Turkey: Full of surprises?

Turkey: Full of surprises? Ludovic Subran, Chief Economist Manfred Stamer, Sr. Economist Istanbul - November 16, 217

Agenda 1 Let s grow 2 Turkey: Full of surprises? 2

Turkey to benefit from accelerating world growth World growth is accelerating in a more synchronized manner. Upward revisions outweigh downward revisions on growth. 6% 5% 4% 3% 1% World GDP growth, q/q annualized Fragile four are Brazil, Russia, Turkey and South Africa Others APAC ex China ex Japan Japan China World aggregate Fragile Four India Europe US 17Q2: +3.7% Global GDP growth forecasts (%) 215 216 217 218 Latest forecast Revision (pps) Latest forecast Revision (pps) World GDP growth 2.9 2.6 3..1 3..1 United States 2.9 1.5 2. -.2 2.2 -.1 = Latin America -.3-1.3 1.2 = 2.2 = Brazil -3.8-3.6.8.2 2..1 United Kingdom 2.2 1.8 1.4 = 1. = Eurozone members 2. 1.8 2.1.2 1.8.1 Germany 1.5 1.8 2.2.3 2..3 France 1. 1.1 1.7.2 1.7.2 Italy.7 1. 1.4.2 1.1.1 Spain 3.2 3.2 3..2 2.3 = Russia -2.8 -.2 1.5.2 1.9.3 Turkey 6.1 2.9 5.2 1.5 3.5.5 Asia 5. 5. 5. = 4.8 = China 6.9 6.7 6.7 = 6.3 = Japan 1.2 1. 1.5.2.9 = India 8. 7.1 6.5 -.7 7.3 = -1% 1Q1 11Q1 12Q1 13Q1 14Q1 15Q1 16Q1 17Q1 Middle East 2.5 4.5 2.1 = 2.6 = Saudi Arabia 4.1 1.7.5-1. 2. = Africa 2.9 1.2 3.3.9 3.1 = South Africa 1.3.3.6 = 1.2 = * Weights in global GDP at market price, 216 NB: The revisions refer to the changes in our forecasts since the last quarter Sources: IHS, Euler Hermes Sources: Bloomberg, Euler Hermes, Allianz Research 3

and country risk worldwide Current account deficits decreased in deficit economies, and surpluses even increased in Asian surplus economies (except China). Emerging Economies: Current account balances (% of GDP for each country group) Deficit economies China Asia in surplus 6% 6% As a result of rebalancing or higher surpluses, country risk reversed its trend in 217: now, it s clearly improving. 1 8 6 Country risk: sub-components changes +/- = upgrade/downgrade Q1-Q3 216 Q1-Q3 217-1% 5% 5% 4-4% 4% 2-3% 3% 3% -2-4% -5% -6% Argentina Mexico South Africa Indonesia Turkey Brazil India Others 12 17 1% 12 17 1% 12 17-4 -6-8 -1 ME FFI CRI Sources: IMF, Euler Hermes, Allianz Research Sources: Euler Hermes, Allianz Research 4

Global trade is back and protectionism contained Dollar depreciation is driving values a bit further up. Volume growth is only back to 213-14 figures. US protectionist measures against China have increased notably in 217. 1 Global exports of goods and services Number of protectionist measures taken in the US directly aimed at China Volume Price in local currency Currency impact Value 7. 5.7% 3 Remaining of the year 5% 2.8% 3.6% 1.8% 3.7% 2.7% 2. 4. 3.8% 25 2 21 24 January to August per year -5% -1.9% 15 16 15 15 16-1 -1.3% 1 8 7 8 5-15% 13 14 15 16 17 18 9 1 11 12 13 14 15 16 17 Sources: Bloomberg, Euler Hermes, Allianz Research Sources: GTA, Euler Hermes, Allianz Research 5

Each recovery comes with its risks: Look for the invisible bank, suppliers credit Mind corporate balance sheets: insolvency forecasts are tilted to the upside in the US in 218. EH Global and Regional Insolvency Indices (y/y, %) Major failures increased in Retail (+15 cases in H1, +11 in the US), and Construction (+11 cases, +9 in Western Europe). Major failures* (number of companies by sectors) Source: Euler Hermes (*) Companies with a turnover exceeding EUR5mn Sources: Euler Hermes 6

PMI New Orders PMI New Orders PMI New Orders Business cycles: not in sync but room to grow for all US: Close to peak growth as new orders and job creation continue to grow US Eurozone: Cyclical uptick reaches all-time highs Business cycles clocks: Manufacturing PMI: sub-indices (12m rolling average) Eurozone China: Stuck in the middle of its cycle China 7 65 6 55 5 3 4 5 6 Jun-9 Recession Start: Jan- Nov-11 45 4 35 Sep-17 PMI Employment Peak Oct-4 Jun-11 5 35 4 45 5 55 6 Sep-9 Start: Jan- Feb-2 Feb-13 65 6 55 45 4 35 PMI Employment Aug- Sep-17 May-11 Jun-16 Start: Dec-5 Oct-17 45 47 49 49 51 53 May-9 59 57 55 53 51 47 45 PMI Employment Apr-8 Aug-1 Max values of the couple Current to max distance (i.e room) PMI Employment PMI New Orders PMI Employment PMI New Orders US 56.3 64.6 1. 4.2 Sources: Bloomberg, Euler Hermes, Allianz Research Max values of the couple Current to max distance (i.e room) PMI Employment PMI New Orders PMI Employment PMI New Orders Eurozone 55. 56.8.. Sources: Bloomberg, Euler Hermes, Allianz Research Max values of the couple Current to max distance (i.e room) PMI Employment PMI New Orders PMI Employment PMI New Orders China 51.5 58.9 2.3 5.9 7 Sources: Bloomberg, Euler Hermes, Allianz Research

Monetary policy normalization is on the horizon but should not create havoc Inflation pressures should intensify: Output gaps in main economies are persistent, but should close by 219. Output Gaps (% of GDP) This should go along with monetary policy normalization. Along with interest rate hikes, global liquidity will be tapered. Central Banks Balance Sheet monthly changes (USD, bn) 8 6 4 United States France Germany Italy United Kingdom Spain 175 125 ECB Fed BoJ Flow 2 75-2 25-4 -6-25 -8-1 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17f 18f 19f Flow to turn negative in Q2/Q3 218 Forecasts/assumptions -75 1/17 4/17 7/17 1/17 1/18 4/18 7/18 1/18 1/19 4/19 7/19 1/19 Source: IMF Sources: Euler Hermes, Allianz Research 8

Business confidence Strong upside surprises from the Eurozone, while Emerging Markets acceleration was expected There are good reasons to get bullish on the Eurozone: Sentiment indicators are above longterm average. Europe: Consumer confidence vs. Business confidence* Emerging economies formerly in recession are back to (low) growth; yet Emerging Markets are not accelerating broadly speaking. Emerging Markets: Growth per country group 3 25 2 United Kingdom 9% 8% 7% 6% Recessionary economies* Frontier Markets Bulk of EMs Germany 15 Euro zone 1 France Italy Spain Portugal 5 Netherland s Greece -3-1 1 3-5 -1 Consumer confidence 5% 4% 3% 1% -1% - 7 8 9 1 11 12 13 14 15 16 17F 18 F * August 217 value minus the respective average since 199. (*) = Brazil, South Africa, Russia and CIS Sources: Bloomberg, Euler Hermes, Allianz Research Sources: IHS, Euler Hermes, Allianz Research 9

China: Financial tightening is starting to bear fruit Financial imbalances start to reduce with more sustainable credit growth and lower risky credit flows. Shadow banking and domestic credit The downside is that credit intensive activity expenditures are slowing. Industrial Production and Investment 4 Shadow Banking (3m summed bn, right) 3 Nominal Retail sales (y/y) 35 3 Domestic Credit (y/y, left) 25 2 16 14 Real industrial production (y/y) Nominal Investment in Fixed Assets in Urban areas (YTD, y/y) 25 15 12 2 1 1 15 5 8 1 5-5 6 5 6 7 8 9 1 11 12 13 14 15 16 17-1 4 15 16 17 Sources: IHS, Euler Hermes, Allianz Research Sources: IHS, Euler Hermes, Allianz Research 1

This time around political risks are mainly in or from the US (and the UK) for a change In the US: Critical deadlines for fiscal issues to return in December. US federal fiscal policy timeline Rising threat of a military conflict in the Korean peninsula is a source of uncertainty. Japan and Korea stock markets Date Policy Action needed / pledged Risk of policy inaction and/or prolonged policy confrontation 25 25 December 8, 217 (No hard deadline, as extraordinary measures will probably be used again) Debt ceiling needs to be increased (Alternative option: Further suspension for a period of time) Failure to raise debt ceiling would be unprecedented and represent a large negative demand shock; missed interest payments would send shock waves across global markets. 24 23 2 195 19 December 8, 217 From late September Funding bill must be passed (Alternative option: Another temporary financing via a Continuing Resolution) Debate on and release of a framework for individual/corporate tax cuts/reform Failure to pass a funding bill would result in a partial government shutdown; GDP growth negatively affected as federal employees would be furloughed. 22 21 Kospi (left) Nikkei (right) If tax reform is not implemented, growth above would be hard to achieve next year. 2 17 1/17 3/17 5/17 7/17 9/17 185 18 175 Sources: Bloomberg, Euler Hermes, Allianz Research Sources: IHS, Euler Hermes, Allianz Research 11

Agenda 1 Let s grow 2 Turkey: Full of surprises? 12

GDP growth in Turkey surprised in H1 (+5.1% y/y); now forecast to pick up to +5. in full-year 217 Strong public spending and public investment, as well as rebounding exports spur the economy. Slowdown in 218 expected, in part due to base effects (waning impact of one-off fiscal stimulus measures) TURKEY: Key forecasts 215 216 217f 218f GDP 6.1 3.2 5.2 3.5 Consumer Spending 5.4 3.7 3.5 3. Public Spending 3.9 9.5 5. 5. Investment 9.3 2.2 6. 2. Stocks * -1.1.3-1.. Exports 4.3-1.9 1. 5. Imports 1.7 3.7 2.5 3. Net exports *.6-1.3 1.6.4 Current account (% of GDP) -3.7-3.8-4.8-4.1 External debt (% of GDP) 46.1 46.9 51.9 51.2 Employment growth 2.7 2.2 4. 2.5 Unemployment rate 1.3 1.9 11.3 11.2 Inflation (eop) 8.8 8.5 1.3 8. Inflation (aop) 7.7 7.8 1.9 9. Fiscal balance (% of GDP) -1.3-2.3-3.2-2.5 Public debt (% of GDP) 27.5 28.1 3. 3.5 TRY per USD (aop) 2.72 3.2 3.63 3.99 TRY per USD (aop, % change) -24.3-11. -2.1-1. Change in % y/y, unless otherwise indicated. * Contribution to GDP growth. GDP growth (%) and contribution to growth (pp) Net exports 2. -1.4 H1 217 H2 216 Stocks -1.1. Investment 6.3.8 Public Spending 2.7 5.9 Consumer Spending 3.4 3.4 Real GDP growth 5.1 1.7-3 -2-1 1 2 3 4 5 6 7 Sources: National sources, IMF, IHS, Euler Hermes Sources: National sources, IMF, IHS, Euler Hermes 13

The question is who is financing the lifeline of Turkish growth? The sharp downtrend of the government fiscal balance since the start of 216 underscores that fiscal stimulus (public spending and public investment) has largely financed the lifeline of Turkish GDP growth over the past 18 months Sectoral financial balances, 4 quarters cumulated (By definition, the three balances must net to zero) 1 8% 6% 4% - -4% Foreign sector financial balance Government fiscal balance Private sector financial balance -6% 213 214 215 216 217 The rise in the private sector financial balance (declining deficit) from mid-215 to Q1 217 reflected both less consumption (more savings) and sharply lower investment. GDP growth details support this view: Consumer spending growth moderated from +5.4% in 215 to +3.7% in 216 and +3.4% y/y in H1 217. Fixed investment growth slowed down from +9.3% in 215 to +2. in 216 and +3. y/y in Q1 217, before rebounding to +9.5% y/y in Q2. The turnaround in Q2 217 is also indicated by the Figure. Sources: National sources, IHS, Euler Hermes 14

Unorthodox monetary policy tightening to counter inflationary and currency pressures While keeping the official policy (1-week repo) rate unchanged at 8%, the Central Bank has funded the market mostly through its late liquidity window lending rate of 12.25% this year, putting upward pressure on loan rates and widening the loan-deposit rates spread 15 14 13 12 11 1 9 8 7 6 5 4 3 2 1 Inflation, monetary policy rates, and weighted average cost of Central Bank funding (%) Inflation (%; y/y) Late liquidity window lending rate 1-week Repo (%) Weighted average cost of CBT funding 16-1 16-7 17-1 17-7 Weighted loan rates and deposit rates (%) 2 Weighted Loan Rates ( consumer, mortgage, vehicle) 19 Deposit Rates 18 17 16 15 14 13 12 11 1 9 8 7 6 5 16-1 16-7 17-1 17-7 Source: Central Bank of Turkey, Euler Hermes Source: Central Bank of Turkey, Euler Hermes 15

and expansionary fiscal policy Despite higher market interest rates, credit growth to NFC has accelerated over the last year, helped by the revivification of the Credit Guarantee Fund in late 216. The treasury is the main supporter of the now permanent mechanism to increase access to loans and export financing Credit Guarantee Fund (KGF) revivification >355, firms used KGF since end-216 TRY197bn bonding (~ USD51bn) provided TRY22bn credit utilization ( ~ USD58bn) Euler Hermes expects probability of default on credits at 5 1 (open to moral hazard due to treasury support), adding at least TRY15bn on the government budget with lag effect Other fiscal stimulus measures: Turkish Wealth Fund (TVF) formed in August 216 to finance large-scale public infrastructure projects KOSGEB, a channel established to bail out and extend credit to SME. Various tax breaks and cuts Loans to NFC growth (% y/y) 4 35% 3 25% 2 15% 1 5% 12 13 14 15 16 17 Source: Central Bank of Turkey, Euler Hermes 16

Is it sustainable? Public finances are still solid, but new debt gets more expensive Stimulus expected to push fiscal deficit to -3. of GDP in 217, though public debt is hovering around just 3 of GDP (good) Public finances (% of GDP) Turkey is not benefiting form the strong risk appetite from global investors in emerging market debt elsewhere Turkey 5-Year Bond Yield (%) 1 9 Fiscal deficit (right scale) Public debt (left scale) 1% 15 14 13 8 7 6-1% 12 11 1 9 5-8 7 4 3 2-3% -4% 6 5 4 3 1-5% 2 1 7 8 9 1 11 12 13 14 15 16 17 18-6% 1 11 12 13 14 15 16 17 Sources: IMF, Euler Hermes Source: Bloomberg, Euler Hermes 17

Advance indicators point to continued robust outlook in the near term but no further acceleration Industrial production continues to surge but Manufacturing PMI has passed its peak Industrial production growth (% y/y) and Manufacturing PMI (3-month moving averages) Retail sales growth has peaked, for now, while consumer confidence remains below the long-term average Real retail sales growth (% y/y) and consumer confidence index (3-month moving averages) 57 56 55 54 53 PMI manufacturing (left scale) Industrial production (right scale) 11% 1 9% 8% 7% 6% 5% 1 95 9 85 Consumer confidence (left scale) Real retail sales (right scale) 1 9% 8% 7% 6% 5% 4% 52 51 5 49 48 4% 3% 1% -1% - -3% -4% 8 75 7 65 3% 1% -1% - -3% -4% 47 212 213 214 215 216 217-5% 6 212 213 214 215 216 217-5% Source: Turkstat, IHS Markit, Euler Hermes Source: Turkstat, Euler Hermes 18

Unemployment remains a problem, despite improving capacity utilization Despite the increase in the labor force, the unemployment rate remains high at above 1. Strong GDP growth in 217 (and before) has not created enough employment opportunities Unemployment and labor force participation (%) Capacity utilization ratio in the manufacturing industry (%) Unemployment rate (left scale) 85 18 17 16 Non-farm unemployment rate (left scale) Labor force participation rate (right scale) 54 53 52 84 83 82 81 15 14 13 12 11 1 9 8 51 5 49 48 47 46 45 44 43 8 79 78 77 76 75 74 73 72 71 7 12 13 14 15 16 17 42 7 12 13 14 15 16 17 Source: Turkstat, IHS Markit, Euler Hermes Source: Central Bank of Turkey, Euler Hermes 19

Banking sector still in fairly good shape overall Capital adequacy and profitability are good and NPLs remain low, while the loan-to-deposit ratio has increased to a new high in 217 Banking sector soundness indicators Loan-deposit ratio 24% 2 2 Tier-1 Capital Adequacy Ratio Return on Equity NPLs in Total Loans 13 125 18% 16% 12 122.8 14% 1 1 115 8% 6% 11 4% 15 12 13 14 15 16 17 1 13 14 15 16 17 Source: Central Bank of Turkey, IMF, Euler Hermes Source: Central Bank of Turkey, Euler Hermes 2

Full-blown currency crisis averted, for now Sharp TRY depreciation since 215 (-4 loss of value against the USD to date) has adversely affected corporates indebted in FX. We expect continued volatility and a -1 depreciation in 218, due to growth slowdown, large current account deficit and ongoing dollarization Exchange rate development (reflecting high vulnerability to regional and external shocks) Turkish households FX holdings and dollarization of bank deposits 1. 1.2 1.4 1.6 1.8 2. 2.2 2.4 2.6 2.8 3. 3.2 3.4 3.6 3.8 4. 4.2 4.4 4.6 4.8 5. Lehmann Brothers TRY per USD TRY per EUR first hint of Fed tapering rising political uncertainty (elections; Iraq; PKK) failed coup attempt Trump wins U.S. elections Diplomatic dispute with U.S. YES vote in referendum on new constitution 28 29 21 211 212 213 214 215 216 217 175 165 155 145 135 125 115 Domestic households FX holdings (USD bn; left scale) Dollarization (%; right scale) 13 14 15 16 17 44 42 4 38 36 34 32 3 Sources: Central Bank of Turkey, ECB, IHS, Euler Hermes 21

Current account deficit, and its financing, remain Turkey s Achilles heel High current account deficits largely financed through new short-term external debt has been a looming risk for a long time Current account deficit and financing (% of GDP) Strong rebound in external trade activity in 217. Weaker TRY benefits exports but, along with rising oil prices, also raises import costs Growth of nominal exports and imports of goods (USD; 3-month moving averages; % y/y) 1 1 8% Net external bank borrowing Net portfolio inv. inflows Net FDI inflows Current account balance 35% 3 25% Exports Imports +3 6% 4% - 2 15% 1 5% -5% +16% -4% -1-6% -15% -8% -1 - Net portf. investm. outflows in 215! - Net bank debt outflows in 216-217! 1 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17-2 -25% 212 213 214 215 216 217 Note: 217 data refer to January-August 217. Sources: National statistics, Euler Hermes Sources: Turkstat, Euler Hermes 22

Tourism is recovering but FDI inflows remain weak Sharp drop in tourist arrivals has bottomed out, mainly thanks to Russians coming back, but return to the record high will take a long time FDI inflows, never really strong in relation to GDP (1.6% in 21-216) remain below the levels in 211-214 38 36 34 32 3 28 26 24 22 2 Foreign visitors arrivals in Turkey (million; moving 12 months) Total (left scale) 18 From Germany (right scale) From Russia (right scale) 16 213 214 215 216 217 1 9 8 7 6 5 4 3 2 1 FDI in Turkey (USD bn) 3 FDI inflows (monthly) FDI inflows (moving 12 months) 25 2 15 1 5 26 28 21 212 214 216 Sources: National sources, Euler Hermes Sources: Central Bank of Turkey, IHS, Euler Hermes 23

Short-term external debt rises again in 217, after some deleveraging in 215-216 Capital outflows led to a reduction of ST external debt of banks by USD3bn in 215 and 7bn in 216. As a result External debt (USD billion) FX reserves dropped by USD3bn from end-214 to April 217, now covering only 5 of short-term debt (>12 is good) FX reserves (USD bn) and coverage of external debt payments falling due within 1 year (%) 45 ST external debt of banks 14 FX reserves (USD bn; left scale) 2 4 35 ST external debt of non-banks MT & LT external debt 12 Reserves coverage (% of external debt due in next 12 months; right scale) 18 16 3 1 14 25 2 8 6 12 1 8 15 4 6 1 5 2 4 2 7 8 9 1 11 12 13 14 15 16 17 7 8 9 1 11 12 13 14 15 16 17 Sources: National sources, Euler Hermes Sources: Central Bank of Turkey, IHS, Euler Hermes 24

Steadily deteriorated payment behavior since 27 DSO now among the longest worldwide In 216 companies paid on average 15 days later than in 27 and 16 days later than the global average (64 days in 216) Construction, high-tech, paper, pharma and machinery wait 3 months to be paid 1 9 8 7 6 5 4 3 2 1 Average Days Sales Outstanding (DSO) of listed companies (number of days) Turkey Global average 8 81 8 78 8 77 72 73 74 68 65 65 64 64 64 64 64 64 64 6 61 62 7 8 9 1 11 12 13 14 15 16 17f Average DSO by sector in Turkey (number of days) Construction Electronics Telecom Technology Paper Pharma Machinery & eq Oil & gas Personal & recreational goods COUNTRY AVERAGE Household goods Auto Other services Metals Chemicals Food Business services Transportation Utilities Retail 28 27 48 45 67 76 75 75 75 8 8 86 85 94 12 1 111 11 19 18 216 215 2 4 6 8 1 12 14 Sources: Bloomberg, Euler Hermes Sources: Bloomberg, Euler Hermes 25

9954 9578 1395 13442 12328 1371 128 123 14991 1663 15822 174 Insolvencies forecast to decline in 218, but the devil is in the detail (sector risk) Insolvencies to rise by +4% in 217, as TRY depreciation take its toll on firms with FX-denominated debt. U-turn in 218 Corporate insolvencies in Turkey (number of cases and growth rate) 8 sector downgrades in the last 8 quarters, and only 1 upgrade Evolution of the sector risk levels in Turkey 22 2 18 16 14 12 1 8 6 4 2 Number of cases (left scale) Change (% y/y; right scale) Sources: TOBB, Euler Hermes +4% -4% -1-13% 7 8 9 1 11 12 13 14 15 16 17 18 5 4 3 2 1-1 -2-3 -4-5 1 9 8 7 6 5 4 3 2 1 12 13 14 15 16 17 Low risk: sound fundamentals; very favorable or fairly good outlook. Medium risk: signs of weaknesses; possible slowdown. High risk: imminent or recognised crisis. Sensitive risk: structural weaknesses; unfavorable or fairly bad outlook. Source: Euler Hermes Construction (Q4 16) Chemicals (Q4 15) Textiles (Q4 15) Agrifood (Q4 15) Electronics Energy (Q4 16) Metals Paper Retail (Q4 15) Transportation (Q3 16) Automotive suppliers Computer & Telecom Household equipment Machinery (Q1 16) Software & IT Services Automotive manuf. (Q3 17) Pharmaceuticals 26

Export recovery to continue in 218: +USD16bn (the same as in 217) Turkey s exports benefit from recoveries in MENA and Europe, though the UK will be the main drag. MENA has caught up with Europe as a key region with regard to export gains Potential 218 export gains for 18 key trading partners (forecast by EH trade model) Potential 218 export gains by sector (forecast by EH trade model) Sources: IMF, Chelem, Turkstat, Euler Hermes Sources: IMF, Chelem, Euler Hermes 27

Exporting companies face overall moderate country and insolvency risk yet several hot spots Low to moderate country risk in most key export destinations. But beware of higher risk in MENA region Country risk in top 2 export markets, Q3 217 Algeria Egypt Saudia Arabia China Poland Romania Belgium Iran Israel Netherlands Spain France Italy U.S. UK Iraq U.A.E. Germany 1% 1% Sources: Turkstat, Euler Hermes 4% 4% 5% 6% 6% 6% 7% 1 4% 6% 8% 1 1 % of total exports in January-September 217 Our Export Insolvency Index (IDEX) for Turkey is expected to slow down to -1% but remains favorable caution in hot spots Weighted average of insolvency variations for Turkey s main export partners (in %) Turkey 216 217f 218f IDEX -6% - -1% Trade partners Export share Change in insolvencies 1 Germany 9.4% -7% -5% -3% 2 United Kingdom 6.7% -1% 5% 6% 3 France 4.9% -7% -7% -4% 4 U.S. 4.5% - 5% 5 Italy 4.3% -9% -11% -6% 6 Switzerland 4. 3% 1% 7 Spain 3.3% -18% -3% 8 Russia 2.5% 4% 8% -5% 9 Belgium 2. -6% 4% -5% 1 Romania 2. -18% 5% 5% 11 The Netherlands 1.7% -17% -2-5% 12 China 1.7% 9% 19% 8% 13 Poland 1.6% 8% 1 14 Bulgaria 1. -16% -1-5% 15 Greece.9% -3% -3% -5% 16 Morocco.9% 25% 1 8% 17 Austria.9% 1% - 1% 18 Sweden.7% -6% 1% 19 Canada.6% -7% -3% 2 Czech Republic.5% -1-9% -7% Sources: Chelem, National sources, Euler Hermes 28

Total FDI outflows have weakened since 215 but those to the U.S. have increased Turkish companies invested less in Europe and MENA & Caucasus in recent years. SSA and also Asia not targeted as yet Netherlands and Azerbaijan are top partners for FDI in both directions. China is a minor FDI partner so far One Belt One Road has yet to arrive 6, 5, 4, 3, 2, Turkish FDI abroad by main regions (USD mn) SSA ASIA + PACIFIC AMERICA MENA + CAUCASUS EUROPE 4% 3 11% China GCC Azerbaijan Russia United States UK Netherlands Turkish FDI inflows and outflows in 211-216 (USD bn).8.1.7.5 1.7 3.3 4.8 3.5 3.4 3. 4.5 5.8 7.9 7.4 FDI in Turkey Turkish FDI abroad 1, 55% 2 3 4 5 6 7 8 9 1 11 12 13 14 15 16 17f Germany TOTAL 1. 4.5...... 23.7 5 1 15 64.4 Sources: Central Bank of Turkey, Euler Hermes Sources: Central Bank of Turkey, Euler Hermes 29

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