The Chairman's Speech at the Assembly / 24 August 2011
Mr. Chairman, Distinguished Members of the Assembly and of the Press:
On behalf of the Board of Directors I would like to welcome you to our August assembly meeting. We would like to thank our distinguished guest, the Minister of Customs and Trade, Mr Hayati Yazıcı, for accepting our invitation to join us today. Welcome, Mr. Minister! It gives us great pleasure to have you with us. Our meeting with our Minister last week in Istanbul was our first contact with the new government.
Mr. Minister:
You are our first assembly guest to represent Turkey's 61st government. We would like to thank you once again for your interest and take this opportunity to express our wishes for your success. We hope that your new term of office will be beneficial for our government and our country.
Esteemed Members of the Assembly:
Yesterday our Board of Directors and Assembly Chairman's Council were in Ankara to visit our government ministries. During that visit we came together with the Deputy Prime Minister, Mr. Ali Babacan, the Minister of Industry and Technology, Mr. Nihat Ergün, the Finance Minister, Mr. Mehmet Şimsek, the Minister of Education, Mr. Ömer Dinçer, the Transport Minister, Mr. Binali Yıldırım, and the Minister of Forestry and Waterworks, Mr. Veysel Eroğlu. We are going to continue our government visits to Ankara following the Bayram holiday as well.
Our talks, in which we assessed the current situation in our economy and industry, took place in an extremely positive and productive atmosphere. We saw that we are in agreement with our government regarding basic problems and solutions with regard to our economy and our industry.
Our distinguished ministers asked for the support of the Istanbul Chamber of Industry, and we in turn said that we were prepared, as always, to contribute all that is in our power to provide. Furthermore, as on our previous visits, we also submitted detailed reports to our distinguished government ministers outlining the problems of our industry and our proposals for solving them.
Mr. Chairman,
Mr. Minister,
Esteemed Members of the Assembly:
In addition to wishing you success, we also see that the world economy in the second half of 2001 has again entered a difficult period, which is being described as the second phase of the global crisis. Despite a quelling of the crisis in 2010 in the wake of 2008 and 2009, there has been frequent talk of a double dip. Now, particularly with the triggering of the debt crisis in Europe, we see new uncertainties in the economy, sharp falls in the stock markets and exchange rates and the imminent threat of stagnation and a slowdown. In short, we have entered a difficult period.
The global economy is facing problems it has never experienced before, and it is extremely difficult at this juncture to predict whether those difficulties can be surmounted or not. For, in addition to problems stemming specifically from the economy both in the European Union and in the U.S., the engine that drives the world economy, we also see leadership problems and hitches in the political mechanisms that are expected to act decisively to solve those problems. All this further exacerbates uncertainty in the global economy.
Certainly the problems in the global economy raise questions regarding Turkey's economy as well. As we see it, however, Turkey has one key advantage during this process, namely, that we have a firm political will and a government of knowledgeable and experienced officials with strong public support who can act swiftly and in unity.
Turning now to the picture in our own economy, Turkey grew at the high rate of 8.9% in 2010 and emerged as one of the countries in the world that weathered the effects of the global crisis in the briefest possible time. It is common knowledge and an acknowledged fact that our industry, and the driver of our economy, played a major role by increasing production and forfeiting its own profits.
During this period, however, besides a positive trend in most of the macro economic indicators, the high current account deficit that accompanied Turkey's high rate of growth was the most fragile aspect - the soft underbelly so to speak - of our economy. We closed the year 2010, in which we grew by 8.9%, with a current account deficit of close to 48 billion dollars. Meanwhile our current account deficit in the first six months of 2011, in which we grew by 11% in the first quarter, is 45 billion dollars, which means it has almost reached the size of the previous year's deficit in just the first six months.
The main reason we have a current account deficit of such proportions is, as we so frequently point out, a major fault in the structure of our foreign trade. In the first six months of 2011, Turkey's imports of intermediate goods, energy included, came to 85 billion dollars and her exports to 65.6 billion dollars; the exports we made, therefore, did not suffice to cover the cost of the intermediate goods we had to import in order to produce.
We have stated at every opportunity that to combat the current account deficit we need to modify this structure and turn to a structure of production and exports that is knowledge-driven and technology-intensive and high in value added, as well as developing an infrastructure of growth at a high rate but on solid ground. It gives us special pleasure to see that this target has also been adopted in our 61st government program.
We saw on our Ankara visit yesterday and earlier in Istanbul that all the distinguished ministers with whom we spoke place great importance on the need for change in the structure of our production and exports, on developing technology and R&D, on turning away from imports towards production at home when possible, and on shoring up our industry and our domestic market.
This palpable political will has strengthened our hope and confidence that steps will be taken toward a permanent solution of the problem.
Regarding the current account deficit, as you will remember, since the fourth quarter of 2010 our Central Bank, and later the Union of Banks and Stock Exchanges, has introduced certain measures aimed at controlling the current account deficit and the trend to rapid growth in the economy. In the post-election period as well our government representatives have issued warnings about the need for caution regarding spending in line with the same target.
Then, at the beginning of August, we saw that our Central Bank in particular unexpectedly switched from its approach during the first seven months of the year to an approach that puts priority more on dealing with a possible slowdown than on reducing the current account deficit.
And indeed, data coming in from the outside world point to a loss of momentum in the global economy. There are signs of a relative slowdown in domestic demand in the second quarter as well. We believe that these developments are going to bring the current account deficit down in the second half of the year. At the same time, there has been upward tick in the exchange rates in the recent period. This too could help to bring the current account deficit down to a more acceptable level.
Let me also say that at their current levels the rise in the exchange rates appears to benefit exports. If the exchange rates continue to rise in the months ahead, however, serious difficulties are clearly going to arise, especially for real sector firms with foreign currency debt.
We announced the results of our state of the economy survey for the first half of 2011 last week. I expect you followed it in the press. According to the survey, some 48.9%, or close to half, of businesses were in financial straits in the first half of the year. It is noteworthy, too, that around 50% of enterprises are still facing financial bottlenecks despite a fall in interest rates.
Another important point is that the enterprises participating in the survey reported that close to half (49.3%) their total loans were either in foreign currency or were foreign currency-indexed.
This percentage is even higher among the large-scale firms, some 60% of which reported a more than 70% share of foreign currency, or foreign currency-denominated, debt.
As our survey shows, an excessive increase in the exchange rates has the potential of causing negative impact on our real sector. Here at the Istanbul Chamber of Industry, as you know, we announce the results of our survey of Turkey's Top 500 industrial firms every year in July and the results of our survey of the Second 500 in August.
As we do every year, this year too we made the 2010 results of our survey of the country's second 500 industrial firms public at a press conference prior to our August assembly meeting. To share those findings briefly here:
There are 495 private and 5 state-run firms among the Second 500 in 2010.
The Second 500 accounts for a 0.9% of Turkey's GDP; the Top 500 for 9.3%.
This means that 10.2% of Turkey's GDP in 2010 was generated by her top 1,000 industrial firms.
Among the private firms in the Second 500, total sales rose by 18.1% and production-based sales by 15.6%, both in constant prices.
Both total sales and production-based sales rose faster in the Second 500 than in the Top 500 in 2010.
Among the private firms in the Second 500, total profit and loss in 2010 rose by 12.3% in constant prices, net value added by 11.6%, and gross value added by 14.2%.
Growth in all these items was higher in the Top 500.
Among the private firms in the Second 500, return on sales, which was 5.4% in 2009, fell to 5.1% in 2010. Similarly, return on assets and economic profitability were also somewhat lower than in 2009.
The exports of the industrial firms in the Second 500 in 2010 were up by 13% on the previous year. First in exports among the Second 500 was the ready-to-wear, leather and footwear sector with a 29.6% share. It was followed by primary metals in second place with 14.2% and food, beverages and tobacco in third with 13.4%.
The number of foreign-invested firms in the Second 500 fell by one on 2009 to 67 in 2010.
The number of wage workers in the Second 500 in 2010 rose by 6.2% on the previous year.
The textiles, ready-to-wear, leather and footwear sector took the lion's share of employment among the private industrial firms in the Second 500 with 37.2%. It was followed by food, beverages and tobacco in second place and metallic goods, machinery and equipment, and professional instruments in third.
In gross value added meanwhile, textiles, ready-to-wear, leather and footwear was again in first place, followed by chemicals, petroleum products, rubber and plastic in second and food, beverages and tobacco in third.
Turning now to change in the structure of assets, unlike in the Top 500, this improved very slightly among the private firms in the Second 500 in 2010.
Among the private firms in the Second 500, the ratio of total debts to total assets in 2010 showed an improvement, albeit token, at 54.2%, down from 54.4% in 2009. The share of equity capital meanwhile rose from 45.6% to 45.8% from 2009 to 2010.
At the same time, the total debt/total equity capital ratio was 118.2%, which is still quite high, especially by international standards.
To make an overall summary:
The results of our Top 500 and Second 500 surveys in 2010 paint a positive picture in terms of the basic indicators.
An increase in net sales and an ongoing fall in financing costs had a positive effect on results in 2010.
In addition to the overall positive picture, as I said a little while ago, our surveys have shown that debt indicators in our industrial firms remain in negative territory, especially in light of international comparisons, and difficulty in generating funds therefore continues. It is our expectation that steps can now swiftly be taken to alleviate our industrial firms' difficulties in this area and boost their competitiveness.
Mr. Minister:
When it comes to boosting the competitiveness of our industry there are some very important issues that fall within your area of responsibility, most notably customs as well as market observation and supervision. As we said at our previous meeting, we have already conveyed our views and expectations regarding these issues in written form in our report. Today, because you are present at our assembly meeting, our members too are going to have an opportunity to convey to you one-on-one their own views, problems and recommendations. We believe that significant distance is going to be covered in solving those problems during your term of office.
Mr. Chairman,
Mr. Minister,
Esteemed Members of the Assembly:
As I said at the outset, the global crisis has again entered a difficult period. In the circumstances, Turkey during this process is presenting a proactive country profile, working to adapt swiftly to developments and to effect rapid changes in its policies. Yes, there is some fragility in our economy. But, as I said earlier, we have at the helm a government staffed with knowledgeable people with crisis experience. We believe that our government and economic management are going to manage the process well. Similarly, our private sector is also dynamic, resilient and experienced with crises. At this point I would like to say that, as in previous crises, a great responsibility is again going to fall upon our industry, as the driving sector of our economy, in weathering this difficult period. For that reason, strengthening the competitiveness of our industry and shoring it up have become more important than ever under current conditions.
We see that our industry has already begun rapidly making efforts and seeking ways to adapt to the new situation. We believe that those efforts are going to get results. Despite all the difficulties, our industry is again going to succeed in its struggle!
During this process, we expect that our government will provide all possible support to our industry's struggle to succeed in 2011 and after, and to weather the troubles with minimal damage.
Mr. Chairman,
Mr. Minister,
Esteemed Members of the Assembly:
In conclusion, I would like to wish all of you a happy Bayram holiday in the hope that this holiday will bring peace and tranquility to our country, because we have a real need for that at this time when almost every day brings news of more soldiers losing their lives. We hope that Turkey will resolve this conflict as soon as possible. I would also like to express our heartfelt condolences to the bereaved families of our martyred soldiers. May they rest in peace in the knowledge that we are always with them, in spirit if not in body, and that we share their pain to the end. Once again I wish you a happy holiday and salute you all on behalf of the board of directors.
C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors