The Chairman's Speech at the Assembly / 24 January 2007
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 January
assembly meeting.
First of all, at this first assembly meeting of 2007 I would like to express our
great pleasure in having our Prime Minister with us again. We would like to thank
him for so graciously accepting our invitation to be with us today. Welcome, Mr
Minister!
Despite his busy schedule, our Prime Minister has always responded positively to
our invitations to join us, both at our assembly meeting and at the joint meeting
of our professional committees. We would therefore like to thank him once again
for the interest he has taken and the sensitivity he has shown towards our industry.
Mr Minister,
Distinguished members of the assembly:
It is undeniable that important gains were achieved in the Turkish economy in the
post-2001 period, and we have expressed, and continue to express, this at every
opportunity. Above all else, since the first quarter of 2002, growth has continued
uninterrupted for nineteen consecutive quarters. This is a first, a record, for
Turkey since 1987 when growth figures first began to be announced on a quarterly
basis.
Other record progress is that in the fight against inflation, which fell to an annual
7.7% at the end of 2005, its lowest level in 37 years. As so often happens in such
programs, however, the problem of price stickiness also emerged in Turkey starting
in mid-2005, and there was a deviation from the target for 2006. It is significant
and encouraging nonetheless, particularly from the psychological standpoint, that
the year closed with single digit inflation in spite of this.
At the same time, significant progress has also been achieved in financial discipline
and budget performance. Growth in inflows of international direct investment has
hit record levels. And Turkey's exports have also soared again to record levels.
Annual exports, which were around 31 billion dollars in 2001, topped 85 billion
at the end of 2006. These are the most encouraging developments and significant
gains in the Turkish economy, and we want to point them out at the outset.
As you know, however, alongside all these very significant gains, certain negative
issues have also come to the fore, with the foreign trade and current account deficits
heading the list. A foreign trade deficit in the neighborhood of 54 billion dollars
and a current account deficit expected to exceed 33 billion dollars are the most
fragile aspects of the economy in 2006. And this fragility is being carried over
into 2006 as well.
Not only that but 2007 looms before us as a year in which two key elections are
to take place, when relations with the European Union will slow down and tension
in the region is going to rise. We know that if we aren't careful, each one of these
developments on the agenda for 2007 could further exacerbate the existing fragility
in the economy. Therefore, 2007 is a year in which we need to proceed very cautiously.
And a responsibility falls upon all sectors of society, but particularly on our
government, to navigate this crucial year with without a mishap.
Mr. Minister:
We regard it as an important part of that responsibility to lay out in a clear and
objective way the aspects of our economy and industry that aren't working properly.
For, by sweeping problems under the rug, and painting only rosy pictures, we will
do wrong, or at least we will be neglecting our job. And such an approach could
exact a high price.
On the other hand, if we can see the picture ahead of us in both its positive and
its negative aspects and identify our problems and shortcomings, then we will be
able to take the necessary measures and avoid the probable price that would otherwise
have to be paid. We believe this, and we are going to try to outline the situation
of our industry today with this in mind.
Mr. Minister,
As I said at the start of my talk, GNP has been growing uninterruptedly for nineteen
consecutive quarters. When we look at the statistics we see that industrial production
too has grown without interruption for nineteen quarters since the first quarter
of 2002. This clearly shows that the industrial sector is the primary sector of
the economy. When industry grows, the economy grows too.
In the post-2001 period we industrialists waged a mighty struggle to boost our production
and our exports. It wasn't easy, because problems such as the heavy burden of taxes
and premiums on employers, the unfair competition created by the black economy,
high taxes, and higher energy costs than those of our competitors continued to erode
our competitiveness. Meanwhile the low exchange rate was another fundamental factor
that weakened our capacity to compete.
During that period we made a constant effort to give voice to our problems and explain
to you the straits that our industry was in. But even though, in contrast to what
we were saying, the indicators were fluctuating, they did point consistently to
growth in industrial production and exports. This discrepancy between the indicators
and what we were saying may have raised some questions concerning the credibility
of our complaints. Or, the situation could have been interpreted as a return to
what many see as our 'old habit of constant whining'. What is certain however is
that no solution has been forthcoming to the problem that we expressed!
One fact that I would like to underscore in this regard is that, yes, industrial
production and exports are up, but we should not be fooled by this growth! Nor should
it prevent us from seeing the other side of the coin. Because when we look a little
more closely, we see that our industrialists have achieved this growth by sacrificing
their profits in the name of preserving their markets abroad and continuing to produce,
by employing fewer workers, by turning to imported inputs and by using credit from
abroad on favorable terms at the cost of incurring exchange rate risk.
And, Mr. Minister:
These methods, to which our industry has been forced to turn in oder to continue
exporting and remain competitive, unfortunately entail certain social and economic
costs. The exports being made today, for example, contain close to 70% foreign inputs.
And most of our domestic producers of inputs, of which our SME's make up the majority,
are now at the point of either suspending their operations or giving up altogether.
While Turkey's exports rose by an average 19% a year between 2000 and 2005, growth
in the manufacturing industry remained at 5.5%. In other words, export-led growth
was unable to sufficiently galvanize our manufacturing industry. One of the leading
reasons for this, without a doubt, is the rapid rise in the use of imported inputs.
Some 90.2 billion dollars of our 125.3 billion dollars' worth of exports at the
end of November 2006 consisted of imports of intermediate gods.
To reduce the current account deficit it is imperative that Turkey reverse this
dependence on imports in producing her export goods. Such rapid import growth is
also having an adverse impact on jobs. The economy is growing, but unemployment
continues to be a problem. In the years 2000-2005, despite average growth of 7.8%
a year, annual growth in employment was only 0.8%. Yes, losses are becoming apparent
in our production and employment infrastructure.
The surveys of Turkey's top and second 500 industrial enterprises have made this
fall in profitability abundantly clear. A survey done by the Central Bank indicates
the same result. According to that survey, both operations and balance sheet profits
fell from 2003 to 2005 in the financial tables of 7086 enterprises in the private
sector. And a fall in the profitability of enterprises gives rise to other phenomena
that impact negatively on the economy in general. When we say profit, we are of
course talking not about personal profits but about the capacity of enterprises
to generate funds.
How can an enterprise with falling profitability generate funds, make new investments
and create jobs? How can it be useful to the economy and society? How can an enterprise
with falling profitability pay its workers a decent wage? Not only that but falling
profitability also makes it more difficult to find equity capital and therefore
forces enterprises to borrow.
Combined with low exchange rates, the shortage of financing opportunities at home,
where financing is expensive in any case, makes borrowing from abroad extremely
attractive. While external debt in the private sector was only 33% of the total
volume of debt ten years ago, this ratio has risen to 57.5% today. And as the total
volume of external debt rose by 74.5% in the post-2001 period, that of the private
enterprises shot up by 164.5%!
The private sector, which is making steadily less profit and whose capacity for
generating savings and equity capital is therefore steadily decreasing, but which
at the same time wants to grow, has naturally turned to foreign funds. And this
in turn has been a key factor in the growth of the current account deficit. In any
case, whenever Turkey achieves rapid growth rates, a high current account deficit
always seems to occur without fail, almost as if it's built-in mechanism.
As long as our firms are unable to generate sufficient funds, domestic savings are
not going to increase, the need for foreign funds is going to continue, and the
current account deficit is going to persist as a fundamental problem. And the fact
that private savings as a ratio to GNP fell from 25.3% in 2002 to 11.3% in 2006,
and the current account deficit jumped to record levels in the same period, in turn
clearly underscores the link between the two.
Nowadays when firms determine the success of economies, the way to bring the current
account deficit down to tolerable levels lies in shoring up production, exports
and competitiveness. We know that our government is engaged in efforts to deal with
the current account deficit. We hope that the realities we have voiced here will
be taken into account in those efforts.
Mr. Minister:
We always point out at every opportunity that we are aware of the responsibility
we ourselves bear for boosting our competitiveness and profitability and that we
don't expect the government to do everything for us. We also point out however that
we are going to continue to demand that the government live up to its own obligations.
Problems such as financing costs, higher energy costs than those of our competitors,
the burden of taxes and premiums, the black economy, an unwieldy bureaucracy--all
of which stem from structural problems--can only be resolved through structural
reforms, and unfortunately no improvement has yet been achieved in this area.
Social security reform has been on the agenda for many years and constitutes one
of the most basic aspects of structural reform. The fact that some progress has
been achieved is encouraging to us, despite the shortcomings in the reform package.
However, as you know, implementation of the reform has been postponed. The necessary
arrangements should be made as soon as possible, founded on a unity of 'norms and
standards' and taking into account the grounds cited in the decision of the constitutional
court. A social security system that is just, effective, and can stand on its own
feet, and that also alleviates the burden of premiums on employers, is a basic need
of our economy.
Tax reform is another basic necessity. Yes, corporation tax and VAT rates have been
lowered.
Mr. Minister:
I would especially like to remind you here that we are expecting the arrangement
to lower VAT on foodstuffs to 8 percent, which you mentioned at the meeting of the
foodstuffs platform, to be translated into reality. We regard all such arrangements
as important steps and therefore support them. But what is really needed is a comprehensive
and fair tax reform aimed at bringing the black economy under control.
Let us turn now to energy, one of our most pressing problems.
I would like to state once more that we appreciate the government's efforts not
to raise the cost of electricity. We see that contracts to privatize distribution
have been postponed to maintain the existing price a little longer, and we consider
this a boost to the competitiveness of our industry.
As we see it, however, a permanent solution would involve complete privatization
of power distribution and the creation of a domestic market that is competitive
in the real sense, and in which the distribution of power would be completely regulated
and monitored by law. We know that a large amount of energy investment is needed,
and that such investments are expected to be made by the private sector. If a truly
free and competitive energy market were created, the private sector would certainly
find the confidence and courage to invest in energy!
Mr. Minister,
It would be an understatement to say that we frequently mention structural reforms.
But such reforms have not been realized. And the effects of those that have have
not been reflected in production. We no longer dwell on the why's and the wherefore's.
Two thousand seven being an election year, there is a very good chance that no progress
in structural reform will be achieved in that year. Nevertheless, Mr. Minister,
we could leave the macro arrangements aside and concentrate this year on micro reforms.
And we could thereby turn 2007 into a year of gains in terms of micro reforms, the
necessity for which you yourself have expressed on so many occasions. Arrangements
could be put in place that would clear the way for production and shore up our enterprises.
The employer's premium for unemployment insurance, for example, which is currently
at 2%, could be brought down to 1%. And the onerous 6% rate of compulsory obligations
on work places employing upwards of fifty workers could be alleviated. Furthermore,
enabling the disabled, victims of terror and ex-convicts to become productive members
of society is of course a major issue. But is it unfair to place the entire burden
for the solution of this important and multi-dimensional social problem on industry.
We welcome the signals coming from our government regarding the alleviation of these
burdens, and we are expecting them to finally be realized.
We also know that our government is engaged in efforts to reduce the burden on employers.
We would like to see results both on this issue and on the issue of severance pay
in 2007.
Another of our expectations is that the surcharge on electricity bills to support
Turkish Radio and Television (TRT) be completely eliminated. It was lowered from
3.5% to 2% and we expressed our gratitude on various occasions. Now we would like
to see it eliminated completely. There is no denying the importance of public broadcasting,
but our industry should not be asked to foot the bill. When you attended our assembly
meeting last March, we recommended that the Higher Board of Radio and Television's
share of the gross annual advertising revenues of the broadcasting corporations
be used as a fund to finance the TRT. And then there is the Resource Utilization
Support Fund premium, an issue that we have been bringing up for years. This fund
should be completely eliminated in the case of the imports of raw materials and
machinery specified in capacity reports.
Mr. Minister,
Even if we can't remove all the obstacles to production in 2007, we can clear away
some stones. Even the odd measure here and there will impact positively on our competitiveness.
Even more importantly, it will raise the morale of our industrialists, who at the
moment feel frustrated and discouraged.
As I pointed out at the outset, we are aware of the importance you give and the
sensitivity you show towards our industry. But concrete steps towards the solution
of our problems will strengthen even further our belief that you take our industry
seriously, that you support it and take responsibility for it, and that you are
not going to abandon us to our fate in the face of the ruthless conditions of global
competition.
And it will also save us, and the Istanbul Chamber of Industry, from a sense of
defeat, from the feeling that 'we can talk until we are blue in the face and still
get no results'.
Mr. Minister,
Esteemed members of the assembly.
Yes, there are two elections in 2007. Naturally both are extremely important. But
we would like to think that the focus is not going to be solely on the elections
in the period ahead. Concentrating our attention on politics could result in the
economy be neglected.
At the same time, there are going to be dark forces that will want to raise the
level of political and social tension in Turkey during this critical year. The recent
assassination of journalist Hrant Dink is an example of such a heinous attack on
the unity, brotherhood and stability of our country. We condemn this outrageous
attack in the strongest terms. And we extend our deepest sympathy to the family
of Hrant Dink, the employees of his paper, Agos, the Armenian community and to our
entire nation. May God have mercy on his soul. By coming together in unity and common
sense at the funeral service yesterday, Turkey gave the best possible reply both
to the forces that perpetrated this monstrous crime and to the whole world.
Today unfortunately we received another piece of tragic news in the death of Ismail
Cem. We extend our heartfelt condolences to our nation and to the family of Ismail
Cem, who made such significant contributions to Turkish political life, foreign
policy and the world of thought.
Mr. Minister,
Esteemed members of the assembly.
Elections are a basic component of the democratic process. But democracy means more
than this! Another fundamental condition of democracy is the culture of reconciliation.
If, instead of reconciliation, tension and strife prevail in the period ahead, this
will impact negatively on the economy as well. We believe that our democracy is
going to pass this test with flying colors. I would also like to say that our prime
minister's words to the effect that he gives importance to consulting the organizations
of civil society further strengthens our hopes in this regard.
I should also point out that this is not going to be a test only of political parties
and politicians. A duty falls upon all the organizations of civil society and on
all sectors of society to support reconciliation and solution-oriented approaches
and to keep the dose of tension low and that of common sense high.
Proving our democratic credentials in this way by successfully passing our tests
in 2007 in a climate of unity, together and reconciliation will further consolidate
confidence in Turkey and in the Turkish economy. And this is turn will make it easier
to preserve the economic gains we have already made and take them even further.
At the same time, Turkey must not lose sight of the European Union perspective.
Our government must pursue the process of full membership in the EU, in both the
technical and political dimension, with resolve, and we have full confidence that
it is going to do so.
In conclusion, I hope that 2007 will be a year of gain in every sense, that Turkey,
which has been growing for five straight years, will take that growth into a sixth
year and beyond, and that she will attain an advanced level of democracy. With these
hopes and wishes, 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