The Chairman's Speech at the Assembly / 26 December 2007
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 December
assembly meeting. This year as always at our last meeting of the year we are going
to attempt to make an overall assessment of the year just past. As we enter 2008,
we are going to try to draw attention once again to the realities facing our economy
and our industry and, in particular, to our industry's seemingly insoluble problems.
Distinguished members of the assembly:
The political agenda was an intensive one in 2007 with the presidential election,
the referendum, the new constitution and the debate on Northern Iraq. As we might
expect in such a year, the economy was put on the back burner. Let alone the structural
reforms that would improve our competitiveness, there was no development in the
area of micro reform at all. And the Emergency Action Plan for the last three months
of the year that was announced following the elections has unfortunately fallen
behind schedule.
The upshot is that 2007 has been a complete loss! And as the year draws to an end,
the economic indicators are showing signs that 2007, from many angles, is going
to close as the most unprosperous year of the post-2001 period.
Yes, the Turkish economy did continue to grow in 2007. Following growth of 6.8%
in the first quarter and 4.1% in the second, with a growth rate of 2% in the third
quarter Turkey managed to sustain uninterrupted growth for 23 consecutive quarters.
But that 2% growth is the lowest growth rate of the last 23 quarters with the exception
of the first quarter of 2002.
Not only that, at the end of the first nine months of 2007, the economy had grown
by 4% on the same period last year. Growth for the same period in 2006 was 6.7%.
Clearly growth in 2007 has slowed considerably.
If we grew by 8% in the last quarter of the year, we could still capture the 5%
target envisaged for 2007. But 8% growth in the last quarter of the year is a rather
small possibility! It would appear that 2007 is going to be a year in which growth
falls below target for the first time since 2001. This slowdown is such as to raise
a red flag for the economy! It is definitely something to be taken seriously, and
measures need to be taken.
Another worrying signal in the economy concerns inflation! As you will remember,
following annual inflation of 7.7% in 2005, in 2006, with inflation of 9.7%, Turkey
tried to console itself with the fact that inflation was still a single-digit figure.
The 2006 hike in inflation was the outcome of the fluctuation in the financial markets
in May of that year. Now in 2007, we see that there has been a conspicuous movement
in inflation in the final quarter. The rise in the CPI, which was 1.03 in September,
came to 1.81 in October and 1.95 in November. At the end of November, annual inflation
was 8.4%, and in all probability 2007 is going to close with inflation of around
9%. Considering that the target was 4%, clearly 2007 has been a year of considerable
deviation from the target in the battle with inflation.
Whether or not the target was realistic is another question. But, in my opinion,
the stable rise in inflation in the last quarter - and of course I'm using the word
'stable' pejoratively here - is extremely distressing, and something we need to
think about.
As you know very well, Turkey until recently was caught in a spiral of high inflation
and low growth! We paid an enormous price to extricate ourselves from that spiral!
In the last five years, to some extent anyway, we have reaped the benefits of the
price we paid and made very significant gains. Turkey managed to grow by an annual
7.3% between 2002 and 2006. Inflation, which was 68.5% in 2001, has fallen to single-digit
figures since 2004! As we always say, these are very significant gains that definitely
need to be preserved.
Unfortunately, however, as we approach the end of 2007, we are now facing a situation
that, if we aren't careful, shows signs of a backslide from those gains in terms
of both internal and external developments. Unwelcome developments have occurred
in the financial markets in recent months.
We are entering a period in which the abundance of liquidity seems about to dry
up and a falling expectation dominates the growth rates. Under the circumstances,
2008 could be said to be a year in which the global winds are not going to swell
our sails.
At the same time we could also say, I think, that we have entered a difficult period
in the process of full accession to the European Union, which has been making a
significant contribution to improving the economy. In other words, 2008 has the
potential for being a difficult year. In order to put those difficulties aside,
we must be extremely cautious! The economy cannot afford to lose any more time!
2008 must be a year in which the economy is given priority and the time lost in
2007 made up! Otherwise Turkey could face serous problems in sustaining her growth
in the period ahead. Structural reforms and micro reforms cannot be put off any
longer!
True, competitiveness is not the sole determinant, but it is inevitable that the
exchange rate will erode competitiveness when it exceeds a certain limit. In an
environment in which the CPI-based real exchange rate index set an historic record
by rising to its highest level in the last 26 years, it is debatable whether or
not the acceptable limits were not exceeded long ago. As we are always saying, if
we have no chance of implementing a competitive exchange rate policy under the existing
conditions, then it is urgent that factors outside the exchange rate be improved!
In the last five years industry has been the driving force behind the economy and
industry itself has been export-driven. For sustained growth, it is imperative that
exports be shored up. Nevertheless, sustaining growth is not the only problem we
face! To be able to solve our economic and social problems, and to reduce the differences
between us and the European Union to reasonable levels, Turkey needs to grow at
high rates!
Research indicates a potential for around 7-7.5% growth in Turkey per year. But
growth rates of around 5% will not do; we need to grow at higher rates of around
7 to 7.5%! We say this, but unfortunately at the end of 2007 we have come to the
point that we are jeopardizing even our 5% growth rate. This is a danger we have
always tried to draw attention to! But we were unable to ensure that measures were
taken! We hope that the alarming growth figures will succeed where we have failed!
Distinguished members of the Assembly:
We were unable to get any concrete results on solving the problems of our industry,
but we cannot be regarded as unsuccessful in representing those problems! As we
said at our previous meetings, 48 of the 73 measures envisaged in the quarterly
emergency action plan fall under the heading of boosting competitiveness! This figure
is thought-provoking as an indication of how far short we fall when it comes to
competitiveness. It is however encouraging that awareness of the importance of competitiveness
is growing and that problems relating to competitiveness are now being brought to
the agenda.
In all our contacts with our government and our bureaucracy we see that we have
no differences at the verbal level. Problems appear when it comes to action, to
translating words into reality. For some reason the issues on which the private
and public sectors agree on what needs to be done can never be translated into reality.
We last witnessed this once again in our professional committee joint meetings with
our distinguished undersecretaries on 6 December.
Mr. Efkan Ala, the undersecretary to the Prime Minister who attended the meeting,
summed up the situation as follows, "Our demands are the same, but our systems are
not." He drew attention to the structural differences and the difference in mentality
between the private and public sectors. He also expressed their resolve to modify
and restructure the bureaucratic system to accommodate producers' and investors'
demands. In line with this target he expressed their desire to work together, and
we for our part are ready to give support of every kind! We expect this resolve
to be translated into reality as soon as possible! Let us not forget that the price
we pay will rise with every day that we are slow to produce solutions.
Our government in its second term should finally take up the real sector as its
most pressing problem. It should take rapid steps to bring the cost of state-produced
inputs down to levels equivalent to those in our competitor countries. We point
out the importance, the necessity and the urgency of this at every opportunity,
on every platform.
There is no doubt that translating structural reforms into reality is not easy.
But it is unthinkable, indeed unacceptable, that a political party that has earned
the confidence of close to half the population should have trouble finding the courage
and determination required for structural reform!
One of the areas of structural reform on which we as industrialists place great
importance is the restructuring of the energy sector, primarily the privatization
of the distribution of electrical power. No progress whatsoever has been achieved
in this area since 2002.
It is distressing that raising prices, even if it is said to be necessary, is resorted
to as the easiest method of solving problems whereas no steps are taken towards
structural transformation. From our point of view this makes the situation even
harder to stomach.
On the other hand, the program of the 60th government stated that the social security
premium for employers was going to be lowered in stages starting by 5 points in
2008. In the meantime, we have learned from announcements made by our Minister of
Labor and Social Security that preparations for the employment package will be submitted
to the parties involved and their views solicited after the new year. I would like
to say that the contents of that package definitely need to meet our needs.
Distinguished Members of the Assembly:
I would like to draw your attention once more to some data concerning the realities
that 2007 brought out in the economy. Growth in industrial production in 2007 was
rather up and down, as it was in 2005 and 2006. In the end, following an increase
of 2.4% in September, there was a rather high increase of 7.9% in industrial production
in October. At the end of the first ten months of 2007, growth in industrial production
was 5.3%, below the 5.6% growth in the same period of 2006.
Stagnation in domestic demand left its stamp on 2007. Private consumer spending,
which is an indicator of domestic demand, showed an increase of only 1.8% at the
end of the first nine months. This is the lowest growth rate of the post-2001 period!
Faced with this stagnation in domestic demand, our industry in 2007 was forced to
put more emphasis on exports, with the result that exports emerge as an area that
went relatively well in the economy in 2007.
According to figures released by the Turkish Bureau of Statistics, exports at the
end of the first ten months had increased by 26.2% on a dollar basis and exceeded
the target envisaged for export growth. However, the decline in the dollar also
contributed to this high increase, because in 2006 our exports rose by 16.4% on
a dollar basis and 12% by amount.
At the end of the first ten months of 2007 in contrast, while growth in exports
was 26.2% on a dollar basis, by amount it was 13.3%. While there appears to be no
significant difference between 2006 and 2007 in export growth by amount, the fact
that the growth difference on a dollar basis is rather high shows that the decline
in the dollar was instrumental in this increase.
Yes, our exports are increasing, but, as we try to point out at every opportunity,
under what conditions and at what cost exports are rising is a reality that should
not be overlooked. Forfeiting profit, indeed sometimes exporting at a loss, in the
name of staying in the foreign markets has brought down the value added created
by the industrial sector. This decline in the value added by the driving force of
the economy has impacted negatively on growth.
Turning now to investments, which are a leading indicator of sustained growth, at
the end of the first nine months of 2007 fixed capital investment in the private
sector was up by 4.6%, its lowest rate since 2002!
Let us look too at unemployment. According to the latest figures, unemployment in
the last year was 9.3% at the end of September 2007. It was 9.1% in the same period
of 2006. There is therefore no question of any improvement in joblessness in 2007.
The foreign trade deficit and the current account deficit also preserved their levels,
and it is estimated that we are going to close 2007 with a foreign trade deficit
of 62 billion dollars and a current account deficit of 36.4 billion.
To sum up:
In terms of the indicators, 2007 appears to be the worst year of the post-2001 period.
The economy remains fragile! The economic program being drawn up for 2008 shows
signs that 2008 will follow a similar trajectory. The only difference is that the
growth target of 5% in 2007 has been raised to 5.5% in 2008.
Our exports are envisaged to come to 117 billion, imports to 182 billion, our foreign
trade deficit to 65 billion and our current account deficit to 39.2 billion dollars,
and unemployment to be 9.7% in 2008. As long as it continues, growth is apparently
meant to be realized by generating a high foreign trade deficit, a high current
account deficit and a high rate of unemployment in 2008.
Distinguished members of the Assembly:
Throughout 2007 we tried to draw the attention of our government and our bureaucracy
to the hidden realities of our economy and our industry and to the dangers that
await us in terms of production and jobs if no measures are taken. We shall continue
to do so in the period ahead.
In addition, we are going to pursue to the best of our ability our efforts aimed
at boosting Turkey's competitiveness and doing whatever it is incumbent upon our
enterprises to do. Developing our capacity for innovation and R and D, and our industry-university
cooperation, making occupational training more widespread and enabling our members
to find convenient financing are going to continue to occupy an important place
on our agenda.
The year 2007 was fraught with difficulties and uncertainties! We are leaving behind
a year of pluses and minuses. The indicators imply that 2008 is also going to bring
a wide array of difficulties. But we are used to difficulties! We believe that we
are going to overcome those difficulties, as before, by working together in unity!
It is our hope that 2008 will be a year in which the gains in the economy can be
taken even higher.
I hope that 2008 will bring peace, tranquility and prosperity to our country, and
health, happiness and success to you, our valued members, chamber employees and
distinguished members of the press. I closing 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