INVESTMENT & TRADE POTENTIAL OF TURKEY “ INVESTMENT OPPORTUNITIES”

1. INVESTMENT & TRADE POTENTIAL OF TURKEY“INVESTMENT OPPORTUNITIES” İrfan TOKGÖZ Deputy General Director General Directorate of Foreign Investment 12/10/2009 “SALONIKA”

2. Agenda • THE GLOBAL FINANCIAL CRISIS’ EFFECTS TO TURKEY and MEASURES AGAINST CRISIS • TURKEY’S ECONOMIC OUTLOOK • FDI REGULATION AND INDICATORS • THE NEW INCENTIVE SYSTEM IN TURKEY

3. THE GLOBAL FINANCIAL CRISIS’ EFFECTS TO TURKEY and MEASURES AGAINST CRISIS

4. Global Financial Crisis Global financial and economic landscape has been shaken by an unprecedented global crisis Because the roots of the crisis are in financial system and the economies and financial markets are globally integrated, the crisis is widespread and destructive Large financial institutions failed Spreads widened Volatilities increased All asset prices plummeted Devastating effects have beaten the forecasts Derivative market collapsed The crisis adversely affected financing facilities and foreign demand Significant slowdown in the economic activity of developing countries The crisis has posed considerable threats to macroeconomic and financial stability of many emerging economies

5. How Turkey Affected Being an open economy, integrated with the global economic and financial system, Turkey has also suffered from the crisis like other countries. The major effects; • GDP has been declining, it is estimated -6% at the end of 2009. • Unemployment has increased appx. 4 % over last one year period • Declining external demand and decelerating international capital flows. Source: TURKSAT

6. How Turkey Affected Fiscal policies and major structural reforms implemented previously in 2002, have helped to minimize the impact of the crisis. Major structural reforms such as; • increasing the role of private sector in the economy; • Enhancing the efficiency and resiliency of the financial sector; • Social security reform; strengthened our macroeconomic fundamentals. Turkish Banking system weathered the crisis without any need for state intervention and did not change the guarantee scheme; • strong capital base and liquidity adequacy ratios; • effective risk management practices; • Healthy and profitable balance sheet; • Absence of toxic assets

7. Measures Against Global Financial Crisis To stimulate the domestic demand we lowered the VAT and Special Consumption Tax (SCT) on several items including automobiles, white goods and electronic devices. The financial and non financial burdens on employers are reduced and unemployment insurance payments made by government are widened. A new investment scheme is announced (To be discussed later) A new credit guarantee mechanism to support SME’s financing is established A new and comprehensive R&D Law which aims to accelerate both foreign and local R&D investments and to develop a more conductive environment for innovation is adopted. Monetary policies are implemented by Central Bank.

8. TURKEY’S ECONOMIC OUTLOOK

9. Economic Outlook World’s Biggest Economies (GDP based on Purchasing Power Parity, Trillion Dollars, 2009E) 0,87

10. Economic Outlook Favorable Demographics Demographic Profile (2050 Projections) Turkey: Population Prospects (Million People) Source: (*) TURKSTAT (**)UNDP World Population Prospects Source: UN

11. Economic Outlook GDP Growth Rate (Annual Aaverage, %) GDP Growth Rate Targets (%) Source: TURKSTAT, Treasury Source: SPO “Medium Term Programme-2010-2012 ”

12. Economic Outlook Per Capita GDP (USD) Source: TURKSTAT SPO, 2009 Annual Programme

13. Economic Outlook Average Inflation in Periods (%) Source: TURKSTAT, CBRT

14. Economic Outlook Annual Exports (Billion USD) Annual Imports (Billion USD) (*) Annualized as of August 2009 (*) Annualized as of August 2009 Source: TURKSTAT

15. Economic Outlook Increasingly Open Economy (Billion USD) Foreign Trade Volume

16. Economic Outlook Current Account Deficit (Billion $) (*) Annualized as of July. Source: Central Bank of Turkey

17. FDI REGULATION AND INDICATORS

18. FDI FIGURES Inflows USD Billion Source: CBRT, 2009

19. FDI FIGURES Outflows USD Billion

20. FDI FIGURES UNCTAD World Investment Report 2009 • Published in September 2009. • Turkey is ranked 20th in the world, and 9th among the developing countries in terms of annual volume of FDI inflow in 2008. • Relaxed regulatory framework, improved business climate and robust economic growth were stated as the reasons behind the success of Turkey in attracting high amounts of international direct investment.

