investment & trade potential of turkey “ investment opportunities”

INVESTMENT & TRADE INVESTMENT & TRADE

POTENTIAL OF TURKEYPOTENTIAL OF TURKEY

“INVESTMENT OPPORTUNITIES”

İrfan TOKGÖZİrfan TOKGÖZDeputyDeputy General Director General Director

General Directorate of Foreign InvestmentGeneral Directorate of Foreign Investment

12/10/200912/10/2009

““SALONIKA”SALONIKA”

I.I. THE GLOBAL FINANCIAL CRISIS’ EFFECTS TO TURKEY THE GLOBAL FINANCIAL CRISIS’ EFFECTS TO TURKEY and and MEASURES MEASURES

AGAINST CRISISAGAINST CRISIS

II.II. TURKEY’S ECONOMIC OUTLOOKTURKEY’S ECONOMIC OUTLOOK

III.III. FDI REGULATION AND INDICATORSFDI REGULATION AND INDICATORS

IV.IV. THE NEW INCENTIVE SYSTEM IN TURKEYTHE NEW INCENTIVE SYSTEM IN TURKEY

Agenda

THE GLOBAL FINANCIAL CRISIS’THE GLOBAL FINANCIAL CRISIS’

EFFECTS TO TURKEYEFFECTS TO TURKEY

andand

MEASURES AGAINST CRISISMEASURES AGAINST CRISIS

Global financial and economic landscape has been shaken by an Global financial and economic landscape has been shaken by an unprecedented global crisisunprecedented global crisis

Because the roots of the crisis are in financial system and the Because the roots of the crisis are in financial system and the economies and financial markets economies and financial markets are are globally integrated, the crisis globally integrated, the crisis is widespread and destructiveis widespread and destructive

Large financial institutions failedLarge financial institutions failed Spreads widened Spreads widened Volatilities increasedVolatilities increased All asset prices plummetedAll asset prices plummeted Devastating effects have beaten the forecasts Devastating effects have beaten the forecasts Derivative market collapsedDerivative market collapsed

The crisis adversely affected financing facilities and foreign The crisis adversely affected financing facilities and foreign demanddemand

Significant slowdown in the economic activity of developing countriesSignificant slowdown in the economic activity of developing countries

The crisis has posed considerable threats to macroeconomic and The crisis has posed considerable threats to macroeconomic and financial stability of many emerging economiesfinancial stability of many emerging economies

Global Financial CrisisGlobal Financial Crisis

Being an open economy, integrated with the global economic and Being an open economy, integrated with the global economic and financial system, Turkeyfinancial system, Turkey has has also suffered from the crisis like also suffered from the crisis like other countries.other countries.

The major effects;The major effects;

GDP has been declining, it is estimated -6% at the end of 2009.GDP has been declining, it is estimated -6% at the end of 2009.

Unemployment has increased appx. 4 % over last one year period Unemployment has increased appx. 4 % over last one year period

Declining external demand and decelerating international capital flows.Declining external demand and decelerating international capital flows.

How Turkey AffectedHow Turkey Affected

Fiscal policies and major structural reforms implementedFiscal policies and major structural reforms implemented previouslypreviously in 2002, have helped to minimize the impact of the in 2002, have helped to minimize the impact of the crisis.crisis.

Major structural reforms such as;Major structural reforms such as;

increasing the role of private sector in the economy;increasing the role of private sector in the economy;Enhancing the efficiency and resiliency of the financial sector;Enhancing the efficiency and resiliency of the financial sector;Social security reform; Social security reform;

strengthened our macroeconomic fundamentals.strengthened our macroeconomic fundamentals.

Turkish Banking system weathered the crisis without any need Turkish Banking system weathered the crisis without any need for state intervention and did not change the guarantee scheme;for state intervention and did not change the guarantee scheme;

strong capital base and liquidstrong capital base and liquidiity adequacy ratios;ty adequacy ratios; effective risk management practices;effective risk management practices; Healthy and profitable balance sheet;Healthy and profitable balance sheet; Absence of toxic assets Absence of toxic assets

How Turkey AffectedHow Turkey Affected

To stimulate the domestic demand we lowerTo stimulate the domestic demand we lowered ed the VAT and Special the VAT and Special Consumption Tax (SCT) on several items including automobiles, white Consumption Tax (SCT) on several items including automobiles, white goods and electronic devices.goods and electronic devices.

The financial and non financial burdens on employers are reduced and The financial and non financial burdens on employers are reduced and unemployment insurance payments made by government are widened.unemployment insurance payments made by government are widened.

A new investment scheme is announced (To be discussed later)A new investment scheme is announced (To be discussed later)

A new credit guarantee mechanism to support SME’s financing A new credit guarantee mechanism to support SME’s financing is is establishedestablished

A new and comprehensive R&D Law which aims to accelerate both foreign A new and comprehensive R&D Law which aims to accelerate both foreign and local R&D investments and and local R&D investments and to to develop a more conductive develop a more conductive environment for innovationenvironment for innovation is adopted is adopted..

Monetary policies Monetary policies are are implemented by Central Bank.implemented by Central Bank.

Measures Measures Against GlobalAgainst Global Financial Crisis Financial Crisis

TURKEY’S ECONOMIC OUTLOOKTURKEY’S ECONOMIC OUTLOOK

Economic OutlookEconomic Outlook

0,0 2,0 4,0 6,0 8,0 10,0 12,0 14,0 16,0

USChinaJapanIndia

GermanyUK

RussiaFranceBrazil

ItalyMexico

SpainKorea

CanadaIndonesia

TurkeyIran

AustraliaTaiwan

Holland

World’s Biggest Economies (GDP based on Purchasing Power Parity, Trillion Dollars, 2009E)

0,870,87


Favorable DemographicsFavorable Demographics

Demographic Profile (2050 Projections)

18%

13%

14%

12%

15%

15%

12%

13%

13%

13%

58%

49%

51%

48%

53%

51%

47%

48%

50%

51%

25%

39%

34%

40%

32%

35%

40%

39%

38%

40%

0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%

Turkey

Czech Rep.

Hungary

Poland

Russia

Europe

Bulgaria

Romania

Slovak Rep.

Ukraine

0-14 Age 14-60 Age 60+ Age

Source: UN

71,5

77,7

82,1

50

60

70

80

90

2008(*) 2010(**) 2015(**)

Turkey: Population Prospects (Million People)

Source: (*) TURKSTAT (**)UNDP World Population Prospects


GGDDP Growth Rate (Annual P Growth Rate (Annual AAaverageaverage,, %) %)

1,5

5,9

4,44,3

5,3

0

1

2

3

4

5

6

7

1982-1986 1987-1991 1992-1996 1997-2001 2002-2008

Source: TURKSTAT, Treasury

5,04,03,5

-6,0

-7-6-5-4-3-2-101234567

2009 2010 2011 2012

GDP Growth Rate Targets GDP Growth Rate Targets (%)(%)

Source: SPO “Medium Term Programme-2010-2012 ”


Per Capita GDP (USD)

7.0277.609

9.189

10.436

5.779

4.531

3.517

1.500

2.500

3.500

4.500

5.500

6.500

7.500

8.500

9.500

10.500

2002 2003 2004 2005 2006 2007 2008

Source: TURKSTAT SPO, 2009 Annual Programme


Average Inflation in Periods (%)

62,7

71,6

13,3

5,3

0

10

20

30

40

50

60

70

80

1983-94 1995-2001 2002-2008 2009 September

Source: TURKSTAT, CBRT


Annual Exports (Billion USD)

132,0

104,3

36,147,3

63,2

107,3

85,5

73,5

0

25

50

75

100

125

150

2002 2003 2004 2005 2006 2007 2008 2009*

(*) Annualized as of August 2009

Source: TURKSTAT

51,6

69,3

97,5

116,8

139,6

170,1

202,0

143,9

0

25

50

75

100

125

150

175

200

225

2002 2003 2004 2005 2006 2007 2008 2009*

Annual Imports (Billion USD)

(*) Annualized as of August 2009


Increasingly Open Economy (Billion USD)

Foreign Trade Volume

87,7

116,6

160,7

190,3

225,1

277,4

334,0

248,2

0

25

50

75

100

125

150

175

200

225

250

275

300

325

350

375

400

2002 2003 2004 2005 2006 2007 2008 2009*


7,5

14,4

22,1

41,5

16,2

0,6

38,2

32,1

0

10

20

30

40

50

2002 2003 2004 2005 2006 2007 2008 2009*

Current Account Deficit (Billion $)

Source: Central Bank of Turkey

(*) Annualized as of July.

FDI REGULATION AND INDICATORSFDI REGULATION AND INDICATORS

FDI FIGURES

Inflows

USD Billion

Source: CBRT, 2009

1,1 1,72,8

10,0

22,0

18,3

5,8

20,2

3,4

0

2

4

6

8

10

12

14

16

18

20

22

2001 2002 2003 2004 2005 2006 2007 2008 2009August

0,1

0,50,8

1,1

2,1

2,5

0,80,9

0,5

0

0,5

1

1,5

2

2,5

3

3,5

4

2001 2002 2003 2004 2005 2006 2007 2008 2009August

Outflows

USD Billion

FDI FIGURES

UNCTAD World Investment Report 2009UNCTAD World Investment Report 2009

Published in September 2009.Published in September 2009.

Turkey is ranked 20th in the world, and 9th Turkey is ranked 20th in the world, and 9th among the developing countries in terms of among the developing countries in terms of annual volume of FDI inflow in 2008.annual volume of FDI inflow in 2008.

Relaxed regulatory framework, improved Relaxed regulatory framework, improved business climate and robust economic business climate and robust economic growth were stated as the reasons behind growth were stated as the reasons behind the success of Turkey in attracting high the success of Turkey in attracting high amounts of international direct investment.amounts of international direct investment.

FDI FIGURES

Main Principles of International Direct Investment Main Principles of International Direct Investment RegimeRegime

No Pre-entry Screening Requirement No Pre-entry Screening Requirement No Minimum Capital Requirement No Minimum Capital Requirement National TreatmentNational Treatment Guarantee to Transfer ProceedsGuarantee to Transfer Proceeds Key Expatriate Personnel EmploymentKey Expatriate Personnel Employment Protection Against ExpropriationProtection Against Expropriation International Dispute SettlementInternational Dispute Settlement

IMPROVEMENT OF BUSINESS ENVIRONMENTIMPROVEMENT OF BUSINESS ENVIRONMENT

Coordination Council for the Coordination Council for the Improvement of Investment Improvement of Investment Climate (YOIKK) Climate (YOIKK)

Investment Advisory Council Investment Advisory Council (IAC)(IAC)


The Reform Program for the Improvement of the The Reform Program for the Improvement of the Investment Environment for Turkey, aiming to increase Investment Environment for Turkey, aiming to increase international competitiveness of Turkey as an investment international competitiveness of Turkey as an investment location, is implemented and monitored by the location, is implemented and monitored by the Coordination Council for the Improvement of the Coordination Council for the Improvement of the Investment Environment (YOIKK).Investment Environment (YOIKK).

YOIKK serves as an effective and analytic communication YOIKK serves as an effective and analytic communication and cooperation platform for public and private sector and cooperation platform for public and private sector representatives working through 12 Technical Committerepresentatives working through 12 Technical Committeees.s.

YOIKK Steering Committee, which was established in 2005, YOIKK Steering Committee, which was established in 2005, has made 26 meetings so far.has made 26 meetings so far.

TThe Coordination Council for the Improvement of the he Coordination Council for the Improvement of the Investment EnvironmentInvestment Environment (YOIKK)(YOIKK)


CoorCoorddination Council for the Improvement of ination Council for the Improvement of Investment Environment (CCIIE)Investment Environment (CCIIE)

Steering Committee

Investment Investment Advisory Advisory CouncilCouncil

REFORM ON REFORM ON INVESTMENT INVESTMENT ENVIRONMENTENVIRONMENT & & STRUCTURE STRUCTURE

Location of Investment Foreign Trade & Customs

Licensing Taxes & Incentives

Company Establishment

Employment Intellectual Property Rights

Foreign Direct Investment Legislation

Research & Development

Corporate Governance Investment Promotion SMEs


INVESTMENT ADVISORY COUNCIL 2008 : RECOMMENDATIONSINVESTMENT ADVISORY COUNCIL 2008 : RECOMMENDATIONS Improve education and training, geared to private sector needs.

Enhance dialogue between industry and universities to promote entrepreneurship,

leadership and management skills

Accelerate energy sector reforms, including automatic cost recovery pricing, diversification, deregulation and privatization

Move forward with labor market reforms that further enhance flexibility while protecting workers

Improve infrastructure, transportation and information/communication technology

Strengthen the implementation of legislation on intellectual property rights

Improve public administration practices

Strengthen measures to reduce informality

Encourage the growth of SMEs

Enact the new commercial code to improve corporate governance

and accounting standards


THE NEW INCENTIVE SYSTEM IN TURKEYTHE NEW INCENTIVE SYSTEM IN TURKEY

The New Incentive RegimeThe New Incentive Regime

Goals ...Goals ...

To diminish regional development discrepanciesTo diminish regional development discrepancies

To ensure sectoral clusteringTo ensure sectoral clustering

To prioritize economies of scale criterions in To prioritize economies of scale criterions in investments and to support technology and R&D investments and to support technology and R&D based large scale investmentsbased large scale investments


Incentive Measures

1.1. Customs Duty ExemptionCustoms Duty Exemption

2.2. VAT Exemption VAT Exemption

3.3. Reduced Corporate/Income Tax RateReduced Corporate/Income Tax Rate

4.4. Support for Employer’s Contribution Support for Employer’s Contribution for Social Securityfor Social Security

5.5. Interest Rate SupportInterest Rate Support

6.6. Land AllocationLand Allocation


1- Customs Duty Exemption

Exemption of Customs Duty for imported machinery and equipment

2- VAT Exemption

VAT exemption for both imported and domestically VAT exemption for both imported and domestically procured machinery and equipmentprocured machinery and equipment

Incentive Measures


3- Reduced Tax Rate

Reduction of Corporate Tax Rate at a rate within a range from 25% to 90%

Percentage of support for investments changing from 10% to 70%

Practice of a reduced corporate or income tax rate

until the cumulative reduction is reached to a certain percentage of investment amount

Applies only to earnings pertaining to supported investment

Incentive Measures


4- Support for Employer’s Contribution for Social SecurityPayment of employer’s share for social security contribution by Treasury

5- Land Allocation For the projects that satisfy certain conditions, free allocation of land

Incentive MeasuresIncentive Measures


6- Interest Rate Support

For the credits that are used by the investor within the scope of the Incentive Certificate

3 to 5 points of interest for TL denominated loans

1 to 2 points of interest for foreign currency denominated loans

Incentive Measures


The Structure...

Regional System Regional System

Large Scale Investments Large Scale Investments

General SystemGeneral System


REGIONS GROUPED ACCORDING TO THEIR SOCIO-ECONOMIC DEVELOPMENT RANKING

1st Degree Developed Level 2 Regions2nd Degree Developed Level 2 Regions3rd Degree Developed Level 2 Regions4th Degree Developed Level 2 Regions


Regional System

Potentials of the regionsPotentials of the regions

Economies of scaleEconomies of scale

Positive list approach (like mining, Positive list approach (like mining,

manufacture of food and beverages, manufacture of food and beverages,

paper, machinery etc.) paper, machinery etc.)

Regional System

Customs Duty Exemption VAT Exemption Reduced Corporate/Income Tax Rate Support for Employer’s Contribution for Social

Security Interest Rate Support (3rd and 4th Regions) Land Allocation



INCENTIVE MEASURESFOR INVESTMENTS STARTING

BEFORE 31.12.2010

FOR INVESTMENTS STARTING AFTER 31.12.2010

REGION I REGION II REGION III REGION IVREGION

IREGION

IIREGION

IIIREGION

IV

REDUCED TAX RATE

Percentage of Support Ratio (%) 20 30 40 60 10 15 20 25

Tax Reduction Ratio (%) 50 60 80 90 25 40 60 80

SUPPORT FOR EMPLOYER’S CONTRIBUTION ON SOCIAL SECURITY 2 YRS 3 YRS 5 YRS 7 YRS - - 3 YRS 5 YRS

INTEREST RATE SUPPORT

TL Denominated Loans (points) - - 3 5 - - 3 5

Foreign Currency Denominated Loans (points) - - 1 2 - - 1 2

LAND ALLOCATIONFOR ALL THE INVESTMENTS THAT

UTILIZE FROM REGIONAL INCENTIVE SYSTEM

FOR ALL THE INVESTMENTS THAT UTILIZE FROM REGIONAL

INCENTIVE SYSTEM

VAT EXEMPTION FOR ALL THE INVESTMENTS FOR ALL THE INVESTMENTS

CUSTOMS DUTY EXEMPTION

FOR ALL THE INVESTMENTS FOR ALL THE INVESTMENTS

Large Scale Investments

GOALS:

Improvement of Technology and R&D Capacity

Improvement of Competitiveness



1- CHEMICAL PRODUCTS2- REFINED PETROLEUM PRODUCTS3- TRANSIT PIPE LINE TRANSPORTATION SERVICES4- AUTOMOTIVE OEM 5- RAILWAY AND TRAM LOCOMOTIVES AND/OR RAILWAY CARS 6- HARBOURS AND HARBOUR SERVICES 7- ELECTRONICS 8- MEDICAL, HIGH PRECISION AND OPTICAL EQUIPMENT9- PHARMACEUTICALS 10- AIRCRAFT AND SPACE VEHICLES 11- MACHINERY 12- MINING INVESTMENTS



The Incentive Measures for Large Scale Investments:

Customs Duty Exemption VAT Exemption Reduced Corporate/Income Tax Rate Support for Employer’s Contribution for Social

Security Land Allocation for Investors



LARGE SCALE INVESTMENTS INCENTIVE MEASURES

FOR INVESTMENTS STARTING BEFORE 31.12.2010

FOR INVESTMENTS STARTING AFTER 31.12.2010

REGION I REGION II REGION III REGION IV REGION I REGION II REGION III REGION IV

REDUCED TAX RATE

Percentage of Support Ratio (%) 30 40 50 70 25 30 40 45

Tax Reduction Ratio (%) 50 60 80 90 25 40 60 80

SUPPORT FOR EMPLOYER’S CONTRIBUTION ON SOCIAL SECURITY 2 YRS 3 YRS 5 YRS 7 YRS - - 3 YRS 5 YRS

LAND ALLOCATIONFOR ALL THE LARGE SCALE

INVESTMENTSFOR ALL THE LARGE SCALE

INVESTMENTS

VAT EXEMPTIONFOR ALL THE LARGE SCALE

INVESTMENTSFOR ALL THE LARGE SCALE

INVESTMENTS

CUSTOMS DUTY EXEMPTION

FOR ALL THE LARGE SCALE INVESTMENTS

FOR ALL THE LARGE SCALE INVESTMENTS


General SystemGeneral System

Customs Duty Exemption

VAT Exemption

FDI by Greece InvestorsFDI by Greece Investors

The number of companies including Greek capital who are doing business in The number of companies including Greek capital who are doing business in

Turkey as of October 2009 is 378, while the total number of companies with Turkey as of October 2009 is 378, while the total number of companies with

foreign capital is 22.821. foreign capital is 22.821.

The The amount of the foreign capital committed by the direct investors as of of the foreign capital committed by the direct investors as of

October 2009 is USD 152 billion, of which USD 1.3 billion is invested by Greek October 2009 is USD 152 billion, of which USD 1.3 billion is invested by Greek

investors. The major operations were in bank acquisitions in 2006-2008 investors. The major operations were in bank acquisitions in 2006-2008

43 Incentive certificates have been issued and estimated amount of USD 200 43 Incentive certificates have been issued and estimated amount of USD 200

million million

The Agreement between Turkey and Greece on the Reciprocal Promotion and The Agreement between Turkey and Greece on the Reciprocal Promotion and

Protection of Investments was signed on January 20, 2000 and entered into Protection of Investments was signed on January 20, 2000 and entered into

force on November 24, 2001.force on November 24, 2001.

Some Useful WebsitesSome Useful WebsitesSome Useful WebsitesSome Useful Websites

www.treasury.gov.tr www.treasury.gov.tr (Undersecretariat of Treasury)(Undersecretariat of Treasury)

www.investinturkey.gov.tr www.investinturkey.gov.tr (Investment Portal of Turkey)(Investment Portal of Turkey)

www.hazine.gov.trwww.hazine.gov.tr/iro.htm (Investor Relations Office)/iro.htm (Investor Relations Office)

www.tcmb.gov.tr www.tcmb.gov.tr (Central Bank) (Central Bank)

www.maliye.gov.tr www.maliye.gov.tr (Ministry of Finance) (Ministry of Finance)

www.dpt.gov.tr www.dpt.gov.tr (State Planning Organization) (State Planning Organization)

www.tuik.gov.tr www.tuik.gov.tr (Turkish Statistical Institute) (Turkish Statistical Institute)

www.bddk.org.tr www.bddk.org.tr (Banking Regulation and Supervision Agency) (Banking Regulation and Supervision Agency)

www.foreigntrade.gov.tr www.foreigntrade.gov.tr (Undersecretariat of Foreign Trade) (Undersecretariat of Foreign Trade)

www.spk.gov.tr www.spk.gov.tr (Capital Markets Board) (Capital Markets Board)

www.ise.org www.ise.org (Istanbul Stock Exchange) (Istanbul Stock Exchange)

investment & trade potential of turkey “ investment opportunities”

Documents

financial system

financial stability

financial markets

financial burdens

global financial crisisto

economic landscape

new investment scheme

establisheda new