The Chairman's Speech at the Assembly / 22 November 2006
Mr. Chairman, Esteemed members of the assembly and of the press,
On behalf of the Board of Directors, I would like to welcome all of you to our November
assembly meeting.
We are rapidly approaching 2007, a year in which two important elections will take
place in Turkey: the presidential election in April, and the general election in
November.
Taking this as our point of departure, we would like, as our speaker said just a
few minutes ago, to meet early in the year with the leaders of the political parties
represented in parliament to hear their views on the present and future of Turkey
and, especially, on the nation?s economy and industry. This will give us another
opportunity to pass along to the party leaders that are seeking political office
the needs of our industry and our recommendations for meeting them. We therefore
have with us today as our first guest, Right Path Party (DYP) Chairman Mr. Mehmet
A?ar, and we are going to listen very carefully to what he has to say! We would
like to welcome Mr. A?ar and thank him for accepting our invitation to join us today.
We would also like to welcome our members of parliament, the DYP party officials
and assistant chairmen, and Mr. Orhan Keç eli, former speaker of our own assembly.
Esteemed members of the assembly:
As of November our government will have left behind four years in office. When we
look at the economy at the end of those four years, what we see is a dual structure.
On the one hand the important successes that have been achieved, on the other the
continuing fragilities. To save time, I will not enumerate them here today; however,
as our assembly members and those who follow our statements carefully already know,
we are constantly talking about the successes that have been achieved in the economy.
We express our appreciation for them and we make an effort to support our government
as best we can for the jobs well done. Nor will this ever change! However, again
as we always say, it is also our duty to point out the shortcomings, because we
believe that by doing so we can serve our country, our economy and our industry
in the best way. And as we bring those shortcomings and weaknesses to the agenda
today, as always our purpose is to contribute to preserving the gains that have
already been made and to putting our economy on a more sound footing.
Esteemed members of the assembly:
It would not be incorrect to say that a low exchange rate, or overvalued TL, has
increasingly become a fixture of the economic program introduced at the end of 2001.
And if we look at what this has meant for the economy, on both the plus side and
the minus side, this is what we see: Low exchange rates caused an improvement in
the economic indicators and made imports cheaper. Low exchange rates and cheap imports
in turn facilitated the fight against inflation. And the ensuing rapid growth in
imports drove the foreign trade and current account deficits to record levels. Yes,
over the last four years there has been no problem financing the current account
deficit, the crucial factor here being a high degree of liquidity and a very favorable
trend in the world economy.
Plus, Turkey enjoys even further advantages now that she is on the path towards
full accession to the EU. When we rose to the status of a country engaged in negotiations,
there was a sizable upsurge in inflows not only of short-term capital but of direct
investment as well. While total foreign direct investment in Turkey in the 23 years
from 1980 to 2003 was 19 billion dollars, such inflows came to 21.1 billion dollars
in the 20-month period from the beginning of 2005 to August 2006. And yes, this
growth in direct investment improved the quality of financing of the current account
deficit.
This is a very important and positive development, but a development that does not
change the fact that a high current account deficit is a grave risk for the economy,
as was demonstrated so clearly by the negative impact of the external shocks last
May. The current account deficit total for 2003, 2004 and 2005 was 46.3 billion
dollars. At the end of 2006 the current account deficit is expected to be 32 billion.
By this calculation, a total current account deficit of around 80 billion dollars
emerges for the last four years. As we see it, this is not a sustainable situation!
Esteemed members of the assembly:
Following the May fluctuation which I mentioned briefly above, the situation returned
to normal. And hot money continues to flow today, pulling the exchange rates down.
There is one fact that we have been stressing for a long time, namely, that Turkey
is compelled to boost her exports in order to sustain growth and reduce the current
account deficit to tolerable levels, and that exchange rates are a crucial factor
under conditions in Turkey. This has been interpreted in some circles to mean that
industrialists are unwilling to give up their old habit of taking the easy way out.
But this view, which developed out of our practical life experience, has now found
backing even in academic circles. One of the world?s most respected economists and
a professor at Harvard University, Dani Rodrik expressed the following views in
a recent article on industrial policy and at a meeting he attended in Turkey:
"Capacity building and investment are by necessity the source of structural change
and locomotive power in the manufacturing industry. And this in turn requires that
relative profitability be raised. Relative profitability in the industrial sector
is closely related to real exchange rates. Empirical studies show that there is
a close relationship between competitive exchange rate policies and economic growth."
Yes, this what Mr Rodrik says!
