Turkey why FDI

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Turkey why FDI? Status quo and salient
factors Simon Quijano-Evans, Senior Economist,
CAIB/HVB Group simon.quijano_at_ba-ca.com
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Why does Turkey need FDI?

• To sustain future economic growth rates
• To increase competition and maintain productivity
  at home
• To cater for a growing population and labour
  force
• To cover a wider current account deficit, without
  raising foreign debt
• To secure net FDI as Turkish firms increasingly
  look to invest abroad
• To maintain competitiveness versus EU accession
  peers
• To help secure a peaceful development in the
  surrounding region

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Turkey market volatility has calmed
pre-condition for FDI
Source Reuters, HVB Group
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Factors of relevance to FDI
1. First increase confidence at home 2. Then
look to secure foreign investor confidence 3.
Foreign investors need reform anchors EU and
IMF 4. Do lower corporate tax levels make a
difference to FDI? 5. Important to look at Turkey
from a regional perspective 6. A young population
plenty of water room for infrastr. investments
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First increase confidence at home Strong rise
in TRY deposits
Source Central Bank of Turkey, HVB Group
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First increase confidence at home - Substantial
domestic investment
Source Central Bank of Turkey, HVB Group
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Factors of relevance to FDI
1. First increase confidence at home 2. Then
look to secure foreign investor confidence 3.
Foreign investors need reform anchors EU and
IMF 4. Do lower corporate tax levels make a
difference to FDI? 5. Important to look at Turkey
from a regional perspective 6. A young population
plenty of water room for infrastr. investments
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Then increase confidence abroad Huge jump in
portfolio investment
Source Central Bank of Turkey, ISE, Takasbank
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Then increase confidence abroad LT loans on the
rise, FDI follows
Source Central Bank of Turkey, HVB Group
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Factors of relevance to FDI
1. First increase confidence at home 2. Then
look to secure foreign investor confidence 3.
Foreign investors need reform anchors EU and
IMF 4. Do lower corporate tax levels make a
difference to FDI? 5. Important to look at Turkey
from a regional perspective 6. A young population
plenty of water room for infrastr. investments
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Investors need reform anchors EU talks IMF
program
Maastricht debt levels by end-07 CAIB baseline
scenario
Public sector gross debt/GNP
EU talks quicker than others? We see possibility
for EU accession around 2012
Source European Commission, CBT, HVB Group.
Note For BG and RO, assumption is they join EU
in Jan-07
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Investors need reform anchors bring positive
ratings dynamics
Source SP, Bloomberg, HVB Group
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Factors of relevance to FDI
1. First increase confidence at home 2. Then
look to secure foreign investor confidence 3.
Foreign investors need reform anchors EU and
IMF 4. Do lower corporate tax levels make a
difference to FDI? 5. Important to look at Turkey
from a regional perspective 6. A young population
plenty of water room for infrastr. investments
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Do lower corporate tax levels make a difference
to FDI?

• Not at first sight, but picture blurred by
• Special tax incentives
• Extra taxes (municipal)
• Tax holidays
• So also important
• Red tape and legal costs
• Cost of labour
• Education of workforce
• Stage of privatisations
• Domestic company landscape

Source Finance Ministries, Reuters, HVB Group
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CEE Corporate tax rates as of Jan-2006
Source Finance Ministries, Reuters, HVB Group
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Factors of relevance to FDI
1. First increase confidence at home 2. Then
look to secure foreign investor confidence 3.
Foreign investors need reform anchors EU and
IMF 4. Do lower corporate tax levels make a
difference to FDI? 5. Important to look at Turkey
from a regional perspective 6. A young population
plenty of water room for infrastr. investments
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Turkeys purchasing power in line with Bulgaria
and Romania
Source Eurostat, HVB Group
Source Eurostat, HVB Group
NMS10 10 New EU Member States
EU25 EU15NMS10 All current EU Member States
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but GDP/capita of large part of population
closer to Poland

• 37mn people in the Aegean/Mediterranean/Marmara
  area account for 64 of GDP (with percap GDP of
  4,170)
• Marmara comes close to level in Poland and around
  1,600 below average level of 10 New Member
  States
• The Marmara region makes up for around 26 of the
  estimated 72m population and 37 of GDP
• And GDP/GNP data to be revised soon in line with
  ESA95 standards

Marmara 4,830 18.5mn
Black Sea 2,540 9.0mn
Central Anatolia 3,310 12.4mn
GDP/capita
Population
Aegean 3,870 9.5mn
S.E. Anatolia 1,740 7.0mn
Mediterr. 3,140 9.3mn
E. Anatolia 1,540 6.5mn
Source for Map http//www.e-cografya.com Data
Source Central Bank of Turkey, with forecasts by
CAIB
2004 estimates
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Factors of relevance to FDI
1. First increase confidence at home 2. Then
look to secure foreign investor confidence 3.
Foreign investors need reform anchors EU and
IMF 4. Do lower corporate tax levels make a
difference to FDI? 5. Important to look at Turkey
from a regional perspective 6. A young population
plenty of water room for infrastr. investments
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Turkeys population will remain young

• Age bracket 15-59 to rise to 63 by 2025 in TR
  and fall to 55 in GER
• Turkey to make up for 15 of EU-29 population in
  2025
• By 2025, TR median age to rise to 33 from 25 - In
  GER to 48 from 40

Share of EU-29 population in
Source United Nations, HVB Group
EU29EU25BulgariaCroatiaRomaniaTurkey.
TRTurkey, GERGermany
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Theres plenty of water and potential elsewhere

• Turkey has abundant freshwater an economic
  imperative
• Internet and mobile telephony have potential
  require investments

Total freshwater resources yearly avg.
Internet access and mobile phones
Source Eurostat, HVB Group Internet data for
2004, except Bulgaria and Poland for 2003. Phone
data 2002
Source Eurostat, HVB Group
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Conclusions

• FDI needed to sustain future growth rates and EU
  convergence
• Government has secured domestic confidence
• and is now securing foreign investor confidence
• Low financial/political volatility is imperative
  for securing FDI
• Corporates require transparency on taxation etc
  need reform anchors
• Plenty of room for public sector infrastructure
  investments
• FDI is important to secure Turkeys role in the
  region

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Important Information

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