The Chairman's Speech at the Assembly / 26 September 2007
Mr. Chairman, Esteemed 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 September
assembly meeting. Following our last meeting on 22 August, the election for President
of the Republic was completed, and on 5th September the new government took office
following a vote of confidence. We have thus put behind us two important elections
that made 2007 a difficult and critical year, and we have embarked upon a new period.
As is to be expected in a functioning democracy, politics occupied the agenda for
a good part of the year, and the economy was put on the back burner. During the
remainder of the year we hope that attention will be focused on the economy and
lost time made up for.
Esteemed members of the Assembly:
As we always point out, the Justice and Development Party made some significant
gains in the economy during its first term. But sufficient progress was not made
in improving the competitiveness of the real sector.
Our expectation in its second term therefore is that the problems of our industry
be given priority and solutions found. Both the cabinet, which appears to have been
carefully chosen, and the program of the 60th government are such as to boost our
hopes in this direction.
There are in the new cabinet people who are closely acquainted with the business
world and are familiar with the problems of Turkish industry. The government program
covers most of the reforms, realization of which we regard as important and urgent,
and which we bring to the agenda at every opportunity. It is of course important
that these reforms have been incorporated in the program as targets. But we also
know from experience that what is truly important is being able to translate them
into reality.
We believe that detailed policies regarding how the targets envisioned in the program
are going to be translated into reality will be shared with the public in the near
future, and we would like to state that we are prepared, as always, to do all we
can to support our government during the process of generating solutions.
Esteemed members of the Assembly:
Turkey needs to grow uninterruptedly and at a high rate to be able to solve her
economic and social problems. This is a fact, a need, which is beyond debate and
upon which all sectors of society are in agreement, and in our opinion the problem
facing Turkey after the elections is how to raise the rate of economic growth and
then sustain that rapid growth. In the period just left behind, Turkey exhibited
a successful performance in growth.
Together with the growth in the second quarter of 2007, Turkey has now grown uninterruptedly
for 22 consecutive quarters. It is disturbing however that growth has now declined
from 6.8% in the first quarter to 3.9% in the second.
The positive impact of our industry on the first quarter? high rate of growth was
extremely significant, and our industry was again a determining factor in the slowdown
in the second quarter.
The rise in value added in the industrial sector, which was 7.5% in the first quarter,
fell to 3.2% in the second. GNP growth in the same period was limited to 3.9%.
This demonstrates once again how instrumental our industry is both in sustaining
growth and in achieving high rates of growth. Despite all that however, growth in
industrial production in recent years has tended to be static.
At 9.8% in 2004, growth in industrial production fell to 5.4% in 2005, and was 5.8%
in 2006. In the first seven months of 2007 it is 5.5%, below the 6.1% of the same
period last year. The decline in manufacturing is even greater; at 5.7% in the first
seven months of 2006, it dropped to 4.8% in the same period this year.
Looking at these figures, we can foresee that 2007 is going to close with a growth
rate of around 5% in industrial production. In GNP growth as well the target of
a 5% for the year will in all probability be achieved. Such growth rates however
are not adequate for Turkey.
To be able to solve her problems, beginning with unemployment, Turkey needs to grow
at higher rates.
Esteemed members of the Assembly:
Between 2002 and 2006 Turkey grew successfully on an average of 7.5% a year. Our
expectation, as we said earlier, is to be able to sustain this average in the years
ahead.
When we look at the period between 2002 and 2006, we see that during the period
from 2002 to May 2006, growth was essentially driven by domestic demand. But the
fluctuation experienced in May of 2006 changed all that, and domestic demand began
to lag.
So much so that the rising trend in private consumer spending, ongoing without interruption
since the second quarter of 2002, was interrupted in the second quarter of 2007
and began to contract. A favorable trend in exports was instrumental in the growth
rates achieved in the first and second quarters of this year.
Another characteristic of this period is that growth in exports outstripped that
in imports in February, March, April and May. In June and July however imports again
rose more sharply than exports. Export-driven growth is of course very important,
and this is a much-desired development. But a domestic market worth 73 million is
also not to be sneezed at. In our view, Turkey in the period ahead should target
a growth regime to which both external demand and domestic demand contribute a balanced
share.
Esteemed members of the Assembly:
In the 2002-2006 period when we achieved annual 7.5% growth, international liquidity
conditions were working in favor of the developing countries.
In the past few months on the other hand, uncertainty has reigned in the global
markets. We don? know what the future holds, and the possibility of a contraction
in liquidity is mentioned with some frequency. If this were to happen it would have
a slowdown effect on growth around the world.
This in turn could impact negatively on both Turkey? exports and its growth. While
it is unclear which way the global winds are going to blow, we see that as of the
end of July the current account deficit of 33.2 for the year had already reached
21.8 billion dollars at the end of the first seven months. While the current deficit
is perceived as a secondary rather than a fundamental risk, it should not be forgotten
that a high current deficit could lead to serious problems if the global situation
takes a downtown.
Following the decision of the American central bank, the Fed, to lower interest
rates, the exchange rates continue to spiral downwards, to the point that the dollar
fell to its lowest level in the last six years and to the point that it is seriously
damaging Turkey?s competitiveness.
We frequently hear noise from the non-industrial sectors to the effect, the days
of exchange rate-based competitive advantage are over. Our industry should instead
target a competitive edge in the real sense by boosting its productivity and improving
the quality of its goods! Yes, but it shouldn? be forgotten that the exchange rate
inevitably damages competitiveness when it goes beyond a certain limit. And we believe
it has reached that limit.
Other factors should therefore be improved now, while the exchange rates are at
the limit. Rapid passage of the reforms that will boost competitiveness has become
even more urgent at this juncture. Otherwise sustaining growth could be in jeopardy.
Esteemed members of the Assembly:
Yes, there could be difficulties in the period ahead from the standpoint of sustaining
growth. But Turkey also has important advantages. The gains made in establishing
macro economic stability have laid a positive groundwork. The existing political
and economic stability offers a key advantage. If this is exploited well, Turkey
could take off.
In order for this to happen any and every approach and implementation that could
upset that economic and political stability must be avoided. A responsibility falls
upon every sector of society in this regard. But the brunt of the responsibility
lies with the government which is in charge of managing the economy.
A change in the constitution is in the works today in Turkey. The need for a modern
up-to-date constitution is indisputable. But the process of drafting that new constitution
should not develop in such a way as to exacerbate tension and polarization in society.
It is unacceptable that the gains achieved by our secular democratic republic should
be brought into question during this process. A basic principle, the process of
amending the constitution should be carried out as transparently as possible.
The organizations of civil society, the universities and all concerned parties should
be able to express their views freely and openly and to contribute to the process.
The functioning of a modern democracy demands this in any case. Only in this way
can a constitution be drafted that embraces all sectors of society and their expectations
and that will take Turkey to a new level.
Esteemed members of the Assembly:
The most important step towards preserving economic stability should be the continuation
of fiscal discipline. Budget figures for the first seven months of the year present
a very encouraging picture in this sense. But we believe that this is an anomalous
and temporary situation stemming from the recent elections. We hope that fiscal
discipline can be sustained without compromise in the period ahead. Similarly, the
fight against inflation should also continue with resolve.
Besides the macro economic targets, the micro dimension of the economy should also
be dealt with quickly on the company front.
Boosting the competitiveness of our companies globally is going to play a determinant
role in sustaining growth. The banking system in Turkey does not give sufficient
support to our companies efforts to enlarge their scale and boost their productivity.
Securing financing should be made easier for all our enterprises, starting with
the SME?s, and an employment-friendly growth strategy should be adopted.
In this connection, labor costs should also be lowered and employers mandatory obligations
reduced.
Under the new government program, social security premiums for employers are going
to be lowered in stages starting with five points in 2008. Just today however a
newspaper reported that this decision has been abandoned. We would like to think
this report was based on a misunderstanding.
In connection with electrical energy, the new government program also states that
one target is to develop a functioning market that is competitive in structure for
the production and distribution of power. We hope that this target will finally
become reality in the period ahead. It is encouraging, too, that all research and
development activity will qualify for tax reductions and exemptions under the new
program. We hope that how this is going to work will become clear as soon as possible.
We are going to monitor closely all the program targets regarding industrial policy,
the SME?s, investment incentives, energy, the environment, working life, employment,
vocational training, and research and development. We are also going to monitor
how the structural reforms are developing. There is no doubt that structural reforms
should be effected so that their results are felt in the medium and long term. It
would not be realistic to expect their positive impact to be felt right off today
or tomorrow.
From the standpoint of the government demonstrating its resolve however, it is extremely
important that the initial steps towards structural reform be taken and distance
covered.
Such resolve will further enhance confidence in the Turkish economy and in the path
on which Turkey has embarked. And such an injection of confidence will in turn fuel
further interest in Turkey on the part of international investors.
Structural reforms are of the utmost importance as an indicator of Turkey?s determination
to become a full member of the European Union. Following the start of negotiations
with the EU there was a hefty increase in inflows of international direct investment,
which came to 1.4 billion dollars annually between 1995 and 2004.
Last year?s figure was 20 billion dollars, and inflows of international direct investment
in the first seven months of this year have already come to 12.8 billion dollars.
While the fact that these investments have not taken the form of new plants overshadows
our pleasure - a subject on which we are constantly expressing our reservations
- such figures nevertheless demonstrate how important the EU anchor is in terms
of the economy.
But the goal of full EU membership is extremely important not only from the standpoint
of the economy but also in terms of giving the Turkish people the modern living
standards they deserve, and therefore it is a goal that must be pursued with resolve.
It is gratifying that this determination has also been reflected in the government
program. We are always saying that a major responsibility falls upon the organizations
of civil society during the process of full accession to the EU.
I would like to point out that we, for our part, are ready now, as always, and in
the future to support our government as best we can in every area so that Turkey
can be explained better to the European public.
Esteemed members of the Assembly:
I have tried to put forward in their main lines our approach, our expectations and
our priorities with regard to the new period ahead of us. But today I would like
far more to listen to you, our esteemed members.
Your thoughts and views are going to guide us on our visits to Ankara which we will
make in October. I would like to thank you in advance for your contributions.
The program of Turkey?s 60th government envisages exports reaching 200 billion dollars
and per capita GNP over a thousand dollars by 2013. We share these goals wholeheartedly
and, as industrialists, we are prepared to fight with all our might to achieve them.
We always have been and we always will be. Our only condition, our only demand,
is that conditions be created that are equal to those in our competitor countries,
and that our competitiveness be shored up!
Our industrialists drive to produce is alive and well as always!
Our professional committees August survey of the state of the economy shows that
there is a very perceptible rise in expectations with regard to production, the
home market and exports in September. Our industrialists are hopeful about the last
quarter of the year. That optimism must be put to good use!A few steps quickly taken
will further boost the morale and optimism of our industrialists.
In closing I would like to wish you all a Happy Ramazan Bayram 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