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TRowe

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TRowe

  1. 1. Mehmet Şimşek Minister of Finance T.RowePrice Sept 23, 2014 Outlook for Turkey
  2. 2. Outline Political & Economic Outlook Priorities & Reform Agenda Long-Term Prospects 2
  3. 3. Political Outlook 3
  4. 4. Political Outlook Local Elections Presidential Elections Parliamentary Elections 4
  5. 5. ( %) 38.8 50 45 40 35 30 25 20 15 10 5 Source: Anadolu Agency AK PARTY: Justice and Development Party CHP: Republican People’s Party MHP: NationalistMovement Party BDP: Peace and Democracy Party 23.1 16.1 5.7 16.3 45.5 27.8 15.2 4.2 7.3 0 AK PARTY CHP MHP BDP Others 2009 2014 5 Local Election Results
  6. 6. 6 Presidential Election Results 9.8 51.8 38.4 RECEP TAYYİP ERDOĞAN EKMELEDDİN İHSANOĞLU SELAHATTİN DEMİRTAŞ Source: Supreme Electoral Council
  7. 7. ( %) Which party would you vote for if the 12.1 AK PARTY CHP MHP HDP Source: ANAR, September 2014 AK PARTY: Justice and Development Party CHP: Republican People’s Party MHP: NationalistMovement Party HDP: People’ s Democratic Party 7 3.3 8.2 24.7 51.7 0 10 20 30 40 50 60 Others elections were held today?
  8. 8. Political Outlook Time to Deepen & Broaden Reform Agenda Preparation Phase 2014- 2015 No Elections Four Years Implementation Phase 2015 - 2019 8
  9. 9. 9 Vision 2023 Political Stability Structural Reforms 2023 Targets
  10. 10. Macroeconomic Outlook 10
  11. 11. Macroeconomic Outlook Growth has Moderated Inflation appears to have Peaked Fiscal Position Remains Strong External Balance is Improving 11
  12. 12. Growth has Moderated 12
  13. 13. Turkey: A Real Convergence Story Source: Turkstat, Eurostat *Poland, Hungary, Bulgaria, Croatia, Lithuania, Latvia 13 121.2 Real GDP (Q4-07=100, s.a.) 110 110.8 98.1 100 100.0 106.6 85 90 95 105 115 120 125 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 Q3 Q4 2014-Q1 Q2 Turkey Emerging Europe* Euro Area USA
  14. 14. Reel GDP: EMs EM Asia (excl. China & India) 14 185 175 165 155 145 135 125 115 105 Source: Turkstat, IMF 180.4 168.8 100.0 159.0 153.0 152.8 143.8 95 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 TURKEY Russia LatAm EM Europe South Africa
  15. 15. Edging up towards High Income Group 12,615 4,085 3,492 10,807 12,670 1,035 14,000 12,000 10,000 8,000 6,000 4,000 2,000 0 High Income ( $ 12,616- and up) Higher - Middle Income ( $ 4,086-12,615) Lower - Middle Income ( $ 1,036-4,085) Low Income ( $ 1,035-or less) 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Source: Turkstat, MTP, WB 15
  16. 16. Outlook for Growth Remains Positive 16 4.1 5.5 5.0 4.5 4.0 3.5 Kaynak: IMF, TURKSTAT, MTP 2014-16 4.0 5.0 5.0 3.4 3.7 4.4 4.6 3.0 2013 2014 2015 2016 Turkey EM's Excluding China (%)
  17. 17. A more Balanced Growth 20 15 10 5 0 -5 -10 2010-Q1 Q2 Q3 Q4 2011-Q1 Q2 Q3 Q4 Final Domestic Demand Net Exports Change in Stocks GDP Growth 2012-Q1 Q2 Q3 Q4 2013-Q1 Q2 Q3 Q4 2014-Q1 Q2 Source: Turkstat 17
  18. 18. Source: Turkstat, CBRT 18 Manufacturing appears to be Loosing Momentum 55 -25 -20 -15 -10 -5 70 0 5 10 15 20 85 25 60 65 75 80 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 Jul-14 Capacitiy Utilization Rate Industrial Production (3-month m.a., change y/y) (rhs)
  19. 19. Some Softening in Confidence Indices 19 100 100 55 55 65 60 75 65 70 75 110 80 120 85 60 70 80 85 90 95 105 115 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 Jul-14 Real Sector Confidence Index (s.a.) Consumer Confidence Index (rhs) Source: Turkstat, CBRT
  20. 20. Risks to Growth Upside • Improving Domestic financial conditions Downside • Geopolitical tensions • Slower European recovery 20
  21. 21. Strong Job Creation Employment since 2007 (mn people s.a.) Source:TURKSTAT 21 25.9 19 20 21 22 23 24 25 26 27 Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 Mar-14 Jun-14
  22. 22. Employment Growth 22 5.6 -6 -4 -2 0 2 4 6 TURKEY Brazil Germany Russia Poland Hungary Belgium Chezch Rebuplic France Slovakia Slovenia USA Denmark Ireland Portugal Japan Greece Italy Spain Euro Area Billion People (s.a.) Source: Eurostat, OECD, Turkstat
  23. 23. Unemployment & Labor Participation Rates 52 51 50 49 48 47 46 45 44 16 15 14 13 12 11 10 9 8 Jan-08 Aug-08 Mar-09 Oct-09 May-10 Dec-10 Jul-11 Feb-12 Sep-12 Apr-13 Nov-13 Jun-14 Unemployment Rate Labor Force Participation Rate (rhs) (s.a., %) Source: TURKSTAT 23
  24. 24. Inflation appears to have Peaked 24
  25. 25. 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 (CPI, Annual, %) 25 Source: TURKSTAT
  26. 26. Factors behind High Inflation in 2014 Drought Geopolitics (Iraq, Syria, Russia) Exchange Rate Weakness Deterioration in Expectations 26
  27. 27. 27 Worst Drought over the Last 13 Years Drought Analysis (1972-2014 )* Source: Turkish State Meteorological Service * Indicates deviation from the last 12-month-mean in June. (12-month) HUMID NORMAL DRY Unusually humid Extremely humid Very humid Fairly humid Slightly humid Normal Slightly dry Fairly dry Very dry Extremely dry Unusually dry
  28. 28. Food Prices: Main Driver of Inflation 28 (Jan-12=100) 120 120.5 125 123.1 90 95 100 105 110 115 Jan-12 Feb-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 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 CPI Food Index
  29. 29. Food & Non-Food Prices 29 14.4 8 7.8 2 4 6 10 12 14 16 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Food Non-Food Source: TURKSTAT, CBRT (CPI, Annual, %)
  30. 30. Food & Beverage in the Consumption Basket 30 (Weıght in CPI (%) 24.5 26 24 22 20 18 16 14 12 10 8 TURKEY Poland Portugal Greece Hungary Spain Mexico Chezch Rep. Italy France Ireland Source: OECD
  31. 31. Factors Distorting Food Prices Structural • Intermediation chain • Low productivity • Limited storage capacity Cyclical • Drought • Rising soft commodity prices • Geopolitical tensions 31
  32. 32. Delayed Impact of Exchange Rate Weakness Source: Bloomberg EM Average: Czech R., Hungary, Poland, S.Africa, Indonesia, S.Korea, Brazil, Chile, Colombia, Mexico 90 100 110 120 130 140 150 160 170 Nov-10 Mar-11 Jul-11 Nov-11 Mar-12 Jul-12 Nov-12 Mar-13 Jul-13 Nov-13 Mar-14 Jul-14 Turkey EM Avarage Exchange Rate relative to USD (01.11.2010=100) Import Prices in USD Import Prices in TL Import Price Index (2010= 100) Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 May-14
  33. 33. Deterioration in Inflation Expectations 33 7.4 7 6.8 4 5 6 8 9 10 Apr-06 Agu-06 Jan-07 May-07 Oct-07 Feb-08 Jul-08 Nov-08 Apr-09 Aug-09 Jan-10 May-10 Oct-10 Feb-11 Jul-11 Nov-11 Apr-12 Aug-12 Jan-13 Oct-13 Jul-14 12 Months 24 Months Inflation Expectations (%) Source: CBRT
  34. 34. 34 Geopolitical Tensions & Inflation Outlook Exchange rate depreciation around 10% 1.5ppts increase in inflation $10 increase in energy prices 0.4ppt increase in inflation 1 million refugees Pressure on Food & Rental Prices Source: Kara, Hakan and Öğünç F. (2011). "Effect of Exchange Rate and Import Prices on Inflation", CBRT, Economic Notes, No. 2011/14., UNHRC
  35. 35. Inflation Outlook Upside • TL Depreciation • Unprocessed food prices Downside • Output Gap • Macroprudential Measures • Moderate Credit Growth 35
  36. 36. Fiscal Position Remains Strong 36
  37. 37. Sustaining a Solid Fiscal Position 10.8 7.9 4.1 Maastricht Criteria: 3% 0.1 -1.3 0.2 1.6 5.5 3.0 0.4 1.0 1.0 1.1 0.8 0.5 12.0 10.0 8.0 6.0 4.0 2.0 0.0 -2.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Satisfied Maastricht Criteria except 2009 Source: Ministry of Development 37 Budget Deficit (%, GDP) Medium-Term Program (2014-16)
  38. 38. Budget Deficit (2014) Budget Deficit (%, GDP) 3.9 4.5 4 3.5 3 2.5 2 1.5 1 Source: IMF, OECD, Ministry of Development 2.9 2.3 1.1 0.5 OECD EU-28 EMs Turkey 38
  39. 39. Source: IMF Fiscal Strength in EMs Gross Public Debt (%, 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 140 120 100 80 60 40 20 0 0 1 2 3 4 5 6 7 8 9 39
  40. 40. 74.0 67.7 Lower Public Debt 59.6 52.7 46.5 39.9 Maastricht Criteria: 60% 40.0 46.1 42.3 39.1 Medium-Term Program 36.2 36.2 33.0 31.0 30.0 75 70 65 60 55 50 45 40 35 30 25 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Debt-to-GDP, % Satisfying Maastricht Criteria since 2004 Source: Treasury 40 (2014-16)
  41. 41. Public Debt (2014) Debt-to-GDP, % 111.1 120 110 100 90 80 70 60 50 40 30 Source: IMF, OECD, Treasury 89.0 33.3 33.0 20 OECD EU-28 EMs Turkey 41
  42. 42. Fiscal Outlook Upside • Conservative revenue assumptions • Outperformance in non-tax revenues • Improving tax compliance 42 Downside •Weaker domestic demand • Higher VAT rebates
  43. 43. External Balance is Improving 43
  44. 44. Exports are growing faster than Imports 44 (6- month-moving average, y/y, %) Source: TURKSTAT
  45. 45. C/A Deficit is Narrowing Source: CBRT 45 (%, GDP) -10 -8 -6 -4 -2 0 2 2010-Q1 2010-Q2 2010-Q3 2010-Q4 2011-Q1 2011-Q2 2011-Q3 2011-Q4 2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q1 2014-Q2 C/A Deficit C/A Deficit excl Energy C/A Deficit excl Energy & Gold
  46. 46. Financing of C/A Deficit is Improving Source: CBRT 46 (12 Month Rolling, USD bn) -10 0 10 20 30 40 50 60 70 80 90 Jan 10 Mar 10 May 10 Jul 10 Sept 10 Nov 10 Jan 11 Mar 11 May 11 Jul 11 Sept 11 Nov 11 Jan 12 Mar 12 May 12 Jul 12 Sept 12 Nov 12 Jan 13 Mar 13 May 13 Jul 13 Sept 13 Nov 13 Jan 14 Mar 14 May 14 Jul 14 FDI Inflows and Long-Term Portfolio and Short-Term Current Account Deficit
  47. 47. Outlook for C/A Deficit Upside • Geopolitical tensions • Sluggish European Recovery Downside • Softer domestic demand • Lower energy prices 47
  48. 48. Impact of Geopolitical Tensions Direct Impact • Trade Balance Russia -$18.1bn Syria $0.9bn Libya $2.4bn Iraq $11.8bn Iran -$6.2bn 10% decline in Turkey’s exports to Iraq 0.2 ppt rise in Turkey’s CAD-to-GDP 48 Saudi Arabia $1.2bn
  49. 49. 49 Geopolitical Tensions & C/A Deficit Indirect Impact $10 increase in Brent oil prices A $5bn- (0.6% of GDP) increase in Turkey’s C/A deficit
  50. 50. Geopolitical Tensions: External Demand 50 (Export, 2008=100) Source: TURKSTAT 0 50 100 150 200 250 300 350 400 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 Jul-14 Egypt Iraq Libya
  51. 51. Strong Linkage b/w Exports to EU & European Growth 51 (YoY, %) 35 30 25 20 15 10 5 0 -5 -10 Source: TURKSTAT, Eurostat 3 2.5 2 1.5 1 0.5 0 -0.5 -1 -15 2010-Q1 2010-Q2 2010-Q3 2010-Q4 2011-Q1 2011-Q2 2011-Q3 2011-Q4 2012-Q1 2012-Q2 2012-Q3 2012-Q4 2013-Q1 2013-Q2 2013-Q3 2013-Q4 2014-Q1 2014-Q2 Exports to EU EU Growth (rhs) (%)
  52. 52. Share of EU in Turkey’s Exports 52 Exports (%) FDI (%) Source: TURKSTAT, CBRT 2013 56.6 43.4 EU Others 74.8 25.2 EU Others
  53. 53. Turkey's FX Position Billion $ Assets Liabilities Net Position Public Sector* 138,3 122,5 15,8 Banking Sector** 490,2 489,6 0,6 Real Sector*** 101,2 271,2 -170,0 Short Term 83,9 94,1 -10,2 Household**** 191,0 0,5 190,5 FX Deposit ***** 83,8 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 11 Sept., 2014; data from gross external debt stock as of Q1-14 ** Data – Jul. 2014 *** Data – May.2014 **** Data - Mar. 2013 *****Data-05.09.2014 53
  54. 54. Reserves are back at 2013 levels 54 (USD bn) Source: CBRT 130 134.1 80 90 100 110 120 140 150 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14
  55. 55. Turkey’s Banks: among the Strongest in EMs Source: World Bank 55
  56. 56. Corporate FX Exposure is Moderate Source: CBRT No FX Loans 63% FX Loan w/o export earning FX Loan w/ export earning 25% 12% 9,500 firms Total net sales at 71% of GDP 56
  57. 57. Low Household Leverage (Household Liabilities, % of GDP, March 2014) Lithuania TURKEY Latvia Hungary Slovenia Slovakia Czech Republic Poland Estonia Italy Austria Belgium Germany Luxembourg France Malta Euro Area Greece Spain Sweden Portugal United Kingdom Source: CBRT, ECB 57 No FX exposure 63.9 23.0 0 20 40 60 80 100 120 140 Denmark
  58. 58. Risk Perception Remains High Source: Bloomberg EM Average: Czech R., Hungary, Poland, S.Africa, Indonesia, S.Korea, Brazil, Chile, Colombia, Mexico 58 50 100 150 200 250 300 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13 Nov-13 Dec-13 Jan-14 Feb-14 Mar-14 Apr-14 May-14 Jun-14 Jul-14 Aug-14 Turkey EM Average (5-y CDS, pt)
  59. 59. 0 10 20 30 40 50 60 70 80 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12 Jul-12 Oct-12 Jan-13 Apr-13 Jul-13 Oct-13 Jan-14 Apr-14 Jul-14 Exchange Rate Volatility 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. 59 Volatility (%) * Emerging Economies** Turkey Exchange Rate Volatility also Remains High
  60. 60. Capital Inflows to EMs Source: EFPR 60 Weekly fund flows (Billion USD) -8 -4 0 4 8 Jan-06 Feb-06 Mar-06 Apr-06 May-06 Jun-06 Jul-06 Aug-06 Sep-06 Oct-06 Nov-06 Dec-06 Jan-07 Feb-07 Mar-07 Apr-07 May-07 Jun-07 Jul-07 Aug-07 Sep-07 Oct-07 Nov-07 Dec-07 Jan-08 Feb-08 Mar-08 Apr-08 May-08 Jun-08 Jul-08 Aug-08 Bonds Equities
  61. 61. Capital Flows to Turkey 61 -15 -10 -5 0 5 10 15 20 25 30 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 Jul-14 Equity Government Securities (TL Bonds) (52- week cumulative (Billion USD) Source: CBRT
  62. 62. Priorities & the Reform Agenda 62
  63. 63. Priorities & Reform Agenda to Boost Productivity Improving Macroeconomic Performance Improving Quality of Institutions Enhancing Human Capital Stock Improving Infrastructure Increasing Access & Quality of Health Services Enhancing Competition Increasing Labor Market Flexibility Deepening Capital Markets Investing in Local & Renewable Energy Enhancing Technological Readiness & Innovation Combatting Shadow Economy Narrowing Regional Development Gaps 63
  64. 64. Improving Macroeconomic Performance Lower inflation rate Lower current account deficit Lower debt & deficit ratios Maintaining a healthy banking sector Higher labor participation & unemployment ratios Higher & sustainable growth 64
  65. 65. 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: 45th in 144 2005: 71st in 117 Source: WB, WEF, Transparency International 65
  66. 66. Improving Quality of Institutions Maintaining EU Accession Process A New Constitution Judicial Reform Reducing Red Tape 66
  67. 67. Ehnancing Human Capital Stock 67
  68. 68. Share of Education in Budget 9.4 18 18 16 14 12 10 8 2002 2014 % Source: Ministry of Finance 68
  69. 69. Gross Schooling Rates 11.7 130 110 90 70 50 30 Source: Ministry of Development 96.5 80.8 35.8 44.0 107.6 96.8 92.1 10 Preschool (age of 4-5 ) Primary School Secondary School Higher Education 2002-03 2012-13 69
  70. 70. Enhancing Human Capital Stock: PISA Results, Gap b/w Turkey & OECD 76 74 47 51 38 46 80 75 70 65 60 55 50 45 40 35 30 Science Math 2006 2009 2012 Source: OECD 70
  71. 71. Improving Infrastructure 71
  72. 72. Infrastructure Fuels the Economy Infrastructure development has the potential to* • Promote growth • Increase equity • Reduce poverty 1% increase in road network may increase productivity by 0.5ppt** 72 * Calderon and Serven 2010. ** Infrastructure Fedderke and Kaya (2013)
  73. 73. January 2003 1.714 Km Total of Motorways 4.387 Km Total of State and Provincial Dual Carriageways 6.101 Km Total January 2014 2.244 Km Total of Motorways 20.807 Km Total of State and Provincial Dual Carriageways 23.051 Km Total Highway Network Source: Ministry of Transport
  74. 74. İSTANBUL EDİRNE ESKİŞEHİR ANKARA Polatlı 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 74 High Speed Railway Projects
  75. 75. 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 75
  76. 76. The 3rd Airport in Istanbul # of Airports: 52 up from 26 in 2002 150 million passengers An area of 90 million m2 Construction Cost: €10 billion Rent (25 Years): €22.2 billion 76
  77. 77. Projects of the Century - Under Construction Tube Tunnel 3rd Bridge Izmit Gulf Transit Istanbul-İzmir Highway High-Speed Train through Ankara-Bursa-Istanbul 77
  78. 78. Increasing Access & Quality of Health Services 78
  79. 79. 79 Age- and Health-Related Spending Expected to rise over the next 20 years •more than 4% of GDP in AMs • 3% of GDP in EMs Source: IMF
  80. 80. 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 80
  81. 81. Healthcare Expenditures Source: The Ministry of Finance 81
  82. 82. Healthcare Indicators (Years) 72 77 78 76 74 72 70 2002 2013 Infant and Maternal Mortality Rate 31.5 7.4 6.4 1.5 35 30 25 20 15 10 5 Source: The Ministry of Health 82 7 6 5 4 3 2 1 0 0 2002 2013 Infant Mortality Rate (Left Axis) Maternal Mortality Rate (Right Axis) (per thousand) (per ten thousand) Life Expectancy At Birth
  83. 83. Tax Incentives for Healthcare Exports 18% VAT down to 8% 50% tax relief on CIT & PIT for exports in healthcare services PIT and CIT exemption for 5 years on proceeds gained from operating rehabilitation centers Regional Investment Incentives 83
  84. 84. Increasing Labor Market Flexibility 84
  85. 85. Labor Market Reform Reducing labor market rigidities Improving quality of education Increasing the link b/w education & labor markets Increasing female labor market participation rate 85
  86. 86. National Employment Strategy & Targets for 2023 86 Unemployment rate down to 5% Employment rate up to 55% Non-farm informal employment down to 15%
  87. 87. Employment Protection Legislation Index Source: OECD
  88. 88. (2004=100) 130 125 120 115 110 105 100 95 90 85 80 75 Female Labor Participation Rates 2004 2005 2006 2007 2008 2009 2010 2011 2012 TURKEY South Africa Croatia Hungary Poland Brazil Russian Federation Indonesia China Mexico India Source: TURKSTAT, Eurostat, WB TURKEY 88
  89. 89. Labor Participation Rate, Female 80 70 60 50 40 30 20 Source: Turkstat, OECD 89 Labor Participation Rate by Education (2014 May) OECD Average: 62,7 23.3 31.0 16.9 26.9 33.6 39.9 70.0 10 2004 Total Illeterate Less than high school High school Vocational high school Higher education
  90. 90. 90 Labor Participation Rate, Female Source: ILO, WDI
  91. 91. Deepening Capital Markets 91
  92. 92. Financial Markets Source: TBU 162 106 98 210 82 69 230 210 190 170 150 130 110 90 70 50 Global EMs Turkey Bank Assets Capital Markets (nominal value, % GDP, 2012)
  93. 93. Borsa Istanbul Free-Float 28 Most Turkish companies are privately owned 80 70 60 50 40 30 20 Source: Capital Markets Board, Central Securities Depository 70 10 Turkey EM Average (%) 93
  94. 94. Deepening Capital Markets in Turkey 94 A New Capital Markets Law Restructuring of Borsa Istanbul Istanbul as a Financial Center Incentives for • Business Angels • Global Fund Managers • Venture Capital • Private Pensions
  95. 95. Project Targets 95 Istanbul Top 25 cities in the Global Finance Centers Index Source: 10th Development Plan Turkey Top 30 countries in the Financial Development Index
  96. 96. Global Financial Centers Index Source: Global Financial Centres Index 15 45 47 60 63 70 75 77 30 35 40 45 50 55 60 65 70 75 80 Budapest Prague Mexico Mauritius Warsaw ISTANBUL Rio de Jeneiro (2014) 96 2009: 72nd 2014: 47th 2018: 25th
  97. 97. Financial Development Index (2012) Source: The Financial Development Report 2012 97 44 43 42 37 35 32 25 27 29 31 33 35 37 39 41 43 45 Hungary Mexico Turkey Poland Czech Republic Brazil 2009: 44th (55 countries) 2012: 42nd (62 countries) 2018: 30th
  98. 98. Investing in Local & Renewable Energy 98
  99. 99. High Dependence on Energy Imports 74% Total Energy 92% Oil 98% Natural-Gas 99
  100. 100. Source: TURKSTAT, Bloomberg Energy Import Bill Energy Imports (Billion $) (Brent, $ pbl) 100
  101. 101. Turkey: Developing Local & Renewable Source: Ministry of Energy and Natural Resources 101 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
  102. 102. Renewable Energy* (Share of renewable energy sources in total energy use) 22 29 30 27 24 21 18 15 World Average Turkey *Including Hydro Power Plants Source: Renewables 2014-Global Status Report
  103. 103. Technological Readiness & Innovation 103
  104. 104. 104 Need to Move up the Value Chain 3.5 24.1 33.2 39.1 3.7 31.4 31.5 33.5 45 40 35 30 25 20 15 10 5 0 High-technology Medium high-technology Medium low-technology Low-technology Production Exports (% 2012) Source: Ministry of Development
  105. 105. R&D Spending* Source: The Scientific and Technological Council of Turkey * % of GDP 105 2002 0.53% 2012 0.92% 2018 1.8% 2023 3.00%
  106. 106. 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… 106 Since 2008, 155 R&D Centers
  107. 107. Patents, Industrial Designs & Trade Mark Applications Patent applications 2012: 11,599 2002: 1,874 Industrial design applications 2012: 41,220 2002: 20,302 Trade Mark applications 2012: 111,143 2002: 36,429 107
  108. 108. Combatting Shadow Economy 108
  109. 109. Informal Employment (% of Total Employment) Informal Employment 52.1 51.7 50.1 48.2 47.0 45.4 43.5 43.8 43.3 42.1 39.0 36.7 36.4 55 50 45 40 35 30 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Jun.-2014 Source:TURKSTAT 109
  110. 110. Size of Shadow Economy 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 110 (%, GDP)
  111. 111. Size of Shadow Economy Source: Schneider, 2013 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 But still higher than EU average 19.0 18.6 18.4 16.4 15.5 15.0 13.9 13.6 13.0 13.0 13.0 12.2 9.9 9.7 9.1 8.0 7.5 5 10 15 20 25 30 35 Bulgaria Romania Crotia Latvia Estonia TURKEY Lithuania S. Cyprus Malta Poland Greece Slovenia Hungary Italy Portugal Spain EU Average Belgium Czech Rep. Slovakia Sweeden Norway Denmark Finland Germany Ireland France United Kingdom Netherlands Luxemburg Austria (2013, %, GDP) 111
  112. 112. Narrowing Regional Development Gaps 112
  113. 113. Reducing Regional Development Gaps 113 26 Development Agencies GAP Action Plan • 36.1 billion TL to GAP (2003-13) • Creation of 488 thousand new jobs over the last 5 years. • Reduction of the unemployment rate to 14.5% in 2013. The Other Regional Development Projects (DAP, KOP, DOKAP) New Investment Incentives Scheme • Regional Incentives • In the 6th Region additional support for • The employee’s share of insurance premium • Income Tax Stoppage
  114. 114. Turkey’s Macro Fundamentals & Long-Term Prospects 114
  115. 115. 115 Rapidly Growing Economy 3.0 5.0 5.5 5.0 4.5 4.0 3.5 3.0 2.5 1993-2002 2003-13 Real GDP (%) Source: TURKSTAT
  116. 116. Real Convergence with the EU Income Per Capita (PPP, % ) 60 50 40 30 20 Source: IMF, OECD, TURKSTAT 116 22.7 35.3 37.0 58.3 10 2002 2013 Turkey /USA Turkey /European Union
  117. 117. Determinants of Long-Term Growth Quality of Institutions Demographics Productivity 117
  118. 118. Favorable Demographics Share of 15-24 years old in Total Pop. (%) Azerbaijan Turkey Moldova Georgia Macedonia Iceland Montenegro Lithuania Malta Norway Slovakia United Kingdom Sweden Denmark Poland Ukraine Netherlands Finland Luxembourg Hungary Austria France Latvia Estonia Croatia Ireland Switzerland Serbia Czech Republic Germany Bulgaria Portugal Greece Slovenia Andorra Italy Source: Eurostat 16.7 7 9 11 13 15 17 19 21 Spain 118
  119. 119. 1.7 0.7 0.2 1.8 1.6 1.4 1.2 1.0 0.8 0.6 0.4 0.2 0.0 TURKEY OECD EU-28 Annual Average Growth Rate (%, 2001-13) Working Age Population Growth Source: OECD, Eurostat, Turkstat 119
  120. 120. GDP 2002 Source: TURKSTAT, Medium-Term Program,PwC 2050 2002 $ 230 billion 2050 $ 5 trillion 2013 $ 822 billion 2023 $ 2 trillion 120
  121. 121. THANK YOU… 121

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