The Chairman's Speech at the Assembly / 28 January 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 January
meeting. This meeting, our first assembly meeting of 2009, is also the last meeting
of my four-year term of office. With that in mind, I would like to make an assessment
of the situation in industry and in the economy by looking back over the past four
years.
Esteemed members of the assembly: The moderate winds that began blowing in the global
economy at the beginning of the decade came to an end in the second half of 2007
with the mortgage crisis in the U.S. housing market. We entered 2008 in a climate
of increasing uncertainty in the world economy fueled by concerns that the U.S.
economy could go into recession. Despite these fears, the first half of 2008 passed
relatively quietly. Then, in autumn, starting in the U.S. the crisis turned more
serious, with a sweeping impact on the whole world.
When we look at Turkey, it appears that we had few problems in the first half of
the year. In the second half however the global crisis began to have a near-devastating
effect on the real sector, primarily on the nation's industry. Our economy grew
by 6.7% in the first quarter of 2008, a quarter in which private consumer spending
was up by 6.5% and private investment spending by 12%.
In the second quarter the growth rate declined from 6.7% to 2.3%. But it was the
third quarter that slammed the brakes on growth, which fell to 0.5% as private investment
spending also contracted by 10%. The picture in the last quarter of the year is
even more dismal with the economy heading straight from stagnation to contraction.
And the single biggest factor in this downturn is industrial production, which has
shrunk continuously in the four months since August in a situation unprecedented
in the post-2001 period.
To make things even worse, we are facing higher levels of contraction by the month.
According to the new updated monthly index of industrial production based on 2005,
industrial production fell by 3.5% in August, by 4.2% in September and by 7.2% in
October. Unfortunately production fell even more sharply in November at effectively
14%, rounding up from 13.9%, in the biggest contraction in industrial production
since 2001.
Turkey's bureau of statistics has released no figures yet, but according to calculations
by our own research department growth in industrial production at the end of the
first eleven months of 2008 was on average only 0.5%. In 2007 it was 7.7%. From
7.7% to 0.5% in a single year. No words can express the magnitude of the loss. So
is the situation in production at the end of the first eleven months of 2008.
Turning now to foreign trade, for the first time in many years our exports in October
fell by 1.7%. In November the drop was even more sharp at 17.5%. And exports in
December were down by 25% according to the figures of the Exporters' Association
of Turkey. Parallel with production, exports too have embarked on an increasingly
downward trend. Besides exports, the capacity utilization rate also declined steeply
in December with capacity utilization in manufacturing coming to only 64.7% in total
for the month. Never before have we faced such a low monthly rate of capacity utilization
overall, not even in the crisis year 2001!
Sharp falls in exports and capacity utilization are the harbinger of a big drop
in industrial production in December. Together with this drop, the average annual
increase in industrial production is going to fall below 0.5% for the year and 2008
is going to go on record as the worst year for industrial production in the post-2001
period
The decline in production in the second half of 2008 has also had an adverse impact
on budget revenues. A close look at the budget revenues of the central administration
reveal that VAT collected at the end of the twelve months of 2008 had declined by
9.1% on the previous year in fixed prices and SCT (Special Consumption Tax) by 2.7%.
The fall in demand and the contraction in the economy due to the global crisis have
had a slowdown effect on both inflation and the current account deficit, which is
expected to come to around 50 billion dollars for 2008. At $38.9 billion in the
January-November period, it is expected to be in the neighborhood of 40 billion
dollars by year's end.
Looking now at inflation, both the CPI, which was relatively high in the first half
of 2008, and the PPI appear to have slowed considerably in the second half of the
year. The increase in the Consumer Price Index, which was 12.06% at the end of July,
was 10.06% at the end of the year. Meanwhile the Producer Price Index, which rose
to 18.41% at the end of July, fell sharply in the second half, closing the year
with a 8.11% increase.
Yes, this in its main lines is the picture for 2008.
Turning now to the question of whether we can be more optimistic about 2009, given
the current situation there is no sign of a recovery in either domestic or foreign
demand, either of which could drive production. With great probability the decline
in industrial production looks like continuing at similar rates in the months ahead.
We would like to hope that we can get beyond this through the measures that are
taken.
On 22 January we were in Ankara together with our assembly chairman's council, our
board of directors and our sector representatives as the guest of Mr. Nazym Ekren,
Assistant to the Prime Minister. At the meeting, which was a continuation of the
joint meeting of the professional committees held on 25 December, our bureaucrats
gave briefings regarding solution of the problems we had reported that day. It was
an encouraging meeting, and we believe, or would like to believe, that some measures
are going to be passed soon.
