27 April 2011 SaudiTurkey Economic Relations Abdulkareem Abu

27 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 § The Saudi and the Turkish economies, both members of the all important G 20, have grown rapidly in recent years emerging as two of the largest economies in the Middle East and West Asia region ü 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 ü Both Saudi Arabia and Turkey have a large population base and one of the highest growth rates in their population in recent years 2

Set to grow further in the coming years Saudi Arabia & Turkey current standing (2010) The Turkish economy is currently the 17 th largest in the world while the Saudi economy is 23 rd in world ranking Saudi Arabia & Turkey projected standing (2015) By 2015, the Turkish economy would be over USD 1 trn and remain the 17 th largest while the Saudi economy at USD 656 bn would be the 19 th largest in the world Source: IMF World Economic Outlook § The Saudi economy with an estimated GDP of USD 434 billion is the 23 rd largest economy in the world while the USD 729 billion Turkish economy is the 17 th largest, as of 2010 ü 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

Favorable demographic profile Saudi Arabia demographic profile § 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% ü 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 Turkey demographic profile § Source: UN Population Division, World Bank 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 4

Strong government finances Saudi Arabia government debt & current account balance § One of the defining characteristics of both these economies is that they have strong government finances with public debt at significantly low levels ü 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 ü 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 Turkey government debt & current account balance § 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 ü 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 5

Increasing foreign direct investments § Both Saudi Arabia and Turkey with their favorable macro fundamentals have become a hotspot foreign investors in recent years ü The foreign direct investments in both these countries has increased significantly with total investments reaching USD 129. 4 billion in Saudi Arabia and USD 86. 9 billion in Turkey, in the 2000 -09 period 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 USD 35 billion § Turkey too has seen an increase in foreign direct investments in recent years with inflows peaking at over USD 22 billion in 2007 Source: UNCTAD 6

Booming external sectors Saudi Arabia exports and imports (USD billion) Turkey exports and imports (USD billion) Source: SAMA, Turkstat, IMF World Economic Outlook § 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 ü Saudi Arabia’s exports peaked at over USD 300 billion in 2008 on the back of significant increase in oil prices while Turkey’s exports peaked at over USD 132 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 USD 71. 5 billion in 2010 from around USD 22. 1 billion in 2003 7

Saudi-Turkey partnership entering a new 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 countries Major ‘milestone’ changes in the Saudi Arabia-Turkey economic partnership 1974 § Trade agreement § Economic and technical cooperation agreement 1986 § Agreement on coordination of highway transport and regulation § Agreement on regulated maritime transport management 2006 § International highway transport agreement § Agreement on Reciprocal Promotion and Protection of Investments § Agreement on Cooperation in the Field of Health § Agreement on Cooperation in the Field of Tourism 2007 § Agreement on Avoidance of Double Taxation 2008 § KEK IX. Term Protocol

Increasing trade between the two § Bilateral commercial exchange reached a total of USD 5. 5 billion in 2008, up from around USD 1. 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 USD 1. 8 billion, while the exports grew at a CAGR of 6% to USD 1. 7 billion Source: Turkstat, IMF, NCB estimates 10

Oil dominates the trade equation Turkey’s exports to 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 ü Turkey accounts for nearly 2. 1% of Saudi Arabia’s total imports and 1. 0% of total exports Turkey’s imports from Saudi Arabia (USD million) § 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 greater 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 USD 90 mn in 2008 to USD 144 mn in 2009 § Private Saudi firm Planet Food World Company (PFWC) will invest around USD 3 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 USD 730 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 USD 600 billion in the next 20 years in Turkey

Banking emerging as new area for closer ties

Thank you