The Chairman's Speech at the Assembly / 25 August 2010

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 have with us today our distinguished Minister of Agriculture and Rural Affairs, Mr. Mehdi Eker. We would like to thank Mr. Eker for accepting our invitation and honoring us with his presence. Welcome, Mr. Minister!

Esteemed Members of the Assembly:

Following our survey of Turkey's Top 500 Industrial Firms, which we published in July, we have now, immediately prior to our August assembly meeting, publicly announced the results of our Second 500 survey. As we do every year, we would like to briefly assess the results of that survey first here with you, our esteemed assembly members.

May I draw your attention first of all to certain statistics about the firms: There are 496 private and 4 public companies among Turkey's Second 500 Industrial Firms. Among them, 348 were already in the ranking in 2008 while 152 are newcomers this year. Among the 152 newcomers, 51 have come from the Top 500, while the other 101 have come from outside the 1000 firms ranked in 2008. There are 190 ISO member firms in the Top 500 and 197 in the Second 500 in 2009.

The Second 500 Industrial Firms' share in Turkey's GDP in 2009 is 0.9%, the same as in 2008. The Top 500's share was 8.6%. The 1000 firms in the ISO Top 500 and Second 500 in 2009 created 9.5% of Turkey's GDP.

Production-based sales among the Second 500 in 2009 contracted by 2.4% and total sales turnover by 3.4%, both at fixed prices. In the private firms among the Second 500, net value added, which was down by 3.7% in 2008, rose by 15.1% in 2009. Again among these private firms, pre-tax period profit, which had declined by 26.5% at fixed prices in 2008, is up in 2009 by 29.1%. As period profit was rising, period loss, which had increased by 27.1% in 2008, declined in 2009 by 66.5%. As a result of the increase in period profit and the decrease in period loss among the private firms in the Second 500, total period profit and loss (pre-tax), which was down by 74% in 2008, rose in 2009 at the rate of 246.4%.

Turning now to exports, while Turkey's exports overall declined by 23.6% in 2009, those of the Second 500 were down by 19.4%. In the Top 500 the drop was 31.7%. Among the exports of the Second 500 in 2009, the Textiles, Wearing Apparel, Leather and Footwear sector was again in first place with a share of 28.9%. In second place was 2008's third place Food, Beverages and Tobacco industry, followed by the Primary Metal industry in third.

We also examine Turkey's foreign-invested firms in our survey. The number of foreign-invested firms in the Second 500 in 2009 fell by two on 2008 to 68. These firms' shares are as follows:

Total production-based sales 13.7%

Gross value added 16.4%

Total period profit and loss 15.8%

Exports 15.2%

Number of wage workers 11%

The total number of wage workers in the Second 500 firms in 2009 fell by 1.4% on the previous year. In the Top 500 the decline was even greater at 5.1%.

Let us look now at developments in the structure of funds. While not as great as in the Top 500, the Second 500 in 2009 also experienced a decline in the rate of borrowing and an increase in the share of equity capital. The share of total debt in total assets among the Second 500, which was 55.8% in 2008, fell in 2009 to 54.4% while the share of equity capital rose from 44.2% to 45.6%.

Turning now to return on sales, among the private firms in the Second 500 return on sales, which was 5.5% in 2007, fell in 2008 to 1.5%, its lowest of the post-2001 period. In 2009 it rose again to 5.4%. In the Top 500 the rise was 5.2%, giving the private firms in Second 500 a higher return on sales than their counterparts in the Top 500 for the first time ever.

Among the manufacturing firms in the Second 500, Textiles, Wearing Apparel, Leather and Footwear is the sector with the biggest share in jobs at 39.6%. The Food, Beverages and Tobacco industry is in second place, followed by Metallic Goods, Appliances and Professional Instruments in third. As for gross value added, in this category Textiles, Wearing Apparel, Leather and Footwear garnered top place in this category as well, followed by Chemicals, Petroleum Products, Rubber and Plastics in second and Food, Beverages and Tobacco in third. An important point to note here is that the Textiles, Wearing Apparel, Leather and Footwear sector continues to be the engine of growth in both jobs and value added.

As part of our survey we also examined change in the number of firms in the different subsectors by year between 1997 and 2009. In 2009 as in 1997, Textiles, Wearing Apparel, Leather and Footwear is the sector with the largest number of firms at 119. Food, Beverages and Tobacco is second with 105, and Chemicals, Petroleum Products, Rubber and Plastics third with 59.

We examined the cumulative income tables of the firms in the Second 500 as well as those of firms in the Top 500 in order to understand how profitability and value added rose as sales were falling in 2009. Our investigation revealed an improvement of two percentage points in sales costs in 2009, a development in which a worldwide drop in raw material prices undoubtedly played a certain role. At the same time, however, this improvement is also a sign that the industrial firms, struggling to stay afloat in the face of the crisis, took more pains and gave more importance than usual to boosting their productivity and efficiency. On the other hand, based on our research, financing costs in the Second 500 in 2009 did indeed fall significantly on the previous year.

Our research also revealed that net nonoperating revenues, which are shown in the income tables as other ordinary operating incomes, did increase significantly from one year to the next, the largest factor in this growth being an increase in net foreign exchange earnings. If we examine the development in profitability in monetary terms, total profit in the Second 500 overall in 2009 is TL 2,047 million, an amount made possible by a 2 percentage point drop in sales costs, which contributed TL 755.8 million. The monetary equivalent of the drop in financing costs is TL 529 million. The amount contributed by the growth in other normal operating incomes meanwhile is TL 453.5 million. All in all, these improvements total TL 1,738.3 million. Close to 85%, or TL 2,047 millions' worth of profit in the Second 500 in 2009, was therefore earned as a result of these improvements. So, we have now brought to your attention the results of our survey in their main lines together with the profitability figures.

Mr. Minister:

Industry has dominated our agenda today due to the fact that our survey was released to the public this morning. However, as we often say, agriculture is a sector on which we place great importance, both in its economic dimensions, which are closely related to our industry, and in its social dimensions. Earlier, during his term as minister, Mr. Sami Güçlü was our guest in October 2004. Following a long interval, it gives us great pleasure to have you with us today. We are very interested in what you have to say.

Agriculture has been a principal source of wealth down the centuries. Today as well it is a basic sector of strategic importance in terms of guaranteeing our ability to feed our population. It also has a very special importance for us as industrialists in terms of raw materials, with the result that the food sector is at the top of the sectors in which we are able to be competitive. Our country is fortunate in its agricultural potential, and Turkey currently occupies an important niche in the food sector.

To refer once more to our ISO 500 survey, there are 92 firms in the food sector in the Top 500 and 105 in the Second 500. Turkey's food sector carries considerable weight in both employment and value added, accounting for 19.6%, or the largest share, of jobs in the Top 500. The more rapidly our problems in agriculture and cattle raising can be solved, the more rapidly our food sector will develop.

Mr. Minister:

I am sure that you, as the most competent authority in the field, are going to take all these matters up in detail. Meanwhile I would like to draw attention to two points: Agriculture was the primary sector of the Turkish economy until 1982 when industry took over that role, in which it continues to perform successfully today. This was both a desirable and a necessary transformation.

Another expected transformation during the process of economic development is a decline in the share of agricultural jobs in total employment, a point on which Turkey unfortunately does not appear to have been sufficiently successful.

Some eighty percent of the working population in the early years of the Republic were employed in the agricultural sector. By 2003 this had fallen to 34%. More recently, agriculture's share in total employment was 25.3% according to labor force figures for May 2010. In other words, a drop from 80% to 23%! We may appear successful on our own terms, but compared with the rest of the world the picture that emerges is not particularly bright. In the U.S., for example, agricultural jobs make up only 2.5% of total employment. In the European Union the share has swelled to around 5% with the recent addition of new members. When we look at the composition of our exports, while the share of industrial goods exceeds 90%, the employment statistics paint a picture of another Turkey.

At the same time, however, we know that Turkey faces a very serious problem of productivity in agriculture. Some 25% of our jobs are in agriculture, but we cannot produce as much as countries with agricultural employment of 2.5% to 5%. The difference emerges clearly in comparisons on both a crop and an enterprise basis. Low productivity can result in the population either being deprived of the most basic foodstuffs or being forced to procure them at very high prices. If we look at the situation by decade by decade, Turkey's agricultural sector managed to grow by

only 1% from 1980 to 1989,

1.3% from 1990 to 1999,

and 1.5% from 2000 to 2009.

Although these average growth rates are low, it is nevertheless significant and encouraging that the trend is rising.

The truth is, Mr. Minister, that an increase of around 25% in milk yield has been achieved in recent years. And the position at which we have arrived today in the chicken farming industry does not lag behind that in the developed countries. Growth in the production of red meat however remains limited.

It is gratifying and important that during your administration, in recent years especially, major steps have been taken to introduce zero interest loans for the purpose of boosting yield and encouraging the development of cattle raising. The fact that agriculture is being approached more and more with a view to creating large-scale enterprises is another heartening development. We hope that these steps will accelerate the structural transformation that is already under way, albeit slowly, in our entire agricultural sector beginning with cattle raising.

Another crucial problem from the point of view of our agricultural sector is climate change, which is a matter of concern to the whole world. Agricultural areas are threatened by he risk of drought and flooding. Random irrigation was a big problem in Turkey and still is. But we see that there are gratifying developments in this area as well. Our farmers have also developed greater awareness of this problem.

At the same time, it is essential to boost investment in our agricultural sector as well as in our industrial sector in order to solve both our unemployment problem and our productivity problem. Research and Development in particular is key for the agricultural sector, in terms both of increasing productivity and of coping with climate change. Yet another important development is the opening of the 'Food Safety, Animal Health and Welfare and Plant Health' chapter with the European Union as of June this year.

Mr. Minister:

Let me not further prolong my remarks. There are still problems in our agricultural sector, but we see that there are also encouraging steps and developments on the path towards solving them. These should be taken even further. As always, we are ready to lend all the support we possibly can and to cooperate in solving these problems.

Esteemed Members of the Assembly:

The results of our survey of Turkey's Top 500 Industrial Firms have been the subject of speculation and comments, as I'm sure you are all aware.

Mr. Minister:

Taking the occasion of your presence here as a representative of our government as an opportunity for clarification, I would like to say that the fundamental mission of the Istanbul Chamber of Industry is to boost the competitiveness of our industry. And it is our purpose to serve our industry in line with that aim. We realized at the outset that the best way for us to provide our service is by pointing out, clearly and objectively in a way based on concrete data and figures, the shortcomings and flaws in our economy and our industry. We have sought to see and to show the state of our industry in all its myriad aspects, both positive and negative, so as to contribute to producing solutions to our problems and taking measures in a timely and effective fashion. I would like to underscore emphatically that we have never ever said, 'We're going down the drain,' in such a way as to emphasize only the negative aspects. Our comments might well be described as expressing cautious optimism. Any other interpretation is, in our view, extremely unfair.

The surveys of Turkey's Top 500 and Second 500 Industrial Firms compiled by our Chamber are valuable studies that fill a large void in the field. The Istanbul Chamber of Industry has been compiling those surveys for 42 years, meticulously and without any shadow of doubt being cast on their objectivity and reliability. In 2009 as well, our surveys have been presented to the public with the same attention to detail and within the framework of our theory and concept, which are based on objective criteria and figures.

Prior to our surveys of the two 500's, in our survey on the state of the economy in the second half of 2009, which we published in February, and our survey on the state of the economy in the first half of 2010, which we released at the beginning of August, optimistic expectations prevailed and were also shared with the public.

The primary obligation of nongovernmental and professional organizations is to give expression to the problems and demands of the groups they represent. Our term of office commenced following the crisis of 2001 and has continued through the current global crisis, the most severe of the century. It is understandable that in such extraordinary times our demands should increase and that we should draw more attention to shortcomings. At the same time, we also acknowledge that the public officials who serve in such extraordinary circumstances need to maintain their morale. It is very important for those who hold executive office that appreciation of them be expressed. We believe that we have always made an effort to express our appreciation for jobs well done.

Finally, I would also like to say that the positive results obtained in the ISO Top 500 and Second 500 in the crisis year 2009 were achieved as a result of the healthy reflexes acquired and the crisis-coping experience gained by Turkish industry and the public administration of the Turkish economy, which have faced innumerable crises large and small since the inception of Turkey's process of outward orientation. This is a very important and gratifying development that should be unifying and not divisive, a mutual success that needs to be shared in the name of our industry and of the government's management of the economy.

Boosting their productivity in whatever way they could, our industrialists have fulfilled the obligations that devolve upon them; the administration of the economy, too, through the interest rate policies it has pursued, has secured a reduction in financing costs. Yes, at the point at which we have arrived today important gains have been made and a useful groundwork has been laid for coping with the crisis. But, as we always say, at least as important as this problem is that of preserving the gains that have been made and of sustaining and further magnifying them. As before, our efforts from here on out are therefore going to be in this direction. We hope that the favorable conditions of 2009 will be come sustainable and that 2010 and the years to come are going to bring even more favorable results for our industry.

Another important issue on our agenda today is the referendum scheduled to be held on September 12th. The Constitution is the most fundamental legal arrangement that shapes the life of society and of the individual. The political parties have failed to reach a consensus in the Parliament, so we are having recourse to the will of the individual citizens in a referendum. During this process, discussion has arisen with regard to how the nongovernmental organizations should behave. On an important matter like the Constitution, which is directly related to the life of the individual and of society and to the functioning of democracy, the organizations of civil society can of course enter into debate and express their opinions regarding the content of the amendments. This is a natural and necessary part of the democratic process.

In our view, however, it is not proper for organizations of civil society to express voting preferences that are binding on all their members. For casting one's vote, be it in elections or in referendums, is the most fundamental individual right in modern democratic systems. Everyone's right to go to the polls of his own free will without being subject to any interference whatsoever constitutes the foundation of the democratic process. As the esteemed speaker of our assembly has put it, "Respect for the privacy of the vote as given by the 'secret ballot, open count' rule is imperative."

During the referendum process our members may express their personal preferences; that too is their right as individuals. We believe, however, that for our chamber leadership to suggest, on behalf of the chamber, that members vote in any particular way would compromise their individual freedom of choice. Furthermore, such an approach would not be in keeping with the corporate stance and approach that the Istanbul Chamber of Industry has taken up to now.

I hope that the referendum process will pass quietly and without incident and that common sense will prevail. Again, as our assembly chairman put it, I would like to underscore that the yes and no votes that are going to be cast, focusing on the constitutional amendments rather than on short term interests and expectations, need to be respected. In concluding my remarks, I would like to thank you for your forbearance and, albeit a trifle prematurely, to wish you all a happy Ramazan Bayram. Finally, I salute you all once again on behalf of the Board of Directors.

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