Declining Market Shares In Traditional Sectors
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Transcript of Declining Market Shares In Traditional Sectors
Structural Transformation of the Turkish Industry & the Role of Regional Integration
Esen ÇağlarAnkara, 28 June 2006
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 2
Agenda The on-going structural changes in the Turkish industry Emerging risks and sustainability of the growth process
current account deficit unemployment creative destruction
Towards a brand new agenda adjustment management risk management raising competitiveness
Building capacity & the role of TEPAV – Economic Policy Research Institute
Some thoughts on Regional Integration in the Middle East a concrete example: TOBB-BIS initative
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 3
New climate & contrasts What’s new? What has changed?
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 4
Where do we come from?The Turkish economy in the 1990s Despite huge potential, Turkish economy
significantly underperformed in the 1990s: boom and bust cycles in growth high and chronic inflation high public sector deficit fiscal indiscipline high levels of uncertainty (political and macroeconomic) very high interest rates
three economic crises, internal conflict, 1999 earthquake…
the 2001 economic crisis = GDP shrank by 10%
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 5
“Every crisis brings both opportunities and risks”A new process after 2001? Growth without
inflation Interests rates are
falling Productivity is rising No net job creation
-60%
-40%
-20%
0%
20%
40%
60%
80%
100%
1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
inflation
nominal interest
real interest rate
0.00
20.00
40.00
60.00
80.00
100.00
120.00
140.00
Oca.99 Oca.00 Oca.01 Oca.02 Oca.03 Oca.04 Oca.05
Industrial Production
Interest Rate
Inflation
Non-inflationary growth (1999-2005)
60.0
70.0
80.0
90.0
100.0
110.0
120.0
130.0
140.0
150.0
160.0
1996 1997 1998 1999 2000 2001 2002 2003 2004
EmploymentProductionLabor Productivity
economic program
Productivity and Employment TrendsInflation and Interest Rates
Source: State Statistics Institutee
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 6
Features of the economic program after the 2001 crisis Monetary Discipline (coupled with Central Bank independence
and floating exchange rate regime) Fiscal Discipline Public Administration Reform Banking Sector Reform-Corporate Restructuring
Results and Outcomes: Impressive growth without inflation Rising Productivity as the driver of growth Unemployment does not decrease Move from implicit to formal inflation targeting Currency appreciates Current account continues to deteriorate
Of course, presence of some external factors help speed up the process (growing competition from East Asia, global liquidity etc.)
Reforms lead to a new incentive structure
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 7
And the new incentive structure changes the rules of the game at the corporate sector
Competitiveness need for cheap labor cost and price 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)
New enviornment
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 8
Reflections on the industry
The story on competitiveness Integration into the EU economy
New trends, new risks
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 9
The new game: Integration into the global economy Growth rate of trade volume
1989-2001: %8.5 2002-2005: %29
Increase in import of intermediate inputs 1989-2001: %8 2002-2005: %33
0
20.000
40.000
60.000
80.000
100.000
1989 1991 1993 1995 1997 1999 2001 2003 2005
Billion $
Export Import
Import and Export of Intermediate Inputs, 1989-2005, billion $
Source: Central Bank of Turkey 2005
Turkey in global economy increasing trade of goods
and services increasing foreign direct
investment change in the sectoral
composition in exports and in manufacturing value added
Customs union 2001 crisis
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 10
Apparel
Automotiv e
Textiles
Iron&SteelFruit&Vegies
TVs and Telecom
Electrical Machinery
Non mettalic minerals
Metals
transportation equipment
General machinery
Petroleum Products
Güç kaynakları (makinalar)
Plastic Materials
0%
10%
20%
30%
40%
50%
60%
0% 1% 2% 3% 4% 5% 6%
Competitiveness of Turkish Industries: Promising but also challenging…
Size of the bubbles indicate export volume in 2004
Star SectorsEmerging Sectors
Traditional SectorsSnail Sectors
World market share %
200
0-20
04 a
nn
ual
gro
wth
rat
e o
f ex
po
rts
(CA
GR
)
Source: United Nations COMTRADE
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 11
… challenging because China does not only mean cheap labor
Office Equipment
TVs and Telecom
Aparell
Electrial Machinery
TextilesMetal productsi
Industrial Machinery
AutomotiveIron and Steel
Furniture
Scientific Equipment
Metal-dışı ürünlerCoal products
0%
10%
20%
30%
40%
50%
60%
0% 5% 10% 15% 20% 25% 30% 35%
Size of the bubbles indicate export volume in 2004
Star SectorsEmerging Sectors
Traditional SectorsSnail Sectors
World market share %
200
0-20
04 a
nn
ual
gro
wth
rat
e o
f ex
po
rts
(CA
GR
)
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 12
The EU is Turkey’s largest trade partner
14
5
7
6
1111
17
8
7
11
8
5
13
8 311
26
914
USA
AfricaItaly
Other EURussia
Other Europe
France
Asia Germany
ImportsTotal USD 116 billion, 2005, (42% EU
share)
ExportsTotal USD 73 billion, 2005, (52% EU
share
USA
Middle East
Africa
Other
United Kingdom
Other EU
Other Europe
Russia
Germany
Middle East
Spain
Spain
Source: Undersecretariat of Foreign Trade
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 13
Fast integration into the EU: Could it be even faster? The share of the EU’s most dynamic 20 goods in Turkey’s total exports
is rising. (vertical axis) This means trends in Europe increasingly change the production structure in Turkey.
Turkey’s markets share in these markets also rise, but slower than those of Czech Republic and Poland. (horizontal axis)
Czech Republic 2004 (5.0)
Poland 1995 (2.3)
Romania 1995 (0.7)Czech Republic 1995
(1.4)
Turkey 1995 (2.1)
Poland 2004 (7.7)
Romania 2004 (2.2)Turkey 2004 (6.2)
5
10
15
20
25
30
35
0 0,5 1 1,5 2 2,5 3 3,5 4
Market share in EU's most dynamic 20 goods (%)
Sh
are
of
EU
's m
ost
dyn
am
ic 2
0 g
oo
ds
in m
an
ufa
ctu
rin
g e
xp
ort
s (
%)
Bubble site indicates countries' export value for the EU's 20 most dynamic imports (billion USD)
Market share in EU’s most dynamic 20 exports and the level of integration: 1995 vs. 2004
Source: United Nations COMTRADE
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 14
Emerging Risks & Sustainability of the Growth Process
Current account deficit and its structural components
Employment Trends• Demographic window of opportunity (or threat?)
• Structural transformation across sectors: Decline in agriculture
Rising creative destruction • Structural transformation within sectors: Move from traditional toward
modern in retail industry
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 15
Current Account: at scary levels?
-10,0
-8,0
-6,0
-4,0
-2,0
0,0
2,0
4,0
1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Cu
rren
t A
cco
un
t D
efic
it /
GD
P (
%)
-25
-20
-15
-10
-5
-
5
Cu
rren
t A
cco
un
t D
efic
it (
bill
ion
US
D)
Current Account Deficit / GDP
Current Account Deficit (billion USD)
Source: Centrai Bank of Turkey
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 16
Fast growing sectors import more: Coincidence or curse? It’s a fact and a serious risk generating factor The current account deficit seems to have a structural component
and an external trigger (i.e. China), which are closely linked More “modern” sectors tend to be more dependent on intermediate
good imports. They are also the engine of export growth. Currency appreciation plays a role Cheap alternatives from East Asia Lack of strong local clusters in modern sectors (role of industrial policy)
Bottom-line: Production process are getting more global, but accounts remain national; and hence vulnerabilities.
Average Growth (2002-2005)
Import Dependency
office, accounting and computing machinery 37% 0.268 radio, television and communication equipment 27% 0.234 chemicals and chemicals products 11% 0.228 medical, precision and optical instruments 15% 0.226 Leather 1% 0.151 apparels -1% 0.132 Textiles 0% 0.13 Ttobacco products 0% 0.093 Source: State Statistics Institutee
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 17
Declining market shares in traditional sectors
Market
Share 1995
Market
Share 2002
Average Growth in
Market Share (1995-
2002)Market
Share 2004
Average Growth in Market
Share (2002-2004)
Turkey %4,6 %6,5 %5,1 %6,9 %3,6
China %2,9 %5,3 %9,4 %6,5 %10,9
Textile and Apparel Exports to EU-15 Countries: Turkey and China
The traditonal sectors that tend to grow slower in the recent years also face rising competition from China
The textile industry for instance, which makes up %12 of the manufacturing value added is going through hard times
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 18
Recent employment trends: sometimes good is not enough
Sectoral Employment and Demographic Trends, 1999-2005, 1999 indexed to 100
Source: TÜİK and WDI
Agriculture employment
Service Employment
Manufacturing employment
Total Employment
Working Age Population
Industrial Production Index
70
80
90
100
110
120
130
140
1999 2000 2001 2002 2003 2004 2005
Growth in recent years does generate jobs. But it’s not enough, unemployment persists. Declining share of agriculture Rising working age population Plus: strong competitive pressures, high tax wedges, high productivity growth
Both trends will continue =
risk generating factors
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 19
Modernization inevitably leads to decline in agriculture EU accession process will surely
accelerate transformation (plus globalization and trade liberalization)
Turkey’s total population = 70 million Agriculture (33 %) = 23 million Services (43 %) = 30 million Industry (24 %) = 17 million
Agriculture33%
Industry24%
Services43%
Sectoral Distribution of Employment in Turkey, 2004
Economic Structure before and after EU accession in Greece, Portugal and Spain
Before Accession After Accession
1981 1986 1986 2001 2001 2001
Greece Portugal Spain Greece Portugal Spain
Agriculture 31 22 16 16 12 6
Industry 29 34 32 23 35 31
Services 40 44 52 63 53 61
Source: World Development Indicators
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 20
Is Creative Destruction in place?Closer look at the companies closing down
Source: State Statistics Institutee
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000# of companies closed down
1995-2005 Number of Companies Closed Down
2001 Crisis
Old trendline
New trendline
Floating exchange rate as a sweeping mechanism? As a mechanism to break the inertia As an igniting mechanism for creative destruction?
