Turkey: Challanges & Oppurtunities

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Turkey: Challanges & Oppurtunities

  1. 1. Turkey: Challenges & OpportunitiesMay 30, 2012Mehmet ŞimşekMinister of Finance1
  2. 2. OutlineREBALANCING ON GOINGCurrent Account DeficitInflationManaging a Soft Landing2
  3. 3. MANAGING A SOFT LANDING3
  4. 4. Very Strong Recovery, butModeratingSource: TURKSTATRealGDP(s.a,,2008Q1=100)9510087111808590951001051101152007-Q1Q2Q3Q42008-Q1Q2Q3Q42009-Q1Q2Q3Q42010-Q1Q2Q3Q42011-Q1Q2Q3Q44
  5. 5. 15,05,9-5,21,9-6-14914H1-11 H2-11Domestic Demand Net ExportsRebalancingContributiontoGrowth,%Source: TURKSTAT
  6. 6. Industrial Production is SofteningSource: TURKSTAT, Central Bank of Turkey655606570758085-25-20-15-10-50510152025 2007-13579112008-13579112009-13579112010-13579112011-13579112012-135Industrial Production,% y/yCapacity Utilization Rate, s.a. rhs
  7. 7. Composite Leading Indicator Edging UpSource: Central Bank of Turkeypoints to Recovery in Q277075808590951001051101152007-13579112008-13579112009-13579112010-13579112011-13579112012-13(Index)
  8. 8. Real Sector Confidence is StrongSource: Central Bank of Turkey 84050607080901001101201302007-13579112008-13579112009-13579112010-13579112011-13579112012-135(Index)
  9. 9. 13weekmovingavg.,y-on-y%Credit Growth is RecoveringSource: Central Bank of Turkey.Note: Credit Growth is adjusted for exhange movements.Jan.Feb.Mar.Apr.May.Jun.Jul.Aug.Sep.Oct.Nov.Dec.923,601020304050602012 2011 2007-2011 Average
  10. 10. Capital Formation is Supportive of Growth10121416182022242002-Q1Q2Q3Q42003-Q1Q2Q3Q42004-Q1Q2Q3Q42005-Q1Q2Q3Q42006-Q1Q2Q3Q42007-Q1Q2Q3Q42008-Q1Q2Q3Q42009-Q1Q2Q3Q42010-Q1Q2Q3Q42011-Q1Q2Q3Q4GrossFixedCapitalFormation(%,GDP)Source: TURKSTAT
  11. 11. Employment is Supportive of GrowthSource: TURKSTATAdditionalEmploymentsinceend-2007(MnPeople,s.a.)1120.00021.00022.00023.00024.00025.0002008-12009-12010-12011-12012-1
  12. 12. Employment is Supportive of Growth123,9-5,0-4,0-3,0-2,0-1,00,01,02,03,04,05,0IrelandSpainGreeceIcelandDenmarkEstoniaPortugalJapanSloveniaItalyUnitedStatesFinlandFranceUnitedKingdomSlovakRepublicCzechRepublicNetherlandsNewZealandAustriaCanadaGermanyKoreaBelgiumNorwaySwitzerlandSwedenAustraliaIsraelSingaporeTurkeyAnnualAverageEmploymentGrowth(%,2007-2011)Source: WEO, TURKSTAT
  13. 13. UnemploymentRate,s.a.(December2007=100)80901001101201301401502007-122008-122009-122010-122011-12Source: Eurostat, TURKSTATEuro AreaTurkeyEU 27Unemployment at Decade Low,13
  14. 14. Despite Higher Labor Participation Rate14Labourforceparticipationrate(%,s.a.)454647484950512007-13579112008-13579112009-13579112010-13579112011-13579112012-1Source: TURKSTAT
  15. 15. Inflation15
  16. 16. 16024681012 2011-13579112012-13CPI Core Inflation (I-Indekx)Inflation - Peaked?Source: Turkstat
  17. 17. 305070901101301500246810122011-13579112012-1357911CPI(leftaxis) OilPrices(8monthlag$/barrel-rightaxis)Inflation and Commodity PricesSource: Turkstat, Bloomberg
  18. 18. Source:Turkstat , CBRTand Exchange Rate Depreciation1,001,301,601,902,200510152011-13579112012-13CPI(leftaxis) TL/Dollar(rightaxis)
  19. 19. 19Monetary Conditions remain TightCBRTpolicyrates(%)Source: Central Bank of Turkey, ISE0246810121403/1104/1105/1106/1107/1108/1109/1110/1111/1112/1101/1202/1203/1204/1205/12O/N Lending-BorrowingInterest Rate CorridorISE O/N Repo Rates
  20. 20. 20Credit Market Conditions remain TightSource: Central Bank of Turkey.5791113151701.01.201101.02.201101.03.201101.04.201101.05.201101.06.201101.07.201101.08.201101.09.201101.10.201101.11.201101.12.201101.01.201201.02.201201.03.201201.04.201201.05.2012Vehicle Housing CommercialCreditrates(%)
  21. 21. 21A Slight Deterioration in Inflation ExpectationsInflationexpectations(%)Source: Central Bank of Turkey.0123456789101/116/1111/114/1212 month 24 month Target Inflation
  22. 22. Current Account Deficit22
  23. 23. Current Account Deficit…(12MonthRolling,USDbn)Source: Central Bank of Turkey23Large but Narrowing-80.000-70.000-60.000-50.000-40.000-30.000-20.000-10.000010.00020.0002002-147102003-147102004-147102005-147102006-147102007-147102008-147102009-147102010-147102011-147102012-1Current AccountNon Energy Current AccountCurrent Account + Net FDI + Net Errors and Omissions
  24. 24. Exports are holding Well; Imports are FallingSource: TURKSTAT12MonthRolling,y-on-y%-5-4-3-2-10123452008-12009-12010-12011-12012-1Export Import24
  25. 25. With a Healthier Composition of ImportsSource: TURKSTAT12MonthRolling,USDbn25Declining consumption; Robust investment1520253035402008-13579112009-13579112010-13579112011-13579112012-13Capital GoodsConsumption Goods
  26. 26. Improving Terms-of-Trade2688899091929394952011-1234567891011122012-12Source: TURKSTAT
  27. 27. Improving Financing27-1001020304050607080902007-13579112008-13579112009-13579112010-13579112011-13579112012-13FDI and Long-Term Debt Portfolio and Short-Term Debt Current Account DeficitSource: CBRT(12MonthRolling,USDbn)
  28. 28. REER still Supportive of AdjustmentSource: Central Bank of Turkey808590951001051101151201252003-12004-12005-12006-12007-12008-12009-12010-12011-12012-1Period AverageCPI-DevelopingCountries-BasedREER(2003=100)28
  29. 29. Tighter Credit Conditions Supportive of Adjustment29Current AccountDeficit /GDP∆ Credit Stock / GDP (Right axis)CreditGrowthandCurrentAccountDeficit(%,12monthcumulative)Source: Central Bank of Turkey
  30. 30. Europe56,6%Other43,4%Exports 200230Diversifying away from Europe?Europe42,6%Other57,4%Exports Feb-2012Source: TURKSTAT
  31. 31. Source: TURKSTATMENA: life saver?3112,126,60510152025302002 2012-Q1ExportstoMENA(%ofTotal)
  32. 32. 832051015202530352000 2011Source: TURKSTATExport DiversificationNumber of Products over $1 billion32
  33. 33. 530051015202530352000 2011Source: TURKSTATNumber of Countries over $1 billion33Export Diversification
  34. 34. Current Account Deficitas a Structural Problem34
  35. 35. Source: Ministry of Development, BloombergEnergy Import Bill(BrentType,Dollar/Barrel)EnergyImports(BillionDollars)02040608010012001020304050602002 2003 2004 2005 2006 2007 2008 2009 2010 2011Energy Import Oil Prices92354111
  36. 36. Core Issue: Competitiveness36MYR TWDHKDKRWILSCNYCLPTHBPLNCZKZARBRLIDRHUFMXNUYUINRLKRCOPSKKRUBRONPHPTRYy = 8,1785x - 36,575R² = 0,4061-12,00-8,00-4,000,004,008,0012,004 4,2 4,4 4,6 4,8 5 5,2 5,4 5,6Source: IMF, WEFCAD/GDP(%)WEF Competitiveness Score (2011-12)
  37. 37. Massive Savings-Gap37(%)10121416182022242002 2003 2004 2005 2006 2007 2008 2009 2010 2011Gap Investment/GDP Savings/GDP
  38. 38. Falling Private Savings38-505101520252002 2003 2004 2005 2006 2007 2008 2009 2010 2011Public Savings/GDP Private Savings/GDP(%)
  39. 39. Restoring Fiscal Health39
  40. 40. Lower Deficit0123456789101994-2002 2003-20117.73.3Source: Ministry of FinanceBudgetDeficit-to-GDP,%Achieved Maastricht Criteria except 2009
  41. 41. Lower DebtSource: TreasurySatisfying Maastricht Criteria since 200477,939,432,020304050607080200120022003200420052006200720082009201020112012*2013*2014*Debt-to-GDP,%
  42. 42. Zeroing Net Public Sector External DebtSource: Treasury88.401020304050607080902002200320042005200620072008200920102011(BillionTL)
  43. 43. Lower Risk43Source: Treasury2012 April200344%47%9%Fixed Floating CPI Indexed52%30%18%Fixed Floating CPI Indexed
  44. 44. Lengthening Maturity of Borrowing44MaturityofDebt(Years)Source: Treasury5,05,56,06,57,07,58,08,59,09,51,52,02,53,03,54,04,55,02005 2006 2007 2008 2009 2010 2011 2012-AprilDomestic Debt Stock External Debt Stock Total Debt Stock,rhs
  45. 45. Dealing with Low Private Savings45
  46. 46. Increasing Private Pensions25% State ContributionThe longer you stay in the privatepension, the more is the Statecontribution.46
  47. 47. What else are we doing?47Simplifying Tax SystemImproving Financial LiteracyIstanbul as a Financial CenterR&D and InnovationEducationInfrastructure
  48. 48. Simplifying Tax SystemBuilding a Simple and Effective Tax system• Boosting competitiveness• Widening tax base• Increasing tax predictability• Reducing tax rates on financial transactions &intermediation• Unifying tax burden on similar financial transactions48
  49. 49. Improving Financial LiteracyState run programs in countrieslike Australia, Japan, USA & UK49It is all about perception• Stock market – not a casino?• Financial education is key to making informed andeffective decision
  50. 50. NEW INCENTIVES FOR ISTANBULFINANCIAL CENTER50
  51. 51. Boosting Asset Management in IstanbulVenture CapitalBusiness AngelsIncreasing Private Pensions51
  52. 52. Incentives for Global Fund ManagersA tax free environment for Global Funds52Making it easier to manage assets in Turkey
  53. 53. Incentives for Venture Capital• 10% of VC Revenues• 20% of VC CapitalAllowing Venture Capital to be deducted fromCorporate & Personal Income Tax Base, up to53Tax Relief from Dividends
  54. 54. Incentives for Business Angels5475% income tax relief onAngel Capital100% tax relief forR&D and InnovationIncome & Withholding TaxRelief on divestment of stocks
  55. 55. Revising Capital Markets Law55A new law with amarketperspectiveRestructuring ofISE•Regional Leadership•Raising Marketcap/GDP to 80%•1,000 newcompanies
  56. 56. SukukGlobal issuance: $170 bnTreasury plans to issue SukukSimilar to euro bonds, international holders ofSukuk will not be subject to withholding tax56
  57. 57. R&D and Innovation57
  58. 58. Boosting R&D InnovationCreatingBrand NamesMoving up the Value Chain58
  59. 59. 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 Export59
  60. 60. •0.842010•0.532002R&D spending to GDP rose by 58 %Source: The Scientific and Technological Council of Turkey60
  61. 61. Industrial Design Applications36,578 applications in 2011Up by 80 % since 2002Ranking 3rd in EuropeSource: TPI61
  62. 62. Trademark Applications• 36,5782002• 117,4442011Source: Turkish Patent Instıtute62
  63. 63. 63Rising Patent Applications in Turkey10,010,511,011,512,012,513,0Turkey World12,710,72011RiseinPatentApplications(%)Source: World Intellectual Property Organization
  64. 64. Improving Quality of Human Capital64
  65. 65. We againallocated thelargest shareto education inthe 2012budget.Resources Allocated to EducationSource: Ministry of FinanceEducation is our priority.BillionTL65
  66. 66. Improving Girls’ Education2002 201291 girls per100 boys100.4 girls per100 boys66
  67. 67. Improving Quality of EducationWith Fatih Project, we are providing our children withBroadband Internet AccessSmart BoardsTablet PCsOther Information Technology Tools67
  68. 68. Enhancing Physical Infrastructure68
  69. 69. 1,714 KmTotal of Motorways4,387 KmTotal of State andProvincial DualCarriagewaysTotal: 6,101 KmDual CarriagewayNetwork(January 1, 2003)2,236 KmTotal of Motorways18,991 KmTotal of State andProvincial DualCarriagewaysTotal: 21,227 KmDual CarriagewayNetwork(March 15, 2012)Before 2003, only 6 cities were connected to each other via dual carriageway. Now, we have 74 cities21,227 Km3,125 Km3,061 Km27,413 KmDual carriageways put into serviceDual carriageways under constructionDual-carriageways to be put out to tenderTotal69
  70. 70. Investing in Railways AgainPRE-REPUBLIC RAILWAY NETWORK 4,136 km MAINLINEEARLY YEARS OF THE REPUBLIC (1923-1950) 3,764 km MAINLINE (134 km on annual average)1951-2002 945 km MAINLINE (18 km on annual average)2003 DEN GÜNÜMÜZE KADAR (2010 dahil) 1.076 km ANAHAT (Yılda Ortalama 135 km)UNDER CONSTRUCTION 2,047 km MAINLINE2003-2010 1,076 km MAINLINE (135 km on annual average)İSTANBULEDİRNEESKİŞEHİRPOLATLIANKARAKONYAİZMİRSİVASAFYONKAYSERİBURSA ERZİNCANERZURUMKARSMERSİNADANA GAZİANTEPDİYARBAKIRELAZIĞMALATYAZONGULDAKSAMSUNBANDIRMAVANTATVAN2010 : 11.940 km ( Konvansiyonel + Yüksek Hızlı )AdapazarıSource: Ministry of Transport2010:11.940 km (Conventional+High Speed)70
  71. 71. High Speed Railway Projects71İSTANBULESKİŞEHİR POLATLIANKARAKONYASİVAS212km533km405kmYOZGATHST Lines under Construction: ESK-İST and ANK-SİVASCompleted High Speed Train (HST) Lines: ANK-Eskişehir and ANK-KonyaYerköyHST at tender phase : Ankara-İzmir and Ankara-BursaAFYONİZMİRMANİSA 624kmBURSABİLECİK110 km
  72. 72. Passenger Traffic at the AirportsNumber of FlightsSource: General Directorate of State Airports Authority0200.000400.000600.000800.0001.000.0001.200.0001.400.0002003 2011154.218292.816218.405462.881156.582579.488529.2051.335.185Overflıght International Domestic Total020.000.00040.000.00060.000.00080.000.000100.000.000120.000.000Domestic International9.147.43958.258.32425.296.21659.362.14534.443.655117.620.469Domestic International Total72
  73. 73. It seems like we are on the Right TrackCombattingcorruptionCreating a levelplaying fieldImprovinginternationalcompetitiveness73
  74. 74. Combatting CorruptionCorruption Perceptions Index020406080100120140160TURKEYITALYBRAZILCHINAGREECEINDIAARGENTINAINDONESIAMEXICORUSSIA616973 758095 100 100 1001432011(among 183 countries)2002(among 102 countries)0102030405060708090100ITALYGREECEBRAZILMEXICOCHINATURKEYARGENTINAIDNIARUSSIAINDONESIA3144 455859 657073 7496Source: Transperancy Intenational74
  75. 75. 0102030405060708090CHINAITALYINDONESIABRAZILINDIAMEXICOTURKEYRUSSIAARGENTINAGREECE2643465356 5859668590Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece.2005(among 125 countries)2012(among 142 countries)01020304050607080ITALYINDIAGREECECHINARUSSIAARGENTINABRAZILMEXICOINDONESIATURKEY384547485354 57596971Source: World Economic Forum75Improving International CompetitivenessGlobal Competitiveness Index
  76. 76. 020406080100120ITALYMEXICOARGENTINARUSSIAGREECECHINATURKEYINDONESIAINDIABRAZIL707377 79 8091 93115 116 119020406080100120140MEXICOTURKEYITALYCHINAGREECEARGENTINARUSSIABRAZILINDONESIAINDIA537187911001131201261291322006(among 155 countries)2012(among 183 countries)Source: World Bank 76Creating A Level Playing FieldEase of Doing Business
  77. 77. We are Making ProgressSource: TreasuryNumberofCompanieswithInternationalCapital(Cumulative,inThousands)5,66,78,811,71516,219,322,125,429,4 29,9051015202530352002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012Mar77
  78. 78. Foreign Direct Investment InflowsSource: Central Bank of TurkeyBilliondollar14,8109,60204060801001201980-2002 2003-201178
  79. 79. THANK YOU…79

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