The Chairman's Speech at the Assembly / 28 July 2010
Mr. Chairman, Distinguished Members of the Assembly and of the Press:
On behalf of the Board of Directors I would like to welcome you to our July assembly
meeting. We would like to thank our very distinguished guest, Mr. Devlet Bahçeli,
the Chairman of the Nationalist Action Party (MHP), for accepting our invitation
to join us today. Welcome,Sir! Together with their distinguished chairman, it also
gives us great pleasure to have with us the esteemed Nationalist Action Party officials.
Again, welcome!
Honored guests and members of the assembly:
The 2009 results of our survey of Turkey's top 500 industrial firms, which our chamber
has been compiling now for forty-two consecutive years and which we could say is
the most important and comprehensive study of Turkish industry in our country, were
publicly announced at a press conference yesterday. Today those results are receiving
broad coverage in the press. We, however, as is our tradition, are sharing the results
of the ISO 500 one more time with our members at our July assembly meeting.
As those who follow it are aware, our ISO 500 survey is a virtual mirror of the
dynamics of, and developments in, the Turkish economy. It was no different in 2009
when our survey again clearly reveals the impact of the macro economic climate of
2009 on our industry in all its foreseen and unforeseen ramifications.
I would like to say that it gives us special pleasure to have an opportunity to
assess Turkey's industry in the light of our ISO 500 survey results with the distinguished
chairman and officials of the Nationalist Action Party.
Let me first remind you briefly of the results of our survey in their main lines:
Sales in the ISO 500 firms shrank significantly in 2009 when the Turkish economy
contracted by 4.7%. In fixed prices, production-based sales declined on the previous
year by 14.9% in the private firms and 0.2% in the public firms in 2009 when 485
private and 15 state-run enterprises made up the ISO 500.
Two of the most conspicuous setbacks in the Turkish economy in 2009 occurred in
employment and exports. These downturns were also reflected in the results of the
ISO 500, whose exports fell by 31.7%, more sharply than the 22% drop in Turkey's
exports overall.
Employment meanwhile was down by 5.1%.
As sales, exports and jobs in the ISO 500 all fell in the crisis year 2009, in contrast
with previous crises profitability, value added and financial structure all improved.
In fixed prices, pre-tax period profit in 2009 was up by 8% in the private firms
and 19.5% in the public firms on the previous year.
Total period profit and loss meanwhile, again in fixed prices, rose on the previous
year by 23.3% in the private firms and 83.3% in the public firms. As period profit
and total period profit and loss rose, period loss underwent a serious contraction.
The rise in profitability in turn boosted value added, an effect that was especially
evident in the public firms among the ISO 500 where a growth of 80.2% in this item
on the previous year, as opposed to a fall by 2.5% in the private firms, brought
value added growth in the ISO 500 overall up to 4.9%
In contrast with previous crisis years, 2009 also saw an improvement in financial
structure among the ISO 500 firms. In the private firms, for example, the ratio
of total debt, which was 54.4% in 2008, fell in 2009 to 50.9% while the share of
equity capital rose from 45.6% to 49.1%.
Total debt in the ISO 500 in general declined in 2009 by 4.7% as equity capital
rose at the rate of 9.8%.
Profitability and value added in the ISO 500 somehow rose in 2009 despite a contraction
in sales. If we look for an explanation of this, let us remember first of all that
the results of our survey are obtained in comparison with those of the previous
year. Therefore, there is a base effect in 2009 due to the sharp falls that occurred
in 2008. Viewed from this perspective, those falls do not appear to have been completely
made up in 2009. Furthermore, the results for 2009, despite being positive by comparison
with 2008, still lag far behind those for 2007, the most successful year since the
2001 crisis.
In seeking to explain the situation, when we examine the cumulative income table
for the ISO 500, it appears that the key factor in the increase in profitability
and the improvement in financial structure in 2009 was a significant drop in financing
costs compared with 2008. Interest paid declined by around 25% in the ISO 500 as
a whole in 2009 while total financing expenses were down by 48% on the previous
year.
Again according to the cumulative income table, the share of costs in net sales
turnover in the ISO 500 declined from 84.4% in 2008 to 83.2% in 2009. Costs in the
country's industrial firms therefore fell relative to the year before, an outcome
in which a drop in goods prices around the world certainly played a key role insofar
as oil prices fell more than 30% and the prices of other goods by close to 20% over
the year. Beyond the fall in the price of goods, a relative decline in the share
of costs is also a sign of boosted productivity in the industrial firms.
A third factor is the 14.1% increase observed inn the income table in other operating
incomes and profits, which includes items like the foreign exchanges, dividends
and partnerships. Among these factors, however, there is no doubt that the main
determinant is a percentage fall of 50% and a numerical fall of 7.7 billion Turkish
liras on the previous year in financing expenses among the ISO 500.
Mr Chairman,
Mr. Bahçeli,
Distinguished guests and members of the assembly:
The results of the ISO 500, which at first glance are difficult to comprehend and
give the impression of being at odds with the macro economic situation in 2009,
are actually such as to reveal important facts about, and irregularities in, our
economy and our industry. For that reason they need to be analyzed well. These results
are therefore an opportunity for us to better understand the realities of our industry
and to develop proper policies for dealing with them.
For many years we have been trying to explain the trials and tribulations of the
Turkish economy. Whether or not we are making our voice heard, and even if we do
make it heard, whether or not we are getting results is unfortunately not clear.
Let me first point out that the problems in our industry go far back to before the
global crisis. If we go back a little and remember the post-2001 period, as we always
say, while distance has been covered in fiscal discipline, in the battle against
inflation and in the restructuring of the banking sector since 2001, the problems
of the real sector were neglected. Macro and micro reforms to shore up the competitiveness
of our industry were not completely undertaken, and those that were undertaken were
not implemented in time. In addition, repressed exchange rates further weakened
the competitiveness of our industry.
Nevertheless, insufficient heed was paid to the problems of our industry since the
wheels of the economy somehow kept turning and production and exports somehow rose.
Following the fluctuation in May 2006, domestic demand dried up and our industry,
sometimes to its own detriment, embarked on a struggle to sustain production through
exports.
But when the global crisis hit the markets, the period of boosting production based
on exports came to an end for our industry, whose wheels finally ground to a virtual
halt, and industrial production contracted for fourteen consecutive months from
August 2008 to October 2009.
Among the 18.8% that cited quality and uninterrupted supply as their reason for
using imported raw materials, 47.4% cited better quality, thus constituting 8.9%
of the whole.
When we look at the international comparisons, we don't see a debt ratio this high
in either the developed countries or in the other countries like ours. This is a
situation unique to Turkey!
The economy is doing relatively well in the first half of 2010. Double-digit growth
in the first quarter, the return of investment spending to positive territory and
an increase in private consumption have raised our morale.
As I said a little while ago, production in our industry has been on the rise for
the last six months. Thanks to this positive trend in industry, there is a good
chance that the second quarter of the year will be recorded in the gains column
as far as growth is concerned. These are encouraging developments. But at the same
time we also see that with the relative rebound in the economy the old structural
ills are also showing signs of recovery.
Our foreign trade deficit, for example, is widening, and the current account deficit
in turn is rising sharply. In the January-May period alone it grew by 240% to 17.4
billion dollars. This when the target for the entire year is 18 billion! We must
underscore here that we cannot keep on solving the problems of our economy and our
industry forever by borrowing.
Mr. Chairman,
Distinguished guests:
I would like to draw your attention to one more point. The results of the ISO 500
for 2009 clearly show what an impact external conditions have on our economy. Those
conditions, over which we have no control, worked in favor of our industrial firms
in 2009, but in the year ahead it is impossible for us to predict what is going
to happen or the kind of results we might encounter. We should be able to do more
than this, but all we can do at this stage is to hope that the positive developments
of 2009 are not anomalies created by the crisis conditions but signs of a permanent
recovery.
But how optimistic can we be? For example, while the gross value added created by
the industrial firms in the ISO 500 comes to 8.6% of GDP in producer prices, those
same firms pay in-country VAT-SCT to the tune of 70%. How can the problems in our
economy and our industry be permanently eliminated as long as such distortions continue
to plague our tax system? How hopeful can we be when the share of debt in the financial
structure of the ISO 500 is still more than 50% and the current account deficit
is rapidly rising?
Yes, it's true that we cannot turn our back on the global economy. Turkey cannot
stay outside the system, but it absolutely must develop mechanisms to protect itself.
In the face of external variables we must go for structural changes and radical
and permanent solutions to save our economy from fragility and make it stronger
and more resilient.
For us, the road to solving those problems is clear, the address obvious! Our answer
to this question is loud and clear! The way out for Turkey is production, and making
its industry even stronger! A country on the scale of Turkey cannot solve its problems
without a strong industry!
Having said that, Turkey at this point derives its strength from a production capacity
spread out over a broad spectrum of sectors. To be able to solve its problems, to
reduce to reasonable levels the distance between it and the European Union to which
it aspires to become a member, and to be able to create jobs for the 700,000-800,000
people added to the work force every year, what Turkey needs to do is increase her
capacity for production even further!
Let us open a parenthesis at this point. Under the conditions of global competition,
merely being a producing country is not enough. What is needed is to also target
becoming a country that can produce knowledge, that creates, and that can create
innovation! And this in turn requires developing an industrial strategy that can
take us to those goals.
I would like to underscore this fact especially, namely, that among the real sectors
while agriculture grew 11 times over and the services sector 72 times over in the
1923-2008 period, industry grew by exactly 196 times over! Therefore the biggest
contribution in Turkey's reaching the point it has today has come from industry.
And industry is again going to be the engine that takes our country into the future.
With its deep-rooted historical, cultural, religious and ethnic ties with the countries
in the region and its high economic potential, Turkey more than deserves to be a
regional and a global power. Turkey should not lose that vision. But it should flesh
out the successes it achieves in the economy and render them even more sound with
a strong industry. I should also add that in order for a country to be a regional
and global power in the real sense, all its institutions and sectors must share
that vision and structure themselves accordingly.
Having striven to stay on their feet and compete in the global markets for years,
Turkish industry and the Turkish industrialist are already engaged in such a struggle
in any case.
Mr. Chairman,
Mr. Bahçeli,
Distinguished guests and members of the assembly:
As I have tried to explain, there are problems awaiting solution in our economy
and our industry. But besides those problems, there is also our hope and our determination
to succeed. Our country has a high economic potential that the whole world sees
and acknowledges. Through the contribution of our industry we have already made
important progress on the way to exiting the crisis.
But, despite this apparently positive picture, there remain the unforeseen economic
risks, mainly the problems in Europe, as well as structural problems awaiting intervention
and permanent and radical solution. Therefore we cannot afford to be complacent.
Politics and the political agenda tend to overshadow the economy in Turkey. When
you consider the dynamics of Realpolitik and the topics high on the agenda in our
country, it is no wonder that politics should often take precedence. But in spite
of everything the economy must not be neglected. We as industrialists are going
to continue our efforts to boost investment, production, exports and jobs and to
sustain Turkey's global competitiveness. It is our expectation that the government
and the economic officials will support us in those efforts.
I would like to close with my hope that we can work together to create a stronger
Turkey and to 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