turkish ict sector
TRANSCRIPT
Republic of Turkey Prime Ministry
Investment Support and
Promotion Agency of Turkey (ISPAT)
Turkish ICT Sector
Necmettin KAYMAZ
Chief Project Director
“Technology, the Way to Prosperity”
UK Trade and Investment
British Consulate-General Istanbul
February 23, 2015
AGENDA
Turkish ICT Market
Drivers of Turkish ICT Sector
Incentives for ICT Sector
Turkish ICT Market
Summary of Turkish ICT Market..
Sizeable Domestic Market of $32bn
Double-Digit Growth Performance
Young & Dynamic Population
Skilled-Labor Force
e-government
Incentives
Ambitious Targets
Export Opportunities
11
32
160
0
20
40
60
80
100
120
140
160
2003 2013 2015 2017 2019 2021 2023
Turkish ICT Market ($ Billion)
Source: TUBİSAD, Vision 2023, Interpromedya, Team Analysis
Turkish ICT sector has performed robust growth in recent years exceeding $30bn by 2013 and is expected to reach $160bn by 2023..
+17% CAGR
Source: Deloitte
Growth performance of Turkish IT companies has been also observed in international rankings..
86
67
45
43
42
36
32
24
22
18
15
93
86
54
48
53
27
23
23
18
7
15
0 20 40 60 80 100
France
UK
Sweden
Norway
Netherlands
Turkey
Germany
Finland
Israel
Belgium
Poland
2014
2011
Number of Companies in EMEA’s 500 Fastest Growing Companies
Source: TUBISAD
Turkish ICT sector is mainly dominated by communication technologies…
IT $9,4bn
Breakdown of Turkish ICT Market 2013
Communication Technologies $23bn
$32,4bn
Hardware $6bn
Communication Technologies Market
Electronic Communication $17bn
$23bn
Hardware $5,3bn
Software $2,6bn
Service $1,6bn
IT Market
$9,4bn
Potential growth areas: • Software • Services • Hardware
Source: TUBISAD
Turkish ICT sector is getting more and more diversified…
Turkish ICT Sector
Source: Information and Communication Technologies Authority *As of Sep 2014
9
14
22
28
33
40
0
5
10
15
20
25
30
35
40
20
09
20
10
20
11
20
12
20
13
20
14
*
Number of Broadband Internet Subscribers (million)
+35% CAGR
19
31
42
49
57
56
42
34
26
20
15 63 62
65 68
70 72
0
25
50
75
20
09
20
10
20
11
20
12
20
13
20
14
*
3G 2G
Number of Mobile Phone Subscribers (million)
Broadband internet and mobile phone penetration in Turkey have been rapidly increasing..
17 16
15
14 14
13
1
5
9
13
17
20
09
20
10
20
11
20
12
20
13
20
14
*
Number of Landline Subscribers (million)
Increasing mobile internet usage driving the growth
Source: TURKSTAT *16-74 age group
ICT statistics show rapidly increasing usage among both Turkish households and enterprises…
Online Transactions
Source: Interbank Card Center (BKM), domestic and international transactions with domestic cards as well as domestic transactions with international cards
61
227
10
45
5
10
15
20
25
30
35
40
45
50
50
70
90
110
130
150
170
190
210
230
2009 2010 2011 2012 2013 2014
Number (Million, LHS) Value (Billion TL, RHS)
36,5% CAGR
30% CAGR
88
80
48
92 91
54
40
50
60
70
80
90
Computerusage
Internetaccess
Firms withinternet
2005
2013
Enterprise ICT Usage (%)
20
33 30
60
54 54
10
20
30
40
50
60
Householdswith Internet
ComputerUsage*
InternetUsage*
2007 2014
Household & Individual ICT Usage (%)
57 million credit cards
(2014)
Key Players
Top 10 ICT Companies in Turkey, 2013
Company Revenue ($ Bn)
1 Turk Telekom 6,9
2 Turkcell 6,0
3 Vodafone 3,4
4 Avea 2,0
5 TTNET 1,8
6 GEN-PA 1,5
7 Teknosa 1,3
8 KVK 1,0
9 Indeks 0,8
10 Brighstar 0,7
Source: Interpromedya
Turkey-based Sector Leaders, 2013
Company Sector Revenue ($ Mn)
Airties Hardware Manufacture 95
Softech Software Manufacture 55
GEN-PA Hardware Distribution 1.150
Indeks Software Distribution 587
Both local and foreign companies are active players in the Turkish ICT market…
Source: OECD
Turkish ICT sector is more open to FDI than many countries… 0
,75
0,5
75
0,4
0,3
25
0,1
75
0,2
65
0,2
0,1
0,1
1
0,0
89
0,0
75
0,0
25
0,0
23
0
0,7
5
0,5
75
0,4
0,3
25
0,1
75
0,5
05
0,2
0,1
5
0,0
2
0,0
95
0,0
75
0,0
25
0,0
23
0
0,7
5
0,5
75
0,4
0,3
25
0,1
75
0,0
25
0,2
0,0
5
0,2
0,0
82
0,0
75
0,0
25
0,0
23
0 0
0,1
0,2
0,3
0,4
0,5
0,6
0,7
0,8
Ch
ina
Can
ada
Au
stra
lia
Ko
rea
Ind
ia
Jap
an
Swed
en
Ru
ssia US
OEC
D -
Ave
rage
Po
lan
d
Bra
zil
UK
Turk
ey
Communications Fixed telecoms Mobile telecoms
Index Score:
• 1 = Closed to FDI
• 0 = Open to FDI
FDI Regulatory Restrictiveness Index 2013
The FDI Index gauges the restrictiveness of a country’s FDI rules by looking at the four main types of restrictions on FDI: 1. Foreign equity limitations, 2. Screening or approval mechanisms , 3. Restrictions on the employment of foreigners as key personnel, 4.Operational restrictions, e.g. restrictions on branching and on capital repatriation or on land ownership
Source: CBRT, Ministry of Economy
Turkish ICT sector has been one of the most attractive sectors for foreign direct investment (FDI)..
$11,6bn
$2,9bn
FDI in Turkish ICT Sector, 2004-2014
Information and Communication Services
Manufacture of Computers, Electronic-Electricaland Optical Equipment
Total FDI in ICT
$14,5 Billion
1.239
516
194 15
Number of Foreign Companies in Turkish ICT, 2014
Computer and related activities
Post & telecommunications
Manufacture of radio, TV & communication equipment
Manufacture of office, accounting & computing machinery
1.964 companies
Source: TURKSTAT; ITC, UNCTAD, WTO joint dataset.
Foreign Trade
Turkey’s Foreign Trade of Manufactured ICT products, ($ million)
2011 2012 2013 2014
Manufacture of… Export Import Export Import Export Import Export Import
Electronic Components and Boards 72 1.021 98 1.057 116 1.108 108 1.246 Computers and Peripheral Equipment 117 3.133 122 3.147 148 3.483 157 3.548
Communication Equipment 151 3.403 233 4.030 204 5.450 193 6.005 Consumer Electronics 1.880 1.563 2.178 1.629 1.723 1.458 1.931 1.489 Magnetic and Optical Media 2 40 2 27 2 24 3 17 TOTAL 2.223 9.160 2.634 9.890 2.193 11.523 2.391 12.305
c.$15 billion foreign trade of manufactured ICT products
Turkey’s Foreign Trade of ICT Services, ($ million)
2011 2012 2013
Export Import Export Import Export Import
Telecommunication services 451 268 417 282 345 239
Information services 18 38 17 13 19 22 TOTAL 469 306 434 295 364 261
Over $600 million foreign trade of ICT services
In addition to domestic market, there are also export opportunities…
Source: International Trade Center, latest data available as of 17.02.2015
EUROPE
ICT Service Import: • Computer & Information Services: $79bn • Telecommunication Services: $43bn
RUSSIA
ICT Service Import: • Computer & Information Services: $3,3bn • Telecommunication Services: $2,8bn
MENA
ICT Service Import: • Computer & Information Services: $2bn • Telecommunication Services: $4,7bn
CENTRAL ASIA & CAUCASUS
ICT Service Import: • Computer & Information Services: $0,2bn • Telecommunication Services: $0,4bn
Over $135 billion
foreign trade of
ICT Services at a
4-hour flight
distance from
Turkey
Turkey has the potential to emerge as an ICT service center in the region as Turkey incentivizes export of services by exempting 50% of the export revenues from tax..
Import of ICT Services, 2013
Access to Multiple Markets
• Managing 79 countries in Middle East & Africa..
• Managing 67 countries in
Middle East & Africa..
• Managing 20 countries from
Caucasus & Central Asia and Eastern Europe
• Managing 30 countries from Turkey..
• Managing 11 countries in
Central Asia and Caucasus..
• Managing 90 countries from Turkey..
•Managing 22 countries in Middle East..
• Managing Middle East & North Africa from Turkey..
Turkey is already being used as a management hub by multinational companies..
Drivers of ICT Sector
Population Pyramid (%)
5 4 3 2 1 0 1 2 3 4 5
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
90+
Female Male
%
Age Group TURKEY
5 4 3 2 1 0 1 2 3 4 5
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
90+
Female Male
%
Age Group EUROPE
Source: Turkstat, Eurostat, UN, 2014
78 million young & dynamic people
5 4 3 2 1 0 1 2 3 4 5
0-4
5-9
10-14
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-64
65-69
70-74
75-79
80-84
85-89
90+
Female Male
%
Age Group ASIA
Turkey has a young and dynamic population, with half under the age of 30, making Turkey the country with the largest youth population in Europe…
Favorable demographic trend is here to stay for the next two decades with increasing working age population and low dependency ratio..
Source: UN
80
100
120
2014 2017 2020 2023 2026 2029 2032 2035
Working Age Population (15-64) (Index: 2014=100)
Europe
Turkey
40
45
50
55
60
65
70
75
2014 2017 2020 2023 2026 2029 2032 2035
Total Dependency Ratio (%) (Age 0-14 & Age 65+) / Age 15-64
Europe
Turkey
95
100
105
110
115
120
20
14
20
15
20
16
20
17
20
18
20
19
20
20
2021
20
22
20
23
20
24
20
25
20
26
20
27
20
28
20
29
20
30
20
31
20
32
20
33
20
34
20
35
Turkey
Europe
Population Projections (Index: 2014=100)
Source: IMD World Competitiveness Yearbook 2014,
7,4
7,2
7,0
6,9
6,7
5,3
0 2 4 6 8
Turkey
Bulgaria
Hungary
China
Romania
Brazil
Availability of IT Skills
7,1
6,8
6,7
6,0
4,5
3,9
0 2 4 6 8
Turkey
Hungary
Romania
China
Brazil
Bulgaria
Availability of Qualified Engineers
Turkey offers investors with necessary ICT skills and talents..
Executive Opinion Survey based on an index from 0 to 10 0 = Not available 10 = Readily available
Availability of ICT Skills, 2014
Source: OSYM
3621
3987
4403
3000
3300
3600
3900
4200
4500
2010 2011 2012
Number of Annual Graduates in Electrical-Electronics Engineering
3028
2906
3187
2700
2800
2900
3000
3100
3200
2010 2011 2012
Number of Annual Graduates in Computer Engineering
4881
5161
5605
4500
4700
4900
5100
5300
5500
5700
2010 2011 2012
Number of Annual Graduates in Mathematics
13203
13607
15175
12000
13000
14000
15000
16000
2010 2011 2012
Number of Annual Graduates in Computer Tech & Programming
Turkish higher education does support the ICT industry through training world-class engineers and technicians…
Turkish primary & secondary education also supports the ICT industry through enhanced usage of ICT products…
Hardware & Software infrastructure
Educational e-content and Management of e-content
Effective Usage of the ICT in Teaching Programs
In-service Training of the Teachers
Conscious, Reliable, Manageable and Measurable ICT Usage
To integrate state-of-the-art computer technology into Turkey’s public education system and provide tablets and internet access.
Education policies have been yielding results…
74 70
47 51
38
46
0
10
20
30
40
50
60
70
80
Science Math
2006 2006 2009 2009 2012 2012
Source: OECD
PISA Results Gap between Turkey and OECD Scores
PISA: Programme for International Student Assessment of the competencies of 15-year-olds in reading, mathematics and science
Math Scores
2006 2009 2012
OECD 494 496 494
Turkey 424 445 448
Science Scores
2006 2009 2012
OECD 498 501 501
Turkey 424 454 463
Source: EUROSTAT, 2012
42,4
37,5 37,3
25,0
10,0 8,3 8,0
6,8
0
10
20
30
40
Labor cost per hour (€) in manufacture of computer, electronic and optical products
42,6
39,1 36,8
19,3
10,0 7,4 7,0 6,7
0
10
20
30
40
Labor cost per hour (€) in manufacture of electrical equipment
Labor cost ICT Manufacturing, 2012
Turkey offers a cost-competitive labor force in ICT manufacturing..
Source: EUROSTAT, 2012
44,8 42,7
38,4
31,6
19,2 14,3 13,8 13,4
0
10
20
30
40
50
Labor cost per hour (€) in computer programming, consultancy and
related activities
46,6 41,8 40,2
29,0 23,3
19,4 15,9 14,0
0
10
20
30
40
50
Labor cost per hour (€) in Telecommunications
42,6 40,6
35,7 33,2
18,5
12,1 11,6 10,8
0
10
20
30
40
50
Labor cost per hour (€) in Information service activities
Labor cost ICT Services, 2012
Turkey has also a competitive edge in labor cost for ICT services..
Source: Turkey Vision 2023
Industrial Strategy of the Ministry of Science, Industry & Technology
• Increasing the number of companies that continuously improve their skills within the economy.
• Increasing the number of medium- and high-technology sectors in production & export.
• Transition to products with high added value in low-tech sectors.
• To increase the sector's share in the GDP from 2.9% to 8% in 2023.
Communication Strategy of The Ministry of Transport, Maritime Affairs &
Communications
• Having 120 million mobile subscribers.
• Increasing number of broadband subscribers to 30 million.
• Providing internet connections for 14 million houses at a speed of 1000 Mbps
• Reaching an ICT sector size of $160 billion.
R&D Strategy of the Supreme Council of Science and Technology
• Increasing the number of researchers from 135,000 to 300,000.
• Reaching a number of 180,000 private sector researchers from 39,000.
• Increasing the R&D expenditure to GDP ratio to 3% from 0.85%.
• Increasing private sector R&D expenditure of the GDP ratio to 2%.
2023 ICT
Targets
The government has also set ambitious goals in ICT sector to ensure Turkey becomes an information society with a fully developed ICT sector by 2023
Information Society
Objectives
Citizens Businesses Government
A globally competitive IT sector
Competitive, widespread and affordable telecommunications infrastructure and services
Improvement in R&D and Innovation
Social
transformation
ICT Adoption
by businesses
Citizen focused
service
transformation
Modernization in
public
administration
Information Society
• Government's holistic e-transformation efforts started in 2003
– Department of Information Society has been established under M. of Development for coordination of activities
• Since its inception, Turkey has made
progress in improving its Networked Readiness Index (NRI) from 3.96 to 4.30 (on a scale from 1=worst to 7= best) between 2007 and 2014; moving the country ranking from 55 to 511
• For the coming years, government focus is on transforming Turkey into an ICT hub
Major growth in Turkish ICT market is expected to be driven by public expenditure which has been increasing steadily as a result of information society strategy…
1. Source: WEF, NRI measures the propensity for countries to exploit the opportunities offered by ICT. The NRI has 3 components: the environment for ICT offered by a given country or community(Market, political, regulatory, infrastructure),the readiness of the community’s key stakeholders (individuals, businesses, and governments) to use ICT, and finally the usage of ICT.
Source: Ministry of Development *Adjusted to 2014 prices
Government has been a key driver of ICT development for Turkey’s e-transformation…
0,7 0,8 0,9
1,2 1,3 1,3
1,2 1,2
1,6
2,5
2,8
3,8 3,7
0
1
2
3
4
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
Government Investment in ICT (Billion TL*)
12% CAGR
Education; 43,7%
Other public services; 41,7%
Agriculture; 5,5%
Health; 2,5%
Breakdown of Government Investment in ICT (2014)
Source: Ministry of Development
Government has launched ICT projects to transform Turkey into an information society through e-government…
1415
257
209
167
157
114
114
108
106
104
0 300 600 900 1200 1500
Ministry of National Education
Ministry of Interior
Ministry of Transport
Universities
Ministry of Justice
Turkish National Police
Ministry of Agriculture
Social Security Institutions
Land Registry
Revenue Administration
1400
87
77
63
58
58
55
55
55
54
0 300 600 900 1200 1500
Fatih Project
Various Projects (MoJ)
Modernization of Land Registry
GSM Infrastructure
Improving Communication Infrastructurein Disasters (MoH)
Agricultural Monitoring & Info System
City Security Management System(MOBESE)
IT Project (Turkish National Police)
Emergency Call System (112)
National Identity Card
Top 10 Public Institutions Investing ICT (Million TL, 2014)
Top 10 Public Project in ICT (Million TL, 2014)
Incentives
Source: Ministry of Economy
In order to benefit from regional incentives for manufacturing of electronics and electrical machinery, minimum capex of;
• 4 million TL in region 1 • 3 million TL in region 2 • 2 million TL in region 3 • 1 million TL in region 4 • 1 million TL in region 5 • 0,5 million TL in region 6
Main incentives: 10% or 40%, depending on the region, of capex will deducted from corporate tax
VAT and Custom tax exemptions
Social Security Premium Support
Land Allocation
Income withholding tax allowance (in region 6 only)
Regional Incentives for Manufacturing
Source: Ministry of Economy
Larges-scale investment incentives are offered to electronics and electrical machinery manufacturing investments with minimum 50 million TL capex Main incentives: 20% or 50%, according to the region, of capex will deducted from corporate tax
VAT and Custom tax exemptions
Social Security Premium Support
Land Allocation
Income withholding tax allowance (in region 6 only)
Large-scale Incentives for Manufacturing
Investments in the manufacturing of products and parts developed
through R&D projects incentivized by the Ministry of Science, Industry
and Technology, TUBİTAK and Small and Medium Enterprises
Development Organization (KOSGEB)
… are deemed as priority investments and incentivized accordingly…
Main incentives: 30% or 40%, according to the region, of capex will deducted from corporate tax
VAT and Custom tax exemptions
Social Security Premium Support
Land Allocation
Income withholding tax allowance (in region 6 only)
Priority Incentives for Manufacturing
Source: Ministry of Economy
Grants to mass-production of new products that are developed through R&D and innovation activities completed in anywhere including abroad. 40% of imported machinery & equipment is funded for small, 30% for medium and 10%
for large scale companies* (valid for 3 years with additional 6 months)
Additional 10% for machinery & equipment if they are locally-manufactured (50%, 40% and 20% for small, medium and large scale companies respectively).*
75% of one-year rent and 75% one-year energy cost is funded
75% of personnel’s one-year gross salary cost and companies can hire 1 R&D personnel whose gross salary cost is funded till 2023
Funding interests on loans for small and medium size companies.
*Note: maximum funding support for machinery & equipment is 5 million TL for small, 4 million TL for medium and 2 million TL for large size companies.
Source: Ministry of Science, Technology and Industry; Small size company: employment< 50, turnover<8 million TL; Medium size company: employment<250, turnover<40 million TL
Manufacturing incentives for Technological Product Investment Program
Revenues derived from software development and R&D activities are exempt from income & corporate taxes until end-2023.
Sales of application software produced exclusively in TDZs are exempt from VAT until end-2023. Examples include software for systems management, data management, business
applications, different business sectors, the Internet, mobile phones and military command control.
Salaries of R&D and support personnel employed in TDZs are exempt from all taxes
until end-2023. The number of the support personnel covered by the exemption shall not exceed 10
percent of the number of the R&D personnel.
50% of the employer’s share of the social security premium will be paid by the
government for 5 years (valid until end-2024)
Mass-production of products developed through R&D in TDZs are further incentivized as priority investments by the Ministry of Economy (main incentive, inter
alia, is 40% of capex is gradually deducted from tax base)
Incentives in TDZs:
R&D Incentives in Technology Development Zones (TDZ)
Source: Ministry of Science, Technology and Industry;
R&D Incentives valid until end-2024
Objective: To establish R&D centers in Turkey Condition: Employing minimum 30 R&D personnel 100 % deduction of R&D expenditure from the tax base, if 500 R&D staff employed, then in
addition to the 100% deduction, half of the R&D expenditure increase incurred in the operational year compared to the previous year is also deducted.
Income withholding tax exemption for 80% of staff ‘s salaries are exempted from income withholding tax; for staff with PhD 90% exemption (until end-2023.)
50% social security premium exemption for employers for 5 years
Stamp duty exemption
Mass-production of products developed in R&D centers are further incentivized as priority investments by the Ministry of Economy (main incentive, inter alia, is 40% of capex is gradually deducted from tax base)
If employment is less than 30 R&D staff, still R&D expenditures are deducted from tax base.
R&D Incentives for R&D Centers
Source: Ministry of Science, Technology and Industry;
R&D Incentives for SMEs
Source: KOSGEB
R&D and Innovation Program Upper
Limit (TL) Support Rate (%)
Rental Support 12.000 75
Machinery – Equipment, Hardware, Raw Material, Software and Service Purchase Cost Support 100.000 75
Machinery – Equipment, Hardware, Raw Material, Software and Service Purchase Cost Support (with payback)
200.000 75
Personnel Cost Support 100.000 75
Initial Support 100.000 100
Pro
ject
Dev
elo
pm
ent
Sup
po
rt
Project Consulting Support 25.000
75
Training Support 5.000
Industrial and Intellectual Property Rights Support 25.000
Project Promotion Support 5.000
Foreign Convention/Conference/Exhibition Visit/Technologic Cooperation Visit Support 15.000
Test, Analyses and Certification Support 25.000
Industrial Implementation Program
Rental Support 18.000 75
Staff Costs Support 100.000 75
Machinery – Equipment, Hardware, Consumables, Software and Design Cost Support 150.000 75
Machinery– Equipment, Hardware, Consumables Software and Design Cost Support (with Payback) 200.000 75
Source: TUBİTAK
Industry R&D Projects Support Program (#1501)
Project Markets Support Program (#1503)
Technology Transfer to SMEs Program (#1505)
SME R&D Initiation Support Program(#1507)
International Industrial R&D Support Program (#1509)
Aim to increase the R&D capabilities of Turkish industry Grants provided to companies on specific R&D projects • Grants of up to 60% of total project cost • No budget limit..
Support for events to bring universities, R&D institutions and private sector together to discuss project possibilities Maximum 20K TL for local events, 25K TL for events with international participation
Aim to transfer R&D knowledge developed in universities to SMEs • 75% of project budget covered by TUBITAK, 25% by SMEs • Maximum project size of 300K TL, project support period of 18 months
Aim to support SMEs get their R&D projects İnitiated • Maximum project size of 400 K TL, project support duration of 18 months
Aim to support R&D projects of Companies entering International project programs e.g. • EUREKA • EUROSTARS Projects supported via grants of ... • ... up to 60% for large-scale companies, 75% for SMEs
TUBİTAK support R&D mainly through 5 programs
R&D Incentives by TUBİTAK
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