Turkey Investment Outlook
Hakan TOKAÇ Director General of Foreign Economic Relations Prime Ministry Undersecretariat of Treasury
Outline ď Ž
Medium Term Program and Macroeconomic Outlook
ď Ž
Investment Climate in Turkey
2
MEDIUM TERM PROGRAM TARGETS & POLICIES
3
Medium Term Program (MTP) Priorities
Reducing current account deficit
Decreasing inflation
Increasing domestic saving ratio
4
MTP Targets Inflation
External Balance - Current Account Deficit (% GDP) 6.6
7
6.4
6.8
6.4 6.2 6
5.9
6.0 5.8
5.3
5.5
5.6
5
5.0
5.0
5.4 5.2 4
5.0 2014
2015
2013
2016
Domestic Saving Ratio
2014
2015
2016
GDP Growth (% Change)
17.0
6
5.0
5.0
2015
2016
5 16.0
16.0
4.0 4
15.0
3
14.9
2 14.0
13.8
1
13.0
0 2014
2015
Source: Medium Term Program 2014-2016
2016
2014
5
Policies Aiming to Reduce Current Account Deficit
Prudent fiscal policy
Macro-prudential measures
Structural reforms
6
Fiscal Targets Central Government Budget Deficit (% GDP)
IMF Defined Public Sector Primary Balance (% GDP) 1.3
1.4
1.2
1.2 1.0
2.5 2.0
1.0
1.9 1.6
1.5
0.8
1.1 0.6
1.0
0.4 0.5
0.2
0.0
0.0 2014
2015
2014
2016
2015
2016
EU Defined General Gov’t Gross Debt Stock (% GDP)
General Government Overall Deficit (excl. privatization,% GDP) 36
2
1.7 34
1.5
33
1.2 32
31
1
0.7 0.5
30 30 28 26
0 2014 Source: Undersecretariat of Treasury
2015
2016
2014
2015
2016
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1- Loans
Macro Prudential Measures in MTP a) Consumer Loans Measures
b) Credit Card Measures
2- Liquidity and Reserve Requirement 3- Capital and Leverage Ratio
Increasing general provision ratios according to share of consumer loans in total credit portfolio (June 2011) Increasing risk weights on consumer loans in calculation of Capital Adequacy Ratio (October 2013) Implementing loan to value ratio for passenger car loans (December 2013) Confinement of maximum maturity of consumer loans excluding housing (December 2013)
Differentiating the minimum payment ratio according to credit card limits (June 2011 and October 2013) Assigning credit card limits based on the income of cardholders (October 2013) Enhancing customer control mechanism for increasing credit card limits (October 2013) Capping on ‘’total’’ credit card limits for individuals to have first time credit card holders (October 2013) Limiting number of installments for purchasing good and services (December 2013)
• Increasing required reserves for short term deposits (January 2011) • Inclusion of financing companies in the reserve requirement coverage (October 2013)
• Introducing minimum core capital adequacy ratio and common equity tier 1 (September 2013) • Introducing leverage ratio (November 2013) • Introducing countercyclical capital buffers and imposing certain restrictions on profit distribution (November 2013) • Implementing leverage-based reserve requirement (2013-Q4)
8
Structural Reforms in MTP Reducing Import-Dependency on Energy
Increasing Competitiveness and Improving Investment Environment
Renewable Energy
New Investment Incentive Scheme
Increasing share of renewable
Input Supply Strategy
energy in total electricity supply Domestic Resources
Huge Lignite Potential
Diversification of Export Markets Tax incentives to support services exports
Increasing Private Savings and Improving Quality of Financing
Introducing matching state contribution in Private Pension System
Regulations to support insurance sector Regulations to extend the scope and increase the operational efficiency of Catastrophe Insurance schemes
Incentives on Equity Financing (Capital Markets Law, Borsa
Energy Efficiency
R&D and innovation support programs
Utilizing energy saving potential in
New Commercial Code
Differentiation of Resource Utilization Support Fund rates for
Strategy for fight against informal
Lengthening of maturity of deposits (Differentiation of reserve
housing, industry and transportation Nuclear Energy
Increasing share of nuclear energy in total energy supply
economy
Education Reform Improvement of tax legislations Regional development policies Labor market reforms Establishing logistic centers to support the competitiveness of main export sectors
Improving logistic services by private and public physical infrastructure investments
Istanbul, Business Angels System, Venture Capital Funds)
external borrowings according to maturity
requirements and withholding tax rate according to maturity, withdrawal before maturity without incurring a loss of interest)
Sovereign Lease Certificate Issuance Non-banking Financial Institutions Law New regulation on non-residents purchase of land Istanbul Financial Center Project Regulations to decrease costs of SME loans and export credits
Regulations to extend the maturity of export rediscount credits and to increase the overall limit for those credits
9
Key Reform Programs in the Tenth Development Plan (2014 - 2018)
Increasing Domestic Savings
Energy Generation Based on Local Resources
Energy Efficiency Improvement
Reducing Dependence on Imports
Commercialization of Priority Technology Areas
Improving the Business and Investment Climate
Reducing the Informal Economy
Improving the Effectiveness of the Labor Market
Development of Basic and Occupational Skills
Rationalization of Public Expenditures
Raising the Quality of Public Revenue
Istanbul International Financial Center
Transition from Transportation to Logistics 10
FUNDAMENTAL STRENGTHS of TURKISH ECONOMY
Public Deficit & Debt General Government Overall Deficit (excl. privatization, % GDP) 14.0
Central Government Budget Deficit (% GDP) 14.0
12.5
10.9
12.0 10.0
12.0 10.0
8.0
8.0
4.4
4.0 2.0
0.7 0.2
1.6
0.7
1.5 1.6
3.6
4.0
1.1 0.6
2.0
0.0
5.5
5.2
6.0
3.4
2.5
8.8
8.0
5.9
6.0
11.9 11.5
1.6 1.8
1.4
2.1
1.2
0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
EU Def General Govt Debt Stock
IMF Defined Public Sector Primary Balance / GDP(%) 7.0 6.0
5.7
5.5 4.7
5.0 4.0 3.0 2.0
3.2
90.0 80.0
70.0
4.8 4.5
60.0
3.1 1.6 0.7
1.0 0.0
0.8 0.9
40.0
74.0 67.7 59.6 52.7 46.5
46.0
39.9 40.0
42.3
39.1
36.2 36.3
30.0 20.0
-1.0 -2.0
50.0
1.8
77.9
-1.0
10.0 0.0 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(*) Medium Term Program (2014-2016) Projections
Source: Undersecretariat of Treasury, MoF, MoD, TURKSTAT, IMF
12
Key Public Debt Indicators Currency Composition of Central Government Gross Debt (%)
Interest Composition of Central Government Gross Debt (%) 100%
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
90%
58.1
29.1 26.7 29.6 27.3 31.2 31.6 37.6 37.2 31.3 33.8 46.3 41.5
80% 70%
43.0 46.6 44.0 40.8 40.2 38.5 38.0 51.1 46.2 49.8 46.0 44.2
60% 50%
41.9
70.9 73.3 70.4 72.7 68.8 68.4 62.4 62.8 68.7 66.2 53.7 58.5
40% 30% 20%
57.0 53.4 56.0 59.2 59.8 61.5 62.0 48.9 53.8 50.2 54.0 55.8
10% 0%
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Mar. TL
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Mar.
Foreign Exch.
Fixed
Average Maturity of Domestic Borrowing (months) 80
International Bond Issuances (billion USD) 8
74.3 66.5
70
60.8
60
44.1 44.7
50 40
34 27.7
30
28
31.7
35.3
7
10
9.4
11.6
14.8
2.70
2.49
5
1.42
1
1.08
2.00
4 3
1.50
1.52
6
0.69 3.75
4.00
2.60
1.38
2.19
5.50 3.85
1.25 0.20 1.69
1.63
2 20
Floating
4.00 3.00
3.75
4.50
4.00
4.00 3.00
2.00
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Mar.
Source: Undersecretariat of Treasury
USD
Euro (USD Equivalent)
Yen (USD Equivalent)
Lease Certificate (USD)
13
Banking and Household Sector Indicators Capital Adequacy Ratio (%) 35 30
Capital Adequacy Ration in Selected Markets 25.0
30.9 28.2 25.1
23.7
25
20.0 21.9 18.9 18.0
20
20.6
19.0
16.6
17.9
19.8 17.0 16.9 16.6 16.1 15.6 15.6 15.3 15.2 14.7 14.0 13.9 13.5 13.0 12.6 12.2
15.0 15.3 15.5
15
10.0
10
5.0
5
0.0
0
Asset Quality NPL Ratio 25
Household Liabilities (% of GDP) 70
21.2
60
20 15 10 5
Euro Area Average
64.9
50
11.5
40
7.6 6.0 1.5
0.8
4.7 0.6
5.3 3.7 0.4
3.5 0.5
3.7 0.8
3.7 0.9
0.6
2.7
2.9
2.9
0.6
0.7
0.7
2.7
2.8
0.6
0.7
30 12
16
10
14
18
2006
2007
2008
2009
2010
20
0
19
21
2011
2012
24
10 0 Gross
Net
2013
14
INVESTMENT CLIMATE in TURKEY
15
Foreign Direct Investments 1923- 2002: USD 15,1 billion 2003-2014/Feb: USD 138,8 Billion
25.0 22.0 20.2
19.8 16.0
15.1 15.0
13.2
8.7
5.0 1.7
9.0
2.8
1.9
2.4
2014*
10.0 10.0
12.9
2013*
Billion US Dollars
20.0
Source: Republic of Turkey Ministry of Economy
2013
2012
2011
2010
2009
2008
2007
2006
2005
2004
2003
1923-2002
0.0
16
Foreign Direct Investments by Sectors Services 3.15%
FDI in Turkey by Sectors
5.06%
Financial and Insurance Activities
3.24%
4.73%
Agriculture 0.28%
Information and Communication Services
Wholeshale and Retail Trade
7.35% Construction
15.98%
60.49%
Industrial Sectors 35.83%
Transportation and Storage Real Estate Activities Other
Services 63.88%
Industrial Sectors 3.91%
0.16% Manufacturing
Electricity, Gas, Steam and Air-conditioning Supply 36.63% 59.31%
Mining and Quarrying
Water Supply; Sewerage, Waste Management and Remediation
Source: Central Bank of Republic of Turkey
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Foreign Direct Investments by Countries FDI by Countries - Europe 10.46%
FDI in Turkey by Region
Netherlands Austria
2.61% 5.75%
Belgium
21.18%
0.30% 0.19%
Germany United Kingdom
7.45%
8.93%
10.94% 7.93%
Luxembourg Greece France Spain
15.01%
Europe Asia
8.71%
8.11% 8.20%
8.66%
Italy Other
America
FDI by Countries - America
Africa Other 6%
4%
75.57%
USA Brazil Canada 90%
Source: Central Bank of Republic of Turkey
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Incentive System Incentive Schemes Support Measures General Investment Incentive Scheme
Regional Investment Incentive Scheme
Large Scale Investment Incentive Scheme
Strategic Investment Incentive Scheme
Tax Reduction
Social Security Premium Support (Employer’s Share)
Social Security Premium Support (Employee’s Share) *
Interest Support **
VAT Exemption Customs Duty Exemption
Income Tax Withholding Support *
Land Allocation VAT Refund
* Provided that the investment is made in the Region 6. ** Provided that the investment is made in the Regions 3, 4, 5 or 6 within the frame of the Regional Investment Incentive Scheme
Source: Ministry of Economy
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Country Comparisons Tariff barriers (Trade-weighted barriers, %) TTRI* 7 6 5 4 3 2 1 0
Starting a business Number of days required to establish a company 35 30 25 20 15 10 5 0
Finance and banking regulation IMD WCY executive survey based on an index from 0 to 10 8 7 6 5 4 3 2 1 0
International experience IMD WCY executive survey based on an index from 0 to 10 6 5 4 3 2 1 0
Source: Investment Support and Promotion Agency http://www.invest.gov.tr
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10 Reasons to Invest in Turkey Successful Economy Population Qualified and Competitive Labor Force Liberal and Reformist Investment Climate Infrastructure Centrally Located Energy Corridor and Terminal of Europe Low Taxes and Incentives Customs Union with the EU Since 1996 Large Domestic Markets
Source: Investment Support and Promotion Agency http://www.invest.gov.tr
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Tel: +90 312 204 7364 Fax: +90 312 204 7366
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