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FDI - Where Does Turkey Stand? Orhan Cem Lead Partner, Advisory Services, PwC Turkey TURKEY WHERE THE OPPORTUNITIES ABOUND ON THE WAY TO SUCCESS February 21-22, 2007 PwC Agenda The Outlook What is Turkey's potential in attracting FDI? Where does Turkey stand in the FDI league? “To Do” List PricewaterhouseCoopers Outlook & Potential Turkey 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 20052050 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. PricewaterhouseCoopers 1 Growth Potential Population Turkey offers high growth potential to foreign investors. 35% EU-25 Turkey 30% 26% 27% 30% 27% 25% 20% 20% 18% 16% 15% 17% 11% 8% 10% 5% Finance Sector Loans / GDP(%) for benchmark countries Netherlands Denmark England Portugal Germany Austria Spain EU-25 Belgium France Italy Greece Latvia Hungary Slovenia Czech Republic Poland Turkey 174 166 142 138 136 125 121 118 107 93 88 76 56 48 48 39 35 23 Turkey figures (2005) PricewaterhouseCoopers 0% 0-14 15-29 Deposits / GDP(%) for benchmark countries Belgium Netherlands England Germany Spain Portugal Austria EU-25 Greece France Czech Republic Latvia Italy Slovenia Turkey Estonia Poland Hungary 143 122 118 113 104 103 98 96 96 77 70 66 58 57 47 46 46 45 30-49 50-64 65+ GSM Sector 70 in 2006 120 97 Penetration 80 per 100 inhabitants 60 40 (2005) 100 90 60 20 0 EU-15 EU New Entrants Turkey Retail Sector Leaseable Area per 1000 inhabitants (2005) 800 700 600 500 400 300 200 100 0 734 230 121 Norway England Italy 80 Czech Repuplic 32 Turkey 2 FDI Comparison 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 Inflow (USD mn) –Turkey FDI 2002 2003 620 750 2004 1,300 2005 8,500 FDI / GDP – BRIC and Turkey 2006* 16,000 5% *As of November Brazil Russia India Turkey China 4% FDI Stock (USD bn) – BRIC and Turkey 3% 2% 1990 2000 2005 1% Brazil Russia India China 37,243 n/a 1,657 20,691 103,015 32,204 17,517 193,348 201,183 132,491 45,274 317,873 Turkey 11,194 19,209 42,170 Source: Source: UNCTAD, PwC Analysis World Investment Report, 2006 PricewaterhouseCoopers 0% 2001 2002 2003 2004 2005 Source: PwC Analysis 3 Changing Competitive Landscape – Understanding the Profile of FDI More foreign companies entering the market Major sectoral privatizations Various companies of different origins entered the Turkish market recently MOBILE REFINERY MERSIN PORT IRON& STEEL ALCOHOL Expected privatizations TOBACCO LOTTERY PETRO POWER DISTRIBUTION CHEMICALS IZMIR PORT TURKISH AIRLINES PricewaterhouseCoopers 4 Competitiveness 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. WEF – Global Competitiveness 2006 Source: World Economic Forum PricewaterhouseCoopers 5 Competitiveness 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. Turkey vs BRIC and EU New Entrants Institutions 7 6 Innovation Infrastructure 5 4 3 2 Business Sophistication 1 Macroeconomy 0 Technological Readiness Health and Primary Education Market Efficiency Higher Education and Training BRIC Average Turkey EU New Entrants PricewaterhouseCoopers Source: World Economic Forum 6 “To Do” List 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. Corporate Governance Global competitiveness Fight against corruption Transparency More privatization Healthy financial reporting Branding Simple and effective regulation and less bureaucracy Training and education Tight fiscal balance Fair tax environment Higher value added products Efficient legal structure Well functioning liberal markets Healthy financial system Technology Innovation Protection of intellectual property PricewaterhouseCoopers Investment in research and development 7 Question Marks & Concerns • “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. Number of Greenfield Investments 2002 Brazil Bulgaria China Czech Republic Hungary India Poland Russia Turkey 175 77 586 94 211 249 91 199 45 2003 291 97 1,303 141 214 452 155 429 69 2004 260 110 1,547 137 212 688 229 380 66 2005 158 130 1,196 127 173 564 234 479 62 Source: UNCTAD, World Investment Report, 2006 PricewaterhouseCoopers 8 Thank you. © 2007 PricewaterhouseCoopers. All rights reserved. “PricewaterhouseCoopers” refers to the network of member firms of PricewaterhouseCoopers International Limited, each of which is a separate and independent legal entity. *connectedthinking is a trademark of PricewaterhouseCoopers LLP (US). PricewaterhouseCoopers PwC