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2 7 April, 2011. Saudi-Turkey Economic Relations. Abdulkareem Abu al Nasr CEO. Saudi Arabia and Turkey, the two emerging giants. Saudi Arabia real GDP growth. Turkey real GDP growth. Source: IMF World Economic Outlook. - PowerPoint PPT Presentation
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Saudi-Turkey Saudi-Turkey Economic RelationsEconomic Relations
Abdulkareem Abu al Nasr
CEO
27April, 2011
0
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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 (%)
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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
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Japa
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Ger
man
y
Fran
ce UK
Italy
Braz
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Can
ada
Rus
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Indi
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Spai
n
Aust
ralia
Mex
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Kore
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Net
herla
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Turk
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Indo
nesi
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Switz
erla
nd
Bel
gium
Swed
en
Pola
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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
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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
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2003 2004 2005 2006 2007 2008 2009
Exports (USD bn) Imports (USD bn)
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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
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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
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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
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