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Economic Outlook of Turkey

Economic Growth

Turkey has undergone a profound economic transformation since 2001. It has recorded a remarkable GDPgrowth rate of almost % 6 in average during the period of 2002-2011. Turkey’s GDP (current prices) forthe year 2013 was $827bn, which rose from $231bn in 2002. GDP per capita nearly tripled since 2002,from $3,500 to $10,815 in 2013. Turkey’s GDP per capita is greater than that of two EU countries, Romaniaand Bulgaria

Turkey is currently the fastest emerging market of Europe and OECD. Turkish GDP grew by 8.8% in 2011,2.2% in 2012 and 4% in 2013. The average growth rate in the last decade was 5%, currently around 3%,the fastest among the OECD countries, which grew at an average of 1.7%. OECD estimates that Turkey willbe the third highest growing country after China and India by 2017 and will surpass India after 2017 tobecome number two.


Economic GrowthTurkey is the world’s 17th and Europe’s 6th largest economy. According to HSBC’s “The Worldin 2050” report, Turkey will be the world’s 12th and Europe’s 5th biggest Economy by 2050.In September 2010, the FTSE Group promoted Turkey from ‘secondary emerging’ status to‘advanced emerging’ status.

Turkey is one of the world’s biggest markets with a population of 76 million and a labor forceof 28 million. Half of the population is below the age of 30. Turkey has the highest youthpopulation and 4th largest labor force compared to EU-27 countries.


Monetary Policy

Monetary policies of the Turkish Central Bank played a crucial role in securingmacroeconomic balances, and most importantly played a vital role in reining in inflationover the recent years. Turkish inflation has stayed under 10% since 2004 and year endinflation was realized as 6.2% in 2012. EIU forecasts that the average inflation willfurther ease to 4% by 2018.

In 2012, Turkey’s credit rating was raised to “investment grade” by Fitch Ratings. In2013, Standard & Poor’s raised Turkey’s credit rating to (BB-), one level belowinvestment grade. It was followed by Moody’s which raised Turkey’s rating toinvestment level in May 2013.


Fiscal Policy

Turkey has been extremely careful with its budget for the last decade. Once peaked atalmost % 17 in 2001, EU-defined general government budget deficit/GDP ratio was %2.6 in 2011 and Turkey met the Maastricht criteria of % 3 while outperforming 18 EUCountries (Central government budget deficit/GDP ratio was % 1.3 in Turkey in 2011 andTurkey outperformed 23 EU Countries). Budget deficit/GDP ratio turned out to be % 1.3in 2014

While net public debt to GDP ratio was % 90.5 in 2001, it decreased to % 39.4 in 2011,which was below the level in 21 EU Countries and the Maastricht Criterion of % 60. Thecomposition of the debt stock has also been improved and become more resilient tofluctuations in interest and exchange rates as well as capital flows.


ForeignTrade

Turkey has been pursuing an export-led growth since 1980. By economic reforms, lifting restrictionson imports, reducing safeguard practices, and liberilization of foreign exchange transactions. As aresult of the economic reforms carried out during the last decade, both the volume and compositionof the Turkish trade have radically changed. The volume of Turkish exports increased to 157,6 billionUSD in 2014 from 36 billion USD in 2002.

Turkey has been in the Customs Union with EU-27 countries since 1995. It has free trade agreementswith 19 other countries, in FTA negotiations with 21 countries and 5 country groups.

The total trade volume is 399.8 billion USD. Exports 157,6 billion,Imports 242.2.5 billion USD.


Foreign Investment

Turkey’s successful economic performance, young population, qualified and competitivelabor force, liberal and reformist investment climate, highly developed infrastructure,advantageous geographic position, low tax rates and incentives and large domesticmarket, as well as customs union with the EU since 1996 provide ample opportunitiesfor foreign investors.

The number of active companies involving international capital has reached 41,131 in sixdecades, including 6,257 Turkish companies with foreign partners. Starting a business inTurkey takes an average of 6 days, compared to the world average of 30.6 days, MENAaverage of 23 days and OECD average of 12 days.

Turkey has significantly liberalized its FDI regime. The total amount of foreign directinvestments exceeded 130 billion USD by the end of 2012.


Privatization

Privatization has been among the top priorities of the Government’sagenda. Turkey has been listed among the top OECD countries thatreceive the most out of privatization. Privatization revenues reached 8billion Dollars in the period of 1986-2003 and 36.2 billion Dollarsbetween 2003-2012, reaching 44 billion Dollars.

The main philosophy of privatization is to confine the role of the state inareas such as health, basic education, social security, national defense,and large scale infrastructure investments. This is in line with Turkey’starget of creating a truly competitive market economy driven by theprivate sector.


International Business

According to the World Economic Forum’s Global Competitiveness Report for2012-2013, Turkey moved up 16 places in the global competitiveness rankingslast year reaching 43th place among 144 economies and becoming the mostcompetitive country in south-eastern Europe.

33% of big multinational companies use their offices in Turkey as their regionalheadquarters. According to Ernst & Young’s M&A (mergers and acquisitions)Barometer report, Turkey’s M&A market had the highest transaction numberand volume (297 transactions with $18 billion investment) in 2012 in theCentral and South Eastern Europe Region.

There are currently 145,000 Turkish entrepreneurs operating in Europe,employing 627,000 people and running €63 billion worth of businesses.


Some Major Businesses – Sectors

Banking: Turkish banking sector is one of them most robust among Europe.

Banking sector’s assets size is $800bn by June 2013, higher than the GDP of manyEU countries; has one of the highest capital adequacy ratios (16% compared to theminimum requirement of 8%) and lowest non-performing loan ratios (3%) inEurope. There are 49 banks in Turkey, 32 of them deposit banks, 16 of themforeign.

Construction: The construction sector in Turkey is expected to be among the

highest growing in the world. Having 33 companies among the top 225 contractingcompanies, Turkey ranked as the second country in the world in 2012 after China.


Some Major Businesses – SectorsReal Estate:Turkey has huge growth potential in the real estate sector.

Istanbul is the most attractive investment market in Europe in the“Existing Property Performance”, “New Property Acquisitions”, and“Development Prospects” categories. Ernst and Young rates Turkey as thesecond most attractive market in Europe for real estate investors.

Information Technology: The Turkish ICT sector is a fast growing

sector with an annual growth rate of 14%. Supported by a young andtech-savvy population and over 20 million internet users, Turkey’s e-commerce market is set to grow exponentially. The $17 billion e-commerce volume registered in 2012 is expected to rise at an annual rateof 123% over the next 3 years to reach $140 billion.


Some Major Businesses – Sectors

Telecommunications: Of some 68 million mobile phones registered in the

country, 58%feature the 3G technology – almost twice as many as onEuropean average. By 2014, the mobile phone penetration is expected toreach 113%.

Automotive: Turkey is the 8th largest textile and 7th largest clothing

exporter in the world. Turkey is the largest commercial vehicle and secondlargest bus manufacturer of Europe and the 16th biggest motor vehicleproducer of the world. Today, there are 17 companies including Fiat, Honda,Hyundai, Renault and Toyota, Mercedes-Benz and M.A.N manufacturingvarious types of vehicles in Turkey.


Some Major Businesses – SectorsEnergy: Turkey is also playing an increasingly important role in the transit of oil

and gas supplies. The Baku-Tbilisi-Ceyhan pipeline, the second longest oilpipeline in the world. The Blue Stream, a major trans-Black Sea gas pipeline,delivers natural gas from Russia to Turkey. There are 2 other major pipelines(TANAP and South Stream) which will transmit oil and gas from the Caspianregion, Russia and the Middle East routed westward to Europe.

The renewable energy sector has been injected with billions of dollars in recentyears by leading Turkish banks and is expected to grow further. Turkey ranks 1stin the world in terms of growth rate in wind energy plants and only 15% of itspotential has been utilized up until now. Turkey aims to increase the ratio of itsrenewable energy resources to 30% of its total energy production by 2023 fromthe current 20%.


Agriculture: Turkey is one of the leading countries in the world in agriculture and

related industries. Turkey is the world’s 7th largest producer of fruits andvegetables, Europe’s largest and the world’s 3rd largest frozen fruit exporter andlargest milk and dairy producer in its region.

Home Appliances: Turkey has risen to become Europe’s largest home appliances

manufacturer. Turkey is the number one TV manufacturer in Europe.

Metal: Turkey is Europe’s 2nd largest iron and steel maker.

Maritime: World’s 4th largest mega-yacht manufacturer and 5th largest

shipbuilding country.

Military: Turkey has the second largest army in NATO, after USA. Considerable

improvements in various local manufacturing of heavy military arms, vehicles andequipment.


Tourism: Turkey’s tourism sector is one of the biggest and the 6th. most popular

holiday destination in the world with around 40 million foreign tourists visiting thecountry. Istanbul is the 6th most visited city in the world and 3rd mostly visited city ofEurope, after London and Paris. Around $35 billion revenue is expected from thesector.

Air Transport: Air transportation is becoming a widely used way of transportation in

Turkey. Freight carried via air has increased around10% between 2003 and 2012. Thepassenger traffic increased 16% between 2003 and 2012 with over 130 millionpassengers in 2012. Moreover, Istanbul Atatürk International Airport was the seventhbusiest airport in Europe in terms of passengers in 2012. • The industry will furtherprofit from the new airport which will be superior technologically compared to the oldairport and will have capacity of 150 million passengers.


Infrastructure Investments

Regarding the infrastructure sector, the government has allocated USD 26 billion in 2013. 30% of thisbudget is for the transportation sector, education, energy, healthcare, and agriculture. Tremendousgovernment incentives created a pipeline of projects as well as capital for new investments andopportunities for investors.Turkey also have ambitious targets in the subsectors of the infrastructure industry. For example, fortransportation sector, the government plans to increase the length of high speed railway lines to 10,000km in 2023 from 888 in 2012 km at a CAGR of 25%. For the same time period, highways are expected toreach 7,500 km from 2,236 km. The Eurasia Tunnel which will cross the Bosphorous beneath the seabed,allowing a reduction of Istanbul's heavy traffic. An estimated USD 1.1 billion investment is expected forthe project.Regarding the energy sector, Turkey aims to increase its installed power capacity to 125,000 MW by 2023from 57,059 MW in 2012. Aforementioned targets in the energy sector require significant infrastructureinvestments in Turkey and offer ample opportunities for investors.

New plans and targets also continue for urban renewal projects. Since the enactment of the UrbanTransformation Law No. 6306, the Turkish government decided to retrofit and renovate buildings that areprone to destruction during natural disasters which include 6.5 million residences with a budget of USD400 billion.

Political Highlights

Strong Governments

• Problems of the Coalitions• Effectiveness of one- party governance

Long – Term Vision

• Governments with long- term visions• Organizing parallel to the vision

Long – Term Strategic Planning

• Strategic planning based on the long –term visions• Effective İmplementation of the strategies

Political Highlights

Good Management – Effective Implementation

• Well designed bureaucratic system• Government Institutions well organized and professionally managed• Consistency in the bureaucratic organization

Laws and Regulations Supporting Economic Development

• Laws and regulations supporting free economy• Laws and regulations supporting private sector• Laws and regulations supporting exports and direct foreign investment

Economical Highlights

Liberal Economy

• Transition to liberal economy with the required system changes inTurgut ÖzalGovernment period in the beginning of the 80’s

Floating Exchange Rate

• Leaving the government control over the exchange rates• Rational valuation of the local currency based on the economic realities

İndependent Central Bank

• Eliminating political control and guidance over the central bank with the purposegaining political advantages• More sound and succesful inflation control

Strong Banking System – Audit

• Strenghtining the Turkish banks and the banking system• Forming an autonomous institution auditing the banks and periodic health control

over the whole system


Tight Monetary – Fiscal Policies

• Follow a tight, sound monetary and fiscal policy having no political

guidance;controlling high inflation

Privatization• Decreasing the role of the government in the economy• Let government be in only strategic economic arena

Foreign Direct Investment Support• Although not sufficient at all increaseing foreign direct investments through

simplifying it by new rules and regulations and government support and subsidies


Focus on Export Development – New Market Enterances• Making it a high priority government objective• Supporting and encouraging the private sector• Try to develop the product range of the export goods. Add more value- added

products to low value traditional goods• Continious work on finding new export markets. Government authorities making

periodic travels to potential countries throughout the whole world together with agroup of businessman to improve economic relations and exports

İnfrastructure Investments• İnvestments on transportation• Telecommunication Investments, high – tech systems• Energy Investments• Municipality infrastructure Investments


Tourism - Construction Sector Development• Many investments on touristic areas, substantial increase in tourism income• High investments in consructing new housing, high office buildings• Very succesful Turkish construction companies getting lots of business in foreign

markets

Support of the SME’s• SME’s being a cruical factor in economic development• Many SME ‘s especially in Anatolia showed great improvement some becoming

large companies with considerable export volumes

Managerial Highlights

Long Term Vision and Mission

• Need to have a future vision and mission considering the world politics and

economic developments• Decide on your strategies accordingly and set your short- middle and long term

goals

Well-Established Government Institutions• Succesful implementation undoubtedly requires well organized goverment

institution equiped with experienced well trained people

Stability – Sustainability• Probably the most important criteria for the success• No need to find the most wise and succesful solutions. As long as there is stabilityand continuity standart solutions are more then enough•The biggest waste is do something, later change it and start all over again. Thisrequires recruiting talented people and rely on them on a long term period

Managerial Highlights

Strong Local Management – Municipalities

• Municipalities are crucial in economic development

• Heavy investments especially in big cities helped a lot

Good Resource Creation and Allocation

• Due to rare resources, foreign capital, savings and various resource creation

methods like “ Found, Run and Hand Over”

• Heavy investments especially in big cities helped a lot

• Right allocation of financial and human resources is needed

Succesful Development Plans and Budgeting

• 5- year development Plans

• Controlled government budgets and balanced budget

Efficient Management

Strategy and Enterprise Performance Management

Strategy Formulation and Development

Strategic Planning

Balanced Scorecard

KPI Definitions and Measurement

Business Process Performance Management

Performance Based Budgeting

Strategy Formulation and Development – Strategy Map

Balanced Scorecard

Cascading Balanced Scorecard

Turning Strategy into Action

Strategies

Perspectives

Objectives

Measures

Initiatives

The Balanced

Scorecard links long-

term strategies to

short-term action

steps

Performance Measurement

Business Process Performance Management


Process, Quality and Project Management

• Total Quality Management

• Quality Control

• Quality Auditing

• Business Process Management

• Innovation

• Problem Solving Techniques

• Statistical Process Control Practices

• ISO 9001 QMS

• Quality Documentation

• Process Modeling and Analysis

• Enterprise Project Management and Project Management Office

• IT Project Management

• PMI Project Management Processes

• Project Management with MS Project

Why Business Process Management ?

What is Business Process Management ?

Business Process Management Framework

Our Business Process Management Approach

Business Process Modelling and Analysis


Human Resources Management

• Recruiting and Placement

• Orientation

• Learning Needs Analysis, Planning and Analysis

• Individual Performance Assessment

• Motivation

• Performance Based Pay Structures

• Career Management

• Leadership and Administration

• Workforce Planning

• Job Description

• Competency Based HR Management

• Improvement Proposal and Reward Systems

Job Analysis

Competency Based HR Management


Risk Management & Auditing

• Marketing Auditing

• Purchasing Auditing

• Customer Relations Management System Auditing

• Accounting and Financial Operations Auditing

• Performance Auditing

• Administrative Process Auditing

• Operational Process Auditing

• Supportive Process Auditing

• IT Systems Auditing

• Legislative Compliance Standards

• Risk Analysis and Management

• Risk Management

• Internal Control Standards

• COSO Enterprise Risk Management

COSO Enterprise Risk Management Framework

Risk Analysis

Risk Mapping

The Profile of One Risk

Imp

act

Likelihood

The level of risk before treatment

Very High

Lik

ely

Treatment

The level of risk

after treatment


Operations Management

• Strategic Asset Management

• Purchasing Management

• Inventory and Logistics Management

• Material Requirements Planning

• Marketing Strategy

• Sales Management

• Sales Analysis and Reporting

• Professional Sales Techniques

• Customer Satisfaction, Customer Loyalty and Customer Focus

• Present and Potential Customer Relations Management

• Mobile and Internet Based Communication and Marketing


Strategic Cost and Budget Management

• Collection-Payment Process Performance Analysis

• Operational Cost Analysis

• Cost Improvement

• Product/ Service Pricing

• Customer Profitability Analysis

• Performance Based Budgeting

Cost Management

Cost management is a tool that reducerisk of enterprise management.

Activity Based Cost Management

Activity Based Cost Calculation

Cost Mapping

Salaries 313,000

Depreciation 155,000

Electricity 132,000

Supplies 25,000

Travel 100,000

Total 725,000

Accounting Records Activities Salaries DepreciationElectricity Supplies Travel Total

Business Development 20,000 25000 5000 5000 55,000

Maintianing Present Business 80,000 60000 50000 5000 10000 205,000

Purhcasing Material 125,000 50000 20000 20000 60000 275,000

Set up Machines 25,000 10000 2000 37,000

Running Machines 50,000 10000 50000 110,000

Resolve Quality Problems 13,000 5000 25000 43,000

Total 313,000 155000 132000 25000 100000 725,000

ABC Records

Performance Based Budgeting = Budgeting link to Strategy

Future Vision

Economy

• Become one of the top ten world economies, Gross domestic product of $2 trillion by 2023

• Increase annual exports to $500 billion, Foreign trade volume of $1 trillion

• Per capita income of $25 000

• Increase the employment rate by 10 points to a working population of 30 million

• Reduce the unemployment rate in to 5 percent

• Sustainable and low levels of inflation & interest rates

Future Vision

Energy

• Build 20 000 Megawatt installed capacity of wind energy and 600 Megawatt installed

capacity

of geothermal energy

• Reduce energy consumption to 20 percent bellow 2010 levels through improved efficiency

•Three operating nuclear power plants

Healthcare

• 100 percent participation in health insurance systems

• Raise the number of physicians per 100,000 people to 210 physicians

Future Vision

Transport

• Build 11 thousand kilometers of new railway and expand the high-speed train network

• Build 15 thousand kilometers of divided highway

• Grow ports to number among world's 10 largest

• Domestically produced airplanes, unmanned aerial vehicles and satellite

Tourism

• Be the fifth largest tourist destination

• Host 50 million visitors per year

• Obtain 50 billion USD of tourism revenue

Future Strategies

Political Stability

Consistent Economic Policies

Global Economic Expansion

More Production, Value – added products , Lower Unemployment

Foreign Direct Investment Increasing Support

Increased Exports

Lower Foreign- Trade Deficit

More R&D Budgets - New Technology Investments

Education

Increase in Agricultural Efficiency

Adaptation to Arab World

Parallel Social – Cultural Values

Strong Ruling Powers

Rich Financial Resources

Lessons from the Turkish Experience in the last 25 years

Getting outside advisory services –make use of the experiences

Continuous Training

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