Mehmet Şimşek
Minister of Finance
Turkish Story
March 12, 2013
OUTLINE
Outlook for Turkish
Economy
A Soft Spot: Current
Account Deficit
Priorities & Reform
Agenda
2
Outlook for Turkish Economy
3
2012: Soft Landing
Growing
Economy
Narrowing
Current Account
Deficit
Declining
Inflation
Lower
Unemployment
Falling
Public...
Managed Soft Landing
Source: TURKSTAT, Medium-Term Program, IMF
5.4
2.0
5.8
3.2
4.7
-6
-4
-2
0
2
4
6
8
10
2007 2008 2009 2...
Current Account Deficit Narrowed
(12MonthRolling,USDbn)
Source: CBRT
-80
-60
-40
-20
0
20
40
2002-1
4
7
10
2003-1
4
7
10
2...
10.3
10.5
10.8
10.6
10.2 10.3
11.0
14.0
11.9
9.8
9.2
8.5
9.0
9.5
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
2002 2003 20...
107,2
125,5
99,1
6,2
0
20
40
60
80
100
120
140
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
...
Public Debt on a Downward Trend
9
Source: Treasury
26.2
31.3 30.0 31.3
27.6 26.2 25.3
29.9 28.1
21.5 20.2
35.4 23.9
19.1
1...
Outlook for 2013
Faster Growth
Slight Increase in
C/A Deficit
Declining
Inflation
Lower
Unemployment
Falling
Public Debt
10
Consumer & Real Sector Confidence Index
Source: CBRT, TURKSTAT
50
55
60
65
70
75
80
85
90
50
60
70
80
90
100
110
120
130
2...
Looser Monetary Policy(%)
Source: CBRT
4.5
8.5
5.5
4
5
6
7
8
9
10
11
12
13
14
October11
October11
December11
December11
Ja...
Falling Lending Rates(%)
Source: CBRT
8
10
12
14
16
18
20
22
24
26
28 1/4/2008
4/4/2008
7/4/2008
10/4/2008
1/4/2009
4/4/20...
Well Capitalized Banking Sector
 Capital adequacy ratio twice the minimum legal limit of 8 %.
CapitalAdequacyRatio,%
Targ...
Credit Growth is Picking Up
Note: Credit Growth is adjusted for exchange rate movements
Source: CBRT
13weekmovingavg.,y-on...
Employment is Supportive of Growth
Source: TURKSTAT
20
21
22
23
24
25
2008-1
2009-1
2010-1
2011-1
2012-1
Employmentsinceen...
Rising Household Income & Improving Income Distribution
18
60.5
43.2
36.8 36.0 34.8 34.2
29.7
27.4
21.2
5.2
0
10
20
30
40
...
Strong Household Balance Sheet
Source: CBRT, ECB
*2012 Q1
(HouseholdLiabilities,%ofGDP,2012Q3)
65.7
40.1
20.3
0 20 40 60 8...
Other Factors Supportive of Growth
Urban Renewal
Sale of 2B Land
Removal of
Reciprocity
Investment
Grade Rating
20
Sound Fiscal Position
21
Lower Deficit
10.8
7.9
4.1
0.1
-1.3
0.2
1.6
5.5
3.0
0.4
1.3 1.5 1.2 0.9
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2002 2003 2004 ...
74.0
67.7
59.6
52.7
46.5
39.9 40.0
46.1
42.4
39.2
36.0
35.0
33.0
31.0
30.0
35.0
40.0
45.0
50.0
55.0
60.0
65.0
70.0
75.0
20...
Public Sector is now a Net External Creditor
88.4
-31.3
-40
-30
-20
-10
0
10
20
30
40
50
60
70
80
90
2002
2003
2004
2005
2...
Government Interest Payments
85.7
16.7 15.2
14.8
3.4
3.0
0
2
4
6
8
10
12
14
16
0
20
40
60
80
100
2002
2003
2004
2005
2006
...
Public Invesment Expenditures
PublicInvesmentExpenditures(BillionTL)
7.9 8.0
8.7
11.7
14.7
16.5
21.7
24.4
32.8
37.6
40.2
5...
A Soft Spot: Current Account Deficit
27
Deficit declined ignificantly with Rebalancing
(CurrentAccountDeficit(%,GDP)
Source: TURKSTAT, CBRT
28
1
2
3
4
5
6
7
8
9
1...
Europe
%56.6
Other
%43.4
Exports 2002
Despite the Fallout from the EU Crisis
Europe
%41,9
Other
%59,1
Exports Jan 2013
Sou...
MENA was a Life Saver
ShareofMENAintotalexports(%12monthrolling)
Source: TURKSTAT
12.1
31.6
10
15
20
25
30
35
2002 2012
9
30
0
5
10
15
20
25
30
35
2002 2012
Number of Products over $1 billion
… and so was Export Diversification
Source: TURKST...
8
34
0
5
10
15
20
25
30
35
40
2002 2012
Export Diversification
Number of Export Markets over $1 billion
Source: TURKSTAT
32
-5
0
5
10
15
20
25
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Public Savings/GDP Private Savings/GDP
(%)
Sourc...
Priorities & the Reform Agenda
35
Structural Issues # 1
36
Reducing Dependence on Energy Imports
Source: TURKSTAT, Bloomberg
Energy Import Bill
(BrentType,Dollar/Barrel)
EnergyImports(BillionDollars)
37
9.2
60.1
23.4
11...
Foreign Dependence on Energy Imports
% 72
Total Energy
% 92
Oil
% 98
Natural-Gas
38
Strong Focus on Local & Renewable Resources
Source: Ministry of Energy and Natural Resources
Electricity Generation Instal...
Building Nuclear Capacity
40
A deal is signed with Russia
Negotiations on a second plant
continue
Improving Energy Efficiency
Industry
20%
Transportation
15%
Construction
30%
41
Structural Issues # 2
42
Moving Up the Value Chain
Why is R&D so significant for us?
The share of high and medium-high
technology sectors in production and in
export is low
...
•0.862011
•0.532002
Source: The Scientific and Technological Council of Turkey
R&D Spending
44
Industrial Design Applications
36,578 applications in 2011
Up by 80 % since 2002
Ranking 3rd in Europe
Source: TPI
45
Trademark Applications
• 117,723
2011
• 36,429
2002
Source: Turkish Patent Instıtute
46
Patent Applications
Source: TPE
1,874
10,241
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
2002 2011...
Brand Turkey, moving up the Ladders
Source: Brand - Finance
Turkey ranks 19th globally
48
Structural Issues # 3
49
Combatting the Shadow Economy
Size of Shadow Economy (2012, % GDP)
32.3
29.6
29.5
29
28.6
27.2
26.5
26
25.8
25
24.3
22.8
21.6
19.4
19.2
19.2
17.1
16.4
1...
Turkey: Size of Shadow Economy (% GDP)
32.2
31.5
30.7
30.4
29.1
28.4
28.9
28.3
27.7
27.2
26
27
28
29
30
31
32
33
2003
2004...
Size of Pure Tax Evasion (% GDP)
7.8
7.3
7.4
7.5
7.5
7.1
6.8
6.3
5.7
5.3
5.3
5.7
3.6
3.4
3.4
3.4
3.5
3.4
3.3
3.1
2.9
2.6
2...
Legislative Tax Reforms: Completed
Corporate
Income Tax
Transfer
Pricing
Commercial
Code
53
Legislative Tax Reforms: Under Progress
Personal Income Tax Tax Procedure Law
54
Structural Issues # 4
55
Enhancing Competition in Domestic Product &
Services Market
Privatization Revenues
Total privatization revenues $46,1 bn
$8,2 bn
$37,9 bn
29 131
486 244 423 568 412 515 292 466
1,020...
FINALIZED PRIVATIZATION TENDERS
AT THE APPROVAL STAGE
DATE OF TENDER $ (Million)
Seyitömer Thermal Power Plant 12/28/2012 ...
COMPANIES DATE OF TENDER
İstanbul Anatolian Side Electricity Distribution Company 03/15/2013
Toroslar Electricity Distribu...
% of shares
belonging to
Privatization
Administration
Major Companies in the Privatization Portfolio
Banking Sugar Industr...
COMPANIES BIDDING DEADLINE
Yeditepe Beynelminel Tourism & Commerce 04/03/2013
Taksim Tourism 04/03/2013
Salıpazarı Cruise ...
Fenerbahçe– Kalamış Marina
Mersin Taşucu Marina
Derince Container Port
Izmir Container Port
Izmir Cruise Port
Haydarpaşa P...
62
Enhancing Democratic Standards
Structural Issues # 5
New Initiatives
4th Judicial Reform Package
A New Constitution
63
Structural Issues # 6
64
Deepening Capital Markets
A New Capital Markets Law
•Increasing financial deepening & innovation
•Strengthening investor rights
•Improving corporate...
Restructuring of ISE
Regional
Leadership
Raising
Market
Cap/GDP to
80%
1,000 new
companies
66
Increasing Private Pensions
25% State Contribution
Penalty for Early
Withdrawals
67
Extending Maturity of Savings
Maturity Withholding Tax Rate (TL, %)
0-6 Months 15%
6-12 Months 12%
1 year and over 10%
Mat...
Incentives for Global Fund Managers
A tax free environment for
Global Funds
Making it easier to manage assets
in Turkey
69
Incentives for Venture Capital
Allowing contributions to Venture Capital to be
deducted from Corporate & Personal Income T...
Incentives for Business Angels
71
Sukuk
Similar to euro bonds, international holders Sukuk will
not be subject to withholding tax
Sep-12: First Sukuk issued...
Structural Issues # 7
73
Narrowing Regional Development Gaps
New Investment Incentive Scheme
Objectives:
- Reduce regional development gaps
- Reduce current account deficit
- Promote ...
YENİ TEŞVİK SİSTEMİ
Regional
 Customs Duty
Exemption
 VAT Exemption
 Lower CIT rate
 Support for the
employer’s share ...
Structural Issues # 8
76
Improving Infrastructure
1,714 Km
Total of Motorways
4,387 Km
Total of State and
Provincial Dual
Carriageways
Total: 6,101 Km
Dual Carriageway
Netw...
İSTANBUL
ESKİŞEHİR POLATLI
ANKARA
KONYA
SİVAS
212 km
533 km
405 km
YOZGAT
Yerköy
AFYON
İZMİR
MANİSA
624 km
BURSA
BİLECİK
1...
• The number of airports serving
scheduled flights = 262003
• The number of airports serving
scheduled flights = 492012
Ai...
Structural Issues # 9
80
Improving Access to & Quality of Education
81
Education is our Soft Spot
Source: OECD, Equity and Quality in Education: Supporting Disadvantaged Students and Schools...
9.4
17
8
10
12
14
16
18
2002 2013
Source: Ministry of Finance
Share of Education Budget%
82
Gross Schooling Rates
Source: Ministry of Development
11.2
96.5
80.8
35.8
46.4
108.4
92.6
81.6
10
30
50
70
90
110
130
Pres...
Improving Quality of Education
With Fatih Project, we are providing our children with
Broadband Internet Access
Smart Boar...
Structural Issues # 10
85
Increasing Labor Market Flexibility
Low Employment Rate
Early retirement
Low rate of female labor
force participation
Rigidities in labor force
market
86
Average Retirement Age
41.0
44.9
61.9
63.3
30
35
40
45
50
55
60
65
Women Men
Turkey OECD
Source: OECD
87
Labor Participation Rate, Female
29.5
16.7
25.6
30.6
38.1
70.9
10
20
30
40
50
60
70
80
Total Illeterate Less than high
sch...
Improving Girls’ Education
2002
91 girls per
100 boys
2012
100.4 girls
per 100 boys
89
Average Weekly Hours Worked on the Main Job
(2011)
Source: OECD
48,9
30
32
34
36
38
40
42
44
46
48
50
Turkey
Korea
Mexico
...
Share of Part-time Employment (%, 2011)
Source: OECD
11,7
0
5
10
15
20
25
30
35
40
Netharlands
Switzerland
Ireland
Austral...
National Employment Strategy
4 Main Objectives
Reducing labor market rigidities
Increasing employment of women, youth and ...
Long-Term Growth
93
GDP
Source: TURKSTAT, Medium-Term Program,PwC
2002
2050
2002
$ 230
billion
2050
$ 5 trillion
2012
$ 799 billion
2023
$ 2 t...
GDP per Capita
Source: TURKSTAT, Medium-Term Program,PwC
2002
2050
2002
$ 3,492
2012
$10,673
2023
$ 25,000
2050
$ 50,000
95
Ambitious Targets
Source: IMF, PricewaterhouseCoopers
1. USA
2. China
3. India
4. Japan
5. Germany
6. Russia
8. UK
7. Braz...
Determinants of Long-Term Growth
Quality of Institutions
Demographics
Productivity
97
Quality of Institutions
Combatting
corruption
Creating a level
playing field
Improving
international
competitiveness
98
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 (2012)
(54th among 176 countries)
Source: Transparency International
54
69
72
80
94 94
102
10...
Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.(71st among 125 countries)
38
4...
(43rd among 144 countries)
Source: World Economic Forum
Global Competitiveness Index (2012)
29
41
42 43
48
49
50
53
59 60
...
(84th among 175 countries)
Source: World Bank
Ease of Doing Business (2006)
62
69 70
71
84
93
97
108
111
122
131
138
60
70...
(71st among 185 countries)
Source: World Bank
Ease of Doing Business (2012)
48
71 72
73
78
84
89
91
112
124
128
130 132
13...
2.0
1.0
0.3
0.7
0.2
0.4
0.6
0.8
1.0
1.2
1.4
1.6
1.8
2.0
Turkey USA EU-27 OECD
AnnualAveragePopulationGrowthRate
(%,2001-11...
Have Investors noticed the
Transformation?
107
Int’l Companies Operating in Turkey (1000s)
Source: Ministry of Economy
5.6
6.7
8.8
11.7
15.0
16.1
19.2
22.0
25.2
29.6
32....
Foreign Direct Investment Inflows
Source: CBRT
Billiondollar
14.8
122.6
0
20
40
60
80
100
120
140
1980-2002 2003-2012
109
REER Appreciation
Source: CBRT
(2003=100)
55
65
75
85
95
105
115
125
135 1989-1
7
1990-1
7
1991-1
7
1992-1
7
1993-1
7
1994...
THANK YOU!
Questions?
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Turkish Story (in Crotia)  12.3.13
Turkish Story (in Crotia)  12.3.13
Turkish Story (in Crotia)  12.3.13
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  • State contribution up to 25% of the annual gross minimum wage. 3 years  15%6 years  35%10 years  60%Retirement  100% of the 25% State ContributionParticipants:28.12.2012: 3.119.03301.03.2013: 3.312.721
  •  Turkey ranked 65th out of 102 countries in 2002 whereas it became 54th among 176 countries in 2012.
  • Turkey ranked 65th out of 102 countries in 2002 whereas it became 54th among 176 countries in 2012.
  • While Turkey ranked 71st out of 125 countries in the Global Competitiveness Index in 2005, it has become 43thamong 144 countries in the period of 2012-2013.
  • While Turkey ranked 71st out of 125 countries in the Global Competitiveness Index in 2005, it has become 43rdamong 144 countries in the period of 2012-2013. Turkey moved up by 16 places compared to the previous period. Turkey became 2nd fastest rising country in the most competitive economies list. 
  • While Turkey ranked 84th among 175 countries in 2006, it has become 71stamong 185 countries in 2012.  
  • While Turkey ranked 84th among 175 countries in 2006, it has become 71stamong 185 countries in 2012.  
  • Turkish Story (in Crotia) 12.3.13

    1. 1. Mehmet Şimşek Minister of Finance Turkish Story March 12, 2013
    2. 2. OUTLINE Outlook for Turkish Economy A Soft Spot: Current Account Deficit Priorities & Reform Agenda 2
    3. 3. Outlook for Turkish Economy 3
    4. 4. 2012: Soft Landing Growing Economy Narrowing Current Account Deficit Declining Inflation Lower Unemployment Falling Public Debt 4
    5. 5. Managed Soft Landing Source: TURKSTAT, Medium-Term Program, IMF 5.4 2.0 5.8 3.2 4.7 -6 -4 -2 0 2 4 6 8 10 2007 2008 2009 2010 2011 2012 Central and eastern Europe Latin America and the Caribbean Turkey 5
    6. 6. Current Account Deficit Narrowed (12MonthRolling,USDbn) Source: CBRT -80 -60 -40 -20 0 20 40 2002-1 4 7 10 2003-1 4 7 10 2004-1 4 7 10 2005-1 4 7 10 2006-1 4 7 10 2007-1 4 7 10 2008-1 4 7 10 2009-1 4 7 10 2010-1 4 7 10 2011-1 4 7 10 2012-1 4 7 10 Current Account Current Account without Energy Imports Current Account + Net FDI + Net Errors and Omissions 6
    7. 7. 10.3 10.5 10.8 10.6 10.2 10.3 11.0 14.0 11.9 9.8 9.2 8.5 9.0 9.5 10.0 10.5 11.0 11.5 12.0 12.5 13.0 13.5 14.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Falling Unemployment Rate (%) Lowest level seen in a decade Source:TURKSTAT 7
    8. 8. 107,2 125,5 99,1 6,2 0 20 40 60 80 100 120 140 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 8 Declining Inflation Rate (y/y, %) Source: TURKSTAT Lowest rate for the past 44 years
    9. 9. Public Debt on a Downward Trend 9 Source: Treasury 26.2 31.3 30.0 31.3 27.6 26.2 25.3 29.9 28.1 21.5 20.2 35.4 23.9 19.1 10.4 6.5 3.3 2.9 2.7 0.9 0.8 -2.2 61.5 55.2 49.1 41.7 34.0 29.5 28.2 32.5 28.9 22.3 18.0 -10 0 10 20 30 40 50 60 70 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q3 Net TL Net FX Total Net NetPublicSectorDebt(%,GDP)
    10. 10. Outlook for 2013 Faster Growth Slight Increase in C/A Deficit Declining Inflation Lower Unemployment Falling Public Debt 10
    11. 11. Consumer & Real Sector Confidence Index Source: CBRT, TURKSTAT 50 55 60 65 70 75 80 85 90 50 60 70 80 90 100 110 120 130 2007-1 3 5 7 9 11 2008-1 3 5 7 9 11 2009-1 3 5 7 9 11 2010-1 3 5 7 9 11 2011-1 3 5 7 9 11 2012-1 3 5 7 9 11 2013-1 Real Sector Confidence Index (Left) Consumer Confidence Index (Right) 12
    12. 12. Looser Monetary Policy(%) Source: CBRT 4.5 8.5 5.5 4 5 6 7 8 9 10 11 12 13 14 October11 October11 December11 December11 January12 February12 March12 April12 May12 Jun12 July12 August12 September12 October12 November12 December12 January13 February13 March13 CBRT Funding Rate O/N Borrowing O/N Lending Policy Rate 13
    13. 13. Falling Lending Rates(%) Source: CBRT 8 10 12 14 16 18 20 22 24 26 28 1/4/2008 4/4/2008 7/4/2008 10/4/2008 1/4/2009 4/4/2009 7/4/2009 10/4/2009 1/4/2010 4/4/2010 7/4/2010 10/4/2010 1/4/2011 4/4/2011 7/4/2011 10/4/2011 1/4/2012 4/4/2012 7/4/2012 10/4/2012 1/4/2013 Personal Vehicle Housing Commercial 14
    14. 14. Well Capitalized Banking Sector  Capital adequacy ratio twice the minimum legal limit of 8 %. CapitalAdequacyRatio,% Target Rate 12% Legal Rate 8% Source: BRSA 0 5 10 15 20 25 30 35 200… 5 9 200… 5 9 200… 5 9 200… 5 9 200… 5 9 200… 5 9 200… 5 9 201… 5 9 201… 5 9 201… 5 9 15
    15. 15. Credit Growth is Picking Up Note: Credit Growth is adjusted for exchange rate movements Source: CBRT 13weekmovingavg.,y-on-y% 22.1 0 5 10 15 20 25 30 35 40 45 2011-Jan. Feb. Mar. Mar Apr. May. Jun. July. Aug. Sep. Oct. Nov. Dec. 2012-Jan. Feb. Mar. Mar Apr. May. Jun. July. Aug. Sep. Oct. Nov. Dec. 2013-Jan. Feb. 16
    16. 16. Employment is Supportive of Growth Source: TURKSTAT 20 21 22 23 24 25 2008-1 2009-1 2010-1 2011-1 2012-1 Employmentsinceend-2007 (MnPeople,s.a.) 17
    17. 17. Rising Household Income & Improving Income Distribution 18 60.5 43.2 36.8 36.0 34.8 34.2 29.7 27.4 21.2 5.2 0 10 20 30 40 50 60 70 1 2 3 4 5 6 7 8 9 10 Source: TURKSTAT (2002-11,%,RealIncrease) (Ordered by Income Share of Decile Groups)
    18. 18. Strong Household Balance Sheet Source: CBRT, ECB *2012 Q1 (HouseholdLiabilities,%ofGDP,2012Q3) 65.7 40.1 20.3 0 20 40 60 80 100 120 140 160 Denmark Netherlands Ireland United Kingdom (GB) Portugal Sweden Spain Euro area Finland Greece (GR) Malta Germany France Belgium Luxembourg Austria Italy Estonia Croatia* Poland Latvia Hungary Czech Republic Slovenia Slovakia Lithuania Turkey 19
    19. 19. Other Factors Supportive of Growth Urban Renewal Sale of 2B Land Removal of Reciprocity Investment Grade Rating 20
    20. 20. Sound Fiscal Position 21
    21. 21. Lower Deficit 10.8 7.9 4.1 0.1 -1.3 0.2 1.6 5.5 3.0 0.4 1.3 1.5 1.2 0.9 -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 2015 Maastricht Criteria: 3% Medium-Term Program (2013-15) Achieved Maastricht Criteria except 2009 Source: Ministry of Finance BudgetDeficit-to-GDP,% 22
    22. 22. 74.0 67.7 59.6 52.7 46.5 39.9 40.0 46.1 42.4 39.2 36.0 35.0 33.0 31.0 30.0 35.0 40.0 45.0 50.0 55.0 60.0 65.0 70.0 75.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Medium-Term Program (2013-15) Lower Debt Debt-to-GDP,% Satisfying Maastricht Criteria since 2004 Maastricht Criteria: 60% Source: Treasury 23
    23. 23. Public Sector is now a Net External Creditor 88.4 -31.3 -40 -30 -20 -10 0 10 20 30 40 50 60 70 80 90 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Q3 PublicNetExternalDebt(BillionTL) Source: Treasury 24
    24. 24. Government Interest Payments 85.7 16.7 15.2 14.8 3.4 3.0 0 2 4 6 8 10 12 14 16 0 20 40 60 80 100 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Interest Payments/Tax Revenues (%)(Left) Interes Payments/GDP (%) (Right) Medium-Term Program (2013-15) Source: Ministry of Finance 25
    25. 25. Public Invesment Expenditures PublicInvesmentExpenditures(BillionTL) 7.9 8.0 8.7 11.7 14.7 16.5 21.7 24.4 32.8 37.6 40.2 5 10 15 20 25 30 35 40 45 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Ministry of Finance 26
    26. 26. A Soft Spot: Current Account Deficit 27
    27. 27. Deficit declined ignificantly with Rebalancing (CurrentAccountDeficit(%,GDP) Source: TURKSTAT, CBRT 28 1 2 3 4 5 6 7 8 9 10 2007Q1 2007Q2 2007Q3 2007Q4 2008Q1 2008Q2 2008Q3 2008Q4 2009Q1 2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1 2011Q2 2011Q3 2011Q4 2012Q1 2012Q2 2012Q3 2012Q4
    28. 28. Europe %56.6 Other %43.4 Exports 2002 Despite the Fallout from the EU Crisis Europe %41,9 Other %59,1 Exports Jan 2013 Source: TURKSTAT 29
    29. 29. MENA was a Life Saver ShareofMENAintotalexports(%12monthrolling) Source: TURKSTAT 12.1 31.6 10 15 20 25 30 35 2002 2012
    30. 30. 9 30 0 5 10 15 20 25 30 35 2002 2012 Number of Products over $1 billion … and so was Export Diversification Source: TURKSTAT 31
    31. 31. 8 34 0 5 10 15 20 25 30 35 40 2002 2012 Export Diversification Number of Export Markets over $1 billion Source: TURKSTAT 32
    32. 32. -5 0 5 10 15 20 25 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Public Savings/GDP Private Savings/GDP (%) Source: Ministry of Development But to Further Reduce the Deficit 33
    33. 33. Priorities & the Reform Agenda 35
    34. 34. Structural Issues # 1 36 Reducing Dependence on Energy Imports
    35. 35. Source: TURKSTAT, Bloomberg Energy Import Bill (BrentType,Dollar/Barrel) EnergyImports(BillionDollars) 37 9.2 60.1 23.4 111.9 0 20 40 60 80 100 120 0 10 20 30 40 50 60 70 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Energy Import Oil Prices
    36. 36. Foreign Dependence on Energy Imports % 72 Total Energy % 92 Oil % 98 Natural-Gas 38
    37. 37. Strong Focus on Local & Renewable Resources Source: Ministry of Energy and Natural Resources Electricity Generation Installed Capacity MW % of Total Current Installed Capacity (Sept, 2012) 55,663 - Renewable Energy 20,963 37.7 Power Plants Under Construction 23,396 - Renewable Energy 15,879 67.9 TOTAL 79,029 - Renewable Energy 36,843 46.6 39
    38. 38. Building Nuclear Capacity 40 A deal is signed with Russia Negotiations on a second plant continue
    39. 39. Improving Energy Efficiency Industry 20% Transportation 15% Construction 30% 41
    40. 40. Structural Issues # 2 42 Moving Up the Value Chain
    41. 41. Why is R&D so significant for us? The share of high and medium-high technology sectors in production and in export is low Boosting R&D Source: Ministry of Development 27.6 72.4 35.6 64.4 0 10 20 30 40 50 60 70 80 High and Medium-High Low and Medium-Low Production Export 43
    42. 42. •0.862011 •0.532002 Source: The Scientific and Technological Council of Turkey R&D Spending 44
    43. 43. Industrial Design Applications 36,578 applications in 2011 Up by 80 % since 2002 Ranking 3rd in Europe Source: TPI 45
    44. 44. Trademark Applications • 117,723 2011 • 36,429 2002 Source: Turkish Patent Instıtute 46
    45. 45. Patent Applications Source: TPE 1,874 10,241 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 2002 2011 47
    46. 46. Brand Turkey, moving up the Ladders Source: Brand - Finance Turkey ranks 19th globally 48
    47. 47. Structural Issues # 3 49 Combatting the Shadow Economy
    48. 48. Size of Shadow Economy (2012, % GDP) 32.3 29.6 29.5 29 28.6 27.2 26.5 26 25.8 25 24.3 22.8 21.6 19.4 19.2 19.2 17.1 16.4 16 16 14.8 14.7 13.8 13.7 13.5 12.8 11 10.5 9 8.2 7.9 7.8 5 10 15 20 25 30 35 Bulgaria Romania Croatia Lithuania Estonia Turkey latvia Cyprus Malta Poland Greece Hungary Italy Portugal Average Spain Belgium CzechRep Slovenia Slovakia Norway Sweeden Denmark Finland Germany ireland France UK Netherlands Luxembourg Austria Switzerland 50
    49. 49. Turkey: Size of Shadow Economy (% GDP) 32.2 31.5 30.7 30.4 29.1 28.4 28.9 28.3 27.7 27.2 26 27 28 29 30 31 32 33 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 51
    50. 50. Size of Pure Tax Evasion (% GDP) 7.8 7.3 7.4 7.5 7.5 7.1 6.8 6.3 5.7 5.3 5.3 5.7 3.6 3.4 3.4 3.4 3.5 3.4 3.3 3.1 2.9 2.6 2.5 2.8 2 3 4 5 6 7 8 9 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Turkey Average of 38 Countries Tax evasion is on average 3 ppt higher in Turkey 52
    51. 51. Legislative Tax Reforms: Completed Corporate Income Tax Transfer Pricing Commercial Code 53
    52. 52. Legislative Tax Reforms: Under Progress Personal Income Tax Tax Procedure Law 54
    53. 53. Structural Issues # 4 55 Enhancing Competition in Domestic Product & Services Market
    54. 54. Privatization Revenues Total privatization revenues $46,1 bn $8,2 bn $37,9 bn 29 131 486 244 423 568 412 515 292 466 1,020 38 2,717 120 536 187 1,283 8,222 8,096 4,259 6,296 2,274 3,085 1,358 3,020 17 0 1000 2000 3000 4000 5000 6000 7000 8000 9000 198… 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 (Million$) 56
    55. 55. FINALIZED PRIVATIZATION TENDERS AT THE APPROVAL STAGE DATE OF TENDER $ (Million) Seyitömer Thermal Power Plant 12/28/2012 2,248.0 Boğaziçi Electricity Distribution Company 12/14/2012 1,960.0 Gediz Electricity Distribution Company 12/19/2012 1,231.0 Başkent Natural Gas Distribution 01/25/2013 1,162.0 Kangal Thermal Power Plant 02/08/2013 985.0 Akdeniz Electricity Distribution Company 11/12/2012 546.0 Aras Electricity Distribution Company 09/25/2008 128.0 Hamitabat Thermal Power Plant 03/06/2013 105.0 Others - 112.3 TOTAL VALUE OF THE TENDERS AT THE APPROVAL STAGE - 8,477.3 AT THE CLOSING STAGE Small hydro Power Plants 231.7 Others 207.0 TOTAL VALUE OF THE TENDERS AT THE CONTRACTING STAGE 438.7 TOTAL VALUE OF THE TENDERS TO BE CONTRACTED 8,916.0 Privatization Implementations at Approval & Closing Stage 57
    56. 56. COMPANIES DATE OF TENDER İstanbul Anatolian Side Electricity Distribution Company 03/15/2013 Toroslar Electricity Distribution Company 03/15/2013 Dicle Electricity Distribution Company 03/15/2013 Vangölü Electricity Distribution Company 03/15/2013 * Number of subscribers in these 4 electricity distribution region is almost 7 million. Ongoing Privatization Implementations 58
    57. 57. % of shares belonging to Privatization Administration Major Companies in the Privatization Portfolio Banking Sugar Industries Electricity Distribution Natural Gas Distribution Turkish Airlines Maritime Transportation Real Estate Retail Floor Tiles & Cement Pipes 50 100 100 100 49 100 100 100 56 Companies to be privatized under special legislation National Lottery Games Toll Motorways Telecom Electricity Generation TCDD Ports 31,68 % Major Companies/Entities in Privatization Portfolio Administration leads privatization of key enterprises in Turkey 59
    58. 58. COMPANIES BIDDING DEADLINE Yeditepe Beynelminel Tourism & Commerce 04/03/2013 Taksim Tourism 04/03/2013 Salıpazarı Cruise Port-Galataport 04/30/2013 Privatization Implementations at Tender Stage 60
    59. 59. Fenerbahçe– Kalamış Marina Mersin Taşucu Marina Derince Container Port Izmir Container Port Izmir Cruise Port Haydarpaşa Port &Train Station Transformation Project Türk Telekom Sugar Factories National Lottery Games Toll Roads & Motorways Upcoming Projects 61
    60. 60. 62 Enhancing Democratic Standards Structural Issues # 5
    61. 61. New Initiatives 4th Judicial Reform Package A New Constitution 63
    62. 62. Structural Issues # 6 64 Deepening Capital Markets
    63. 63. 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 65
    64. 64. Restructuring of ISE Regional Leadership Raising Market Cap/GDP to 80% 1,000 new companies 66
    65. 65. Increasing Private Pensions 25% State Contribution Penalty for Early Withdrawals 67
    66. 66. Extending Maturity of Savings Maturity 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% 68
    67. 67. Incentives for Global Fund Managers A tax free environment for Global Funds Making it easier to manage assets in Turkey 69
    68. 68. 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 70
    69. 69. Incentives for Business Angels 71
    70. 70. Sukuk Similar to euro bonds, international holders Sukuk will not be subject to withholding tax Sep-12: First Sukuk issued for $1.5bn in international market Oct-12: Sukuk denominated in TL issued for TL1.6bn in domestic market Feb-13: Sukuk issued for TL1.5bn 72
    71. 71. Structural Issues # 7 73 Narrowing Regional Development Gaps
    72. 72. New Investment Incentive Scheme Objectives: - Reduce regional development gaps - Reduce current account deficit - Promote efficient allocation of resources to high value- added investments General Incentives Regional Incentives Incentives for Large-Scale Projects Incentives for Strategic Investments 74
    73. 73. YENİ TEŞVİK SİSTEMİ Regional  Customs Duty Exemption  VAT Exemption  Lower CIT rate  Support for the employer’s share of insurance premium  Allocation of Land  Customs Duty Exemption  VAT Exemption  Lower CIT rate  Support for the employer’s share of insurance premium  Allocation of Land  Interest Support  Customs Duty Exemption  VAT Exemption  Customs Duty Exemption  VAT Exemption  Lower CIT rate  Support for the employer’s share of insurance premium  Allocation of Land  Interest Support  VAT Rebate General In the 6th Region, additional support for  The employee’s share of insurance premium  Income tax stoppage Incentives Large-Scale Strategic 75
    74. 74. Structural Issues # 8 76 Improving Infrastructure
    75. 75. 1,714 Km Total of Motorways 4,387 Km Total of State and Provincial Dual Carriageways Total: 6,101 Km Dual Carriageway Network (January 1, 2003) 2,236 Km Total of Motorways 20,017Km Total of State and Provincial Dual Carriageways Total: 22,253 Km Dual Carriageway Network (March 05, 2012) 77
    76. 76. İSTANBUL ESKİŞEHİR POLATLI ANKARA KONYA SİVAS 212 km 533 km 405 km YOZGAT Yerköy AFYON İZMİR MANİSA 624 km BURSA BİLECİK 110 km Under construction Completed At tender phase 78 High Speed Railway Projects Source: Ministry of Transport
    77. 77. • The number of airports serving scheduled flights = 262003 • The number of airports serving scheduled flights = 492012 Airports Available For Civil Aviation Traffic in Turkey Airports serving Scheduled Flight (49) Airports under Construction (5) Airports Planned(2) 79
    78. 78. Structural Issues # 9 80 Improving Access to & Quality of Education
    79. 79. 81 Education is our Soft Spot Source: OECD, Equity and Quality in Education: Supporting Disadvantaged Students and Schools 0 10 20 30 40 50 60 70 80 Korea SlovakRepublic CzechRepublic Poland Slovenia Canada Sweden Finland Switzerland Austria UnitedStates Israel Estonia Germany Hungary Ireland Denmark Chile France Luxembourg Norway Belgium Australia Netherlands UnitedKingdom OECDaverage NewZealand Greece Italy Iceland Spain Portugal Mexico Turkey PeoplewhohavenotcompletedupperSecondary Education(%) 25-34 25-64
    80. 80. 9.4 17 8 10 12 14 16 18 2002 2013 Source: Ministry of Finance Share of Education Budget% 82
    81. 81. Gross Schooling Rates Source: Ministry of Development 11.2 96.5 80.8 35.8 46.4 108.4 92.6 81.6 10 30 50 70 90 110 130 Preschool (age of 4-5 ) Primary School Secondary School Higher Education 2002-2003 2011-2012 83
    82. 82. Improving Quality of Education With Fatih Project, we are providing our children with Broadband Internet Access Smart Boards Tablet PCs Other Information Technology Tools 84
    83. 83. Structural Issues # 10 85 Increasing Labor Market Flexibility
    84. 84. Low Employment Rate Early retirement Low rate of female labor force participation Rigidities in labor force market 86
    85. 85. Average Retirement Age 41.0 44.9 61.9 63.3 30 35 40 45 50 55 60 65 Women Men Turkey OECD Source: OECD 87
    86. 86. Labor Participation Rate, Female 29.5 16.7 25.6 30.6 38.1 70.9 10 20 30 40 50 60 70 80 Total Illeterate Less than high school High school Vocational high school Higher school LaborPaticipationRatebyEducation (2012) OECD Average: 62.3 Source: TURKSTAT, OECD 88
    87. 87. Improving Girls’ Education 2002 91 girls per 100 boys 2012 100.4 girls per 100 boys 89
    88. 88. Average Weekly Hours Worked on the Main Job (2011) Source: OECD 48,9 30 32 34 36 38 40 42 44 46 48 50 Turkey Korea Mexico Greece CzechRepublic SlovakRepublic Poland Iceland Hungary Slovenia Portugal Chile Estonia Spain France Austria Italy NewZealand Finland Luxembourg Belgium Sweden UnitedKingdom Australia Germany Switzerland Ireland Norway Denmark Netherlands Highest among the OECD countries! 90
    89. 89. Share of Part-time Employment (%, 2011) Source: OECD 11,7 0 5 10 15 20 25 30 35 40 Netharlands Switzerland Ireland Australia UnitedKingdom Germany NewZeland Japan Norway Canada Denmark Austria Belgium Mexico Chile Iceland Italy Luxembourg Sweeden Israel France Korea Spain Finland UnitedStates Turkey Portugal Greece Estonia Slovenia Poland Hungary SlovakRepublic CzechRepublıc 9th lowest among the OECD countries 91
    90. 90. National Employment Strategy 4 Main Objectives Reducing labor market rigidities Increasing employment of women, youth and the disadvantageous Strengthening the link between education and employment Strengthening the link between employment and social protection 92
    91. 91. Long-Term Growth 93
    92. 92. GDP Source: TURKSTAT, Medium-Term Program,PwC 2002 2050 2002 $ 230 billion 2050 $ 5 trillion 2012 $ 799 billion 2023 $ 2 trillion 94
    93. 93. GDP per Capita Source: TURKSTAT, Medium-Term Program,PwC 2002 2050 2002 $ 3,492 2012 $10,673 2023 $ 25,000 2050 $ 50,000 95
    94. 94. Ambitious Targets Source: IMF, PricewaterhouseCoopers 1. USA 2. China 3. India 4. Japan 5. Germany 6. Russia 8. UK 7. Brazil 9. France 10. Italy 11. Mexico 12. South Korea 13. Spain 14. Canada 15. Indonesia 16. Turkey 17. Iran 18. Australia 19. Taiwan 20. Poland 2011 (GDP-PPP) 2050 Top 10 in the World Top 3 in Europe 6th in Europe 16th in the World 96
    95. 95. Determinants of Long-Term Growth Quality of Institutions Demographics Productivity 97
    96. 96. Quality of Institutions Combatting corruption Creating a level playing field Improving international competitiveness 98
    97. 97. 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 99
    98. 98. Corruption Perceptions Index (2012) (54th among 176 countries) Source: Transparency International 54 69 72 80 94 94 102 105 118 133 40 50 60 70 80 90 100 110 120 130 140 TURKEY Brazil Italy China Greece India Argentine Mexico Indonesia Russia 100
    99. 99. Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.(71st among 125 countries) 38 45 47 48 53 54 57 59 69 71 30 35 40 45 50 55 60 65 70 75 Italy India Greece China Russia Argentina Brazil Mexico Indonesia TURKEY Source: World Economic Forum Global Competitiveness Index (2005) 101
    100. 100. (43rd among 144 countries) Source: World Economic Forum Global Competitiveness Index (2012) 29 41 42 43 48 49 50 53 59 60 67 71 73 78 94 20 30 40 50 60 70 80 90 100 China Poland Italy TURKEY Brazil Portugal Indonesia Mexico India Hungary Russia Slovak Republic Ukraine Romania Argentina Moved up 16 places in a year 2nd fastest rising country 102
    101. 101. (84th among 175 countries) Source: World Bank Ease of Doing Business (2006) 62 69 70 71 84 93 97 108 111 122 131 138 60 70 80 90 100 110 120 130 140 Mexico Italy Uruguay Romania TURKEY Argentina Russia China Greece Brazil Indonesia India 103
    102. 102. (71st among 185 countries) Source: World Bank Ease of Doing Business (2012) 48 71 72 73 78 84 89 91 112 124 128 130 132 137 20 40 60 80 100 120 140 Mexico TURKEY Romania Italy Greece Crotia Uruguay China Russia Argentina Indonesia Brazil India Ukraine 104
    103. 103. 2.0 1.0 0.3 0.7 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 Turkey USA EU-27 OECD AnnualAveragePopulationGrowthRate (%,2001-11)Growth Rate of Working-Age Population Source: OECD, Eurostat, TURKSTAT 106
    104. 104. Have Investors noticed the Transformation? 107
    105. 105. Int’l Companies Operating in Turkey (1000s) Source: Ministry of Economy 5.6 6.7 8.8 11.7 15.0 16.1 19.2 22.0 25.2 29.6 32.6 0 5 10 15 20 25 30 35 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 108
    106. 106. Foreign Direct Investment Inflows Source: CBRT Billiondollar 14.8 122.6 0 20 40 60 80 100 120 140 1980-2002 2003-2012 109
    107. 107. REER Appreciation Source: CBRT (2003=100) 55 65 75 85 95 105 115 125 135 1989-1 7 1990-1 7 1991-1 7 1992-1 7 1993-1 7 1994-1 7 1995-1 7 1996-1 7 1997-1 7 1998-1 7 1999-1 7 2000-1 7 2001-1 7 2002-1 7 2003-1 7 2004-1 7 2005-1 7 2006-1 7 2007-1 7 2008-1 7 2009-1 7 2010-1 7 2011-1 7 2012-1 7 2013-1 Linear Trend 110
    108. 108. THANK YOU! Questions? 111

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