Transcript No Slide Title

BRICs, the Next-11 and Turkey
2050: A Space Odyssey
Ahmet O. Akarli
Executive Director
Economic Research
Goldman Sachs International
July 2007
BRICs, the Next-11 and Turkey
 BRICs and the N-11
 Where does Turkey stand?
 2050: A Space Odyssey
2
BRICs and the Next-11
 Globalisation, the primary driving force
 BRICs have a potential to change the face of the World

Brazil, Russia, India and China

Size matters!
 The N-11 stand out with their solid long-term investment
potential

Bangladesh, Egypt, Indonesia, Iran, Korea, Mexico, Nigeria, Pakistan, Philippines,
Turkey and Vietnam

Population matters!
3
14,000
12,000
US
Japan
Germany
China
UK
France
Italy
Canada
Brazil
Russia
India
Korea
Mexico
Turkey
Indonesia
Iran
Pakistan
Nigeria
Philippines
Egypt
Bangladesh
Vietnam
World in 2006 – G-7 Dominate
$bn 2006
GDP ($bn 2006)
10,000
8,000
6,000
4,000
2,000
4
80000
60000
0
China
US
India
Brazil
Mexico
Russia
Indonesia
Japan
UK
Germany
Nigeria
France
Korea
Turkey
Vietnam
Canada
Philippines
Italy
Iran
Egypt
Pakistan
Banglades
World in 2050 – BRICs and the N-11 take over
$bn 2006
70000
GDP 2050
50000
40000
30000
20000
10000
5
It is a new world!
Italy
Overtaking the G7: When BRICs' and N-11's GDP Would Exceed G7
France Germany Japan
China
US
Canada
Italy
France
UK
Germany
Japan
India
Canada
Brazil
Italy
France
Canada
UK
Italy
Germany
France
UK
Mexico
Canada
Italy
France
UK
Japan
Japan
Germany
Germany
Japan
Russia
Canada
Italy
France UK Germany
Japan
Indonesia
Canada
Italy
France
Nigeria
Canada
Korea
Italy
Canada and Italy
Turkey
Italy
Vietnam
Canada
Italy
Philippines
00
02
04
06
08
10
12
14
16
18
20
22
24
26
28
30
32
34
36
38
40
42
44
46
48
50
Note: Cars indicate w hen BRICs and N-11 US$GDP exceeds US$GDP in the G7. The N-11 countries not included in the chart do not overtake any of the G7 countries over the
projection horizon. Source: GS
6
World in 2050 – BRICs and the N-11 grow richer
50%
45%
BRICs/G-7 (GDP per capita)
40%
35%
N-11/G-7 (GDP per Capita)
30%
25%
20%
15%
10%
5%
0%
06 09 12 15 18 21 24 27 30 33 36 39 42 45 48
7
Where does Turkey stand?
 Turkey stands out among the N-11

$400bn economy

Ideal location
 Close proximity to European, MENA and Asian markets
 Emerging as an energy hub, at the cross-roads of Middle East, the Caspian and Europe

Hugely favourable demographic dynamics
 73m, overwhelmingly young population
 Disciplined and relatively skilled labour force
 Highly dynamic entrepreneurial class

Well established market institutions
 Property rights, consolidated and well-enforced
 A solid regulatory framework

Well-integrated into the global economy
 Through trade (EU Customs Union)
 Through the capital account (full currency convertibility and open capital account)
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0
Internet
Phones
PCs
Corruption
Rule of Law
Life
Expectancy
Political
Stability
Education
Openness
GES Index
Investment
10
Government
Deficit
External
Debt
12
Inflation
A relatively favourable growth environment
2006 Turkey GES
2006 Developing GES
2006 BRICs GES
2006 N-11 GES
8
6
4
2
9
What are the assumptions?
 Standard neo-classical growth model (Cobb-Douglas)

Growth function of population, investment and TFP

Population growth
 Scaling down from 1.2% p.a. to 0% by 2050

Investment Rate
 20.8% of GDP (Average of the previous 10 years)

Convergence ratio
 0.8% p.a. 2006-2020
 1.5% p.a. 2021-2050
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Could become a $4tr economy by 2050
4,500
4,000
$bn 2006
3,500
Turkey GDP ($bn 2006)
3,000
2,500
2,000
1,500
1,000
500
0
06
10
14
18
22
26
30
34
38
42
46
50
11
60000
0
China
US
India
Brazil
Mexico
Russia
Indonesia
Japan
UK
Germany
Nigeria
France
Korea
Turkey
Vietnam
Canada
Philippines
Italy
Iran
Egypt
Pakistan
Banglades
Turkey may overtake Italy and Canada
80000
$bn 2006
70000
GDP 2050
50000
40000
30000
20000
10000
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Per Capita income may catch up rapidly with the G-7…
50,000
$bn 2006
60%
45,000
40,000
35,000
30,000
Turkey Per Capita Income ($
2006)
Turkey/G-7 Per Capita Income
($ 2006)
25,000
50%
40%
30%
20,000
20%
15,000
10,000
10%
5,000
0
0%
06 10 14 18 22 26 30 34 38 42 46 50
13
…but probably not as explosive as the BRICs
240%
220%
200%
Turkey/BRICs Per Capita Income
Turkey/N-11 Per Capita Income
180%
160%
140%
120%
100%
07 10 13 16 19 22 25 28 31 34 37 40 43 46 49
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Challenges: The BoP Constraint
% of GDP
Gross Domestic Savings
Egypt
Philippines
Pakistan
Bangladesh
Turkey
Brazil
Mexico
India
Vietnam
Indonesia
Nigeria
Russia
Korea
Iran
Gross Fixed Capital Formation
China
45
40
35
30
25
20
15
10
5
0
15
10
9
8
7
6
5
4
3
2
1
0
Internet
Phones
PCs
Corruption
Rule of Law
Political Stability
Life Expectancy
Education
Openness
Investment
External Debt
Government Deficit
Inflation
Challenges: TFP Growth
%
2006 Turkey GES
2006 G7 GES
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What is to be done?
 Increase the saving ratio

Public Sector/Fiscal consolidation
 Address the tax-base problem
 Social Security Reform
 Streamline/Privatise inefficient SEEs
 Wide ranging administrative reforms

Private Sector
 Technology and Know-How; Human Capital (Education and Health); Infrastructure
 Incentives to a number of key sectors, where Turkey has competitive advantage
 Consolidate the capital account

Improve business climate
 Level playing field
 Stronger legal system
 Corporate governance
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What if?
 A high growth scenario

Population growth
 Unchanged

Investment Rate
 Up by 1 std dev. to 24.5% of GDP form 20.8% (Average of the previous 10 years)

Convergence ratio
 Up to 1.0% from 0.8% p.a. 2006-2020
 Flat at 1.5% p.a. 2021-2050
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2050: Turkey a Space Odyssey - $4.7tr economy?
5,000
4,500
$bn 2006
4,000
3,500
3,000
Turkey GDP Base Line
Turkey GDP High Growth
2,500
2,000
1,500
1,000
500
0
06 09 12 15 18 21 24 27 30 33 36 39 42 45 48
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80000
0
China
US
India
Brazil
Mexico
Russia
Indonesia
Japan
UK
Germany
Turkey H-Growth
Nigeria
France
Korea
Turkey
Vietnam
Canada
Philippines
Italy
Iran
Egypt
Pakistan
Bangladesh
2050: Turkey a Space Odyssey – Overtaking France?
$bn (2006)
70000
60000
50000
40000
30000
20000
10000
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2050: Turkey a Space Odyssey – More Prosperous?
60,000
$bn 2006
50,000
Turkey Per Capita Income Base Line
40,000
Turkey Per Capita Income High Growth
30,000
20,000
10,000
0
06 09 12 15 18 21 24 27 30 33 36 39 42 45 48
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2050: Turkey a Space Odyssey – Catching up faster?
80%
70%
60%
2006
Turkey Base Line/G-7 Per Capita Income
Turkey High Growth Per Capita Income
50%
40%
30%
20%
10%
0%
06 09 12 15 18 21 24 27 30 33 36 39 42 45 48
22
2050: Turkey a Space Odyssey – BRIC-like potential?
300%
280%
260%
240%
Turkey Base Line/BRICs Per Capita Income
Turkey High Growth/BRICs Per Capita Income
Turkey Base Line/N-11 Per Capita Income
Turkey High Growth/N-11 Per Capita Income
220%
200%
180%
160%
140%
120%
100%
07 10 13 16 19 22 25 28 31 34 37 40 43 46 49
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Conclusions
 Turkey has immense long-term growth potential

Already a sizeable economy, enjoying favourable demographics and location, as
well as:
 A young, relatively skilled and highly disciplined labour force
 A dynamic local entrepreneurial class; and
 Reasonably well developed market economy and institutions
 But there are serious challenges to be overcome

Market institutions need to be strengthened

Further integration with the world economy will be the key to sustained high growth

Has to do better on TFP – Education, health, infrastructure and technology

And confidence matters – Policy processes need to be well-anchored
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