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 21
0
5000
10000
15000
20000
25000
30000
35000
40000 # of companiesopened
# of companiesclosed
1995-2005 Number of Companies Started and Closed Down
Is Creative Destruction in place (2) ?
Source: State Statistics Institutee
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 22
Towards a brand new agenda
Setting the priorities, implementing strategies Managing the EU process
Building capacity
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 23
Towards a new agenda Picture is not bad at all
recent growth performance
macroeconomic stability a new and healthy
incentive structure global integration with
also growing regional integration
However, risks are serious and require
competent management
Current account deficit Rising unemployment
Creative destruction .. + external factors: (i.e.
foreign affairs)
There is an urgent need for a new agenda Setting the priorities, strategic action plans, effective delivery Managing the EU process as a mechanism to mitigate risks Building the required capacity for the new environment
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 24
Setting the priorities We feel there should be three key areas:
Adjustment management Risk management Raising Competitiveness
Government needs to have the capacity to set the priorities design strategies implement effectively
If managed wisely, EU process will be highly useful
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 25
Towards a new industrial strategy for Turkey: SPO-TEPAV document Strategic integration into the global economy
public-private dialogue mechanisms for right investment decisions
reform of the incentive system foreign direct investment strategy
Removing the barriers to investment, doing business, and productivity entry and exit barriers informal economy and scale problems services sector restructuring and input costs Fostering R&D and innovation improving the quality of the workforce quality standards
Cluster Development Programs
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 26
Building capacity for the new agenda Can the government undertake all of this all
alone? Capacity problems both at the decision making and
service delivery levels The need for public-private dialogue mechanisms Continuous feeding of the contents of the agendas
Removing the binding constraints to effective decision making and service delivery TEPAV – Economic Policy Research Institute TOBB – Economics and Technology University
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 27
TEPAV – Economic Policy Research Institute Developing policy tools for dialogues with the
government Industrial Policy Document (with State Planning Organization) Investment Climate Assessment (with the World Bank and
Treasury) Competition Environment Assessment (with the World Bank,
FIAS and Competition Authority) Higher Education Sector Project (with the World Bank)
Governance of economic development Decentralization studies, regional development framework
(with The Ministry of Internal Affairs and local authorities) Fiscal monitoring and transparency
Regional Integration Industry for Peace Initiative (with TOBB) Black Sea and Central Asia Project (with TOBB)
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 28
TOBB-BIS Industry for Peace Initiative Job creation will be highly critical for stability and
peace Solution lies in industrial development
Manufacturing base as well as the capacity to promote such activities is very limited First-best option: Building overall capacity, build
industrial infrastructure, improve investment climate (takes a long time but the need is urgent…)
Second-best option: Mobilizing Industrial Parks as instruments for job creation and economic growth (can be done in short term if there is a strong dialogue mechanism)
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 29
Why Industrial Parks for Growth? Clustering is useful Governments cannot deliver adequate
services everywhere equally and efficiently
Second-Best Solution: Certain areas can be designated as more equal (i.e. superior infrastructure, faster permits & licenses)
Investment Climate at the local level can be improved via PPPs
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 30
Turkey’s Experience in a Nutshell 200+ Organized Industrial Zones, 70 fully
operational Started as a urban development tool in
the 1960s, with a loan from the World Bank
Private-public partnerships were facilitated through the local chambers
Evolved over time to obtain regulatory oversight
The Law on OIZs was enacted in 2000
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 31
TOBB’s Estate Project in Gaza
We started with the most difficult area Idea came at one of the Ankara Forum meetings
Forum first started as a network of businessmen for cooperation
A concrete project was needed to monitor and test the words of politicians
An opportunity to leverage the know-how of Turkish Chambers in: public-private dialogue Industrial park management Doing business under extraordinary circumstances
A microcosm of all political and economic problems
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 32
Palestinian Industrial Free Zone
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 33
A Unique & Exemplary Project It is not an ordinary business project.
requires effective coordination among the two not-so-friendly sides – PA and Israel
private-public dialogue is key throughout the entire process
But, it is still a business project. If we want it to be sustainable, it must generate
profits. Under appropriate security conditions. If there’s fresh air for the investors, business
prospects don’t seem too bad (especially, given the resources ready to flow into the region and generous FTAs.)
Transformation of the Turkish Industry: The New Agenda for Adjustment, Risk Management, and Competitiveness
Slide 34
Thank you
www.tepav.org.tr