Saudi-Turkey Saudi-Turkey Economic RelationsEconomic Relations

Abdulkareem Abu al Nasr

CEO

27April, 2011

0

100

200

300

400

500

600

700

800

2003 2004 2005 2006 2007 2008 2009 2010-6.0%

-4.0%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

Turkey GDP (USD bn) Real GDP grow th (%)

0

100

200

300

400

500

600

2003 2004 2005 2006 2007 2008 2009 20100.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Saudi Arabia GDP (USD bn) Real GDP grow th (%)

2

Saudi Arabia and Turkey, the two Saudi Arabia and Turkey, the two emerging giantsemerging giants

The Saudi and the Turkish economies, both members of the all important G20, have grown rapidly in recent years emerging as two of the largest economies in the Middle East and West Asia region

These two economies were resilient during the global financial turmoil and bounced back to the pre-crisis level growth rates, thanks largely due to prudent fiscal and monetary policy measures

Apart from their cultural, historic and religious ties, Saudi Arabia and Turkey have many other similarities as two of the most important and dynamic emerging economies in the world

Both Saudi Arabia and Turkey have a large population base and one of the highest growth rates in their population in recent years

Saudi Arabia real GDP growth Turkey real GDP growth

Source: IMF World Economic Outlook

Set to grow further in the coming Set to grow further in the coming yearsyears

The Saudi economy with an estimated GDP of USD434 billion is the 23 rd largest economy in the world while the USD729 billion Turkish economy is the 17th largest, as of 2010

These two economies are set for higher growth in the coming years with Saudi Arabia emerging as the 19 th largest economy in the world by 2015

Given their increasing economic might and geo-political standing, both Saudi Arabia and Turkey are likely to emerge amongst the most important players in the global landscape in the next decade

Saudi Arabia & Turkey current standing (2010) Saudi Arabia & Turkey projected standing (2015)

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

16,000

US

Chi

na

Japa

n

Ger

man

y

Fran

ce UK

Italy

Braz

il

Can

ada

Rus

sia

Indi

a

Spai

n

Aust

ralia

Mex

ico

Kore

a

Net

herla

nds

Turk

ey

Indo

nesi

a

Switz

erla

nd

Bel

gium

Swed

en

Pola

nd

Saud

i Ara

bia

The Turkish economy is currently the 17th largest in the world while the Saudi economy is 23rd in world ranking

0

2,0004,000

6,000

8,00010,000

12,000

14,000

16,00018,000

20,000

US

Chi

na

Japa

n

Ger

man

y

Fran

ce UK

Braz

il

Rus

sia

Indi

a

Italy

Can

ada

Spai

n

Aust

ralia

Kor

ea

Mex

ico

Indo

nesi

a

Turk

ey

Net

herla

nds

Saud

i Ara

bia

Taiw

an

By 2015, the Turkish economy would be over USD1trn and remain the 17th largest while the Saudi economy at USD656bn would be the 19th largest in the world

Source: IMF World Economic Outlook

0-14 years27%

>65 years6%

15-64 years67%

15-64 years64%

>65 years3%

0-14 years33%

Favorable demographic profile

Saudi Arabia demographic profile

Turkey demographic profile

4

The attractive future prospects of both economies are underpinned by their favorable demographics, with nearly two-thirds of population below 30 years of age

While nearly 64% of the total population falls in the working age group of 15-64 years in Saudi Arabia, nearly 67% of Turkey’s total population falls in the same age group

33% of population is below 14 years of age in Saudi Arabia while the number for Turkey is 27%

This indicates that these two countries would be in an enviable to sustain the demographic profile with more people coming into the working age population in the coming years

Unlike the West, the low dependency ratio (population above 65 years) will also ensure that government finances are not burdened with pension costs and other social sector entitlements

Source: UN Population Division, World Bank

0%

10%

20%

30%

40%

50%

60%

70%

80%

2003 2004 2005 2006 2007 2008 2009 2010-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

Government debt (% of GDP) Current account balance (% of GDP)

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

2003 2004 2005 2006 2007 2008 2009 20100.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

Government debt (% of GDP) Current account balance (% of GDP)

Strong government finances

Saudi Arabia government debt & current account balance

Turkey government debt & current account balance

5

One of the defining characteristics of both these economies is that they have strong government finances with public debt at significantly low levels

Robust economic growth on the back of higher oil prices and petrodollar inflow allowed Saudi Arabia to reduce government debt from over 80% of GDP in 2003 to around 15% in 2010

At the same time, the country enjoyed high surpluses on its current account with the balance reaching as high as 30% of GDP in 2008

The Turkish government has reduced its debt burden from around 68% of GDP in 2003 to nearly 45% of GDP in 2010

External deficits remain a weakness for Turkey

Turkey’s current account deficit deteriorated to nearly 6.6% of GDP in 2010 from around 2.0% in 2009; the negative trend is set to continue

Source: IMF World Economic Outlook

0

5

10

15

20

25

30

35

40

45

2003 2004 2005 2006 2007 2008 2009

Saudi Arabia Turkey

Increasing foreign direct investments

6

Source: UNCTAD

Foreign direct investments (USD billion) Increasing privatization following greater liberalization initiatives and economic reforms has led to an increase in the FDI inflows in both Saudi Arabia and Turkey

Saudi Arabia was the largest recipient of FDI in the entire Middle East region in 2009 with inflows topping USD35 billion

Turkey too has seen an increase in foreign direct investments in recent years with inflows peaking at over USD22 billion in 2007

Both Saudi Arabia and Turkey with their favorable macro fundamentals have become a hotspot for foreign investors in recent years

The foreign direct investments in both these countries has increased significantly with total investments reaching USD129.4 billion in Saudi Arabia and USD86.9 billion in Turkey, in the 2000-09 period

0

50

100

150

200

250

300

350

2003 2004 2005 2006 2007 2008 2009

Exports (USD bn) Imports (USD bn)

0

50

100

150

200

250

2003 2004 2005 2006 2007 2008 2009 2010

Exports (USD bn) Imports (USD bn)

Booming external sectors

7

Saudi Arabia as well as Turkey have seen robust jump in their external sector activity in recent years, with both exports and imports growing at double-digit pace

Saudi Arabia’s exports peaked at over USD300 billion in 2008 on the back of significant increase in oil prices while Turkey’s exports peaked at over USD132 billion in the same year, driven by higher agriculture, consumer electronics and textiles exports

However, Turkey being a net importer of energy has seen its external account deteriorating significantly with the trade deficit increasing to USD71.5 billion in 2010 from around USD22.1 billion in 2003

Saudi Arabia exports and imports (USD billion) Turkey exports and imports (USD billion)

Source: SAMA, Turkstat, IMF World Economic Outlook

Saudi-Turkey partnership entering a Saudi-Turkey partnership entering a new levelnew level

Indicating growing political rapprochement, King Abdullah became the first Saudi King to visit Turkey in over four decades in August 2006, to forge stronger socio economic ties between the two nations

In January 2010, the Turkish Prime Minster Recep Tayyip Erdoğan reciprocated with a similar visit to Saudi Arabia

Joint effort from both countriesJoint effort from both countries

1974Trade agreementEconomic and technical cooperation agreement

2007Agreement on Avoidance of Double Taxation

2006International highway transport agreementAgreement on Reciprocal Promotion and Protection of InvestmentsAgreement on Cooperation in the Field of HealthAgreement on Cooperation in the Field of Tourism

1986Agreement on coordination of highway transport and regulationAgreement on regulated maritime transport management

2008KEK IX. Term Protocol

Major ‘milestone’ changes in the Saudi Arabia-Turkey economic partnership

Increasing trade between the two

10

Bilateral commercial exchange reached a total of USD5.5 billion in 2008, up from around USD1.3 billion in 2002

Saudi Arabia is Turkey’s most important trade partner in the GCC. Saudi Arabia accounted for some 76% of the total GCC exports to Turkey during the five years up to 2009

In the course of 2000-2009, Saudi imports from Turkey grew at a CAGR of 16% to USD1.8 billion, while the exports grew at a CAGR of 6% to USD1.7 billion

Source: Turkstat, IMF, NCB estimates

Year Trade Balance (USD Million)Value (USD Million) Change (%) Value (USD Million) Change (%)

2000 386.55 -35.27% 961.68 161.91% 575.132001 500.64 29.51% 729.64 -24.13% 229.002002 547.32 9.32% 788.00 8.00% 240.682003 741.47 35.47% 969.13 22.99% 227.652004 768.52 3.65% 1231.51 27.07% 462.992005 962.16 25.20% 1888.78 53.37% 926.632006 983.23 2.19% 2252.14 19.24% 1268.912007 1486.92 51.23% 2439.99 8.34% 953.072008 2201.88 48.08% 3322.39 36.16% 1120.512009 1771.18 -19.56% 1691.95 -49.07% -79.23

Cumulative 10349.87 16275.22 5925.35Yealy Average 1034.99 1627.52 592.53

Saudi Imports from Saudi Exports to Saudi Arabia Trade balance with Turkey

-

500

1,000

1,500

2,000

2,500

3,000

3,500

2003 2004 2005 2006 2007 2008 2009

Agriculture, Forestry and Fishing Mining and Quarrying Manufacturing

-

500

1,000

1,500

2,000

2,500

2003 2004 2005 2006 2007 2008 2009

Agriculture, Forestry and Fishing Mining and Quarrying Manufacturing

Oil dominates the trade equationOil dominates the trade equation

Turkey’s exports to Saudi Arabia (USD million)

Turkey’s imports from Saudi Arabia (USD million)

The trade between Saudi Arabia and Turkey is dominated by oil with the commodity accounting for over half of Turkey’s total imports from Saudi Arabia

Turkey accounts for nearly 2.1% of Saudi Arabia’s total imports and 1.0% of total exports

On the other hand, being a dominant player in the agricultural space, Turkey exports many foodstuff and agricultural commodities to Saudi Arabia apart from industrial and manufactured goods

Agriculture and manufacturing offers Agriculture and manufacturing offers greater scope for partnershipgreater scope for partnership

In the agriculture space, Turkey has emerged as one of the top recipients of Saudi investment as the Kingdom seeks to boost its food security

Turkey’s status as an agricultural powerhouse – an economy where agriculture still accounts for nearly 10% of GDP and almost a third of employment – allowed the country to increase its agricultural exports to Saudi Arabia from USD90mn in 2008 to USD144mn in 2009

Private Saudi firm Planet Food World Company (PFWC) will invest around USD3 billion in Turkey’s agriculture sector over the next five years to export food products to the Gulf region

Manufacturing constitutes the core of Saudi-Turkish bilateral commerce. 88% of Turkish exports to Saudi Arabia consist of manufacturing goods, while Turkey largely depends on Saudi Arabia for its crude needs

The opportunity for Turkish automotive firms to invest in the Saudi bus and truck manufacturing industry has been widely recognized. The machine manufacturing industry and the mining sector are other areas with high potential for growth

With Saudi Arabia’s construction and infrastructure sector pipeline well over USD730 billion (MEED), Turkey’s construction and engineering firms have a large potential market to target

Going forward, Saudi Arabia has outlined its plans of taking up investment projects worth USD600 billion in the next 20 years in Turkey

Banking emerging as new area for closer tiesBanking emerging as new area for closer ties

Thank you