turkey’s economic transformation and the role of organized industrial zones istanbul, 19 october...

Turkey’s Economic Transformation and the Role of Organized Industrial Zones

Istanbul, 19 October 2009

tepav economic policy research foundation of turkey

Agenda Introduction to TEPAV Economic policies and economic performance

1980-now Snapshots from Turkey’s transformation

Structural transformation Emerging and star sectors

Regional transformation? Emerging regions Role of Organized Industrial Zones

Some food for thought

Economic transformation in Turkey

Economic Policy Research Foundation of Turkey (TEPAV) Established in 2004, with the support

of the Union of Chambers and Commodity Exchanges of Turkey (TOBB)

Independent, non-partisan think tank in Ankara

Focuses on economic policy, competitiveness, governance and stability.

www.tepav.org.tr


TEPAV’s interdisciplinary approach Three major disciplinies:

Economic policy Governance Foreign policy

Cross-cutting themes: Competitiveness Regional integration EU accession process

Modus operandi: Think-tank activities Projects

Governance Studies

Economic Studies

Foreign Policy Studies


A sample of TEPAV’s activities Developing policy tools for dialogue with the

government Investment Climate Assessment (with the World Bank and

Treasury) Industrial Policy Document (with State Planning Organization) Secretariat of the Competitiveness Council of Turkey Industrial Policy Design Project, 2008 (for M of Industry & Trade) Competition Environment Assessment (with the World Bank and

FIAS) Higher Education Sector Project (with the World Bank) Regulatory Impact Assessment Projects (EU-funded)

Governance of economic development Decentralization studies, regional development framework

(with The Ministry of Internal Affairs and local authorities) Fiscal monitoring and transparency


TEPAV’s regional integration activities Permanent dialogue mechanisms

Business association networks Ankara Forum (Palestinian, Israeli and Turkish) Istanbul forum (Afghan, Pakistani and Turkish)

Private sector development projects Tarqumia and Erez Industrial Estates in Palestine Joint industrial area in Syrian-Turkish border Trade facilitation in Central Asia – Silk Road Tourism cluster development (Armenia, Azerbaijan, Turkey)

Capacity building projects Palestinian chambers, SMEs, industrial estates, customs Pakistani Competition Authority Ministries of Finance project-IMF Institute

Various EU-related projects and activities


Economic Overview


Economic liberalization and export led growth strategy1980-1990 Turkey’s economic policy framework and

reform agenda were based on economic liberalization during 1980s 24 January 1980 Measures

• Reforms to ensure proper functioning of market mechanism

• Trade liberalization • Fiscal liberalization• Abolishing all sorts of subsidies except export subsidies• Decreasing state’s share in total economic activity

Financial liberalization in 1989


Some economic indicators


1980 1990 2001 2006GDP per capita (PPP) 2,981 5,933Exports (million USD) 2,910 12,959Imports (million USD) 7,513 22,407Inflation 45% 60%FDI (million USD) 18 684Domestic debt / GDP 45% 14%

1980-1990 1990-2001 2001-2006

GDP (in reel terms, YTL) 5.21%

GDP per capita (PPP) 7.12%

Exports (million USD) 16.11%

Imports 11.55%

Average annual growth rates

Source : TURKSTAT, Central Bank, Treasury

A period of economic crises1990-2001 Macroeconomic and political instability High public sector debt High budget deficits High and chronic inflation High interest rates


Excessive boom-bust cycles



1980 1990 2001 2006GDP per capita (PPP) 2,981 5,933 8,021Exports (million USD) 2,910 12,959 34,373Imports 7,513 22,407 38,103Inflation 45% 60% 69%FDI (million USD) 18 684 3,352Domestic debt / GDP 45% 14% 69%

1980-1990 1990-2001 2001-2006

GDP (in reel terms, YTL) 5.21% 2.52%

GDP per capita (PPP) 7.12% 2.78%

Exports (million USD) 16.11% 9.27%

Imports 11.55% 4.94%



A new era after 2001 crisis A new economic program:

Strong macroeconomic policy framework Structural reforms Independent central bank Banking sector reform Floating exchange rate regime A better investment climate

Successful implementation of the economic program and the EU accession process triggered a deep structural transformation


INDUSTRIAL POLICY VISIONBecoming a production and services hub for medium

and high tech industries

Strategic Targets

Creating strong and innovative

firms

Raising the share of medium and

high tech industries

Transforming the traditional

industries towards a higher value

added structure

Horizontal Industrial Policy Areas

Business environment

Foreign economic relations

Human capital and skills

Access to finance

Technology and R&D

Physical infrastructure

Environment

Regional development

Sector-specific industrial policy areas

Initiatives to address the binding constraints in every

sector and region

Strategies to strengthen clusters

Implementation, Monitoring, Evaluation and Coordination Mechanism




1980 1990 2001 2006GDP per capita (PPP) 2,981 5,933 8,021 12,067Exports (million USD) 2,910 12,959 34,373 91,912Imports 7,513 22,407 38,103 132,088Inflation 45% 60% 69% 9.70%FDI (million USD) 18 684 3,352 20,168Domestic debt / GDP 45% 14% 69% 43.70%

1980-1990 1990-2001 2001-2006

GDP (in reel terms, YTL) 5.21% 2.52% 7.20%

GDP per capita (PPP) 7.12% 2.78% 8.51%

Exports (million USD) 16.11% 9.27% 21.74%

Imports 11.55% 4.94% 28.23%



Turkey’s historical growth performance


Average annual GDP growth rate for selected periods, 1970-2007, %

How does the crisis affect the Turkish economy? Foreign credit channel

Domestic credit channel

Foreign trade channel

Confidence channel


Crisis leads to contraction; let’s hope for recovery in 2010 and beyond...


