Outlook for Turkish Economy
London
September 27, 2013
Mehmet Şimşek
Minister of Finance
Outline
Short‐Term Economic Outlook
Reform Agenda
Turkey’s Long‐Term Prospects
2
Short‐Term Economic Outlook
3
100.0
118.4
85
90
95
100
105
110
115
120
2007‐Q1
Q2
Q3
Q4
2008‐Q1
Q2
Q3
Q4
2009‐Q1
Q2
Q3
Q4
2010‐Q1
Q2
Q3
Q4
2011‐Q1
Q2
Q3...
5
Employment  since end‐2007 
(MnPeople, s.a.)
Source:TURKSTAT
25.6
20
21
22
23
24
25
26
2008‐1
2009‐1
2010‐1
2011‐1
2012‐...
Real Economic Activity Indicators
Source: CBRT, TURKSTAT
6
‐25
‐20
‐15
‐10
‐5
0
5
10
15
20
25
2008‐1
3
5
7
9
11
2009‐1
3
5...
PMI
Source: HSBC
7
50.9
30
35
40
45
50
55
60 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‐...
Confidence Indices
Source: CBRT, TURKSTAT
8
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
20...
Downside risks to Growth
Tighter monetary and financial conditions
Weaker external demand (fragile Eurozone recovery)
Geop...
( %)
10
Monetary Policy is tightening
Source: CBRT
3.5
7.75
4.5
3
5
7
9
11
13
15
2011‐10
11
12
2012‐1
2
3
3
5
5
6
7
8
10
1...
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
4/4/201...
12
* Credit Growth is adjusted for exchange rate movements
Source: CBRT
Credit Growth is slowing13 week moving avg., y‐on‐...
Inflation
107.2
125.5
99.1
0
20
40
60
80
100
120
140
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993...
Risks to Inflation
Weaker 
Exchange 
rate
Higher 
commodity 
prices
Upside
Widening 
output gap
Downside
14
Fiscal 
10.8
7.9
4.1
0.1
‐1.3
0.2
1.6
5.5
3.0
0.4
1.0
1.4 1.2 0.9
‐2.0
0.0
2.0
4.0
6.0
8.0
10.0
12.0
2002 2003 2004 2005 2...
Current Account Deficit: 
A Soft Spot
16
High but Manageable CAD
(12 Month Rolling, USD bn)
Source: CBRT
17
‐80
‐60
‐40
‐20
0
20
40 2002‐1
4
7
10
2003‐1
4
7
10
200...
Gold Effect(12 Month Rolling, USD bn)
Source: CBRT
18
‐80.0
‐70.0
‐60.0
‐50.0
‐40.0
‐30.0
‐20.0
‐10.0
0.0 2007‐1
4
7
10
20...
Financing of Current Account Deficit
(12 Month Rolling, USD bn)
Source: CBRT
19
‐10
0
10
20
30
40
50
60
70
80
90
2007‐1
3
...
Low Deficit Low & Declining Public 
Debt
Healthy Banking 
System
Low Household 
Leverage
Moderate Corporate 
Leverage
Dive...
8
34
0
5
10
15
20
25
30
35
40
2002 2012
Diversified Export Markets
Number of Export Markets over $1 billion
Source: TURKST...
Europe
56.6%
Other
43.4%
2002
Exports to Europe are on the Fall
Europe
38.8%
Other
61.2%
2012
Source: TURKSTAT
22
Source: TURKSTAT
But, Exports to MENA are on the RiseExports toMENA (%of Total)
12.1
31.6
5
10
15
20
25
30
35
2002 2012
23
9
30
0
5
10
15
20
25
30
35
2002 2012
Number of Products over $1 billion
Diversified Product Bundle
Source: TURKSTAT
24
0
10
20
30
40
50
60
70
80
01/2006
04/2006
07/2006
10/2006
01/2007
04/2007
07/2007
10/2007
01/2008
04/2008
07/2008
10/2008
...
Real Effective Exchange Rate
Source: CBRT
(2003=100)
26
80
90
100
110
120
130
140
150 2003-1
4
7
10
2004-1
4
7
10
2005-1
4...
74.0
67.7
59.6
52.7
46.5
39.9 40.0
46.1
42.3
39.1
36.2
35.0
33.0
31.0
30
35
40
45
50
55
60
65
70
75
2002 2003 2004 2005 20...
