The Deputy Chairman's Speech at the Assembly / 24 February 2010

Mr. Chairman, Esteemed Members of the Assembly and of the Press:

Due to our Board chairman's being out of the country this month, I as vice-chairman will be presenting our views on his behalf at this month's meeting. On behalf of the board of directors I would therefore like to welcome all of you to today's meeting. We would also like to thank our guest, Mr. Ali Ağaoğlu, for accepting our invitation to join us today. Mr. Ağaoğlu is one of the leading names in the Turkish press today on the subject of the financial markets. Welcome, Sir! We are going to follow Mr. Ağaoğlu's remarks with great interest, especially at this time when new uncertainties have arisen in the global markets.

Esteemed members of the assembly:

We came together on February 10 at the joint meeting of the professional committees, at which Minister of State and Deputy Prime Minister Ali Babacan was our guest. It was a dynamic meeting and had an impact. I believe we discharged an important responsibility at that meeting by bringing up the problems of Turkish industry, and I would like to thank the members of our assembly and our professional committees once again for their valuable contributions.

We on the Board of Directors would like to say once again that we are going to continue to follow up on the issues that the professional committees conveyed to our distinguished Deputy Prime Minister and his entourage for solution.

Esteemed members of the assembly:

Following the joint meeting of the professional committees, on February 12 we made public the results for the second half of 2009 of our survey on the state of the economy, a survey we conduct among our members every six months. Although I imagine that you have followed it in the press, I think it would be useful to go over the results of that survey briefly here.

The survey has shown that the second half of 2009 was more positive than the first half. For in the first half of 2009 the proportion of enterprises that reported negative results on the basic indicators included in the survey was over 50%, whereas in the second half it fell to around 31-32%. We try in our survey to determine not only what is actually happening but also expectations for the next six months. By a large majority, the enterprises responding to the survey have expectations of a brighter future in the first half of 2010 than they had for the second half of 2009.

One of the key indicators in our survey is the ISO Index of Industrial Development. At 73.1 in the first half of 2009, was at its third lowest level since the first half of 2001 and the second half of 2008. In the second half of 2009 it rose to 105, a significant leap as the figures bear out. And at 134.3, the index figure for the second half of 2010 is quite high.

Turning now to our findings in the area of finance, the proportion of enterprises experiencing a financial bottleneck, which was 70% in the second half of 2008, fell to 60% in the first half of 2009 and 52.4% in the second half. Our survey has shown that the large and medium scale enterprises are rebounding more quickly but that problems remain acute in the small scale enterprises. For example, the proportion of enterprises reporting financial difficulties was 26% in the large enterprises, 49.4% in the medium scale enterprises and as high as 63.5% in the small enterprises. When we consider the small-scale enterprises' considerable share in jobs and output, it becomes even more important that they be shored up.

Mr. Chairman,

Esteemed members of the assembly:

Our survey of the state of the economy has revealed a relatively more positive picture for the first half of 2010. The economic indicators in general are such as to corroborate the findings of our survey, indicating that a relatively positive trend is under way. Let us look first of all at industrial output. The last figures released were for December 2009. We were not expecting any significant rise in that month due to the base effect of the 18% contraction in December 2008. But growth exceeded expectations and industrial output in December rose by 25.2% on the previous year and 8.7% on the previous month. Growth in manufacturing output was even higher at 28%, the motor vehicle, tobacco, and plastics and rubber sectors standing out especially for their high rates of growth in production.

As you will remember, October 2009 was a turning point for our industry as production rose by 6.5% after a 14-month interval. While we take some consolation in the recovery of the last three months, for 2009 as a whole our industrial output unfortunately contracted at the high rate of 9.6%. Following this difficult year, if we now make some forecasts for industrial output in 2010: The strong base effect created by the record level contractions in the first half of 2009 is going to make our job relatively easier in the first half, but, in our opinion, the period that really needs to be watched in terms of industrial output is the second half, when the base effect factor will be more limited.

Exports too have been showing signs of recovery since the last quarter of 2009. As you will remember, exports, like industrial output, moved into positive territory again in October 2009 after a hiatus of 12 months. Following this growth, exports fell in November but grew at around 30% in December on both a dollar and a volume basis. This growth in exports leads us to believe that December's growth in industrial output also stemmed from exports. Therefore, our domestic market is still not at such a point as to stimulate production. I would like to take this opportunity to underscore once again our view that measures to stimulate the domestic market head the list of most urgent needs in our economy.

The situation regarding Turkey's foreign trade in 2009 has been clarified with the publication of the December figures. To review it in brief: In 2009 Turkey's exports fell by 22.6% and imports by 30.3% on a dollar basis. These rates represent the biggest annual drop in exports and imports in the last fifty years. Meanwhile our foreign trade deficit in 2009 fell by around 45% on the previous year on a dollar basis to 38.6 billion dollars. To complete the picture, let me also add that our current account deficit is 14 billion dollars.

Turning now to our export performance in the early months of 2010: According to figures published by the Turkish Exporters' Association (TYM), Turkey's exports rose by 12.5% in January on a dollar basis. Based on figures published by TYM on February 23, exports were up by 24.9% at the end of the first three weeks of February.

We hope the last week will go equally well. In an encouraging development, the relative slowdown in export growth experienced in January therefore appears to have been made up in February.

Together with the relative recovery in exports and industrial output, industrial job losses have also slowed relatively. Despite all difficulties, Turkey's industrialists have been waging a fierce struggle to preserve jobs since the crisis erupted, even though they have often been helpless to do so. As long as our industrialists are supported in their struggle, we are sure that the recovery in industry will continue, even gain momentum, in the period ahead.

Mr. Chairman,

Esteemed members of the Assembly:

In the Turkish economy, the global financial crisis has had a negative impact less on the financial sector than on the real sector, and especially on industry. We have been expressing this view for a long time now. To wit, based on GDP figures at the end of the first three quarters of 2009, while other sectors were contracting the banking sector grew by 8.7%, a clear indication that this view of ours is correct and not mere rhetoric.

Let there be no mistake. It pleases us that our banking and financial sector is strong. The fact that our banking sector, which was entirely restructured after the 2001 crisis, has weathered the global downturn is a very significant plus for the Turkish economy. I should however point out that our real sector, which has suffered its biggest blow of the century, has unfortunately not received sufficient support from the relatively better off financial sector.

From the point of view of banking, it is only normal that, under conditions of crisis and uncertainty, the banks should keep a respectable distance from areas they regard as risky as a matter of reflex and economic common sense. But we know that the economy is a whole. The real sector and the financial sector are unthinkable without each other. A problem in one will definitely impact negatively on the others at some point.

We in the real sector acknowledged that the restructuring of the banking sector following the 2001 crisis was necessary for the economy, and we fully supported that process. We expected our banks, our state-owned banks in particular, to provide more support for industry during this difficult period. Unfortunately we have not seen that support!

Turning once again now to our survey of the state of the economy, the results show that 20 percent of enterprises in the first half of 2009 when the crisis was most severe, and 14.3 percent in the second half were forced to stop borrowing against their will. Not only that, as you can imagine, the situation is even more dire in the small-scale enterprises.

At the same time however the central bank has lowered interest rates to historic levels, while the banks have been slow to pass this along in the form of low-interest commercial loans.

So much so that the level of loans turned over to collection agencies, which was 3.58% at the end of 2008, had risen to 5.12% by February of this year. This, in our view, is only normal in the face of the crisis of the century.

According to Central Bank figures, the number of protested promissory notes in January had fallen by 26% on the same month in 2009. The prevailing prejudice towards, and lack of confidence in, our real sector are therefore entirely undeserved.

The real sector has breathed a little more easily in the recent period under the impact of the reduction in the public borrowing requirement, but financing opportunities in Turkey nevertheless remain inadequate and very costly. The rate at which banks channeled deposits into loans was around 40-50% at the start of the decade, around 82.4% at the end of 2008 and around 78-79% at the end of 2009. We hope that this ratio is not going to get even worse now with the relative increase in the budget deficit. The growing debts and budget deficits of governments forced to spend more freely due to the global crisis have resulted in new uncertainties, creating dark clouds over the global economy. Our neighbor Greece has been declared 'the sick man of Europe'. Portugal, Ireland, Greece and Spain are identified as the weak links in the European Union. So much so that there is talk of the Union collapsing. While the collapse of the monetary union appears only a remote possibility, everyone is unanimous that a difficult test awaits the Euro. Naturally these developments are a matter of close concern to Turkey, which is an integral part of the global economy and conducts the major part of its trade with the European Union. We hope that we will be able to discern the picture a little more clearly after hearing what our distinguished guest, Mr. Ali Ağaoğlu, has to say.

Mr. Chairman,

Esteemed members of the Assembly:

Yes, there are problems in our economy, and problems in our industry, problems that we brought out with complete clarity at the joint meeting of our professional committees.

At the same time however there are also new concerns and uncertainties in the global financial system. Despite all these concerns, however, there is also optimism, an encouraging trend and signs of a recovery in the Turkish economy. According to our survey of the state of the economy, our industry is now viewing the future more optimistically. The Central Bank's Real Sector Confidence Index corroborates that optimism.

Given the importance of managing expectations, it is clear that, coming as it does after so many months, this relatively positive groundwork in the economy needs to be put to good, indeed very good, advantage. Jobs and exports are the engine of growth in the Turkish economy. As we tried to show by the economic indicators, our industry is engaged in a struggle to boost production, exports and jobs. What needs to be done is to provide urgent support to that struggle being waged by our industrialists! To give the requisite importance to the economy and its problems.

Unfortunately, however, Turkey in recent days has again been riven by political strife between different forces and institutions. Rather than generating energy, the country is being forced to expend its energy on tension. Our fear is that those tensions and conflicts will again mean that the green shoots of hope and the relatively positive groundwork that has been laid will go up in smoke and the economy again be neglected as it has been for so long already.

Turkey is a country with serious problems in its economy, most notably unemployment. Dropping the economy from the agenda and putting it aside could mean paying a serious price later.

I conclude my remarks with hopes for a Turkey that is peaceful and developed and high in competitiveness and productivity in its economy, its politics and its democracy, in short, in all areas of life, and I salute all of you once more on behalf of the Board of Directors.

Nuri TUNA
Istanbul Chamber of Industry
Deputy Chairman of the Board of Directors