Moderator: Linda Abbruzzese

May 27, 2009

10:00 am CT

Coordinator: Good morning and thank you for standing by. At this time all participants are in a listen only mode. After the presentation we will conduct a question and answer session. To ask questions press star 1 and record your name.

Today’s conference is being recorded. If you have any objections you may disconnect at this time. I would like to introduce your host for today’s conference, Ms. Linda Abbruzzese. You may begin.

Linda Abbruzzese: Thank you and good morning for those of you joining on the east and west coasts. Thank you very much for joining us for Webinar on the market opportunities in Turkey.

I am Linda Abbruzzese, International Trade Specialist for the Marketing and Communications Office for the U.S. Commercial Service at the Department of Commerce.

This Webinar is being brought to you in cooperation by the U.S. and Foreign Commercial Service. In this Webinar you will get an overview of business opportunities for US companies in Turkey discussing the country’s business climate, recent economic development and sectors that are best positioned to withstand this current global economic situation.

In a moment I will turn the presentation over to Senior Commercial Counselor James Fluker of the US Commercial Service in Ankara Turkey and also to Principal Commercial Service Officer Gregory Taevs of Istanbul, Turkey. They will be the main speakers of today’s presentation and contact information will be provided at the end of the Webinar.

For those of you who just joined, you can still log on to the Webinar by entering the URL, website and pass code per instructions that were sent to you by email.

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In addition I would also like to let you know this Webinar will be archived and we will have it uploaded on our Web site, and that Web site is www.export.gov. And then if you go into that Web site on the right hand side is a link called View Webinars. And when you click on that link you will be able to then see all the archived Webinars that we have done at the US Commercial Service.

So after today’s presentation we will have this archived and uploaded on that site. Now I would like to introduce, live online Senior Commercial Counselor James Fluker. James, thank you for joining us.

James Fluker: Thank you very much Linda and welcome to all of you who are joining us today for this presentation. I hope you’ll find it useful and as you see, the title is “Market Opportunities in Turkey”, and from our perspective and certainly from the level of interest we’ve been getting from U.S. Companies, which is really increased over the last year, there really are opportunities here despite the downturn.

And we’d like to tell you a little about where those lie and how we can help you take advantage of them.

As Linda also mentioned I’m here with Gregory Taevs, our Principal Commercial Officer in Istanbul and he’ll be speaking a little later.

To start out with you see, for those of you who are on Webinar presentation, the PowerPoint, you see a map of Turkey and its immediate location. Turks are very fond of saying they’re in a bad neighborhood and if you take a look at their neighbors you can see that it is indeed a pretty tough neighbor.

Going around clockwise from the Black Sea, Georgia, Armenia, Azerbaijan, Iran, Iraq, Syria and then on over to Europe where they have Greece and Bulgaria.

The flip side or the advantage of being in this neighborhood is that the Turks have become experts at dealing with their neighbors. And either as representatives for U.S. Companies in this region or as partners, or contractors. They are real pros at going into these markets and beyond into the rest of the Middle East into Central Asia and the former Soviet Union and being successful there.

For Turkey itself, you can try to imagine the country split north to south down the middle. Traditionally Western Turkey has been the power and in fact they still, Western and Eastern Turkey, they still retain very different identities. Eastern Turkey tends to be more Middle Eastern, more like a developing country. The demographics on average are very different. Incomes are lower, families are larger, and life expectancy is lower, much more similar to some of their neighboring countries.

Western Turkey has traditionally had a much higher per capita income and it’s traditionally been where foreign companies came to do business. The interesting thing is that over time, especially over the last five or ten years, there’s been a gradual movement of prosperity and development further eastward.

So while a company traveling to Turkey today still might just go to the main cities of Turkey about which I’ll talk a little more. But increasingly companies will want to go to sort of the second tier cities of Turkey, further in Central Turkey and further to the east. Several of these are the so called Anatolian tigers. Cities like Gaziantep, in the South Central, Trabzon also, Cazare have all developed economies and have much more disposable income and have grown in population significantly.

Let’s talk a little about Turkey’s key cities; again these are the traditional key cities and probably the cities that any business coming to Turkey for the first time would want to visit. Istanbul, of course, I put down a population of 13 million. If you talk to Turks they’ll tell you that probably the population, due to the immigration that’s come in over the last several years, is closer to 15 million or even more than that. Istanbul is known to most business people and certainly tourist and maybe many individuals only stop in Turkey.

It’s as I say the business financial and cultural center. As you can see they handle the lion’s share of the business for the entire country of Turkey. And they have the lion’s share of both industrial production and of representatives, distributors, importers.

However Ankara the national capital has become increasingly important since it was established as the Capital in the 1920s. It’s gone from a very sleepy provincial town to what you see here on the slide in front of you with a population of 4.5 million.

It’s still very much sort of like Washington D.C. to Istanbul’s New York, it tends to be very government centric. However many sectors, business sectors established themselves here because of the heavy government involvement in those sectors such as Defense, Energy, Agriculture, and Agra business. I’d add to that also the Health Sector for example

Finally Izmir, which used to be called Smyrna, before Turkish independence. The third largest city with the country’s second largest port is also extremely important and a major industrial and trading center.

I’ll slip back to the map just to indicate, you can see those are all in the eastern half with Ankara the closest to the center. As I say there’s movement taking place but for the moment a company coming to Turkey, for the most part, would probably look to those three cities first.

Here are a few facts about Turkey, population 74 million and growing steadily. Median age of just under 28, it’s a very, very young population. Increasingly educated, increasingly interested in the comforts of life and new technologies in communications technologies, in telephones, and in all sorts of - whatever you would expect younger people in European countries to be interested in.

Politically, Turkey is a parliamentary democracy and I think it’s very important to point out that it’s a true Democracy and anyone who’s been here to hear the sometimes very passionate debates between various sides within Turkey will know immediately that it really has the vibrancy and open debate of a democratic country.

On the international relations side, Turkey is a charter member of NATO. Turkey became a NATO member in the early years of the cold war when Turkey was viewed as a front line state in the containment of the Soviet Union.

But now it’s equally important as a partner of the U.S. and of the United Nations in Afghanistan of the U.S. in Iraq and elsewhere. Turkey has been a very good partner of the U.S.

And finally with its eye on becoming a full member of the European Union, Turkey has been a member of the EU Customs Union since 1996 which has implications for countries doing business in Europe who are looking at Turkey as a possible additional market or basing themselves in Turkey and looking to export or do business in Europe. And we’ll talk a little more about that later.

Getting to the economic side here are some numbers. As you can per capita income compares favorably with the new EU Accession Countries especially in the Southeast. And as I mentioned earlier, that means that in the west of Turkey that per capita income is much higher, disposable income is much higher and urban concentrations of people are much higher too.

GDP growth rate slowed after real impressive growth for most of this decade to 1.5% last year. Which for those of you looking at world growth figures and growth figures of other countries, is still pretty good.

They have finally come around to admitting we’ll probably see shrinkage. We’ll probably see negative growth for this year. Some people and analysts are suggesting negative 3.4%. Others have suggested more but I think Turkey is in a position to be somewhat cushioned from that GDP shrinkage and will perform pretty well compared to many other countries.

Inflation at the end of 2008 was 10.2% which may sound a little high to some observers. We expect it to go lower this year, but for those of you who may have visited Turkey 10 years ago or even 5 years ago you’ll know that this is a phenomenal improvement.

When I first arrived in Turkey, in Istanbul back in 1997 inflation had just exceeded 100% and it stayed up in mid to high double digits for the entire 4 years I was here. This is an impressive number and one that they’ve been able to maintain for several years now. Low inflation is very important and is a result of many Turkish government economic reforms.

Unemployment is right now up at over 15% which is quite high. Some say 20% in the cities. Again, that puts them at the high end for unemployment but again that’s a number that we feel Turkey will be able to deal with.

All of these numbers and a few other facts suggest to us that Turkey is really well positioned to ride out the economic storm that the world is going through now. I’d point out a couple of additional facts. First of all the banking sector is probably the envy of most European countries.

Banks here went through crises in 2001 that is strangely similar to the financial crises that banks in the rest of the world have been going through in the last year. But what it meant was that the Turkish banking sector had its shake down cruise 8-7 years ago and is now is very good shape has stayed out of many of those financial instruments that have endangered Western, European, Asian, and U.S. banks.

Secondly, the political situation here is extremely stable. The government has been run for most of this decade by a single party. The AK Party without a coalition. They have received enough votes to run it on their own. And again, for those of us who remember old Turkey with coalition governments similar to Italy needed - went through constant changes and internal conflicts.

This stability has meant that economic reforms have been put through and stuck to for many years here. And those reforms are another important factor. They’ve stemmed, I think, mainly from Turkey’s hope of eventual full EU membership. But many people here acknowledge that those reforms and continued process of EU Accession is important to Turkey whether or not it ever becomes a full member of the European Union.

Those factors have meant the growth of business across the board. Economic growth as I mentioned before has been 5% to 8% on average for most of this decade and one of the things that’s helped that growth has been the sudden increase, sharp increase in foreign direct investment.

Turkey before from the early part of this decade and the 30 years before a good year in foreign direct investment meant maybe $1 billion coming in. And then with the reform package that was introduced, foreign investors suddenly found this a much more attractive place to come into.

And as you can see from the graph there the years 2006, ‘07, and ‘08 any one of those far exceeded previous years foreign direct investment and together they represent more investment flowing into Turkey than the previous 30 years combined.

A little about Turkey’s trade picture - Turkey’s major trading partner is Russia. And that’s largely due to Russia being the main supplier of energy of gas and oil to Turkey. Turkey imports, I think, over 90% of its energy needs and Russia is the chief beneficiary of that about 65% of Turkey’s gas comes from Russia.

And then you see a lot of EU Countries on that list too. If you put all the EU together as the slide indicates they’d account for 40% of total Turkish trade. The U.S. has while trade has grown as you’ll see in later slides, as a share total share of total imports and exports the U.S.A. has fallen a few slots. And as of 2008 was in 5th place overall.

In 2008 the U.S. had its best year ever with regard to exports to Turkey. That grew from six point-something billion dollars the previous year. So about 60% plus they grew between 2007 and 2008 to $10.4 billion.

Imports from Turkey have been pretty stagnant at between 4 and $5 billion or so. However, on the exports to Turkey from the U.S. we’ll see as you can imagine a drop in total exports this year. We’ve already seen a sharp drop to numbers similar to previous years.

But I expect to see these numbers recover after 2009. As a matter of fact when President Obama made his recent visit to Turkey and met with President (unintelligible) and the Prime Minister they all agreed that the commercial relationship between the two countries was not at all in sync with the strategic relationship nor with the size and importance of the two economies.

So we’re looking at ways to try to build the commercial relationship as the commercial service we’re especially interested in, of course, U.S. exports to Turkey and also in Turkish investment into the U.S. But we’ll be examining ways to work with the Turkish and with the Turkish private sector to bring companies from the two countries together to do business and we’ll tell you a little about one of the initiatives coming up at the end of this presentation.

Just a quick rundown, I won’t go point-by-point, through currently these are the top U.S. exports to Turkey. Scrap steel and ore are at the top of the list along with civilian aircraft. Turkey’s the second biggest importer of raw cotton after China, because, of course, because of their huge garment and textile industry.

It’s interesting to note there are some things that don’t show up because this is a merchandise list but for instance Turkey is the biggest user in Europe of U.S. higher education. They have 12,000 students studying at U.S. Colleges and Universities in the U.S. in any given year.

And I think that’s hugely important not only in terms of the income that generates for the U.S. and for U.S. Universities but also it means a rapidly growing group of Turks who are familiar with the U.S., comfortable doing business with the U.S., speak English of course and they’ll be sort of at the vanguard increasing our commercial relations.

Outside of the areas on this list the sectors I’d also point out a few others; medical, the medical sector is important, software business, and personal and gaming software is of interest to the Turks, agra business and food processing also is becoming increasingly important.

There’s going to be a back log of major projects that are going to need to be re-initiated or brought back online. We think they’ll be real interest in green building products and in related design and engineering and of course in power generation and environmental technologies.

Again, a list of Turkish exports to the U.S. A lot of that scrap iron and steel as you can see comes back to the U.S. in the form of semi-finished iron and steel products; Iron and steel fittings, and tubes and rod. You can also see that from some of these major sectors that they’d be badly affected by the U.S. housing and general construction downturn. For instance Turkey is the largest supplier of stone, marble, and other masonry, construction related masonry. And to the tune of I think about half a billion dollars the year before last but this has fallen very sharply. Again, as the world economy recovers we expect to see those exports to the U.S. recover too.

A little about various aspects of doing business in Turkey - Companies that are already doing business with the European Union will find that Turkey has been initiating many of the EU directives.

They will not be subject to duties when moving products into Turkey that have already entered the EU and other countries. So this implementation of EU directives on the road to full EU Accession means that Turkey for commercial purposes is not quite completely, there are some differences, but in very many ways a natural partner for businesses based in the EU.

For instance the Turks require the CE mark on the items that Europe requires the CE mark also. If you’ve already got your CE mark and you’re exporting to the EU it makes exporting to Turkey much easier.

I’ve mentioned the strategic location for regional markets and also the value of Turkish partners in terms of their understanding of doing business in the surrounding regions. And also of their willingness to take risks to go into those markets.

Extremely active in Iraq, they’re willing to take chances and go into those markets where companies from other countries might not necessarily do so.

I talked a little about the educated work force and young population. Turkey also is working hard on making this a more attractive environment particularly for investors but for any company looking to do business here.

Not just in terms of ownership but in terms of the legal environment. Companies still tell us that bureaucracy is oppressive and that the legal system is not 100% predictable or reliable, decisions can take a long time. But nevertheless we see Turkey moving its legal system in the direction of becoming modernized and more effective.

If you’re interested in doing business in Turkey many of the points on this slide will not come as surprises to you. They’re shared with any market you’ll go into. But certain factors in Turkey make it important for you to know your risks and know your partners as well as you can.

Information on Turkish buyers and other perspective partners is not necessarily as easily available as it is in Western Europe or in the U.S. But there are various avenues to do your research on your market and your due diligence.

I just mentioned that the commercial service, in fact, offers fee-based services to perform research for you and also due diligence project called International Company Profile if you’re interested in investing in the background of a buyer or prospective partner.

Know and mitigate to the extent possible the risks here. I would link this to the last point on the slide about identifying financing options. The U.S. export, import bank is extremely active in Turkey. It’s one of their top markets for exposure. They’re always looking for new business here they’re open for all kinds of products as is the U.S. governments Oversees Private Investment Corporation which will insure investments here that have U.S. equity in them.

You would want to look to both those organizations and perhaps other U.S. government agencies when looking for ways to mitigate risks. As well as looking to private banks that either work with XM bank or will provide coverage of some kind on their own.

Using due diligence and our research products and those of private companies that also offer them you can also identify experienced professional assistance. All the major accounting firms are here. Several U.S. banks are here.

You can, if you’re already doing business with them in the U.S. you can find them here too to assist you for your financial requirements. Human Resources firms are here. There’s a real large selection of business service companies that you can come to for assistance.

Just a general point if you’re coming here and if you’re going to a little further down the line be translating your marketing materials, manuals, other things it’s a one-time cost so it pays to find the best translators that you can to do that for you. Again, when you come to that point we can give you some contacts for that.

The same goes for interpreters. When you come here to do meetings, find the best. Ideally find specialists and be willing to pay that one-time cost while you’re working to establish the initial relationship.

Once you’ve done that expect to spend time building your relationships. Again, this isn’t too different from all around the Mediterranean, Southern Europe and into the Middle East. Their relationship based and they will move slowly as they build a relationship with you either as a buyer or as another kind of partner.

One of the ways that we’re trying to assist U.S. Companies to find out about the Turkish market and to enter it is an upcoming trade mission that is sponsored by Federal Express. And we’re working together with Federal Express to bring in trade delegation November 8 to 13 and at this point I’d like to ask Greg Taevs to say a few words about our plans for the mission.

Gregory Taevs: Okay, Jim. I think Jim did a great job of laying out the potential, the possibilities of the Turkish market. I think a great way to get a fast start in a market is by taking advantage of one of these trade missions. I will say that in my years of working with the Commercial Service. They don’t come along very often so if you have one on the horizon it’s good to focus on it.

This one is particularly focused on Turkey. It’s a one week program in Turkey. You’ll arrive on Sunday, November 8 in Istanbul. You’ll spend the first three days in Istanbul. Istanbul’s the cultural, the commercial capital of Turkey and the largest city. You’ll have one-on-one appointment very targeted appointment, with possible partners according to your needs. You’ll meet officials of local business organizations and next you’ll spend a day in Ankara.

You’ll go from Istanbul to Ankara which is the real capital of Turkey. The central government here has a greater role in business than it does in the United States.

It’s good to meet the government officials that affect the business in your sector. And then you’ll finish the mission with a day in Izmir which is the second largest port in Turkey. A lot of ocean-going traffic comes into Turkey and in and out of Turkey through Izmir. There’s also a large free trade zone there which you’ll be able to explore.

And the goals of this mission of course are to learn about the market, to evaluate the potential for your company. You’ll meet your customers, you’ll meet possible partners, you’ll understand who your competitors are in the market, you’ll understand the opportunities.

We have an excellent team of trade specialists in our offices that will work with you closely to find the right partners and the right meetings for you. You’ll have some key contacts when you leave Turkey from this mission. You’ll have some key contacts both in the government and your industry sector.

I’ll just mention that even though we’re working closely with Fed Ex you wouldn’t have to be an existing customer of Fed Ex to join the mission. And well anyway I highly recommend joining the mission.

I think I’ll end it there and if Jim would like to say anything else, and if not I’ll turn it over to Linda.

James Fluker: Sure, Greg I’d just point out we’ve got up on the slide the URL on the Fed Ex Web site that gives more information about the trade mission and also will let you register your interest in the Trade Mission.

Also our commercial service contact for the mission is (Greg Briscoe). (Greg) is based in Memphis and he’ll be happy to assist you and if you have more questions you can come to him or of course you could come to any of us and we’ll make sure that you get a response.

Here’s contact information for the three commercial officers who are based in Turkey. Myself, (Thomas Bruns,) the Commercial Officer here in Ankara who unfortunately couldn’t be with us, and Greg Taevs in Istanbul.

Thanks very much for your attendance today and we’ll open ourselves to questions if you have any, Linda.

Linda Abbruzzese: Okay, great, thank you James and thank you Greg. Now we’re able to take the questions from our audience. Once again up on the upper left hand corner or upper left hand side of your computer is an icon and it has the letters Q&A. If you go to that icon you can actually type in a question in that space that’s provided underneath.

Also I just want to remind everybody to please note the contact information on your screen of our speakers this is the best way to communicate and talk with them after our Webinar.

Also this is a reminder, I would like to let you know that also we will have this recorded, this Webinar on our Web site at www.export.gov under the link called View Webinars. It’s on the right hand side of the export.gov Web page. That’s www.export.gov, that e-x-p-o-r-t.gov for government - gov on the right hand side there is a link, it’s in the gray area and it’s called V-i-e-w and then Webinar.

When you click on that link you will be presented to a page that will explain a little bit about Webinars and also it will show the archive Webinar library or the archive Webinars that we have currently done and this will be included in that library.

I do have a question. It looks like this question is from (Scott Altman). I’ll present the first question. The question is can you say anything about the FCPA, Foreign Corrupt Practice Act environment.

James Fluker: Thanks for the question (Scott). I’ve been in several countries since I joined the commercial service. I’ve been in countries that had a very crippling environment of corruption. Turkey is not one of them.

Corruption exists; we like to find out about it when we can, when companies do confront it. It’s a natural outgrowth, I think, of a bureaucracy. Turkey has its issues but I will say that many, many U.S. Companies operate and prosper here without having to confront or deal with demands from local businesses or buyers or partners. As I say we’re very conscious of it but you can operate in this country without running a fowl of the FCPA.

Greg, do you have anything to add to that?

Gregory Taevs: No I’d say that there are some big established U.S. Companies here and they do just fine, you know, avoiding any sort of problems with the FCPA.

James Fluker: Linda.

Linda Abbruzzese: Once again thank you Jim and Greg for your response. I’ll go to the next question. The next question is from (Hedra) (unintelligible) the question is what is the tax structure in Turkey?

James Fluker: Well, I think that (Hedra) I’ll have to come back to you with more details. The tax structure can be complicated. It is somewhat aggravated by the fact that there’s huge unofficial economy here especially when it comes to social security and other taxes.

Legitimate investors legally established companies find themselves paying these taxes in essence supporting companies that don’t pay these taxes and their workers.

But overall I would say the tax burden is not onerous, although we would like to see improvements. We also have a bilateral treaty with the Turks on withholding, but again, we think there are ways that could be improved.

Linda Abbruzzese: Okay, thanks Jim. Next question I have here is from (Charles Hamilton). The question is does Turkey have plans to invest in infrastructure as a way of stimulating their economy like the U.S.?

James Fluker: Turkey has developed a stimulus plan in response to the economic situation. They have been focusing for some time, and even more so now, on the Southeast of the country.

Which has been chronically underserved by infrastructure and they are planning to invest even more money in the Southeast now. Outside of that there has been and continues to be investment in roads, in railways, in airports, and ports and also in the communications infrastructure.

The most heavily regulated sectors are probably in the broadcasting area, of course defense industries, and in I would say also in agriculture right now. Traditional agriculture is very heavily burdened with Turkish policies that make it difficult to do business on a large scale level. Greg.

Gregory Taevs: I guess the medical sector is one that’s pretty heavily regulated according to the pharmaceutical companies but they are able to cope with it and it’s actually one of their bigger markets.

James Fluker: That’s a good point. Intellectual property concerns continue in Turkey. I’d want to add that Turkey was put on the U.S. Government Special 301 Watch List for intellectual property protection. Meaning they found it pretty lacking. And we’re urging the Turks to continue to make advances in implementing and enforcing intellectual property protection laws especially with regard to the pharmaceutical sector and to some extent of course with software and recorded media.

Linda Abbruzzese: Great, thank you Greg and thank you Jim. I believe that’s all the questions I currently have.

I would just like to remind everybody to please note the contact information on your screens to get in contact with the speakers. Also, please check out the foreign commercial services Web site on Turkey at www.buyusa.gov/turkey/en for the English version. Also please check out the Youth Commercial Services Web site at www.export.gov.

For more upcoming events and Webinars I’d like to thank our speakers James and Greg for their excellent presentation. And of course our participants for joining us thank you everybody and good bye.


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