Healthy Banking System
* Latest data, monthly
Source: Banking Regulation and Supervision Agency
28
2002 2013‐7
17.6
2.8
NP...
Low Household Leverage
Source: CBRT, ECB
(Household Liabilities, % of GDP, 2012)
29
65.5
21.2
0 20 40 60 80 100 120 140 16...
Moderate Corporate Leverage
30
39.2
34.1
0 20 40 60 80 100 120
Luxembourg
Spain
Portugal
Netherlands
Ireland
Denmark
Italy...
Reform Agenda
31
Chapter ‐ 1
Moving Up 
the Value 
Chain
Deepening 
Capital
Markets
Combatting 
the Shadow 
Economy
Improving 
Infrastructu...
Moving Up the Value Chain
33
Why is R&D so significant for us?
The share of high and medium‐high
technology sectors in production and in
export is low
...
Source: The Scientific and Technological Council of Turkey
R&D Spending
• 3.00%2023
• 0.86%2011
• 0.53%2002
35
Industrial Design Applications
41,226 applications in 2012
Up by 103% since 2002
Source: TPI
36
Trade Mark Applications
Source: TPI
• 109,767
2012
• 36,578
2002
37
Patent  Applications
Source: TPI
1,874
11,555
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
11,000
12,000
2...
Deepening Capital Markets
39
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
41
Istanbul as a Financial Center
Financial sector currently employs 200 thousand people
Istanbul Finance Center is likely to...
Increasing Savings: Private Pensions
25% State Contribution
Penalty for Early 
Withdrawals
43
Incentives for Global Fund Managers
A tax free environment for 
Global Funds
Making it easier to manage assets 
in Turkey
...
Incentives for Venture Capital
Allowing contributions to Venture Capital to be 
deducted from Corporate & Personal Income ...
Incentives for Business Angels
46
Sukuk
47
Similar to eurobonds, internat’l holders aren’t subject to w/holding tax
Sep‐12: 1st Sukuk issued for $1.5bn in i...
Combatting the Shadow Economy
48
Informal Employment
52.1
51.7
50.1
48.2
47.0
45.4
43.5 43.8
43.3
42.1
39.0
37.8
35
37
39
41
43
45
47
49
51
53 2002
2003
20...
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
26.5
26
27
28
29
30
31
32
33
2003
2004
2...
Size of Shadow Economy (%, GDP)
31.2
28.4
28.4
28.0
27.6
26.5
25.5
25.2
24.3
23.8
23.6
23.1
22.1
21.1
19
18.6
18.5
16.4
15...
Tax Loss (% 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...
Keep fighting informal economy
Action Plan for Fighting 
Informality  2011‐13
Strengthening Capacity of 
Revenue Administr...
Improving Infrastructure
54
1,714 Km
Total of Motorways
4,387 Km
Total of State and 
Provincial Dual 
Carriageways 
Total: 6,101 Km
Dual Carriageway 
...
Under Construction
Completed
High Speed Railway Projects
56Source: Ministry of Transport  
İSTANBUL
ESKİŞEHİR POLATLI
ANKA...
• The number of airports serving
scheduled flights = 262003
• The number of airports serving 
scheduled flights = 522013
A...
Chapter ‐ 2
Enhancing 
Human Capital 
Stock
Improving 
Labor Market 
Flexibility
Reducing 
Energy Import 
Bill
Reconciliat...
Enhancing Human Capital Stock
59
Students (%, Total Population)
60
39
22
15
20
25
30
35
40
45
Turkey EU
Source: TURKSTAT, Eurostat
21
0
10
20
30
40
50
60
70
80
90
Germany
France
United Kingdom
Italy
Spain
Poland
Romania
Turkey
Netherlands
Greece
Belgium...
9.4
17
8
10
12
14
16
18
2002 2013
Source: Ministry of Finance
Share of Education Budget%
62
Investment in Education
Over the last 
decade, we have
• Built 188,459 
classrooms
• Hired 395,144 teachers
63
Source: Min...
Gross Schooling Rates
Source: Ministry of Development
11.2
96.5
80.8
35.8
44.0
107.6
96.8
81.6
10
30
50
70
90
110
130
Pres...