In this sense, the announcements made by our government representatives with regard
to the support to be given to the automotive sector were encouraging. I would also
like to point out the support of our minister, Mr Zafer Çağlayan, in this area.
We also welcome the decision to extend the law on incentives. Similarly, the increase
in the amount and period of short-term unemployment compensation is another apt
decision as a measure against rising unemployment.
In addition to al this, we hope that more comprehensive measures will soon be tabled
that will strengthen the confidence of consumers and producers alike and allow us
to be optimistic about the future.
The monthly survey of our professional committees conducted in December revealed
that the optimistic approach our industrialists had preserved in previous surveys
has changed significantly. Our survey points to the index value of 100 as a limit
indicating positive development. The graph in our table shows that the "ISO professional
committees' index of industrial development", which is calculated as the arithmetic
average of the production, domestic sales, exports and employment indexes, was below
100 throughout 2008, hitting a high at 99.9 in May, after which it began to fall.
The index for October, when the impact of the crisis began to be felt in earnest,
was 33.2 and in November it was 19.3, its lowest since January 2002. A decline of
this magnitude in the professional committees' index of industrial development was
caused by an acute fall in production and domestic sales.
We analyze expectations as well in our professional committees' survey; this was
at 21.8 in the index for December, falling even lower in January to 18.1. It is
noteworthy that the index value for expectations in January was lower than that
for November.
According to another index, the index of real sector confidence compiled by the
Central Bank, confidence was eroded starting from March 2008, falling to its lowest
level in December at 52.3. This index recovered slightly in January, rising to 59.4.
We too would like to hope that our industry has now reached bottom and that nothing
worse lies ahead. Parallel with these hopes, we would like to believe that a recovery,
albeit slow, is going to get under way soon.
As I said a little while ago, averting further deterioration depends on taking measures.
Reaching an agreement with the IMF is an important stage in this sense. There are
pluses and minuses to IMF policies; this is a fact. However, in the present circumstances,
the importance of agreeing on what we believe to be our country's need for funds
is obvious. IMF oversight is also important from the standpoint of maintaining fiscal
discipline during the election process ahead. We expect the negotiations that are
about to resume to be concluded as soon as possible.
Esteemed members of the assembly:
In seeking answers to questions such as why Turkish industry was so deeply affected
by the global crisis and why such a dismal picture has emerged in production and
jobs, we would like to underscore the fact that the problems in our industry go
back to before the global crisis. The global crisis exacerbated those problems,
true, but attributing them exclusively to the global crisis will prevent a sound
diagnosis and subsequent treatment.
As you know very well, the hemorrhaging in our industry had begun much earlier.
While the Turkish Lira continued to be overvalued, at the same time absolutely no
progress was achieved on the macro and micro reforms that could boost our competitiveness
and compensate to some extent for the damage caused by the overvaluation of our
currency.
This was a double whammy that wreaked horrendous damage on the competitiveness of
our industry, which, struggling as it was under hardship conditions, began to run
out of steam starting in 2005 as the rate of growth in production slowed.
There were very serious problems in our labor-intensive sectors especially which
are oriented to the domestic market. Starting with the automotive industry, however,
industrial production and exports rose under the impact of the high momentum that
was generated in sectors oriented more towards exports and the foreign market. Our
industry exhibited a development curve that could be described as asymmetrical.
While some sectors were rising, others were either running in place or declined.
On the whole however the fact that production and exports were on the rise virtually
prevented existing problems from being seen in any real sense.
As in our previous term of office, in this one as well we engaged in efforts to
explain the overshadowed realities of our industry and the dangers that awaited
us in terms of production and jobs if measures were not taken. In all our contacts
with the government we insistently expressed the weaknesses in our industry at the
cost of being seen now as tiresome now as offensive and occasionally of getting
an over-reaction. We drew attention to the risks inherent in those weaknesses.
But as long as the global economy remained steady and the wheels kept on turning
even if growth was gradually slowing, nobody listened to what we were saying because
production and exports were somehow growing.
Throughout our term of office we acknowledged it as a fundamental obligation to
express on the one hand our appreciation for jobs well done in the economy and on
the other warnings for mistakes and oversights. We never flinched from saying what
we knew to be right in this sense.
Remembering back, in March 2006 in a period when the prevalent view was that things
were going quite well in the economy, at an Assembly meeting at which our Prime
Minister was a guest, we put forward in all its clarity, as a dissenting voice,
the pluses and minuses of the economic program that was being implemented and the
problems it was causing for our industry and our competitiveness.
Following that meeting the fluctuation of May 2006 dealt a heavy blow to domestic
demand and our problems got even worse. In a climate in which domestic demand had
dried up, our industry was forced to rely even more heavily on exports, even when
that meant forfeiting profits and occasionally even taking a loss. But our competitiveness
continued to be increasingly eroded nonetheless!
In January 2007 our Prime Minister was again the guest of our assembly! At that
meeting as well, we again outlined in detail the problems of our industry and our
demands and proposed solutions. This is what we said: "The year 2007 is an election
year and we are not expecting any progress on structural reforms in such a year;
we could however concentrate on micro reforms during this year and make it one of
gains in that area." Unfortunately however once again no results were forthcoming.
The economy remained on the back burner in 2007. No progress was made in either
macro or micro reforms. At the beginning of 2008, in a climate in which problems
were begin to surface in the global economy, some improvements we'd be expecting
for a long time were finally made in the form of the employment and social security
reform packages. But these reforms, late in coming, were no panacea when the global
crisis was coming down on our heads with all its weight. Now, even in the face of
the situation into which our industry has fallen, we are still not in a 'we-told-you-so'
frame of mind. If only timely solutions had been found for our problems, if only
our industry had met this crisis with greater strength, if only our industry had
not been abandoned to its fate...
I say these things so that from here on at least in we can ensure that the problems
of our industry are dealt with seriously and sensitively and to contribute ...
Since September when the global crisis deepened, we have been engaged in efforts
once again to put the risks facing our economy and our industry on the agenda. Let's
not be late this time, we said, and we drew attention to the necessity of acting
swiftly and proactively and taking urgent measures. We frequently voiced the view
that Turkey is compelled to keep her production, her employment, her exports and
even her investments alive no matter what and that measures need to be taken in
line with this goal.
We passed along these views of ours to our government representatives many times.
We know that, like all dire crises, this one too is definitely going to come to
an end sooner or later. And let us not forget that after the crisis the competition
is going to continue from where it left off. If we want to stay afloat, we too have
to join the race. Consequently, Turkey, besides acting swiftly with the urgency
demanded by the crisis, must also not neglect to implement medium and long term
policies focused on structural change! We underscored this fact throughout the 2005-2008
period, as we did earlier.
The primary responsibility for boosting our competitiveness lies with our government
and the managers of our economy. We are going to continue to demand that our government
do what is necessary; but this should not be taken to mean that we expect the government
to do everything.
As Turkey's industry, we have insisted that we are determined to fulfill the responsibility
that falls on us in boosting our competitiveness. In fulfilling that responsibility,
every year since 2002 we have held our industry congress, which we regard as a key
platform. We have continuously organized panels and seminars to contribute to the
kind of restructuring necessitated by global competition. On the issue of the European
Union, even though it has been almost completely forgotten for a long time, we have
kept our efforts aimed at preparing our industry for the EU consistently on the
agenda. We have carried out important projects in this area.
We have adopted as a point of departure for Turkish industry the transition to a
structure of production which is technology and knowledge-intensive, high in value
added, and based on high quality. We believed that the transition to such a structure
of production places great importance on innovation, research and development, and
the development of technology, and we endeavored to develop projects in line with
that belief. We talked about knowledge, skills, high value-added and innovation,
but during this process we never once overlooked the labor-intensive sectors that
are so important in terms of employment and value added. We carried out a number
of projects aimed at developing cooperation between the universities and industry.
We placed importance on vocational education. In cooperation with our foundation,
we turned our dream of an ISO Foundation Vocational Education Complex into reality.
I would therefore like to take this opportunity to thank once again the honorary
chairman of the ISO Foundation, Mr Engin Koyuncu, who first had this dream, and
the former chairman, Mr Hakky Kalkavan, so who worked so hard for it, as well as
the members of the Foundation's board of directors.
Esteemed members of the Assembly:
In short, during our term of office from 2005 to 2008 we tried to come up with the
best road map for Turkish industry in line with the trends in global industry. Within
this framework, we adopted as our basic principle pointing out the good in which
we believed as well as the mistakes that we observed, and we tried to fulfill our
representative role in the context of this basic principle. We took pains not to
cast a shadow over ISO's reputation.
I offer my deep appreciation to the assembly chairman's council, to you, the esteemed
members of our assembly, to our assembly commissions, to our working groups and
to our professional committees for the support you gave me throughout my term of
office. I would like to thank the Board of Directors especially for their commitment
to work, which formed the basis of our cooperation. In addition, I thank the employees
of our Chamber in the person of our Secretary-General, and our distinguished members
of the press who always took an interest in our meetings and made an enormous contribution
by passing our views along to the public. In 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