BLACK BD TURKEY. Countr

Transcription

1 BLACK SEA TRADE AND DEVELOPMENT BANK BD TURKEY Countr ry Strategy THESSALONIKI MAY, 2015

2 TURKEY COUNTRY STRATEGY TABLE OF CONTENTS TEXT: I. Summary of Recent Developments and Outlook II. III. Overview of Current BSTDB Portfolio Review of Country Strategy : Post Evaluation IV. BSTDB Operational Priorities for TABLES: Table 1: Basic Macroeconomic Indicators at a Glance Table 2: Active BSTDB Portfolio as at end December 2014 Table 3: Post Evaluation of Country Strategy 1

3 Table 1: Basic Macroeconomic Indicators at a Glance for TURKEY Key Long Term Foreign Currency Sovereign Risk Rating at 30 April, 2015: Moody s: Baa3 S&P: BB+ (Unsolicited) Fitch: BBB Proj Proj Population (Million) Avg Exch. Rate (Lira/ US$) Inflation (CPI Avg.) 6.5% 8.9% 7.5% 8.9% 6.7% 6.2% 4 Average monthly wages (US$) 5 GDP (Lira million) 1,297, ,416, ,567, ,749,782.31,922,000.02,085, GDP US$ million 773, , , , , , GDP per capita (US$) 10, , , , , , Real GDP growth, % 8.8% 2.1% 4.2% 2.9% 3.5% 4.5% 9 Official Unemployment (end of period) % 9.1% 8.4% 9.0% 9.9% 9.8% 8.9% 10 Industrial Production Growth, % 10.0% 1.6% 4.1% 3.5% 2.9% 3.7% 11 Agricultural Production Growth % 6.1% 3.1% 3.5% 1.9% 2.5% 3.5% 12 Domestic Credit Growth % 17.5% 13.3% 24.9% 16.6% 13.1% 13.0% 13 Domestic Credit/ GDP 69.3% 71.9% 81.2% 84.8% 87.3% 90.9% 14 Foreign Direct Investment $US million 16, , , , , , FDI/ GDP 2.1% 1.7% 1.5% 1.6% 1.7% 1.7% 16 Central Govt. Budget Balance/ GDP, % 1.4% 2.1% 1.2% 1.3% 1.7% 1.6% 17 Total External Debt US$ million 303, ,7 389, , , , Total External Debt/ GDP 39.3% 43.1% 47.3% 50.3% 49.0% 50.4% 19 Public External Debt/GDP 13.4% 14.1% 14.7% 15.0% 20 Private External Debt/ GDP 25.9% 29.0% 32.6% 35.3% 21 Exports $US million (Goods) 134, , , , , , Imports $US million (Goods) 240, , , , , , Trade Balance $US mn (Goods) 105, , , , , , Trade Balance/ GDP 13,7% 10,7% 12,1% 10,6% 7.7% 9.2% 25 Current Account Balance $US mn 75, , , , , , Current Acct. Bal./ GDP 9.7% 6.2% 7.9% 5.8% 5.1% 5.9% 27 Forex Reserves (end period exc gold) US$ 78, , , , , ,564.7 Sources: TURKSTAT, Central Bank of the Republic of Turkey, IFS IMF April 2015, IMF Article IV Consultation, Report No. 14/329 December 2014, EIU Country Report Turkey April

