11

ECONOMIC DEVELOPMENTS
and
INVESTMENT ENVIRONMENT
in
TURKEY

Cavit DAĞDAŞ
Deputy Undersecretary for Treasury
February 20 th-21st, 2005
 22

CONTENT

ECONOMIC OUTLOOK

INVESTMENT ENVIRONMENT

STRUCTURAL REFORMS & POLICY ACTIONS

FOR A BETTER INVESTMENT CLIMATE

FUTURE PROSPECTS
 33

ECONOMIC
OUTLOOK
 44

Strong Macroeconomic Performance

Robust
Robust GNP
GNP Growth
Growth Increasing
Increasing Productivity
Productivity
(%) 170 (%)
(%)
12
160 Productiv ity (per hour)
9,9
10
150
8
5,9

Index
5,5 140
6
130
4 2,8
120
2 110
0 100
1993-2002 2003 2004 2005* 20 01 Q3 200 2 Q3 2003 Q3 2004 Q3 2005 Q3
Avr. *Jan-Sep - Q1 - Q1 - Q1 - Q1 - Q1

Single-Digit
Single-Digit Inflation
Inflation Sources
Sources of
of Growth
Growth
(%) (%)
40 10

35
8
30

25 6

20 CPI WPI
4
15

10 7,72
2
5
2,66 0
0
1993-2002 Ort. 200 3 2 004 2 005*
J M M J S N J M M J S N J M M J S V
03 04 05 Private Investments Other
* Jan-Sep
 55

Achievements on the Macroeconomic Stability

Strong
Strong Fiscal
Fiscal Adjustment
Adjustment Lengthening
Lengthening Maturity
Maturity
Public Sector Primary Surplus / GNP
0 5 10 15 20 25 30
8
7,1
7 6,4 6,5 6,5 2002 9,0 Months
6
5 2003 11,5
4
3
2004 14,7
2
1 0,4
0
2005 27,0
1993-2002 2003 2004 2005* 2006*
*provisional

Strong
Strong Reserve
Reserve Position
Position Declining
Declining Debt
Debt
Central Bank Gross Dolar Reserves (bn $) Net
Net Public
Public Debt
Debt Stock
Stock // GNP
GNP (%)
(%)
100
55 50,8 90,5
90
50 78,5
80
45
70,4
40 70
63,5
35 60 56,9
30 50
25 40
20
2001 2002 2003 2004 2005-Q3*
15
*provisional
J M M J F N J M M J S N J M M J S N J*
03 04 05 06
As of 20th January
 66

INVESTMENT

ENVIRONMENT
 77

Turkey’s Potential
Demographic Profile Economic Profile
US $ GDP Per Capita 7,756
Japan
7.400
(PPP)
6,993
7.000
Europe EM U 6.600
6.200

Turkey
5.800
5.400
0% 20% 40% 60 % 8 0% 100% 5.000
1999 2000 2001 2002 2003 2004
0-14 14-60 60+

World GDP Ranking (in bil.USD-2004)

Increasingly Open Economy
1 United States 11.667 11 Korea,Rep. 679
Export s (right axis)
2 Japan 4.623 12 Mexico 676 190 80
Foreign Trad e Volume (lef t axis)

Fore ign Tra de Volume (bil lion USD)

631 180
3 Ger many 2.714 13 Australia 70
170

Exports (bil li on USD)

4 United Kingdom 2.140 14 Brazil 604 160
60
150
2.002 15 Russian F ederation 582
5 France 140 50
16 Netherlands 577 130
6 Italy 1.672
120 40
1.649 17 Switzerland 359 110
7 China 30
100
18 Belgium 349
8 Spai n 991 90 20
346 80
9 Canada 979 19 Sweden 70 10
10 Indi a 691 20 Turkey 301
301 2002 2003 2004 2005
Sourc
Source:
e: World
World Bank
Bank
Turkey’s Trade Potential
Turkey’s 88

RUSSIAN FEDERATION

GDP Population
EUROPE 433 billion USD 144 million

GDP Population
11,717 billion USD 576 million
CENTRAL ASIAN AND
CAUCASIAN COUNTRIES

GDP Population
44 billion USD 37 million

MIDDLE EAST AND NORTH AFRICA

GDP Population
690 billion USD 247 million
 99

Benchmarks
GNP in billions of USD (2004) Real GNP Growth % (2004)
12
350
300 10
250
8
200
150 6
100 4
50
0 2

0
ey

p.

.
nd

g
y

ep
ar

ur
Re
rk

la

R
g

bo
Turkey Po land Ireland Slovak Czech Hung ary
Tu

Po

un
h

m
va
ec

xe
Rep. Rep.
Cz

o
Sl

Lu
Trade Volume Growth % (2004) Overall Productivity Real Growth(2003)

40
6%
35 5%
30
4%
25
3%
20
2%
15 1%
10
0%
5
-1%
0 Turkey Poland Czech Hungary United Romania Spai n
Republi c Ki ngdom
.
nd
ia

ia

ri a
ce
ey

ep
an

ak

ee
rk

la

st
R

Source:IM D Competitiveness Yearbook

Po
om

ov
Tu

Au
Gr
h
ec

Sl
R

Cz
 10
10

Investment Incentives

General
Incentives for Incentives for
Investment
Low-Income the SMEs
Encouragement
Regions
Program

Supports in Research and

Technology Development
Development Supports
Zones
 11
11
0
0 8 41
0 0 4 27 7
1 3 6
0 16 38
0 45
0 13 14 5 36 26
20
0 44 21
0 0 10
19 23
0
2
0 0 0 18 3
30 49 43
29 46
11 33
0 0
47 2 34 48
4 0 31 17 12
15
0 0 0 40
0 35 24 1 9 22
42
0 0 39 32
0 25 37 0
0 0 28
0

Provinces where Free Land lots are Provided in Organized Provinces where Free Land
Industrial Zones along with Tax, Insurance Premium and Energy lots are Provided in
Support Organized Industrial Zones
1 ADIYAMAN 18 ERZINCAN 35 NIGDE 1 KARABUK
2 AFYON 19 ERZURUM 36 ORDU 2 KIRIKKALE
3 SAMSUN
3 AGRI 20 GIRESUN 37 OSMANIYE 4 ZONGULDAK
4 AKSARAY 21 GUMUSHANE 38 RIZE
5 AMASYA 22 HAKKARI 39 SANLIURFA
6 ARDAHAN 23 IGDIR 40 SIIRT
7 ARTVIN 24 KAHRAMANMARAS 41 SINOP
8 BARTIN 25 KARAMAN 42 SIRNAK
9 BATMAN 26 KARS 43 SIVAS
10 BAYBURT 27 KASTAMONU 44 TOKAT
11 BINGOL 28 KILIS 45 TRABZON
12 BITLIS 29 KIRSEHIR 46 TUNCELI
13 CANKIRI 30 KUTAHYA 47 USAK
14 CORUM 31 MALATYA 48 VAN
15 DIYARBAKIR 32 MARDIN 49 YOZGAT
16 DUZCE 33 MUS
17 ELAZIG 34 NEVSEHIR
 12
12

Technology Development Zones

Technology Development Zones  METU Technocity Technology

Development Zone
 TUBİTAK Marmara Research Center
Technopark
 Izmir Technology Development Zone

 Ankara Technology Development Zone

 Gebze Organized Industry Zone

Technopark Technology Development
Zone
 Hacettepe University Technology
Development Zone
 ITU Bee Technocity Technology
Development Zone
 Eskişehir Techology Development Zone
 13
13

STRUCTURAL REFORMS
&
POLICY ACTIONS
FOR A BETTER
INVESTMENT CLIMATE
 14
14

Well Focused Structural Reforms

Social Security Reform

Increasing the sustainability of pension system

Implementing Universal Health Insurance

Unifying Social Security Institutions

 15
15

Well Focused Structural Reforms

Tax Reform

Strengthening the New Revenue Administration

Reforming PIT and CIT

 16
16

Well Focused Structural Reforms

Banking Reform

New Banking Act

Improving prudential supervision with

strengthened institutional set-up

Restructuring state banks and preparing them for

privatization
 17
17

Improving Investment Environment

FDI Regime

 No Approval Requirement
 No Minimum Capital Requirement
 National Treatment
 Guarantee to Transfer Proceeds
 Key Expatriate Personnel
 Protection Against Expropriation
 Access to Real Estate
 International Dispute Settlement
 18
18

Improving Investment Environment

Coord
Coordination Council for the Improvement of
Investment Environment (CCIIE) IAC
IAC

Technical Working Groups

Location of In vestment Taxes and Investment

Customs and S tandards Licensing
Incentives Promotion

Foreign Direct
Company Intellectual Property
Employment Investment S MEs
Establishment Rights
Legislation
 19
19

Investment Advisory Council for Turkey

Inaugural Meeting Second Meeting

March 15, 2004 April 29, 2005

Members from Italy

Fiat S.p.A. / Mr. Giuseppe Morchio Fiat S.p.A. / Mr. Paolo Monferino

Merloni Elettrodomestici SpA / Mr

Mr.. Andrea Guerra Indesit Company / Mr. Marco Milani
Pirelli S.p.A & Telecom Italia S.p.A. / Mr
Mr.. Tronchett
Tronchettii Provera
Pirelli S.p.A & Telecom Italia S.p.A. / Mr
Mr.. Tronchetti Pr overa

Unicredit / Mr. Alessandro Profumo

 20
20

Increasing Confidence in Turkey as a FDI Destination

FDI Inflows Number of Foreign Firms

(million USD) (Cumulative)

11919
12000

9000 9605
10000
8000 7249
7000 8000
6000 5300 5400 6275
5000 6000
4000
2776 4000
3000
1706
2000 1046 2000
1000
0 0
1992-2002 2003 2004 2005 2006(**) 2007(**) 2002 2004 2005*
Annual (Jan-Nov)
Net

(*) As of end-Nov., 2005

(**) Provisional
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21

Contribution of FDI to the Turkish Economy

TOP-- 500 FIRMS
TOP
Value added of the top-500 (%) Employment figures of the top-500 (%)

60 30
50 25
40 20
30 15
20 10
10 5
0 0
1998 1999 2000 2001 2002 2003 2004 1998 1999 2000 2001 2002 2003 2004
Export figures of the top-500 (%) Sales of of the top-500 (%)

60
50 50
40 40
30 30
20 20
10 10
0 0
1998 1999 2000 2001 2002 2003 2004 1998 1999 2000 2001 2002 2003 2004
 22
22

International Trade- Turkey & Italy

Export Import
Billion USD
8
7
6
5
4
3
2
1
0
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
 23
23

FDI figures

Among more than 11.900 firms with foreign capital in Turkey there are 428 companies with
Italian capital in Turkey
Turkey..

The share of Italy in Turkey’S FDI inflow is around 5%.

The share of Italy in establishment of companies with international capital during 2000
2000--2004
period has an average of 4%.

Establishme nt of Companies with

Share of Italy International Capital in Turkey Total # of
(%) Companies
10 3000
8 2500
5,3 5,3 2000
6
3,4 3,7 1500
4 2,7 2,7 1000
2 500
0 0
2000 2001 2002 2003 2004 2005-
Nov
Share of Italy Total # of Companies
 24
24

Companies with International Capital:

Distribution by Equity Capital

Number of Companies with Italian Capital

2003 2004 2005

November

Equity Capital of Italian

Companies

< $50.000

$50.000--$200.000
$50.000

$200.000--$500.000
$200.000 Number of All Companies with International Capital
> $500.000 2003 2004 2005
November
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25

Partnership Opportunities

Business Partnership Project

Detailed info of 300 Turkish firms

15 prospective sectors

“State of art” technology

http://www.investinturkey.gov.tr/partnership
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26

FUTURE
PROSPECTS
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27
Prospects for 2006 and Beyond:
Medium Term Economic Program
Macroeconomic Objectives
 Sustainable High Growth

Private Sector Led Growth with Public Sector as Facilitator

Improved Factor Productivity
 Price Stability and Single Digit Inflation
 Debt Reduction

Macroeconomic Policies
 Continuation of Prudent Fiscal Policies
 A Monetary Framework focused on Price Stability
 Floating FX regime
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28

Medium Term Macroeconomic Framework

2005 2006 2007

Growth (%) 5 5 5

Inflation (CPI %) 8 5 4

Primary Surplus (% of GNP) 6.5 6.5 6.5

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29

Business Prospect:
Strengthening International Competitiveness...

Change in World Competitiveness Rankings 2004-2005

-8 -6 -4 -2 0 2 4 6 8

Turkey
Czech Republic
Switzerland
Hungary
Finland
Netherlands
iv e
Norway it
s
Ireland e Po
Germany a tiv
g
Italy Ne
Sweden
Austria
Portugal
Greece
Spain
Slovenia

Source: IMD World Competitiveness Yearbook 2005

 30
30

ECONOMIC DEVELOPMENTS
and
INVESTMENT ENVIRONMENT
in
TURKEY

Cavit DAĞDAŞ
Deputy Undersecretary for Treasury

February 20 th-21st, 2005