Economic Landscape Turkey

Economic LandscapeTurkeyGroup 3Anuja CMMGaurav GLSCMJaydeep CMM037Suyash CMM054Vivek - GLSCM

AgendaIntroductionEconomic performance and competitivenessGDP composition by sectorFDIExternal DebtEmploymentFiscal and monetary policiesTrade and current accountForex reservesCredit RatingOutlook

IntroductionPopulation: 74 millionGDP: USD 789 billionCurrency: Turkish Lira (1 Turkish Lira = 0.47 US dollars)Ethnic groups: 75% Turks, 18% Kurds, 7% othersMedian age: 30 yearsMember of Council of Europe, OECD, OSCE, EU Customs Union, WTO, ECO, BSEC and G-20

OECD Organisation of Economic developmentOSCE - Organisation for Security and co-operation in EuropeECO Economic Co-operation organisationBSEC Black sea Economic Co-operation3Government Debt/GDP (%)Debt/GDP ratio of Turkey was 36.1% in 2012, which was below the level in 24 EU Countries and the Maastricht Criteria (60%).

Economic performance and competitivenessSource: Ministry of Economy TurkeyEU Defined Budget Deficit/ GDP (%)EU defined general government budget deficit/GDP ratio was 2.6% in Turkey in 2011 and Turkey satisfied the Maastricht criteria of 3%. Turkey also outperformed 18 EU Countries. Central government budget deficit/GDP ratio was 2.0% in Turkey in 2012.In January-April 2013 period, central government budget deficit was 302 million Turkish Liras.

Economic performance and competitivenessSource: Ministry of Economy TurkeyGrowth Forecasts for Selected Countries/Country Groups (%)

According to the IMF, Turkish Economy is expected to grow by 3.4% and 3.7% in 2013 and 2014 respectively.In the 2012, Turkish economy grew by 2.2%.

Economic performance and competitivenessSource: Ministry of Economy TurkeyGDP

GDP and GDP growth rate of Turkey 2006 to 2016Source: Country Statistics Turkey, Datamonitor2009 to 2010 growth:-Reduced imports-Encouraged FDI in manufacturing7GDP composition by sectorSource: Country Statistics Turkey, Datamonitor

GDP Service sector (64.5%)Source: Country Statistics Turkey, Datamonitor

Service sector employed 51.2% of the total workforce Tourism is one of the most significant servicesOutput - $390.4 billion (2012)Sectoral growth rate 11.9% (2007-12) Transport 9 international airports, Airport of Istanbul planned to be the largest in the worldCommunications 18th in the world (landline), 15th in the world (mobile phones), 15th in the world (internet usage)Tourism 11 of the 100 best hotels located in Turkey, 10.9% of GDP and 8.3% of employmentFinancial services - BankingTourism Historic monuments/places9GDP Industry sector (26.6%)Source: Country Statistics Turkey, Datamonitor

Industry sector employed 25.9% of the total workforce Output - $160.7 billion (2012)Sectoral growth rate 10.5% (2007-12) Consumer electronics Textiles and clothing export to EUMotor vehicles and automotive products 6th largest producer in Europe and 15th in the worldMultiple unit trains, locomotives and wagonsShipbuilding 4th in the worldIron & steel industry 8th in the world, 29 million tonsScience and technology TUBITAK Construction and contracting sector 2nd in the worldGDP Agricultural sector (8.9%)Source: Country Statistics Turkey, Datamonitor

Employment 22.9% Output - $53.9 billion (2012)Sectoral growth rate 10.4% (2007-12)Self sufficient in terms of food productionLargest producers of hazelnuts, cherries, figs, apricots, pomegranatesLargest producer and exporter of agricultural products in the MENA region.Geographical location proximity to Europe, Middle East, North Africa and Central Asia.After years of low levels of foreign direct investment (FDI), Turkey succeeded in attracting $18.3 billion in net FDI in 2008.High volatility in financial markets, macroeconomic uncertainties, the fiscal gap in the USA and euro crisis have all affected the slump in FDI. In 2009 the Turkish government introduced variouseconomic stimulusmeasures to reduce the impact of the20072012 global financial crisissuch as temporary tax cuts on automobiles, home appliances, and housing. As a result, the production of durable consumer goods increased by 7.2%, despite a decrease in automotive production

FDI Inflows in TurkeySource: Ministry of Economy TurkeyDuring GFC turkey not only maintained relations with EU, but also developed relations with the east.They are attracted by the availability of a diverse labor force and cost competitiveness. Around 65% of the projects were initiated by Western European companies, as part of their strategy to relocate operations to Central and Eastern Europe (CEE). Of the 34 projects from Western Europe, 10 were from Germany, 8 fromItaly, and the rest mostly from France, Austria and Switzerland. While Istanbul has always enjoyed investor attention, Izmir and Manisa

12A series of large privatizations, strong and stable growth, and structural changes in the banking, retail, andtelecommunications sectors contributed to the 2008 rise in foreign investment. There has been increasing demand lately for foreign direct investors in the fields of energy,financial services, chemicals, environmental technologies, infrastructure, machinery and tourism. Foreign investors are able to transfer freely abroad: net profits, dividends, proceeds from sales or liquidation of all or any part of an investment, compensation payments, amounts arising from license, management and similar agreements, and reimbursements and interest payments arising from foreignloans through banks or special financial institutions.

Growth of FDI in TurkeySource: Ernst and YoungManufacturing sector held the first place with USD 4.4 billion of FDI inflows. Almost half of M&A transactions in Turkey were made in this sector.United Kingdom, Austria and Luxembourg are the top investors of 2012.

FDI Inflows by sectorSource: Ministry of Economy, TurkeyEstablishing a new company/branch or liaison office of a foreign company. Foreign investors are able to establishnew companieseven with one shareholder as either joint stock companies or limited liability companies. There is no restriction regulated by law about the nationality of shareholders, so they can be either foreign or domestic.

Acquiring shares in a company established in Turkey (any percentage of shares acquired outside thestock exchange or 10 percent or more of the shares or voting power of a company acquired through the stock exchange).

Forms of FDISource: Invest in TurkeyNumber of Companies with International CapitalAs of 2012 more than 33,000 companies with foreign capital operate in Turkey.The ratio of multinationals in Turkey that use their local office as a regional headquarters has reached 33 percent, according to a 2012 survey.A few major MNCs with their regional headquarters in Turkey: Axa, Benetton, Bosch, BP, Citibank, Coca-Cola, General Electric, GlaxoSmithKline (GSK), Hewlett-Packard (HP), Hugo Boss, Hyundai, Intel, LG, Mercedes-Benz, Metro Group, Microsoft, Pepsi, Pirelli, Procter & Gamble (P&G), Samsung, Siemens, Unilever, Visa etc.

Source: Invest in Turkey

16Turkeys Investment Incentive SystemIn 2012, the government introduced four major incentives scheme to attract foreign investments, the local and foreign investors have equal access to it.Primary objectives of the new investment incentives scheme are to; reduce the current account deficit; boost investment support to lesser developed regions; increase the level of support instruments; promote clustering activities, and to support investments that will create the transfer of technology.

Source: Invest in Turkey

17External DebtSource: Trading Economics

Employment

Source: Turkey Statistical Institute websiteEmploymentSource: OECD website49% of people aged 15 to 64 in Turkey have a paid job, less than the OECD employment average of 65%

People in Turkey work 1855 hours a year, equivalent to 35 hours per week (Higher than OECD average)

32% of adults aged 25-64 have earned the equivalent of a high-school degree

The unemployment rate reduced from 10.2% in Feb 2014 to 9.7% in March 2014Fiscal and Monetary SituationSource: OECD websiteFISCALContinued increase in Government spending boosting domestic consumptionThis increase has enabled Turkey to bounce back from the GFC

MONETARYDuring the GFC, CR ratio requirements were decreased from 6% to 5% Real Interest Rates during GFC was decreased to close to 0%, to boost consumptionInterest rates sharply hiked in 2014, and current benchmark rate at 8.75% (as of today)Source: Invest in TurkeyTrade Exports and Imports

Top ExportsSource: Invest in TurkeyThe main aim of Turkeys Import Policy are as follows

To reduce protectionist measures in conformity with the new GATT rulesTo reduce bureaucratic proceduresTo secure a steady supply of raw materials and intermediary goods at suitable prices with certain quality standardsThis serves as an assurance of seamless, quick and bureaucracy free access to raw materials and services ImportsSource: Invest in TurkeyForeign Exchange ReservesSource: World bank

Ranked 22nd in the world in terms of Forex reservesCredit RatingSource: Reuters. Financial Times.Trading Economics website.201220132014S&P RatingBBBB+BBMoodys RatingBa1Baa3Baa3Fitch RatingBBB-BBB-BBB-OutlookSource: OECD websiteSectors driving growth in next 2 years: Real estate, hospitality, construction, energy and heavy industryTurkey expected to be a major logistics and operations hubStronger trade ties with MENA countriesContinued strong domestic consumption Governments aim of reducing imports of oil and gas and increasing exportsThank you