The Chairman's Speech at the Assembly / 26 August 2009
Mr. Chairman, Distinguished 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 August
meeting.
We would like to thank Mr. Tamer Yyldyz, our Minister of Energy and Natural Resources,
for accepting our invitation and honoring us with his presence today. Welcome Mr.
Minister!
Esteemed Members of the Assembly:
Following our survey of Turkey's Top 500 Industrial Firms, which was published in
July, we also announced the results of this year's survey of the Second 500 Industrial
Firms at a press conference held prior to this meeting. Both surveys contain key
data on the performance of our industry in 2008.
This year as every year I would like to assess with you, our esteemed Assembly members,
the results of our survey of Turkey's Second 500 Industrial Firms, which were announced
this morning.
Table 1 - Shares of the Top 500 and Second 500 in GDP (%)
If we turn our attention first of all to certain categories of data regarding those
firms, we find that there are 496 private firms and 4 public sector firms among
the Second 500. While 365 of the firms in 2008 remain the same, 135 new firms have
joined the ranking. Among them, 37 are firms that were in the top 500 in 2007 and
slipped into the second 500 in 2008, while the remaining 98 are joining for the
first time.
In 2008 there were 209 ISO-member firms in the top 500 and 193 in the second 500.
Among the firms in the second 500, 288 employ upwards of 250 workers. In terms of
numbers of workers, these 288 firms are therefore medium-sized enterprises whereas
the remaining 212 are small to medium-sized.
The share in Turkey's GDP of the Second 500 Industrial Firms, which was 0.8% in
2007, rose slightly to 0.9% in 2008. The share of the Top 500 in the same year was
8.4%. Thus, 9.3% of Turkey's GDP in 2008 was created by its top 1000 industrial
firms, down from 10.1% in 2007 (Table 1).
In 2008 the value added created by the Second 500 Industrial Firms came to 3.5%
of the value added in Turkey's industrial sector. This share was 22.5% in the Top
500 and 26% in all 1000 firms.
Table 2 - Real Changes in the Economic Aggregates of the Private Firms Among
the Top 500 and Second 500 Industrial Firms (%)
Production-based sales, which were up by 8.7% in fixed prices in the Second 500
Industrial Firms in 2007, fell by -2% in 2008. Meanwhile the rate of increase in
total sales turnover, which was 6.1% in fixed prices in 2007, fell in 2008 to -4.4%.
Profitability indicators in 2008 painted a far more negative picture in both the
Top and the Second 500 (Table 2).
Pre-tax period profit, which rose by 29.4% in fixed prices in 2007 in the private
firms among the Second 500, fell by 26.5% in 2008. As profits contracted, there
was also a hefty increase in losses.
Period loss, which fell by 50.1% in fixed prices in the private firms among the
Second 500 in 2007, rose in 2008 at the staggering rate of 271%. These results had
an adverse effect on total pre-tax profit and loss as well. This total, which had
risen by 73.5% in the Second 500 industrial firms in 2007, contracted by 74% in
2008.
Net value added, too, which was up by 16.2% in fixed prices in the Second 500 in
2007, fell in 2008 by 3.7%. Similarly, gross value added in producer prices, which
had risen by 11.1% in 2007, fell by 6.2% in 2008.
As the figures indicate, in all the economic aggregates the 2008 performance of
the private firms in the Second 500 remained far below their performance in the
previous year.
Table 3 - The Sectoral Distribution of Exports and Rates of Change (Private
Firms) (%)
Turning now to exports, while Turkey's exports rose overall in 2008 by 23.1%, the
rate of growth in exports in the Second 500 was 16.1%. In the Top 500 it was 24.2%
(Table 3).
Export growth in the Second 500 in 2008 remained well below export growth in both
the Top 500 and for Turkey overall. If we look at the sectoral distribution of exports,
the textiles, ready-to-wear, leather and footgear sector is in top place among the
Second 500 industrial firms in 2008 with 29.4%. While it preserved its top place,
it is nevertheless noteworthy that this sector's share, which was 36.2% in 2007,
contracted in 2008 to 29.4%. In second place is the metal goods, machinery-equipment
and professional instruments sector, followed by the foodstuffs, beverages and tobacco
industry in third.
Table 4 - Distribution of the Second 500 Industrial Firms by Groups of 50 (%)
When we examine the distribution of the Second 500 Industrial Firms by groups of
50, we find a more balanced picture than in the Top 500. The top 50 firms among
the Second 500 account for 14.4% of its production-based sales, 15% of its gross
value added, -4.3% of its total period profit and loss, 16.3% of its exports and
11.3% of its total workers. As you will remember, with the exception of jobs, these
figures were all over 50% for the top 50 firms in the Top 500 (Table 4).
Table 5 - The Number Foreign-Invested Firms
There are 70 foreign-invested firms among the Second 500 in 2008, up from 68 in
2007. In the Top 500 meanwhile the number of foreign-invested firms rose from 143
in 2007 to 148 in 2008. The number of such firms in both the Top and the Second
500 has increased despite the downturn in the economy (Table 5).
The total number of workers in the Second 500 Industrial Firms in 2008 fell by 1.2%
on the previous year. In the Top 500 the rate of decline was 1.6%. If we remember
that the number of workers in Turkey's industrial sector in general rose by 3% in
2008, it emerges that the contributions of both the Top and the Second 500 to employment
have been reduced (Table 6).
Table 6 - Average Number of Wage Workers for the Years
Graph 1 - Worker Density in the Private Firms Among the Top and Second 500(Jobs
Per TL 1 million in Sales Revenues)
The number of jobs created in return for sales revenues of TL 1 million in 2008
was 4 in the private firms among the Second 500 and 1.6 in the private firms among
the Top 500 (Graph 1).
Graph 2 - Payments to Workers as a Percentage of Sales Revenues in the Private
Firms among the Top and Second 500 Industrial Firms (%)
In the private firms among the Second 500 the ratio to sales revenues of wages and
salaries paid was 8.9% in 2007. In 2008 it fell to 8% (Graph 2).
Table 7- The Structure of Funds in the Private Firms (%)
* Calculated using figures corrected by inflation accounting.
Let us look now at the structure of funds. As in the Top 500, the structure of funds
and borrowing rates deteriorated in the industrial firms in the Second 500 in 2008.
However, the deterioration was even worse in the Second 500 (Table 7).
While the share of debts in total assets was 52.7% in 2007 in the private firms
among the Second 500, in 2008 it rose to 55.8%, the highest rate in recent years.
As debts were on the rise, the share of equity capital declined, from 47.3% to 44.2%
in the private firms among the Second 500.
Graph 3 - Sales Profitability in the Private Firms (%)
* Calculated using figures corrected by inflation accounting.
While 339 of the 496 private firms among the Second 500 in 2008 made profits, 157
took losses. In 2007, on the other hand, 440 of the 495 private firms posted profits
and only 55 losses. These figures clearly show the dimensions of the bottleneck
in profitability.
Turning now to sales profitability, this was 1.5% in the private firms among the
Second 500 in 2008, its lowest since 2001 (Graph 3).
In Table 8, we see the distribution of net value added as factor incomes. While
the share of wages and salaries within net value added in the private firms among
the Second 500 was 63.8% in 2007, in 2008 it rose to 68.4%. The share of interest
paid rose from 14.1% to 20.7%. Meanwhile, the share of profit as national income,
which means profit derived from primary production activity, fell from 22.1% in
2007 to 10.9% in 2008.
Table 8 - The Distribution of Net Value Added as Factor Incomes (%)
Graph 4 - Net Value Added as a Percentage of Sales Revenues (%) (%)
While net value added was created at the rate of 19.9% of sales revenues in the
private firms among the Second 500 in 1997, in 2008, this percentage had fallen
to 11.4% (Graph 4).
Table 9 - The Share of Non-operating Revenues in Total Period Profit and Loss
in the Private Firms Among the Second 500 (%)
As in the Top 500, in the Second 500 as well non-operating incomes fell sharply
in 2008 (Table 9). At 35.7% in 2008, the share of total period profit and loss in
non-operating incomes in the private firms among the Second 500 fell to its lowest
level since 1997. Rising exchange rate losses in 2008 paved the way to a decrease
in non-operating incomes while the economic crisis wreaked destruction on earnings
derived from production activities. Consequently, 2008 was a year in which both
non-operating incomes and revenues derived from production activities fell in both
the Top 500 and the Second 500.
Mr. Minister,
Esteemed members of the Assembly:
The results of our surveys of Turkey's Top 500 and Second 500 Industrial Firms have
revealed that 2008 was the most dismal of the post-2001 period for Turkey's top
1000 industrial firms.
The results of our survey of the Second 500 Industrial Firms, over forty percent
of which consist of small and medium-sized enterprises, point to 2008 having been
very hard on these firms. When we consider that the problems inherited from 2008
are going to be further exacerbated in 2009, it is clear that the hardships suffered
by our industrial firms, especially the small and medium-sized ones, are going to
get even worse before they get better. As a matter of fact, in the context of our
survey of the state of the economy, which we announced just a short while ago, the
first half of 2009 emerges as gloomiest period in the last ten years.
Graph 5 - Industrial Production (%)
Following a very negative first quarter, signs have begun to appear that the downturn
in industrial production and the economy in general has bottomed out. Most recently,
a retreat to a single-digit figure for the fall in production in June has strengthened
optimism. Also within the context of our survey of the state of the economy, expectations
for the second half of the year are positive. When we consider the importance for
the economy of expectations and morale, we too find the growing optimism and belief
that the crisis has bottomed out significant. However, we should remember that over-optimism,
by lulling us into complacency, could tempt us to neglect what has to be done and
to lose the second half of 2009 as well (Graph 5).
Expectations are optimistic, yes, but it should not be forgotten that we are still
below zero in industrial production. The rate of capacity utilization in the manufacturing
industry in July was lower than in the previous month.
The Turkish Bureau of Statistics' survey of trends in the manufacturing industry
did not yield very bright results for either production growth in July or expectations
for August (Graph 6). Not only that but the monthly survey of the state of the economy
by our chamber's professional committees also indicates a relative fall in expectations.
We would like to hope that these are temporary setbacks dependent on seasonal effects,
and we say that all attention should be focused on the economy during this critical
transition period. The existing grounds for optimism should be exploited without
losing momentum and additional measures put in place to shore up production, employment
and the domestic market.
Graph 6 - Capacity Utilization in the Manufacturing Industry (%)
Mr. Minister;
Energy is one of the areas in which there is a need for supportive measures. As
we all know, energy costs make up one of our industry's chief expenditures. Improvement
in energy costs is therefore one of our key expectations. This is an especially
crucial issue for our energy-intensive sectors. As we never tire of saying, our
demand as industrialists is for uninterrupted, quality energy at competitive prices.
For a long time there has been no increase in the price of electricity. Despite
this sensitivity however our prices are still not competitive. Indeed, the figures
confirm that we use more expensive energy than many of the countries with whom we
compete. In the past there were times when our Minister and I fell into disagreement
on the subject of figures, Nevertheless, I would like to share with you some of
the figures we have arrived at, because the amount of dollars needed to purchase
the same amount of goods and services is different in different countries. Purchasing
Power Parity eliminatesthat difference. We are resorting to Purchasing Power Parity
because it is a more realistic method of measuring. According to figures published
by the International Energy Agency, based on Purchasing Power Parity $0.181 per
kilowatt-hour (kWh) was paid in 2008 for the electricity used in industry in Turkey.
This makes Turkey the country with the fifth most expensive electricity in the OECD
after Italy, Slovakia, Hungary and Mexico (Table 10).
Table 10 - A Comparison of International Electricity Prices
Meanwhile, when it comes to the price of the natural gas used in industry, based
again on Purchasing Power Parity Turkey is the third most expensive country in the
OECD after Hungary and Slovakia. And once again, based on the same figures, by Purchasing
Power Parity the Turkish industrialist in 2008 paid a price 75% above the OECD average
for the natural gas he used in production (Table 11).
At this point I would like to draw your attention to a comparison made from within
Turkey, and outside the international comparisons. In the last five years, the total
rise in the Producer Price Index has been 56.3%. In the last year, price hikes on
electricity and natural gas were 75% higher than the overall rise in the Producer
Price Index. At the same time, the price increase on the index for liquid fuel in
the last five years was 89%. While this was the situation in energy, one of the
most important input costs, the price of products in the manufacturing industry
rose by only 52.6% in the last five years. Rising energy costs have therefore not
been reflected in the price of manufactured goods in Turkey.
Table 11 - A Comparison of International Natural Gas Prices
Mr. Minister,
Distinguished members of the Assembly:
It is a known fact that the rate of technical and commercial losses in the distribution
of electrical power in Turkey is extremely high and that the cost of inefficiency
in the distribution networks is reflected in power bills. Turkey is the country
with the highest total rate of network losses and illegal use in the entire OECD.
Within the context of improving energy costs, one topic on which we have consistently
dwelled was that of privatizing the distribution of electrical power to prevent
network losses and illegal use. Unfortunately, however, things have moved very slowly
in this area. Now, in the almost seven years since 2002, only five of the contracts
for the 20 distribution regions have been concluded. And these five contracts were
concluded in 2008. This process must be accelerated. Our industrialists should not
have to pay the price of inefficiency any longer!
At the same time, energy costs in Turkey are also higher due to the random outages
that add to sales costs. With a tax of 18.5% on the price of the electricity used
in industry, Turkey is the country with the third highest taxes on energy in the
OECD after Norway and Italy. In countries like the Czech Republic, Hungary and Poland
the tax on electricity is below 10% (Table 12). Not only that but the Turkish Radio
and Television's (TRT) cut in electricity bills has been a subject of controversy
for years. Our demand that this compulsory contribution be completely eliminated
has nonetheless never been translated into reality. We have never denied the importance
of public broadcasting. But our industrialists should have not to continue to bear
the burden of this when they are already struggling under the impact of a global
economic crisis.
Table 12 - Taxes on the Price of Industrial Electricity in the OECD (2008)
Mr. Minister,
Distinguished Members of the Assembly:
There is no doubt that energy is a complex, multidimensional and strategic subject
that shapes international policy and even leads to wars. Unfortunately Turkey is
not rich in energy resources such as oil and natural gas and is in the position
of being a net importer of energy. Under the circumstances, our energy needs are
rising by the year. It is essential that Turkey ensure a secure energy supply in
order that production and everyday life can continue unhampered. For this there
are certain points on which we all agree, namely:
Turkey should develop rational energy policies,
She should make very good use of her international advantages,
She should diversify her resources, and
Make very efficient use of her existing resources.
The Nabucco Project, which reinforces Turkey's position as an energy bridge, is
an extremely important and encouraging development in this sense. The large-scale
growth in recent years in investments in alternative energy sources such as solar
and wind, in which Turkey is rich, is another positive development. It is our expectation
that such investments will gain momentum.
Again, on the subject of security of supply, projects aimed at storing natural gas
also need to be accelerated. Important steps in the area of energy have been taken
in the recent period. It is our expectation that our industry's fossilized energy
problems will be solved as soon as possible. This need is more urgent than ever
in the present circumstances when the global crisis has had an extremely negative
impact on our industry and virtually caused it to collapse.
Mr. Minister,
Being with you today has strengthened our hopes for a solution to these problems.
Our industry, our production and our jobs are in need of support. The mirror our
Top 500 and Second 500 surveys hold up to 2008 should be a warning about what needs
to be done so that 2009 at least can be entered in the gains column.
Measures should not be neglected!
Attention must be on the economy!
Otherwise the results of our Top 500 and Second 500 surveys for 2009 could leave
us wishing for a return to 2008.
Mr. Minister,
Esteemed Members of the Assembly:
In closing I wish you all a happy Victory Day on 30th August and salute you once
again on behalf of the Board of Directors.
C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors