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Doing Business in Turkey. Funda Güngör Koç Holding A.Ş. Why Turkey. ?. Source: Investment Support and Promotion Agency of Turkey. Contents. Demographic Advantages. Growing Economy. Energy Corridor. Strengthening Financial Sector. Strong Manufacturing Industry.

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doing business in turkey

Doing Business in Turkey

Funda Güngör

Koç Holding A.Ş.

slide2

Why Turkey

?

Source: Investment Support and Promotion Agency of Turkey

contents
Contents

Demographic Advantages

Growing Economy

Energy Corridor

Strengthening Financial Sector

Strong Manufacturing Industry

Important Sectors at a Glance

unique geographical location
Unique Geographical Location…
  • Unique geographical location…
    • Turkey enjoys a very special location at the crossroads between East and West, overlapping Europe and Asia geographically
    • Turkey occupies an area approximately equivalent to the quarter of the size of the EU
  • Favorable economic and political environment…
    • Democratic parliamentary regime
    • Open market economy
  • Strong ties with Caucasia and Central Asia….
    • Turkey is the leading investor in Caucasian and Central Asian Turkic Republics
    • Turkey provides privileged access and a perfect base to develop business with these countries
slide5

International Associations – Commitment to Global Standards

Bilateral Investment Treaties with 79 countriesDouble Taxation Prevention Treaties with 68 countriesSocial Security Agreements with 22 countriesFree Trade Agreements with 11 countries

large and young population increasing urbanization
Large and Young Population – Increasing Urbanization

Population & Labor Growth Rates, %

Population Breakdown (%)

Poland

Turkey

Portugal

Romania

Belgium

Holland

Spain

Italy

France

Germany

Poland

Turkey

Portugal

Romania

Belgium

Holland

Spain

Italy

France

Germany

The Changing Nature of Turkish Urbanization, Large (around 70 million) and Young Population Present New Opportunities for Growth

slide7

Demographic Advantages

Growing Economy

Energy Corridor

Strengthening Financial Sector

Strong Manufacturing Industry

Important Sectors at a Glance

from boost bust cycles to sustainable growth
From Boost & Bust Cycles to Sustainable Growth

GNP Growth Rates Before 2002: Boost and Bust Cycles

Consecutive High Growth Rates

Contribution of Private Sector Investments–% pps

Avg GDP Growth

3.1%

Avg GDP Growth

7.1%

Source: Turkstat

low penetration levels

Automotive

Consumer Durables

Food & Retail

Energy

Finance

Low Penetration Levels

Passenger Cars

Organized Food & Retail Market Share, %

Vehicles

Penetration, %

Ownership per Thousand

Loans + Deposits

/ GDP, %

Per capita consumption toe

sustainable and high growth potential
Sustainable and High Growth Potential

Projected real growth in GDP and income per capita: 2005-2050 (%pa)

Source: PricewaterhouseCoopers estimates (rounded to nearest percentage point)

19th largest economy of the world as of 2005 expected to become the 17th largest economy by 2008
19th Largest Economy of the World as of 2005Expected to become the 17th largest economy by 2008*

* World Economic Outlook, IMF

eu membership an economic and political anchor
EU Membership – An Economic and Political Anchor…

FDI/GDP, Annual Average (%)

Average Growth Rate (%)

  • Customs Union since 1996
  • Full membership process since October 2005
increasing share of value added sectors
Increasing Share of Value-added Sectors

Sector Output Shares (%)

Employment by Economic Activity (%)

72.7

59.0

62.5

45.0

41.5

29.8

37.5

27.3

11.2

13.5

Source: Turkstat

fiscal prudence sustainable disinflationary trends
Fiscal Prudence & Sustainable Disinflationary Trends

Consolidated Budget (% of GNP)

Inflation (%, YoY)

2001

2002

2003

2004

2005

2006

2007

92

73

-0.7%

-2.5%

35.9

28.3

7.4

3.7

-17%

Source: Ministry of Finance

Source: Central Bank

declining sovereign risk

YTL- Fixed

FX & FX-linked

YTL - Floating

Declining Sovereign Risk

YTL Billion, %

93

358

Euro Zone Average

Maastricht Criterion

58

Domestic Debt

External Debt

2007 1Q : US$ 213 bn

2002 : US$ 130 bn

2007 August : US$194.9 bn

2001 : US$144.0 bn

Maturity

(months): 12.8 24.8

Source: Treasury

stronger integration to world markets
Stronger Integration to World Markets

Foreign Trade (US$ Billion)

160

100

41

31

Exports by Country Groups – Jan-July 2007 (%)

Imports by Country Groups – Jan-July 2007 (%)

Source: Turkstat

already increasing levels of fdi better means of financing the c a deficit
Already Increasing Levels of FDI Better Means of Financing the C/A Deficit

Growth vs Current Account Deficit, %

The New FDI Law

The main principles are as follows:• Equal Treatment for domestic and foreign capital companies • No pre-entry or pre-establishment screening requirements • No need to notify to the Undersecretariat of Treasury • No obligation to choose a specific company name • Unrestricted foreign ownership Rights of International Investors• Free Transfer of Funds • Acquisition of real estate • Dispute settlement either in local courts or international arbitration bodies • Valuation of non-cash capital • Work permits for expatriates • Opening a liaison office

Foreign Direct Investment (US$ Billion)

Official Reserves (US$ Billion)

62

2001

2002

2003

2004

2005

2006

2007

72

20

19

38

12.1

Source: Central Bank, Investment Support and Promotion Agency of Turkey

slide18

Growing Opportunities for the Private Sector and Foreign Players

Privatization & SDIF Sales, 2008-2009

Privatization Revenues (US$ mn)

Source: Privatization Administration and local media

slide19
Financial MarketsThe resilience of the financial markets against global shocks increased significantly

Trigger: Japan’s interest-rate hikes & Global liquidity

Duration:2 months

Dev. Rate:29%

YTL / $

Trigger: Start of FED rate hikes

Duration:3 months

Dev. Rate: 28%

Trigger: Mortgage Crisis in US

Duration:3 months

Dev. Rate:8%

Trigger: Expectation of strong FED rate hikes

Duration:2 months

Dev. Rate: 7%

1.1757

2004

2005

2006

2007

Interest Rates %

Interest Rates Inc: 7.65 bp

Interest Rates Inc.: 1.80 bp

Interest Rates Inc.: 7.35 bp

Interest Rates Inc.: 0.17 bp

16.33

2004

2005

2006

2007

Source: Reuters, Koç Holding

slide21

Demographic Advantages

Growing Economy

Energy Corridor

Strengthening Financial Sector

Strong Manufacturing Industry

Important Sectors at a Glance

slide22

Strategically Located on Critical Energy Corridors

Oil Pipelines

Natural Gas Pipelines

Kirkuk – Ceyhan

Iraq’s largest export line

Capacity: 70 mn tons p.a.

Baku – Tbilisi – Ceyhan

Decreasing transportation and financial costs

Capacity: 50 mn tons p.a.

Samsun – Ceyhan

Ceyhan to become an energy hub

Capacity: 70 mn tons p.a.

Nabucco

Major alternative route for gas to EU to be partially operational by 2012

Construction will end in 2017

(max capacity: 31 bcmy)

Turkey – Greece – Italy

Turkey – Greece part is in the final stages of construction

Construction of the “Italy-Greece” section : 2008 - 2011

Estimated capacity: 8-10 bcm p.a.

opportunities in energy sector gas oil
Opportunities in Energy Sector : Gas & Oil

Turkey annually exports 35-40 billion m3 of natural gas to Europe and 250-300 million tons of petroleum to world markets

Gas

  • New distribution networks
  • Privatization of major gas distribution companies
  • International gas transit projects passing through Turkey
  • Gas import contracts of BOTAS - 16 lots of 250 mcm have already been sold

Oil

  • New oil pipeline projects such as the Samsun-Ceyhan Project offers opportunities for construction and engineering companies.
  • New Petroleum Law is expected to stimulate exploration and production activities
  • Collaboration opportunities with the American companies regarding hydrocarbons in Iraq.
  • Black Sea as an offshore region – need for deep water-related services
opportunities in energy sector electricity
Opportunities in Energy Sector : Electricity

According to the Ministry of Energy and Natural Resources, Turkey requires energy investments of $128 billion through 2020 in order to sustain its economic growth

  • Privatization of 20 electricity distribution regions
  • Sale of 16,000 MW of state generating plants (12,200 MW thermal and 3,800 MW hydro)
  • Additional generating capacity of 54,000 MW to be created by 2020. (1/3 in hydro)
  • Construction of over 600 HEPPs (High Energy Particle Physics) with a capacity of 11,000 MW (2007). Hydro facility of 12,578 MW are in operation and it is projected that 35,000 MW capacity will be reached by 2020.
  • Investment opportunities in Renewable Energy
  • Wind turbines (The installed capacity to reach up to 3,000 in 2020)
  • Solar energy thermal potential (61 million Toe)
  • Creation of nuclear capacity of 5,000 MW by 2020.
slide25

Demographic Advantages

Growing Economy

Energy Corridor

Strengthening Financial Sector

Strong Manufacturing Industry

Important Sectors at a Glance

low penetration levels high growth prospect
Low Penetration Levels - High Growth Prospect

Banking System in Turkey

47

46

No of Banks

81

79

61

53

51

51

51

Banking Highlights

slide27
Restructuring in the Banking System Stronger Risk Management, Higher Capitalization, Higher Profitability

Capital Adequacy Ratio – %

RoE - %

Non-performing Loans – %

Open FX Position – US$bn

Net NPLs (0.4%)

Source: Banking Association of Turkey

total loans
Total Loans

Lending Penetration – Total Loans to GNP, %

Developed Countries

Developing Countries (Europe&S.Africa)

Latin America

Developing Countries (Asia)

Source: Merrill Lynch

mortgage loans
Mortgage Loans

Mortgage Penetration – Mortgage Loans to GNP, %

Developed Countries

Developing Countries (Europe&S.Africa)

Latin America

Developing Countries (Asia)

Source: Merrill Lynch

contents30
Contents

Demographic Advantages

Growing Economy

Energy Corridor

Strengthening Financial Sector

Strong Manufacturing Industry

Important Sectors at a Glance

strong competitive advantages
Strong Competitive Advantages
  • Strengths
  • Geographical location
  • Customs Union with the EU
  • A large export base
  • Product development capability
  • Competitive and flexible manufacturing
  • Strong and competitive domestic supply base
  • Low labor costs
  • High quality standards
  • High domestic demand versus comparable Eastern European countries
  • Highly educated, young, dynamic and qualified workforce
  • Flexible and long working hours
  • Opportunities
  • Growing markets in the surrounding geography
  • Efforts to increase efficiency
strong competitive advantages32
Strong Competitive Advantages

Source: Investment Support and Promotion Agency of Turkey

increasing emphasis on r d
Increasing Emphasis on R&D

R&D Support by Tubitak (Scientific and Technological Research Council of Turkey)

Private Sector Support for Technology & Innovation, YTL mn

R&D Expenses/ GDP - %

R&D Investment at Koç Group–€ mn

R&D Personnel at Koç Group

special investment zones
Special Investment Zones

Technology Zones (14 + 8)

Organized Industrial Zones (93)

Free Zones (20)

Investors operating in the zones located in 54 selected provinces benefit from the following advantages:

• 100% exemption from income tax for employed workers.

• 100% exemption from the employer’s share of social security costs.

• Free land allocation.

• Up to 50% support for electricity costs.

• Exemption from real estate tax, waste water charges, building construction duties and the use-of-building.

• Offices ready to rent and infrastructure facilities provided. • Profits derived from software and R&D activities are exempt from income and corporate taxes until 2014. • Deliveries of application software produced exclusively in TDZ’s are exempt from VAT until 2014.

• Wages of researchers, software and R&D personnel employed in the zone are exempt from all taxes until 2014. • A VAT exemption during the exemption period of income and corporate taxes is provided for IT specific sectors. • Exemption from customs and duties as well as fund levies.

• %100 exemption from custom duties and other assorted duties • %100 exemption from corporate income tax for production companies • %100 exemption from the value added tax (VAT) & sp. Cons. taxes • Companies are free to transfer profits from Free Zones abroad as well as to Turkey without restrictions.

Source: Investment Support and Promotion Agency of Turkey

contents35
Contents

Demographic Advantages

Growing Economy

Energy Corridor

Strengthening Financial Sector

Strong Manufacturing Industry

Important Sectors at a Glance

main export sectors
Main Export Sectors

Sectoral Composition of Exports –

Largest 500 Companies, %

Sectoral Composition of Exports –

2nd Largest 500 Companies, %

Mining

Mining

3.5

3.5

7.5

Food&Tobacco

7.4

Autıomotive

Oil and Coal derivatives

10.9

Oil and Coal derivatives

7.5

Textiles&Leather

13.3

8.4

Iron&Steel

Machinery&Equipm.

17.3

10.5

Food&Tobacco

17.7

Iron&Steel

11.7

Machinery&Equipm.

Automotive

26.9

46.5

Textiles&Leather

0

5

10

15

20

25

30

0

10

20

30

40

50

Source: ISO

Source: ISO

examples to most attractive export sectors
Examples to Most Attractive Export Sectors

Most Attractive Export Sectors

60%

Motor Vehicles

50%

40%

Iron &

Steel

Export Growth, 200-2005 %

Telecom & Audio

30%

Fruit & Vegetables

Textile

20%

Metallic Goods

Electrical machinery

Apparel

10%

0%

0%

1%

2%

3%

4%

5%

6%

Market Share in Global Exports, 2005 %

Source: WTO

…the 6th largest vehicle producer in EU-25 and 15th largest worldwide; the 3rd largest producer in light vehicles in EU-25 and the largest producer in bus in EU-25;

…the largest producer and exporter of agricultural products in the Near East and North Africa …the largest hazelnut and apricot produce…Agricultural production is equivalent to 40% and 20% of EU-25 production of fruits and vegetables

…the 2nd largest white goods producer in Europe, following Italy and producing about 16% of total European production…the 1st TV manufacturer in Europe

…the 7th largest apparel, 3rd largest home textile and 15th textile exporting country internationally…the 2nd largest supplier of the EU after China, meeting 12% (in volume) and 15% (in value) of the textile and garment requirement of the EU.…the 7th largest apparel, 3rd largest home textile and 15th textile exporting country internationally

…among the top countries who export construction services

…the world’s 6th largest producer of cement and cotton

Motor Vehicles

Agricultural

Products

White Goods &

Electronics

Textile &

Apparel

Construction

Cement&Cotton

slide38

Thank you…

Further information on business environment and trade & investment opportunities in Turkey can be reached at:

www.ito.org.tr

invest.gov.tr

www.yased.org.tr

www.treaury.gov.tr

www.igeme.org.tr

www.tusiad.org.tr

www.foreigntrade.gov.tr

www.deik.org.tr

Istanbul Chamber of Commerce

Investment Support and Promotion Agency of Turkey

International Investors Association

Undersecretariat of Treasury

Export Promotion Center

Turkish Industrialists’ and Businessmen’s Association

Undersecretariat of Foreign Trade

Foreign Economic Relations Board

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