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FDI - Where Does Turkey Stand?FDI - Where Does Turkey Stand?
Orhan CemOrhan CemLead Partner, Advisory Services, PwC TurkeyLead Partner, Advisory Services, PwC Turkey
TURKEY WHERE THE OPPORTUNITIES ABOUNDTURKEY WHERE THE OPPORTUNITIES ABOUNDON THE WAY TO SUCCESSON THE WAY TO SUCCESSFebruary 21-22, 200February 21-22, 20077
PricewaterhouseCoopers
Agenda
The Outlook
What is Turkey's potential in attracting FDI?
Where does Turkey stand in the FDI league?
“To Do” List
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Outlook & PotentialTurkey is one of the world’s ten “Big Emerging Markets” with GDP of approximately USD380 billion at current prices; based on World Bank estimations Turkey is the 17th biggest economy in the world on a PPP basis.
As per the “World 2050” report issued by PwC in March 2006, the Turkish economy will grow with a CAGR of 5.6% from 2005-2050 and will reach USD4.1 trillion GDP in 2050 (at 2005 prices) and USD40,000 per capita income, becoming the 12th largest economy of the world.
In 2006, M&A transactions generated a USD17 bn FDI inflows.
FDI is steady in the services sector. Privatizations, M&A activity in the banking sector and foreign purchases of real estate are other factors supporting the continued strength of FDI inflows.
1
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Growth Potential
Finance Sector
GSM Sector
2
Netherlands 174 Denmark 166 England 142 Portugal 138 Germany 136 Austria 125 Spain 121 EU-25 118 Belgium 107 France 93 Italy 88 Greece 76 Latvia 56 Hungary 48 Slovenia 48 Czech Republic 39 Poland 35 Turkey 23
Belgium 143 Netherlands 122 England 118 Germany 113 Spain 104 Portugal 103 Austria 98 EU-25 96 Greece 96 France 77 Czech Republic 70 Latvia 66 Italy 58 Slovenia 57 Turkey 47 Estonia 46 Poland 46 Hungary 45
Deposits / GDP(%) for benchmark countries
Loans / GDP(%) for benchmark countries
Turkey figures (2005)
Penetration per 100 inhabitants (2005)
70 in 2006
Leaseable Area per 1000 inhabitants (2005)
Population
Turkey offers high growth potential to foreign investors.
Retail Sector
9790
60
0
20
40
60
80
100
120
EU-15 EU New Entrants Turkey
16%20%
30%
18% 17%
26% 27% 27%
11%8%
0%
5%
10%
15%
20%
25%
30%
35%
0-14 15-29 30-49 50-64 65+
EU-25 Turkey
734
230121 80
320
100
200
300
400
500
600
700
800
Norway England Italy CzechRepuplic
Turkey
PricewaterhouseCoopers
FDI to Turkey is picking up. Forecasts show that in 2006, FDI inflow / GDP reached 5%.
The IIF estimates that Turkey will attract some USD22 bn in FDI which amounts to approximately 10% of global net direct investment to emerging markets in 2007.
FDI Comparison
3
Source: PwC Analysis
FDI Stock (USD bn) – BRIC and Turkey
Source: UNCTAD, World Investment Report, 2006
FDI Inflow (USD mn) –Turkey
*As of November
FDI / GDP – BRIC and Turkey
Source: PwC Analysis
0%
1%
2%
3%
4%
5%
2001 2002 2003 2004 2005
Brazil Russia India Turkey China
2002 2003 2004 2005 2006*
FDI 620 750 1,300 8,500 16,000
1990 2000 2005
Brazil 37,243 103,015 201,183 Russia n/a 32,204 132,491 India 1,657 17,517 45,274 China 20,691 193,348 317,873
Turkey 11,194 19,209 42,170
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Various companies of different origins entered the Turkish market recently
ALCOHOL
MERSIN PORT
IRON&STEEL
REFINERYMOBILE
Changing Competitive Landscape – Understanding the Profile of FDI
More foreign companies entering the market
Major sectoral privatizations
4
TOBACCO
TURKISH AIRLINES
POWER DISTRIBUTION
PETROCHEMICALS
IZMIR PORT
LOTTERY
Expected privatizations
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Turkey moved up 12 places from last year in the WEF’s “Global Competitiveness Report,” and was ranked 59th among the125 world economies scrutinized by the report.
Turkey is most likely an efficiency-driven economy.
Competitiveness
WEF – Global Competitiveness 2006
Source: World Economic Forum
5
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0
1
2
3
4
5
6
7Institutions
Infrastructure
Macroeconomy
Health and Primary Education
Higher Education and TrainingMarket Efficiency
Technological Readiness
Business Sophistication
Innovation
BRIC Average
Turkey
EU New Entrants
Although Turkey has certainly not dealt fully with all the key determinants of competitiveness at its level of development, such as macroeconomic stability, she has made good progress in factors which tend to become increasingly important at more advanced stages of development, such as business sophistication and innovation.
Competitiveness
Turkey vs BRIC and EU New Entrants
Source: World Economic Forum
6
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Protection of
intellectual property
Global competitiveness
Fight against corruption
Corporate Governance
More privatization
Tight fiscal balance
Efficient legal
structure
Fair tax environment
Healthy financial system
Well functioning
liberal markets
Transparency
Healthy financial reporting
Simple and effective
regulation and less
bureaucracy
Training and education
Investment in research and development
Innovation
Branding Higher value added products
Technology
Turkey has a long list of homework to be done.
These issues are taken as a discount factor on the valuation of Turkish businesses / assets.
“To Do” List
7
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• “Laissez faire laissez passer” vs Strategic Approach
• Macroeconomic environment has improved significantly compared to the past but there is a need for nationwide strategy for FDI.
• Turkey is mostly attracting FDI through privatizations and M&A deals –asset sales, whereas green field FDI is limited.
Question Marks & Concerns
8
Number of Greenfield Investments
2002 2003 2004 2005
Brazil 175 291 260 158 Bulgaria 77 97 110 130 China 586 1,303 1,547 1,196 Czech Republic 94 141 137 127 Hungary 211 214 212 173 India 249 452 688 564 Poland 91 155 229 234 Russia 199 429 380 479 Turkey 45 69 66 62
Source: UNCTAD, World Investment Report, 2006
PricewaterhouseCoopers
Thank you.
© 2007 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US).