Turkish-Arab Capital Markets ForumSeptember 20, 2013

Mehmet Şimşek Minister of Finance

2

Main Messages

Turkey• A decade of transformation• Strong medium and long-term outlook

Region• Offering vast opportunities• Growing links with Turkey

3

Turkey: A Decade of Transformation

Political Stability

4

Average Lifetime of Governements during 1950-2002 AK Party Governments Since 2002 0

20

40

60

80

100

120

140

15 Months

131 Months

1923-2002

Average Lifetime of

Governments: 17 months

2002-12

Political Stability

2023 Targets

Rapidly Growing Economy

1993-2002 2003-122.5

3

3.5

4

4.5

5

5.5

3.1

5.1

Growth

Source: TURKSTAT5

(%)

Real Convergence with Advanced EconomiesIn

com

e Pe

r Cap

ita (P

PP, %

)

Source: IMF, OECD, TURKSTAT6

2002 201220

25

30

35

40

45

50

55

60

23.4

36.436.9

56.8

Turkey / USA

Turkey /European Union

7

Low Deficit

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015-2.0

0.0

2.0

4.0

6.0

8.0

10.0

12.010.8

7.9

4.1

0.1

-1.3

0.2

1.6

5.5

3.0

0.41.0 1.4 1.2 0.9

Maastricht Criteria: 3%

Medium-Term Program (2013-15)

Achieved Maastricht Criteria except 2009

Source: Ministry of Development

Budg

et D

efici

t-to

-GDP

, %

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 201530

35

40

45

50

55

60

65

70

75 74.0

67.7

59.6

52.7

46.5

39.9 40.0

46.1

42.3

39.136.2

35.033.0

31.0

Medium-Term Program (2013-15)

Lower Public DebtDe

bt-to

-GDP

, %

Satisfying Maastricht Criteria since 2004

Maastricht Criteria: 60%

Source: Treasury 8

9

107,2

125,5

99,1

6,2

0

20

40

60

80

100

120

140

1980

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

Declining Inflation Rate (y/y, %)

Source: TURKSTAT

Lowest rate for the past 44 years

2023 target low single-digits

Well-Capitalized Banking SectorCa

pita

l Ade

quac

y Ra

tio, %

Target Rate 12%

Legal Rate 8%

Source: BRSA

Capital adequacy ratio twice the minimum legal limit of 8%.

2003

-1 4 7 1020

04-1 4 7 10

2005

-1 4 7 1020

06-1 4 7 10

2007

-1 4 7 1020

08-1 4 7 10

2009

-1 4 7 1020

10-1 4 7 10

2011

-1 4 7 1020

12-1 4 7 10

2013

-1 4 7

0

5

10

15

20

25

30

35

15.9

10

Low Household Leverage

Source: CBRT, ECB

(Hou

seho

ld L

iabi

lities

, % o

f GDP

, 20

12)

11

DenmarkNetherlands

IrelandUnited Kingdom

PortugalSweden

SpainEuro area

FinlandGreece

MaltaGermany

FranceBelgium

LuxembourgAustria

ItalyEstoniaPolandLatvia

Czech RepublicHungarySloveniaSlovakia

LithuaniaTURKEY

0 20 40 60 80 100 120 140 160

65.5

21.2

Turkish HHs do not have FX exposure

Moderate Corporate Leverage

12

LuxembourgSpain

PortugalNetherlands

IrelandDenmark

ItalySlovenia

AustriaSwedenGreeceFrance

TURKEYLatvia

EstoniaGermany

FinlandAverageBelgium

United KingdomHungary

LithuaniaSlovakia

Czech RepublicPoland

0 20 40 60 80 100 120

39.2

34.1

(Cor

pora

te li

abili

ties,

%, G

DP)

Source: CBRT, Cetinkaya, March 2013, BRSA

13

Turkey: Strong Medium and Long-Term Outlook

GDP

Source: TURKSTAT, Medium-Term Program,PwC

2002

2050

2002$ 230 billion

2050$ 5 trillion

2012$ 786 billion

2023$ 2 trillion

3.5 times

2.5 times

2.5 times

14

GDP per Capita

Source: TURKSTAT, Medium-Term Program,PwC

2002

2050

2002$ 3,492

2012 $10,497

2023 $ 25,000

2050$ 50,000

3.1 times

2.3 times

2 times

15

Ambitious Targets

Source: IMF, PricewaterhouseCoopers

1. USA2. China3. India4. Japan5. Germany6. Russia

8. UK7. Brazil

9. France10. Italy11. Mexico12. South Korea13. Canada14. Spain15. Indonesia16. TURKEY17. Iran18. Australia19. Saudi Arabia20. Taiwan

2012 (GDP-PPP) TargetTop 10

in the World

Top 3 in Europe

6th in Europe

16th in the World

16

17

Determinants of Long-Term Growth

Quality of Institutions

DemographicsProductivity

18

Improving Quality of InstitutionsDoing Business

Corruption Perception Index

Global Competitiveness IndexHuman Development Index

OECD-FDI Regulatory Restrictiveness Index

Past Present

2023

Source: WB, WEF, Transparency International, OECD

19

Priorities & A Strong Reform Agenda

Enhancing Competition

Deepening Capital Markets Education

Improving Labor Market Flexibility

Local & Renewable EnergyInfrastructure

Combatting Shadow Economy

Moving up the Value-Chain

Narrowing Regional

Development Gaps

20

Favorable Demographics

Source: Eurostat

Shar

e of

15-

24 y

ears

old

in To

tal P

op. (

%)

AndorraItaly

GreeceSpain

PortugalGermanySlovenia

IrelandBulgaria

LuxembourgSwitzerland

CroatiaCzech Republic

AustriaLiechtenstein

SerbiaHungary

NetherlandsFinlandFrance

DenmarkUnited Kingdom

NorwaySwedenEstoniaUkraine

MaltaPoland

LatviaSlovakia

MontenegroLithuania

Iceland Macedonia

GeorgiaTurkey

MoldovaAzerbaijan

7 9 11 13 15 17 19 21

16.8

21

Region

Region: Offering Vast Opportunities

Offers vast opportunities

Geography

Demographics

Growth Opportunities

23

Blessed Geography

• Many nations are blessed with significant natural resources

• Majority of the land is arid/ semi-arid

24

MENA: Demographics

Source: IMF, 2012

MENA: 389.3 million people

MENA + Turkey: 464.9 million people

Extremely favorable demographics

Turkey: 50%

Young population is under a fifth of the EU population*

* Source: Eurostat, 2007 census

26

MENA: A Sizeable Market

Yemen $58

Source: IMF, 2012

MENA: $2,954 bn

MENA + Turkey: $3,740 bn

27

With Strong Growth ProspectsM

ENA

GDP

(Cur

rent

Pric

es, $

Tn)

2002 2012 2013 2014 2015 2016 20170.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

0.8

3.03.1

3.23.4

3.63.8

Nea

rly 4

tim

es

Projections

Source: IMF, 2012

28

Supported by Huge Investment Projects

$4.3 trillion construction projects

by 2020.

$250bn power sector in the next 5

Source: 11th Power-Gen Middle East Conference, Mena Economic Forum Feb 2013

But Regional Integration is Limited…

Regional Integration should Grow and the Region Should Prosper

30

MENA Trade: Exports are Sizeable, but…

Total Exports of MENA: $1,491 bn

Total Imports of MENA: $877 bn

Source: WTO, 2012

31

Openness

Total Trade Excluding Oil Excluding Natural Resources

MENA (%, GDP) 47% 12% 8%

WORLD (%, GDP) 22% 19% 18%

Source: Behar, A. and C. Freund, 2011, The Trade Performance of the Middle East and North Africa

32

Growing Links with Turkey

33Source: TURKSTAT

Trade Links are growing b/w Turkey & MENA

2002 July 20138

13

18

23

28

12.1

29.5

Shar

e of

MEN

A in

Tur

kish

Exp

orts

(%)

Turkey’s Total Exports to MENA: $45.4 bn

Turkey’s Total Imports from MENA: $24.9 bn

But Investments are still limited

Investments: Growing, but could be much larger

Turkey

34Source: CBRT

2002-12 Turkey FDI Flows:

Inflows: $8.3bn3.2% of MENA Outflows

Outflows: $1.1 bn0.2% of MENA Inflows

35

Turkey & MENA: Complementary Regions

Turkey: Water rich

Turkey: Hydrocarbon poor

MENA: Hydrocarbon rich

MENA: Scarcity of water

MENA: Large Surpluses Turkey: A Large

External Deficit

36

Growth Opportunities

Tourism

Construction

Agriculture

Transportation

Energy

37

(Mill

ion

peop

le)

2002 20125

10

15

20

25

30

35

13.2

31.8

Tourism

Agriculture Sector in Turkey

Source: World Bank, Ministry of Agriculture

In 2002 $24 billion

11th in the world

In 2011 $62 billion

6th in the world

In 2023 $150 billion

Turkey will be in the first five countries

Construction

Source: Global Construction 2020

Urban RenovationNumber of Residences: $ 6.5 mn

Total Cost: $235.8 bn

40

Investment in Transportation

Over the past 10 years, $75 billion invested in transportation

$350 billion investment required for planned projects by 2023

41

Projects of the Century -I

Marmaray Channel Istanbul

Tube Tunnel 3rd Bridge

42

Projects of the Century - II

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

43

Huge Investment Needs in Energy

World energy demand is projected to grow by 40 % until 2030. Turkey’s energy demand is projected to grow by 146 % until 2030.

Source: Ministry of Energy and Natural Resources

Turkey ranks 2nd to China in energy demand growth

44

Thank You!