Transcript BUSINESS ENVIRONMENT IN TURKEY İbrahim H. ÇANAKCI Undersecretary of Treasury

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BUSINESS ENVIRONMENT
IN TURKEY
İbrahim H. ÇANAKCI
Undersecretary of Treasury
Knowledge Economy Forum IV
Istanbul
March 22, 2005
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CONTENT
 TURKEY’S POTENTIALS AND KEY CHALLENGES
 POLICY ACTIONS TO MEET THE CHALLENGES
 GAINING GROUND & PROSPECTS
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TURKEY’S POTENTIAL AND KEY CHALLENGES
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Turkey’s Potential
Demographic Profile
Economic Profile
GDP Per Capita
US $
7.400
Japan
(PPP)
7,213
6,937
7.000
6.600
Europe EMU
6.200
5.800
Turkey
5.400
0%
0-14
20%
40%
60%
80%
14-60
Increasingly Open Economy
100%
60+
5.000
1999
2000
2001
2002
2003
2004E
Capital Market Integration
RANKING






TURKEY
USA
ITALY
BRAZIL
POLAND
RUSSIA



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
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9
17
26
39
42
71
SCALE 1-7
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


6.8
6.7
6.5
6.3
6.2
5.1
Turkey’s Trade Potential
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RUSSIAN FEDERATION
GDP
433 billion USD
EUROPE
GDP
11,717 billion USD
Population
144 million
Population
576 million
CENTRAL ASIAN AND
CAUCASIAN COUNTRIES
GDP
44 billion USD
MIDDLE EAST AND NORTH AFRICA
GDP
690 billion USD
Population
247 million
Population
37 million
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Despite this huge potential, an underperforming
economy in 1990s...
During 1990s......
 Turkish economy was characterized by:
 Boom and bust cycles in growth
 High and chronic inflation
 High public sector deficit
 Turkish politics was charaterized by frequent elections
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Foreign Direct Investment in Turkey
Annual FDI Inflow (1980 – 2002)
(US$ million)
6.000
5.000
4.000
3.000
2.000
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
0
1980
1.000
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Key Challenges
 Fully Utilize Turkey’s Potential For Sustainable High Growth
 Enhance Competitiveness Of Turkish Economy In The Global
Markets
 Increase Investment And Bring FDI Inflows To The Level Of Peer
Countries
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POLICY ACTIONS TO MEET THE CHALLENGES
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TURKEY’S PROGRAM FOR CREATING AN ENVIRONMENT MORE
CONDUCIVE TO BUSINESS
 RESTORING MACROECONOMIC STABILITY
 IMPLEMENTATION OF WIDE RANGE OF STRUCTURAL
REFORMS
 REMOVING ADMINISTRATIVE BARRIERS AND REDUCING RED
TAPE
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Macroeconomic Stability
Single-Digit Inflation
Strong Growth Path
10
8
6
4
2
0
CPI (%)
GNP Growth
(%)
80
8,4
5,9
70,4
60
5
40
2,8
18,4
20
2003
2004E
2005P
1993-2002
Average
2003
2004
2005
Program
Avr.
Strong Reserve Position
Declining Debt
Central Bank Gross Reserves
39,4100
Net Public Debt Stock / GNP (%)
91,0
90
(bn $)
33
78,7
80
28
70,5
70
23
18
60
13
50
J F M AM J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M
02
8,0
0
1993-2002
38
9,3
03
04
05
57,5
64*
40
2000
2001
2002
2003
2004
(*) Estimate
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Structural Reforms So Far...
Public Sector Reform
 Rationalizing Public Sector Budget &
 Financial Management and Control Law
 Public Procurement Law
 Rationalizing Public Sector Employment
Investment
 Code of Ethical Conduct for Civil Servants
 Law on Freedom of Information for Citizens
Financial Sector Reform
 Banking Regulation and
Supervision in line with EU
Standards
 Strengthening the Private Banks
• CAR-Capital Adequacy RatioImprovement
• Vulnerabilities Reduced
• Consolidation Encouraged
 State Bank Reform
 Financial
Restructuring
 Operational
Restructuring
 Preparation for
Privatization
 Improving the Resolution of
Non-Viable Banks
 Strengthened Institutional
Capacity for Resolution
 Accelerated Resolution of
Intervened Banks
 Faster Recovery of Assets
Enhancing the Role of Private Sector
 Opening the Key Markets to Competition and
Regulation by Independent Agencies
 Energy Market
 Tobacco Market
 Telecommunication Market
 Sugar Market
 Boost to Privatization
 TUPRAS (Petroleum Company)
 Several Small Companies and Assets
 TEKEL (Monopoly of Alcoholic Beverages)
 THY (Turkish Airlines)
 Reduced Administrative Barriers & Red Tape
Key Features of Turkey’s Reform Program to Remove
Administrative Barriers and Red Tape
 Strategy Based on Full Screening & Problem
Diagnosis
 Strong Public and Private Sector Collaboration
 Pursuing Pragmatic & Solution-oriented Policies
 Relying on International Experience & Perspective
 Strong Political Ownership to Coordinate These
Efforts under a Functioning Institutional Framework
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Institutional Framework For Investment Environment
Coordination Council for
Improvement of Investment
Environment (YOİKK)
IAC
Technical Working Groups
Location of
Investment
Company
Establishment
Customs and
Standards
Licensing
Taxes and
Incentives
Investment
Promotion
Employment
Intellectual Property
Rights
Foreign Direct
Investment
Legislation
SMEs
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Major Achievements to Improve Investment Environment
New FDI Regime

No Approval Requirement

No Minimum Capital Requirement

National Treatment

Guarantee to Transfer Proceeds

Key Expatriate Personnel

Protection Against Expropriation

Access to Real Estate

International Dispute Settlement
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Major Achievements to Improve Investment Environment
New Procedures for Setting up
Business:
Simplified and Streamlined
Notarize the Articles of
Association
Achievement has been registered internationally
Starting a Business Indicators
Turkey
Pay the Registration Fee
Fill the Company
Establishment Form
and
Register with Trade
Registry
START BUSINESS
Before the
Reform
OECD
Average
After the
Reform
Number of
procedures
13
8
6
Time (days)
38
9
25
Source: World Bank, Doing Business in 2004 AND
2005
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Major Achievements to Improve Investment Environment
Progress on the recommendations of IAC
Remove red tape and bureaucracy, with a focus on procedures at the
sectoral level...
Progress in streamlining procedures for the mining and petroleum sector
Time required to obtain Environmental Impact Assessment brought down
Draft Law to create “one-stop-shop” at provincial level prepared
 Inspections and permissions related agro-sector simplified
Improve implementation of laws and dispute resolution mechanisms…
A new Commercial Code being drafted
Priorities of Corporate Law, Intellectual Property Rights, Industry Property
Rights specified in National Program
National Justice Network Project aiming at electronic connection of
service units
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Major Achievements to Improve Investment Environment
Other
Initiatives...
Progress
on the recommendations of IAC
 Develop a corporate tax regime and incentive structure comparable to those
of competitor countries...
Tax reform underway to fight informal economy and to bring a predictable
taxation system
New provisions in the Corporate Tax Law reduce the tax burden
Scope of Corporate tax exceptions expanded

Increase efficiency of customs; particularly import procedures and licensing
Technological infrastructure of Customs improved
Comprehensive Amendment on the Customs Code drafted
 Significant improvements in reducing cargo dwell times and transaction costs
The automated BILGE system improved
 Improvement in Risk Analyses System
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Major Achievements to Improve Investment Environment
Other
Initiatives...
Progress
on the recommendations of IAC

Create an investment promotion capacity
Capacity improvement of General Directorate of Foreign Investment

Improve infrastructure
Priority infrastructure needs identified

Invest in education and training
Share of education expenses in the budget increased

Secure the availability of land for investment
Land allocation to the investment sites improved
Legislation amended to increase the effectiveness of the Industry Zones

Protect intellectual property rights more effectively
Measures taken to protect the intellectual property rights
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Major Achievements to Improve Investment Environment
Other
Initiatives...
Progress
on the recommendations of IAC

Strengthen research and development base of country
To encourage R&D, expenses to be deducted from the tax base
 Incentives to operate in the Technology Development zones increased

Harmonize standards and regulations with the European Union
Standards prepared by State Institute of Standards harmonized with EU

Strengthen the role of SMEs in the economy
 SME access to finance improved
KOSGEB (Small and Medium Industry Development Organization)
restructured

Accelerate the privatization program
 Tenders planned for the first half of 2004 realized
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GAINING GROUND AND PROSPECTS
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Robust Private Sector Activities
Sources of Growth
Productivity in Private Sector Man. Industry
160
15
150
5,8
13,4
140
10,1
5
4,5
0
130
120
-7,5
-5
Index
7,9
10
110
-10
Priv. Inv.
Priv. Cons.
Other
GDP Growth
Productivity
FDI Inflows (Million $)
2.568
9.605
9000
1.694
6.275
6000
1.046
1000
3000
0
0
Net
2003
2004
2002
2004
2004Q4
2004Q3
cumulative
12000
3000
1992-2002
2004Q2
Long-Term Trend
Number of Foriegn Participated Firms
FDI Performance
2000
2004Q1
2003Q4
2003Q3
2003Q2
2003Q1
2004-Q3
2002Q4
2004-Q2
2002Q3
2004-Q1
2002Q2
2003
2002Q1
2002
2001Q4
2001
2001Q3
-15
2001Q2
2001Q1
100
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New Medium-Term Economic Program
Key Features




Strong Ownership
Social Consensus
EU Convergence (EU Pre-accession Economic Program)
Basis for a New Stand-By Arrangement
Macroeconomic Objectives



Sustainable High Growth
Price Stability and Single Digit Inflation
Debt Reduction
Macroeconomic Policies



Continuation of Prudent Fiscal Policies
A Monetary Framework focused on Price Stability
Floating FX regime
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New Medium Term Macroeconomic Framework
2005
2006
2007
Growth (%)
5
5
5
Inflation (CPI %)
8
5
4
4.4
2.1
0.5
75.3
72.2
68.3
General Gov’t Deficit (% of GDP)
General Gov’t Gross Debt (% of GDP)
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Structural Reform Agenda
Creating a Self Sustaining
Social Security System
 Unification
institutions
of
three
Reforming the Tax System
social
security
Establishment
of
universal
health
insurance with a view to minimize cost to
government
Transfer of social assistance functions to
one institution
regulatory
and
supervisory
A new road-map for restructuring
privatization of state banks
Simplification and streamlining of the tax
system
Rationalization of financial transaction taxes
Further Developing the Infrastructure For A
Competitive Market Economy
Strong Financial Sector: Engine of Growth
Improved
framework
Tax administration reform to combat the
informal economy and to improve compliance
and efficiency of tax collection
and
A strengthened institutional capacity and a
new strategy for asset resolution
Transfer of non-bank financial institutions to
the BRSA
Competitive Real Sector
Competitive Financial Sector
Privatization of Major Companies
Continue to Enhance
Friendly Environment
the
Business
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Ongoing Initiatives and Forthcoming Events
 E-transformation Turkey Project
 Investment Climate Assessment Survey
 Second Investment Advisory Council Meeting