The Chairman's Speech at the Assembly / 25 July 2007
Mr Chairman,
Esteemed members of the Assembly,
Members of the Press:
On behalf of the Board of Directors, I would like to welcome all of you to our July
Assembly meeting.
.We have a very distinguished guest with us today! Prof. Dr. Güngör Uras, one of
the most respected names in economics journalism. We would like to thank you, Sir,
for so graciously accepting our invitation to be with us today. Welcome!
Esteemed members of the Assembly:
We have now left behind the early general elections, one of the most important questions
of 2007. The elections were held in an atmosphere of complete peace and tranquility
and in a mature, democratic way. We are justifiably proud, both of our people and
of our democracy. The early parliamentary elections on 22nd July have demonstrated
that the Turkish people have cast their vote by a very high percentage for the continued
rule of the Justice and Development Party. In the new period, important obligations
and responsibilities await the new parliament and the new government that is to
be formed. I would like to congratulate all our elected deputies and to wish our
new parliament success.
Esteemed members of the Assembly:
As you know, last week, on the eve of the election, our chamber published the results
for 2006 of our survey of Turkey?s top 500 industrial enterprises, an important
and comprehensive survey of Turkey?s industry that we have been compiling annually
for 39 years. The survey offers vital data concerning the kind of picture presented
by our industry in 2006. The data were given broad coverage in the press, and I
would guess that you, our esteemed members, followed them closely. Nevertheless,
so as not to break with our tradition, I would like to discuss the results of our
survey again this year, as every year, at our assembly meeting.
I shall now attempt to present to you, in the form of tables, the results of our
survey of Turkey?s top 500 industrial enterprises in 2006.
Table - The Top 10 Enterprises in 2006
Esteemed members of the Assembly:
As in previous years, Tüpras is again Turkey?s largest industrial enterprise by
production -based sales as it was in 2006. Elektrik Üretim A.S. is the only state-run
firm among Turkey?s top ten industrial enterprises in 2006.
Table - The Top 10 Private Enterprises in 2006
Tüpras, Ford Automotive and Toyota Automotive, the three top private enterprises
in 2005, preserved their places in 2006 as well.
Table - Top 10 Profit-makers in 2006
We see in this table the top three firms by profit in 2006. Tüpras has again captured
first place among the biggest profit-makers for the year. In second place is last
year's fifth place Eregli Demir Çelik, and in third place is Türkiye Petrolleri,
which was sixth in 2005.
Table - The Top 10 Private Firms by Profit in 2006
Among the top private profit-makers we again see Tüpras in first place. Tüpras was
the private enterprise with the highest profit in both 2005 and 2006.
Last year's fourth pace Eregli Demir Çelik rose to second place, followed in third
by last year's second, Ford Automotive. Our table of the top ten private firms by
profit shows that some firms made a noticeable leap in 2006. Mercedes-Benz, for
example, which was in 23rd place in 2005, jumped to 8th place, while Oyak-Renault
rose from 25th place to 10th.
Table - Top ten firms by exports in 2006
In 2006 as in 2005, the top ten firms by exports were again all private sector enterprises.
Tüpras is again in first place, followed by Toyota in second, and Ford Automotive
in third.
Table - Distribution of exports by sector
The exports of the top 500 industrial enterprises in 2006 grew by 19%. Growth in
Turkey?s exports for the same year was 16.4%. As the figures indicate, export-wise
the top 500 performed better than the country as a whole in 2006.
A look at the distribution and rates of change by sub-sector of the exports made
by the top 500 industrial enterprises in 2006 reveals the automotive sector to be
in first place with a 28.1% share. This is followed by primary metals in second
with 19.6%, metallic goods in third with 17.5% and the machinery, equipment and
professional instruments sector in third.
Table - Changes in the economic aggregates of the Top 500 Industrial Enterprises
In the private firms among the top 500 industrial enterprises, total sales rose
by 11.5% in fixed prices, and production-based sales by 10.5%. Gross value added
was up by 6% and net value added by 10.7% in the top 500 in 2006.
If we remember that the Turkish Bureau of Statistics (TüIK) released an annual production
growth rate of 5.8% in industry and a growth rate of 7.5% in value added in 2006,
then there does not appear to be a significant difference between their overall
figures for industry and those of our Chamber's top 500 survey for the year.
Total pre-tax profit and loss, in other words, net profit, in the top 500 industrial
enterprises in 2006 grew by 49.9% in current prices. We should remind listeners
here however that net profit in 2005 had declined by 23.9% in current prices.
The effect created by the contraction in 2005 therefore played a major role in the
growth in net profit observed in 2006.
Table - Return on Sales in the Top 500 Industrial Enterprises
Turning now to return on sales, this rose slightly from 4.7% in 2005 to 5.9% in
2006 in the private firms among the top 500.
Although return on sales in the private firms was higher in 2006 than in 2005, we
should not be misled by this result. It should not be overlooked that the 5.9% figure
for return on sales in 2006 is considerably lower than the 8.5% figure of ten years
ago.
Table - Return on sales by sector among the Top 500 Industrial Enterprises
In the private firms among the Top 500, the manufacturing industry had the highest
level of return on sales with 28% in the tobacco processing sector. This is followed
by the stone and stone-based industry with 27.9%. At the bottom are the wood and
cork industry at 0.3% and the textile industry with 0.7%.
Table - Number of wage workers
The total number of wage workers employed in the top 500 in 2006 rose by 3.6%.
Table - Distribution of Top 500 Industrial Enterprises by Groups of 50
When the top 500 industrial enterprises are ranked by production-based sales in
groups of 50, the top fifty firms account for 51.6% of the total such sales, for
56.1% of total exports and for 46.8% of net profit in 2006.
Their share in the total number of wage workers is 33.5%.
As these figures indicate, the first 50 firms among Turkey?s top 500 industrial
enterprises claim a share of close to 50% or higher in all aggregates except wage
workers.
Table - Distribution of foreign-invested firms by groups of 50
Turning now to the foreign-invested industrial enterprises in Turkey, there were
140 such firms among the top 500 in 2006. These 140 firms accounted for 33%, or
close to one-third, of all the production-based sales of the top 500. There are
19 foreign-invested firms among the top 50, and these 19 firms were responsible
for 18.2% of the top 500's total production-based sales.
Table - Asset financing in the private firms (%)
In this table we examine the change in asset financing in the private firms among
the top 500. Let us start by going back a little to 2001 when borrowing accounted
for 66.5% of asset financing. This figure, the most discouraging of the last 15
years, began to improve relatively speaking in 2002 parallel with developments in
the economy, and dropped to 45,7% in 2004 under the effect of inflation accounting.
Then, in 2005, the rate of borrowing rose again to 47.1%. This rise in borrowing
continued in 2006 as well and in 2006 the share of borrowing in asset financing
was up to 47.7% in the private companies.
A look at change in equity capital in asset financing reveals that this fell from
45.6% in 2005 to 42.8% in 2006.
This tells us the following: Despite a relative improvement in profitability in
2006, the share of equity capital in asset financing declined while that of borrowing
increased. In other words, the relative improvement in profitability was not reflected
in financial structure.
Table - Distribution as factor incomes of the net value added created by the top
500 industrial enterprises (private firms)
When we look at the distribution of net value added in the private firms among the
top 500 in 2006, we see that the share of wages and salaries, which was 59.2% in
2005, fell to 50.1% in 2006. On the other hand, profit as national income, or the
share of profit earned from primary production activity, rose from 32% to 40.2%.
Meanwhile the share of interest paid rose slightly from 8.8% to 9.7%.
Table - Distribution as factor incomes of gross value added in the top 500 industrial
enterprises
Let us take a brief look at the distribution of gross value added. I would like
to remind you first of all that the share of net value added in gross value was
74.3% in 1992.
When we come to 2005, we see that the share of net value added in gross value added
in Turkey?s private firms has fallen to 38.7% due to the Tüpras effect. Then, in
2006, it rose slightly to 39.7%. The Tüpras effect can be explained as follows:
Tüpras pays a very high rate of indirect tax. Consequently, when Tüpras went over
to the private sector the share of net indirect taxes in its total gross value added
rose, and the share of net value added fell accordingly. Leaving Tüpras out of the
picture, the share of net value added in gross value added, which was 74.3% in 1992,
is 50% in 2005 and 48.3% in 2006. In other words, with or without Tüpras, the value
added created by the private firms has declined significantly compared with 1992.
And our table makes the reason for this quite clear: we see in the table that the
share of net indirect tax in gross value added in the private firms was 10.5% in
1992. But when we come to 2005 we see that this share has increased substantially,
again thanks to the Tüpras effect, to 48.3% and that it rose even higher in 2006
to 49.8%.
When Tüpras is left out of the picture, the share of net indirect tax in gross value
added is 31.3% in 2005 and 41.3% in 2006.
There are two very noteworthy points here. The first is that while the share of
net indirect tax in gross value added was 10.5% in 1992, it rose to 41.3% in 2006.
And, second, that in one year alone it climbed by ten points from 31.3% in 2005
to 41.3% in 2006. This sharp rise in indirect taxes can be explained as follows:
the industrialist is being forced to transfer to the government a larger portion
every year of the funds, which are quite small anyway, that he has generated with
such difficulty.
Table - Distribution of GDP by the income method
We also see the growth in indirect taxes clearly in the overall economic indicators,
even outside the top 500. Let us look at the distribution of GDP, for example: While
the share of net indirect taxes in GDP was 9.7% in 1995, in ten years it rose by
almost 100% to 17.5% in 2006. This sharp rise in indirect taxes is a distortion
peculiar to Turkey and not observed in any other country. And, it is such as to
remind us of the urgent need for a reform that will broaden the tax base and make
the tax system more just.
Table - Interest/incomes paid in the private firms among the top 500
The ratio of interest paid to sales in the private firms, which was 1% in 2005,
rose to 1.2% in 2006. Meanwhile the share of non-operating incomes, which was 1.7%
in 2005, fell in 2006 to 1.6%.
Esteemed members of the Assembly:
To sum up the results of the survey of Turkey?s top 500 industrial enterprises in
2006, we could say that these firms had a better year in 2006 than in 2005. We should
however remind you that the results for 2006 were obtained by comparison with 2005,
and 2005 was the worst-ever year for the top 500 with the exception of the crisis
years 1999 and 2001. Therefore, the improvement that emerges in the results for
2006 compared with those for 2005 should not fool us. Viewed from a wider perspective,
over a ten-year period, for example, the indicators for financial efficiency and
profitability in 2006 present an even more dismal picture than that for 1996.
To generalize, Turkey?s industrial enterprises could be said to have achieved their
relative success in 2006 by incurring more risk and more debt. Any reversal in the
moderate global climate, or actual realization of the potential risks, could leave
our industrial enterprises in a difficult position.
To shore up our capacity to withstand risk, arrangements need to be put into place
as soon as possible to bolster our competitiveness and improve the climate for investment
and production.
Table - Distribution of GNP by sector
Esteemed members of the Assembly:
As of the last quarter century the industrial sector has become the primary sector
of the Turkish economy. Industry's contribution to GNP surpassed that of agriculture
for the first time 25 years ago in 1982, and in the same year 22.1% of GNP was generated
by agriculture and 22.6% by industry. These figures, which were obtained in 1982,
are extremely important as they signal a turning point in the economy.
Since 1982 industry has continued to augment its role in the economy.
Agriculture's share of 22.1% in GNP in 1982 declined to 9.2% in 2006. Industry's
share on the other hand was up from 22.6% to 25.6%. Yes, in the last 25 years has
Turkish industry become the primary sector of the economy,; unfortunately however
it has not increased it dominance in the economy as it should have. The share of
industry in GNP in other countries that we could categorize as similar to Turkey
is 43% in South Korea, 42% in Indonesia and 39% in Poland, a comparison that shows
clearly what a long way we still have to go.
Esteemed members of the Assembly:
The Justice and Development Party achieved a hitherto rare success in Turkey?s political
history in the elections on 22nd July. We would therefore like to take this opportunity
to personally congratulate our Prime Minister, Recep Tayyip Erdogan and the entire
AKP family. There is no doubt that this great success has further increased the
responsibility that the party bears. The high favor demonstrated by the electorate
should be turned now into economic and social gains. A number of analysts have attributed
the AKP's success to Turkey?s average annual growth of 7.4% over the last four years.
Academic studies as well have pointed to a connection between the ruling party and
growth. As we have said all along, Turkey is compelled to grow, without interruption
and at high rates, in order to be able to resolve her economic and social issues.
We understand, too, that governments that succeed in growing the economy are the
ones that are able to remain in power.
Industry is the engine of growth in the Turkish economy.
Finally, behind the 6.7% growth in the first quarter of 2007 is an industrial sector
that boosted production by 7.8% in that quarter. Continued growth in the period
ahead also depends on the performance of industry. The obstacles in front of industry
need to be removed quickly for sustainable and high growth. In this sense, it is
our expectation that the Justice and Development Party, with the enormous support
it has garnered, will in its second term complete all the things that it was unable
to do and left undone in the first.
Structural reforms to boost Turkey?s competitiveness should be carried out, and
the micro reforms upon whose necessity practically everyone is agreed put into effect
as soon as possible. Macro economic gains put their stamp on the AKP's first term.
The second should be a period of microeconomic change in the economy. A way ahead
should be cleared for investment. production, exports, competitiveness and jobs,
which concern the majority of the population. Attention needs to be refocused on
the economy with no further loss of time.
Mr Chairman,
Esteemed members of the Assembly:
I would like to say that we at the Istanbul Chamber of Industry are ready to do
our best to support the new government that is to be formed, as we did the previous
government. In the period we have left behind, we always tried to put forward the
state of our economy and of our industry in the most objective way. We always expressed
our appreciation for the gains and successes achieved in the economy. But we also
regarded it as our duty first and foremost to draw attention to the shortcomings,
to the things that were not being done. For we believed that by saying what we know
to be true we would be serving our industry and our country in the best way and
that in this way we could best support our government and the managers of our economy.
We are going to continue with this approach from here on out as we strive to seek
ways of producing solutions to the problems of our industry in cooperation with
our government and economic management.
In closing I would like to salute you all once again on behalf of our board of directors
in the hope and expectation that in the period ahead our new parliament and new
government, including the new President to be elected, will bring Turkey even closer
to the goal of modern civilization shown to us by Ataturk, while sustaining and
enhancing the gains already made through policies that are based on consensus and
embrace the country as a whole.
C. TANIL KüÇüK, CHAIRMAN
BOARD OF DIRECTORS
THE ISTANBUL CHAMBER OF INDUSTRY (ISO)