The Chairman's Speech at the Assembly / 23 December 2009

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 December meeting. We are about to leave behind the year 2009, a year we entered knowing it was going to be a difficult one, and one that was truly difficult, very difficult indeed, for both the world and the Turkish economy.

At this last assembly meeting of the year, I am going to try to paint a picture, if you will, of the state of the Turkish economy today, and to identify in that picture the dark and the relatively bright sides, as well as making some assessments of what we can expect from 2010.

We now have enough data to get a picture of the economy in 2009, insofar as the third quarter growth figures enable us to see clearly how the economy performed in the first nine months, while the 2009 economic program forecasts enable us to assess as a whole.

Esteemed members of the assembly:

According to the latest statistics, the Turkish economy contracted for four straight quarters from the last quarter of 2008 through the third quarter of 2009. The single encouraging aspect of this negative picture is that the rate of contraction is slowly decreasing. At 14.7% in the first quarter of 2009, the contraction fell to 7.9% in the second quarter and 3.3% in the third, yielding an average of 8.4% at the end of the first nine months.

Looking now at the situation in the primary sectors, we see that manufacturing had contracted by 12.4%, construction by 19.5%, trade by 16.3% and transportation by 12.2% at the end of the first nine months. While these sectors were shrinking, agriculture grew by 3.2% and banking by 8.7% in the same period.

If we regard the growth in agriculture as an exception due to climate and precipitation, then this comparison offers concrete proof that our view that the global economic crisis had a far greater impact on the real sector of the Turkish economy than on banking and finance is not mere rhetoric.

Industrial output in Turkey began to contract in August 2008. In September 2009 we experienced a serious contraction of 8.9%. Expectations for October meanwhile were for a contraction of 1-2 %. However, as you know, contrary to expectations, industrial output surprised us all in October, rising by 6.5% on the previous year and 13.7% on the previous month, thus ending, at long last, the process of contraction that had continued for 14 months.

Finally there was a small parting in the black clouds hanging over the economy. In the 2001 crisis the contraction continued for thirteen months; this time it was fourteen. But the fact that the return to positive territory was earlier and higher than expected is an extremely upbeat and encouraging development for our industry and our economy. Coming after several months, this good news from output has given our morale a considerable boost. And when things are going well in output, it has a positive impact on growth as well.

Following this encouraging development, there is a strong probability that growth will also be positive in the last quarter of 2009. And while positive growth in the last quarter may not redeem the year as a whole, it nevertheless is important as a turning point in our emergence from the recession as well as encouraging for the future. While boosting morale and restoring confidence in the economy, however, growth in output should not pave the way to excessive optimism. For any slacking off in the belief that things have straightened out and are okay will mean neglecting what needs to be done. In September the contraction exceeded expectations. In October growth was way beyond expectations. Therefore industrial output has not yet stabilized.

he problem we face now is how to make production growth stable once again and ensure that it continues in the months ahead. According to the monthly indexes of industrial output, while production in manufacturing shrank on average by 9.1% in the third quarter, the contraction in value added in manufacturing in the same period remained at 3.9%. A smaller contraction in value added than in output indicates that tremendous success has been achieved in boosting productivity in our industry. Mustering all the means at its disposal, Turkish industry succeeded in staying on its feet and, with October's production increase, in also laying a firm groundwork for the economy. Our expectation now is that our industrialists will be supported by measures that will enable them to take advantage of that groundwork to effect a lasting recovery.

Based on capacity utilization rates, which were announced immediately following output figures, capacity utilization in manufacturing, which was 71.8% in October, fell in November to 70.7%. While industrial output rose in October by 13.7% on the previous month, the industrial turnover index was up by 7.3%.

In other words, it appears that a portion of October's output went into inventory. Since the VAT and SCT cuts ended in September, such additions to inventory in October are not surprising, demonstrating once again that the tax cuts were beneficial and should have continued a little longer.

urning back now to output, the orders index in October rose by 3.9% on the previous month. The capacity utilization rate and the turnover and orders indexes all point to a flat curve for industrial output in November. Following October's hefty growth, even if November is dormant we hope to see a rosier picture in December.

But let us turn now to the real question: What is going to happen in 2010? Value added in industry is envisaged to grow by 4.4% in 2010 according to the economic program. As for the situation in domestic and foreign demand, private consumer spending is expected to grow by 2.5% and exports by 9.1% on a dollar basis. It would however appear difficult to achieve 4.4% growth in industry with a 2.5% increase in consumer spending. Indeed, a look at the consumer confidence index indicates that the situation in domestic demand is not particularly encouraging.

he good news coming from exports has nevertheless been one small ray of hope in the recent period. Not only did Turkey's exports rise by 3.9% on a dollar basis in October, by volume they were up by a striking 10.7%.

he key point here is that the Turkish Bureau of Statistics' export unit value index points to an average price fall of 19.2% in exports at the end of the tenth month of 2009. What this means is that as prices are falling in exports, the exporting industrialist, in a show of enormous self-sacrifice, has succeeded in both keeping the fall in exports to a minimum and putting the brakes on the fall in output.

We must remember this: Under these conditions, in order for export hopes to be sustained in 2010, the exchange rates at least need to come down to below their current level. On the other hand, let's say that everything goes as predicted and industry grows in 2010. This growth is not going to suffice to compensate for the 8.5% contraction forecast for 2009. If there is 4.4% growth in 2010, our industry in 2011 will just barely recover its level of 2008. These forecasts show that making up our losses is going to take a very long time.

he picture is similar in the economy as a whole. Based on the forecasts of the medium term program, when we do the calculations the result emerges that Turkey is going to grow by an average 1.4% a year in the 2008-2012 period. Average annual growth from 1923 to 2008 in contrast was 4.6%. We hope it will be different, but unfortunately these five years look for now like being a complete loss.

Esteemed members of the assembly:

Enormous losses in profitability occurred in 2008 and 2009. And declining productivity means that firms' capacity to save and to generate funds for new investments and jobs also is also eroded. A low rate of domestic savings and investment is one of the basic structural problems of Turkish industry, a structural problem that unfortunately appears to have further deepened in the recent period. Private sector investment spending in the Turkish economy has contracted at a phenomenal rate for the last six quarters since the second quarter of 2008.

Most recently, in October, the decline in the production of fixed capital goods appears to be continuing even as industrial output is bouncing back.

Private investment spending in Turkey had contracted by 27.7% at the end of the first nine months of 2009.

his is a very high rate of contraction and not at all good news for our economy. Let us not forget that investments are an indicator of dynamism in an economy. Inadequate investment means that the recovery is not going to be as rapid as we would like. Not only that, but the dire situation in investments is unfortunately not limited to a contraction either. According to the World Bank 'Doing Business 2010" report, Turkey, which ranked 63rd in 'ease of doing business' in 2008, has now fallen to 73rd. How can it be that the world's 17th largest economy ranks 73rd in terms of ease of doing business? How is a recovery going to be achieved in 2010 with a situation like this in investments? According to the economic program, private investment spending in 2010 is going to grow at the rate of 7%. When you consider however that this growth will come on top of declines of 5.9% in 2008 and 21% in 2009, then clearly there will be no growth in any real sense. By necessity Turkey has no choice but to reconsider the question of investment, which she has neglected far too long. There is no other way to bring about any improvement in employment. Work force figures for September 2009 show that 295,000 jobs were lost in industry in the last year. Industry is the only primary sector in which employed declined during this period. We cannot expect a significant improvement in industrial jobs or in the problem of unemployment in general in 2010.

his picture confronts us with the following list of priorities:

he first goal should be to recover stability in economic growth, and the second to ensure a shift into positive territory in consumer and investment spending. Success in these areas will constitute a solution, to some degree at least, to unemployment, the gloomiest aspect of the picture in front of us.

Esteemed members of the assembly:

As you know, we held our eighth industry congress on 15-16 December on the theme, "Sustainable Competitiveness: The New Path After the Crisis". I would first of all like to thank all our members who attended the congress for the interest they showed. We got a chance at the congress to listen not only to our valuable session speakers, but also to three eminent guests from abroad, which enabled to go beyond the scale of Turkey and assess the situation in the world. Together with our participants we tried to understand what kind of world awaits us in the process ahead.

In relation to the global crisis, one point on which all our speakers were in agreement was that a new era has begun in the capitalist system and that the center is shifting from west to east. One guest speaker described it as a geo-political shift, and said that this geo-political shift is also going to bring about a shift in values.

While were we expecting at our congress to focus on the global economy in our search for a path in the post-crisis period, we saw in the talks that other topics, such as climate change, water resources management and energy conservation, emerged as being of higher priority. Our guest speakers pointed to these as the issues that need to be addressed for future preparedness. Britain's leading futurologist, James Martin, says that climate change constitutes a far greater threat to mankind than terrorism. While our existence on the Earth is under threat, at the same time mankind is scoring a dizzying array of technological successes. As we see it, what man needs to do at this point is to use his great technological advances to preserve the ecological balance. Technological developments should be mobilized to create a world free of ecological threats. Not only that but this ideal also brings with it an enormous economic potential in the dimension of investment in environmental technologies.

Already the world has begun to discuss concepts such as:

Eco-prosperity,

Green growth,

Green development,

Eco-innovation,

Eco-technologies,

Biomaterials and

echnologies for Adaptation to climate change.

Esteemed members of the assembly:

Affording us huge advantages for the most part, our geographic location unfortunately works against us when it comes to climate change. Turkey is one of the countries that stands to be most adversely affected by climate change. Therefore, our firms definitely need to put this topic on their agendas as an area of both investment and innovation. Having said that, I should hasten to add the overall opinion at our congress was that Turkey is going to be among the countries that will most quickly shake off the negative effects of the global crisis.

he fact that we are increasingly carrying the advantages of our geographical situation over into our foreign trade and developing our trade with the surrounding and neighboring countries, as well as engaging in a quest for new markets, can all be regarded as hopeful signs for our economy and our industry.

Our young population structure looks like being a plus for us for a long time to come. However, two basic problems we need to solve have once again emerged. First, meeting our increasing need for energy parallel with our growing population and economic growth, and, second, providing good education for our people. Turkey urgently needs to keep these two 'E's, Energy and Education, on the agenda and to produce solutions.

As in previous years, all the presentations made at the Congress are accessible on our website. Furthermore, as after every congress, the contents of the eighth congress will soon be published in book form for your convenience.

Mr. Chairman,

Esteemed members of the assembly:

wo thousand nine was a difficult year. We hope that 2010 will be an easier and a more fruitful year for the Turkish economy, a year in which our industry and our industrialists can surmount at least some their difficulties.

As I conclude my remarks with these thoughts and feelings, I would like to wish our country peace, prosperity and tranquility, and you, our valuable members, health, happiness and success in 2010.

I wish you all a happy new year and salute you once again both personally and on behalf of the board of directors.

C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors