-2002 2003-13
Source: Ministry of Development
Bil...
Housing
128
Urban Renewal
• 6.5 million new homes
• $236 billion total cost
Removal of Reciprocity
• A source of attraction by
global ...
Research & Development
130
Source: The Scientific and Technological Council of Turkey
* % of GDP
R&D Spending*
131
•3.00%2023
•1.8%2018
• 0.92%2012
•...
Patent Applications
Source: TPI
132
1.874
12.053
1.000
2.000
3.000
4.000
5.000
6.000
7.000
8.000
9.000
10.000
11.000
12.00...
Trade Mark Applications(2012,Thousand)
86
64
54
44
41
0
20
40
60
80
100
120
TURKEY France Germany Italy Spain England
108*...
Tax Incentives for R&D
R&D Expenditure
• Corporate income tax relief
• Personal income tax relief
• State contributions to...
Global Investors in Turkey
135
International Companies Operating in Turkey
Source: Ministry of Economy
136
3.212
4.303
6.342
9.092
12.380
16.082
19.097
2...
Foreign Direct Investment Inflows
Source: CBRT
(Billiondollar)
137
14,8
140,6
0
25
50
75
100
125
150
1980-2002 2003-2014 M...
Strong Long-Term Prospects
138
GDP per Capita
Low-Income
$1,035-or less
Lower-Middle-Income
$1,036-$4,085
Upper-Middle-Income
$4,086-$12,615
139
High-Inc...
Priorities for Sustainable Growth
Improving
Competitiveness
Innovation-based
Growth
Attracting FDI
Financial deepening
R&D...
Achieving Sustainable Development
10th Development Plan
(2014-18)
Qualified
Individiuals,
Stronger Society
Innovative
Prod...
Determinants of Long-Term Growth
Quality of Institutions
Demographics
Productivity
142
Improving Quality of Institutions
Corruption
Perceptions:
2013: 53rd in 177
2002: 65th in 102
Ease of Doing
Business:
2013...
Corruption Perceptions Index (2002)
(65th among 102 countries)
31
44 45
58
59
65
70
73 74
96
20
30
40
50
60
70
80
90
100
I...
Corruption Perceptions Index (2013)
(53rd among 177 countries)
Source: Transparency International
53
69
72
80 80
94
106 10...
Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.(71st among 117 countries)
31
3...
(44th among 148 countries)
Source: World Economic Forum
Global Competitiveness Index (2013)
29
38
42 44
49
51
55
56
60
63
...
(84th among 175 countries)
Source: World Bank
Ease of Doing Business (2006)
62
69 70
71
84
93
97
108
111
122
131
132 134
1...
(69th among 189 countries)
Source: World Bank
Ease of Doing Business (2013)
53
65
69
72 73
88 89
92
96
112
116
120 126
134...
Favorable Demographics
Source: Eurostat
Shareof15-24yearsoldinTotalPop.(%)
16,6
7 9 11 13 15 17 19 21
Spain
Italy
Andorra
...
1,7
0,7
0,2
0,0
0,2
0,4
0,6
0,8
1,0
1,2
1,4
1,6
1,8
TURKEY OECD EU-28
AnnualAverageGrowthRate(%,2001-13)
Working Age Popul...
Thank You…
152
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Turkey's Investment Summit

  1. 1. Turkey’s Economic & Political Outlook May 20, 2014 Mehmet Şimşek Minister of Finance 1
  2. 2. Political Outlook Economic Outlook Investment Opportunities & Reforms Long-Term Prospects Outline 2
  3. 3. Is political stability at stake? 3
  4. 4. Importance of Political Stability 4 Political Stability
  5. 5. Political Stability 5 15 Months 138 Months 0 20 40 60 80 100 120 140 Average Lifetime of Governements during 1950-2002 AK Party Governments Since 2002 1923-2002 Average Lifetime of Governments: 17 months 2002-14 Political Stability 2023 Vision
  6. 6. Key Messages from the Ballot Box Political Stability is here to stay Corruption allegations were politically motivated President is likely to be elected in the first round 6
  7. 7. Local Election Results Source: Anadolu Agency AK PARTY: Justice and Development Party CHP: Republican People’s Party MHP: Nationalist Movement Party BDP: Peace and Democracy Party (%) 38,8 23,1 16,1 5,7 16,3 45,5 27,8 15,2 4,2 7,3 0 5 10 15 20 25 30 35 40 45 50 AK PARTY CHP MHP BDP Others 2009 2014 7
  8. 8. 2 More Elections Ahead Presidential • August 2014 Parliamentary • June 2015 8
  9. 9. Low growth – the new normal? 9
  10. 10. Real GDP Source: Turkstat, Eurostat 120 100,0 85 90 95 100 105 110 115 120 Q1-08 Q2 Q3 Q4 Q1-09 Q2 Q3 Q4 Q1-10 Q2 Q3 Q4 Q1-11 Q2 Q3 Q4 Q1-12 Q2 Q3 Q4 Q1-13 Q2 Q3 Q4 RealGDP(2007Q4=100,s.a.) 10
