The Chairman's Speech at the Assembly / 25 April 2007
Mr. Chairman, Esteemed members of the assembly and of the press,
On behalf of the Board of Directors I would like to welcome you to our April meeting.
We would also like to welcome our guests today, the chairman of the board, the speaker
of the assembly and the members of the Sivas Chamber of Commerce and Industry.
Every year we of the Istanbul Chamber of Industry make an effort to foster relations
among the chambers in Turkey by traveling at least once to other cities around the
country to have a look at developments in industry outside of Istanbul. In 2005
we visited Sivas and the Sivas Chamber of Commerce and Industry. Today the Sivas
Chamber's Assembly is paying a return visit to Istanbul and the Istanbul Chamber.
It gives us great pleasure to have the assembly speaker, board chairman and other
distinguished members of the Sivas Chamber of Commerce and Industry with us today.
Esteemed members of the Assembly,
Distinguished guests:
I would like to start my talk by reminding you first of all of the recent developments
in the economy. According to figures released on 2nd April, the Turkish economy
continued to grow in the last quarter of 2006, bringing GNP growth to 6% for the
year. This means that the Turkish economy has grown without interruption for five
consecutive years. A very significant success! We are always saying that industry
is the engine of growth! And indeed the growth figures for 2006 clearly bear this
out.
When we look at the contribution of the various sectors to growth in national product,
we see that 2.2% of that 6% growth derived from industry. What's more, when we consider
that accelerated growth in industry also galvanizes the other branches such as commerce
and transportation, and when we take into account the influence of those sectors,
then our industry's contribution to national growth exceeds 3%. In other words,
more than half the country's growth was due to the industrial sector.
In the last five-year period, besides growth enormous success was also achieved
in the fight against inflation. As you will remember, annual inflation at the end
of 2005 fell to its lowest level in the last 37 years at 7.7%. But there was a deviation
from the target in 2006 under the impact of the fluctuation in May.
To compensate for that deviation, the fight against inflation must be pursued with
resolve from here on out. Another success of recent years is the improvement achieved
in the ratio of the net volume of public debt to GNP. This ratio, which was 70.8%
in 2002, fell in 2006 to 44.8%, and at this level is even lower than in several
European Union economies!
These are, of course, important successes, significant gains! But, as we never tire
of saying, what is even more important is that those gains be preserved. That all
uncertainty regarding the sustainability of those gains be eliminated and new ones
not permitted to emerge. I would like to digress a little here: a major improvement
has also been achieved in the budget deficit as a result of the resolve shown in
fiscal discipline. At the end of the first two months of 2007, however, we read
news to the effect that there was a rapid rise in the national budget deficit. Now
we see that this imbalance was corrected at the end of the third month through the
contribution of privatization proceeds. We would however like to remind you once
again that fiscal discipline must continue, despite the elections, and that a public
deficit problem must not be added to the existing current account deficit. Such
a situation would give rise to a second form of fragility in the economy.
To return again to growth and to assess the first months of 2007 from that standpoint,
our industry made a good start in 2007. In January we realized a significant increase
in production of 14.9%. And following this, industrial production in February was
again up by 7.1%.
At the same time, according to foreign trade figures published by the Turkish Bureau
of Statistics, growth in Turkey's exports in the first two months of 2007 is at
26.5% over the same period last year. And data published by the Union of Exporters
of Turkey indicate that export growth continued in March as well. Indeed, so much
so that the highest monthly level of export growth in Turkish history was achieved
in March at 8,935 million dollars. Based on these figures we can predict that growth
too is going to continue in the first quarter of 2007.
In all probability the Turkish economy is going to continue to grow in the next
quarter as well, thereby exhibiting successful growth for 21 consecutive quarters!
And this too is going to break a new record since quarterly growth figures began
being published back in 1987.
A look at the figures year by year shows that Turkey grew without interruption,
albeit at low rates, in the 1955-1978 and 1981-1993 periods
Average annual growth was 5.5% in the 24 years from 1955 to 1987 and 5.2% in the
thirteen years from 1981 to 1993.
But average annual growth in the recent five-year period of uninterrupted growth
has been 7.5%. For now therefore the highest-ever rate of average annual growth
appears to have been achieved in this period.
As industrialists we know that we have had a big hand in this success and we are
proud of that. But besides the pride we feel, we also try, as you know, to keep
the following issue always on the agenda: the economy is growing, yes, and exports
are on the rise. But how is it growing? At what cost? Are we aware of the high cost
that underlies this apparent success? As we so frequently point out, our industrialists
are achieving this success by employing fewer workers, by using imported inputs
made cheaper by the low exchange rates, by incurring exchange rate risk due to borrowing
from abroad, and by sacrificing their profitability--all in the name of boosting
productivity. While the economy grew by an average of 7.5% a year over the last
five years, the annual average increase in employment was only 0.7%. This is known
in the economic literature as 'jobless growth'.
The economy is growing on the one hand, but our foreign trade deficit is also widening
on the other! Meanwhile, our domestic producers of inputs, who are unable to stand
up to the pressure of cheap imports, are being virtually wiped out of the market.
Furthermore, as we point out at every opportunity, the profitability of our enterprises
is being steadily eroded.
According to the results of the ISO 500, an annual survey of Turkey's 500 largest
industrial enterprises published every year by our Chamber, return on sales, which
was 9.2% among the private enterprises surveyed in 1995, had fallen by half in 2005
to 4.7%. The same survey again shows that close to all the sub-sectors of the manufacturing
industry are struggling to stay afloat with profitability ratios that are lower
by half than those of ten years ago. The most dramatic fall in productivity is in
the textiles sector. Taking return on sales to be 100 in 1994, this figure had fallen
in 2005 to minus 8.6. I would once again like to underscore the fact that when we
speak of 'profit' we are referring not to personal profit but rather to an enterprises'
capacity for generating funds.
Profitability in this sense is therefore not a micro problem of concern only to
enterprises but a macro problem that concerns the economy as a whole. A decline
in the capacity of enterprises to generate funds has adverse repercussions for the
entire economy.
How can an enterprise whose profitability is falling generate funds? How can it
make investments? How can it create new jobs, or pay its workers decent wages?
The Turkish private sector, whose profitability is declining and whose capacity
for generating funds is therefore gradually decreasing, is being forced to go into
debt in order to make investments and, literally, to remain in existence.
The growth figures show that there was an increase in fixed capital investment spending
in the private sector in 2006. The private sector spent YTL 96.3 billion, in other
words close to 67 billion dollars, on fixed capital investments. This increase in
investments is of course a welcome development! But the other side of the coin is
that foreign debt in the sector also climbed to 121 billion dollars by the end of
2006 - an increase of 36 billion over the 85 billion at the end of 2005. And we
know that growth in private sector borrowing has negative consequences for the current
account deficit.
For the 38.8 billion dollar growth in GNP in 2006 there was a corresponding current
account deficit of 31.5 billion dollars. And this means that Turkey last year chalked
up a deficit of 81 dollars for every 100 dollars of GNP growth. Yet the current
account deficit must be kept to tolerable levels in an economy whose enterprises
are unable to generate adequate funds!
Esteemed members of the Assembly,
Distinguished guests:
Yes, the Turkish economy is growing. But to close the gap with the developed countries
and solve its economic and social problems, Turkey needs to grow without interruption
and at higher rates. In other words, Turkey needs to make a leap, to achieve a virtual
economic miracle. As I pointed out at the start of my talk, the biggest contribution
to the country's growth comes from the industrial sector. Therefore, the path to
such an economic leap lies through industry. Industry in Turkey is essentially concentrated
in the Marmara region. Istanbul, where the foundations of our industry were laid,
has been the crux of Turkish manufacturing since the 1950s. But it is becoming more
and more difficult for Istanbul and the Marmara region to shoulder that burden,
in terms both of population and of infrastructure.
An approach based on reducing Istanbul's share in industry and turning it into a
global center for services, finance, tourism, commerce, management and logistics
has been bruited about frequently in recent years. But it is not realistic to think
that Istanbul, which is home to 38% of the nation's industrial enterprises, is going
to relinquish that role easily and assume a service-oriented structure. Indeed,
the manufacturing industry took first place with 53% of incentive-based investments
made in Istanbul between 2002 and 2006.
This means that Istanbul has not given up on industry. There is definitely going
to industry in Istanbul! And there should be! But serious thought needs to be given
to how that industry is going to be.
