The Chairman's Speech at the Assembly / 25 November 2009
Mr. Chairman,Distinguished 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 November
meeting. We would like to thank our distinguished guest, Prof. Dr. Hurşit Güneş,
for accepting our invitation to be with us today. Welcome! We are eager to hear
what you have to say.
Esteemed members of the assembly:
We are about to finish 2009, a year we entered knowing it was going to be a difficult
one.
When we look back at the world and the Turkish economy at the end of the fifteen
months since the global crisis deepened in September 2008, we see that the financial
markets have recovered relatively quickly despite warnings that new bubbles could
develop. At the same time, however, recovery in the real sector has lagged far behind
that in the financial sector. In Turkey especially, the recovery in jobs and output
is moving extremely slowly with one step backwards for every two forward.
As you know, a contraction in industrial output has been under way for fourteen
consecutive months. In the first quarter of 2009, industrial output shrank at the
high rate of 22%, which dropped to 15.4% in the second quarter. We were expecting
a more rapid recovery in the second half of the year. However, under the negative
impact of the discontinuation of the tax cuts introduced earlier, the economic revival
has lost momentum and the recovery looks like taking a lot longer.
In an encouraging development, we have seen smaller and smaller rates of contraction
in industrial output by the month since March. By the latest statistics, however,
the rate of contraction, which in August was 6.3% on the same month the previous
year, rose to 8.6% in September. This changes everything! In other words, the steady
bottoming out process which had been underway, albeit in small increments, over
the last six months has now been interrupted.
Hard on the heels of the output figures, capacity utilization rates for October
were announced, and these too, at 71.8%, came out higher by 1.7 points than in September.
The fact that the rise is so small is of course good news but not sufficiently encouraging
for October output. Taking these two figures together, it would not be wrong to
say that we need to postpone our expectations of improvement in industrial output
for a while longer.
Unemployment has been one of Turkey's major problems for a long time. Since the
crisis, jobs have been lost in a virtual hemorrhage. After peaking at a horrific
16.1% in February, unemployment has however shown a relative improvement in the
ensuing months. But latest figures reveal that this improvement has now been reversed
parallel with the continuing fall in industrial output. Unemployment, which rose
to levels of 10% and up after the 2001 crisis, has soared in this crisis to over
14%.
And just this week our relevant cabinet ministers made some extremely pessimistic
statements regarding jobs. But the high rate of unemployment is just one side of
the coin, and the other is equally dark.
Employment of the working age population in Turkey, in other words the population
aged fifteen and up, fell from 54% in 2000 to 47.8% in 2008. Average working age
employment in the OECD on the other hand was 72.2% in 2008. According to the latest
jobs figures, while the working age population rose by 873,000 over the last year,
only 40,000 of those people were able to find jobs. How is a solution going to be
found for this growing army of unemployed? How far can Turkey go with this burden
on her back?
We have looked at unemployment, one of the darkest sides of the economy. Let us
now take a look at exports. Our exports began to decline in October 2008 for the
first time in a long time, and the decline continued for twelve consecutive months.
Then, finally, there was some good news at the end of October when our exports rose
by 4.6% on the same month the previous year according to Turkish Exporters Association
figures.
This growth is expected to continue in the months ahead and we hope it does. There
is no doubt that our industrialists' intensive efforts to diversify have played
a key role in this development.
Esteemed members of the assembly:
Industrial output is forecast to contract by 8.5% and GDP by 6% in 2009 in the economic
program. These forecasts clearly show what a difficult year 2009 has been for our
economy and our industry.
But beyond the production indicators, when we examine the last two years in terms
of profitability and the capacity to generate funds in our industry, an extremely
worrying picture emerges. As you will remember, our ISO 500 survey of Turkey's top
industrial firms showed that total profit and loss fell by 47% in fixed prices in
the firms surveyed in 2008. The Central Bank also conducted a survey of 3,530 workplaces
in the manufacturing industry. It too showed that the firms surveyed closed the
year 2008 with a 65.6% fall in total profit and loss.
Such dire results in 2008, a year which only turned bad in the second half, give
some idea about what the dimensions of the situation could be in 2009, a year that
was difficult from start to finish. Indeed, a look at the industrial firms traded
on the Istanbul Stock Exchange reveals that in the first six months of 2009 declines
in these firms' total profit and loss ran as high as 80% on the same period the
year before.
It is obvious that a loss of funds of such high proportions two years running is
going to pave the way to irredeemable losses in these firms' financial structures.
The 2001 crisis also wreaked extensive damage on financial structure. But the table
in front of you makes clear that binding up the wounds caused by the current crisis
is going to take a lot longer than it did in 2001. As we have always said, profitability
and generating funds mean new investment and more jobs. How is an industry that
is unable to create equity and whose financial opportunities are so limited ever
going to make investments? Indeed, investment indicators show no signs of reviving
in the period ahead. As a solution to the financing problem, our private sector
briefly opted for borrowing abroad at the cost of incurring risk. In the current
situation, this trend appears to be tapering off. A look at the volume of domestic
credit shows that while it grew at the rate of 26.1% in the first ten months of
2008, growth in the same period of 2009 remained at 4.3%. All of which goes to show
that Turkey's industry is continuing to run out of steam.
Is the credit guarantee fund on which we had pinned our hopes a possible solution?
Some 99.9 percent of businesses in Turkey are Small and Medium Enterprises that
employ fewer than 250 people. When we consider the magnitude of what we are facing,
it is clear that in order to be a solution the credit guarantee fund will have to
operate faster and with truly gargantuan resources.
Esteemed members of the assembly:
The economic program envisages GDP growth of 3.5% in 2010. Growth forecasts for
the primary sectors of the economy meanwhile are 3.0% in agriculture, 3.3% in services
and 4.4% in industry. As these figures indicate, industry is once again expected
to be the engine of growth in the economy. This is all well and good, but how can
industry perform this function under current conditions?
At the end of 2001 Turkish industry succeeded in creating a way out both for itself
and for the economy by turning to exports. That is not an option this time, because
foreign demand remains depressed and there is no letup in sight.
Growth has resumed in the Euro and dollar zones. If it continues, that will surely
be in our favor. But it is not clear yet whether the growth that is just now beginning
will continue in 2010 or not. As we have frequently said, Turkey's best alternative
for getting out of the crisis this time is to spur domestic demand. Surveys of industrial
trends point to stagnation in domestic demand as the reason why enterprises are
working at close to 60 percent of full capacity. Under the circumstances, however,
there is no strong signal in this direction in either the medium term plan or the
2010 economic program.
We should point out here that the industrial sector is what drives not only production
and growth but also jobs. Without solving the problems of industry we cannot expect
any improvement in growth, production or employment. In order for our industry to
perform its function as the engine of growth, we need to stoke the fire so to speak,
by introducing emergency measures to shore up industry and revive domestic demand.
The tax cuts were useful but they were done away with too soon. Cuts in VAT and
SCT should be brought back to the agenda. Otherwise, if our economic management
prefers not to do this, then other solutions need to be found that will have the
same effect.
Esteemed members of the assembly:
One of the most striking forecasts of the 2010 budget is that spending will go up
by 7.6% and revenues by 16.1% in 2010. The economic program meanwhile, another roadmap
for the economy, envisages GDP growth of 8.7% in current prices in 2010. At this
juncture, the following question comes to mind: If GDP or, in technical terms, the
production of net goods and services is going to rise by 8.7% in 2010, are not the
taxes collected on net goods and services also going to go up by 16.1%?
First of all, such an increase - in tax efficiency, that is - could be achievable
through an initiative aimed at bringing the grey sector onto the records. In the
present circumstances, however, there is no sign of any progress in that direction.
This raises the possibility that the burden on legitimate tax-payers is going to
increase even more. And the recent move among tax payers towards retroactive cross-checking
of purchase and sales invoices further fuels such suspicions. All transactions carried
out with companies that have been code-listed following the cross-checking are regarded
as under suspicion, and the companies are being asked to repay with interest any
VAT paid on those transactions. We of course do not include any suspicious or dirty
business deals that were conducted in bad faith.
Nevertheless, in the current climate of economic crisis many companies have been
forced to suspend operations. It is therefore simply unacceptable that a business
transaction that took place under normal conditions 4-5 years ago should now be
placed under suspicion simply because one of the parties' businesses has gone sour,
or for any other reason. It is also unacceptable that suspicion should be cast upon
a buyer, or that previously paid VAT should have to be paid again with interest.
If implemented, this would thrust a lot of firms into a difficult position, even
driving them to bankruptcy!
We could not be more sensitive to the issue of combatting the black economy. In
doing so, however, the legitimate tax payer should not be even further victimized.
Going outside the usual tax auditing methods and escalating the relationship between
the tax payer and the government to one of fear and threats will harm the entire
system. We would like to emphasize that we regard it as extremely ill-advised, from
the point of view both of macro economic benefit and of relations between the government
and the tax payer, that tax payers who are meeting their tax obligations while struggling
to survive under crisis conditions should be victimized in this way.
One of our daily papers today carried a news item to the effect that there has already
been some backtracking on this plan for the purpose of protecting bona fide tax
payers. We welcome this move and expect it to continue.
Esteemed members of the assembly:
As we are following in the written and visual media, there has been some discussion
recently of the reasons for Turkey's dependence on imports in production, which
is a major structural problem in the Turkish economy. As producers ourselves we
cannot remain indifferent to this issue. We have therefore examined the results
of the survey that sparked the debates, which cites the reasons for the dependence
on imports of raw materials and other intermediate goods as follows:
The largest group, 53.3%, cited a lack, or inadequate level, of domestic production
of such inputs;
The second largest group, 20.1%, cited the fact that such materials can be obtained
more cheaply abroad;
And the third largest group, 18.8%, cited the continuous availability of better
quality goods from abroad.
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.
As the survey indicates, the first reason cited for importing raw materials and
intermediate goods is inadequate, or complete lack of, production of such goods
domestically, and the second reason is that they can be procured more cheaply from
abroad.
When we look at the structure of Turkey's imports of intermediate goods, we see
that fuel and natural gas imports constitute the largest single item. This item
made up 21.5% of our total imports in 1996 and 23.9% in 2008. Fuel and energy aside,
the share of intermediate goods imports used in production appears to have stabilized
around 49-50% after rising period by period from 1996 to 2008. Among these imports
are mandatory imports such as iron and steel, rubber products, plastics, gold, precious
metals and sophisticated technology inputs. In the circumstances it would be incorrect
to link imports of such intermediate goods with the quality of domestic production.
In any case, no such conclusion emerges from the survey.
The fact remains however that a low exchange rate policy has encouraged imports
of inferior, non-standard goods as well as damaging jobs and output by reducing
Turkey's competitiveness in exports.
We have always defended the view that exchange rates cannot be the single determinant
of competitiveness in exports, that we must also strive for competitiveness in other
areas and, essentially, that reforms must be effected by bringing the price of state-produced
inputs down to levels on a par with the rest of the world.
But reforms were not effected! At the same time, with continued appreciation of
the Turkish lira for years now, the scales have literally been tipped and our industry
has been hurt as a result. We would like to emphasize here that we do not want to
see this happen again!
Esteemed members of the assembly:
Before concluding my remarks I would like to share with you some information about
our upcoming industry congress, which we are holding this year for the eighth time.
This year's congress will take place at the WOW Conference Center on 15-16 December
on the theme "Sustainable Competitiveness: A New, Post-crisis Direction". Twenty-five
speakers will take the podium at the two-day congress, the main focus of which will
be the new world order following the crisis and how to sustain and develop the competitiveness
of Turkish industry in that new order. This year as every year the situation in
our economy and our industry will be assessed both at the level of Turkey in particular
and on a global scale.
Our purpose in the current climate of uncertainty is to make a contribution, albeit
it small, towards our industrialists' developing roadmaps for the post-crisis period.
We have also added a new event to our congress this year. For the first time we
are hosting an innovation exhibition as part of our congress. We will also be presenting
ISO innovation awards. All industrial firms located in Turkey regardless of their
sector can apply for an innovation award. The most important feature of the awards
system is that, rather than being given for a product, the awards will compare and
reward a firm's atmosphere of innovation. Following a meticulous evaluation process,
the Istanbul Chamber of Industry innovation awards will find their recipients on
the evening of the first day of our Congress.
I would especially like to say that it would give us great pleasure this year as
every year to see you, our valued assembly members, at the Congress.
Mr. Chairman, Esteemed members of the assembly, Distinguished guests and Members
of the Press,
In closing I would like to salute you all once again and to wish you a happy Feast
of Sacrifice, both personally and on behalf of the Board of Directors, in the hope
that this holiday will bring our country and the entire Muslim world peace, prosperity
and happiness.
C. Tanıl KÜÇÜK
Istanbul Chamber of Industry
Chairman of the Board of Directors