  11. 11. Real GDP: Turkey vs AMs Source: Turkstat, Eurostat 120 98 100,0 106 85 90 95 100 105 110 115 120 Q1-08 Q2 Q3 Q4 Q1-09 Q2 Q3 Q4 Q1-10 Q2 Q3 Q4 Q1-11 Q2 Q3 Q4 Q1-12 Q2 Q3 Q4 Q1-13 Q2 Q3 Q4 RealGDP(2007Q4=100,s.a.) TURKEY US Euro Area 11
  12. 12. 12 Real GDP: Turkey vs EMs Source: TURKSTAT, IMF 168,8 100,0 152,8 153,0 180,4 159,0 143,8 95 105 115 125 135 145 155 165 175 185 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Turkey Emerging & Developing Europe LatAm. & the Caribbean Developing Asia excl. China & India Russia South Africa TURKEY RealGDP(2002=100)
  13. 13. Upside • Stronger external demand • EU pulling out of recession • Arab Spring becoming less disruptive • TL depreciation Downside • Tighter financial conditions • Geopolitical tensions Growth Outlook 13
  14. 14. Domestic Demand 14 Source: Turkstat, BRSA 0 5 10 15 20 25 30 35 40 45 55 60 65 70 75 80 85 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 Oct-13 Jan-14 Apr-14 Consumer Confidence (Left) Total Credit Growth (Right) (Annual,%) (Index) (rhs)c(rhs)
  15. 15. 15 Source: Bloomberg, Turkstat Index(monthly) (6monthrolling) 20 22 24 26 28 30 32 34 36 30 35 40 45 50 55 60 65 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 Oct-13 Jan-14 Eurozone Manufacturing PMI Turkey's Exports to Europe (rhs) External Demand
  16. 16. Manufacturing Output 16 Source: Turkstat, CBT 100 80 85 90 95 100 105 110 115 120 125 130 55 60 65 70 75 80 85 90 95 100 105 110 115 120 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 Oct-13 Jan-14 Apr-14 Real Sector Confidence Index (Left) (s.a.) Industrial Production (Right) (s.a.)
  17. 17. PMI Remaining above 50 17Source: HSBC 51,150,0 30 35 40 45 50 55 60 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 Oct-13 Jan-14 Apr-14
  18. 18. Job Creation Employmentsince2007(mnpeoples.a.) Source:TURKSTAT 18 25,8 20 21 22 23 24 25 26 27 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 Oct-13 Jan-14
  19. 19. Unemployment & Labor Participation Rate Source:TURKSTAT 44 45 46 47 48 49 50 51 52 8 9 10 11 12 13 14 15 16 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 Jan-13 May-13 Sep-13 Jan-14 Unemploymen Rate Labor Force Participation Rate (rhs) (s.a.,%) (s.a.,%) 19
  20. 20. Is the pick up in Inflation Temporary? 20
  21. 21. Inflation 0 20 40 60 80 100 120 140 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 Source: TURKSTAT (CPI,Annual,%) 21
  22. 22. 2014 Inflation: Target vs Forecast Energy prices 0.1 ppt Deterioration in pricing behavior 0.3 ppt Tax hikes 0.5ppt Food prices 0.6 ppt Exchange rate depreciation 0.8 ppt Inflation Target: 5.3 % (2014-16 Medium Term Program) Inflation Forecast: 7.6%
  23. 23. CBRT’s Inflation Outlook 23 Inflation is to resume downward trend as base effects fade Source: CBRT
  24. 24. Upside • TL Depreciation • Unprocessed food prices Downside • Monetary Tightening • Output Gap • Recent Macroprudential Measures Inflation Outlook 24
  25. 25. (%) Tight Monetary Policy Source: CBRT 25 8,00 12,00 10,00 3 5 7 9 11 13 15 Oct-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 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Mar-14 Apr-14 CBRT Funding Rate O/N Borrowing O/N Lending Policy Rate
  26. 26. (%) 26 Kaynak: TCMB Interest Rates on Turkish Lira Bank Loans 7 9 11 13 15 17 19 21 23 25 27 29 January-08 April-08 July-08 October-08 January-09 April-09 July-09 October-09 January-10 April-10 July-10 October-10 January-11 April-11 July-11 October-11 January-12 April-12 July-12 October-12 January-13 April-13 July-13 October-13 January-14 April-14 Personal Vehicle Housing Commercial
  27. 27. Macroprudential Measures • Single limit for all credit cards • Higher minimum payment • Limit on # of installments Credit card loans • Higher risk weighting for consumer loans Consumer loans • Compulsory advance payment • Term limit for vehicle and consumer loans Auto & other consumer loans • Lower risk weighting for SME & export credits Other Loans 27
  28. 28. 28 Source: CBRT Credit Growth 13weekmovingavg.,y-on-y% * Credit Growth is adjusted for exchange rate movements 10,5 0 5 10 15 20 25 30 35 40 45 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 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14
  29. 29. Turkey’s Soft Spot – Getting Fixed? 29
  30. 30. Current Account Deficit Source: CBRT 30 (12MonthRolling,USDbn) -80 -60 -40 -20 0 20 40 Jan02 Jul02 Jan03 Jul03 Jan04 Jul04 Jan05 Jul05 Jan06 Jul06 Jan07 Jul07 Jan08 Jul08 Jan09 Jul09 Jan10 Jul10 Jan11 Jul11 Jan12 Jul12 Jan13 Jul13 Jan14 Current Account Current Account excluding Energy Current Account excluding Energy and Gold Net Gold Exports • 2011: -$4.8 billion • 2012: +$5.7 billion • 2013: -$11.8 billion • 2014 Jan-Mar: $1.7 billion
  31. 31. Factors behind high C/A Deficit (2011-13) Strong domestic demand Euro crisis High energy prices Arab Spring 31
  32. 32. Upside • Geopolitical tensions • Higher energy prices Downside • Faster recovery in Europe • More stable MENA • Softer domestic demand • Exchange rate weakness • Falling gold imports • Higher tourism revenues Outlook for C/A Deficit 32
  33. 33. Turkey's FX Position Source: CBRT, BRSA, Treasury * Assets: CBRT FX Deposits of Treasury+ CBRT Foreign Assets; Liabilities= Public gross external debt+CBRT Liabilities to Non Residents. Data from CBT dated 13 May., 2014; data from gross external debt stock as of Q4-13 ** Data – Mar. 2014 *** Data - Jan 2014 **** Data - Mar. 2013 *****Data-02.05.2014 Billion $ Assets Liabilities Net Position Public Sector* 136,6 122,7 13,8 Banking Sector** 472,1 470,4 1,7 Real Sector*** 92,7 265,4 -172,8 Short Term 77,3 94,2 -16,9 Household**** 191,0 0,5 190,5 FX Deposit ***** 84,5 33
  34. 34. Firms Source: CBRT No FX Loans 63% FX Loan w/ export earning 25% FX Loan w/o export earning 12% 9,500 firms Total net sales at 71% of GDP. 34
  35. 35. Firms: SMEs and Large Companies Greater amount of FX debt belongs to LARGE COMPANIES 80% out of the 57% of large companies w/ FX debt have export earnings Source: CBRT 35
  36. 36. Households: Low Leverage Source: CBRT, ECB (HouseholdLiabilities,%ofGDP,June2013) No FX exposure 65 23 20 40 60 80 100 120 140 Denmark Netherlands Ireland United Kingdom Portugal Sweden Spain Finland Euro Area Greece Malta Germany France Luxembourg Belgium Austria Italy Estonia Poland Czech Republic Latvia Slovenia Hungary Slovakia Lithuania Turkey 36
  37. 37. Banks: Safe & Sound CapitalAdequacyRatio,% 2002 Mar-14 17,6 2,8 NPLRatioofLoans(%) 15,7 0 5 10 15 20 25 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 Jan-13 May-13 Sep-13 Jan-14 Legal Rate: %8 Target Rate 12% Source: BRSA 37
  38. 38. Turkey’s Banks - among the Strongest in EMs 38 Source: World Bank
  39. 39. Source: World Bank, IMF, BRSA Banking Sector: Able to Absorb Shocks Arm Br Bul Col Cro Egy Fr Gre Indo Ire Ita Latv Leb Lith Mex Phil Pol Rom Rus Serb SoAf Sp Tu Ukr Venz 8 10 12 14 16 18 20 22 0 50 100 150 200 250 Private Credit/GDP (%) CAR(%) 39
  40. 40. Fiscally: Room to Manoeuvre 40
  41. 41. 10,8 7,9 4,1 0,1 -1,3 0,2 1,6 5,5 3,0 0,4 1,0 1,0 1,1 -2,0 0,0 2,0 4,0 6,0 8,0 10,0 12,0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Maastricht Criteria: 3% Achieved Maastricht Criteria except 2009 Source: Ministry of Development BudgetDeficit-to-GDP,% Low Deficit 41
  42. 42. Budget Deficit (2014)BudgetDeficit-to-GDP,% Source: IMF, OECD, Ministry of Development 4,0 2,9 2,3 1,1 0,5 1 1,5 2 2,5 3 3,5 4 4,5 OECD EU-28 EMs Turkey 42
  43. 43. 43 Upside • Conservative revenue assumptions • Outperformance in non-tax revenues • Improving tax compliance Downside • Weaker domestic demand • Higher VAT rebates Fiscal Outlook
  44. 44. Source: IMF Fiscal Strength in EMsGrossPublicDebt/GDP(%) Fiscal Deficit /GDP (%) Arm Br Bul Col Cro Fr Hun Indo Ire Latv Lith Mex Phil Pol Rom Rus Serb Slvk Slov SoAf Sp Tu 0 20 40 60 80 100 120 140 0 1 2 3 4 5 6 7 8 9 44
  45. 45. 74,0 67,7 59,6 52,7 46,5 39,9 40,0 46,1 42,3 39,1 36,2 36,3 33,0 25 30 35 40 45 50 55 60 65 70 75 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Lower Public Debt Debt-to-GDP,% Satisfying Maastricht Criteria since 2004 Maastricht Criteria: 60% Source: Treasury 45
  46. 46. Public Debt (2014) Source: IMF, OECD, Treasury Debt-to-GDP,% 111,8 89,0 33,3 33,0 20 30 40 50 60 70 80 90 100 110 120 OECD EU EMs Turkey 46
  47. 47. Details of Treasury Guarantee Scheme $3bn cap under 2014 Budget Law PPPs under guarantee • 3rd Bridge • Euroasia Tunnel • Gebze-Izmir Highway Minimum 20% equity Under default • Up to 85% of total FX liabilities are under guarantee • Defaulting parties’ assets will be transferred to the state 47
  48. 48. 48 (%) Real & Nominal Interest Rates on Gov’t Debt Source: Treasury 62,7 7,7 10,4 25,4 0,2 0,9 -5 5 15 25 35 45 55 65 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Apr-14 Interest Rate Real Interest Rate
  49. 49. (%) Interest Payments 85,7 14,9 43,2 11,9 0 10 20 30 40 50 60 70 80 90 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Interest Payments/Tax Revenues Interest Payments/Budget Expenditures Source: Ministry of Finance 49
  50. 50. Investment Opportunities & Reforms 50
  51. 51. Investment Opportunities 51 Privatizations Finance Energy Transportation Health Education Textiles Machinery Equipment Tourism Agriculture Housing R&D
  52. 52. Privatization Agenda 52
  53. 53. Privatization: Games of Chance Total market in 2013, $1.1 billion 53 * Distribution of total revenue gained from games of chance.
  54. 54. Privatization: Electricity Sector Distribution of networks : $12,7 bn Thermal power plants • 2,213 MW privatized • 8,000 MW in privatization portfolio, incl. powerplants in tender process 54
  55. 55. Privatization: Thermal Power Plants Kemerkoy Yenikoy Çatalağzı Yatağan 55
  56. 56. Privatization: Ports Kemerköy Kalamış Derince Ports 56
  57. 57. Muğla-Bodrum 483 th m2 Isparta-Eğirdir 360 th m2 Antalya- Alanya 237 th m2 İstanbul-Kadıköy 34 th m2 Aydın-Didim 33 th m2 İstanbul-Büyükçekmece 22 th m2 Various Real Estates 57 Privatization: Real Estate
  58. 58. Financial Markets 58
  59. 59. EMs: Deepening Financial Markets 59 0 50 100 150 200 250 300 350 Bank private credit Nonbank private credit Stock market capitalization Dom. government debt Int. government debt Dom. Nongov. debt Int. Nongov. debt Dom. money market Spot FX turnover FX derivative turnover OTC interest derivative turnover Insurance company assets Mutual fund assets Pension fund assets 2001 2007 Latest Percentof2001emergingmarketmedian Source: IMF
  60. 60. Turkey: Financial Sector Share of Banks in Financial Sector 87.4% 60Source: Central Bank of Republic of Turkey Insurance Companies and Pension Mutual Fund 4.7% Other Financial Institutions 8.0%
  61. 61. Strengthening the legal framework Improving physical infrastructure Simplifying tax system Providing financial education Istanbul as a Finance Center 61 Main Objective: Deepening Financial Markets
  62. 62. Strengthening the Legal Framework Enhancing regulatory and supervisory framework Adopting the best global practices & the EU acquis Building institutions 62 No need to re-invent the wheel
  63. 63. Improving Physical Infrastructure Istanbul is a 24-7 living city • An exciting place to live & work • Largest city in Europe • History of 8000 years • Work in progress to tackle the traffic Purpose-built financial center • 2.5 million m2 area in Atasehir 63
  64. 64. Simplifying Tax System Building a Simple and Effective Tax system • Boosting competitiveness • Widening tax base • Increasing tax predictability • Reducing tax rates on financial transactions & intermediation • Unifying tax burden on similar financial transactions 64
  65. 65. Improving Financial Literacy State run programs in countries like Australia, Japan, USA & UK 65 It is all about perception • Stock market – not a casino? • Financial education is key to making informed and effective decision
  66. 66. Istanbul as a Financial Center Financial sector currently employs 200 thousand people Istanbul Finance Center is likely to add 150 thousand 66
  67. 67. A New Capital Markets Law •Increasing financial deepening & innovation •Strengthening investor rights •Improving corporate governance New legal framework in line with the best global practices 67
  68. 68. Restructuring of Borsa Istanbul Regional Leadership Raising Market Cap/GDP to 80% 1,000 new companies to be listed 68
  69. 69. 2009 72nd 2014 47th 2018 25th Global Financial Centres Index Source: Global Financial Centres Index 15 45 47 60 63 70 75 77 20 30 40 50 60 70 80 Rio de Jeneiro ISTANBUL Warsaw Mauritius Mexico Prague Budapest (2014)
  70. 70. Sukuk 70 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 Feb-14: Sukuk issued for TL1.3bn Similar to eurobonds, internt’l holders are not s.t. w/holding tax
  71. 71. Increasing Savings: Private Pensions 25% State Contribution 1.4 million new participants and TL7.7bn funds since end-2012 71
  72. 72. Insurance Market Density 72 $146 $- $200 $400 $600 $800 $1.000 $1.200 $1.400 $1.600 UAE Cyprus Malta Trin&Tobag Chile Malaysia Poland Venezuela Namibia Argentina Kuwait Panama Uruguay Oman Mexico CostaRica Russia TURKEY Iran Jordan Ecuador Morocco Tunisia Ukraine Angola India Phillippines SriLanka Vietnam Nigeria PerCapitaPremium(2012,$) Source: World Insurance in 2012, Swiss Re, Sigma
  73. 73. Incentives for Global Fund Managers A tax free environment for Global Funds Making it easier to manage assets in Turkey 73
  74. 74. 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 74
  75. 75. Incentives for Business Angels 75
  76. 76. Entrepreneurial Spirit & Talent 76 Source: World Bank calculation
  77. 77. Energy 77
  78. 78. High Dependence on Energy Imports 72% Total Energy 92% Oil 98% Natural-Gas 78
  79. 79. Source: TURKSTAT, Bloomberg Energy Import Bill (Brent,$pbl) EnergyImports(BillionDollars) 79
  80. 80. Energy Prices to Trend down in the Long-Run BRIC slowing down Renewables Shale gas revolution Energy efficiency gains 80
  81. 81. Energy Prices 81 95 100 105 110 115 120 125 75 80 85 90 95 100 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Index,2010=100 Brent$/bbl,2010Prices Crude oil, avg spot (lhs) Energy Prices (rhs) Source: World Bank
  82. 82. Developing Local & Renewable Resources Source: Ministry of Energy and Natural Resources Electricity Generation Installed Capacity MW % of Total Current Installed Capacity (2013) 64,044 - Renewable Energy 25,596 40.0 Power Plants Under Construction 14,338 - Renewable Energy 10,804 75.4 In 3-to-5 years 78,382 - Renewable Energy 36,401 46.4 82
  83. 83. Renewable Energy OutlookOverthenext decadeinTurkey, • 20,000 MW, wind power generation • 3,000 MW, solar power plants • 600 MW, geothermal power plants • An energy stock market to be established 83
  84. 84. 84 0 6 12 18 24 2010 2011 2012 2013 Module Inverter Other Hardware Soft Cost Costofelectricity,centsperkWh Source: DOE/NREL The Falling Price of Utility-scale Polar Photovoltaic Projects
  85. 85. Turkey’s Solar Energy Potential Atlas 85
  86. 86. Building Nuclear Capacity Akkuyu: JW with Russia Sinop JW with a Japanese-French consortium Working on a 3rd plant 86
  87. 87. Improving Energy Efficiency Industry 20% Transportation 15% Construction 30% 87
  88. 88. Transportation 88
  89. 89. 1,714 Km Total of Motorways 4,387 Km Total of State and Provincial Dual Carriageways Total: 6,101 Km January 1, 2003 2,244 Km Total of Motorways 20,807 Km Total of State and Provincial Dual Carriageways Total: 23,051 Km January 2014 89
  90. 90. İSTANBUL EDİRNE ESKİŞEHİR Polatlı ANKARA KONYA İZMİR SİVAS AFYONKARHİSAR KAYSERİ BURSA ERZİNCAN ERZURUM KARS MERSİN ADANA DİYARBAKIR ELAZIĞ MALATYA ZONGULDAK SAMSUN Bandırma VAN MUŞ BİLECİK ÇANKIRI KIRIKKALE TEKİRDAĞ İZMİT BALIKESİR AYDIN DENİZLİ BURDUR ISPARTA UŞAK MANİSA KARAMAN NİĞDE OSMANİYE K.MARAŞ AMASYA BATMAN MARDİN Yerköy KARABÜK Yenişehir 405 km 212 km 533 km 624 km 105 km Completed (888 km) Under Construction (1796 km) Bidding Phase (454 km) Project Phase (354 km) GAZİANTEP Çobanbey 90 High Speed Railway Projects
  91. 91. Future Railways Investments By 2023 $ 45 billion worth of investment 10,000 km worth of new high speed railway network 4,000 km of new conventional line 91
  92. 92. PPP in Ports Dalaman Marina Datça Marina Gazipaşa Marina Muğla-Ören Marina Kumkuyu Marina Karasu Port Project PPP in Projects under Construction 92
  93. 93. The 3rd Airport in Istanbul, Largest of All 150 million passengers An area of 90 million m2 Construction Cost: €10 billion Rent (25 Years): €22.2 billion 93
  94. 94. Projects of the Century - Under Construction Tube Tunnel 3rd Bridge Izmit Gulf Transit Istanbul-İzmir Highway High-Speed Train through Ankara-Bursa-Istanbul 94
  95. 95. Projects of the Century – Planned Channel Istanbul 95
  96. 96. Healthcare 96
  97. 97. Healthcare: Targets Increase the number of healthcare facilities Enhance the quality of the healthcare services Apply state-of-the-art technologies in the hospital management 97
  98. 98. Healthcare Expenditures Source: The Ministry of Finance 98
  99. 99. Medical Sector in Turkey 99 Turkey’s pharmaceutical market • 6th largest market in Europe • 16th largest in the world (in terms of sales in 2012)
  100. 100. • Rehabilitation centers • Thermal tourism facilities • Nursing houses • Health techno-cities • R&D centers Medical «Free Zones» 100 Medical Sector in Turkey
  101. 101. Tax Incentives for Healthcare Investments 18% VAT down to 8% 50% tax relief on CIT & PIT for exports in healthcare PIT and CIT exemption for 5 years on proceeds gained from operating rehabilitation centers Regional Investment Incentives 101
  102. 102. PPP in Healthcare 102 Projects in Funding Phase • Kayseri • Ankara Etlik • Ankara Bilkent • İkitelli • Elazığ • Yozgat • Manisa • Adana • Mersin • Gaziantep • National Public Health Agency Projects in Funding Phase worth almost $6bn Projects in Tendering & Contract Phases • Isparta • Kocaeli • Eskişehir • Bursa • Konya Karatay • İzmir Bayraklı • İstanbul Bakırköy • İstanbul Üsküdar
  103. 103. Education 103
  104. 104. Education: Targets Improving access to and quality of education Having mandatory pre-school education FATiH: Furnishing each school with smart boards Reducing number of students per classroom below 30 Increasing the number of private schools & universities 104
  105. 105. Students (%, Total Population) 105Source: TURKSTAT, Eurostat Included Informal Education
  106. 106. Source: Ministry of Finance Share of Education Budget(%) 106
  107. 107. 12 Years of Mandatory Education Austral. Austria Belg. Canada Chile Czech R. Den. Estonia Finland France Italy Japan Lux Mex New Zeal. Poland Port. Spain Switz. TURKEY UK USA 6 7 8 9 10 11 12 13 14 9,5 9,7 9,9 10,1 10,3 10,5 10,7 10,9 11,1 11,3 11,5 AverageYearsatSchoolofPop’nover25Years Income per Capita (PPP, log) Source: OECD 107
  108. 108. Improving Quality of Education With Fatih Project, we are providing our children with Broadband Internet Access Smart Boards Tablet PCs Other Information Technology Tools 108
  109. 109. Investment Incentives in Education Sector 18% VAT down to 8% 50% tax relief on CIT & PIT for exports in education PIT and CIT exemption for 5 years on proceeds gained from education services 5th zone incentives for investments in pre-school, elementary, secondary and high school Allocation of public real estate to investors 109
  110. 110. From Crammer Schools to k12 Schools A flexible transition time Tuition support based on parents’ income & regional development Treasury land allocation up to 25 years Lease of public schools & buildings appropriate for k12 education Eligible for new Investment Incentive Scheme 110
  111. 111. Build-Lease-Transfer Model in Education 40,000 additional classrooms by end-2016. 42 education campuses in 22 cities 111
  112. 112. Textiles 112
  113. 113. Textiles 113 Target: 10 Global Brand in 10 years 7th in the world Exportsintextilesector (Bn$) 7,1 11,1 4 5 6 7 8 9 10 11 12 2005 2012
  114. 114. Machinery Equipment 114
  115. 115. Machinery Equipment 115 The machinery industry in Turkey has been growing • 20% per year since 1990 • 30% per year since 2009
  116. 116. Machinery and transport equipment 116 Machinery&transportequipmentExports(Bn$) 8,6 41,0 0 5 10 15 20 25 30 35 40 45 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
  117. 117. Machinery Equipment - Opportunities for Investors 117 Competitive input costs, esp in land & labor • China like wages in Southeast Anatolia Logistical advantages • Covers Europe, MENA, CEE, CIS & GCC w/in 3 hours of flight Entrepreneurial spirit Skilled labor, incl R&D readiness Targeted incentive programs Extensive supply basis with several regional clusters
  118. 118. Tourism 118
  119. 119. TouristArrivals(Millionpeople) 119 Tourism Source: Ministry of Culture and Tourism
  120. 120. 120 Tourism Source: Ministry of Culture and Tourism TouristArrivals(WorldRanking)
  121. 121. TourismIncomes(Bn$) 121 Tourism Income Source: TURKSTAT 12,4 13,9 17,1 20,3 18,6 20,9 25,4 25,1 24,9 28,1 29,0 32,3 10 15 20 25 30 35 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
  122. 122. Investment Incentives in Tourism Sector 18% VAT down to 8% PIT, CIT tax relief and other Incentives • Partial personal witholding tax relief • State contributions to social security premium • Allocation of public property • State contributions to water and energy costs Investment Incentives • Regional supports for hotel investments • 5th zone incentives investments on cultural tourism and investments in tourism preservation and development regions Loans offered by EXIMBANK 122
  123. 123. Agriculture 123
  124. 124. Agricultural GDP 2002 $23,7 billion 11th 2011 $61,8 billion 7th 2023 $150 billion 5th Source: World Bank
  125. 125. Total Agricultural Support Source: Ministry of Finance TotalAgriculturalSupport(BnTL) 125 3,0 13,2 0 2 4 6 8 10 12 14 2002 2014
  126. 126. Agricultural Support Source: OECD AgriculturalSubsidies(2012,%,GDP) 126 0,1 0,3 0,3 0,4 0,6 0,7 0,7 0,9 0,9 1,0 1,0 1,2 1,2 2,0 2,1 0,0 0,5 1,0 1,5 2,0 2,5 Australia NewZealand Chile Israel Canada Mexico Europeanunion OECD Norway UnitedStates Switzerland Iceland Japan Korea TURKEY
  127. 127. Southeastern Anatolian Project (GAP) 127 23,6 36,1 15 20 25 30 35 40 1990-2002 2003-13 Source: Ministry of Development BillionTL(2013Prices) Around 850km of irrigation channel
  128. 128. Housing 128
  129. 129. Urban Renewal • 6.5 million new homes • $236 billion total cost Removal of Reciprocity • A source of attraction by global citizens 129 Housing
  130. 130. Research & Development 130
  131. 131. Source: The Scientific and Technological Council of Turkey * % of GDP R&D Spending* 131 •3.00%2023 •1.8%2018 • 0.92%2012 • 0.53% 2002
  132. 132. Patent Applications Source: TPI 132 1.874 12.053 1.000 2.000 3.000 4.000 5.000 6.000 7.000 8.000 9.000 10.000 11.000 12.000 13.000 2002 2013
  133. 133. Trade Mark Applications(2012,Thousand) 86 64 54 44 41 0 20 40 60 80 100 120 TURKEY France Germany Italy Spain England 108* Source: Turkish Patent Institute *TURKEY 2013 Data
  134. 134. Tax Incentives for R&D R&D Expenditure • Corporate income tax relief • Personal income tax relief • State contributions to social security premiums • Exemption from stamp duty • Capital support for young entrepreneurs Strengthening the link b/w R&D and Commercial Activities • 50% tax relief on commercial use of patents, trademarks… • VAT exemption on patents, trademarks… 134 Since 2008, 155 R&D Centers
  135. 135. Global Investors in Turkey 135
  136. 136. International Companies Operating in Turkey Source: Ministry of Economy 136 3.212 4.303 6.342 9.092 12.380 16.082 19.097 21.898 25.170 29.529 33.808 37.199 37.737 0 5.000 10.000 15.000 20.000 25.000 30.000 35.000 40.000 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Feb
  137. 137. Foreign Direct Investment Inflows Source: CBRT (Billiondollar) 137 14,8 140,6 0 25 50 75 100 125 150 1980-2002 2003-2014 Mar
  138. 138. Strong Long-Term Prospects 138
  139. 139. GDP per Capita Low-Income $1,035-or less Lower-Middle-Income $1,036-$4,085 Upper-Middle-Income $4,086-$12,615 139 High-Income $12,616 and up 2002 $ 3,492 2013 $ 10,782 2016 $ 12,670 Source: TURKSTAT, Medium-Term Program, WB
  140. 140. Priorities for Sustainable Growth Improving Competitiveness Innovation-based Growth Attracting FDI Financial deepening R&D Corporate Governance Building a more Equitable Society Inclusive Growth Education & Skills Childcare & Family Support Flexible Labor Market Improving Quality of Institutions Open-access Growth Rule of Law Independent and Arms- length Regulation Improving Business Climate Public Finance Management 140
  141. 141. Achieving Sustainable Development 10th Development Plan (2014-18) Qualified Individiuals, Stronger Society Innovative Production, Sustainable Growth Liveable Spaces, Sustainable Environment International Cooperation for Development 25 Transformation Programs of High Priority Implemention, Monitoring, and Evaluation 141
  142. 142. Determinants of Long-Term Growth Quality of Institutions Demographics Productivity 142
  143. 143. Improving Quality of Institutions Corruption Perceptions: 2013: 53rd in 177 2002: 65th in 102 Ease of Doing Business: 2013-14: 69th in 185 2006: 84th in 175 Global Competitiveness: 2013: 44th in 148 2005: 71st in 117 Source: WB, WEF, Transparency International 143
  144. 144. Corruption Perceptions Index (2002) (65th among 102 countries) 31 44 45 58 59 65 70 73 74 96 20 30 40 50 60 70 80 90 100 Italy Greece Brazil Mexico China TURKEY Argentina India Russia Indonesia Source: Transparency International 144
  145. 145. Corruption Perceptions Index (2013) (53rd among 177 countries) Source: Transparency International 53 69 72 80 80 94 106 106 114 127 40 50 60 70 80 90 100 110 120 130 140 TURKEY Italy Brazil China Greece India Argentina Mexico Indonesia Russia 145
  146. 146. Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.(71st among 117 countries) 31 35 36 38 43 45 47 48 53 54 57 59 67 68 69 71 30 35 40 45 50 55 60 65 70 75 Portekiz Hungary SlovakRep. Italy Poland India Greece China Russia Argentina Brazil Mexico Romania Ukraine Indonesia TURKEY Source: World Economic Forum Global Competitiveness Index (2005) 146
  147. 147. (44th among 148 countries) Source: World Economic Forum Global Competitiveness Index (2013) 29 38 42 44 49 51 55 56 60 63 64 76 78 84 91 104 25 35 45 55 65 75 85 95 105 China Indonesia Poland TURKEY Italy Portugal Mexico Brazil India Hungary Russia Romania SlovakRep. Ukraine Greece Argentina 147
  148. 148. (84th among 175 countries) Source: World Bank Ease of Doing Business (2006) 62 69 70 71 84 93 97 108 111 122 131 132 134 138 60 70 80 90 100 110 120 130 140 Mexico Italy Uruguay Romania TURKEY Argentina Russia China Greece Brazil Indonesia Ukraine Croatia India 148
  149. 149. (69th among 189 countries) Source: World Bank Ease of Doing Business (2013) 53 65 69 72 73 88 89 92 96 112 116 120 126 134 20 40 60 80 100 120 140 Mexico Italy TURKEY Greece Romania Uruguay Crotia Russia China Ukraine Brazil Indonesia Argentina India 149
  150. 150. Favorable Demographics Source: Eurostat Shareof15-24yearsoldinTotalPop.(%) 16,6 7 9 11 13 15 17 19 21 Spain Italy Andorra Slovenia Greece Portugal Bulgaria Germany Czech Republic Serbia Switzerland Ireland Croatia Estonia Latvia France Austria Hungary Luxembourg Finland Netherlands Ukraine Poland Denmark Sweden United Kingdom Slovakia Norway Malta Lithuania Montenegro Iceland Macedonia Georgia Moldova Turkey Azerbaijan 150
  151. 151. 1,7 0,7 0,2 0,0 0,2 0,4 0,6 0,8 1,0 1,2 1,4 1,6 1,8 TURKEY OECD EU-28 AnnualAverageGrowthRate(%,2001-13) Working Age Population Growth Source: OECD, Eurostat, Turkstat 151
  152. 152. Thank You… 152

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