REPUBLIC OF TURKEY PRIME MINISTRY

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1 REPUBLIC OF TURKEY PRIME MINISTRY Investment Support and Promotion Agency of Turkey ISPAT FT International Financial Centers Global Series: Istanbul Playing to your strengths to adapt, attract and retain investment Necmettin KAYMAZ Chief Project Director

2 AGENDA Investment Support & Promotion Agency of Turkey Top Reasons to Invest In Turkey Investment Climate in Turkey Challenges

3 Investment Support and Promotion Agency of Turkey

4 Investment Support & Promotion Agency of Turkey Established in 2006 to increase and attract direct investment Attached to the Prime Ministry & directly report to the PM Private sector approach with pulic sector capabilities ONE STOP SHOP approach HQs in Ankara; branch office in Istanbul

5 Investment Support & Promotion Agency of Turkey The International Network *To be assigned

6 Investment Support & Promotion Agency of Turkey Providing extensive services: Coordination with relevant governmental institutions Market information and analyses Site selection Matchmaking potential partners Facilitating legal procedures, such as: - Establishing business operations - Incentive applications - Work/residence permits

7 Top reasons to invest in Turkey

8 Top reasons to invest in Turkey Economic Performance Average Annual Real GDP Growth (%) Strong record, bright future Average Annual Real GDP Growth (%) Source: IMF World Economic Outlook April 2014, Eurostat, OECD, TurkStat, OECD Economic Outlook No.93, May 2013

Q1-2009=100) Seasonally adjusted Fastest growing economy in Europe and one of the fastest

9 Top reasons to invest in Turkey Economic Performance The fastest recovering economy since the onset of global financial crisis in 2009 Quarterly Real GDP Growth (Index: Q1-2009=100) Seasonally adjusted Fastest growing economy in Europe and one of the fastest growing economies in the world Source: Indicators are based on the compilations of OECD and Turkstat data

10 Top reasons to invest in Turkey Economic Performance Main Drivers of the Economic Growth An economy driven by entrepreneurial spirit of private sector, robust domestic market and lucrative export opportunities Source: TurkStat

fundamentals Gross Public Debt Stock (% of

GDP) 2002 2003 2004 2005 2006 2007 2008 2009

11 Top reasons to invest in Turkey Economic Performance Strong macroeconomic fundamentals Gross Public Debt Stock (% of GDP) Central Government Budget Balance (% of GDP) TURKEY ,6 3,3 6 EU Maastricht Criteria: 60 % Maastricht Criteria: 3 %, Source: Treasury, European Commission,

12 Top reasons to invest in Turkey Domestic Market 2013 Ranking of Countries with Population over 70 million Source: UN, IMF, national sources

13 Top reasons to invest in Turkey Increasing Income Real Increase (%) in Household Income Income Decile Groups (10%) Source: TURKSTAT, OECD

14 Top reasons to invest in Turkey Increasing Income Rise of the middle-class in Turkey Number of Households by Annual Disposable Income (million) Source: Euromonitor International; Credit Suisse, Adults are defined to be individuals aged 20 or above

15 Top reasons to invest in Turkey Increasing Income Changing consumption culture with increasing purchasing power and lower liabilities Allocation of Household Consumption Expenditures (%) Source: TurkStat, CBRT

16 Top reasons to invest in Turkey Export opportunities Increasing export Export (US$ Billion) Source: TURKSTAT

17 Top reasons to invest in Turkey Export opportunities Customs Union with the European Union Free Trade Agreements with 25 countries 1. Albania 14. Tunisia 2. Bosnia & Herzegovina 15. Montenegro 3. Egypt 16. Serbia 4. Georgia 17. Chile 5. Iceland 18. Jordan 6. Israel 19. Mauritius 7. Lichtenstein 20. South Korea 8. Macedonia 21. Lebanon* 9. Morocco 22. Kosovo* 10. Norway 23. Ghana* 11. Palestine 24. Malaysia* 12. Switzerland 25. Moldavia* 13. Syria Free Trade Source: Ministry of Economy, * In ratification process *

1 trillion Import: $344 billion Population: 143 million at a 4-hour flight distance MENA GDP: $3,7 trillion Import: $1 trillion Population:

18 Top reasons to invest in Turkey Strategic location Access to Multiple Markets 1,5 Billion People $26 Trillion GDP, over $8 trillion trade (45% global trade) EUROPE GDP: $19.7 trillion Import: $6,6 trillion Population: 670 million RUSSIA GDP $2.1 trillion Import: $344 billion Population: 143 million at a 4-hour flight distance MENA GDP: $3,7 trillion Import: $1 trillion Population: 665 million CENTRAL ASIA & CAUCASUS GDP: $433 billion Import: $106 billion Population: 84 million Source: IMF World Economic Outlook and WTO; GDP, Imports and population figures as of 2013

19 Source: Turkish Airlines, as of Top reasons to invest in Turkey Strategic location International connectivity 108 Countries & 217 International Destinations (186 from/to Istanbul)

Top reasons to invest in Turkey Strategic Location A Manufacturing Hub Turkey is already; 17 th largest automotive manufacturer in the world & the largest commercial vehicle manufacturer in Europe

20 Top reasons to invest in Turkey Strategic Location A Manufacturing Hub Turkey is already; 17 th largest automotive manufacturer in the world & the largest commercial vehicle manufacturer in Europe (2013) 8 th largest steel manufacturer in the world & 2 nd in Europe (2013) Largest TV & white goods manufacturer in Europe (2013) Turkey will be the 16 th manufacturing hub in the world and 2 nd in Europe T U R K E Y Source: Deloitte, oica, worldsteel, turkbesd TURKEY TURKEY TURKEY

21 Top reasons to invest in Turkey Strategic location Turkey emerges as a regional manufacturing hub for global firms PCs and peripherals Tripling production with new investment To export 90% of total production Heavy commercial vehicles New model to be manufactured in Turkey and exported to 65 countries New line of trucks Regional manufacturing hub for new line of trucks FMCG Production base for the Middle Eastern and North African markets Annual production capacity of 150K units Exporting 90% of its production to 30 countries Filters and generators 85% of total production to be exported Textile Moving all production volume to Turkey Energy Tripling production to export to countries in Europe, North Africa, and South America SOURCE: TSKB

Top reasons to invest in Turkey Strategic location Company Regions managed from Turkey Turkey is also becoming a regional management hub for global firms Rationale behind choosing Turkey as a

22 Top reasons to invest in Turkey Strategic location Company Regions managed from Turkey Turkey is also becoming a regional management hub for global firms Rationale behind choosing Turkey as a management hub 90 countries Eurasia Africa Turkey is a strong country due to its dynamic economy and young population Ahmet Bozer, Executive Vice President and President of Coca Cola International, countries Middle East Africa Besides, the business opportunities Istanbul offers, its educated workforce and infrastructure supporting expats are important Ala Faramawy, VP Microsoft International, countries Middle East Africa 52 countries Europe Central Asia Middle East North Africa 20 countries Caucasus Central Asia Eastern Europe "Turkish managers have the European business ethics and discipline and the strong communication skills of Eastern managers" Intel's Business Dev.Manager, Burak Aydın, 2012 Besides regional proximity to our clients, İstanbul provides appropriate infrastructure, convenient airport links, and a good quality of life for our staff. Dimitris Tsitsiragos, VP, IFC, 2010 "Pfizer Turkey is referred to as 'A School of Leaders', since it continuously transfers successful executives to Pfizer companies worldwide. Today, more than 35 Turkish senior executives are appointed to Pfizer affiliates all around the world. " ISPAT website, 2012 Source: Press releases

23 Top reasons to invest in Turkey Demographics 77 million young & dynamic people Population Pyramid (%) Age EUROPE Age TURKEY Age ASIA Male Female Male Female Male Female Source: Turkstat, Eurostat, UN, 2013 Largest youth population as compared to EU; half of the population is under age 30

24 Top reasons to invest in Turkey Labor Force Favorable Turkey Demographic Trend Source: UN

25 Top reasons to invest in Turkey Labor Force Skilled Labor Force 2014 Source: IMD World Competitiveness Yearbook 2014, IMD WCY Executive Opinion Survey based on an index from 0 to 10 (0 = Not available 10 = Readily available)

26 Top reasons to invest in Turkey Labor Force Productive and Cost-effective Labor Force Annual Average Hours worked per week, 2013 Productivity: Real GDP per hour worked (Index: 2001=100) Annual average number of sick days per employee, 2008 Source: Eurostat, TurkStat, Mercer

27 Investment Climate in Turkey

Investment Climate Reforms New FDI Law in 2003 National

Purchase of Real Estate Employment of Expats Number of

2006 New Commercial Code in 2012 International standards

Institutionalization of companies Opportunity to perform

28 Investment Climate Reforms New FDI Law in 2003 National Treatment Guarantee of Transfers International Arbitration Purchase of Real Estate Employment of Expats Number of Days to Establish a Company in 2003 CIT reduced to 20% in 2006 New Commercial Code in 2012 International standards (IFRS & IAS) Transparency & Accountability Institutionalization of companies Opportunity to perform board meetings online Number of Days to Establish a Company in 2013 Source: World Bank

Index Score: 1=Closed to FDI, 0=Open to FDI ------ OECD

29 Investment Climate Reforms Turkey has emerged as the biggest reformer FDI Regulatory Restrictiveness Index Index Score: 1=Closed to FDI, 0=Open to FDI OECD Average Score in 2013 More Restrictive Less Restrictive Source: OECD

30 Investment Climate Incentives INVESTMENT INCENTIVES IN TURKEY Investment Zones (Technology Development Zones, Organized Industrial Zones, Free Zones) Corporate and Personal Income Tax allowances Exemption from custom duties VAT exemption Social Security Premiums Support R&D and Innovation Support Law R&D allowances and Enhanced Tax allowances Income Withholding Tax Deduction Cash support for entrepreneurial scientists New incentive system (General, Regional, Large scale, Priority, Strategic Investment) Reduced corporate tax rates Social security premium support Allocation of state land Interest support Withholding tax support

overarching trends and ranks countries on how changes in their political, economic, and regulatory

31 Investment Climate Confidence Likelihood of invest-ment in a market over the next 3 years Increasing Confidence in Turkey: FDI Confidence Index based on 300 companies responses The Index examines overarching trends and ranks countries on how changes in their political, economic, and regulatory systems are likely to affect FDI inflows in the coming years. Low Confidence High Confidence Source: A.T. Kearney

32 Investment Climate FDI Increasing Foreign Direct Investment (FDI) Source: Central Bank of Republic of Turkey, *as of 2014 September, Ministry of Economy

33 Investment Climate FDI Despite uncertainty in the global economy, FDI inflows to Turkey increased 10% in the first 9 months of Source: Central Bank of Republic of Turkey

34 Investment Climate FDI Annual Average: $12,3 Billion Source: CBRT

FDI FDI Flows in Turkey and World Turkey s average share of

35 Investment Climate FDI FDI inflows to Turkey have been in line with global FDI inflows, with increasing share out of global FDI FDI Flows in Turkey and World Turkey s average share of Global FDI: : 0,23%; : 0,85% Source: CBRT, UNCTAD

36 Investment Climate FDI Remarkable perfomance in attracting FDI Turkey was lagging way behind competitors But now, Turkey is outperforming all of them Source: UNCTAD

37 Investment Climate FDI Turkey has successfully diversified FDI inflows in terms of geographic sources Geographic Breakdowns of FDI Inflows to Turkey (Equity Inflows) Source: CBRT, *2014 Jan Sep

38 Investment Climate FDI Turkey has also successfully diversified FDI inflows in terms of sectors and quality Sectoral Breakdowns of FDI Inflows to Turkey (Equity Inflows) Source: CBRT, *2014 Jan Sep

39 Investment Climate FDI Financial sector has been the most attractive sector Turkish financial sector has attracted over $44 billion FDI since 2003 There are around 400 foreign companies active in the Turkish financial sector As of September 2014, there are 50 banks in Turkey, 25 are foreign Sub sector FDI Flows into Turkish Financial Sector, * $ Million Banking Insurance Other Activities Auxiliary to Financial Services** 931 Activities of Holding Companies 917 TOTAL **Other Activities Auxiliary to Financial Services: Administration of financial markets; Security and commodity contracts brokerage; Fund management activities Source: CBRT *as of September 2014

40 Investment Climate FDI Recent investments/deals in the Turkish financial sector Year Investors /Acquirer Origin Type of Investment (M&A or Greenfield) $ million 2014 BBVA Spain Garanti Bank Allianz Germany Yapı Kredi Insurance Odeabank Lebanon Greenfield CBQ Qatar ABank ICBC China Tekstilbank Burgan Kuwait Eurobank Tekfen Bank of Tokyo Mitsubishi Japan Greenfield Intesa Sanpaolo Italy Greenfield Robobank Netherlands Greenfield Travelex UK Arti Doviz Saxobank Denmark Değer Menkul Değerler * 2012 Phillip Brokerage Singapore Hak Menkul Kıymetler * Source: Deloitte, E&Y M&A Reports and Press Releases

41 Challenges

42 Challenges Complacency or Caution? Current Account Deficit Informal Economy Unemployment Currency

Incentives for private pension funds (to increase savings, 25% contribution by Treasury) Energy efficiency & diversification

43 Challenges Current Account Deficit Current Account Deficit (CAD) The main causes of CAD: Trade deficit Energy import Low saving Measures FDI to finance CAD Incentives for strategic investments to reduce trade deficit (lucrative tax deductions & exemptions) Incentives for private pension funds (to increase savings, 25% contribution by Treasury) Energy efficiency & diversification (nuclear & renewable) Support R&D (to move up value chain) Export diversification (to increase export and reduce risks) Source: Treasury

44 Challenges Current Account Deficit Fighting Current Account Deficit: Export Diversification Product & Market Diversification of Exports Number of export products with over $1 billion 9 35 Number of export markets with over $1 billion 8 34 Share of top 5 countries in total exports (%) Share of MENA in total exports (%) Share of North America in total exports (%) 10 4 Share of EU in total exports (%) Source: TURKSTAT, Products with 2 digit HS Codes

Challenges Informal Economy Informal Economy Measures Corporate tax rate

rate falling from 49.5% to 35% & lowest rate to 15% from 22%.

marital status & number of kids Value added tax on health, education,

45 Challenges Informal Economy Informal Economy Measures Corporate tax rate was lowered to 20% down from 33% Personal income was also reduced; highest rate falling from 49.5% to 35% & lowest rate to 15% from 22%. Income tax burden on minimum wage earners was reduced to 0%, depending on marital status & number of kids Value added tax on health, education, clothing, and tourism was cut from 18% to 8% Source: Ministry of Finance, TurkStat, Schneider

46 Challenges Unemployment Turkey generated 5,6 million new jobs after the global financial crisis in 2009 Labor Force Developments between 2009 Jan and 2014 Aug Employment Increase Million Labor Force Increase Turkey 5,6 5,6 USA 4,2 1,7 EU 4,3 2,2 Source: OECD, Eurostat

47 Challenges Currency Local Currency Depreciation vs. US Dollar over the Past 3 Years Source: Bloomberg

48 THANK YOU

REPUBLIC OF TURKEY PRIME MINISTRY

REPUBLIC OF TURKEY PRIME MINISTRY Investment Support and Promotion Agency of Turkey (ISPAT) Investment Climate and Doing Business in Turkey Murat OZDEMIR Country Advisor Canada ozdemir.murat@invest.gov.tr