The Chairman's Speech at the Assembly / 27 December 2006
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 December
assembly meeting.
At this final assembly meeting of 2006 we are going to try, as we do every year,
to make an overall assessment of the Turkish economy and industry. When we look
at the economy in 2006, we see that there were positive developments but that fragility
continued at certain points. And even by the end of the year the economy was still
not on a sustainable footing! Meanwhile, the uncertainty surrounding the two elections
that will take place in 2007 raises further questions concerning sustainability.
Esteemed members of the assembly:
Uninterrupted growth has surely been one of the key developments in the economy
in the post-2001 period. In the third quarter of 2006, GNP growth finally moved
into positive territory and Turkey succeeded in growing for 19 straight quarters
since the first quarter of 2002. Data released by the Turkish Bureau of Statistics
indicate that besides GNP industrial production too has been up for 19 straight
quarters during this period. As we are fond of pointing out, this further confirms
our view that ?industry is the primary sector and engine of the economy. If industry
grows, so does the economy; if it shrinks, so does the economy. And the other primary
sectors, commerce and transportation, are also tied to industry. It is imperative
that this connection be carefully looked into and that all obstacles to production
be removed as soon as possible.?
Esteemed members of the assembly:
I would like now to take a look at the picture presented by the economy in 2006
in the light of some leading economic indicators.
Let us start with industrial production. To sum up the overall trend for the year,
we might say that ?industrial production was characterized by a series of ups and
downs in 2006?. Turkish industry started out the year with a 6% contraction in January.
This was followed by an expansion of 5.9% in February, 9.8% in March, 7.4% in April
and 9.3% in May, peaking in a growth rate of 11.2% in June. Immediately afterwards
however growth in industrial production slowed in a continuous downward spiral.
Growth in production was 8.7% in July, 4.8% in August, 3.5% in September and 2.5%
in October, the lowest of the year. The same is true of exports, which also peaked
in June only to slow again in the ensuing period.
Turning back to production, average growth at the end of the first ten months was
5.8%. Meanwhile, if we look at foreign trade in general, we see that both exports
and imports rose in the first two months by 12.5% and 17.7% respectively. This,
despite annual growth targets of 8.2% in exports and 9.1% in imports. Therefore,
as in previous years, the tendency towards higher growth in exports, and much higher
growth in imports, continued in 2006 as well. As a result, the foreign trade deficit
climbed to 45 billion dollars by the end of the first ten months. By year?s end
it is expected to reach 54 billion dollars and the current account deficit 33 billion
dollars. These high deficits emerge as one of the least positive aspects of the
Turkish economy in 2006.
One positive development in this regard is that growth in inflows of international
direct investment continued to gain momentum in 2006. While such inflows came to
$4,203,000,000 in the first ten months of 2005, they rose to $15,804,000,000 in
the same period of 2006. And yes, the quality of financing of the current account
deficit was also improved thanks to those inflows. However, as we have said before,
this relatively positive development does not do away with either the current account
deficit or the fragility it causes in the economy. And in that sense the fluctuation
in May was a dire warning in terms of revealing how exposed our economy is to external
shocks.
Esteemed members of the assembly:
Thanks to the external fluctuation fortunately having been short-lived and to the
timely measures taken at home, by the Central Bank in particular, its effects were
quickly overcome. But the indicators show that the fluctuation had a far broader
impact than that felt on the economy alone. To wit, while GNP grew by 6.4% in the
first quarter and 8.8% in the second quarter of 2006, following the fluctuation
it fell to to 3% in the third. GNP figures in this period point to a rather sharp
slowdown in domestic demand as well.
Private consumer spending, which rose by 8.4% in the first quarter and 10.4% in
the second in fixed prices, fell to 1.3% in the third. As we close the chapter on
growth, we can say that the 5% growth target envisaged for the end of 2006 is going
to be realized. It will however be the lowest of the post-2001 period.
Turning now to another leading indicator, we can say that the fluctuation also affected
the fight against inflation. Policies aimed at combatting inflation were pursued
with eminent success to the end of 2004 in particular. And by the end of 2005 inflation
had fallen to 7.7%, its lowest in 37 years. Then, at the beginning of 2006 inflation
started to inch up again and, with rising exchange rates following the fluctuation
in May, gained momentum in May, June and July. Indeed, annualized inflation climbed
back into double-digit territory in June.
As you know, starting in August inflation once again embarked on a falling trend,
down to 9.86% at the end of November. And we hope that by year?s end the annualized
rate will once again be a single-digit figure. This is especially important in terms
of its psychological impact. In conclusion, however, if we remember that annual
inflation was envisaged at 5%, 2006 is clearly going to constitute a significant
deviation.
Another question mark in the economy is the problem of jobs and unemployment. According
to the Turkish Bureau of Statistics (TÜYK), unemployment fell from 9.4% to 9.1%
in the third quarter of 2006. But the same survey has shown that the number of people
who are ready and willing to work if they can find a job rose by 1.5 million to
around two million. At the same time, the number of people who have given up hope
of finding a job has risen from 467,000 to 655,000. What this survey tells us is
that while employment is up a tad, unemployment continues to rise faster than jobs
due to population growth.
Following this month, however, as the exchange rates came down, industrial production
and export growth also began to fall. Can this be pure coincidence? As we are fond
of saying, it would of course be unrealistic to expect to gain competitiveness based
on the exchange rates alone. On the other hand, a competitive exchange rate is crucial
for success in exports under conditions in Turkey. At this juncture, I would like
to underscore the fact that our saying this should certainly not be construed to
mean that we are demanding a devaluation.
As we pointed out earlier on various occasions, it is our expectation that the exchange
rates should be at reasonable and competitive levels that do not upset the economic
balances. Everyone knows how much importance is placed on competitive exchange rates
in the Asian economies which successfully implement an outward-oriented, export-based
economic model.
Esteemed members of the assembly:
Despite the low exchange rates, with which we frequently express our discomfort,
the indicators show that industrial production and exports are on the rise - a contradictory
situation that could raise doubts regarding the credibility of our industry. If
the reliability of those indicators were brought into question, our reply would
be that our industrialists have succeeded in these areas by sacrificing their profits
in order to sustain production, by employing fewer workers to boost productivity,
by turning to (cheaper) imported inputs, and by borrowing on favorable terms from
abroad at the risk of incurring exchange rate losses. But such methods, to which
our industrialists were forced to turn in order to sustain their competitiveness
and continue exporting, unfortunately entail a certain economic and social price.
Producers of domestic inputs, for example, have practically had to cease operations
under the pressure of cheaper imported inputs. What?s more, despite growth in the
economy, unemployment continues to be one of the biggest problems, and a serious
decline in the profitability of enterprises is occurring throughout our industry.
As you will remember, our survey of Turkey?s Top 500 Industrial Enterprises clearly
revealed falling profitability. A study of the real sector in the latest report
on financial stability done by the Central Bank points to the same conclusion.
To sum up then:
No improvement has yet been achieved in the problems that stem from the state, such
as the high cost of energy starting with electricity, the highest burden of taxes
and premiums on employers in the entire OECD, financing difficulties, the black
economy, high taxes, and Turkey?s unwieldy bureaucracy. Nor have exchange rates
been at the competitive levels that would shore up exports. In other words, as the
industrialist?s cost burden is steadily becoming more onerous, global competition
is making it even more difficult to reflect rising costs in the price of goods,
which in turn is lowering profitability.
How much longer and up to what point can we go on like this? As long as these questions
remain, the continuation of export growth and economic growth overall is jeopardized.
Export growth, which was 33.4% in 2004, fell to 16.3% in 2005 and to 12.5% at the
end of the first ten months of 2006. Shouldn?t this give us pause?
As I said a few minutes ago, growth in industrial production has fallen steadily
since June and was only 2.5% in October. Nevertheless, the monthly survey of the
state of the economy done by our professional committees shows that our members
have positive expectations for the remaining two months of the year. Indeed, throughout
2006 we have tried with all our might to bring these questions, and the realities
that underlie the positive trend in the economic indicators, to the attention of
our government and our people. In doing so we have placed special emphasis on the
decline in productivity.
In order to modify a well-entrenched public perception, we have stated at every
opportunity, like a virtual slogan for 2006, that when we speak of profits we don?t
mean personal profits but rather the capacity of firms to generate funds. In an
age in which the success of economies is determined by the success of firms, we
have tried to get across the idea that the profitability of firms needs to be seen
as a social issue.
We have drawn attention especially to the fact that firms with declining profitability
will be unable to make new investments, unable to create new jobs and unable to
be sufficiently useful to society. As long as our firms are unable to generate sufficient
funds, savings are not going to grow. The need for foreign funds is therefore going
to continue and the current account deficit to remain a fundamental problem.
Esteemed members of the assembly:
We have always said that we have significant expectations from our government and
the managers of our economy in 2006 with regard to effecting the structural reforms
that will boost the competitiveness and profitability of our industry as well as
creating a macro economic environment that will foster growth, exports, investment
and jobs. We must also be careful to point out however that this should not be taken
to mean that we expect the state to do everything when it comes to raising profitability
and competitiveness.
We have tried to explain to the public our awareness that the fundamental responsibility
for developing competitiveness and profitability belongs to our enterprises themselves
and that we are trying to fulfill that responsibility as best we can. But we have
also stated clearly that we are going to continue to demand of the state that it
do its part. And, in this regard we realized two important activities in the last
month.
For one thing, our professional committees held an extremely fruitful meeting with
our esteemed bureaucrats. One issue that we raised frequently, and shall continue
to raise, was how uncomfortable we are with the fact that electricity prices in
Turkey are higher than those of our competitors and our view that the distribution
of electrical energy should be privatized without delay. We are pursuing and stepping
up our contacts on this issue.
To this end, as a first step our Board of Directors, together with Mr Yusuf Günay,
Chairman of the Energy Market Regulatory Board, and its members, held an ?expanded
board meeting? with our Assembly Presidential Council and representatives of the
sectors with high energy consumption. The question of energy was discussed at the
meeting.
Then, on the 1st and 23rd of December, we organized two panel discussions, attended
by the Minister of Energy and Natural Resources, at which we met with the various
parties concerned with electrical energy. Our aim in these activities was to contribute
to accelerating the process of enabling our industry to use quality energy without
interruption and at favorable prices.
Esteemed members of the assembly:
As I said a little earlier and have always tried to underscore, Turkey?s private
industrial sector is aware of the realities of global competition, and of its own
responsibilities in that competition, and is engaged in a quest to fulfill them.
We too have striven in 2006 to focus on activities aimed at lighting the way for
our enterprises through the global competition.
In this framework, we held our fifth industry congress on the topic of ?sustainable
competitiveness?. We also pursued our efforts aimed at raising awareness of how
important it is for enterprises to develop institutionalization, creativity and
innovation. Furthermore, we undertook two new projects with Istanbul Technical University
in 2006 for the purpose of developing cooperation between industry and the universities,
a subject on which we place a great deal of importance.
At the same time, we also introduced our ?ISO Integrated Educational System: Academic-ISO?
project, which was developed for the purpose of generating solutions to our members?
needs for vocational training. We also took concrete steps aimed at furthering our
relations with the Turkish Patent Institute, KOSGEB (the Association for the Development
and Support of Small and Medium Scale Enterprises) and TUBITAK (the Scientific and
Technological Research Council of Turkey) in order to assist our members in such
areas as patents, funding, developing technology, and research and development.
Soon each of these organizations is going to have a representative office in our
building where they will be able to provide service to our members.
Again, to encourage our members, our small and medium-scale enterprises in particular,
to orient themselves towards R and D and innovation, we have completed preparations
for creating, with contributions from TUBITAK, a center that we call ?ISO-TIMER?,
the Istanbul Chamber of Industry Technology and Innovation Center. To assist our
industrialists during the EU negotiation process, we have also pursued our efforts
to inform and educate our members on technical issues such as the various chapters
of the negotiations and how to present projects to the EU.
We are going to step up our efforts in these areas in 2007. Meanwhile we have have
taken concrete steps in our project to ?use goods produced in Turkey? - a project
on which we intend to concentrate even more heavily in the coming year.
Esteemed members of the assembly:
Yes, as is so often said, 2007 is a critical year! We have two elections coming
up. Both are extremely important of course. But it would be wrong to focus exclusively
on these elections in the period ahead. Instead we must concentrate our attention
and our energy on the economy and further consolidate the gains we have made.
The European Union meanwhile has decided to suspend talks on eight of the 35 negotiation
chapters. The negotiation process, which is a very important foreign anchor from
the standpoint of the economy, is going to move more slowly from now on. But we
must not become demoralized. We knew when we set out that the negotiation process
was going to be difficult. There may be, there will be, bottlenecks, but we must
forge ahead with determination to achieve our goal.
Turkey must not lose sight of the European Union perspective. We believe that our
government is going to pursue EU accession and harmonization with EU legislation
as resolutely as ever.
Esteemed members of the assembly:
Yes, 2007 looks like being a difficult year. It is our hope that the existing difficulties
will be overcome and that 2007 will be a year in which we take our gains even further.
I hope that 2007 will bring our country peace, tranquility and prosperity.
In closing I would like to wish all you a joyous feast of sacrifice and a happy
new year. I salute all of you once again on behalf of the board of directors with
best wishes for a healthy, happy and successful 2007.
C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors