reshaping of emerging markets
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RESHAPING OF EMERGING MARKETS
What does it imply for leasing industries in Turkey and other emerging economies
Cüneyt AkpınarEFG Leasing
1
Changing dynamics of the emerging markets & the potential for their leasing industries
Special Reference: Turkish Leasing Industry
2
3
Exports
GDP
Oil Demand
FX Reserves
Land Mass
Population
0 10 20 30 40 50 60 70 80 90 100
Shifting Balances
*Emerging Economies as % of total World, 2010; Source: IMF
Emerging Economies
Advanced Economies
4
EM: Strong Human CapitalPa
kist
an
Saud
i Ara
bia
Egy
pt
Mal
aysi
a
Indi
a
Vie
tnam
Mex
ico
Tur
key
Indo
nesi
a
Arg
entin
a
Bra
zil
Chi
le
Tha
iland US
Chi
na UK
Fran
ce
Sout
h A
fric
a
Kor
ea
Ger
man
y
Pola
nd
Cze
ch R
ep
Japa
n
Rus
sia
-40%
-20%
0%
20%
40%
60%
80%
100%
Emerging Advanced
Projected Growth of Working Age Population (Ages 10-65), 2005-2030
5
They are growing faster than the advanced economies
GDP Growth
Advanced Economies
Emerging Economies
2010 2011 2012
3.0 2.4 2.6
7.3 6.5 7.0
Source: IMF
Contribution to Global Growth
Emerging EconomiesAdvanced Economies
Source: HSBC
6
Source: Goldman Sachs, PriceWaterHouseCoopers
By 2050…
E7 countries, to outperform growth in US, EU, G7 and OECD.
E7 to attract the highest levels of capital inflow and substantial increase in trade volumes.
7
*US$ bn at constant 2006 prices
2006 20500
20000
40000
60000
80000
100000
120000
E7 G7
Relative Size of G7 and E7 Economies
They invest heavily in sectors where leasing industry is the most
active
Energy Infrastructure
Transportation
Telecommunications
Health
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…but their access to financial servicesremains severely
constrained
Share of SMEs in GDP growth &
employment is very high…
0
10
20
30
40
50
60
70
DevelopingAdvanced
Share of Formal SMEs in Formal Manufacturing Employment
Share of Formal SMEs in GDP
05
101520253035404550 Developing
Advanced
Share of Informal SMEs in Labor Force & GDP, %
Share of Informal SMEs in Labor Force
Share of Informal SMEs in GDP
Share of Formal SMEs in Formal Manufacturing Employment & GDP, %
9
Key Take Away: Emerging Markets will provide significant growth prospect for their leasing
industries…
Larger and relatively stronger
Offering significant growth potential
Under-capitalized
Under-leveraged
Providing compelling sector/company-specific stories
Under-valued
Under-penetrated
10
…& significant value-added for global players
Margins are higher
Returns are stronger
Strong M&A activity as well as privatizations and greenfiled investments
Scope for know-how transfer and value add
Penetration levels are low
11
Bottlenecks in legislative framework ?
Unregistered economy ?
Cross-border funding?
Liquidity ?
Instable financial markets ?
…& ..but “High Return” comes with “High Risk”
Corruption ?
12
Special Reference: Turkish Leasing Industry
13
What can Turkey offer different from other Emerging Markets
…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
Unique Geographical Location…
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Consecutive High Growth RatesUS$bn %
1970US$ 13 bn
2000US$ 200 bn
2011US$ 776 bn
GDP
Fast growing
economy
Source: TURKSTAT
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2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011
-14
-12
-10
-8
-6
-4
-2
0
-11.9 -11.5
-8.8
-5.2
-1.1 -0.6-1.6 -1.8
-5.5-3.6
-1.3
Net Public Debt / GDP %
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010
0
10
20
30
40
50
60
70 66.361.5
55.249.1
41.734.0
29.5 28.232.5 28.7
Declining Budget Deficit
& Net Public Debt
Budget Balance / GDP %
Source: TURKSTAT
Source: TURKSTAT
16
Increasing Trade Volumes
1970US$ 1.5 bn
2000US$ 81 bn
2011US$ 382 bn
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Stronger FDI flows
over US$20bn per year
in 2005-2008
compared to only
less than US$1bn historically
18
Promising for Higher Growth Rates due to Low Penetration Levels
Car ownership per ‘000
Automotive
Loans + Deposits / GDP, %
Finance
Per capita consumption (toe)
Energy
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Penetration level in the leasing industry is low even compared to
other emerging economies
Ukraine
Turkey
Russia
Romania
Serbia
Czech.
Slovakia
Latvia
Poland
Hungary
Bulgaria
Slovenia
Estonia
0.26%
0.31%
0.72%
0.98%
1.14%
1.31%
1.37%
1.39%
1.63%
1.79%
2.00%
2.59%
2.95%
Source: London Financial Group and White Clarke Group - 201120
Financial Leasing can be applied in the form of domestic lease, cross - border lease. Currently No
operational leasing.
Main medium-long term equipment financing instrument, especially for SME’s.
31 companies of which 26 are member of the association.
First 15 players dominate the market (mainly bank subsidiaries).
4 Participation 11 Investment Banks
Contracts : Almost all full payout - mostly fixed interest rate
Average term: 3 years
Average growth rate: 35% in real terms.
2011 grovth 55% in US$ terms.
Turkish Leasing Industry in a Nutshell
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Tax base leasing. All rentals are corporate tax
deductable. Investment Incentive (up to 100% tax allowance may be
reflected to lessee in pricing). 1% VAT against general VAT
(over years 11% - 15% - 18%).
IFRS tax accounting. No more tax base leasing.
Investment Incentive Certificate and VAT
advantageous continued.
Investment Incentive Certificate, corporate tax
allowances application ended gradually (finished by end
2008)
VAT advantage of 1% against 8% or 18% continued.
No any special tax incentive or advantageous in leasing
sector.
1% VAT against general
VAT (18%)
6,712 19,373 28,58124,250 37,239 42,963 19,87851,519 6,197 10,186 11,195
1st Phase 2nd Phase 3rd Phase 4th Phase 5th Phase
Sharp decline due to tax changes coupled with global financial
turmoilStrong growth rates:CAGR: 50.23%
Another growth phase
Strong Growth Rates of the Past are expected to Return with New Legislation and Tax Reform
Dec 2007-Jan 2012June 1985 – June 2003 July 2003 – Dec 2005 Jan 2006 – Dec 2007 current
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Draft Leasing Law
What will Change?
Operating Lease
Sale and Lease Back
Sub Leasing
Software Leasing
============================================= Supporting Changes
Improvement in legal cases (i.e. Get equipment quicker, more severe trade/civil law articles against fraud).
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
Higher volumes
New Products
Less Bureaucracy
More Efficiency
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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.
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Further questionscakpinar@efgleasing.com
Thank you…
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