The Chairman's Speech at the Assembly / 25 June 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 May assembly meeting.

Esteemed members of the Assembly:

Normally, at our assembly meetings, we take up our industry as a whole and focus on the macro developments in it and in the economy in general. But this time we are going to take a different approach and try to understand how the situation in our various sectors developed in the 1997-2007 period by examining our manufacturing industry in terms of its sub-sectors.

As we do this, we will use as a source the monthly index for industrial production published by the Turkish Bureau of Statistics and the pertinent sections of Turkey's structural labor statistics for manufacturing for the years 2002, 2003 and 2004.

First of all, we drew up some production graphs to show the performance of the different sectors over the last ten years. After looking at those, we will try to understand developments in value added in 2002, 2003 and 2004.

We begin with our first graph.

Before starting, I would like to point out something. We are presenting the sectors based on the international classification by branch of economic activity which is also used by the Turkish Bureau of Statistics. I would also like to make a brief statement about the logic behind our graphs:

All our graphs start by taking 1997 = 100. The reason for this is that the Turkish Bureau of Statistics, our source of the figures, takes the amount of production in the base year 1997 as equal to 100, and bases its production indexes for subsequent years on a comparison with this year. We will look first of all the production performance of the food and beverages sector in the last ten years.

The production graph for the food and beverages sector begins with 1997=100. Looking at the graph as a whole, we see that production in the food sector followed a gradually rising curve during the ten year period from 1997 to 2007. Production, 1997=100, in the sector rose, albeit slightly, every year in subsequent years, steadily increasing to 129.1 in 2007.

Our second sector is manufacturing of tobacco products. Based on 1997=100, production in this sector was 114.1 in 2007. In the production graph for our tobacco products sector, 2004 was the worst year with an index figure of 91.4, while 2006 was the most successful with a figure of 126.5.

Thirdly, we see the production graph for Turkey's textile sector in the last ten years. Based on 1997=100, production in this sector was below 100 for the four years from 1998 through 2001. Then, between 2002 and 2004 there is a relatively more favorable curve when index figures hover slightly above 100. From 2005 on, however, production in the textile sector was again below 100. Taking a ten-year perspective, we see that production in our textile sector declined from 1997=100 to 91.8 in 2007.

Let us look now at the wearing apparel sector, which declined from 1997=100 to 97.6 at the end of 2007 with an index figure of 114.6 in 2004, its most successful year

Our next sector is leather and footwear. Based on 1997=100, production in this sector in subsequent was unfortunately been below 100, declining in 2007 to 85.2.

Next we see the production graph for Turkey's wood and cork products industry, in which production traced a flat curve between 1997 and 2003, followed by a rapid and continuous rise from that year onwards. Based on 1997=100, production in the wood and cork products sector rose to 186.4 in 2007.

Next is the paper and paper products sector, whose curve shows that production in the sector increased steadily from 2001. Based on 1997=100, production in this sector rose to 128.8 in 2007.

Turning now to the printing and publishing industry, production in this sector rose to 137.1 in 2007, a rise that began from the year 2002.

In the petroleum products sector we see a flat curve. Production in this sector rose from 1997=100 to 103 in 2007 ten years later.

And in the chemicals sector, there is a rapid rise after 2001 bringing production up from 100 in 1997 to 173.2 ten years later in 2007.

Looking now at the plastics sector, we see that the production graph in this sector exhibits an almost continuous rise since 2001. Production in our plastics and rubber sector, 1997=100, rose to 188 in 2007. Its best year was 2005 with an index figure of 191.6.

Next is manufacturing of non-metallic minerals, or the stone and earth-based sector as it is widely known since it includes glass, ceramics, porcelain, cement and stone processing. Production in this sector exhibits a consistent rise since 2001, coming to 140.8 in 2007.

What we see now is the graph for Turkey's primary metal industry, a category that includes not only iron and steel but also metals and metal alloys. The graph shows that Turkey's primary metal sector has increased production continuously since 2002 until its index figure, 1997=100, rose to 170.8 in 2007.

We turn now to the metal goods industry, which includes the manufacture of metal construction materials, military tanks, storage tanks, steam boilers, cutlery and scrap metal. Production in this sector, 1997=100, hovered below 100 from 1998 to 2004. Then, in 2005, it began to rise in earnest, its index figure reaching 111 in that year, 132 in 2006 and 151 in 2007.

Let us look now at the machinery sector, where production, 1997=100, exhibited a major increase to 184.7 in 2007. If we study the graph more closely, we see that there has been a sharp rise in production since 2003.

Now we are looking at one of our most interesting graphs. The calculators, data processors and office machines sector grew from 1997=100 to 282.5 in 2007. There are two key peaks in this sector's ten-year rise, when it climbed to 286.3 in 1999 and again in 2006 when it soared to 434.8.

Turning to electrical machinery, we see that production figures in this sector hovered below 100 between 1998 and 2005. Rising in the last two years they hit 116.6 in 2006 and 144.7 in 2007.

What we have before us now is the production graph for the radio and TV sector. There is an interesting curve here. Production in this sector, 1997=100, hovers above 100 for the whole ten years. In fact, it was 149 even in the crisis year 2001. There has been a tremendous rise in radio and TV production since 2001, with the index number rising to 363 in 2004 and peaking at 380.3 in 2005. The years 2004 and 2005 were two very outstanding years for radio and TV production. Then, in 2005 the sector seems to have slammed on the brakes, as its index figure plunged from 380 in 205 to 320 in 2006 and 224.7 in 2007.

Turning to the medical and optical instruments sector, here too we see that production, 1997=100, has unfortunately hovered below 100 for the lsat ten years.

Next is the ten-year graph of one of Turkey's most successful sectors, motor vehicles. Production, 1997=100, in this sector rose ten years later to 242 in 2007. A rapid rise in the sector's production figures is see particularly since 2003.

And now we see the graph for the other transport vehicles sector, a group that includes shipbuilding, railroads, aircraft, bicycles and motorcycles. Production, 1997=100, in this sector declined to 87.4 in 2007, hovering below 100 throughout the decade.

Finally, we have before us the graph for the furniture sector, in which production, 1997=100, rose to 153.2 in 2007. The production index in this sector hovered above 100 for the last ten years, peaking in 2000 and 2006.

Esteemed members of the assembly:

After examining our sectors one by one, let us look now at our industry and manufacturing in general between 1997 and 2007. Overall, production, 1997=100, in Turkish industry rose to 145 in 2007. Manufacturing makes up 86.9% of total industry. Among the other sectors, mining accounts for 4.89% and gas, water and electricity for 8.19%. In manufacturing in general, production, 1997=100, rose to 143.3 in 2007. In other words, there was a 43% increase in production in Turkey's manufacturing industry over the decade, or an annualized growth of 3.6%.

Here we have a comprehensive table where we find the sectors ranked from highest to lowest by their average annual rates of increased production in the decade 1997-2007. Average annual rates of production growth appear in the last column, and in the first column we see the weight of each sector in the manufacturing industry production index.

As I said a short while ago, production in Turkey's manufacturing industry in general rose by an average 3.6% a year from 1997 to 2007, as we can see in the blue band in the middle of the table. While the average annual increase in 11 of the 22 sectors was above the manufacturing industry average, that in the other 11 was below.

The sector that captured the highest annual average growth in production in the last decade was calculators, data processors and office machines, with an increase of 10.94%. However, when this sector's success is compared with its weight in the manufacturing, we that it is the smallest sub-sector, accounting for only 0.06%.

In second place is the transport vehicles sectors with an average annual increase of 9.24%. This sector's weight in manufacturing is 6.27%.

Other sectors chalking up the highest annual average increases in production are, in order:

Radio and TV in third place with an annual production increase of 8.43%,

Plastics in fourth with 6.52%,

Timber in fifth at 6.43%, and

Machinery in sixth with 6.33%.

In seventh place we see the chemicals sector with an annual increase of 5.65%. This sector accounts for 10.34% of the manufacturing industry. It is noteworthy that such a major sector also captured a production increase above the average. In eighth place, with an average annual production increase of 5.50%, is the primary metal sector, which accounts for 8.90% of Turkey's manufacturing industry. Following primary metals we see the furniture, metal goods and electrical machinery sectors.

Let us turn now to those sectors whose annual average production increases were below the overall average of 3.66% for manufacturing:

Non-metallic minerals, or the stone and earth-based industry as it is widely known, ranks highest in this category with an average annual production increase of 3.48%. Its weight in the manufacturing industry production index is 6.85%. In second place, with an increase of 3.21%, is the printing and publishing sector. In third place among sectors falling below the average is food, whose annual average production increase in the decade from 1997 to 2007 was 2.59%. One very important point here is that the food sector accounts for 10.64% of Turkey's manufacturing industry. If the food sector could increase its production by higher rates, it could make a major contribution to the economy.

