The Chairman's Speech at the Assembly / 30 April 2008
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 April assembly
meeting. We have with us today a very distinguished guest with experience both in
academia and in the practical side of things, Prof. Dr. Fatih Özatay, former Vice-President
of the Central Bank, faculty member of TOBB University, and director of TEPAV, the
Economic Policy Research Foundation of Turkey. We would like to thank him for accepting
our invitation to join us today. Welcome! We are going to follow your remarks with
interest.
Distinguished members of the assembly:
As always, I am going to try to assess the current state of the economy by looking
at it from the standpoint of our industry. Above all else, I would like to remind
you of the economic growth figures that were released at the end of last month.
Turkey grew by 4.5% in 2007. Just one year ago, in 2006, we grew at the rate of
6.9%. In other words, we are faced with a growth rate in 2007 that is 2.4 points
below that in 2006.
Growth in 2007 was below target for the first time since 2001, coming to 4.5% even
though the target was 5%. This is the lowest growth rate in the post-2001 period.
As we are always saying, growth rates of 5-5.5% are not adequate for Turkey. Turkey
needs to grow by 7-7.5% a year in order to solve her economic and social problems,
and to reduce to tolerable levels the distance between herself and the European
Union in which she aspires to full membership. Despite this need, her growth in
2007 was below the 5% target.
The expression 'a lost year from the standpoint of the economy' has been frequently
used for 2007 when politics dominated the agenda. The growth figures also corroborate
this view. We can see in these figures that 2007 was truly a lost year in the sense
of contributing to the solution of our problems.
As you know, our national income figures were updated last March and Turkey's GDP
in 2007 was calculated to be approximately 660 billion dollars. The sector with
the biggest share in GDP in 2007 was manufacturing, which also made the largest
contribution to growth. Based on shares in GDP, the biggest contributors to GDP
after manufacturing were transportation and communications in second place, wholesale
and retail trade in third, home ownership in fourth and agriculture in fifth. It
is worth noting that the transportation and communications sector outperformed wholesale
and retail trade.
Esteemed members of the assembly:
As I said a short while ago, manufacturing is the sector with the biggest share
in GDP. However, when we look at the national income figures more closely and over
a broader time interval, a grave danger lurks for our industry.
The Turkish Bureau of Statistics has taken 1998 as the base year in its new national
income series. In that base year, manufacturing's share in GDP was 23.9% in current
prices. When we come to 2007, manufacturing is still the primary sector of the economy
but its share in GDP in current prices has declined to 16.5%. In current prices
the sector has suffered a serious loss in its share of GDP. Such a loss in the principal
sector and the engine of growth is thought-provoking, to put it mildly, for our
economy.
Not only has manufacturing's share in GDP contracted, the growth figures underscore
another important fact regarding Turkey's manufacturing industry. In the 1998-2007
period manufacturing's share in GDP appears to have undergone no major change in
terms of fixed prices. At 23.9% in 1998, its share in 2007 was 24% in fixed prices.
This difference that emerges when the comparison is made in both fixed and current
prices tells us the following: Manufacturing between 1998 and 2007 was the sector
least affected by price movements. In other words, even though input prices in manufacturing
rose far higher than in the other sectors during the period, the sector did not
reflect these rising input costs in its selling prices. Naturally, during this period
serious erosion occurred in the manufacturing industry's profitability and value
added effectiveness.
As the representatives of Turkish industry and people with firsthand experience
of these difficulties, we have been striving to explain the realities for a long
time. The hew national income calculations make concrete in the form of figures
the problems that we have been trying to put into words.
We have been saying for years that the high rate of taxes and premiums on employment,
the burden of compulsory employment, high energy costs, the distortions in the tax
system, the pervasive nature of grey economic activity, and the high rates of indirect
taxation all cause our industry to pay a high price and erode its profitability
and competitiveness, and we have strived to solve this problem. Unfortunately we
have gotten no results. If solutions had been produced for these fundamental problems
of our industry, structural and micro reforms could have been implemented. The slowdown
in growth in industrial production might never have occurred, and 2007 might not
have been a lost year. But it didn't happen, and opportunities were lost.
More recently we have been seeing some major developments with regard to reforms
that will boost the competitiveness of our industry. Most notably, the social security
bill, which constitutes one of the basic foundations of structural reform, was passed
by the Turkish parliament on 17 April. Although different dates are being bruited
about for the various articles of the law, in principle it is to go into effect
on 1 October of this year. The fundamentals of implementation are also supposed
to be completed in the period ahead. We are expecting the law to become effective
on the appointed day and to be implemented successfully. We hope that Turkey will
finally have a social security system that offers quality service to the entire
population and that is strong and can stand on its own feet.
Turning now to the employment package, one of the most important of the micro reforms,
we see that work on this package has picked up momentum in recent days. The employment
package brings good news about the onerous burdens on employers, which have been
on the agenda for a long time. Mandatory employment of ex-cons and terror victims,
for example, has been lifted. While there is no change in the obligation to employ
3% disabled persons, incentives are now on the agenda for employers who do. There
are also incentives for hiring youth and women.
About five years ago, we at the Istanbul Chamber of Industry proposed incentives
for hiring youth in a report we submitted to the government. It therefore pleases
us that arrangements to this effect have now been included in the package. However,
the employment package omits the question of severance pay, which is a key issue
in our working life. This is a very serious oversight indeed. We know that this
problem is on the government's agenda and we are expecting some concrete developments
without delay. I would like to make clear here that we are going to follow up on
this issue.
Turning now to the issue of the onerous burden of taxes and premiums on employers,
which has been among the key items on our agenda for years: The contents of the
package have not yet been finalized. But judging by what has leaked to the press,
it would appear that the 5% reduction in social security premiums included in the
package is going to become effective on 1 October of this year. Late as it is, we
regard this an a major development and greet it with pleasure.
It is encouraging too that concrete steps are being taken regarding the macro and
micro reforms that will boost our competitiveness. But together with our pleasure,
we should also make note of the fact that progress in the reforms was only achieved
at a time when they could not be put off any longer. It is of course important that
something be done, but surely the point is to do in on time.
In a world where it's no longer 'big fish eat small fish' but 'fast fish eat slow
fish', we have been saying for a long time that we have to be competitive. Unfortunately
we have been tardy in taking measures to boost our competitiveness! And the tardier
we are, the higher the price we pay. We know that only timely interventions can
save lives. If you are late, you may not get the result you want no matter how hard
you try.
At this point I would like to say that we of the Istanbul Chamber of Industry have
not been content merely to give voice to our problems; we have also made an effort
to produce solutions. In this context, we pointed out the necessity to provide some
relief in the form of a minimum 5% reduction in the premium in a report we submitted
in 2006 to our prime minister and our current deputy prime minister, Mr. Nazym Ekren,
then deputy chairman of the AK Party in change of economic affairs. Furthermore,
in that report we also calculated on a sector basis how that five-point reduction
would affect costs. Our calculations showed that such a reduction would have a favorable
impact on competitiveness, especially in the labor-intensive sectors.
We did what we could to produce a solution, but the final decision lies with the
government. No will has been demonstrated in the direction of translating our proposal
into reality. Only now, almost three years later, is there talk of implementing
this reduction.
If this remedy had come three years ago, it would of course have had a much greater
chance of effecting a cure. Now the disease has progressed in many sectors, and
the problem become more serious. Unfortunately it is questionable now how effective
this long-awaited remedy will be for our ills. At this point I would like to underscore
the fact that my words should not be construed to mean that we don't appreciate
what is being done. It is very significant that progress is being made in structural
and micro reforms.
There's no use crying over spilt milk, and a correction even at this point is better
than none. The past is lost; there's nothing to be done about it.
These reforms will at least contribute to some gains in 2008 and thereafter. Nevertheless,
any gains in 2008 are looking more and more difficult, because clouds are starting
to gather in the economy both at home and abroad. Tension and uncertainty are on
the rise in the global markets. Forecasts of the world growth rate have come down
to the lowest levels in the decade. We continue to be rocked by external shocks;
the stock market is falling, the exchange rates are rising. And when questions about
continued political stability at home are added to the unfavorable climate abroad,
2008 becomes a more difficult year than originally anticipated.
There is no doubt that the Turkish economy is stronger and more resilient than it
used to be as a result of the gains made in the post-2001 period. But, as I have
always said, it should not be forgotten that we still have serious fragilities.
In a positive development, significant increases were realized in exports and industrial
production in the first two months of 2008, which were up by 52.2% and 9.4% respectively.
These figures are encouraging indeed. But our hopes are dampened when we remember
that a similar positive trend was also observed in the first couple months of 2007
only to be interrupted later.
At the same time, despite the favorable development in Turkey's exports, the enormous
widening in the foreign trade and current account deficits also continued unchanged
in the first two months. And while this was happening, a sharp fall was experienced
in inflows of international direct investment, which is a major factor in the financing
of the current account deficit. While net inflows of direct investment came to 8.1
billion dollars in the first two months of 2007, they declined to 1.6 billion in
the same period of 2008.
Inflation is also continuing to climb at a dangerous rate, triggered by the rising
exchange rates, and there is now a strong possibility of double-digit inflation
in the months ahead. The existing uncertainty means that decisions to invest or
consume are being postponed. The monthly index of real sector confidence, for example,
which was 119.5 in April of 2007, fell by 16.3 points in April of this year to 103.2.
A similar deterioration characterizes the monthly index of consumer confidence.
At 93.7 in April 2007, it had dropped to 82 in March 2008. This unraveling of expectations
can be a harbinger of a downward trend in real developments. We must be vigilant
and get beyond this.
It is indisputable that the distance covered in relations with the European Union
played a key role in the improvement in the economy since 2001. In the wake of Turkey's
acquiring negotiating country status, however, the European Union has dropped off,
virtually disappeared from, the agenda. The reform process has been interrupted.
The European Union must not appear on the agenda only when events and conditions
remind us of it. The target of full accession to the European Union should be pursued
resolutely so that the distance already covered can be taken even further.
In overcoming the difficulties facing us in 2008 with as little damage as possible,
a duty falls upon all sectors of society starting with those who bear the responsibility
for governing. No opening should be given for new tensions and uncertainties. Nevertheless,
the May 1st demonstrations in Istanbul became a source of greater tension than a
year ago. I would first like to point out that the Istanbul Chamber of Industry
has always favored achieving modern standards in the rights of workers, whom it
regards as the most important shareholders in the process of production. There is
nothing more natural than that workers should celebrate May Day in Turkey and throughout
the world. Such celebrations should however be within the legal limits. Last year
May 1st was turned into an ordeal for all Istanbul. This year, too, Istanbul residents
are anticipating it to be not a day of Labor and Solidarity but of unease. We learned
from this morning's announcement that a consensus had still not been reached.
I would especially like to say that the possibility that we will see scenes of conflict
and violence on the streets of Istanbul is deeply disturbing to us. I appeal to
all the parties concerned to exercise common sense and remain within the bounds
of the law. Side by side, arm in arm, in the conviction that May 1st is going to
be celebrated in a genuine holiday atmosphere as a day of labor and solidarity,
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