4 TURKEY COUNTRY STRATEGY I. Recent Economic Developments and Outlook Growth of the Turkish economy has outpaced that of much of the rest of the Black Sea Region in recent years. Since the 2001 financial crisis, it has grown 85% in real terms cumulatively. After a stretch between where real GDP grew by 6.8% on average, Turkey experienced a slowdown in as capital inflows from abroad suddenly ceased, external demand for exports dropped sharply, and domestic demand was curbed by fear and uncertainty. Fortunately, the recession proved less severe than elsewhere real GDP grew 0.7% in 2008 and contracted 4.8% for Even though the economy contracted over 10% at its lowest point, the downturn was short lived Hand by mid 2009 the Turkish economy was growing rapidly, a momentum that was sustained in 2010 and 2011 posting exceptionally high growth of 9.2% and 8.8% respectively. Part of the recovery was due to low base effects from the downturn, but was fueled by private consumption and gross fixed investment. On the demand side, private consumption, which accounts for over 70% of GDP, had a big impact on growth as it increased 6.7% in 2010 and 7.7% in Gross fixed investment, which normally accounts for 20 25% of GDP surged 30.5% in 2010 and 18.0% in 2011 respectively, driven by robust capital inflows. This was offset by the external sector s negative contribution, as the current account deficit grew rapidly. Fearing overheating, Turkish authorities engineered a "soft" landing in 2012 by making lending more difficult, and trying to limit credit growth, while the lira also depreciated. The target was private consumption, which declined 0.5%, but private investment suffered even more, with gross fixed investment declining 2.7%. However, this was partly offset by double digit growth in public investment, and by improvement in the external sector. Even though global conditions worsened with the Eurozone crisis and conflicts in the Middle East affecting key trade partners, exports increased 13.7% while imports decreased 1.8%. Overall GDP growth slowed to 2.1% in 2012 but recovered in 2013 to 4.2% as private consumption and investment picked up again, government spending also rose, while the external sector acted as a drag with exports stagnant while imports grew. This in turn led to a repeat of 2012 policies in early In order to rebalance the economy, monetary policy was tightened, macroprudential measures were taken to limit credit growth and the exchange rate depreciated. Private consumption weakened and investment declined, offset by an improved external balance and to a lesser degree higher public sector spending. Growth slowed to 2.9% for Despite the cyclical peaks and dips, GDP growth averaged 5.4% between , more than twice the 2.6% Black Sea Region average. Turkey has been largely unaffected by the protracted recession suffered in the western part of the Black Sea Region from and the cyclical downturn in the eastern part that began in 2013 and still persists. It is one of the few countries in the Region to have defied the worrying trend of under investment, as both private and public investment have grown substantially, if a bit unevenly, with gross fixed investment averaging exceptional 9.8% growth. The exception is foreign direct investment, which has been weak in the post crisis period and has failed to return to pre crisis levels, averaging approximately % of GDP. Instead, the growth of domestic credit and private external debt indicators suggest that domestic and external borrowing have underpinned the investment growth. Although it is not immune to external developments, Turkey s economy has proven remarkably steady in recent years even as its linkages with the global economy have grown. For 2015, growth of % is likely, with consumption and investment remaining steady, and the external position 3

5 improved by the recent most recent devaluation of the lira. Projections for are more difficult, and sustaining real GDP growth of nearly 5% per annum is likely to be challenging, the slowdown should be moderate with growth on the order of 4% or even slightly higher feasible. With Turkey an increasingly globalized economy, external factors may impact the projection, and Turkey s reliance on external capital inflows has made it vulnerable to monetary policy fluctuations in developed economies such as the US and the Eurozone. Additional factors that may play a role include fluctuations in the price of oil and other key commodities, developments in the EU (including Eurozone turmoil) and most importantly the geopolitical tensions in the Black Sea Region and ongoing conflicts in the neighboring Middle East. Turkey s macroeconomic fundamentals have generally been solid. Public finances have been well managed and stable and the Government has maintained a relatively tight fiscal policy while keeping public debt low and on a declining trajectory. Government budget deficits have generally been at or below 2% of GDP in recent years, with the exception of 2009 when they ballooned to 5.5% due to a sudden decline in revenues and increased expenditure owing to targeted stimulus measures to mitigate the negative impact of the steep decline in private consumption. As the economy picked up, the deficit improved rapidly to 1.4% of GDP within two years, and has stayed low since. Public debt at end 2014 stood at around 33.7% of GDP with around 37% of this figure external debt and the remainder locally denominated. Private external debt at end 2014 stood at approximately 35% of GDP. While this figure is not unsustainably high, it has risen from the mid 20%s in and is at a historically high rate. Given the growth of the economy, the increase in nominal US$ dollars has been rapid. Banks in particular have increased their reliance on external funding in recent years, which has been on lent to the private sector. The reliance on external financing is due to Turkey s persistently large current account deficit. The current account has been at the epicenter of policy dialogue with international institutions such as the IMF, and is keenly watched by investors, rating agencies, and others interested in the macroeconomic climate in Turkey. High Growth, Persistent Imbalances is the headline of the overview chapter of the IMF s latest report on the Turkish economy 1. The current account balance is linked to the biggest driver of economic growth private and public consumption. When consumption is weak, the balance improves, and when demand grows, the deficit rises as import growth increases. The current account deficit is also explained by a shortage of savings, as national savings are at around 14% of GDP, a figure which lies an estimated 6% of GDP below investment. Correcting current account imbalances lies behind policy interventions to cool demand which led to observed downturns in growth in 2012 and As growth slowed, so the current account deficit improved. When fiscal and monetary policy tools are loosened, demand surges and the current account deficit follows suit. Another implication of the increased reliance on external financing is increased vulnerability to sudden reversals in investor sentiment as a result of external events such as monetary policy decisions in developed economies. Speculation over the US Federal Reserve s cessation of its quantitative easing program so called tapering created considerable volatility in Turkish financial markets in mid 2013 as external investor sentiment soured suddenly on emerging markets. In order to improve competitiveness and the current account over the longer term, Turkey s Tenth Development Plan ( ) includes a comprehensive second generation structural reform agenda. More specifically, it Article IV Consultation Staff Report, IMF Country Report No.14/329 December

6 contains a list of 25 Transformation Programs, with over 1200 specific interventions, which have been initiated. The link between domestic demand and import growth suggests a relative lack of competitiveness, and in fact Turkey s trade deficit is the key factor behind the current account deficit. Trade deficits have hovered between 10% and 14% of GDP between , fluctuating alongside domestic demand. However, Turkey s international trade has grown impressively over the years as the economy has become increasingly globalized, and export growth has outpaced import growth. Between , exports grew by 40% cumulatively while imports rose around 30%. Even more significantly, the types of exports have changed favorably in terms of diversity and quality. In addition to traditionally important export sectors such as textiles and light industry, agricultural products, and minerals, in recent years higher value added exports in areas such as consumer electronics, automotive parts, and shipbuilding, have grown. Tourism receipts remain a large and growing, further diversifying sources of foreign exchange generation. On the import side, Turkey s lack of energy selfsufficiency and reliance on other commodity imports accounts for a substantial portion of the trade deficit. As the second largest economy in the Black Sea Region, Turkey is an important trade partner for a number of other BSEC Member Countries, and for many years it was a champion of greater regional trade, with its levels of intra BSEC trade growing at an even higher rate than the impressive growth in overall international trade. However, during this trend reversed, as trade with BSEC countries grew more slowly, with exports rising 36% and imports 24%. Relative to its peak of 19.8%, intra BSEC trade as a share of total Turkish international trade has slipped steadily and stood at 15.2% for Inflation is another indicator of much focus in recent years. Turkey has a floating exchange rate and its monetary policy is focused on inflation targeting. The Central Bank of the Republic of Turkey pursued a tight monetary policy during the 2000s and achieved single digits consistently in stark contrast to the high double digit rates Turkey experienced annually up to the early 2000s. Nevertheless, inflation has been above the 5% target and has averaged around 8% between , reaching 8.9% for 2014 as a result of pass through effects from the depreciation of the lira and rising food prices. The rate of inflation is affected by many factors, including unfavorable weather conditions and pressures from energy prices, but it tends to rise when domestic demand grows and to dip when demand slows. For 2015, the rate is likely to reach 6.5 7% aided by the end 2014 decline in oil prices and greater food price stability. Slowing inflation, in turn has led the Central Bank of the Republic of Turkey to lower interest rates in early 2015 in due to the gradual improvement of certain risk indicators. However, with the benchmark lending rate lowered to 7.5% in February 2015, real interest rates have by some calculations turned negative which, if sustained, risks stoking inflationary expectations and thus causing erosion of competitiveness and reduced incentives to increase private savings. In order to curb excess credit growth, and especially lending for consumption, Turkey has implemented a series of measures to limit such growth without impeding lending for productive/ investment purposes. To this end, measures have been introduced such as high reserve requirements for short term lending, increased provisioning rates for uncollateralized consumer loans, maturity limits on consumer loans, and numerous limits on credit cards, the use of payment installments and cash advances. The measures have had some success, and credit growth slowed in 2014 relative to 2013, but this is offset by greater borrowing demand from the lower interest rates. 5

7 The banking sector is regulated by the Banking Regulation and Supervision Agency. Banks are well capitalized (above 15% in the first quarter of 2015, of which almost all Tier 1) and enjoying adequate liquidity, while non performing loans, at less than 3%, are low. The impact of exchange rate depreciation has been limited, although the growing use of wholesale external funding bears watching and could generate rollover risks. II. Overview of Current BSTDB Portfolio As of 31 December, 2014, the active BSTDB portfolio in Turkey amounted to 16 operations approved by the Board of Directors (BoD), involving an investment of million. Out of this total amount, 14 operations were signed for million and the outstanding disbursements were at Turkey ranks first in the BSTDB portfolio, with 25.2% of BoD approved operations, and 21.8% of signed operations, and it ranks second in the portfolio with 18.2% of amounts outstanding. Relative to the Bank s active portfolio at the end of 2010, Board approvals increased by 58.1%, signings by 37.8%, and amounts outstanding by 8.0%. Table 2: Active BSTDB Portfolio in Turkey as at end December 2014 All Figures in Euros Million BoD Approval Date Approved Amount Signed Amount Amount Outstanding TurkEximbank* 17 Dec Pakel* 12 Dec Adana Light Rail 3* 15 Apr Jan Istanbul Metro* 1 12 Jan Istanbul Kadikoy Kartal Metro 1 21 Apr Emerging Europe Accession Fund 25 Sep Balkan Accession Fund 1 10 Aug Koprubasi Hydroelectric Power 26 Feb Alternatif Bank* 3 Dec Equity to ADM CEECAT Recovery 21 Jul Bankpozitif SME 23 Jun TAV Izmir EGE Airport 12 Nov Ekspo Faktoring 1 Dec Apr Is Leasing 8 Oct Hayat Kimya Sanayi A.S Nov Ankara Etlik Integrated Health 28 Nov Total III. Review of Country Strategy : Post Evaluation The current evaluation was performed by the Bank s Evaluation Office as per the respective Evaluation Policy. It reveals the performance of the Bank s Country Strategies. Its goal is to provide accountability to the Board of Directors and Board of Governors as well as facilitate the decision making by the Bank s Management and Boards on the eventual update of the country strategies. 6

8 The evaluation of the respective country strategy compares the stated 2014 targets with actual results as of end of 2014, and provides a country oriented overview and evaluation rating. The Country Strategy was approved by the Board of Directors in early 2011, reflecting an in depth independent evaluation of the implementation of the BSTDB s earlier strategies, conducted by the Evaluation Office. It was aligned with the objectives of the Bank s Business Plan and was therefore evaluated in that context The implementation of the Country Strategy was very consistent with the Business Plan implementation not only in terms of overall volumes, but by the exceptionally diversified and development oriented portfolio. While the achieved signed volumes were just as targeted, this was complemented by a much higher volume of approvals (179%) and by a very balanced coverage of the sector priorities as defined in the Strategy. In conclusion, the performance of the strategy is rated as Excellent, as not only the volumetric targets were met, but the sector coverage was very well aligned with the Strategy. A more comprehensive overview is presented in the table below. A more comprehensive overview is presented in the table below. Table 3: Post Evaluation of Country Strategy for Turkey TARGETS RESULTS Country Sectors/Priorities Strategy Target operations: EUR approved/ EUR signed (million) Actual operations: EUR approved/ EUR signed (million) Evaluation Summary Turkey 1. Financial sector priority: Trade Finance, SME focus, equity. 2. Energy/Infrastructure: energy (efficiency and renewable), transport (urban, port, rail), municipal, mining, utilities, etc. 3. Manufacturing and agribusiness: industries with growth/export potential, including automotive, machinery, health, food processing. 122/ /110 Approved volume: 179% Signed volume: 97% 2. Sector coverage: 2.1.Equity CEECAT Fund (SME) 2.2. Bankpositif SME 2.3. TAV Izmir Airport 2.4. Ekspo Faktoring (financial) 2.5. Is Leasing 2.6. Hayat Kimya (consumer staples) 2.7. Ankara Etlik Health Campus 2.8. Koprubasi HPP (energy) The Bank covered its priorities/ sectors exceptionally well. 4. Tourism and Real Estate: focus on tourism. 2. Performance Rating: Excellent Targets met as intended, with a very balanced sector coverage. 7

