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RESHAPING OF EMERGING MARKETS What does it imply for leasing industries in Turkey and other emerging economies Cüneyt Akpınar EFG Leasing 1 Changing dynamics of the emerging markets & the potential for their leasing industries Special Reference: Turkish Leasing Industry 2 3 Shifting Balances Emerging Economies Population Land Mass FX Reserves Oil Demand GDP Exports Advanced Economies 0 10 20 30 *Emerging Economies as % of total World, 2010; Source: IMF 4 40 50 60 70 80 90 100 5 Russia Japan Emerging Czech Rep Poland Germany Korea South Africa France UK China US Thailand Chile Brazil Argentina Indonesia Turkey Mexico Vietnam India Malaysia 100% Egypt Saudi Arabia Pakistan EM: Strong Human Capital Projected Growth of Working Age Population (Ages 10-65), 2005-2030 80% 60% Advanced 40% 20% 0% -20% -40% They are growing faster than the advanced economies Contribution to Global Growth Emerging Economies Advanced Economies Source: HSBC GDP Growth 2010 Advanced Economies Emerging Economies Source: IMF 6 2011 2012 3.0 2.4 2.6 7.3 6.5 7.0 By 2050… Relative Size of G7 and E7 Economies 120000 E7 countries, to outperform growth in US, EU, G7 and OECD. 100000 80000 E7 G7 60000 E7 to attract the highest levels of capital inflow and substantial increase in trade volumes. 40000 20000 0 2006 2050 *US$ bn at constant 2006 prices 7 Source: Goldman Sachs, PriceWaterHouseCoopers They invest heavily in sectors where leasing industry is the most active Energy Infrastructure Transportation Telecommunications Health 8 Share of Formal SMEs in Formal Manufacturing Employment & GDP, % Share of SMEs in GDP growth & employment is very high… 70 Developing Advanced 60 50 40 30 20 10 0Share of Formal SMEs in Formal Manufacturing Employment …but their access to financial services remains severely constrained Share of Formal SMEs in GDP Share of Informal SMEs in Labor Force & GDP, % 50 Developing Advanced 40 30 20 10 9 0 Share of Informal SMEs in Labor Force Share of Informal SMEs in GDP Key Take Away: Emerging Markets will provide significant growth prospect for their leasing industries… Larger and relatively stronger Offering significant growth potential Under-penetrated Under-capitalized Under-leveraged Under-valued Providing compelling sector/company-specific stories 10 …& significant value-added for global players Margins are higher Returns are stronger Penetration levels are low Strong M&A activity as well as privatizations and greenfiled investments Scope for know-how transfer and value add 11 …& ..but “High Return” comes with “High Risk” Bottlenecks in legislative framework ? Unregistered economy ? Liquidity ? Instable financial markets ? Corruption ? Cross-border funding? 12 Special Reference: Turkish Leasing Industry 13 What can Turkey offer different from other Emerging Markets Unique Geographical Location… …at the crossroads between East & West, overlapping Europe & Asia geographically …occupies an area approximately equivalent to the quarter of the size of the EU …strategically located on critical energy corridors …is the leading investor in Caucasian and Central Asian Turkic Republics 14 GDP Fast growing economy Consecutive High Growth Rates US$bn 1970 US$ 13 bn 2000 US$ 200 bn % 2011 US$ 776 bn 15 Source: TURKSTAT Declining Budget Deficit & Net Public Debt Budget Balance / GDP % 0 -1.1 -0.6 -1.6 -1.8 -2 -4 -1.3 -3.6 -6 -5.2 -8 -10 -5.5 -8.8 -12 -14 -11.9 -11.5 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: TURKSTAT Net Public Debt / GDP % 70 66.3 61.5 60 55.2 49.1 50 41.7 40 34.0 29.5 28.2 32.5 28.7 2006 2007 30 20 10 16 0 2001 2002 Source: TURKSTAT 2003 2004 2005 2008 2009 2010 Increasing Trade Volumes 1970 US$ 1.5 bn 2000 US$ 81 bn 2011 US$ 382 bn 17 Stronger FDI flows over US$20bn per year in 2005-2008 compared to only less than US$1bn historically 18 Promising for Higher Growth Rates due to Low Penetration Levels Energy Automotive Per capita consumption (toe) Car ownership per ‘000 Finance Loans + Deposits / GDP, % 19 Penetration level in the leasing industry is low even compared to other emerging economies Estonia 2.95% Slovenia 2.59% Bulgaria 2.00% Hungary 1.79% Poland 1.63% Latvia 1.39% Slovakia 1.37% Czech. 1.31% Serbia 1.14% Romania 0.98% Russia Turkey Ukraine 20 0.72% 0.31% 0.26% Source: London Financial Group and White Clarke Group - 2011 Turkish Leasing Industry in a Nutshell Financial Leasing can be applied in the form of domestic lease, cross - border lease. Currently No operational leasing. Main medium-long term equipment financing instrument, especially for SME’s. 31 companies of which 26 are member of the association. First 15 players dominate the market (mainly bank subsidiaries). 4 Participation 11 Investment Banks Contracts : Almost all full payout - mostly fixed interest rate Average term: 3 years Average growth rate: 35% in real terms. 2011 grovth 55% in US$ terms. 21 Strong Growth Rates of the Past are expected to Return with New Legislation and Tax Reform Sharp decline due to tax changes coupled with global financial turmoil Strong growth rates: CAGR: 50.23% Another growth phase 6,712 19,373 24,250 1st Phase June 1985 – June 2003 22 28,581 37,239 2nd Phase July 2003 – Dec 2005 42,963 3rd Phase 51,519 Jan 2006 – Dec 2007 19,878 6,197 10,186 4th Phase Dec 2007-Jan 2012 11,195 5th Phase current Draft Leasing Law What will Change? Operating Lease Sale and Lease Back Sub Leasing Software Leasing Higher volumes ============================================= Supporting Changes New Products Improvement in legal cases (i.e. Get equipment quicker, more severe trade/civil law articles against fraud). Less Bureaucracy No time restriction The voluntary-based Leasing Association will become obligatory, covering all lessors and strengthening its status. Registration of lease contract with the Association will be less bureaucratic compared to the current Notary Public application 23 More Efficiency Future Prospects : Happily Ever After? Penetration levels to increase New financial products their growth in volumes. Improved margins Asset management and risk management will be crucial Technology investments to create competitive advantages Brokership will increase Learning organizations will be formed Specialization/Value Creation/ Innovation will differentiate the lessors. Benchmarking will be key. 24 Thank you… Further questions [email protected] 25