ISTANBUL THE NEXT GLOBAL FINANCE HUB

1
ISTANBUL -THE NEXT GLOBAL FINANCE HUB?

• Andrew Vorkink
• Bogaziçi University
• ECONFIN Seminar Presentation
• April 14, 2008

2
WHAT IS A FINANCE HUB?

• A center for cross border financial services
  including
• Equity trading
• Debt financing
• Asset management
• Risk management and insurance services
• Commodity trading

3
HUBS SHAPES AND SIZES

• Full service Global Hubs
• London
• New York
• Global Hubs with More Limited Services
• - Tokyo
• - Frankfurt
• - Chicago
• Special Purpose Hubs
• - Zurich, Liechtenstein, Cayman Islands
• Regional Hubs
• - Singapore
• - Luxembourg
• - Hong Kong

4
MAIN ELEMENTS OF A HUB

• Stable political environment
• Highly Developed Infrastructure
• Functioning Regulatory and Legal Framework
• Vibrant Local Economy
• Location and Attractive Quality of Life

5
STABLE POLITICAL ENVIRONMENT

• Productive government-business relationships
• Autonomous central bank
• Stable, transparent, and dependable political
  institutions
• Stable, globally competitive tax environment

6
MODERN INFRASTRUCTURE

• World-class, reliable telecommunications/IT
  infrastructure with connectivity around the
  clock, and around the world
• Pool of skilled, English speaking finance staff
• Flexible labor market, especially on hire/fire
• Quality office space
• Highly convenient, uncongested transportation
  infrastructure, particularly to and from airports

7
REGULATORY-LEGAL FRAMEWORK

• Open bond, currency, equity and commodity markets
• Non-discriminatory treatment of international
  companies
• Predictable and logical regulatory procedures
• Well-developed and predictable legal and dispute
  settlement system
• Liberal policy on visas and work permits

8
LOCAL ECONOMY

• Growing local businesses with accountability to
  shareholders
• Risk management capabilities and culture
• Welcoming business community
• Developed, liquid, long-term financial markets
• Access to large customer base

9
LOCATION AND QUALITY OF LIFE

• Physical proximity to other key markets
• Low vulnerability to natural disasters
• Affordable schools for foreigners, with
  facilities, instructors, and curricula that meet
  global standards
• Attractive, affordable housing
• Regionally competitive living costs
• Large community of international residents

10
MAIN COMPETITORS

• Global Tier London, New York
• Global Specialized Tier Tokyo, Frankfurt
• Regional Tier
• - MUMBAI
• - DUBAI
• - KOREA
• - MALAYSIA
• - SINGAPORE

11
STABILITY - ISTANBUL

• Government and Business Cooperation - Mixed
  Better with SMEs, Less with TÜSIAD
• Central Bank independence Generally good
• Political institutions Contentious with courts
  and prosecutors
• Ease of Doing Business -

12
COMPARISON POLITICAL STABILITY
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STABILITY -TAXES
14
STABILITY TAXES ON LABOR
15
COMPARISON INFRASTRUCTUREReliability 1
16
COMPARISON INFRASTRUCTUREReliability 2
17
COMPARISON INFRASTRUCTURESkilled Staff
18
COMPARISON INFRASTRUCTURESkilled Staff - Proxy
19
COMPARISON INFRASTRUCTURELabor Flexibility 1
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COMPARISON INFRASTRUCTURELabor Flexibility 2
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INFRASTRUCTURE - LABOR
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INFRASTRUCTURE - LAND
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INFRASTRUCTUREUncongested Transportation

• Istanbul Airport High marks as global hub
• Istanbul Traffic Marks?

24
COMPARISON REGULATION/LEGAL
25
COMPARISON REGULATION/LEGAL
26
COMPARISON REGULATION/LEGAL
27
LOCAL ECONOMYTURKEY 1970s-Present
New GDP series after 2000
28
COMPARISON - LOCAL ECONOMY
29
COMPARISON LOCAL ECONOMYSTOCK MARKETS
30
COMPARISON LOCAL ECONOMYBOND MARKETS -
EXCHANGES
31
COMPARISON LOCAL ECONOMYDERIVATIVES MARKETS
32
COMPARISON LOCAL ECONOMY
33
LOCATION OTHER MARKETS
34
LOCATION
35
QUALITY OF LIFEISTANBUL RANKING

• OVERALL QUALITY OF LIFE
• Istanbul ranks 121 of 215 cities

• QUALITY OF HEALTH AND SANITATION
• Istanbul ranks 93
• of 215 cities

• COST OF LIVING (including housing costs)
• Istanbul ranks 38 of 215 cities

36
LOCATION

• Affordable schools with global standards
• Mixed
• Large community of international residents
• Generally good marks

37
ISTANBULS SCORECARD

• Stable political environment Competitive on
  central bank, tax stability, elected government
  not competitive on labor taxes, court challenges
  and red tape and bureaucracy
• Infrastructure Competitive on IT, office space
  and external transportation not competitive on
  size of skilled labor pool, flexible labor
  market, internal transport

38
ISTANBULS SCORECARD

• Regulatory/Legal Competitive on contract
  enforcement not competitive on open markets,
  predictable regulatory regime
• Local economy Competitive on growth, local
  business climate and banking community improving
  on local exchange and derivative markets not
  competitive on debt markets due to short term
  nature and interest rate

39
ISTANBULS SCORECARD

• Location and Quality of Life - Competitive on
  cost of living, housing and community of
  international residents not competitive on
  international schooling, quality of life and
  health and natural disaster risks

40
THE AGENDA

• Political stability is critical!
• Biggest weaknesses on infrastructure are labor
  skills and labor flexibility
• City transport a significant factor
• Government-business partnership needed on
  regulatory streamlining
• Open markets connected to macroeconomics
• Financial markets need - further liberalization,
  privatization of ISE and less state borrowing
• Think Regional Hub before going wider
• A Finance Hub will take time, effort and a
  PLAN