examples to most attractive export sectors
TRANSCRIPT
Doing Business in Turkey
Funda Güngör
Koç Holding A.Ş.
2
Why Turkey
?
Source: Investment Support and Promotion Agency of Turkey
3
Contents
Growing Economy
Strengthening Financial Sector
Demographic Advantages
Energy Corridor
Strong Manufacturing Industry
Important Sectors at a Glance
4
Unique Geographical Location…
• Unique geographical location…
– Turkey enjoys a very special location at the crossroads between East and West, overlapping Europe and Asia geographically
– Turkey occupies an area approximately equivalent to the quarter of the size of the EU
• Favorable economic and political environment…
– Democratic parliamentary regime
– Open market economy
• Strong ties with Caucasia and Central Asia….
– Turkey is the leading investor in Caucasian and Central Asian Turkic Republics
– Turkey provides privileged access and a perfect base to develop business with these countries
5
International Associations – Commitment to Global Standards
Bilateral Investment Treaties with 79 countries Double Taxation Prevention Treaties with 68 countries
Social Security Agreements with 22 countries Free Trade Agreements with 11 countries
6
Large and Young Population – Increasing Urbanization
The Changing Nature of Turkish Urbanization, Large (around 70 million) and Young Population Present New Opportunities for Growth
-1% 0% 1% 2% 3%
Population Growth Rate Labour-force Growth rate
0 5 10 15 20 25 30
Old Population (Age over 65)/Total Population
Young Population (Age under 15)/Total Population
Poland
Turkey
Portugal
Romania
Belgium
Holland
Spain
Italy
France
Germany
Poland
Turkey
Portugal
Romania
Belgium
Holland
Spain
Italy
France
Germany
Population & Labor Growth Rates, % Population Breakdown (%)
7
Growing Economy
Strengthening Financial Sector
Demographic Advantages
Energy Corridor
Strong Manufacturing Industry
Important Sectors at a Glance
8
From Boost & Bust Cycles to Sustainable Growth
Source: Turkstat
GNP Growth Rates Before 2002: Boost and Bust Cycles
-15
-10
-5
0
5
10
15
'90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01
Consecutive High Growth Rates
144182
239
300
400
490
361
-9.5
7.95.9
9.97.6
5.56
0
100
200
300
400
500
'01 '02 '03 '04 '05 '06 '07 E-12
-9
-6
-3
0
3
6
9
12
GNP Growth Rate
Contribution of Private Sector Investments–% pps
0.3
4.4
0.0
1.0
2.0
3.0
4.0
5.0
6.0
1993-2002 2003-2006
Avg GDP Growth3.1%
Avg GDP Growth7.1%
9
Low Penetration Levels
Automotive
Organized Food & Retail Market Share, %
Ownership per Thousand
Penetration, %
Per capita consumption toe
Loans + Deposits/ GDP, %
Consumer Durables Food & Retail
Finance Energy
556
91
EU Turkey
90
68
EU Turkey
65
41
EU Turkey
275
68
EU Turkey
3.7
1.2
EU Turkey
476
67
EU Turkey
Vehicles Passenger Cars
10
Sustainable and High Growth Potential
Source: PricewaterhouseCoopers estimates (rounded to nearest percentage point)
Projected real growth in GDP and income per capita: 2005-2050 (%pa)
Country GDP in US $ terms
GDP in domestic currency or PPPs
PopulationGDP per capita at
PPPs
India 7.6 5.2 0.8 4.3
Indonesia 7.3 4.8 0.6 4.2
China 6.3 3.9 0.1 3.8
Turkey 5.6 4.2 0.7 3.4
Brasil 5.4 3.9 0.7 3.2
Mexico 4.8 3.9 0.6 3.3
Russia 4.6 2.7 -0.5 3.3
South Korea 3.3 2.4 -0.1 2.6
Canada 2.6 2.6 0.6 1.9
Australia 2.6 2.7 0.7 2.0
USA 2.4 2.4 0.6 1.8
Spain 2.3 2.2 0.0 2.2
UK 1.9 2.2 0.3 2.0
France 1.9 2.2 0.1 2.1
Italy 1.5 1.6 -0.3 1.9
Germany 1.5 1.8 -0.1 1.9
Japan 1.2 1.6 -0.3 1.9
11
19th Largest Economy of the World as of 2005Expected to become the 17th largest economy by 2008*
%GDP per Capita (based on PPP) GDP (based on PPP)
2007 2008 2007 2008
USA 45,176 47,050 13,675 14,385
China 8,486 9,431 11,207 12,518
India 4,031 4,336 4,555 4,973
Japan 34,011 35,377 4,346 4,519
Germany 32,179 33,346 2,645 2,738
UK 36,568 38,131 2,225 2,327
France 31,873 33,124 2,020 2,110
Russia 13,210 14,368 1,877 2,032
Italy 31,694 32,718 1,852 1,916
Brasil 9,531 9,966 1,805 1,912
Spain 28,445 29,444 1,276 1,342
Mexico 11,761 12,292 1,237 1,306
South Korea 25,403 26,958 1,229 1,307
Canada 36,821 38,150 1,215 1,275
Indonesia 4,616 4,955 1,038 1,129
Taiwan 31,692 33,432 735 782
Turkey 9,629 10,177 708 758
Australia 34,359 35,707 718 756
Argentina 17,062 18,018 672 716
Iran 9,075 9,544 644 689* World Economic Outlook, IMF
12
0% 2% 4% 6% 8% 10%
CzechRepublic
Hungary
Bulgaria
Romania
Portugal
Spain
Finland
Sweden
Post-Negotiation/Participation Process
Pre-Negotiation/Participation Process
EU Membership – An Economic and Political Anchor…
• Customs Union since 1996
• Full membership process since October 2005
FDI/GDP, Annual Average (%)
-4% -2% 0% 2% 4% 6%
CzechRepublic
Hungary
Bulgaria
Romania
Portugal
Spain
Finland
Sweden
Following the Negotiation/Participation Process
Ahead of the Negotiation/Participation Process
Average Growth Rate (%)
13
20
30
40
50
60
70
80
2001 2002 2003 2004 2005 2006
Agriculture Non-Agriculture
0
10
20
30
40
50
60
70
1953
1958
1963
1968
1973
1978
1983
1988
1993
1998
2003
Agriculture Industry Services
Increasing Share of Value-added Sectors
Sector Output Shares (%)
11.2
29.8
59.0
45.0
13.5
41.5
Employment by Economic Activity (%)
62.5
72.7
37.5
27.3
Source: Turkstat
14
Fiscal Prudence & Sustainable Disinflationary Trends
Consolidated Budget (% of GNP)
-20%
-15%
-10%
-5%
0%
5%
10%
2001 2002 2003 2004 2005 2006 2007 E
Consolidated Budget Balance/GNP (%)
Primary Budget Surplus/GNP (%)
-2.5%
-17%
Source: Ministry of Finance
Inflation (%, YoY)
Source: Central Bank
0
10
20
30
40
50
60
70
80
90
100
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7
CPI PPI
2001 2002 2003 2004 2005
35.9
2006 2007
28.3
73
92
7.43.7
-0.7%
15
0
20
40
60
80
100
120
140
Public Private
Medium to Long-term Short term
Declining Sovereign Risk
YTL Billion, %
Source: Treasury
0
50
100
150
200
250
300
350
400
2002 2003 2004 2005 2006 2007 2Q0
10
20
30
40
50
60
70
80
90
100
Gross Public Debt (Nominal) Gross PD / GNP
Maastricht Criterion
93
58
358
Euro Zone Average
YTL Billion 2002 2003 2004 2005 20062007 2Q
Net Public Debt (Nom) 215.7 250.8 274.4 269.1 259.2 249.1
Net Public Debt (at 2007-1Q prices)
330.8 337.7 320.2 305.9 264.0 249.1
Net P. Debt / GNP (%)
78.4 70.3 64.0 55.3 45.0 40.7
External Debt
0
20
40
60
80
100
120
140
Public Private
2002 : US$ 130 bn 2007 1Q : US$ 213 bn
Domestic Debt
45
43
12
50
1535
2001 : US$144.0 bn 2007 August : US$194.9 bn
YTL - Floating YTL- Fixed FX & FX-linked
Maturity(months): 12.8 24.8
16
Stronger Integration to World Markets
Foreign Trade (US$ Billion)
Source: Turkstat
0
20
40
60
80
100
120
140
160
180
2001 2002 2003 2004 2005 2006 2007 E
Exports Imports
100
160
Exports by Country Groups – Jan-July 2007 (%)
North America
4.5Other
6.6
East Asia4.9
North Africa3.7
Oth.Europe + CIS9.7
Middle East13.5
Total EU57.1
Imports by Country Groups – Jan-July 2007 (%)
East Asia19.3 Other
5.2
North Africa2.1
North America
5.3
Oth.Europe + CIS20.5
Middle East7
Total EU40.6
3141
17
Already Increasing Levels of FDI Better Means of Financing the C/A Deficit
Foreign Direct Investment (US$ Billion)
0
5,000
10,000
15,000
20,000
25,000
2003 2004 2005 2006 2007 E-5%
5%
15%
25%
35%
45%
55%
65%
FDI Coverage of C/A Deficit by FDI
Official Reserves (US$ Billion)
38
62
0
10
20
30
40
50
60
70
80
1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7 9 11 1 3 5 7
2001 2002 2003 2004 200572
2006 2007
19
12.1
20
Growth vs Current Account Deficit, %
-10
-8
-6
-4
-2
0
2
4
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
-35
-30
-25
-20
-15
-10
-5
0
5
10
C/A Deficit to GNP (R)C/A Deficit Adjusted by Energy Prices (R)GNP Grow th (L)
The New FDI Law
The main principles are as follows:• Equal Treatment for domestic and foreign capital companies • No pre-entry or pre-establishment screening requirements • No need to notify to the Undersecretariat of Treasury • No obligation to choose a specific company name • Unrestricted foreign ownership
Rights of International Investors• Free Transfer of Funds • Acquisition of real estate • Dispute settlement either in local courts or international arbitration bodies • Valuation of non-cash capital • Work permits for expatriates • Opening a liaison office
Source: Central Bank, Investment Support and Promotion Agency of Turkey
18
Source: Privatization Administration and local media
Privatization Revenues (US$ mn)
Growing Opportunities for the Private Sector and Foreign Players
9,430
4,396
2,674
84 367 289
1,206
3,032
9,580
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
9,000
10,000
1986-99
2000 2001 2002 2003 2004 2005 2006 2007
Privatization & SDIF Sales, 2008-2009
US$ Million (expected)
Petkim 2,040
Halk Bank 5,000
National Lottery 1,000
Sugar Factories 600
Motorways & Bridges 2,600
TEKEL 1,300
Electricity Distribution 4,000
Power Generation 15,000
19
Financial MarketsThe resilience of the financial markets against global shocks increased significantly
13
16
19
22
25
28
31
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N
Interest Rates %
2004 2005 2006
16.33
2007
1.1
1.2
1.3
1.4
1.5
1.6
1.7
J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N
YTL / $
2004 2005 2006
1.1757
2007
Trigger: Start of FED rate hikesDuration:3 monthsDev. Rate: 28% Trigger: Expectation of
strong FED rate hikesDuration:2 monthsDev. Rate: 7%
Trigger: Japan’s interest-rate hikes & Global liquidityDuration:2 monthsDev. Rate:29%
Interest Rates Inc: 7.65 bp
Interest Rates Inc.: 0.17 bp
Interest Rates Inc.: 7.35 bp
Trigger: Mortgage Crisis in USDuration:3 monthsDev. Rate:8%
Interest Rates Inc.: 1.80 bp
Source: Reuters, Koç Holding
20
2007-2008 Expectations
2005 2006 2007 E
2008
Koç Holding
Assumptions
Government
Program
GNP (US$bn) 361 400 498 560 520
GNP Growth (%) 7.6 6.0 5.0 6.0 5.5
CPI (year-end, %) 7.7 10.0 6.9 5.5 4.0
YTL / $ (year-end) 1.35 1.41 1.23 13.5
YTL / $ (avg.) 1.34 1.44 1.31 1.28
YTL / € (year-end) 1.59 1.85 1.72 1.89
21
Growing Economy
Strengthening Financial Sector
Important Sectors at a Glance
Demographic Advantages
Energy Corridor
Strong Manufacturing Industry
22
Strategically Located on Critical Energy Corridors
Kirkuk – CeyhanIraq’s largest export lineCapacity: 70 mn tons p.a.Baku – Tbilisi – CeyhanDecreasing transportation and financial costsCapacity: 50 mn tons p.a.Samsun – CeyhanCeyhan to become an energy hub Capacity: 70 mn tons p.a.
NabuccoMajor alternative route for gas to EU to be partially operational by 2012 Construction will end in 2017 (max capacity: 31 bcmy)Turkey – Greece – ItalyTurkey – Greece part is in the final stages of constructionConstruction of the “Italy-Greece” section : 2008 - 2011Estimated capacity: 8-10 bcm p.a.
Oil Pipelines Natural Gas Pipelines
23
Opportunities in Energy Sector : Gas & Oil
Gas
• New distribution networks
• Privatization of major gas distribution companies
• International gas transit projects passing through Turkey
• Gas import contracts of BOTAS - 16 lots of 250 mcm have already been sold
Oil
• New oil pipeline projects such as the Samsun-Ceyhan Project offers opportunities for construction and engineering companies.
• New Petroleum Law is expected to stimulate exploration and production activities
• Collaboration opportunities with the American companies regarding hydrocarbons in Iraq.
• Black Sea as an offshore region – need for deep water-related services
Turkey annually exports 35-40 billion m3 of natural gas to Europe and 250-300 million tons of petroleum to world markets
24
Opportunities in Energy Sector : Electricity
• Privatization of 20 electricity distribution regions
• Sale of 16,000 MW of state generating plants (12,200 MW thermal and 3,800 MW hydro)
• Additional generating capacity of 54,000 MW to be created by 2020. (1/3 in hydro)
• Construction of over 600 HEPPs (High Energy Particle Physics) with a capacity of 11,000 MW (2007). Hydro facility of 12,578 MW are in operation and it is projected that 35,000 MW capacity will be reached by 2020.
• Investment opportunities in Renewable Energy
• Wind turbines (The installed capacity to reach up to 3,000 in 2020)
• Solar energy thermal potential (61 million Toe)
• Creation of nuclear capacity of 5,000 MW by 2020.
According to the Ministry of Energy and Natural Resources, Turkey requires energy investments of $128 billion through 2020 in order to sustain its economic growth
25
Growing Economy
Strengthening Financial Sector
Demographic Advantages
Energy Corridor
Strong Manufacturing Industry
Important Sectors at a Glance
26
Low Penetration Levels - High Growth Prospect
Banking System in Turkey
134155
117 130
183
235
303
355396
1999 2000 2001 2002 2003 2004 2005 2006 1H2007
No of Banks 81 79 61 53 51 51 51 47 46
Turkey EU-25
Total Assets % Share in GNP 82 304
Total Deposits % Share in GNP 50 104
Total Loans % Share in GNP 31 126
Mortgage Loans % Share in GNP 3 43
Income Per capita Euro 4,046 23,402
Assets Per capita Euro 3,470 71,120
Deposits Per capita Euro 1,317 29,464
Loans Per capita Euro 2,125 24,279
Mortgage Loans Per capita Euro 171 10,099
Population Per branch 11,536 2,297
Banking Highlights
27
Restructuring in the Banking System Stronger Risk Management, Higher Capitalization, Higher Profitability
Capital Adequacy Ratio – %
Non-performing Loans – %
37.4
3.7
0
5
10
15
20
25
30
35
40
2001 Jun-07
15.3
18.8
0
2
4
6
8
10
12
14
16
18
20
2000 Jun-07
Net NPLs (0.4%)
RoE - %
Open FX Position – US$bn
22.2
0.6
0
5
10
15
20
25
Oct-00 jun. 07
2.4
12.2
0
2
4
6
8
10
12
14
Jun. 03 Jun-07
Source: Banking Association of Turkey
28
Total Loans
Lending Penetration – Total Loans to GNP, %
44 40
57 53
112
38
27 23 24
65
2734
132
150
162
111
12
32
73
2317
107
4439
106
41
75
140
81
0
20
40
60
80
100
120
140
160
180
Ge
rma
ny
Ja
pa
n
En
gla
nd
US
A
Bu
lga
ria
Ce
zch
R.
Eg
yp
t
Hu
ng
ary
Isra
il
Ka
zak
hs
tan
Po
lan
d
Ro
ma
nia
Ru
ss
ia
S. A
fric
a
Tu
rke
y
Uk
rain
Arg
en
tin
a
Bra
sil
Ch
ile
Co
lom
bia
Me
xic
o
Ch
ina
Ind
ia
Ind
on
es
ia
Ma
lay
sia
Ph
illip
pin
es
S. K
ore
a
Ta
iwa
n
Th
aila
nd
Developed CountriesDeveloping Countries (Europe&S.Africa) Latin America Developing Countries (Asia)
Source: Merrill Lynch
29
Mortgage Loans
Mortgage Penetration – Mortgage Loans to GNP, %
5 6
0
10
22
36
1 0
33
1 3
50
40
86
66
2 2
15
2 2
95
2
30
5
13
35
6
0
10
20
30
40
50
60
70
80
90
100
Ge
rma
ny
Ja
pa
n
En
gla
nd
US
A
Bu
lga
ria
Ce
zch
R.
Eg
yp
t
Hu
ng
ary
Isra
il
Ka
zak
hs
tan
Po
lan
d
Ro
ma
nia
Ru
ss
ia
S. A
fric
a
Tu
rke
y
Uk
rain
Arg
en
tin
a
Bra
sil
Ch
ile
Co
lom
bia
Me
xic
o
Ch
ina
Ind
ia
Ind
on
es
ia
Ma
lay
sia
Ph
illip
pin
es
S. K
ore
a
Ta
iwa
n
Th
aila
nd
Source: Merrill Lynch
Developed CountriesDeveloping Countries (Europe&S.Africa) Latin America Developing Countries (Asia)
30
Contents
Growing Economy
Strengthening Financial Sector
Important Sectors at a Glance
Demographic Advantages
Energy Corridor
Strong Manufacturing Industry
31
Strong Competitive Advantages
Opportunities
• Growing markets in the surrounding geography
• Efforts to increase efficiency
Strengths
• Geographical location
• Customs Union with the EU
• A large export base
• Product development capability
• Competitive and flexible manufacturing
• Strong and competitive domestic supply base
• Low labor costs
• High quality standards
• High domestic demand versus comparable Eastern European countries
• Highly educated, young, dynamic and qualified workforce
• Flexible and long working hours
32
Strong Competitive Advantages
Source: Investment Support and Promotion Agency of Turkey
33
Increasing Emphasis on R&D
R&D Expenses/ GDP - %
0
0.5
1
1.5
2
2.5
'90
'92
'94
'96
'98
'00
'02
'04
'06
'08
'10
Private Sector Support for Technology & Innovation, YTL mn
0
50
100
150
200
250
300
350
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
R&D Support by Tubitak (Scientific and Technological Research Council of Turkey)
0
20
40
60
80
100
120
140
160
'95
'96
'97
'98
'99
'00
'01
'02
'03
'04
'05
'06
'07
0
20
40
60
80
100
120
140
160
180
200
'02
'03
'04
'05
'06
R&D Investment at Koç Group–€ mn
0
200
400
600
800
1000
1200
1400
1600
1800
'02
'03
'04
'05
'06
R&D Personnel at Koç Group
34
Special Investment Zones
Technology Zones (14 + 8) Organized Industrial Zones (93)
Free Zones (20)• Offices ready to rent and infrastructure facilities provided. • Profits derived from software and R&D activities are exempt from income and corporate taxes until 2014. • Deliveries of application software produced exclusively in TDZ’s are exempt from VAT until 2014. • Wages of researchers, software and R&D personnel employed in the zone are exempt from all taxes until 2014. • A VAT exemption during the exemption period of income and corporate taxes is provided for IT specific sectors. • Exemption from customs and duties as well as fund levies.
• %100 exemption from custom duties and other assorted duties • %100 exemption from corporate income tax for production companies • %100 exemption from the value added tax (VAT) & sp. Cons. taxes • Companies are free to transfer profits from Free Zones abroad as well as to Turkey without restrictions.
Investors operating in the zones located in 54 selected provinces benefit from the following advantages: • 100% exemption from income tax for employed workers. • 100% exemption from the employer’s share of social security costs. • Free land allocation. • Up to 50% support for electricity costs. • Exemption from real estate tax, waste water charges, building construction duties and the use-of-building.
Source: Investment Support and Promotion Agency of Turkey
35
Contents
Growing Economy
Strengthening Financial Sector
Important Sectors at a Glance
Demographic Advantages
Energy Corridor
Strong Manufacturing Industry
36
Main Export Sectors
Sectoral Composition of Exports –
Largest 500 Companies, %
3.5
7.5
10.9
13.3
17.3
17.7
26.9
0 5 10 15 20 25 30
Automotive
Iron&Steel
Machinery&Equipm.
Textiles&Leather
Oil and Coal derivatives
Food&Tobacco
Mining3.5
7.4
7.5
8.4
10.5
11.7
46.5
0 10 20 30 40 50
Textiles&Leather
Machinery&Equipm.
Food&Tobacco
Iron&Steel
Autıomotive
Mining
Oil and Coal derivatives
Source: ISO Source: ISO
Sectoral Composition of Exports –
2nd Largest 500 Companies, %
37
Examples to Most Attractive Export Sectors
Most Attractive Export Sectors
Source: WTO
0%
10%
30%
20%
40%
50%
60%
0% 1% 2% 3% 4% 5% 6%
Telecom & Audio
Iron &Steel
Textile Fruit & Vegetables
ApparelMetallic Goods
Electrical machinery
Motor Vehicles
Market Share in Global Exports, 2005 %
Exp
ort
Gro
wth
, 2
00-
20
05
%
…the 6th largest vehicle producer in EU-25 and 15th largest worldwide; the 3rd largest producer in light vehicles in EU-25 and the largest producer in bus in EU-25;
…the largest producer and exporter of agricultural products in the Near East and North Africa …the largest hazelnut and apricot produce…Agricultural production is equivalent to 40% and 20% of EU-25 production of fruits and vegetables
…the 2nd largest white goods producer in Europe, following Italy and producing about 16% of total European production…the 1st TV manufacturer in Europe
…the 7th largest apparel, 3rd largest home textile and 15th textile exporting country internationally…the 2nd largest supplier of the EU after China, meeting 12% (in volume) and 15% (in value) of the textile and garment requirement of the EU.…the 7th largest apparel, 3rd largest home textile and 15th textile exporting country internationally
…among the top countries who export construction services
…the world’s 6th largest producer of cement and cotton
Motor Vehicles
Agricultural Products
White Goods &Electronics
Textile & Apparel
Cement & Cotton
Construction
38
Thank you…
www.ito.org.trinvest.gov.trwww.yased.org.trwww.treaury.gov.trwww.igeme.org.trwww.tusiad.org.trwww.foreigntrade.gov.trwww.deik.org.tr
Further information on business environment and trade & investment opportunities in Turkey can be reached at:
Istanbul Chamber of CommerceInvestment Support and Promotion Agency of TurkeyInternational Investors AssociationUndersecretariat of TreasuryExport Promotion CenterTurkish Industrialists’ and Businessmen’s AssociationUndersecretariat of Foreign TradeForeign Economic Relations Board