The Turkish Economy: 2014

and Beyond

www.americanturkic.org

Orhan K. Osman

President & CEO

American Turkic Business Council DBATexas Turkish American Chamber of

Commerce

OUTLINE

• Turkish Economic History

• Why Invest in Turkey

• Leading Sectors in Turkish Economy and Key Cooperation Areas

• US-Turkish Economic Partnership

Brief Economic History

• State Controlled Closed Economy

• Turgut Özal: Liberal Policies, Open Economy

• Lost Decade: High Inflation, Unstable Coalitions, Weak Leadership

• Three Crisis: 1994, 1999, 2001

• 2002: Whole Collapse of Political Parties

• Reemergence of A Conservative Business Friendly Government

Population

• Turkey has a population of approximately

76.7 million.

• Largest youth population compared with

the EU.

• Half the population under the age 30.4.

• Young, well-educated and multi-cultural population.

Demographic Profile Comparison* (2013)

Turkish Population Prospects: (Million People)

Booming Economy• More than tripling its GDP, reaching USD 820

billion in 2013, up from USD 231 billion in 2002.

• Promising economy with a bright future as it is expected to become the fastest growing economy among the OECD members during 2012-2017 with an average annual real GDP growth rate of 5.2 percent.

• A mature private sector with USD 152 billion worth of exports and an increase of 245 percent between 2004 and 2013.

• 16th largest economy in the world and 6th largest economy compared with the EU in 2013.

Centrally Located

Turkey in the Region

Istanbul (Turkey) is becoming a very international business hub

• Microsoft’s headquarters in Istanbul serves more than 80 countries

• Intel’s Istanbul office reaches out to more than 67 countries

• Coca-Cola’s regional headquarters in Istanbul takes care of 94 countries including the whole continent of Africa, Russia, Eastern Europe, Central Asia, Middle East and all the way to India.

Top reasons to invest in Turkey

Source: Respective Companies

Business Capital for Regional HQs

Multinational Companies (MNCs)

MNCs Number of Countries Managed

from Turkey

Coca Cola 94

GE Healthcare 80

Microsoft 80

Intel 67

Unilever 36

Verifone 30

GlaxoSmithKline 30

BSH 30 Schneider Electric 27

Alstom 26 Ericsson 22

Cargill 20

Pfizer 20

Volvo 18

BASF 18

PepsiCo 14

Dynamic, Stable & Attractive Economy Population

International Hub Access to Multiple Markets

Energy Corridor Structural Reforms

Why Turkey?

• From Istanbul, only with Turkish Airlines you can fly to 104 countries and there is no other airline in the world which flies to that many countries.

• Turkey is a unique country that land in two continents: Asia and Europe. The city of Istanbul is located in between both continents.

• Turkey is a country in the Middle East.• Turkey is a country in Balkans.• Turkey is a country in Caucasus.• Turkey is a Mediterranean country.• Turkey is a Black Sea country.• Turkey is a country with Caspian Sea basin.

Why Turkey?

• A natural bridge between both East-West and North-South axes, thus creating an efficient and cost effective outlet to major markets.

• Easy access to 1.5 billion customers in Europe, Eurasia, the Middle East and North Africa.

• Access to multiple markets worth USD 25 trillion of GDP.

Market Access

Top reasons to invest in Turkey

Source: IMF World Economic Outlook and WTO; GDP, Imports and population figures as of 2012

1,5 billion people; $25 trillion GDP; $8 trillion trade

EUROPE

GDP: $19 trillion Import: $6,5 trillion Population: 670 million

RUSSIA

GDP – $2 trillion Import: $335 billion Population: 142 million

MENA

GDP: $3,8 trillion Import: $995 billion Population: 675million

CENTRAL ASIA & CAUCASUS

GDP: $390 billion Import: $97 billion Population: 82 million

Dynamic, Stable & Attractive Economy Population

International Hub Access to Multiple Markets

Energy Corridor Structural Reforms

Access to Multiple Markets

Infrastructure• Highly developed technological

infrastructure in transportation, telecommunications and energy.

• Well-developed and low-cost sea transport facilities.

• Railway transport advantage to Central and Eastern Europe.

• Well-established transportation routes and direct delivery mechanism to most of the EU countries.

• New rail connection to Georgia, Azerbaijan will connect Turkey to all the way to Eastern Pacific Shores by 2015

Why Turkey?

• Turkey has links with many countries and regions through multinational agreements.

• Member of NATO, allies with the U.S.

• Member of OSCE; Organization for Security and Cooperation of Europe.

• Member of Council of Europe.

• Candidate country for European Union.

• A strategic partner to African Union.

Why Turkey?

• Special link with Arab countries, with Gulf Cooperation Council,

• Founding partner of Black Sea Economic Cooperation Organization.

• Founding member of South European Cooperation Process, South European Countries.

• Shanghai Cooperation Organization.

All these international linkages give Turkey a huge opportunity of trade and also political access.

TURKEY’S FTA’S in EUROPE and AFRICA

EFTAPopulation: 13 million

GDP: 955.8 billion

EUPopulation: 502.1 million

GDP: 15.3 trillion*

IsraelPopulation: 7.6 million

GDP: 217.3 billion

MacedoniaPopulation: 2 million

GDP: 9.1 billion

CroatiaPopulation: 4.4 million

GDP: 61 billion

Bosnia-HerzegovinaPopulation: 4.6 million

GDP: 16.9 billion

TunisiaPopulation: 10.5 million

GDP: 42.2 billion

MoroccoPopulation: 32 million

GDP: 91.2 billionSyria

Population: 20.4 million

EgyptPopulation: 81 million

GDP: 219 billion

AlbaniaPopulation: 3.2 million

GDP: 11.8 billion

GeorgiaPopulation: 6.8 million

GDP:24.3 billion

PalestinePopulation: 4.1 million

GDP: 4 billion

19

FTA Partners

Countries with Ongoing

Negotiations

İsviçre

TURKEY’S FTAsEU (Customs Union)

Population: 502.1 m

GDP: 14,609 b $

Exports: 1.481 b $

Imports: 1.919 b $

Countries with Ongoing

FTA Negotiations

Population : 76,4 m

GDP : 934,4 b $

Exports : 461 b $

Imports : 249 b $

Turkey’s FTA Partners

Population : 210,5 m

GDP : 1.361 b $

Exports : 430 b $

Imports : 442 b $

Turkey’s FTA’s

In Comparison to World

(%)

Population : %49

GDP : %47

Exports : %47

Imports : %44

Countries with which

negotiations are initiated

Population : 2,5 b

GDP : 5.706 b $

Exports : 1.833 b $

Imports : 1.773 b $

GDP Growth Rate of Turkey: (Annual Average)

Growth Rate Projections (%)

Per Capita GDP of Turkey: (USD)

Comparison of Turkey and EuropeReal GDP Growth : (2001=100)

Average Inflation in Periods (%)

Sources: TURKSTAT

Annual Exports: (Billions USD)

Sources: TURKSTAT, 2014

Annual Imports: (Billions USD)

Sources: TURKSTAT, 2014

Foreign Direct Investment: (Billions USD)

FDI by Countries

617589

718

501497 498

209

371

260318

0

100

200

300

400

500

600

700

800

2009 2010

France

Netherlands

Germany

GulfCountries

USA

US Ranks 4th in 2009 and 5th in 2010, accounting for 5% of FDI in 2009

and 4% of FDI in 2010.

Million Dollars

Source: ISPAT

Gross Debt: (% of GDP, 2013)

General Government Debt: (% of GDP, 2014)

LEADING SECTORS IN TURKEY

33

Cement

The biggest exporter in the world

3rd biggest producer in Europe

Natural Stones

Highest exports earning from processed marbles in the world,

second highest exports earning from block marbles

34

5th in the world and 3rd in Europe in the production of ceramic tiles.

2nd in Europe and 4th in the world in the production of ceramic sanitary ware.

Ceramic Products

Jewellery (precious metals and stones)

One of the top 5 jewel producers and exporters in the world.

35

Textiles and Clothing

Industry

• 4th biggest exporter of carpets in the world

• 6th biggest exporter of leather and clothing in the world

• World leader in the production and exporting of socks

• 2nd biggest textiles supplier in the EU

•The biggest home textiles exporter in the world

•6th largest synthetics capacity in the world

Furniture Industry

• 3rd in world exports of

seats convertible into

beds.

Other Major Industries

Leather Articles Industry

• Exporting to more than 140 countries

• Exporting original collections with own brand names

Iron and Steel• Turkey became the 11th largest steel producing country in the world by the

end of 2008• 1st in the exports of construction iron in the world• 10th in the production of raw steel in the world• 2nd in the production of raw steel in Europe

Agriculture and Agro-Industry:

• 1st in the exports of hazelnut, raisin, dried apricot and fig in the world

Glass and Glassware Production:

• 2nd in Europe and 3rd in the world for glass and glassware exports to more than 180 countries

Electrical Equipments and Electronics

In the world Turkey is the

• 3rd biggest exporter of refrigerators

• 5th in the exports of dishwashing machines

• 7th in the exports of washing machines;

In Europe Turkey is the

• 1st in the exports of refrigerators,

• 4th in the exports of dishwashing machines and washing machines

Automotive and Auto-parts Industry

• 3rd largest truck market in the EU

• 7th biggest exporter of commercial vehicles and 6th biggest exporter of bus, midibus, minibus in the world

Contracting Services

31 out of the world’s top 225 contracting companies are Turkish.

Turkey ranks as the 2nd country (following China) in terms of the number of

top contracting companies.

• 94 Countries • 6406 Projects • 206.8 Billion USD

Middle East

(23,8%)

CIS

(48,2%)

Europe

(7,2%)

North America

(0,6%)

Sub-

Saharan

Africa

(0,3%)

North Africa

(20,9%)

TURKISH CONSTRUCTION SECTOR: 2nd in WORLD

Logistics

40

Europe’s biggest truck fleet

(45 thousands trucks and 1,420 companies)

Almost 1.1 million flights in 2012

(2.4 million tonnes freight and 130 million passengers)

25. biggest fleet in the world

48 airports and 76 ports

Total length of divided highways

will reach 15 thousand kilometers.

High-speed railway projects are

carried out rapidly.

41

Tourism

Turkey ranks as the 7th in the world and the 5th in Europe among the most favourite

tourism destinations

Number of Tourists

Revenue (BillionsUSD)

2002 15.214. 514 12.420

2009 32.006.149 25.064

2010 33.070.943 24.930

2011 36.151.328 28.115

2012 36.776.645 29.351

TURKEY’S STRATEGIC POSITION IN ENERGY SECTOR

TURKEY IS AN ENERGY CORRIDOR BETWEEN SUPPLIERS AND CONSUMERSTurkey’s geographic position makes it an important energy and logistics corridor,

linking Europe with the Middle East, the Caucasus and Central Asia.

130 billion $ of investment is anticipated in this sector until 2023

• Considered a natural “energy bridge” between major

oil producing areas in the Middle East and Caspian

Sea regions, and consumer markets in Europe on

the other.

• Located at a close proximity of more than 70

percent of the world’s proven primary energy

reserves, while the largest energy consumer, which

is Europe, is located right to the west of Turkey, thus

making the country a linchpin in energy transit and

an energy terminal in the region.

• Major Transit Point for seaborne-treaded oil and is

becoming more important for pipeline-treaded oil

and natural gas

• Turkey's port of Ceyhan is an important outlet both for current Iraqi oil exports as well as Caspian oil exports.

• Major shipping check point between the Black and Mediterranean Seas.

• Growing volumes of Russian and Caspian oil are being sent by tanker via Turkey‘s bosporus straits to western market ( App. 3.0 million barrels per day (bbI/d ).

REGIONAL HUB FOR ENERGY

• Turkey is a regional hub for the export of gas to central and southern Europe, both from the Caspian Sea and, via the Black Sea, from Russia, as well as from the oil-rich Kurdistan region in Iraq

• $8bn contract with Azerbaijan to build TANAP, the trans Anatolian pipeline connecting the vast Shah Deniz gas field off the coast of Baku to Europe via Bulgaria and Turkey.

• Stretching 2,400 miles (3,850km), the link will transport a whopping 16bn cubic meters (bcm) of gas a year

• Trans Anatolian Natural Gas Pipeline Project (TANAP)

• TANAP satisfies the gas needs of Europe and Turkey.

• This important project provides different types of gas which has been emerged with the cooperation of two brother countries, Turkey and Azerbaijan.

• TANAP is expected to carry 16 billion cubic meters of capacity through the pipeline.

• Will provide $8 billion in investments to local companies in Turkey.

• Turkey would gain not only from the additional transit revenues a pipeline from the Eastern Mediterranean to Europe would provide, but would also be able eventually to import even larger quantities of gas from Lebanon, Syria, Gaza and, possibly Turkish Cyprus, as well as Israel, thereby ensuring its own long-term energy supplies for its rapidly growing industries.

• The expansion of Turkey’s role as a truly intercontinental energy hub would also cement its role as the future center of a vast web of petrochemical complexes, refineries, export terminals, storage facilities, power plants and industrial zones ready to serve both Europe and the Middle East, as well as Central Asia and the Caucasus(www.themiddleeastmagazine.com)

Oil and Gas

Existing Natural Gas Pipelines

Existing Oil Pipelines

Natural Gas Pipelines under Construction

Natural Gas Pipelines Underway

Proposed Natural Gas Pipelines

Oil Pipelines under Construction

FLOW OF THE RESOURCES

Turkey Natural Gas Supply 2012

Turkey’s Crude Oil Supply 2012

• Turkey is revamping its Energy related and

foreign investment policies. This effort will

create excellent opportunity for Service

companies in energy sector, (wind,

exploration, upstream & downstream,

production, pipeline & pipeline

construction), Power Generation,

(Turbines).

Starting Business: Number of Procedures

Starting Business: Duration, Days

Sources: World Bank Doing Business, 2012

Turkey in a nutshell

• 65 millions of GSM Subscribers

• Among the top 6 destinations in the World in Tourism

• 2nd largest manufacturer of Flat glass

• 5th largest jewelry manufacturer

• 1st textile manufacturer in Europe

• 1st TV manufacturer in Europe

• 6th largest cement and cotton producer

• 7th largest iron and steel manufacturer

1,714 Km

Total of Motorways

4,387 Km

Total of State and Provincial Dual Carriageways

Total: 6,101 Km

Dual Carriageway Network

(January 1, 2003)

2,236 Km

Total of Motorways

18,991 Km

Total of State and Provincial Dual Carriageways

Total: 21,227 Km

Dual Carriageway Network

(March 15, 2012)

Before 2003, only 6 cities were connected to each other via dual carriageway. Now, we have 74 cities.

21,227 Km3,125 Km3,061 Km

27,413 Km

Dual carriageways put into serviceDual carriageways under construction

Dual-carriageways to be put out to tender

Total

Dynamics of Transformation

• Mass Urbanization: Reversal of Urban-Rural Population: 75%=> 25%.

• Functioning Number of OIZ’s increased: 12=> 120.

• Transformation in Service Sector: Retail Modernization, Shopping Malls, New Urban Life.

• Political Transformation and More Stable Atmosphere in Ruling Elite.

• New Production Centers like Kayseri, Denizli, Gaziantep, Maras vs Old Centers Istanbul, Izmir, Ankara, Bursa.

• Free Market Capitalism Enacted and Success in Easing Business Making Culture.

Spread of Organized Industrial

Zones

An Industrial Zone in Bursa

Trade Relations between US and Turkey

• Turkey is the 42nd Import Source of USA with

6.7 billion dollars of Imports in 2013. This was

6.28 billions in 2012.

• US Share on Turkish Exports: 0.4%

• The total volume of US Exports to Turkey

was 12 billion Dollars in 2013 and 12.56

billion dollars in 2012, 14.6 billion in 2011.

Turkey is the 21st Trading Partner of the US.

• Turkish Share on US Exports: 0.8%

Trade Relations between US and Turkey

• U.S.-Turkish trade peaked at nearly $20 billion in 2011, $19 billion in 2013.First Quarter 2014, U.S.-Turkey trade stood at $4.5 billion.

• Ongoing U.S.-European Union negotiations to conclude the Transatlantic Trade and Investment Partnership (TTIP) are watched closely by Turkey, given its Customs Union with the EU.

• Turkey remains committed to joining the European Union, however this process has been slow and difficult. While a U.S-Turkey Free Trade Agreement is not being considered at this time, the U.S. has committed to keep Turkey informed of TTIP progress through a joint High Level Committee.

Trade Relations between US and Turkey

• In 2014, Sikorsky announced a major 30-year co-production partnership for the Turkish Utility Helicopter Program, worth up to $8 billion over its life cycle.

• Boeing continues its strategic partnership with Turkish.

• Pratt and Whitney opened a new engine parts facility in Izmir that will supply the Joint Strike Fighter, in which Turkey has partnered.

• General Electric announced a $900 million investment in Turkey across several of its business lines.

Trade Relations between US and Turkey

• In General; American firms are pursuing energy, aerospace, defense and health care projects throughout the country.

• Since 2011, over 50 American firms, mostly small and medium-size companies, have brought their campaigns to the Turkish market

• Turkey is considered a commercial hub of the region, and U.S. companies should consider using Turkish partners to access business opportunities throughout Central Asia, the Caucasus, the Middle East and even Africa. Turkish partners know these neighboring markets well.

Top US Exports to Turkey (in Million Dollars)

2010 2011 2012

Aircraft and Spacecraft 2.320 2.900 1560

Iron and Steel 1.611 2.500 2620

Oil and related products 835 2.100 1354

Cotton 860 1.200 600

Machines, Engines and Pumps 854 952 854

Electronic Equipment 287 479 345

Medical and Technical Equipment 345 396 354

Organic Chemicals 255 382 312

Plastics 315 376 384

Hot Cereals 295 286 475

Top US Imports from Turkey

In Million USD 2010 2011 2012

Vehicles 303.22 684.2 820.2

Machines, Engines,Pumps 400 556.6 590

Iron and Steel 330.2 424.2 720

Stone, Cement, Mica 191.62 318.6 354

Iron or Steel Products 21.58 236.0 390

Other Textiles, Worn Clothing 160.89 219.9 248.5

Textile Floor Coverings 124 163.9 198.3

Oil 12 160.7 165

Aircraft, Spacecraft 124 154.6 175

WHY INVEST IN TURKEY• The second biggest reformer among OECD countries in terms of its

restrictions on FDI since 1997 (OECD FDI Regulatory Restrictiveness Index 1997-2012).

• Business-friendly environment with average of 6 days to set up a company, while the average in OECD members is more than 11 days (World Bank Doing Business Report 2014).

• Extremely competitive investment conditions.

• Strong industrial and service culture.

• Equal treatment for all investors.

• Around 36,950 companies with international capital in 2013 (Ministry of Economy).

• Its close proximity to markets in Europe, the Middle East, and Central Asia, Turkey serves as a regional hub for many of these firms.

THANK YOU!