9 IV. BSTDB Operational Priorities for The Bank s role and priorities are defined (i) in accordance with the priorities and targets laid out in its Medium term Strategy and Business Plan and (ii) country needs and objectives, as well as (iii) available resources, strategies and policies of BSTDB. In this respect, BSTDB will seek viable opportunities and will continue closely monitoring the developments in the Turkish economy in order to stand prepared to support bankable projects. In addition the Bank shall seek co financing opportunities with international financial institutions (IFIs), public sector institutions and private partners. BSTDB will focus in the next four years on providing support for the implementation of the Government program and priorities, while responding to market demand. The Bank will consider undertaking activities and providing services as may advance its purpose, paying special attention to activities promoting export of goods and services, and development of infrastructure, including energy efficiency. In addition, through selected intermediaries, the Bank would attempt to expand its financing programs in favor of SMEs. Based on the BSTDB Business Plan, the Bank would expect on average to sign around four new operation each year, for approximately million. Over the four year period, this implies sixteen new commitments (signed operations) for approximately 184 million (a range of million). These indicative targets are based on the Base Case Scenario of the MTSBP, and given appropriate circumstances and sufficient operational opportunities the Bank would make efforts to exceed this level. In case of higher regional economic growth rates, increased demand for Bank funding, and an improved situation in financial markets, a phased increase in the average number and size of operations would allow the Bank to move towards achieving the targets envisaged under the High Case Scenario. Moreover, at the Mid Term Review, depending upon performance and prospects, the above targets may be revised upwards 2. Areas for BSTDB Financing: BSTDB Trade Finance and Financial Sector Strategy for Turkey BSTDB s Trade Finance and Financial Sector Strategy has been created in order to develop a network of financial intermediaries, through whom to deliver trade finance and SME finance products. Since BSTDB began its operations, the following products have been introduced through selected financial intermediaries in Turkey for the purpose of Trade Finance, and SME development: Short and medium term Pre export Finance product; Medium term SME Finance product; Subordinated loan for SME financing Leasing Facility for SMEs 2 Under no circumstances would targets be revised downwards unless the lower case scenario of the BSTDB Business Plan were to be followed. 8

10 Trade Finance Facility for Factoring company The financing of trade, particularly the export of manufactured goods and equipment from Turkey to other BSEC countries, was successfully implemented in previous years through the export credit agency of Turkey, Turk Eximbank. In addition, the Bank invested in two funds for equity investment in the region covering Turkey as well, and small scale investments have been made in Turkey. Furthermore, the first subordinated loan to a bank for SME financing was successfully cofinanced under a Master Co operation Agreement signed with other IFIs. Two new products for leasing and factoring companies have been introduced recently. A core priority for the Bank remains the provision of financial support to SMEs which undertake modernization programs of their production facilities, corporate development or investment programs. The Bank intends to use the leasing product not only for financing capital expenditure of SMEs but also for other companies as an effective financing tool for the promotion of regional trade. Short term credit lines opened to factoring companies for trade related purposes will enable them to offer their customers financing for working capital, for imports from other countries in the region as well as for export to all countries. The Bank will seek to increase the number of financial intermediaries as well as to use existing financial intermediary products effectively. The Bank will continue to consider the option to take equity participations in selected financial institutions and funds, and will also seek to use quasi equity products, such as subordinated loans. Energy efficiency needs to be raised, particularly through reduction of heating losses and improvements of existing systems. The Bank will consider offering energy efficiency credit facilities through selected financial intermediaries in order to finance energy efficiency investments of SMEs as well as individuals. The Bank will also keep in regular contact with complementary international financial institutions (IFIs) such as EBRD, IFC, EIB, DEG and KFW to seek ways to coordinate activities and share experiences, given the opportunities which exist for joint involvement. Energy and Infrastructure (E&I) The Bank will continue offering its support for bankable project opportunities in the areas of energy and infrastructure, where investment opportunities are materializing due to Turkey s growing demand for energy, electricity and upgrade and rehabilitation of all kinds of national infrastructure. The Bank will continue to ensure that all BSTDB E&I operations in Turkey meet sound banking principles, comply with the Bank s Environmental Rules and Procedures, and incorporate, where appropriate, Environmental and Social Action Plans. Turkey has enjoyed close historical economic ties with neighboring countries. In this respect BSTDB will be prepared to support bankable investments and business opportunities promoting regional economic cooperation as well as involving investments of Turkish companies in E&I projects in other BSTDB Member Countries. The Bank will also work in cooperation with international financial institutions (IFIs), commercial banks and export credit agencies (ECAs) as an important source of the project co financing as well as the institutional knowledge transfer. Areas of particular focus include: 9

