Ahmet O. Akarli Executive Director
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Transcript of Ahmet O. Akarli Executive Director
Ahmet O. AkarliExecutive DirectorEconomic ResearchGoldman Sachs International
July 2007
BRICs, the Next-11 and Turkey2050: A Space Odyssey
2
BRICs, the Next-11 and Turkey
BRICs and the N-11
Where does Turkey stand?
2050: A Space Odyssey
3
BRICs and the Next-11
Globalisation, the primary driving force BRICs have a potential to change the face of the World
Brazil, Russia, India and China Size matters!
The N-11 stand out with their solid long-term investment potential
Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines, Turkey and Vietnam
Population matters!
4
World in 2006 – G-7 Dominate
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000U
SJa
pan
Ger
man
yC
hina UK
Fran
ceIta
lyC
anad
aB
razi
lR
ussi
aIn
dia
Kor
eaM
exic
oTu
rkey
Indo
nesi
aIra
nPa
kist
anN
iger
iaPh
ilipp
ines
Egyp
tB
angl
ades
hVi
etna
m
$bn 2006
GDP ($bn 2006)
5
World in 2050 – BRICs and the N-11 take over
01000020000300004000050000600007000080000
Chi
na US
Indi
aB
razi
lM
exic
oR
ussi
aIn
done
sia
Japa
nU
KG
erm
any
Nig
eria
Fran
ceK
orea
Turk
eyVi
etna
mC
anad
aPh
ilipp
ines
Italy
Iran
Egyp
tPa
kist
anB
angl
ades
$bn 2006
GDP 2050
6
It is a new world!Overtaking the G7: When BRICs' and N-11's GDP Would Exceed G7
00 02 04 06 08 10 12 14 16 18 20 22 24 26 28 30 32 34 36 38 40 42 44 46 48 50
China
India
Brazil
Mexico
Russia
Indonesia
Nigeria
Korea
Turkey
Vietnam
Philippines
Note: Cars indicate w hen BRICs and N-11 US$GDP exceeds US$GDP in the G7. The N-11 countries not included in the chart do not overtake any of the G7 countries over the projection horizon. Source: GS
Canada
Canada
Canada
Canada
Canada
Canada and Italy
Canada
USJapan
Japan
Japan
Japan
Japan
Japan
France
France
Germany
Germany
Germany
Germany
UK
Germany
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
Italy
France
France
UK
France
France
UK
GermanyUK
Canada
UKCanada France
Italy
7
World in 2050 – BRICs and the N-11 grow richer
0%5%
10%15%20%25%30%35%40%45%50%
06 09 12 15 18 21 24 27 30 33 36 39 42 45 48
BRICs/G-7 (GDP per capita)
N-11/G-7 (GDP per Capita)
8
Where does Turkey stand?
Turkey stands out among the N-11 $400bn economy Ideal location
Close proximity to European, MENA and Asian markets Emerging as an energy hub, at the cross-roads of Middle East, the Caspian and Europe
Hugely favourable demographic dynamics 73m, overwhelmingly young population Disciplined and relatively skilled labour force Highly dynamic entrepreneurial class
Well established market institutions Property rights, consolidated and well-enforced A solid regulatory framework
Well-integrated into the global economy Through trade (EU Customs Union) Through the capital account (full currency convertibility and open capital account)
9
A relatively favourable growth environment
0
2
4
6
8
10
12
Infla
tion
Gov
ernm
ent
Def
icit
Exte
rnal
Deb
tIn
vest
men
t
Ope
nnes
s
Educ
atio
nLi
feEx
pect
ancy
Polit
ical
Stab
ility
Rul
e of
Law
Cor
rupt
ion
PCs
Phon
es
Inte
rnet
GES Index 2006 Turkey GES 2006 Developing GES
2006 BRICs GES 2006 N-11 GES
10
What are the assumptions?
Standard neo-classical growth model (Cobb-Douglas) Growth function of population, investment and TFP
Population growth Scaling down from 1.2% p.a. to 0% by 2050
Investment Rate 20.8% of GDP (Average of the previous 10 years)
Convergence ratio 0.8% p.a. 2006-2020 1.5% p.a. 2021-2050
11
Could become a $4tr economy by 2050
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
4,500
06 10 14 18 22 26 30 34 38 42 46 50
$bn 2006
Turkey GDP ($bn 2006)
12
Turkey may overtake Italy and Canada
010000
200003000040000
5000060000
7000080000
Chi
na US
Indi
aB
razi
lM
exic
oR
ussi
aIn
done
sia
Japa
nU
KG
erm
any
Nig
eria
Fran
ceK
orea
Turk
eyVi
etna
mC
anad
aPh
ilipp
ines
Italy
Iran
Egyp
tPa
kist
anB
angl
ades
$bn 2006
GDP 2050
13
Per Capita income may catch up rapidly with the G-7…
05,000
10,00015,00020,00025,00030,00035,00040,00045,00050,000
06 10 14 18 22 26 30 34 38 42 46 50
$bn 2006
0%
10%
20%
30%
40%
50%
60%
Turkey Per Capita Income ($2006)Turkey/G-7 Per Capita Income($ 2006)
14
…but probably not as explosive as the BRICs
100%
120%
140%
160%
180%
200%
220%
240%
07 10 13 16 19 22 25 28 31 34 37 40 43 46 49
Turkey/BRICs Per Capita IncomeTurkey/N-11 Per Capita Income
15
Challenges: The BoP Constraint
05
1015202530354045
Chi
na Iran
Kor
ea
Rus
sia
Nig
eria
Indo
nesi
a
Viet
nam
Indi
a
Mex
ico
Bra
zil
Turk
ey
Ban
glad
esh
Paki
stan
Phili
ppin
es
Egyp
t
% of GDPGross Domestic Savings
Gross Fixed Capital Formation
16
Challenges: TFP Growth
0123456789
10
Infla
tion
Gov
ernm
ent D
efic
it
Exte
rnal
Deb
t
Inve
stm
ent
Ope
nnes
s
Educ
atio
n
Life
Exp
ecta
ncy
Polit
ical
Sta
bilit
y
Rul
e of
Law
Cor
rupt
ion
PCs
Phon
es
Inte
rnet
%2006 Turkey GES
2006 G7 GES
17
What is to be done?
Increase the saving ratio Public Sector/Fiscal consolidation
Address the tax-base problem Social Security Reform Streamline/Privatise inefficient SEEs Wide ranging administrative reforms
Private Sector Technology and Know-How; Human Capital (Education and Health); Infrastructure Incentives to a number of key sectors, where Turkey has competitive advantage
Consolidate the capital account Improve business climate
Level playing field Stronger legal system Corporate governance
18
What if?
A high growth scenario Population growth
Unchanged
Investment Rate Up by 1 std dev. to 24.5% of GDP form 20.8% (Average of the previous 10 years)
Convergence ratio Up to 1.0% from 0.8% p.a. 2006-2020 Flat at 1.5% p.a. 2021-2050
19
2050: Turkey a Space Odyssey - $4.7tr economy?
0500
1,0001,5002,0002,5003,0003,5004,0004,5005,000
06 09 12 15 18 21 24 27 30 33 36 39 42 45 48
$bn 2006
Turkey GDP Base Line
Turkey GDP High Growth
20
2050: Turkey a Space Odyssey – Overtaking France?
01000020000300004000050000600007000080000
Chi
na US
Indi
aB
razi
lM
exic
oR
ussi
aIn
done
sia
Japa
nU
KG
erm
any
Turk
ey H
-Gro
wth
Nig
eria
Fran
ceK
orea
Turk
eyVi
etna
mC
anad
aPh
ilipp
ines
Italy
Iran
Egyp
tPa
kist
anB
angl
ades
h
$bn (2006)
21
2050: Turkey a Space Odyssey – More Prosperous?
0
10,000
20,000
30,000
40,000
50,000
60,000
06 09 12 15 18 21 24 27 30 33 36 39 42 45 48
$bn 2006
Turkey Per Capita Income Base Line
Turkey Per Capita Income High Growth
22
2050: Turkey a Space Odyssey – Catching up faster?
0%
10%
20%
30%
40%
50%
60%
70%
80%
06 09 12 15 18 21 24 27 30 33 36 39 42 45 48
2006
Turkey Base Line/G-7 Per Capita IncomeTurkey High Growth Per Capita Income
23
2050: Turkey a Space Odyssey – BRIC-like potential?
100%120%140%160%180%200%220%240%260%280%300%
07 10 13 16 19 22 25 28 31 34 37 40 43 46 49
Turkey Base Line/BRICs Per Capita Income Turkey High Growth/BRICs Per Capita IncomeTurkey Base Line/N-11 Per Capita IncomeTurkey High Growth/N-11 Per Capita Income
24
Conclusions
Turkey has immense long-term growth potential Already a sizeable economy, enjoying favourable demographics and location, as
well as: A young, relatively skilled and highly disciplined labour force A dynamic local entrepreneurial class; and Reasonably well developed market economy and institutions
But there are serious challenges to be overcome Market institutions need to be strengthened Further integration with the world economy will be the key to sustained high growth Has to do better on TFP – Education, health, infrastructure and technology And confidence matters – Policy processes need to be well-anchored
25
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