Source: OECD, PISA 2009
PISA Results ‐ Mathematics
43rd (among 65 countries)
65
445
350
375
400
425
450
475
500
525
550
Source: OECD, PISA 2009
PISA Results ‐ Science
43rd (among 65 countries)
66
454
350
370
390
410
430
450
470
490
510
530
55...
Improving Quality of Education
With Fatih Project, we are providing our children with
Broadband Internet Access
Smart Boar...
Source: OECD
Fatih to help FURTHER reduce the Gap between Turkey & OECD
(PISA Results)
68
30
40
50
60
70
80
science math
2...
Improving Labor Market Flexibility
69
Low Employment Rate
Early retirement
Low rate of female labor 
force participation
Rigidities in labor force 
market 
70
Average Retirement Age
41.0
44.9
61.9
63.3
30
35
40
45
50
55
60
65
Female Male
Turkey OECD
Source: OECD
71
Labor Participation Rate, Female
OECD Average: 62.3
Source: TURKSTAT, OECD
72
Labor Participation Rate by Education
(2013 ...
Improving Girls’ Education
2002
91.1 girls per 
100 boys
2012
101.8 girls 
per 100 boys
73
Source: OECD
Highest among OECD countries
Average Usual Weekly Hours Worked on the Main Job
48.9
30
32
34
36
38
40
42
44
4...
Reducing Energy Import Bill
75
Source: TURKSTAT, Bloomberg
Energy Import Bill
(Brent, $ pbl)
Energy Imports (Billion Dollars)
76
9.2
60.1 57.9
0
20
40
60...
High Dependence on Energy Imports
72%
Total Energy
92%
Oil
98%
Natural‐Gas
77
Developing Local & Renewable Resources
Source: Ministry of Energy and Natural Resources
Electricity Generation Installed C...
Building the Nuclear Capacity
Akkuyu: 
JW with Russia
Sinop
JW with a Japanese‐French consortium
Working on a 3rd plant
79
Improving Energy Efficiency
Industry 
20%
Transportation 
15%
Construction 
30%
80
Privatization
• Distributions: Done
Hamitabat Termal Power Plant
Seyitömer Termal Power Plant
Kangal Termal Power Plant
• ...
Reconciliation Process
82
Lost Decades
About 40,000 deaths
About $350 billion spent on fighting 
terrorism
Indirect cost is more than $1 trillion
83
Turkey’s Strong Long‐Term Prospects
84
GDP
Source: TURKSTAT, Medium‐Term Program,PwC
2002
2050
2002
$ 230 
billion
2050
$ 5 trillion
2012
$ 786 billion
2023
$ 2 ...
GDP per Capita
Source: TURKSTAT, Medium‐Term Program,PwC
2002
2050
2002
$ 3,492
2012
$10,497
2023 
$ 25,000
2050
$ 50,000
...
Ambitious Targets
Source: IMF, PricewaterhouseCoopers
1. USA
2. China
3. India
4. Japan
5. Germany
6. Russia
8. UK
7. Braz...
Average Real GDP Growth Rates
88
Source: Turkstat, Ministry of Development
4.5
3.1
5.1
5.5
2
3
4
5
6
1924‐2002 1993‐2002 2...
Determinants of Long‐Term Growth
Quality of Institutions
Demographics
Productivity
89
Improving Quality of Institutions
Doing Business
Corruption
Perception Index
Global
Competitiveness
Index
Human
Developmen...
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 117 countries)
38
4...
(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
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...
Favorable Demographics
Source: Eurostat
Share of 15‐24 years old in Total Pop. (%)
16.8
7 9 11 13 15 17 19 21
Andorra
Ital...
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
Annual Average Population Growth Rate 
(%, 2...
Have Investors Noticed the 
Transformation?
99
International Companies Operating in Turkey 
(1000s)
Source: Ministry of Economy
100
5.6
6.7
8.8
11.7
15.0
16.1
19.2
21.9
...
Foreign Direct Investment Inflows
Source: CBRT
(Billion dollar)
14.8
122.8
0
20
40
60
80
100
120
140
1980‐2002 2003‐2012
1...
REER Appreciation
Source: CBRT
(2003=100)
102
55
65
75
85
95
105
115
125
135
1989‐1
7
1990‐1
7
1991‐1
7
1992‐1
7
1993‐1
7
...
THANK YOU…
103
Upcoming SlideShare
Loading in …5
×

Outlook for Turkish Economy, GS Investors, 27.09.2013

1,017 views

Published on

Published in: Economy & Finance, Business
0 Comments
2 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total views
1,017
On SlideShare
0
From Embeds
0
Number of Embeds
501
Actions
Shares
0
Downloads
0
Comments
0
Likes
2
Embeds 0
No embeds

No notes for slide

Outlook for Turkish Economy, GS Investors, 27.09.2013

  1. 1. Outlook for Turkish Economy London September 27, 2013 Mehmet Şimşek Minister of Finance
  2. 2. Outline Short‐Term Economic Outlook Reform Agenda Turkey’s Long‐Term Prospects 2
  3. 3. Short‐Term Economic Outlook 3
  4. 4. 100.0 118.4 85 90 95 100 105 110 115 120 2007‐Q1 Q2 Q3 Q4 2008‐Q1 Q2 Q3 Q4 2009‐Q1 Q2 Q3 Q4 2010‐Q1 Q2 Q3 Q4 2011‐Q1 Q2 Q3 Q4 2012‐Q1 Q2 Q3 Q4 2013‐Q1 Q2 RealGDP (2007 Q4=100, s.a.) Source: Turkstat Moderate Economic Growth 4
  5. 5. 5 Employment  since end‐2007  (MnPeople, s.a.) Source:TURKSTAT 25.6 20 21 22 23 24 25 26 2008‐1 2009‐1 2010‐1 2011‐1 2012‐1 2013‐1 Employment
  6. 6. Real Economic Activity Indicators Source: CBRT, TURKSTAT 6 ‐25 ‐20 ‐15 ‐10 ‐5 0 5 10 15 20 25 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 3 5 7 9 Industrial Production Index*(c.a.) Capacity Utilization** Manufacturing Index(c.a.)* * Annual percent change ** Annual difference
  7. 7. PMI Source: HSBC 7 50.9 30 35 40 45 50 55 60 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 3 5 7 Above 50 last ten months
  8. 8. Confidence Indices Source: CBRT, TURKSTAT 8 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 3 5 7 9 Real Sector Confidence Index (Left) Consumer Confidence Index (Right)
  9. 9. Downside risks to Growth Tighter monetary and financial conditions Weaker external demand (fragile Eurozone recovery) Geopolitical Tensions Higher international energy prices 9
  10. 10. ( %) 10 Monetary Policy is tightening Source: CBRT 3.5 7.75 4.5 3 5 7 9 11 13 15 2011‐10 11 12 2012‐1 2 3 3 5 5 6 7 8 10 11 12 2013‐1 2013‐1 3 4 5 5 7 7 9 CBRT Funding Rate O/N Borrowing O/N Lending Policy Rate
  11. 11. 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 4/4/2013 7/4/2013 Personal Vehicle Housing Commercial ( %) 11 Source: CBRT Lending Rates are rising
  12. 12. 12 * Credit Growth is adjusted for exchange rate movements Source: CBRT Credit Growth is slowing13 week moving avg., y‐on‐y % 31.0 0 5 10 15 20 25 30 35 40 45 2011‐1 2 3 3 4 5 6 7 8 9 10 11 12 2012‐1 2 3 3 4 5 6 7 8 9 10 11 12 2013‐1 2 3 3 4 5 6 7 8
  13. 13. Inflation 107.2 125.5 99.1 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 2013 2014 2015 Source: CBRT 13
  14. 14. Risks to Inflation Weaker  Exchange  rate Higher  commodity  prices Upside Widening  output gap Downside 14
  15. 15. Fiscal  10.8 7.9 4.1 0.1 ‐1.3 0.2 1.6 5.5 3.0 0.4 1.0 1.4 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 Development Budget Deficit‐to‐GDP, % 15
  16. 16. Current Account Deficit:  A Soft Spot 16
  17. 17. High but Manageable CAD (12 Month Rolling, USD bn) Source: CBRT 17 ‐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 2013‐1 4 7 Current Account Current Account without Energy Import Current Account + Net FDI + Net Errors and Omissions
  18. 18. Gold Effect(12 Month Rolling, USD bn) Source: CBRT 18 ‐80.0 ‐70.0 ‐60.0 ‐50.0 ‐40.0 ‐30.0 ‐20.0 ‐10.0 0.0 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 2013‐1 4 7 Current Account excl Gold Current Account Net Gold Exports • 2011:  ‐$4.8 billion • 2012:  +$5.7 billion • 2013 Jan‐Jul:  ‐$8.4 billion
  19. 19. Financing of Current Account Deficit (12 Month Rolling, USD bn) Source: CBRT 19 ‐10 0 10 20 30 40 50 60 70 80 90 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 3 5 7 FDI Inflows and Long‐Term Portfolio and Short‐Term Current Account Deficit
  20. 20. Low Deficit Low & Declining Public  Debt Healthy Banking  System Low Household  Leverage Moderate Corporate  Leverage Diversified Export  Markets A Flexible Exchange  Rate & Reserve Management Policies Sound Macroeconomic Fundamentals
  21. 21. 8 34 0 5 10 15 20 25 30 35 40 2002 2012 Diversified Export Markets Number of Export Markets over $1 billion Source: TURKSTAT 21
  22. 22. Europe 56.6% Other 43.4% 2002 Exports to Europe are on the Fall Europe 38.8% Other 61.2% 2012 Source: TURKSTAT 22
  23. 23. Source: TURKSTAT But, Exports to MENA are on the RiseExports toMENA (%of Total) 12.1 31.6 5 10 15 20 25 30 35 2002 2012 23
  24. 24. 9 30 0 5 10 15 20 25 30 35 2002 2012 Number of Products over $1 billion Diversified Product Bundle Source: TURKSTAT 24
  25. 25. 0 10 20 30 40 50 60 70 80 01/2006 04/2006 07/2006 10/2006 01/2007 04/2007 07/2007 10/2007 01/2008 04/2008 07/2008 10/2008 01/2009 04/2009 07/2009 10/2009 01/2010 04/2010 07/2010 10/2010 01/2011 04/2011 07/2011 10/2011 01/2012 04/2012 07/2012 10/2012 01/2013 04/2013 07/2013 A Flexible Exchange Rate 25 Source: Bloomberg  * Volatility is calculated using 30‐day moving average.  ** Emerging Markets  include Brazil, Chile, Colombia, Czech Republic, Hungary, Indonesia, Malaysia, Mexico, Philippines,  Poland, Romania, South Africa, Korea, and Turkey.  Volatility* Emerging Economies** Turkey
  26. 26. Real Effective Exchange Rate Source: CBRT (2003=100) 26 80 90 100 110 120 130 140 150 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 2013-1 4 7 CPI Based REER CPI (Developing Countries) Based REER CPI (Developed Countries) Based REER
  27. 27. 74.0 67.7 59.6 52.7 46.5 39.9 40.0 46.1 42.3 39.1 36.2 35.0 33.0 31.0 30 35 40 45 50 55 60 65 70 75 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Medium‐Term Program  (2013‐15) Lower Public Debt Debt‐to‐GDP, % Satisfying Maastricht Criteria since 2004 Maastricht Criteria:  60% Source: Treasury 27
  28. 28. Healthy Banking System * Latest data, monthly Source: Banking Regulation and Supervision Agency 28 2002 2013‐7 17.6 2.8 NPL Ratioof Loans(%) Capital Adequacy Ratio, % 15.93 0 5 10 15 20 25 30 35 2003‐1 8 3 10 5 12 7 2 9 4 11 6 2010‐1 8 3 10 5 12 7 Target Rate 12%  Legal Rate 8% 
  29. 29. Low Household Leverage Source: CBRT, ECB (Household Liabilities, % of GDP, 2012) 29 65.5 21.2 0 20 40 60 80 100 120 140 160 Denmark Netherlands Ireland United Kingdom Portugal Sweden Spain Euro area Finland Greece Malta Germany France Belgium Luxembourg Austria Italy Estonia Poland Latvia Czech Republic Hungary Slovenia Slovakia Lithuania TURKEY Turkish HHs do not have FX exposure
  30. 30. Moderate Corporate Leverage 30 39.2 34.1 0 20 40 60 80 100 120 Luxembourg Spain Portugal Netherlands Ireland Denmark Italy Slovenia Austria Sweden Greece France TURKEY Latvia Estonia Germany Finland Average Belgium United Kingdom Hungary Lithuania Slovakia Czech Republic Poland (Corporate liabilities, %, GDP) Source: CBRT, Cetinkaya, BRSA
  31. 31. Reform Agenda 31
  32. 32. Chapter ‐ 1 Moving Up  the Value  Chain Deepening  Capital Markets Combatting  the Shadow  Economy Improving  Infrastructure 32
  33. 33. Moving Up the Value Chain 33
  34. 34. 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 34
  35. 35. Source: The Scientific and Technological Council of Turkey R&D Spending • 3.00%2023 • 0.86%2011 • 0.53%2002 35
  36. 36. Industrial Design Applications 41,226 applications in 2012 Up by 103% since 2002 Source: TPI 36
  37. 37. Trade Mark Applications Source: TPI • 109,767 2012 • 36,578 2002 37
  38. 38. Patent  Applications Source: TPI 1,874 11,555 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000 9,000 10,000 11,000 12,000 2002 2012 38
  39. 39. Deepening Capital Markets 39
  40. 40. 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 40
  41. 41. Restructuring of Borsa Istanbul Regional  Leadership Raising  Market  Cap/GDP to 80% 1,000 new  companies to be listed 41
  42. 42. Istanbul as a Financial Center Financial sector currently employs 200 thousand people Istanbul Finance Center is likely to add 150 thousand 42
  43. 43. Increasing Savings: Private Pensions 25% State Contribution Penalty for Early  Withdrawals 43
  44. 44. Incentives for Global Fund Managers A tax free environment for  Global Funds Making it easier to manage assets  in Turkey 44
  45. 45. 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 45
  46. 46. Incentives for Business Angels 46
  47. 47. Sukuk 47 Similar to eurobonds, internat’l holders aren’t subject to w/holding tax Sep‐12: 1st Sukuk issued for $1.5bn in international market  Oct‐12: 2nd Sukuk denominated in TL issued for TL1.6bn Feb‐13: 3rd Sukuk issued for TL1.5bn Aug‐13: 4th Sukuk issued for TL1.8bn
  48. 48. Combatting the Shadow Economy 48
  49. 49. Informal Employment 52.1 51.7 50.1 48.2 47.0 45.4 43.5 43.8 43.3 42.1 39.0 37.8 35 37 39 41 43 45 47 49 51 53 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 June Source:TURKSTAT (%, Total Employment) 49
  50. 50. 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 26.5 26 27 28 29 30 31 32 33 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Source: Schneider, 2013 Down 6 percentage points 50
  51. 51. Size of Shadow Economy (%, GDP) 31.2 28.4 28.4 28.0 27.6 26.5 25.5 25.2 24.3 23.8 23.6 23.1 22.1 21.1 19 18.6 18.5 16.4 15.5 15 13.9 13.6 13 13 13 12.2 9.9 9.7 9.1 8 7.6 7.1 5 10 15 20 25 30 35 Bulgaria Romania Crotia Lithuania Estonia TURKEY Latvia S.Cyprus Malta Poland Greece Slovenia Hungary Italy Portugal Spain Average Belgium Czech Rep. Slovak Rep. Sweeden Norway Denmark Finland Germany Ireland France UK Netherland Luxemburg Austria Switzerland Source: Schneider, 2013 But still higher than EU average 51
  52. 52. Tax Loss (% 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 Sample Average 3ppt higher than the EU average Source: Schneider, 2012 52
  53. 53. Keep fighting informal economy Action Plan for Fighting  Informality  2011‐13 Strengthening Capacity of  Revenue Administration &       Tax Audit Board Income Tax Reform and Tax  Procedural Law 53
  54. 54. Improving Infrastructure 54
  55. 55. 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) 2,244 Km Total of Motorways 20,152 Km Total of State and  Provincial Dual  Carriageways Total: 22,396 Km Dual Carriageway  Network (July 1, 2013) 55
  56. 56. Under Construction Completed High Speed Railway Projects 56Source: Ministry of Transport   İSTANBUL ESKİŞEHİR POLATLI ANKARA KONYA SİVAS 212 km 533 km 405 km YOZGAT Yerköy AFYON İZMİR MANİSA 624 km BURSA BİLECİK 105 km
  57. 57. • The number of airports serving scheduled flights = 262003 • The number of airports serving  scheduled flights = 522013 Airports Available For Civil Aviation Traffic in  Turkey Airports serving Scheduled  Flights (52) Airports under Construction (3) Airports Planned (1) 57
  58. 58. Chapter ‐ 2 Enhancing  Human Capital  Stock Improving  Labor Market  Flexibility Reducing  Energy Import  Bill Reconciliation  Process 58
  59. 59. Enhancing Human Capital Stock 59
  60. 60. Students (%, Total Population) 60 39 22 15 20 25 30 35 40 45 Turkey EU Source: TURKSTAT, Eurostat
  61. 61. 21 0 10 20 30 40 50 60 70 80 90 Germany France United Kingdom Italy Spain Poland Romania Turkey Netherlands Greece Belgium Portugal Czech Republic Hungary Sweden Austria Switzerland Bulgaria Denmark Slovakia Finland Norway Ireland Croatia Lithuania Macedonia Slovenia Latvia Estonia Cyprus Montenegro Luxembourg Malta Iceland Liechtenstein Turkey’s Student Population 61Source: Ministry of Development, Eurostat Population, million
  62. 62. 9.4 17 8 10 12 14 16 18 2002 2013 Source: Ministry of Finance Share of Education Budget% 62
  63. 63. Investment in Education Over the last  decade, we have • Built 188,459  classrooms • Hired 395,144 teachers 63 Source: Ministry of Education
  64. 64. Gross Schooling Rates Source: Ministry of Development 11.2 96.5 80.8 35.8 44.0 107.6 96.8 81.6 10 30 50 70 90 110 130 Preschool (age of 4‐5 ) Primary School Secondary School Higher Education 2002‐2003 2012‐2013 64
  65. 65. Source: OECD, PISA 2009 PISA Results ‐ Mathematics 43rd (among 65 countries) 65 445 350 375 400 425 450 475 500 525 550
  66. 66. Source: OECD, PISA 2009 PISA Results ‐ Science 43rd (among 65 countries) 66 454 350 370 390 410 430 450 470 490 510 530 550 Korea Estonia Germany Liechtenstein Slovenia Poland Hungary France İtaly Croatia Russia Greece Turkey Bulgaria Mexico Brazil Argentina Indonesia
  67. 67. Improving Quality of Education With Fatih Project, we are providing our children with Broadband Internet Access Smart Boards Tablet PCs Other Information Technology Tools 67
  68. 68. Source: OECD Fatih to help FURTHER reduce the Gap between Turkey & OECD (PISA Results) 68 30 40 50 60 70 80 science math 2006 2009
  69. 69. Improving Labor Market Flexibility 69
  70. 70. Low Employment Rate Early retirement Low rate of female labor  force participation Rigidities in labor force  market  70
  71. 71. Average Retirement Age 41.0 44.9 61.9 63.3 30 35 40 45 50 55 60 65 Female Male Turkey OECD Source: OECD 71
  72. 72. Labor Participation Rate, Female OECD Average: 62.3 Source: TURKSTAT, OECD 72 Labor Participation Rate by Education (2013  June) 31.9 18.8 27.8 32.6 41.5 71.6 10 20 30 40 50 60 70 80 Total Illeterate Less than high school High school Vocational high school Higher education
  73. 73. Improving Girls’ Education 2002 91.1 girls per  100 boys 2012 101.8 girls  per 100 boys 73
  74. 74. Source: OECD Highest among OECD countries Average Usual Weekly Hours Worked on the Main Job 48.9 30 32 34 36 38 40 42 44 46 48 50 Turkey Korea Mexico Greece Czech Republic Israel Slovak Republic Poland Iceland Slovenia Hungary Portugal Chile Canada Estonia Spain France Austria Italy New Zealand Finland Luxembourg Belgium Sweden United Kingdom Australia Germany Switzerland Ireland Norway Denmark Netherlands Highest among OECD countries 74
  75. 75. Reducing Energy Import Bill 75
  76. 76. Source: TURKSTAT, Bloomberg Energy Import Bill (Brent, $ pbl) Energy Imports (Billion Dollars) 76 9.2 60.1 57.9 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 2013July Energy Import Oil Prices
  77. 77. High Dependence on Energy Imports 72% Total Energy 92% Oil 98% Natural‐Gas 77
  78. 78. Developing 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 78
  79. 79. Building the Nuclear Capacity Akkuyu:  JW with Russia Sinop JW with a Japanese‐French consortium Working on a 3rd plant 79
  80. 80. Improving Energy Efficiency Industry  20% Transportation  15% Construction  30% 80
  81. 81. Privatization • Distributions: Done Hamitabat Termal Power Plant Seyitömer Termal Power Plant Kangal Termal Power Plant • Generation: 16,530MW on sale 81
  82. 82. Reconciliation Process 82
  83. 83. Lost Decades About 40,000 deaths About $350 billion spent on fighting  terrorism Indirect cost is more than $1 trillion 83
  84. 84. Turkey’s Strong Long‐Term Prospects 84
  85. 85. GDP Source: TURKSTAT, Medium‐Term Program,PwC 2002 2050 2002 $ 230  billion 2050 $ 5 trillion 2012 $ 786 billion 2023 $ 2 trillion 85
  86. 86. GDP per Capita Source: TURKSTAT, Medium‐Term Program,PwC 2002 2050 2002 $ 3,492 2012 $10,497 2023  $ 25,000 2050 $ 50,000 86
  87. 87. 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. Canada 14. Spain 15. Indonesia 16. TURKEY 17. Iran 18. Australia 19. Saudi Arabia 20. Taiwan 2012 (GDP‐PPP) Target Top 10 in the World Top 3 in Europe 6th in Europe 16th in the World 87
  88. 88. Average Real GDP Growth Rates 88 Source: Turkstat, Ministry of Development 4.5 3.1 5.1 5.5 2 3 4 5 6 1924‐2002 1993‐2002 2003‐2012 2014‐2018 % Reforms to increase potential growth
  89. 89. Determinants of Long‐Term Growth Quality of Institutions Demographics Productivity 89
  90. 90. Improving Quality of Institutions Doing Business Corruption Perception Index Global Competitiveness Index Human Development Index OECD‐FDI Regulatory Restrictiveness Index Past Present 2023 Source: WB, WEF, Transparency International, OECD 90
  91. 91. 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 91
  92. 92. 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 92
  93. 93. Within the period of 2005‐2012, Turkey has ranked higher than Russia, Argentina and Greece.(71st among 117 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) 93
  94. 94. (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 25 35 45 55 65 75 85 95 China Indonesia Poland TURKEY Italy Portugal Mexico Brazil India Hungary Russia Romania Slovak Rep. Ukraine Greece 94
  95. 95. (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 95
  96. 96. (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 96
  97. 97. Favorable Demographics Source: Eurostat Share of 15‐24 years old in Total Pop. (%) 16.8 7 9 11 13 15 17 19 21 Andorra Italy Greece Spain Portugal Germany Slovenia Ireland Bulgaria Luxembourg Switzerland Croatia Czech Republic Austria Liechtenstein Serbia Hungary Netherlands Finland France Denmark United Kingdom Norway Sweden Estonia Ukraine Malta Poland Latvia Slovakia Montenegro Lithuania Iceland  Macedonia Georgia Turkey Moldova Azerbaijan 97
  98. 98. 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 Annual Average Population Growth Rate  (%, 2001‐11)Growth Rate of Working‐Age Population Source: OECD, Eurostat, TURKSTAT 98
  99. 99. Have Investors Noticed the  Transformation? 99
  100. 100. International Companies Operating in Turkey  (1000s) Source: Ministry of Economy 100 5.6 6.7 8.8 11.7 15.0 16.1 19.2 21.9 25.2 29.6 33.8 34.5 0 5 10 15 20 25 30 35 40 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jun
  101. 101. Foreign Direct Investment Inflows Source: CBRT (Billion dollar) 14.8 122.8 0 20 40 60 80 100 120 140 1980‐2002 2003‐2012 101
  102. 102. REER Appreciation Source: CBRT (2003=100) 102 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 7 Linear Trend
  103. 103. THANK YOU… 103

×