Along with a continuing privatisation programme, which saw the successful $3.46bn sale of four more of the country’s regional power distribution companies in March, Turkey exhibits many of the long-term fundamentals for continued growth.
Consumption makes up 70% of output in an economy that grew by 8.5% in 2011 and is forecast to expand by 4% in 2013. Its 75 million population is relatively young – 42% are under the age of 25 – and getting richer. The country continues to attract investment from Western companies looking to benefit from this growing middle class – PepsiCo continues to register double-digit sales growth, while Tesco is preparing to open another 70 stores.
It is now also a manufacturing hub for the auto industry. For example, profit before tax at Ford in Turkey is higher than Ford’s entire profitability in Western Europe. Recent figures demonstrate that this productivity is indicative of the entire sector. February’s purchase manager’s index revealed an increase in output, with new orders rising to the extent that manufacturers are struggling to cope with demand. New business from abroad in February increased at the fastest pace since January 2012 and, as has been the case for every month since June 2009, employment levels in Turkey’s manufacturing sector rose during February.
Excited about pensions
We believe further growth will also result from recent pension reforms which should strengthen capital markets. Since the start of the year, the Turkish state has been making limited contributions to private pension schemes, leading to a sharp increase in the number of people participating. Almost 120,000 people joined private pension schemes in January alone, a four-fold increase from a year earlier.
Anecdotally, during a recent visit to Turkey, people I spoke to were very excited about the development of a private system for the state provision of pensions. Unlike the UK, people in Turkey are very keen to set up their own pension scheme and contribute to it themselves, with some incentives from the government. This is really supportive for the market in general – the introduction of a private pension system is expected to contribute around 1.5% of GDP this year and expected to reach 10% of GDP within the next 10 years.
The latest OECD report (in January) further supports the notion that Turkey will continue to be an economic force, showing that it, along with other emerging countries, is likely to lead global growth over the next 50 years.
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Liesbeth Rubinstein is an emerging market equities fund manager at Invesco Perpetual
