fdi - where does turkey stand? orhan cem lead partner, advisory services, pwc turkey turkey where...

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

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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.

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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

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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

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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

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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

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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

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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

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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

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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

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Thank you.

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