21. IMPROVEMENT OF BUSINESS ENVIRONMENT • Main Principles of International Direct Investment Regime • No Pre-entry Screening Requirement • No Minimum Capital Requirement • National Treatment • Guarantee to Transfer Proceeds • Key Expatriate Personnel Employment • Protection Against Expropriation • International Dispute Settlement

22. IMPROVEMENT OF BUSINESS ENVIRONMENT • Coordination Council for the Improvement of Investment Climate (YOIKK) • Investment Advisory Council (IAC)

23. IMPROVEMENT OF BUSINESS ENVIRONMENT The Coordination Council for the Improvement of the Investment Environment(YOIKK) • The Reform Program for the Improvement of the Investment Environment for Turkey, aiming to increase international competitiveness of Turkey as an investment location, is implemented and monitored by the Coordination Council for the Improvement of the Investment Environment (YOIKK). • YOIKK serves as an effective and analytic communication and cooperation platform for public and private sector representatives working through 12 Technical Committees. • YOIKK Steering Committee, which was established in 2005, has made 26 meetings so far.

24. IMPROVEMENT OF BUSINESS ENVIRONMENT REFORM ON INVESTMENT ENVIRONMENT & STRUCTURE Coordination Council for the Improvement of Investment Environment (CCIIE) Investment Advisory Council Steering Committee Location of Investment Foreign Trade & Customs Taxes & Incentives Licensing Company Establishment Employment Intellectual Property Rights Foreign Direct Investment Legislation Research & Development Corporate Governance Investment Promotion SMEs

25. IMPROVEMENT OF BUSINESS ENVIRONMENT INVESTMENT 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

26. THE NEW INCENTIVE SYSTEM IN TURKEY

27. The New Incentive Regime Goals ... • To diminish regional development discrepancies • To ensure sectoral clustering • To prioritize economies of scale criterions in investments and to support technology and R&D based large scale investments

28. The New Incentive Regime Incentive Measures • Customs Duty Exemption • VAT Exemption • Reduced Corporate/Income Tax Rate • Support for Employer’s Contribution for Social Security • Interest Rate Support • Land Allocation

29. The New Incentive Regime Incentive Measures 1- Customs Duty ExemptionExemption of Customs Duty for imported machinery and equipment 2- VAT ExemptionVAT exemption for both imported and domestically procured machinery and equipment

30. The New Incentive Regime 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

31. The New Incentive Regime Incentive Measures 4- Support for Employer’s Contribution for Social Security Payment of employer’s share for social security contribution byTreasury 5- Land Allocation For the projects that satisfy certain conditions, free allocation of land

32. The New Incentive Regime Incentive 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

33. The New Incentive Regime The Structure... • Regional System • Large Scale Investments • General System

34. The New Incentive Regime REGIONS GROUPED ACCORDING TO THEIR SOCIO-ECONOMIC DEVELOPMENT RANKING 1st Degree Developed Level 2 Regions 2nd Degree Developed Level 2 Regions 3rd Degree Developed Level 2 Regions 4th Degree Developed Level 2 Regions

35. The New Incentive Regime Regional System • Potentials of the regions • Economies of scale • Positive list approach (like mining, manufacture of food and beverages, paper, machinery etc.)

36. The New Incentive Regime 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

37. The New Incentive Regime

38. The New Incentive Regime Large Scale Investments GOALS: • Improvement of Technology and R&D Capacity • Improvement of Competitiveness

39. The New Incentive Regime Large Scale Investments 1- CHEMICAL PRODUCTS 2- REFINED PETROLEUM PRODUCTS 3- TRANSIT PIPE LINE TRANSPORTATION SERVICES 4- AUTOMOTIVE OEM 5- RAILWAY AND TRAM LOCOMOTIVES AND/OR RAILWAY CARS 6- HARBOURS AND HARBOUR SERVICES 7- ELECTRONICS 8- MEDICAL, HIGH PRECISION AND OPTICAL EQUIPMENT 9- PHARMACEUTICALS 10- AIRCRAFT AND SPACE VEHICLES 11- MACHINERY 12- MINING INVESTMENTS

40. The New Incentive Regime Large Scale 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

41. The New Incentive Regime

42. The New Incentive Regime General System • Customs Duty Exemption • VAT Exemption

43. FDI by Greece Investors • 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 foreign capital is 22.821. • The amount 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 investors. The major operations were in bank acquisitions in 2006-2008 • 43 Incentive certificates have been issued and estimated amount of USD 200 million • The Agreement between Turkey and Greece on the Reciprocal Promotion and Protection of Investments was signed on January 20, 2000 and entered into force on November 24, 2001.

44. Some Useful Websites www.treasury.gov.tr (Undersecretariat of Treasury) www.investinturkey.gov.tr (Investment Portal of Turkey) www.hazine.gov.tr/iro.htm (Investor Relations Office) www.tcmb.gov.tr  (Central Bank) www.maliye.gov.tr  (Ministry of Finance) www.dpt.gov.tr  (State Planning Organization) www.tuik.gov.tr  (Turkish Statistical Institute) www.bddk.org.tr  (Banking Regulation and Supervision Agency) www.foreigntrade.gov.tr  (Undersecretariat of Foreign Trade) www.spk.gov.tr  (Capital Markets Board) www.ise.org  (Istanbul Stock Exchange)