Turkey’s Economic & Investment Outlook

May 14, 2014

Mehmet Şimşek

Minister of Finance

1

Economic Outlook

Investment Opportunities

Long-Term Prospects

Outline

2

Real GDP

Source: Turkstat, Eurostat

120

100,0

85

90

95

100

105

110

115

120

Q1-

08

Q2

Q3

Q4

Q1-

09

Q2

Q3

Q4

Q1-

10

Q2

Q3

Q4

Q1-

11

Q2

Q3

Q4

Q1-

12

Q2

Q3

Q4

Q1-

13

Q2

Q3

Q4

Rea

l GD

P (

2007

Q4

=100

, s.

a.)

3

Real GDP: Turkey vs AMs

Source: Turkstat, Eurostat *Poland, Romania, Hungary, Bulgaria, Croatia, Lithuania, Latvia

120

98

100,0

106

85

90

95

100

105

110

115

120

Q1-

08

Q2

Q3

Q4

Q1-

09

Q2

Q3

Q4

Q1-

10

Q2

Q3

Q4

Q1-

11

Q2

Q3

Q4

Q1-

12

Q2

Q3

Q4

Q1-

13

Q2

Q3

Q4

Rea

l GD

P (

2007

Q4

=100

, s.

a.)

TURKEY

US

Euro Area

4

5

Real GDP: Turkey vs EMs

Source: TURKSTAT, IMF

168,8

100,0

152,8

153,0

180,4

159,0

143,8

95

105

115

125

135

145

155

165

175

185

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Turkey Emerging & Developing Europe

LatAm. & the Caribbean Developing Asia excl. China & India

Russia South Africa

TURKEY

Rea

l GD

P (

2002

=10

0)

Upside

• Stronger external demand

• EU pulling out of recession

• Arab Spring becoming less disruptive

• TL depreciation

Downside

• Tighter financial conditions

• Geopolitical tensions

Growth Outlook

6

Domestic Demand

7 Source: Turkstat, BRSA

0

5

10

15

20

25

30

35

40

45

55

60

65

70

75

80

85

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

Jul-

11

Oct

-11

Jan

-12

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Consumer Confidence (Left) Total Credit Growth (Right)

(An

nu

al, %

) (I

nd

ex)

8 Source: Bloomberg, Turkstat

Ind

ex (

mo

nth

ly)

(6 mo

nth

rollin

g)

20

22

24

26

28

30

32

34

36

30

35

40

45

50

55

60

65

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Eurozone Manufacturing PMI Turkey's Exports to Europe

External Demand

Manufacturing Output

9

Note: INDEX= 100 : A stable outlook to the economic activity by the real sector agents covered by the Business Tendency Survey. INDEX > 100 : An optimistic outlook to the economic activity by the real sector agents covered by the Business Tendency Survey. INDEX < 100 : A pessimistic outlook to the economic activity by the real sector agents covered by the Business Tendency Survey. Source: Turkstat, CBT

100

80

85

90

95

100

105

110

115

120

125

130

55

60

65

70

75

80

85

90

95

100

105

110

115

120

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

Jul-

11

Oct

-11

Jan

-12

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Real Sector Confidence Index (Left) (s.a.) Industrial Production (Right) (s.a.)

PMI remains above 50

10 Source: HSBC

51,1 50,0

30

35

40

45

50

55

60

Jan

-07

Ap

r-07

Jul-

07

Oct

-07

Jan

-08

Ap

r-08

Jul-

08

Oct

-08

Jan

-09

Ap

r-09

Jul-

09

Oct

-09

Jan

-10

Ap

r-10

Jul-

10

Oct

-10

Jan

-11

Ap

r-11

Jul-

11

Oct

-11

Jan

-12

Ap

r-12

Jul-

12

Oct

-12

Jan

-13

Ap

r-13

Jul-

13

Oct

-13

Jan

-14

Ap

r-14

Job Creation Em

plo

ymen

t si

nce

200

7 (

mn

peo

ple

s.a

.)

Source:TURKSTAT 11

26,1

20

21

22

23

24

25

26

27 Ja

n-0

8

Ap

r-0

8

Jul-

08

Oct

-08

Jan

-09

Ap

r-0

9

Jul-

09

Oct

-09

Jan

-10

Ap

r-1

0

Jul-

10

Oct

-10

Jan

-11

Ap

r-1

1

Jul-

11

Oct

-11

Jan

-12

Ap

r-1

2

Jul-

12

Oct

-12

Jan

-13

Ap

r-1

3

Jul-

13

Oct

-13

Jan

-14

Unemployment & Labor Participation Rate

Source:TURKSTAT

45

46

47

48

49

50

51

52

8

9

10

11

12

13

14

15

16

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

Unemploymen Rate (Left Axis) Labor Force Participation Rate (Right Axis)

(s.a., %

) (s.a

., %

)

12

Inflation

0

20

40

60

80

100

120

140

1981

1982

1983

1984

1985

1986

1987

1988

1989

1990

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

Source: TURKSTAT

(CP

I, A

nn

ua

l, %

)

13

CBRT’s Inflation Outlook

14

Inflation is to resume downward trend as base effects fade

Source: CBRT

Upside

• TL Depreciation

• Unprocessed food prices

Downside

• Monetary Tightening

• Output Gap

• Recent Macroprudential Measures

Inflation Outlook

15

( %

) Tight Monetary Policy

Source: CBRT 16

8,00

12,00

10,00

3

5

7

9

11

13

15

Oct

-11

Oct

-11

No

v-11

D

ec-1

1 Ja

n-1

2 Ja

n-1

2 Fe

b-1

2 M

ar-1

2

Ap

r-12

A

pr-

12

May

-12

Jun

-12

Jul-

12

Jul-

12

Au

g-1

2 Se

p-1

2 O

ct-1

2 N

ov-

12

No

v-12

D

ec-1

2 Ja

n-1

3 Ja

n-1

3 Fe

b-1

3 M

ar-1

3

Ap

r-13

M

ay-1

3 M

ay-1

3 Ju

n-1

3 Ju

l-13

A

ug-

13

Au

g-1

3 Se

p-1

3 O

ct-1

3 N

ov-

13

No

v-13

D

ec-1

3 Ja

n-1

4 Fe

b-1

4 Fe

b-1

4 M

ar-1

4

Ap

r-14

CBRT Funding Rate O/N Borrowing O/N Lending Policy Rate

( %

)

17 Kaynak: TCMB

Interest Rates on Turkish Lira Bank Loans

7

9

11

13

15

17

19

21

23

25

27

29 Ja

nu

ary-

08

Ap

ril-

08

July

-08

Oct

ob

er-0

8

Jan

uar

y-09

Ap

ril-

09

July

-09

Oct

ob

er-0

9

Jan

uar

y-10

Ap

ril-

10

July

-10

Oct

ob

er-1

0

Jan

uar

y-11

Ap

ril-

11

July

-11

Oct

ob

er-1

1

Jan

uar

y-12

Ap

ril-

12

July

-12

Oct

ob

er-1

2

Jan

uar

y-13

Ap

ril-

13

July

-13

Oct

ob

er-1

3

Jan

uar

y-14

Ap

ril-

14

Personal Vehicle Housing Commercial

Macroprudential Measures

• Single limit for all credit cards

• Higher minimum payment

• Limit on # of installments

Credit card loans

• Higher risk weighting for consumer loans

Consumer loans

• Compulsory advance payment

• Term limit for vehicle and consumer loans

Auto & other consumer loans

• Lower risk weighting for SME & export credits

Other Loans

18

10,8

7,9

4,1

0,1

-1,3

0,2

1,6

5,5

3,0

0,4 1,0 1,0 1,1

-2,0

0,0

2,0

4,0

6,0

8,0

10,0

12,0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Maastricht Criteria: 3%

Achieved Maastricht Criteria except 2009

Source: Ministry of Development

Bu

dg

et D

efic

it-t

o-G

DP,

%

Low Deficit

19

Budget Deficit (2014)

20

Turkey has the 2nd smallest deficit in Europe

(exlc. Estonia, Latvia & Luxembourg, three small European economies)

Source: IMF, Ministry of Development

Bu

dg

et D

efic

it-t

o-G

DP

(%

, 20

14)

-1,1

-7 -6 -5 -4 -3 -2 -1 0 1

Spain Slovenia

UK Cyprus Ireland Croatia

Portugal Slovak Rep.

France Poland Malta

Austria Netherlands

Hungary EU

Czech Rep. Italy

Greece Finland

Euro Area Belgium

Romania Bulgaria

Lithuania Denmark

Sweden TURKEY

Latvia Estonia

Germany Luxembourg

Maastricht Criteria: 3%

74,0

67,7

59,6

52,7

46,5

39,9 40,0

46,1

42,3

39,1 36,2 36,3

33,0

25

30

35

40

45

50

55

60

65

70

75

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014

Lower Public Debt D

ebt-

to-G

DP,

%

Satisfying Maastricht Criteria since 2004

Maastricht Criteria: 60%

Source: Treasury 21

Public Debt (2014)

Source: IMF, OECD, Treasury

Deb

t-to

-GD

P, %

111,8

89,0

33,3 33,0

20

30

40

50

60

70

80

90

100

110

120

OECD EU EMs Turkey

22

Turkey’s Soft Spot

23

Current Account Deficit

Source: CBRT 24

(12

Mo

nth

Ro

llin

g, U

SD b

n)

-80

-60

-40

-20

0

20

40

Jan

02

Jul 0

2

Jan

03

Jul 0

3

Jan

04

Jul 0

4

Jan

05

Jul 0

5

Jan

06

Jul 0

6

Jan

07

Jul 0

7

Jan

08

Jul 0

8

Jan

09

Jul 0

9

Jan

10

Jul 1

0

Jan

11

Jul 1

1

Jan

12

Jul 1

2

Jan

13

Jul 1

3

Jan

14

Current Account Current Account excluding Energy Current Account excluding Energy and Gold

Net Gold Exports

• 2011: -$4.8 billion

• 2012: +$5.7 billion

• 2013: -$11.8 billion

• 2014 Jan-Mar: $1.7 billion

Factors behind high C/A Deficit (2011-13)

Strong domestic demand

Euro crisis

High energy prices

Arab Spring

25

Turkey's FX Position

Source: CBRT, BRSA, Treasury * Assets: CBRT FX Deposits of Treasury+ CBRT Foreign Assets; Liabilities= Public gross external debt+CBRT Liabilities to Non Residents. Data from CBT dated 8 May., 2014; data from gross external debt stock as of Q4-13

** Data – Mar. 2014

*** Data - Jan 2014 **** Data - Mar. 2013

*****Data-02.05.2014

Billion $ Assets Liabilities Net Position

Public Sector* 138,2 122,8 15,4

Banking Sector** 472,1 470,4 1,7

Real Sector*** 92,7 265,4 -172,8

Short Term 77,3 94,2 -16,9

Household**** 191,0 0,5 190,5

FX Deposit ***** 84,5

26

Firms

Source: CBRT

No FX Loans 63%

FX Loan w/ export earning

25%

FX Loan w/o export earning

12%

9,500 firms

Total net sales at 71% of GDP.

27

Firms: SMEs and Large Companies

Greater amount of FX debt belongs to LARGE COMPANIES

80% out of the 57% of large companies w/ FX debt have export earnings

Source: CBRT 28

Households: Low Leverage

Source: CBRT, ECB

(Ho

use

ho

ld L

iab

iliti

es,

% o

f G

DP,

Ju

ne

2013

)

No FX exposure

65

23

20 40 60 80 100 120 140

Denmark Netherlands

Ireland United Kingdom

Portugal Sweden

Spain Finland

Euro Area Greece

Malta Germany

France Luxembourg

Belgium Austria

Italy Estonia Poland

Czech Republic Latvia

Slovenia Hungary Slovakia

Lithuania Turkey

29

Banks: Safe & Sound

Ca

pit

al A

deq

ua

cy R

ati

o, %

2002 Mar-14

17,6

2,8

NP

L R

ati

o o

f Lo

an

s (%

)

15,7

0

5

10

15

20

25

Jan

-08

May

-08

Sep

-08

Jan

-09

May

-09

Sep

-09

Jan

-10

May

-10

Sep

-10

Jan

-11

May

-11

Sep

-11

Jan

-12

May

-12

Sep

-12

Jan

-13

May

-13

Sep

-13

Jan

-14

Legal Rate: %8

Target Rate 12%

Source: BRSA 30

Turkey’s Banks - among the Strongest in EMs

31 Source: World Bank

Source: World Bank, IMF, BRSA

Banking Sector: Able to Absorb Shocks

Arm

Br

Bul

Col

Cro

Egy

Fr

Gre

Indo

Ire

Ita

Latv

Leb

Lith

Mex

Phil

Pol

Rom Rus

Serb

SoAf

Sp

Tu

Ukr

Venz

8

10

12

14

16

18

20

22

0 50 100 150 200 250

Private Credit/GDP (%)

CA

R (

%)

32

Investment Opportunities

33

Investment Opportunities

34

Privatizations

Finance

Energy

Transportation Health

Education

Textiles

Machinery Equipment

Tourism

Agriculture

Housing

R&D

Privatization Agenda

35

Privatization Agenda: Games of Chance

Total market in 2013, $1.1 billion 36

* Distribution of total revenue gained from games of chance.

Privatization Agenda

Distribution of networks : $12,7 bn

Thermal power plants

• 2,213 MW privatized

• 8,000 MW in privatization portfolio, incl. powerplants in tender process

37

Privatization Agenda: Thermal Power Plants

Kemerkoy

Yenikoy

Çatalağzı

Yatağan

38

Privatization Agenda:

Kemerkoy

Kalamış

Derince

Ports

39

Muğla-Bodrum 483 th m2

Isparta-Eğirdir 360 th m2

Antalya- Alanya 237 th m2

İstanbul-Kadıköy 34 th m2

Aydın-Didim 33 th m2

İstanbul-Büyükçekmece 22 th m2

Various Real Estates

40

Privatization Agenda: Real Estate

Financial Markets

41

Turkish Financial Sector

Share of Banks in Financial

Sector 87.4%

42 Source: Central Bank of Republic of Turkey

Insurance Companies and Pension Mutual Fund

4.7% Other

Financial Institutions

8.0%

Recent Bank Licenses

Rabo Bank (2013)

Bank of Tokyo Mitsubishi

(2012)

Bank Audi (2011)

43

Is Turkey under banked?

Conventional, maybe?

Islamic, probably not

44

2009 72nd

2014 47th

2018 25th

Global Financial Centres Index

Source: Global Financial Centres Index 15

45 47

60

63

70

75 77

20

30

40

50

60

70

80

Rio de Jeneiro ISTANBUL Warsaw Mauritius Mexico Prague Budapest

(20

14

)

Sukuk

46

Sep-12: Sukuk issued for $1.5bn in international market

Oct-12: Sukuk denominated in TL issued for TL1.6bn

Feb-13: Sukuk issued for TL1.5bn

Aug-13: Sukuk issued for TL1.8bn

Oct-13: Sukuk issued for $1.3bn

Feb-14: Sukuk issued for TL1.3bn

Similar to eurobonds, internt’l holders are not s.t. w/holding tax

Increasing Savings: Private Pensions

25% State Contribution

1.4 million new

participants and TL7.7bn funds since end-2012

47

Average Insurance Spending

48

69

134

40

50

60

70

80

90

100

110

120

130

140

2004 2011

Source: OECD *Direct gross premiums, life and non-life insurance

do

llar

per

ca

pit

a

Incentives for Global Fund Managers

A tax free environment for Global Funds

Making it easier to manage assets in Turkey

49

Incentives for Venture Capital

Allowing contributions to Venture Capital to be deducted from Corporate & Personal Income Tax Base, up to

• 10% of VC Revenues

• 20% of VC Capital

Tax Relief on Dividends

50

Incentives for Venture Capital

Allowing contributions to Venture Capital to be deducted from Corporate & Personal Income Tax Base, up to

• 10% of VC Revenues

• 20% of VC Capital

Tax Relief on Dividends

51

Incentives for Business Angels

52

Energy

53

High Dependence on Energy Imports

72%

Total Energy

92%

Oil

98%

Natural-Gas

54

Source: TURKSTAT, Bloomberg

Energy Import Bill (B

rent, $

pb

l) En

erg

y Im

po

rts

(Bill

ion

Do

llars

)

55

Energy Prices to Trend down in the Long-Run

BRIC slowing down

Renewables

Shale gas revolution

Energy efficiency gains

56

Energy Prices

57

95

100

105

110

115

120

125

75

80

85

90

95

100

2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Ind

ex, 2

010

= 10

0

Bre

nt $

/bb

l, 20

10 P

rice

s

Crude oil, avg spot (lhs) Energy Prices (rhs)

Source: World Bank

Developing Local & Renewable Resources

Source: Ministry of Energy and Natural Resources

Electricity Generation Installed Capacity

MW % of Total

Current Installed Capacity (2013) 64,044

- Renewable Energy 25,596 40.0

Power Plants Under Construction 14,338

- Renewable Energy 10,804 75.4

In 3-to-5 years 78,382

- Renewable Energy 36,401 46.4

58

Renewable Energy Outlook O

ver

the

nex

t d

ecad

e in

Tu

rkey

,

• 20,000 MW, wind power generation

• 3,000 MW, solar power plants

• 600 MW, geothermal power plants

• An energy stock market to be established

59

60

0

6

12

18

24

2010 2011 2012 2013

Module Inverter Other Hardware Soft Cost

Co

st o

f el

ectr

icit

y, c

ents

per

kW

h

Source: DOE/NREL

The Falling Price of Utility-scale Polar Photovoltaic Projects

Turkey’s Solar Energy Potential Atlas

61

Building Nuclear Capacity

Akkuyu: JW with Russia

Sinop JW with a Japanese-French consortium

Working on a 3rd plant

62

Improving Energy Efficiency

Industry

20%

Transportation 15%

Construction 30%

63

Transportation

64

Transportation

2003-12: $75 billion invested

2013-23: $350 billion will be invested

65

Intensity of highway, motorway and railway networks in Turkey is about 1/5th of that in EU

1,714 Km

Total of Motorways

4,387 Km

Total of State and Provincial Dual Carriageways

Total: 6,101 Km

January 1, 2003

2,244 Km

Total of Motorways

20,807 Km

Total of State and Provincial Dual Carriageways

Total: 23,051 Km

January 2014

66

İSTANBUL

EDİRNE

ESKİŞEHİR

Polatlı

ANKARA

KONYA

İZMİR

SİVAS

AFYONKARHİSAR

KAYSERİ

BURSA

ERZİNCAN

ERZURUM

KARS

MERSİN ADANA

DİYARBAKIR

ELAZIĞ

MALATYA

ZONGULDAK SAMSUN

Bandırma

VAN

MUŞ

BİLECİK

ÇANKIRI

KIRIKKALE

TEKİRDAĞ

İZMİT

BALIKESİR

AYDIN

DENİZLİ BURDUR

ISPARTA

UŞAK MANİSA

KARAMAN

NİĞDE

OSMANİYE

K.MARAŞ

AMASYA

BATMAN

MARDİN

Yerköy

KARABÜK

Yenişehir

405 km

212 km

533 km

624 km

105 km

Completed (888 km) Under Construction (1796 km)

Bidding Phase (454 km)

Project Phase (354 km)

GAZİANTEP

Çobanbey

67

High Speed Railway Projects

Future Railways Investments

By 2023 $ 45 billion worth of investment

10,000 km worth of new high speed railway network

4,000 km of new conventional line

68

PPP in Ports

Dalaman Marina

Datça Marina

Gazipaşa Marina

Muğla-Ören Marina

Kumkuyu Marina

Karasu Port Project

PPP in Projects under Construction

69

The 3rd Airport in Istanbul, Largest of All

150 million passengers

An area of 90 million m2

Construction Cost: €10 billion

Rent (25 Years): €22.2 billion

70

Projects of the Century - Under Construction

Tube Tunnel 3rd Bridge

Izmit Gulf Transit Istanbul-İzmir Highway High-Speed Train through

Ankara-Bursa-Istanbul

71

Projects of the Century – Planned

Channel Istanbul

72

Healthcare

73

Healthcare: Targets

Increase the number of healthcare facilities

Enhance the quality of the healthcare services

Apply state-of-the-art technologies in the hospital management

74

Healthcare Expenditures

Source: The Ministry of Finance

75

Medical Sector in Turkey

76

Turkey’s pharmaceutical market

• 6th largest market in Europe

• 16th largest in the world (in terms of sales in 2012)

• Rehabilitation centers

• Thermal tourism facilities

• Nursing houses

• Health techno-cities

• R&D centers

The Ministry of Health is planning to open medical «Free Zones»,,

77

Medical Sector in Turkey

Tax Incentives in Healthcare

18% VAT down to 8%

50% tax relief on CIT & PIT for exports in healthcare

PIT and CIT exemption for 5 years on proceeds gained from operating rehabilitation centers

Regional Investment Incentives

78

PPP in Healthcare

79

Projects in Funding Phase

• Kayseri

• Ankara Etlik

• Ankara Bilkent

• İkitelli

• Elazığ

• Yozgat

• Manisa

• Adana

• Mersin

• Gaziantep

• National Public Health Agency

Projects in Funding Phase worth almost $6bn

Projects in Tendering & Contract Phases

• Isparta

• Kocaeli

• Eskişehir

• Bursa

• Konya Karatay

• İzmir Bayraklı

• İstanbul Bakırköy

• İstanbul Üsküdar

Education

80

Education: Targets

Improving access to and quality of education

Having mandatory pre-school education

FATiH: Furnishing each school with smart boards

Reducing number of students per classroom below 30

Increasing the number of private schools & universities

81

Students (%, Total Population)

82 Source: TURKSTAT, Eurostat Included Informal Education

Source: Ministry of Finance

Share of Education Budget (%

)

83

12 Years of Mandatory Education

Austral.

Austria

Belg.

Canada

Chile

Czech R.

Den.

Estonia

Finland

France

Italy

Japan

Lux

Mex

New Zeal.

Poland

Port.

Spain Switz.

TURKEY

UK

USA

6

7

8

9

10

11

12

13

14

9,5 9,7 9,9 10,1 10,3 10,5 10,7 10,9 11,1 11,3 11,5

Ave

rag

e Ye

ars

at

Sch

oo

l of

Pop

’n o

ver

25 Y

ears

Income per Capita (PPP, log)

Source: OECD 84

Investment Incentives in Education

18% VAT down to 8%

50% tax relief on CIT & PIT for exports in education

PIT and CIT exemption for 5 years on proceeds gained from education services

5th zone incentives for investments in pre-school, elementary, secondary and high school

Allocation of public real estate to investors

85

From Crammer Schools to k12 Schools

A flexible transition time

Tuition support based on parent’s income $regional development

Treasury land allocation up to 25 years.

Lease of public schools & buildings appropriate for k12 education

Eligible for new Investment Incentive Scheme

86

Build-Lease-Transfer Model in Education

40,000 additional classrooms by end-2016.

42 education campuses in 22 cities

87

Textiles

88

Textiles

89

Turquality subsidizes 50%-75% of expenditures

Target: 10 Brand in 10 years

7th in the world

Exp

ort

s in

tex

tile

sec

tor

(Bn

$)

7,1

11,1

4

5

6

7

8

9

10

11

12

2005 2012

Machinery Equipment

90

Machinery Equipment

91

The machinery industry in Turkey has been growing

• 20% per year since 1990

• 30% per year since 2009

Machinery Equipment - Opportunities for Investors

92

Competitive input costs, esp in land & labor

• China like wages in Southeast Anatolia

Logistical advantages

• Covers Europe, MENA, CEE, CIS & GCC w/in 3 hours of flight

Entrepreneurial spirit

Skilled labor, incl R&D readiness

Targeted incentive programs

Extensive supply basis with several regional clusters

Tourism

93

Tou

rist

Arr

iva

ls

(Mill

ion

peo

ple

)

94

Tourism

Source: Ministry of Culture and Tourism

Turkey is currently the 6th most popular tourist destination in the world

95

Tourism

Source: Ministry of Culture and Tourism

Turk

ey’s

Ra

nki

ng

in t

he

Wo

rld

(w

.r.t

. Nu

mb

er o

f To

uri

st A

rriv

als

)

Tou

rism

Inco

mes

(B

n $

)

96

Tourism Income

Source: TURKSTAT

12,4 13,9

17,1

20,3

18,6

20,9

25,4 25,1

24,9

28,1 29,0

32,3

10

15

20

25

30

35

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Incentives on Investments in Tourism

18% VAT down to 8%

PIT, CIT tax relief and other Incentives

• Partial personal witholding tax relief

• State contributions to social security premium

• Allocation of public property

• State contributions to water and energy costs

Investment Incentives

• Regional supports for hotel investments

• 5th zone incentives investments on cultural tourism and investments in tourism preservation and development regions

Loans offered by EXIMBANK

97

Agriculture

98

Agricultural GDP

2002

$23,7 billion

11th

2011

$61,8 billion

7th

2023

$150 billion

5th

Source: World Bank

Total Agricultural Support

Source: Ministry of Finance

Tota

l A

gri

cult

ura

l Su

pp

ort

(B

n T

L)

100

3,0

13,2

0

2

4

6

8

10

12

14

2002 2014

Agricultural Support

• Largest support among OECD countries

Source: OECD

Biggest agricultural GDP in Europe

Ag

ricu

ltu

ral S

ub

sid

ies

(20

12,

%, G

DP

)

101

0,1 0,3 0,3

0,4 0,6

0,7 0,7

0,9 0,9 1,0 1,0 1,2 1,2

2,0 2,1

0,0

0,5

1,0

1,5

2,0

2,5

Au

stra

lia

New

Zea

lan

d

Ch

ile

Isr

ael

Can

ada

Mex

ico

Eu

rop

ean

u

nio

n

OEC

D

No

rway

Un

ited

Sta

tes

Sw

itze

rlan

d

Ice

lan

d

Jap

an

Ko

rea

TUR

KEY

Housing

102

Urban Renewal

• 6.5 million new homes

• $236 billion total cost

Removal of Reciprocity

• A source of attraction by global citizens

103

Housing

Research & Development

104

Source: The Scientific and Technological Council of Turkey * % of GDP

R&D Spending*

105

•3.00% 2023

•1.8% 2018

• 0.92% 2012

• 0.53% 2002

Patent Applications

Source: TPI 106

1.874

12.053

1.000

2.000

3.000

4.000

5.000

6.000

7.000

8.000

9.000

10.000

11.000

12.000

13.000

2002 2013

Trade Mark Applications (2

012,

Th

ou

san

d)

86

64

54

44 41

0

20

40

60

80

100

120

TURKEY France Germany Italy Spain England

108*

Source: Turkish Patent Institute *TURKEY 2013 Data

Incentives for R&D

R&D Expenditure

• Corporate income tax relief

• Personal income tax relief

• State contributions to social security premiums

• Exemption from stamp duty

• Capital support for young entrepreneurs

Strengthening the link b/w R&D and Commercial Activities

• 50% tax relief on commercial use of patents, trademarks…

• VAT exemption on patents, trademarks…

108

Since 2008, 155 R&D Centers

Global Investors in Turkey

109

International Companies Operating in Turkey

Source: Ministry of Economy

110

3.212 4.303

6.342

9.092

12.380

16.082

19.097

21.898

25.170

29.529

33.808

37.199 37.737

0

5.000

10.000

15.000

20.000

25.000

30.000

35.000

40.000 20

02

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4 Fe

b

Foreign Direct Investment Inflows

Source: CBRT

(Bill

ion

do

llar)

111

14,8

140,6

0

25

50

75

100

125

150

1980-2002 2003-2014 Mar

Long-Term Prospects

112

GDP per Capita

Source: TURKSTAT, Medium-Term Program,PwC

2002

2016

2002 $ 3,492

2013

$10,782

2016

$ 12,670

113

Lower-Middle -Income $1,035-$4,085

Upper-Middle-Income $4,086-$12,615

High-Income $12,615 and up

Low-Income $1,035-or less

GDP

Source: TURKSTAT, Medium-Term Program,PwC

2002

2050

2002 $ 230 billion

2050 $ 5 trillion

2013 $ 820 billion

2023 $ 2 trillion

114

Priorities for Sustainable Growth

Improving Competitiveness

Innovation-based Growth

Attracting FDI

Financial deepening

R&D

Corporate Governance

Building a more Equitable Society

Inclusive Growth

Education & Skills

Childcare & Family Support

Flexible Labor Market

Improving Quality of Institutions

Open-access Growth

Rule of Law

Independent and Arms-length Regulation

Improving Business Climate

Public Finance Management

115

Achieving Sustainable Development

10th Development Plan

(2014-18)

Qualified Individiuals,

Stronger Society

Innovative Production, Sustainable

Growth

Liveable Spaces, Sustainable

Environment

International Cooperation for

Development

25 Transformation Programs of High Priority

Implemention, Monitoring, and Evaluation

116

Determinants of Long-Term Growth

Quality of Institutions

Demographics

Productivity

117

Improving Quality of Institutions

Corruption Perceptions:

2013: 53rd in 177

2002: 65th in 102

Ease of Doing Business:

2013-14: 69th in 185

2006: 84th in 175

Global Competitiveness: 2013: 44th in 148

2005: 71st in 117

Source: WB, WEF, Transparency International 118

Priorities & Strong Reform Agenda

Enhancing Competition

Deepening Capital Markets

Education

Improving Labor Market Flexibility

Local & Renewable Energy

Infrastructure

Combatting Shadow Economy

Moving up the Value-Chain

Narrowing Regional

Development Gaps

119

Source: Ministry of EU Affairs 120

EU Accession Process (Chapters)

14

20

0

5

10

15

20

25

Opened Remaining

Corruption Perceptions Index (2002)

(65th among 102 countries)

31

44 45

58 59

65 70

73 74

96

20

30

40

50

60

70

80

90

100

Ital

y

Gre

ece

Bra

zil

Mex

ico

Ch

ina

TUR

KEY

Arg

enti

na

Ind

ia

Ru

ssia

Ind

on

esia

Source: Transparency International

121

Corruption Perceptions Index (2013)

(53rd among 177 countries)

Source: Transparency International

53

69 72

80 80

94

106 106

114

127

40

50

60

70

80

90

100

110

120

130

140

TUR

KEY

Ital

y

Bra

zil

Ch

ina

Gre

ece

Ind

ia

Arg

enti

na

Mex

ico

Ind

on

esia

Ru

ssia

122

Within the period of 2005-2012, Turkey has ranked higher than Russia, Argentina and Greece. (71st among 117 countries)

31

35 36

38

43 45

47 48

53 54

57 59

67 68 69 71

30

35

40

45

50

55

60

65

70

75

Po

rtek

iz

Hu

nga

ry

Slo

vak

Rep

.

Ital

y

Po

lan

d

Ind

ia

Gre

ece

Ch

ina

Ru

ssia

Arg

enti

na

Bra

zil

Mex

ico

Ro

man

ia

Ukr

ain

e

Ind

on

esia

TUR

KEY

Source: World Economic Forum

Global Competitiveness Index (2005)

123

(44th among 148 countries)

Source: World Economic Forum

Global Competitiveness Index (2013)

29

38

42 44

49 51

55 56

60 63

64

76 78

84

91

104

25

35

45

55

65

75

85

95

105

Ch

ina

Ind

on

esia

Po

lan

d

TUR

KEY

Ital

y

Po

rtu

gal

Mex

ico

Bra

zil

Ind

ia

Hu

nga

ry

Ru

ssia

Ro

man

ia

Slo

vak

Rep

.

Ukr

ain

e

Gre

ece

Arg

enti

na

124

(84th among 175 countries)

Source: World Bank

Ease of Doing Business (2006)

62

69 70 71

84

93

97

108

111

122

131 132 134

138

60

70

80

90

100

110

120

130

140

Mex

ico

Ital

y

Uru

guay

Ro

man

ia

TUR

KEY

Arg

enti

na

Ru

ssia

Ch

ina

Gre

ece

Bra

zil

Ind

on

esia

Ukr

ain

e

Cro

atia

Ind

ia

125

(69th among 189 countries)

Source: World Bank

Ease of Doing Business (2013)

53

65 69

72 73

88 89 92

96

112 116

120 126 134

20

40

60

80

100

120

140

Mex

ico

Ital

y

TUR

KEY

Gre

ece

Ro

man

ia

Uru

guay

Cro

tia

Ru

ssia

Ch

ina

Ukr

ain

e

Bra

zil

Ind

on

esia

Arg

enti

na

Ind

ia

126

Favorable Demographics

Source: Eurostat

Shar

e o

f 15

-24

year

s o

ld in

To

tal P

op

. (%

)

16,6

7 9 11 13 15 17 19 21

Spain

Italy

Andorra

Slovenia

Greece

Portugal

Bulgaria

Germany

Czech Republic

Serbia

Switzerland

Ireland

Croatia

Estonia

Latvia

France

Austria

Hungary

Luxembourg

Finland

Netherlands

Ukraine

Poland

Denmark

Sweden

United Kingdom

Slovakia

Norway

Malta

Lithuania

Montenegro

Iceland

Macedonia

Georgia

Moldova

Turkey

Azerbaijan

127

1,7

0,7

0,2

0,0

0,2

0,4

0,6

0,8

1,0

1,2

1,4

1,6

1,8

TURKEY OECD EU-28

An

nu

al A

vera

ge

Gro

wth

Ra

te (

%, 2

001

-13)

Working Age Population Growth

Source: OECD, Eurostat, Turkstat 128

Thank You…

129