Euro Finance Conference

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Euro Finance Conference

  1. 1. EURO FINANCE ConferenceApril 4, 2013Mehmet ŞimşekMinister of Finance
  2. 2. OutlineManaging Risks• Global• Euro Zone Crisis• Oil Price Hikes• Domestic• Current Account Deficit• Geo-PoliticalTurkey’s Long-Terms Prospects2
  3. 3. Global Risks3
  4. 4. Global Risks: Euro Area Recession4
  5. 5. Fallout from the Euro CrisisExpectationsTradeChannelFDITourism5
  6. 6. Impact on FDI Inflows6Pre-Crisis Post-Crisis12monthrolling(2003=100)Source: CBRT1.6730200400600800100012001400160018002000220024002003-1592004-1592005-1592006-1592007-159100260204060801001201402007-1592008-1592009-1592010-1592011-1592012-1592013-110012monthrolling(2007=100)
  7. 7. Impact on Tourism7Pre-Crisis Post-Crisis(2003=100)20701201702202703202003-1592004-1592005-1592006-1592007-159180(2007=100)20701201702202703202007-1592008-1592009-1592010-1592011-1592012-1592013-1150Source: Ministry of Culture and Tourism
  8. 8. Impact on Exports896607080901001101201302007-147102008-147102009-147102010-147102011-147102012-147102013-1Post-CrisisExports(2007=100)Exports(2003=100)Source: TURKSTAT280751001251501752002252502752003-147102004-147102005-147102006-147102007-14710Pre-CrisisDuring this period, totalexports rose by 42%
  9. 9. ManagingEuropean RiskExportDiversification
  10. 10. Europe56.6%Other43.4%2002Export Diversification - IEurope38.8%Other61.2%2012Source: TURKSTAT10
  11. 11. 83405101520253035402002 2012Export Diversification - IINumber of Export Markets over $1 billionSource: TURKSTAT11
  12. 12. 930051015202530352002 2012Number of Products over $1 billionExport Diversification - IIISource: TURKSTAT12
  13. 13. Source: TURKSTATMENA was life saver12.131.61015202530352002 2012ExportstoMENA(%ofTotal)13
  14. 14. Global Risks: High and Rising Energy Prices14
  15. 15. High Dependence on Energy Imports72%Total Energy92%Oil98%Natural-Gas15
  16. 16. Source: TURKSTAT, BloombergHigh Vulnerability to Oil Price Hikes(BrentType,Dollar/Barrel)EnergyImports(BillionDollars)169,260,123,4111,90204060801001200102030405060702002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Energy Import Oil Prices
  17. 17. ReducingTurkey’sVulnerabilityto EnergyPrice Hikes17
  18. 18. Strong focus on Local & Renewable ResourcesSource: Ministry of Energy and Natural ResourcesElectricity Generation Installed CapacityMW % of TotalCurrent Installed Capacity (Sept, 2012) 55,663- Renewable Energy 20,963 37.7Power Plants Under Construction 23,396- Renewable Energy 15,879 67.9TOTAL 79,029- Renewable Energy 36,843 46.618
  19. 19. Building Nuclear Capacity19A deal is signed withRussiaNegotiations on asecond plant continue
  20. 20. Improving Energy Efficiency20Industry20%Transportation15%Construction30%
  21. 21. Domestic Risks: Large C/A Deficit21
  22. 22. Current Account Deficit(12MonthRolling,USDbn)Source: CBRT22-80-60-40-2002040 2002-147102003-147102004-147102005-147102006-147102007-147102008-147102009-147102010-147102011-147102012-147102013-1Current AccountCurrent Account without Energy ImportCurrent Account + Net FDI + Net Errors and Omissions
  23. 23. External Financing Needs are Large23PrivateSectorSTDebt(Bn$)Source: CBRT13528910203040506070809020022003200420052006200720082009201020112012$124bn, based on maturity less than 1 year
  24. 24. We have a Flexible Exchange Rate24Source: Bloomberg* Volatility is calculated using 30-day moving average.** Emerging Markets include Brazil, Chile, Colombia, Czech Republic, Hungary, Indonesia, Malaysia, Mexico, Philippines,Poland, Romania, South Africa, Korea, and Turkey.0510152025303540455055606570758002.200605.200608.200611.200602.200705.200708.200711.200702.200805.200808.200811.200802.200905.200908.200911.200902.201005.201008.201011.201002.201105.201108.201111.201102.201205.201208.201211.201202.2013Emerging Economies**TurkeyVolatility*
  25. 25. We are Building Reserves2599125606570758085909510010511011512012513004.05.200704.05.200804.05.200904.05.201004.05.201104.05.2012(Bn$)
  26. 26. 10,87,94,10,1-1,30,21,65,53,00,41,3 1,5 1,2 0,9-2,00,02,04,06,08,010,012,02002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015Maastricht Criteria: 3%Medium-Term Program(2013-15)Achieved Maastricht Criteria except 2009Source: Ministry of DevelopmentBudgetDeficit-to-GDP,%26Maintaining Strong Fiscal Position
  27. 27. 27Source: Treasury26,231,3 30,0 31,327,6 26,2 25,329,9 28,121,6 20,335,4 23,919,110,46,53,3 2,92,70,90,7-3,361,555,249,141,734,029,5 28,232,528,922,417,0-100102030405060702002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Net TL Net FX Total NetNetPublicSectorDebt(%,GDP)Keeping Debt on a Downward Trend
  28. 28. Well-Capitalized Banking SectorCapitalAdequacyRatio,%Target Rate 12%Legal Rate 8%Source: BRSA28051015202530352003-147102004-147102005-147102006-147102007-147102008-147102009-147102010-147102011-147102012-147102013-1Capital adequacy ratio twice theminimum legal limit of 8%.
  29. 29. Low Household LeverageSource: CBRT, ECB(HouseholdLiabilities,%ofGDP,2012Q3)2965,720,30 20 40 60 80 100 120 140 160DenmarkNetherlandsIrelandUnited KingdomPortugalSwedenSpainEuro areaFinlandGreeceMaltaGermanyFranceBelgiumLuxembourgAustriaItalyEstoniaPolandLatviaHungaryCzech RepublicSloveniaSlovakiaLithuaniaTurkey
  30. 30. Moderate Corporate Liabilities3036,80 20 40 60 80 100 120LuxembourgSpainPortugalNetherlandsIrelandDenmarkItalySloveniaAustriaSwedenGreeceFranceLatviaEstoniaTurkeyGermanyFinlandBelgiumUnited KingdomHungaryLithuaniaSlovakiaCzech RepublicPoland(Corporateliabilities,%,GDP)Source: CBRT, Cetinkaya, March 2013, BRSA
  31. 31. Macroprudential MeasuresRestraint on HH FXborrowingLTV of 75% Target CAR 12%Limits on banks’dividend distributionPossibility to limitcorporates fromdeducting FX interestexpenses from tax base31
  32. 32. Fundamental Fixes toCurrent Account Deficit32
  33. 33. (%)1012141618202224262002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Savings-Investment Gap is LargeSource: Ministry of Development33
  34. 34. -505101520252002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Public Savings/GDP Private Savings/GDP(%)Source: Ministry of DevelopmentIncreasing Savings34
  35. 35. Increasing Savings: Private Pensions25% State ContributionPenalty for EarlyWithdrawals35
  36. 36. 36Moving Up the Value Chain
  37. 37. Why is R&D so significant for us?The share of high and medium-hightechnology sectors in production and inexport is lowBoosting R&DSource: Ministry of Development27.672.435.664.401020304050607080High and Medium-High Low and Medium-LowProduction Export37
  38. 38. Source: The Scientific and Technological Council of TurkeyR&D Spending38• 3.00%2023• 0.86%2011• 0.53%2002
  39. 39. Industrial Design Applications41,226 applications in 2012Up by 103% since 2002Source: TPI39
  40. 40. Trade Mark ApplicationsSource: TPI• 36,5782002• 109,767201240
  41. 41. Patent ApplicationsSource: TPI411.87411.5551.0002.0003.0004.0005.0006.0007.0008.0009.00010.00011.00012.0002002 2012
  42. 42. Brand Turkey, moving up the LaddersSource: Brand - FinanceTurkey ranks 19th globally42
  43. 43. 43Deepening Capital Markets
  44. 44. A New Capital Markets Law•Increasing financial deepening & innovation•Strengthening investor rights•Improving corporate governanceNew legal framework inline with the best globalpractices44
  45. 45. Restructuring of ISERegionalLeadershipRaisingMarketCap/GDP to80%1,000 newcompanies45
  46. 46. Extending Maturity of SavingsMaturity 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%46
  47. 47. Incentives for Global Fund ManagersA tax free environment forGlobal FundsMaking it easier to manage assetsin Turkey47
  48. 48. Incentives for Venture CapitalAllowing contributions to Venture Capital to bededucted from Corporate & Personal Income TaxBase, up to• 10% of VC Revenues• 20% of VC CapitalTax Relief on Dividends48
  49. 49. Incentives for Business Angels49
  50. 50. SukukSimilar to euro bonds, international holders Sukuk willnot be subject to withholding taxSep-12: First Sukuk issued for $1.5bn in internationalmarketOct-12: Sukuk denominated in TL issued for TL1.6bn indomestic marketFeb-13: Sukuk issued for TL1.5bn50
  51. 51. How do we manage it?51Improving Infrastructure
  52. 52. 1,714 KmTotal of Motorways4,387 KmTotal of State andProvincial DualCarriagewaysTotal: 6,101 KmDual CarriagewayNetwork(January 1, 2003)2,236 KmTotal of Motorways20,017KmTotal of State andProvincial DualCarriagewaysTotal: 22,253 KmDual CarriagewayNetwork(March 05, 2012)52
  53. 53. İSTANBULESKİŞEHİR POLATLIANKARAKONYASİVAS212 km533 km405 kmYOZGATYerköyAFYONİZMİRMANİSA624 kmBURSABİLECİK110 kmUnder constructionCompletedAt tender phase53High Speed Railway ProjectsSource: Ministry of Transport
  54. 54. • The number of airports servingscheduled flights = 262003• The number of airports servingscheduled flights = 492012Airports Available For Civil Aviation Traffic inTurkeyAirports serving ScheduledFlight (49)Airports under Construction (5)Airports Planned(2) 54
  55. 55. How do we manage it?55Enhancing Human Capital Stock
  56. 56. 9,417810121416182002 2013Source: Ministry of FinanceShare of Education Budget%56
  57. 57. Gross Schooling RatesSource: Ministry of Development11,296,580,835,846,4108,492,681,61030507090110130Preschool(age of 4-5 )Primary School Secondary School Higher Education2002-2003 2011-201257
  58. 58. Improving Quality of EducationWith Fatih Project, we are providing our children withBroadband Internet AccessSmart BoardsTablet PCsOther Information Technology Tools58
  59. 59. Geo-Political Risks59Arab SpringTension betweenIran & the West
  60. 60. Turkey’s Strong Long-Term Prospects60
  61. 61. GDPSource: TURKSTAT, Medium-Term Program,PwC200220502002$ 230billion2050$ 5 trillion2012$ 786 billion2023$ 2 trillion61
  62. 62. GDP per CapitaSource: TURKSTAT, Medium-Term Program,PwC200220502002$ 3,4922012$10,5042023$ 25,0002050$ 50,00062
  63. 63. Ambitious TargetsSource: IMF, PricewaterhouseCoopers1. USA2. China3. India4. Japan5. Germany6. Russia8. UK7. Brazil9. France10. Italy11. Mexico12. South Korea13. Spain14. Canada15. Indonesia16. Turkey17. Iran18. Australia19. Taiwan20. Poland2011 (GDP-PPP) 2050Top 10in the WorldTop 3in Europe6th in Europe16th in the World63
  64. 64. Determinants of Long-Term GrowthQuality of InstitutionsDemographicsProductivity64
  65. 65. Quality of InstitutionsCombattingcorruptionCreating a levelplaying fieldImprovinginternationalcompetitiveness65
  66. 66. Corruption Perceptions Index (2002)(65th among 102 countries)3144 4558 59657073 74962030405060708090100ItalyGreeceBrazilMexicoChinaTURKEYArgentinaIndiaRussiaIndonesiaSource: Transparency International66
  67. 67. Corruption Perceptions Index (2012)(54th among 176 countries)Source: Transparency International5469728094 94102105118133405060708090100110120130140TURKEYBrazilItalyChinaGreeceIndiaArgentineMexicoIndonesiaRussia67
  68. 68. Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.(71st among 125 countries)384547 48535457 59697130354045505560657075ItalyIndiaGreeceChinaRussiaArgentinaBrazilMexicoIndonesiaTURKEYSource: World Economic ForumGlobal Competitiveness Index (2005)68
  69. 69. (43rd among 144 countries)Source: World Economic ForumGlobal Competitiveness Index (2012)294142 434849505359 6067717378942030405060708090100ChinaPolandItalyTURKEYBrazilPortugalIndonesiaMexicoIndiaHungaryRussiaSlovakRepublicUkraineRomaniaArgentinaMoved up 16 places in a year2nd fastest rising country69
  70. 70. (20th among 38 countries)Source: DeloitteGlobal Manufacturing Competitiveness Index (2013)708121415192021232526282932333538510152025303540BrazilMexicoPolandUKCzechRep.TURKEYSwedenNetherlandsFranceArgentinaRussiaRomaniaItalySpainPortugalGreece
  71. 71. (16th among 38 countries)Source: DeloitteGlobal Manufacturing Competitiveness Index(In the Next 5 Years)7131316181921222324262729313437380510152025303540BrazilMexicoTURKEYPolandUKSwedenCzechRep.RussiaNetherlandsArgentinaFranceRomaniaSpainItalyPortugalGreeceIn the next 5 years, Turkey will move up to 16th in the world and2nd in Europe, overtaking the UK, Poland and Czech Republic.
  72. 72. (84th among 175 countries)Source: World BankEase of Doing Business (2006)6269 707184939710811112213113860708090100110120130140MexicoItalyUruguayRomaniaTURKEYArgentinaRussiaChinaGreeceBrazilIndonesiaIndia72
  73. 73. (71st among 185 countries)Source: World BankEase of Doing Business (2012)4871 727378848991112124128130 13213720406080100120140MexicoTURKEYRomaniaItalyGreeceCrotiaUruguayChinaRussiaArgentinaIndonesiaBrazilIndiaUkraine73
  74. 74. Favorable DemographicsSource: EurostatShareof15-24yearsoldinTotalPop.(%)16.879111315171921AndorraItalyGreeceSpainPortugalGermanySloveniaIrelandBulgariaLuxembourgSwitzerlandCroatiaCzechRepublicAustriaLiechtensteinSerbiaHungaryNetherlandsFinlandFranceDenmarkUnitedKingdomNorwaySwedenEstoniaUkraineMaltaPolandLatviaSlovakiaMontenegroLithuaniaIcelandFormerYugoslav…GeorgiaTurkeyMoldovaAzerbaijan74
  75. 75. 2,01,00,30,70,20,40,60,81,01,21,41,61,82,0Turkey USA EU-27 OECDAnnualAveragePopulationGrowthRate(%,2001-11)Growth Rate of Working-Age PopulationSource: OECD, Eurostat, TURKSTAT 75
  76. 76. Have Investors noticed theTransformation?76
  77. 77. International Companies Operating in Turkey(1000s)Source: Ministry of Economy775,66,78,811,715,016,119,221,925,229,633,1 33,305101520253035200220032004200520062007200820092010201120122013January
  78. 78. Foreign Direct Investment InflowsSource: CBRT(Billiondollar)14.8122.70204060801001201401980-2002 2003-201278
  79. 79. REER AppreciationSource: CBRT(2003=100)795565758595105115125135 1989-171990-171991-171992-171993-171994-171995-171996-171997-171998-171999-172000-172001-172002-172003-172004-172005-172006-172007-172008-172009-172010-172011-172012-172013-1Linear Trend
  80. 80. THANK YOU…80

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