At the same time, great industrial leaps have been made in recent years in a number
of provinces in Anatolia. We always return with great hope from all our trips after
witnessing the production potential in Anatolia. Surely this enthusiasm should be
able to take us further ahead! Therefore, we need to rethink our industry both in
Istanbul and the Marmara region and in the country as a whole within the context
of a new division of labor. We should take up the question as part of a plan or
program involving ports as well as highway and rail connections. This is of great
importance as a way of controlling migration and of eliminating income differences
among the regions.
As we think about a new industrial strategy, we need to focus on this question:
What should we target for our industry?
Turkey has chalked up a successful record in the outward orientation process it
has been following since the 1980s. What we need to ask now is where do we go from
here?
In our opinion, China and India can manufacture everything more cheaply than we
can. And tomorrow others are going to manufacture the same things even more cheaply.
There will always be somebody that can produce something more cheaply! Both for
the Marmara region and for Anatolia, we should target a structure of production
that is based on skill, knowledge, technology and quality, and that creates high
value added!
How are we going to go over to such a structure of production?
As a very important step on the path to this goal we are assessing the development
in cooperation between the universities and industry. As I said earlier in our assembly,
in the studies we have done on the subject here at the Istanbul Chamber of Industry
we have seen that our universities have a very different agenda from that of our
industry. So, first of all, it is necessary to bridge that gap and to bring the
areas of interest of the universities and of industry into sync. And, once again,
we should not think of this merely in terms of Istanbul or the Marmara region. From
the standpoint of the transition to a skill and knowledge-based industry it is of
crucial importance that this relationship be able to develop between our industrialists
and universities in Anatolia as well. The industrialist must be able to ask things
of the university and the university must be able to go to the industrialist. And
we, as industrialists and as a chamber, should be the locomotive force in developing
that cooperation.
At the same time, again as industrialists, we must realize that the rules of the
game have changed both at home and abroad. We should recognize in particular that
only by pooling their resources can our SME's make the kind of investments that
are required by today's global competition, and if we are targeting the global markets
then we should bear in mind the following, namely, if you're going to sail the open
seas you need big and sturdy ships.
Taking this as our point of departure we must put aside the mentality 'let it be
small but let it be mine' and join forces to build big ships. We must go for company
mergers, for cooperation before competition. The success of such initiatives requires
that we work together, trust each other, be transparent and share our knowledge.
We must develop these aspects of ourselves. Unfortunately we aren't very good at
that.
As a final point, I would like to remind you of how important vocational training
is in the transition to a skill-based industry. Our industry's pressing need for
skilled workers comes up a lot these days. And this could be interpreted as a sign
that we have already begun to make the transition from an unskilled to a skill-based
industry.
Esteemed guests:
Here at the Istanbul Chamber of Industry we are engaged in a quest to answer the
question of how to take our industry into the future as best we can. For five years,
for example, we have been organizing annual industry congresses and trying to contribute
to the development of an industrial strategy, to producing solutions. But everyone
knows and acknowledges that on its own our private sector's efforts in this direction
will not be sufficient. A great responsibility falls upon our government and the
managers of our economy for developing a roadmap for our industry. Areas like education
and industry, in which we cannot expect to get results overnight, require long-term
approaches.
What we expect is that our government and the managers of our economy will be proactive
and will act on more long-term policies. Taking a long-range approach should not
however be construed to mean that we enjoy the luxury of being able to waste time.
As we have reiterated time and time again, "we now live in a world not where the
big fish eats the little fish but where the fast fish swallows up the slower fish."
Speed has become a crucial factor under the conditions of global competition.
In the last five years, for example, we were very slow in effecting structural reforms.
And the effects of the reforms that were passed were not reflected in production.
Our energy costs are higher than those of our competitors. Among the OECD countries
Turkey in 2006 was also the one with the heaviest burden of taxes and premiums on
employers. In five years there has unfortunately still been no amelioration of these
basic problems.
We were not expecting much headway to be made on structural reforms in a year like
2007 which is marked by two elections, and we therefore brought to the agenda only
our request for micro reform. We see however that even our demands for micro reforms
have elicited no response amidst the growing election debates. Now that the question
of who will be our next president, which has occupied Turkey for days, has finally
been clarified, we are hoping that attention can be focused, at least in part, on
the problems in production and exports. The election agenda should not be a reason
for neglecting the problems of production and of our industry, for such an oversight
will entail costs!
Finally, I would like to say that we hope Abdullah Gül's candidacy for president
will be good for our country and will contribute to its tranquility and political
and social stability. In closing I salute all of you once again on behalf of the
board of directors.
C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors