tepav Economic Policy Research Foundation of Turkey It takes two to tango: What is the model of the model partnership? Güven Sak July 15th, 2011 Istanbul
Slide 2 Framework Where is Turkey now? Turkey s economic position in the region Turkey s achievements and risks What are the lower hanging fruits? Importance of financial sector & foreign equity investments for corporate transformation Why defining model partnership is important? Role of Turkish American partnership in Turkey s and regions transformation Towards a new model partnership: some ideas
Slide 3 In 1990s, Turkey was an important industrial economy Export indicators of the countries in the region (1996) 35% 30% 25% Country s share in total manufacturing exports of the region (%) Russia 20% 15% Turkey Israel 10% Saudi Arabia Greece Romania 5% 0% Bulgaria Egypt Algeria Azerbaijan 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of manufacturing in Country s total exports (%) Source: UN Comtrade data
Slide 4 Today Turkey is the largest manufacturer in the region Export indicators of the countries in the region (2008) 35% 30% Country s share in total manufacturing exports of the region (%) 25% Russia Turkey 20% 15% 10% UAE Romania Israel 5% 0% Kazakhstan Qatar Azerbaycan Greece Bulgaria Egypt Tunisia Moldova Sırbistan Jordan Georgia Armenia 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Share of manufacturing in Country s total exports (%) Malta Source: UN Comtrade data
Source: UN Comtrade data Turkish - American Economic Relations Slide 5 Level of diversification is striking in the region 45 40 39 Number of product groups with above $ 500 million exports (HS4 classification, 2 digit, 2008) 35 30 28 25 20 21 20 17 16 15 15 13 11 11 9 8 8 8 10 5 0 6 5 4 3 3 1 1 1 1 1 0 0 0
Slide 6 Location of manufacturing base also spread to all over Anatolia Change in the number of companies in Istanbul Chamber of industry Top-500 List (1997-2009, provinces with a number of companies above 5 only) Tekirdağ + 6 İstanbul - 105 Kocaeli + 40 Sakarya + 4 Samsun + 8 Ordu + 1 Trabzon + 3 İzmir - 37 Denizli 0 Balıkesir + 2 Manisa + 7 Bursa + 28 Antalya + 2 Eskişehir + 1 Bolu + 2 Karaman - 1 Ankara + 18 Konya + 12 Mersin - 3 Kayseri + 10 Adana + 7 K.Maraş + 11 Hatay + 8 Gaziantep + 15 Source: Istanbul Chmaber of Industry
Slide 7 together with a diversification of export markets 100% 90% 80% 70% 60% 50% 40% 30% 20% 12% 12% 12% 13% 13% 13% 7% 4% 11% 12% 4% 9% 4% 4% 3% 4% 4% 4% 8% 6% 14% 19% 19% 21% 11% 7% 10% 12% 12% 10% 54% 56% 56% 48% 44% 46% Kuzey North Amerika America Kuzey North Afrika Africa Yakın Middle ve Orta EastDoğu AB Non- dışında EUkalan Avrupa Europe ülkeleri AB-27 European Union 10% 0% 1996 2000 2007 2008 2009 2010 Source: COMTRADE, TEPAV analysis
Slide 8 The locations are quite different in terms of their export markets & capabilities Other; 12% Istanbul Asia; 27% Europe; 51% Bursa Asia; 4% MENA; 10% Gaziantep MENA; 12% Asia; 8% Other; 8% Europe; 24% Europe; 78% MENA; 60%
Source: COMTRADE, TEPAV analysis Turkish - American Economic Relations Slide 9 However, export market diversification is leading to lower levels of export sophistication 16000 Export Sophistication Index (EXPY) Turkey and selected countries (1995-2009) 15000 China 14000 13000 12000 11000 10000 Turkey India Brazil Russia 9000 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009
Slide 10 Turkey s major risk: middle income trap! Factor-driven economy Efficiencydriven economy Innovationdriven economy low-cost inputs productivity unique-value Source: WEF Where does Turkey stand? Turkey was a transition economy from efficiency-driven to innovationdriven in 2009. In 2010, WEF downgraded Turkeyto efficiency-driven. Upgrade to an innovation-driven economy? Need for a large set of reforms in a wide set of areas Education, judiciary, public administration, infrastructure investments Risk: no-reform political climate The period ahead will be even less conducive for reforms: elections in 2012?, 2013, 2014?, 2015.
Average annual growth rate (2000-2005) Turkish - American Economic Relations Slide 11 Turkey has no star industries in exports (2005) 60% 50% Rising Sectors Petroleum & related products Automotive Star Sectors 40% Note. Bubble volumes indicate exports in 2005. 30% 20% 10% 0% Electrical Appliances TV & Telecom Metal products Non-metal minerals Energy sources (Machinery) Machinery Transport Plastic Materials Equipment Declining Sectors Iron & Steel Textiles Traditional Sectors Fruits & Vegetables Apparel 0% 1% 2% 3% 4% 5% 6% Market share in 2005 Kaynak: UN COMTRADE, TEPAV hesapları
Average annual growth rate (2005-2009) Turkish - American Economic Relations Slide 12 Turkey has no star industries in exports (2009) 25% 20% Electrical machinery Petroleum Products Metal ProductsIron-steel General Industrial 15% Machinery Other transportnon-metal mineral 10% products 5% 0% -10% -15% Automotive Telecom and Sound Equipment Rising sectors Star sectors Fruit-Vegetables Textiles Clothing and Accessories 0,0% 1,0% 2,0% 3,0% 4,0% 5,0% 6,0% -5% Failing sectors Traditional sectors Not. Bubble volumes indicate exports in 2009. -20% Market share in 2009 Source: UN COMTRADE, TEPAV calculations
Value of Investment (million USD) Number of Investments Turkish - American Economic Relations Slide 13 Yet we can have star companies: Private equity is a good instrument to transform companies.. Development of Private Equity in Turkey: Change in ValueandNumber of Investments 4.000 35 3.500 30 30 3.000 25 2.500 2.000 1.500 1.000 11 22 9 17 20 15 10 500 0 4 5 3 2003 2004 2005 2006 2007 2008 2009 2010 Large deals (million USD, >800) Deals (million USD, 800) Number of Investments 5 0 Source: TEPAV calculations
Slide 14...in a wide range of industries... Services Manufacturing Target Industries for Private Equity Investments in Turkey (2001-2010) Airport Services Entertainment Mobile Marketing Arts &Ent. & Recreation Eyewear Motion Picture Automotive Factoring Services Multiplex Operator Biotech Fairs and Exhabitions Paper & Packaging Broadcasting Fleet Rental Payment Systems Brokerage House Food & Beverage Pharmaceuticals Cargo Carrier Furniture & Carpets Plastics Ceramic Tiles Health Care Real Estate Construction Household Appliances FMCG Retailing Cosmetics Retail Information and IT Security Services Dental Hospital Leasing Ship Building Edible Oil Production Logistics System Integrator Electrical Accessories Media Textile Electronics Retail Medical Equipment Travel Accessories Electronics Mineral Products Vehicle Inspection
Slide 15...that similar to the target industries of American investments to Turkey Target Industries in Turkey for American Investors (2007-2010) Energy Real Estate Textile Food & Beverage Logistics Financial Services Ship Building Health Care Petroleum & Natural Gas Services Airport Services Insurance Paper & Packaging Payment Systems Travel Accessories Cargo Carrier Construction Tourism Manufacturing
Slide 16 It takes two to tango: Now Turkey is ready to tango! Turkey is an important partner: the most industrialized Muslim-majority economy The new model for model partnership: Cooperate upgrading Turkey to an innovation-driven economy Focus: entrepreneurship & innovation Turkey s transformative power in the region is a function of whether it continues it own transformation Only an innovation-driven economy can lead PSD in the region Entrepreneurship has positive spill-overs to stability
Slide 17 Towards a new model partnership Partners for a New Beginning (STARTED) A private sector network to increase civil society connectivity, with a focus on innovation & entrepreneurship Global Entrepreneurship Program (STARTED) A program by the State Department and Turkish private partners to to catalyze entrepreneurship development in Turkey Fulbright Turkey Business Track Internship and executive education opportunities for aspiring entrepreneurs & SME managers Turkish BIRD Foundation A bi-national funding and matchmaking mechanism for joint technology development projects A Venture Capital Fund of Funds A co-investment mechanism to bring experienced American investors to Turkey