11 Natural resources Projects involving the development and rehabilitation of natural resource facilities upstream, midstream and downstream; Projects involving exploration and production of hydrocarbons both onshore and offshore, including any technical applications to increase recovery; Projects involving construction of new or rehabilitation of existing energy transportation infrastructure (pipelines, railways, river/maritime transportation facilities, etc). The Bank will also support projects designed to improve local and regional energy and handling infrastructure, such as rehabilitation of gas/oil processing and storage facilities; Provision of financing for downstream operations, particularly the expansion of retail networks, and upgrading of oil refineries and petrochemical facilities to increase production and improve the quality and environmental acceptability of refined products; Energy and electricity Projects envisaging construction, upgrading, modernization, expansion, operation and maintenance of all kinds of conventional and renewable energy and electricity capacities; facilities and infrastructure which facilitates generation, production, distribution, transmission and sale of energy and electricity; Projects, which lead to improved energy efficiency and energy conservation The Bank will work in cooperation with other IFIs and commercial banks in joint energy and infrastructure sector projects as an important source of institutional knowledge transfer Municipal and Social Infrastructure Municipal projects with or without sovereign or municipal undertakings or guarantees where municipalities, local regional governments or companies linked to municipalities or local regional governments are in the role of the borrower or ultimate guarantor; Projects supporting Public Private Partnerships, in various sectors of Municipal Infrastructure, including in particular, the health care sector and waste/water management Projects involving waste water, solid waste, hazardous waste treatment and sewage. Mining Projects in the mining sector including, among others, import/export of equipment and production for further processing; Transportation and Transport Infrastructure Support for the development and rehabilitation of key transportation and transport infrastructure. Telecommunications and IT Services Projects involving upgrade, development and modernization of telecommunications infrastructure 10

12 Transportation In addition to its economic growth and fast urbanization, the geographical position of Turkey as a natural bridge between Eastern Europe and the new emerging markets of the Caucasus and Central Asia makes transportation a priority sector for the country. Despite the continuous investments in this sector, significant needs remain, and it will continue to be a priority sector for the Turkish government. The deficiencies in the urban transport infrastructure of various big cities that emerged as a result of fast urbanization of the country are addressed by local municipalities through inner city mass transportation projects. The Bank has been involved in the past in such projects of local municipalities, and will continue to seek projects in areas such as light rail and metro lines. Being surrounded by sea on three sides, maritime transport is very important for Turkey. The waters of the country serve as a natural transportation route from the Black Sea to Europe, the Middle East and Africa. Thus, port investments are also very important for the development of the Turkish economy. The Bank will closely follow developments in this sector and will seek involvement in port investment projects to the extent possible. Despite some investments in recent years, the railway system in Turkey needs further development also. There are various high speed railway projects connecting major cities of the country; for example, Ankara Sivas and Ankara Izmir high speed railway projects are among the most advanced projects. These projects are planned to be implemented under a PPP structure, and the Bank will seek to support such projects wherever possible. The rapid development in civil aviation in Turkey is expected to continue in coming years. Turkish government priorities include to improve and enhance air transport, to make Turkey a regional air transport center internationally, and to provide the connection of airports with the rail system and other public transport systems. The country s geographical position and increasing population provides an opportunity for further growth of this sector. Projects for modernization of existing airports and their connections with other transport systems will be followed carefully. The Bank will explore the possibility of financing projects that are planned as Public Private Partnerships (PPP). The logistics sector will also be considered carefully for projects, since its further development is vital for Turkey to benefit from opportunities arising from the country s geographic location. In particular, implementation of projects that contribute to the integration of Turkey with the logistics systems of the EU and other regions, and which will enable the country to serve as a link between Europe and Asia, will make a significant contribution to the achievement of the country s industrial strategy vision. In terms of the connection between Pan European transport corridors and Central Asia, the role of Turkey as a member of the Black Sea Economic Cooperation and the Mediterranean basin has enhanced its importance with respect to East West and North South connections. Therefore, projects that contribute to development of these transport corridors will be given priority by the Bank. Manufacturing The rapid growth rates of the production sector offers wide financing opportunities for the Bank. Due to the improvement in the country s rating, competition among financial institutions to provide financing to private companies is very high. This reduces BSTDB s role of additionality (or value added), so the Bank will assign priority to industrial projects which demonstrate high potential to grow and expand into international markets through exports and direct investments. Particular emphasis will be given to dynamic industries, including the automotive industry, production of 11

13 machinery, health and environmental equipment, chemicals including paints, solvents, pharmaceuticals, rubber and plastic products, and packaging materials, as well as production of durable consumer goods. Environmental improvement projects will be given special attention. Turkey produces and exports a wide range of agricultural products. New investment is required so as to maintain Turkey's position as an exporter of agricultural products. The Bank will support agribusiness investments that create employment and export opportunities. Health Sector To overcome deficiencies in the health care system, the Turkish government initiated the creation of integrated health campus projects in more than 30 cities. Each campus has a number of specialized hospital departments, as well as Research & Development laboratories and centers, techno parks, social facilities, housing and parking lots. Establishment of these projects is regarded as an essential part of the development of the Turkish healthcare system by the government and they are thus considered priority projects. Considering their high developmental impact, BSTDB will support these projects together with other IFIs and commercial banks operating in the country. 12