GDP growth rate (y-o-y, 1999-2009)

Snapshots for Turkey’s transformation


Shrinking agriculture; expanding industry and services


Shares of main economic activities in GDP, (%, 1968-2007)

Transformation speeded up recently


Sectoral employment trends (2002=100, 2002-2007)

Shift from traditional to modern:case of manufacturing industry


Average annual growth rates of manufacturing sub-sectors (2002-2007)

Changing structure of exports & changing opportunities and challenges

Analysis based on UNIDO Technological Classification of Goods

Source: UN COMTRADE

Technological structure of exports

33,09%44,75%35,4%24,2%Medium tech

9,13%10,02%15,5%14,2%Resource based

22,75%20,86%42,4%52,7%Low tech

35,04%24,37%6,8%8,9%High tech

2005200020052000

ChinaTurkey


Shift from traditional to modern:case of services


Number of retail stores and grocery stores (1998-2007)

Rapid increase in FDI


Foreign direct investment flows, million USD

The new incentive structure for firms

Competitiveness need for cheap labor cost-based very limited research

and development limited marketing

Competitiveness: need for qualified labor-

force quality-based focus on research and

development marketing innovations

Investment Climate: High Inflation Generous incentives,

subsidies Pegged Currency (95-01)

Old environment

Investment Climate: Low inflation Limited incentives Prudent banking sector Floating Currency (post

2001)

Changing New enviornment


The new game: Integration into the global economy

Turkey’s import and export volumes, 2001-2007, billion USD

Source: Central Bank of Turkey 2006


Competitiveness of Turkish Industries: Promising but also challenging…

Road Vehıcles

Clothıng And Accessorıes

Iron And Steel

Textıle Yarn,Fabrıc,Etc.

White Goods

Vegetables And Fruıt

Petroleum,Petrol.Product

Metals Manufactures,Nes

Mısc Manufctrd Goods Nes

Non-Metal.Mıneral Manfct

Telecomm.Sound Equıp Etc

Othr.Transport Equıpment

Power Generatng.Machınes

0%

10%

20%

30%

40%

50%

60%

70%

80%

0% 1% 2% 3% 4% 5% 6%

World market share in 2006

20

00

-20

06 a

nn

ua

l g

row

th r

ate

of

ex

po

rts

(C

AG

R)

Star SectorsEmerging Sectors

Snail Sectors Traditional Sectors

Size of the bubbles indicate export volume in 2006

(Av. 1.8 %)

( Av. 35 %)


Emerging and star sectors

• Construction – real estate • Energy• Telecommunication• Logistics• Media • Health care• Education – training• Retail• High-tech and e-

commerce

• Automotive• White goods• Electric/electronics• High quality apparels

/textile (fashionwear)• Pharmaceuticals• Organic agribusiness• Construction materials –

cement

Services Industry


Regional dimension of the transformation process

Role of Organized Industrial Zones


Post 1980s regional transformation as a result of economic orientation Before 1980s:

Import-substitution industrialization Major industrial centers: İstanbul, İzmir,

Adana, Bursa• Peripepheries: Kocaeli, Manisa, Mersin, Eskişehir

After 1980s: Export-oriented industrialziation New emerging industrial cities (Anatolian

tigers): Denizli, Gaziantep, Kayseri, Konya, Ankara


Implications of regional transformation Industrial activities spreading to a variety of

regions Higher overall growth rates because of unsaturated

markets (unleashing the untapped potential) Fair income distribution across cities

Emergence of a middle class Desire for political stability with strong economic roots

Creation of new centers puts less pressure on big cities (old centers of economic activity)

Key challenge: management of the process Decentralization process; capacity of the state

aparatus to act local


How Turkey could trigger this process? Political will since the 1980s.. Macroeconomic conditions?

Roller-coaster macro environment But generous incentives for producers...

European Union accession framework Raising the capacity to act local; focus on

regional disparities Spread of Organized Industrial Zones

(OIZs) Necessary but not sufficient condition



Turkey’s OIZ experience Main motive:

Improving the investment climate everywhere is not possible but we can designate certain areas as more equal

Started as a urban development tool in the 1960s, with a loan from the World Bank

258 Organized Industrial Zones, 100 fully operational Rapid spread in the 1990s...

Private-public partnerships were facilitated through the local chambers

Evolved over time to obtain regulatory oversight The Law on OIZs was enacted in 2000, after 40

years of learning Changes came in 2009; a continous learning process....


Performance of OIZs in Turkey Number of days to get infrastructure connected: firms in OIZs and non-OIZs

Kaynak: TEPAV – World Bank Investment Climate Assessment Survey 2005

Number of days to get licenses and permits: firms in OIZs and non-OIZs

Some food for thought OIZs are highly instrumental regional actors

One-stop shops Superrior infrastructure Contribution to cluster enhancement (technoparks,

vocational training schools, logistics centers) But do not forget:

Building OIZs alone do not lead to industrial development

They should be part of an overall industrial strategy • Human capital and skills, off-site infrastructure/logistics,

technology, access to finance


turkey’s economic transformation and the role of organized industrial zones istanbul, 19 october...

Documents

economic liberalization

economic performance

tepav economic policies

policy tools

erez industrial estates

regional development

sample of tepavs activities

turkish istanbul forum