The Deputy Chairman's Speech at the Assembly / 23 November 2011
Mr. Chairman, Distinguished guests, 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 meeting. Since our board chairman, Tanıl Küçük, is currently out of the country, I will be voicing our views this month on behalf of the board. I would first of all like to welcome our guest, Prof. Dr. Ercan Uygur, and thank him for accepting our invitation to be with us today.
Esteemed members of the assembly:
We are approaching the end of 2011 at a time of growing uncertainty in the global economy. The waters remain muddy in the European Union, our biggest export market, where problems in the economy are paving the way to political change. The Prime Ministers of Portugal and Ireland have resigned. In Greece and Italy two long-standing leaders, Papandreou and Berlusconi, have had to leave office and new governments have been formed. In Spain meanwhile, where unemployment is over 20%, the ruling socialist party suffered a crushing defeat in the recent election. And increasing questions are arising about France.
At the same time, in the Middle East the Arab Spring is becoming more and more tense, the violence is unending in our next door neighbor Syria, and Egypt and Libya do not appear to have achieved stability as yet. In short, the world economy and global politics are fraught with uncertainties. In a statement he made last week, our Deputy Prime Minister, Ali Babacan, underscored the seriousness of the situation when he said, "The period through which we are passing is a one of turmoil that cannot be compared with any period in the last century."
It is plain that 2012 is going to be a difficult year, indeed, all the forecasts are in that direction. The U.S., which is the driver of the world economy, is forecast to grow by 1.5% and the Euro Zone by 0.5% in 2012.
Looking at the situation in our own country as we move toward a difficult year at a time of such turmoil, we see that most of the economic indicators paint a rosy picture. Most recently, in September, our industrial production rose by 12% on the same month the previous year. Meanwhile a month ago, in August, at 3.7%, we had the lowest growth rate of 2011, more precisely of the 22-month post-crisis period during which industrial production rose without interruption.
How fortunate that the slowdown did not last and that industrial production started to rise again within a month.
At the same time October ended with a capacity utilization rate that is encouraging in terms of industrial production. Capacity utilization in the manufacturing industry in October was 77%, its highest in the 37 months since September 2008.
Meanwhile, as of the first nine months of 2011, our industrial production has risen by 9.7% on the same period the year before. Looking at all these indicators, we can say that as of now that there is a strong probability the 7.5% growth forecast for the year will be achieved.
Considering that we frequently say that Turkey needs uninterrupted and high rates of growth like 7-8% in order to be able to solve her economic and social problems, this would an extremely encouraging development under normal circumstances. Unfortunately, however, the enormous current account deficit that comes with that growth, and which constitutes an element of fragility in our economy, puts a bit of a damper on our enthusiasm.
According to the latest balance of payments figures, our current account deficit was 6.7 billion dollars for September, 60.6 billion dollars for the January-September period, and 77.5 billion dollars for the last 12 months ending in September.
If we look at the Economist magazine's "Economic and Financial Indicators", we see that our country is actually in a good position in terms of its growth rate but that it leads the pack with a ratio of current account deficit to national income of minus 10%. Greece follows close behind with minus 9.6%.
While it may have been exacerbated in the last 7-8 years, the current account deficit has been a structural problem in our economy since the 1950's, the main reason being our large foreign trade deficit, which has swelled out of control in recent years. In the five years from 1991 to 1995, for example, our total current account deficit was 6.8 billion dollars. Then in the five years from 2006 yo 2010 it ballooned to 173.7 billion dollars, and when we add in 2011 we are talking about a whopping figure indeed.
As you will remember, certain measures aimed at tackling the current account deficit have appeared on the agenda since the end of 2010. We are not sure how effective those measures have been. But when, after a long hiatus, our exports finally rose faster than our imports in August and the rate of growth in the foreign trade and current account deficits slowed on previous months, we felt a glimmer of hope. A month later however we were back to square one. At. 35.5% in September, growth in imports was again higher than growth in exports, which came to 21.1%. We made 10.8 billion dollars' worth of exports in September but only 21.1 billion dollars' worth of imports. And 15.7 billion of that, in other words 74%, was made up of intermediate goods. The distortion in Turkey's foreign trade structure, to which we frequently try to draw attention, is therefore continuing unchanged.
At the same time, a look at industrial production figures for September shows that the sectors with the highest growth rates were those oriented more towards the domestic market, a situation that would lead one to believe the increase in production is being driven primarily by growth in domestic demand.
The economy therefore is still not showing signs of a cooldown that could lead to a reduction in the current account deficit. The most crucial problem we face is what will happen if the measures being taken don't work. How much longer can our current account deficit continue to grow? How much higher can it go?
A few days ago the Financial Times ran an article seeking to answer the question, "Could there be a soft landing in the Turkish economy?" In this period of upheaval in the global economy, the Turkish economy is indeed going forward with a high current account deficit that we could liken to balancing a basket of eggs on its back.
We are just lucky we have not experienced any financing difficulties so far! For, in an encouraging development, the latest figures point to an increase on last year in direct investment inflows. But the major portion of our current account deficit is still being financed by short term capital inflows. There is no doubt that a current account deficit of this magnitude constitutes an element of fragility under any circumstances.
In the program, the Turkish economy is forecast to grow by 4% in 2012, whereas the IMF's forecast is for 2.2% Yes, we have to tackle the current account deficit, but not at the cost of growth. Turkey has no choice but to break the vicious cycle of high growth - high current account deficit. We know of course that this is not a problem that admits an easy and immediate solution. But economic history shows that countries that strain their resources to produce creative solutions in difficult circumstances are the ones that get ahead in the development race.
In Turkey at present we have at the helm an experienced economic team that has proven itself. Turkey is one of the few countries that was able to bring down its unemployment rate in the post-crisis period.
Our budget performance is going well, which distinguishes us from the more problem-fraught economies around us. These are important advantages for us. We believe that if all parties concerned join hands, Turkey will definitely be able to produce solutions that will overcome its high growth - high current account deficit problem!
We expect that our distinguished professor is also going to share with us his views on the subject. We for our part regard the transition to a structure of production that is knowledge- and technology-intensive and high in value added as one of the most important steps towards solving this problem. In our opinion, in order to realize such an objective of structural change, it is of paramount importance that the government and economic management introduce guidelines and incentives and create a macro economic climate that shores up competitiveness.
But the job doesn't end with macro adjustments. At the micro economic as well as the company level, the economy needs to be equipped, both physically and psychologically, to withstand jolts coming from the global economy. In this process a big responsibility also falls on the private sector.
Here at the Istanbul Chamber of Industry we are engaged in efforts to fulfill our own responsibility. One of our most significant activities in this sense is the industry congresses that we have been organizing without interruption since 2002. We will hold the tenth of those congresses this year at the Istanbul Convention Center on December 14 and 15. As at our previous congresses, the main theme of our tenth congress is again "Sustainable Competitiveness", with the sub-theme, "Designing the Future By Riding the Waves".
There will be a total of twenty-eight speakers, two of them guest speakers, and a total of five sessions, four regular and one closing, at our tenth congress. The first day's guest speaker this year is Professor Paul Romer, one of the world's leading economists, known for his expertise in growth theory and innovation. On the second day we will hear Professor Amar Bhidé, who is regarded as one of the world's foremost authorities on the role of innovation and entrepreneurship in raising levels of prosperity.
In 2009 for the first time we included an innovation exhibition as part of our congress, and in the same year we gave our first Chamber of Industry innovation award. Our innovation exhibition will continue at our tenth congress as well, and we are also giving innovation awards this year for the second time.
As we do every year, this year too we will take great pleasure in having you, our esteemed assembly members, with us at our industry congress. Our 2011 environment awards will find their recipients in an awards ceremony to be held at the ISOV Akatlar Vocational Training Complex on December 8. We hope to have you with us at the awards ceremony as well.
Mr. Chairman,
Esteemed members of the assembly:
As I said at the start of my talk, the picture we see when we look at the global economy is not particularly heartening. It is clear that the next few years are not going to be easy, that the turmoil, change and power shifts, signs of which are already evident in the global system, are going to continue. The picture in front of us indicates that we are in one of those times in history of breakdown and restructuring. We also know that there are winners and losers in such times.
The problem ahead of us during these troubled times is, therefore, to be able to navigate our country and our economy into calm waters with as little damage as possible and come out a winner in the transformation. There are some problems in our economy, yes, but in many ways we are also in a favorable position. Our country appears to be one of the stars of the global economy.
What we need to do is to analyze well our strengths and weaknesses and take measures as needed. Looking back at the decade we have left behind, we see that our economy is quickly and deeply affected by crises but that it is also capable of recovering rapidly. Everyone is aware of the fact that the lion's share in the recovery both times was due to our industry. Despite its competitiveness problems, our industry succeeded in creating a way out for the economy by turning to exports in the post-2001 crisis period at a time when the domestic market had come to a standstill, and by straining its resources to the limit in both the domestic and the foreign markets in the current global crisis, thereby proving that it is the engine of growth.
In weathering the difficult period ahead the main responsibility is again going to fall on our industry. It is a fundamental and indisputable fact that an individual who is going off to war needs to be better equipped! In the current climate when interest rates are beginning to climb and fluctuation in the exchange rates has triggered uncertainty, it is more important than ever that reforms that will shore up the competitiveness of our industry be realized without delay.
As I said earlier, we are very hopeful that our government is going to give more importance to supporting our industry and solving its problems in the new period. We remain hopeful even if our morale has been slightly dampened by some of the implementations. As we always say, a country on the scale of of Turkey cannot solve its problems and move forward without a strong industrial sector. I would like to close in the hope that everyone has finally come to this realization, and to salute you all once again on behalf of the board of directors.
Nuri TUNA
Istanbul Chamber of Industry
Deputy Chairman of the Board of Directors