The recent global rise in food prices has sparked concerns. Let us not forget, however, that despite her mistakes, Turkey remains a country with a high agricultural potential. If we could increase productivity in agriculture, we could boost our exports and transform the rise in food prices to an opportunity for our economy.

Turning again to our tables, we see that after food, paper and tobacco products and then petroleum products, which accounts for the largest single chunk of the manufacturing industry with 14.48%. This sector's average annual increase in production was only 0.30%.

Below this, unfortunately, fall the five sectors that actually had negative growth in production. In other words, their production declined. These include wearing apparel with an annual average negative growth of minus 0.24% and textiles with a similar negative growth at minus 0.85%. The decline in production in these two sectors which, considered together, account for close to 16.3% of Turkey's manufacturing industry is, as I point out at every opportunity, a concern requiring our urgent attention and the taking of measures.

At the bottom of our table we see the leather sector which has experienced the worst development of all in the area of production.

Esteemed members of the assembly:

I said that our table was rather comprehensive. Let us continue then with that table, which shows the shares of each of our sectors in the 43.3% total growth in manufacturing in the last ten years. The breakdown is as follows:

Transport vehicles 8.9%

Chemicals 7.6%

Primary metals 6.3%

Machinery 4.9%,

Foodstuffs 3.1%

These are the sectors that made the largest contributions to growth in the manufacturing industry.

Now we have a new table in which we examine the production workers indexes. This index, 1997=100 for manufacturing as a whole, had declined to 86 at the end of 2007, in other words, a 14 point reduction in jobs in the manufacturing industry in ten years. If we look at the index by sector, we see that the biggest increase, in jobs as in production, was in the calculators, data processors and office machines sector. This sector boosted its jobs by an average of 33.28% over the decade. Let me remind you once again that it is also the smallest sector in our manufacturing industry. The sector with the second highest growth in jobs is transport vehicles with an annual average increase of 5.18%.

Turning now to the other sectors that boosted their employment over the last ten years, we find, in turn, radio-TV, plastics, furniture, machinery, and timber processing. In all the other sectors there was a decline in jobs. As a general trend, the sectors that increased their production are also the sectors that added more jobs. The top four sectors in production growth are the same as the top four in added employment, and in the same order. The biggest decline in jobs, as in production, meanwhile, was again in the leather sector.

Esteemed members of the assembly:

The Turkish Bureau of Statistics has published structural labor statistics for 2002-2003 and for 2004 as well as publishing data regarding production, workers and value added in the manufacturing industry. As I said earlier, these statistics are limited to 2002-2003 and 2004. There are no figures later than 2004. We therefore compiled our tables making use of the available data.

In our table we calculated the share of each of the sectors in the total value added in manufacturing, taking that figure as 100, and ranked the sectors according to our findings. In 2004, the textile sector made the largest contribution to total value added in manufacturing with a share of 12.9%. Despite a relative decline in production, exports and jobs, Turkey's textile sector preserves its distinction as the sector making the largest contribution to the value added created in manufacturing. Food is the sector with the second largest share in value added at 11.6%, and transport vehicles are in third place with 9.9%.

Following these three sectors are, in order, primary metals, chemicals, wearing apparel, machinery, stone and earth-based products, plastics and metal goods, making up the top ten sectors in terms of contributions to value added in the manufacturing industry. An important point here is that the textile sector's 15.7% share in value added fell in 2003 to 13.9% and in 2004 to 12.9%. A similar trend is observed in the food sector. The transport vehicles sector in contrast is conspicuous for raising its share in value added to 4.5% in 2002, 8.5% in 2003 and 9.9% in 2004.

While value added productivity, in other words, the ratio of value added to production, was 27.38% in the manufacturing industry overall in 2002, in 2003 this ratio fell to 25.10% and in 2004 to 23.43%.

Our table reveals that the share of value added obtained was gradually reduced as a result of the production that was carried out. The ratios clearly show that our industry's profitability and capacity for generating funds has been gradually eroded.

In this table meanwhile we examined value added productivity on a sub-sector basis in terms of the data for 2004 and ranked the sectors from highest to lowest by this criterion. The sector with the highest value added productivity was other transport vehicles at 34.30%. In second place was medical instruments with 33.23% and in third was tobacco with 32.47%. It is an interesting result because, if we remember our production curves, the production increases in the different sectors were rather low and the index in general hovered below 100. At the same time, however, these sectors' weights in Turkey's manufacturing industry are very small. The weight in manufacturing of the other transport vehicles sector, for example, is 1.07%, that of medical instruments 0.26% and that of the tobacco sector 1.35%.

If we return now to our table, we see the stone and earth-based industry in fourth place in terms of value added productivity, with printing in fifth place and machinery in sixth followed by, in order, chemicals, furniture, plastics and electrical machinery. Finally, textiles are in 11th place, transport vehicles in 12th and metal goods in 13th. The remaining sectors remained below the average value added productivity of 23.43% for the manufacturing industry overall.

Coming to the sector in which value added productivity was the lowest, we find the calculators, data processors and office machines sector at the bottom of the table. This sector, which chalked up the highest annual averages in job and production growth is in last place when it comes to value added productivity. Other sectors low in value added productivity are petroleum products, radio and TV, and food.

Last but not least, we look at exports and examine the 1997-2007 period in those terms. There really is a significant rate of growth! When we look at the sub-sectors, we see that fourteen of Turkey's 22 sectors achieved growth above the average for the manufacturing industry in general. The highest rate of export growth was in the petroleum products sector which came in first with 2648.6%. In second place with 1832.7% was the motor vehicles sector. There is a large increase, too, in these sectors' share in Turkey's total exports in the last ten years. The share of the motor vehicles sector, for example, which was 3.4% of total exports in 1997, rose ten years later to 15.9% in 2007.

Third among the sectors that increased their exports by the highest percentages in the last decade is furniture with an increase of 931.7%. It is followed by other transport vehicles in fourth with 797.6%, the metal goods industry in fifth with 714.9% and machinery in sixth with 700%. Tobacco products is one of the sectors that increased its exports the least in the ten years from 1997 to 2007, followed by leather and foodstuffs, two other sectors with the lowest rates of export growth. Export growth rates in the textile products and wearing apparel sectors appear to have remained below average in the last ten years. Despite low export growth rates, however, let us not lose sight of the fact that these two sectors were responsible for a 21.1% share of total exports in 2007.

Esteemed members of the assembly:

We have focused on our sectors at this meeting and reviewed their production performances in the last decade in the light of the figures published by the Turkish Bureau of Statistics. We tried to understand what sort of changes occurred in the structure of production, employment and exports during those ten years. Making use of structural labor statistics, we tried to understand the developments in value added as well. In short, we strove to take a photograph of our industry in the last decade based on the sectors.

Let us turn now to what that photograph shows us. Above all else, Turkish industry in those ten years, which were fraught with ups and downs and crises large and small, succeeded despite everything in boosting its production and its exports. The success in exports is especially impressive! And from here on out Turkish industry is going to continue resolutely, no matter what the conditions, to increase production and strive to compete in the global markets.

The problem facing us is to be able to continue the fight by utilizing our resources and our energy in the best, most planned and most productive way possible. The pressing need for an industrial policy in Turkey is being expressed by all the country's relevant sectors. The ten-year statistics we examined have revealed once again how careful we need to be when developing such a policy. For each of our sectors has different characteristics.

All the sectors need to be considered one by one in terms of their characteristics and potential. Technology-oriented sectors with a high potential for value added must of course be supported. But this should not be taken to mean that sectors such as textiles and wearing apparel, which still have a high potential for creating value added and are of special importance in terms of jobs and the social balance, will be ignored.

Industrial policies should be developed in a balanced approach that reconciles the needs of the Turkish economy and Turkish society with the potential of the different sectors. Policies that are developed through schematic approaches and hackneyed formulas will be of no benefit.

As we have always said, we in the private sector are ready to give our utmost support to the process of developing such policies. Indeed, our presentation today is an effort in that direction and will, I hope, contribute in some way, albeit small, to studies on this subject. But the real responsibility here belong to our government and the managers of our economy. Hand in hand and in communication and cooperation with the private sector, the government must, as soon as possible, implement its planning studies - and by planning clearly we do not mean central planning - which are aimed at creating, encouraging and giving direction to an appropriate climate!

Mr. Chairman,

Esteemed members of the assembly:

I have taken more of your time than usual, and I thank you for your patience in listening to me.

All of Turkey is full of anticipation today for the match our national team is going to play tonight. In my closing statement, I too would like to congratulate our national team on the enthusiasm they have generated and on their success so far and to wish them further success this evening. 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