Transcript No Slide Title

Turkey – why FDI?
Status quo and salient factors
Simon Quijano-Evans,
Senior Economist, CAIB/HVB Group
[email protected]
Why does Turkey need FDI?
• To sustain future economic growth rates
• To increase competition and maintain productivity at home
• To cater for a growing population and labour force
• To cover a wider current account deficit, without raising foreign debt
• To secure net FDI as Turkish firms increasingly look to invest abroad
• To maintain competitiveness versus EU accession peers
• To help secure a peaceful development in the surrounding region
2
Turkey – market volatility has calmed – pre-condition for FDI
T-bill benchmark paper compound yield
120%
Crisis f ollow ing
110% f ree-f loat
100%
9/11
90%
Govt . crisis
80%
Iraq
crisis
IM F loan
f ree f loat delay
70%
22 Feb
IM F loan
60%
50%
IM F loan delay
US-Turkey
t ensions
PM t aken ill
40%
Banking crisis
30%
Govt .-M il.
Tensions,Cyprus
issue et c
Recovery
period
Nov elect ions
& EU euphoria
20%
Oct -05
Jul-05
Apr-05
Jan-05
Jul-04
Apr-04
Jan-04
Oct -03
Jul-03
Apr-03
Jan-03
Oct -02
Jul-02
Apr-02
Jan-02
Oct -01
Jul-01
Apr-01
Jan-01
Oct -00
10%
Oct -04
Dec Eur.
Council
Source: Reuters, HVB Group
3
Factors of relevance to FDI
1. First increase confidence at home
2. Then look to secure foreign investor confidence
3. Foreign investors need reform anchors – EU and IMF
4. Do lower corporate tax levels make a difference to FDI?
5. Important to look at Turkey from a regional perspective
6. A young population – plenty of water – room for infrastr. investments
4
First increase confidence at home – Strong rise in TRY deposits
FX Deposits of Residents in USDbn (LS)
TRY Deposits of Residents in TRYbn (LS)
Ratio of FX deposits to total deposits (RS)
160
60%
140
55%
120
50%
100
80
45%
60
40%
40
35%
20
Sep-05
Jun-05
Mar-05
Dec-04
Sep-04
Jun-04
Mar-04
Dec-03
Sep-03
Jun-03
Mar-03
Dec-02
Sep-02
Jun-02
30%
Mar-02
0
Source: Central Bank of Turkey, HVB Group
5
First increase confidence at home - Substantial domestic investment
Components of GDP (% y-o-y real change)
60%
50%
Gross fixed capital formation
40%
30%
20%
10%
Priv. Cons.
Exports
0%
-10%
-20%
Govt. Cons.
Q101
Q201
Q301
Q401
Q102
Q202
Q302
Q402
Q103
Q203
Q303
Q403
Q104
Q204
Q304
Q404
Q105
Q205
-30%
-40%
Source: Central Bank of Turkey, HVB Group
6
Factors of relevance to FDI
1. First increase confidence at home
2. Then look to secure foreign investor confidence
3. Foreign investors need reform anchors – EU and IMF
4. Do lower corporate tax levels make a difference to FDI?
5. Important to look at Turkey from a regional perspective
6. A young population – plenty of water – room for infrastr. investments
7
Then increase confidence abroad – Huge jump in portfolio investment
30
Total foreign holdings of Turkish domestic FI
instruments and equities (float) in USDbn
25
20
Equities
(float)
Note: as of May-04, Takasbank (settlement &
custody bank) data for equities, which differs from
ISE data that was stopped in Feb-05
15
10
TRY & FX-indexed
domestic debt
5
FX-denominated
domestic debt
Apr-02
Jun-02
Aug-02
Oct-02
Dec-02
Feb-03
Apr-03
Jun-03
Aug-03
Oct-03
Dec-03
Feb-04
Apr-04
Jun-04
Aug-04
Oct-04
Dec-04
Feb-05
Apr-05
Jun-05
Aug-05
Oct-05
0
Source: Central Bank of Turkey, ISE, Takasbank
8
Then increase confidence abroad – LT loans on the rise, FDI follows
10,000
8,000
6,000
Net FDI
net foreign long-term loans to
private sector in Turkey
in USDmn
4,000
2,000
0
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
2
Ja 004
nAu
g0
5
-2,000
Source: Central Bank of Turkey, HVB Group
9
Factors of relevance to FDI
1. First increase confidence at home
2. Then look to secure foreign investor confidence
3. Foreign investors need reform anchors – EU and IMF
4. Do lower corporate tax levels make a difference to FDI?
5. Important to look at Turkey from a regional perspective
6. A young population – plenty of water – room for infrastr. investments
10
Investors need reform anchors – EU talks & IMF program
8
7
Duration of accession talks in yrs
From start of talks to EU accession
6
5
Maastricht debt levels by end-07
4
CAIB baseline scenario
3
2
1
100%
Public sector gross debt/GNP
0
LG
AR
ZE
IA
C
H
R
EP
.
C
YP
R
U
S
ES
TO
N
H
IA
U
N
G
AR
Y
LA
TV
LI
TH IA
U
AN
IA
M
AL
T
PO A
LA
N
D
R
O
M
A
SL NIA
O
VA
KI
SL
A
O
VE
N
IA
90%
C
BU
80%
70%
EU talks quicker than others?
60%
50%
We see possibility for EU accession
40%
around 2012
30%
2003
2004
2005E
2006E
2007E
2008E
2009E
2010E
Source: European Commission, CBT, HVB Group.
11
Note: For BG and RO, assumption is they join EU in Jan-07
May-05
Sep-04
Jan-04
May-03
Sep-02
Jan-02
May-01
Sep-00
Jan-00
May-99
Sep-98
Jan-98
May-97
Sep-96
Jan-96
Investors need reform anchors – bring positive ratings dynamics
S&P CREDIT RATING
1st wave negotiation candidates
(CZ, EST, HU, PL, SL)
A
2nd wave negotiation candidates
(LAT, LIT, SK)
BBB
BG & RO
BB
B
Turkey
Start of 1st wave of EU
accession negotiations
Start of 2nd wave of EU
accession negotiations
12
Source: S&P, Bloomberg, HVB Group
Factors of relevance to FDI
1. First increase confidence at home
2. Then look to secure foreign investor confidence
3. Foreign investors need reform anchors – EU and IMF
4. Do lower corporate tax levels make a difference to FDI?
5. Important to look at Turkey from a regional perspective
6. A young population – plenty of water – room for infrastr. investments
13
Do lower corporate tax levels make a difference to FDI?
• Not at first sight, but picture
9%
blurred by:
8%
• Extra taxes (municipal)
• Tax holidays
• So also important:
• Red tape and legal costs
• Cost of labour
FDI/GDP (Avg 2000-05)
• Special tax incentives
• Education of workforce
• Stage of privatisations
BG
SK
7%
CZ
6%
CR
5%
4%
RO
HU
3%
LT
2%
PL
SL
1%
TR
0%
10%
• Domestic company landscape
15%
20%
25%
30%
Corporate tax rate (Avg 2000-05)
Source: Finance Ministries, Reuters, HVB Group
14
35%
CEE Corporate tax rates as of Jan-2006
35%
30%
25%
20%
15%
10%
5%
Li
th
ua
Bu nia
lg
a
H ria
un
g
R ary
om
an
Po ia
la
Sl nd
ov
ak
C ia
C roa
ze tia
ch
R
Sl ep
ov
en
ia
EU
-2
Tu 5
Eu rke
ro y
-z
on
e
0%
Source: Finance Ministries, Reuters, HVB Group
15
Factors of relevance to FDI
1. First increase confidence at home
2. Then look to secure foreign investor confidence
3. Foreign investors need reform anchors – EU and IMF
4. Do lower corporate tax levels make a difference to FDI?
5. Important to look at Turkey from a regional perspective
6. A young population – plenty of water – room for infrastr. investments
16
Turkey’s purchasing power in line with Bulgaria and Romania…
GDP per capita - in EUR in 2004
GDP per capita - Purchasing Power Standard
(EU-25=100)
140
35,000
121
109
30,000
107
28,900
26,400
100
100
25,400
25,000
22,300
82
73
20,000
54
47
10,000
29
6,400
5,100
3,370 2,700 2,500
str
ia
ey
Au
Tu
rk
ria
lga
Bu
ma
n
ia
d
Ro
lan
Po
S1
0
NM
al
rtu
g
Po
ce
Gr
ee
EU
Ge
rm
an
EU
-25
0
y
0
-15
5,000
str
ia
20
25
31
EU
31
12,900
15
40
Au
15,000
15,000
EU
60
Ge
rm
an
y
80
Source: Eurostat, HVB Group
Gr
ee
ce
Po
rtu
ga
l
NM
S1
0
Po
lan
d
Tu
rke
y
Ro
ma
nia
Bu
lga
ria
120
Source: Eurostat, HVB Group
NMS10 = 10 New EU Member States
EU25 = EU15+NMS10 = All current EU Member States
17
…but GDP/capita of large part of population closer to Poland
• 37mn people in the
Aegean/Mediterranean/
Marmara area account for 64% of
GDP (with percap GDP of € 4,170)
Marmara
€ 4,830
18.5mn
Central Anatolia
€ 3,310
12.4mn
Black Sea
€ 2,540
9.0mn
GDP/capita
Population
• Marmara comes close to level in
Poland and around
€ 1,600 below average level of 10
New Member States
• The Marmara region makes up for
around 26% of the estimated 72m
population and 37% of GDP
• And GDP/GNP data to be revised
soon in line with ESA95 standards
Aegean
€ 3,870
9.5mn
Mediterr.
€ 3,140
9.3mn
S.E. Anatolia
€ 1,740
7.0mn
E. Anatolia
€ 1,540
6.5mn
Source for Map: http://www.e-cografya.com
Data Source: Central Bank of Turkey, with forecasts by CAIB
2004 estimates
18
Factors of relevance to FDI
1. First increase confidence at home
2. Then look to secure foreign investor confidence
3. Foreign investors need reform anchors – EU and IMF
4. Do lower corporate tax levels make a difference to FDI?
5. Important to look at Turkey from a regional perspective
6. A young population – plenty of water – room for infrastr. investments
19
Turkey’s population will remain young



Age bracket 15-59 to rise to 63% by 2025 in TR and fall to 55% in GER
Turkey to make up for 15% of EU-29 population in 2025
By 2025, TR median age to rise to 33 from 25 - In GER to 48 from 40
Share of EU-29 population in %
% of Population between age 15-59, in:
65
2000
2025
20%
2050
Turkey/EU29
18%
60
Germany/EU29
75%
16%
14%
55
80%
70%
12%
10%
50
65%
8%
60%
6%
45
4%
2%
40
55%
EU15/EU29
0%
Turkey
Germany
W.Europe
USA
50%
1950
1975
Source: United Nations, HVB Group
EU29=EU25+Bulgaria+Croatia+Romania+Turkey.
20
TR=Turkey, GER=Germany
2000
2025
2050
There’s plenty of water – and potential elsewhere
•
•
Turkey has abundant freshwater – an economic imperative
Internet and mobile telephony have potential – require investments
Total freshwater resources – yearly avg.
250
Internet access and mobile phones
25,000
cubic metres (bn)
mobile phone
subscriptions
per 100 inhabitants
80
cubic metres per capita
200
90
20,000
70
60
150
15,000
100
10,000
60
56
47
50
47
45
40
34
26
30
17
20
50
5,000
10
14
14
12
7
% of households with internet access
5
Fra
nce
Po
rtug
al
Gre
ece
Po
lan
d
Hu
nga
ry
Lith
uan
ia
Tur
key
Bu
lga
ria
stri
a
Au
ven
ia
Slo
-15
EU
Ge
rma
ny
Hu UK
ng
ary
Sp
a
Au in
s
Slo tria
va
k
Gr ia
ee
c
Po e
l
Ro and
ma
Slo nia
ve
Cz nia
ec
hR
.
Tu
rke
Fr y
a
Ge nce
rm
a
Sw ny
ed
en
Ita
ly
0
UK
0
0
Source: Eurostat, HVB Group
Source: Eurostat, HVB Group
Internet data for 2004, except Bulgaria and Poland for 2003. Phone data 2002
21
Conclusions
• FDI needed to sustain future growth rates and EU convergence
• Government has secured domestic confidence…
• …and is now securing foreign investor confidence
• Low financial/political volatility is imperative for securing FDI
• Corporates require transparency on taxation etc & need reform anchors
• Plenty of room for public sector infrastructure investments
• FDI is important to secure Turkey’s role in the region
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