Turkey’s Value Has Doubled In Three Years

The improvement in the economy, the agreement with the IMF and -- most important of all -- the fact that negotiations will be begin with the European Union, have opened a window of opportunity for Turkey. The new picture that has emerged has also resulted in a recalculation of Turkey’s ‘value.’ As well as an increase in the value of the country as the result of GNP growth and higher levels of welfare, foreign interest has also meant that the value of companies has risen. Turkey’s value is estimated to have doubled, while the value companies in some sectors has quadrupled.

A high level executive in a leading management consultancy firm says: “In the last year there has been an incredible rise in Turkey’s value. The values of companies are also rising, particularly in certain sectors. In several sectors these increases have meant that the values of good companies has quadrupled.”

According to the same executive, businessmen who know that this is an opportunity have begun knocking on the doors of consulting companies specializing in public offerings and foreign partnerships. The target is to make the most of the increase in value.

It is possible to see this increase in value in the statistics; particularly in the figures for economic growth, the rise in welfare and the market values of companies on the ISE. The figures make it all very clear. In 2001 the Turkish economy contracted by 9.5 percent before beginning to grow steadily. In 2004 it achieved a superb growth rate of 9.9 percent.

In 2001 Turkey’s exports stood at US$31 billion. In 2004 they rose to US$63 billion. The target for this year is US$71 billion. In 2001 the consumer price index stood at 88.6 percent. Last year it fell to 15.3 percent. There has been a significant improvement in interest rates. In February 2001 the Central Bank overnight interest rate was 364.53 percent. In June 2005 the average was 14.32 percent. During the 2001 crisis, per capita national income fell to US$2,139. In 2004 it stood at US$4,265. These developments have attracted the interest of foreigners and made Turkey more attractive. This has meant that in the first six months of 2005 Turkey earned US$10 billion in foreign capital.

As can be seen from the statistics, since 2001 Turkey has grown and become wealthy. This growth has affected Turkey’s economic assets. Sectors and companies have increased in value. But, inevitably, this has not been reflected in the same degree in every sector.

Rising sectors such as banking, energy and telecommunications have increased in wealth more than other areas. Even though the rate of growth has not been as high, cement, logistics and electronics have also grown considerably.

Experts believe that, provided the economy continues to improve, the rise in the value of sectors will continue.

Turkey’s ratings are improving

There can be no doubt that the improvement in the economic indicators we gave at the beginning of the article has played a key role in the increase in Turkey’s value and that of the above-mentioned sectors. But there are also other factors which have made a contribution. One of these is the increase in Turkey’s credit rating.

The granting by the EU on 17 December 2004 of a date for the opening of accession negotiations has increased confidence in Turkey. Ali Babacan, the State Minister Responsible for the Economy, drew attention to this in a speech he made, commenting:

“After 17 December Turkey’s rating rose and it came under scrutiny from the world. Now you will see that there isn’t really much of what could be called Turkey’s domestic agenda. Turkey’s agenda will be Europe’s agenda and on some subjects even the world’s agenda.”

The increase in confidence in Turkey can be seen in the ratings announced by the international rating agencies. Turkey has made significant progress compared with 2001. One of the most important international rating agencies is Fitch, which for the period April 2000 to February 2001 set Turkey’s rating at BB-. In February 2001 it reduced this rating to B+. In the following years the country rating was reduced to B-. The country rating began to be raised from September 2003 and in January 2005 was once again BB-.

Of course, at this point one should mention the fall in real interest rates.

Finansinvest Board Chairman Sarper Volkan Özten explains that: “Real interest rates have fallen from around 20 percent at the beginning of 2003 to single figures at 8-9 percent today. As a result, the value of companies – and thus of sectors – has risen rapidly.”

Turkey has doubled in value

Can Deldağ, the head of the Corporate Finance Department at Ernst & Young, notes that Turkey’s value has increased compared with 2-3 years ago. He says that the political and economic stability of the last few years has had a positive impact on this process. He believes that Turkey has been transformed from a buyer to a seller.

Levent Bosut of PDF agrees. So, how much value has Turkey added over this period of time. In fact, the value of economic assets can be calculated using expectations of future cash flow and the discount rate which reflects perceptions of risk. Levent Bosut has used this method to calculate how much Turkey’s value has increased as follows:

Using a quick theoretical approach it is possible to make a very rough calculation. Let’s take the forecast for the future growth rate as 3 percent per year. Based on a discount rate of 10 percent, this means that the country’s value is approximately 14 times GDP. Whereas, if we had made the same calculation three years ago, then the discount rate which reflects risk was 15 percent and expectations of growth were lower at 2 percent, which would give us a figure of 7.7 times GDP.

If we add to this calculation the fact that GDP grew by 25-30 percent during this period, then we can say that over the last three years Turkey’s value has more than doubled. According to this rough calculation, it has risen from US$1.6 trillion to US$4.3 trillion. Some of this increase is the result of the depreciation of the US dollar, meaning that the real increase is a little more than twofold.

Expectations are developing in a positive direction. In the same way, the discount rate is also decreasing in line with the decline in country risk. A one percent increase in the growth rate or a one percent fall in interest rates -- and thus of the discount rate -- as a result of a decline in risk, creates a 17 percent increase in the value of the country.

How much have the sectoral indices increased over the last 30 months?

Sector        2003-2005 (%)

Tourism        343.9

Banking        297.2

Basic metals  288.2

Insurance        181.8

Foodstuffs, soft drinks      166.5

Communications       163.9

Non-metal mineral products      150.2

Forestry, paper, printing      109.7

Transportation          95.4

Chemicals, oil, plastics        93.0

Metal goods, machinery        90.6

Trade           66.5

Information Technology        34.7

Textiles, leather           4.2

Note: Gives the increases during the period from January 2003 to 12 July 2005

Source: Istanbul Stock Exchange

EBRU FIRAT
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