We have been taking every opportunity to point out how much damage Turkey?s low
exchange rate policy is wreaking on profitability and on her competitiveness in
the foreign markets! We say this, but when we look at the figures, our industrialists
appear to be increasing their exports despite the low exchange rates. Yes, our industrialists
have succeeded in this by sacrificing their profits for the sake of preserving their
foreign markets and continuing to produce, and by increasing their productivity
and using fewer workers, and, unfortunately, also by turning to imported inputs.
And when we look at what lies behind that success, we see enterprises on the brink
of closure and job losses due to the pressure created by those imports. How much
longer can we go on like that remains to be seen.
The economy is growing, but unemployment remains one of the biggest problems we
face. Our import-fuelled growth is not being reflected in jobs! And doesn?t this
have a hand in the horrific purse snatchings and muggings that threaten our people?s
lives and property, and in the problem of increasing social unrest and the rising
crime rate?
The United Nations Development Program (UNDP) recently announced its human development
index. Turkey ranked 92nd among 177 countries. On the human poverty index, which
ranks countries from worst to best, Turkey is 21st out of 102. Even more serious,
on the gender empowerment index, which measures women?s participation in politics
and the economy, we are 72nd out of 75, ahead only of Egypt, Saudi Arabia and Yemen,
whereas we should have been much higher on this scale. The political parties that
want to solve Turkey?s problems should pay close heed to these facts. Only a Turkey
that invests more, produces more, exports more and creates more jobs can solve its
economic and social problems.
Mr Speaker,
Esteemed members of the assembly,
Mr Chairman:
The highest export growth of the year in 2006 was in June at 28.5%, and as the exchange
rates fell in the months that followed, growth in exports also slowed, falling to
7.4% in September. Yes, as the figures make clear, competitive exchange rates are
a crucial factor on the road to more production and more exports, but this should
not be construed to mean that we are pinning our hopes for solving all our economic
problems on the exchange rates.
As we have been insisting for a long time, our primary expectation at the Istanbul
Chamber of Industry is that equal conditions be created with those in our competitor
countries. We are constantly talking about problems that somehow cannot seem to
be overcome, such as energy costs, which are higher than those of our competitors,
the burden of taxes and premiums, financing difficulties and endless red tape. To
save time I don?t want to go into the details here. These problems, which stem from
structural hitches, can only be solved through structural reforms. And this requires
political will! Our government has taken certain important steps towards structural
reforms, yes, but the positive results of what has been done have not yet been reflected
in production.
Combatting the black economy and eliminating the injustices in the tax system are
of paramount importance to us. We know that efforts are under way, but unfortunately
little progress has been made in this area.
When we look at the budget for 2007, we see that tax revenues are expected to grow
by 19.7%. The increase in indirect taxes is envisaged at over 20%. What this means
is the following: One, if the tax base is not broadened as we deal with the black
economy, the burden of taxes on law-abiding enterprises, and therefore the unfair
competition to which they are exposed, is going to become even greater. Two, the
share of indirect taxes in tax revenues, which is already 70%, is going to rise
even higher, and in 2007 an even bigger share of the gross value added created in
industry is going to go to the state in the form of indirect taxes.
The ?ISO 500? survey of Turkey?s top 500 industrial enterprises, which we publish
annually, shows that among the country?s largest enterprises the share of net indirect
taxes in gross value added, which was 10.5% in 1992, had tripled by 2005 to 32%.
I offer this figure for your information, and I would especially like to underscore
the fact that combatting the black economy is one of the primary goals of our political
parties. We would like to state once again that, in addition to structural reforms
at the macro level, we are also expecting the implementation of micro measures as
soon as possible that will clear the path for our enterprises.
Mr Speaker,
Esteemed members of the assembly,
Mr Chairman:
We could further prolong the list of our industry?s needs. But, as we always say,
this should not be taken to mean that our industrialists expect the state to do
everything. In principle, developing competitiveness requires the public and private
sectors to work together in perfect harmony and cooperation.
We believe that you, as a leader who has served the Turkish bureaucracy for many
years and who knows Turkey closely, are very well aware of these needs. We are going
to continue to demand from the state the things that it needs to do. But we are
also aware of our own responsibility in developing competitiveness and we are looking
for ways of doing this in the best way possible.
In one of the most significant initiatives in this direction, our Chamber held its
fifth industry congress on the theme ?Sustainable Competitiveness? on 1-2 November.
I would like to take this opportunity to thank all our assembly members who attended
the congress for the support they gave and the interest they showed. Furthermore,
I would like to thank once again the executive council, the program committee and
all our chamber employees for their efforts.
With your permission I would like now to express our special gratitude to Mr Ataman
Onar, one of our board members, who played a key role in pioneering the idea of
our congress and keeping it going. Our congresses make a significant contribution
to our industrialists? understanding of the conditions of competition and to their
approaching them through concepts such as innovation, R and D, development of technology,
design, branding and making a difference. I would like to draw your attention to
the fact that these concepts, which are the key to success in the global competition,
are based on knowledge, education and human resources. Training people and educating
them well is very important! Our congresses make it abundantly clear that anyone
who does not invest in people, knowledge and education is going to fail in the competition
every time.
So where do we stand when it comes to education? There is a major disconnect and
disharmony between the labor force required by our industry and the human resources
that are trained by our educational system. Our industry has big problems finding
skilled intermediate level workers. To solve this problem, we must improve the quality
of vocational training in Turkey and make it more widespread. Under the circumstances
it is extremely distressing that when our council on national education convened
recently it was hijacked by claims of ideological and political exploitation rather
than seeking solutions to our existing problems. Such an approach is only going
to make solution of our problems regarding vocational and technical training all
the more difficult. Such an important problem from the standpoint of competitiveness
and jobs should not, and cannot, be sacrificed to other ends!
Esteemed members of the assembly:
The European Commission recently announced its progress report on Turkey. There
is a serous problem regarding the opening up of our ports to Southern Cyprus. The
EU leaders summit in December is going to give its decision based on whether this
problem is overcome or not. The worst that can happen is that the negotiations will
be suspended. We don?t however believe it will come to that.
Turkey?s membership in the European Union is a subject that both sides need to approach
extremely strategically and long-term. There may be periodic snags. But Turkey should
definitely pursue the negotiation process toward the goal of full EU accession and
make an effort to eliminate her deficiencies. At the same time however the European
Union should not place any unusual demands on Turkey.
Here at the Istanbul Chamber of Industry there is one matter with regard to the
European Union that we try to bring to the agenda at every opportunity, namely that
the Turkish industrialists whose products have the right to circulate freely in
the European Union countries are themselves not free to do so. Our industrialists
also face serious problems obtaining entry visas for the EU countries. As a country
with accession status, Turkey?s businessmen and industrialists should be given the
freedom to circulate that they deserve without further delay. European Union institutions
and the European public should be told that the facilitation of procuring visas
does not mean illegal migration, and that if our industrialists are given this opportunity
it will actually have a positive impact on the European economy and employment.
Our government, political parties and negotiating delegation should definitely include
this among their priorities. We must be able to explain Turkey, our culture, our
historical heritage, our economic potential, what we can bring to the European Union
and, of course, Istanbul, which is one of our biggest assets, to the European public
and institutions. The 2010 European culture capital Istanbul project is an important
opportunity in this sense.
The Istanbul Chamber of Industry has supported Istanbul?s efforts to become the
European culture capital from the beginning. In the context of the project, and
in the framework of the activities, research and urban renewal efforts that are
going to be carried out, we believe that Istanbul?s identity as an industrial city
should also not be overlooked, and we are bringing this up and will continue to
bring it up in the relevant settings.
A study published this month in our chamber magazine puts forward some important
clues regarding Istanbul as an industrial city. According to the study, the manufacturing
industry garnered first place with 33% of the incentive-based investments that were
made in Istanbul between 2002 and 2006. Among the subsectors, transport vehicles
and the textile and apparel sector were in front with 57.5% and 17.3% of total investment.
In other words, Istanbul has not given up her industry yet. And this fact should
surely be taken into account in studies on the city. As we always say, there certainly
should be and will be industry in Istanbul. But in the long term the target should
be an industry that befits a global capital, that uses clean technology, that is
knowledge- and technology-intensive and that produces goods that are high in value
added.
And now 2007 looks like being a critical year that will bring with it certain questions
at which we all need to take a very good look. All segments of the population, but
particularly those with the responsibility of governing, bear an obligation to weather
this year successfully.
When we look at our recent history we see that politics from time to time ceased
to be a mechanism that generates solutions and instead became a source of bottlenecks.
Those periods were lost years for our country. In the period ahead we believe that
as long as our political parties embrace the concept of consensus-based solution-oriented
politics, Turkey will pass all her tests. But is it only our political parties who
need to do this? No, all our institutions must learn to generate solutions based
on consensus and common sense, and indeed we have already made important progress
in that direction. For we as a people have paid a high price! We have 130 years
of democracy behind us since our first parliamentary experiment in 1876. We have
learned from experience where rabid partisanship, one-sided faits accomplis, non-conciliatory
positions and leadership, polarization, election economies, and faith in populist
policies and politicians can lead!
After all this, I would like to say that I believe in, and would like to see, Turkey
today as a country with sufficient experience and political maturity to solve all
her problems through the democratic process
In closing, I would like to thank you for your forbearance and salute all of you
once again behalf of the board of directors.
C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors