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

tepav. economic policy research foundation of turkey. Turkey’s Economic Transformation and the Role of Organized Industrial Zones. Istanbul, 19 October 2009. Agenda. Introduction to TEPAV Economic policies and economic performance 1980-now Snapshots from Turkey’s transformation

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

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  1. tepav economic policy research foundation of turkey Turkey’s Economic Transformation and the Role of Organized Industrial Zones Istanbul, 19 October 2009

  2. Economic transformation in 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

  3. 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

  4. Economic transformation in Turkey 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

  5. Economic transformation in Turkey 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

  6. Economic transformation in Turkey 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

  7. Economic transformation in Turkey • Economic Overview

  8. Economic transformation in Turkey 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

  9. Economic transformation in Turkey Some economic indicators Source : TURKSTAT, Central Bank, Treasury

  10. Economic transformation in Turkey A period of economic crises1990-2001 • Macroeconomic and political instability • High public sector debt • High budget deficits • High and chronic inflation • High interest rates • Excessiveboom-bustcycles

  11. Economic transformation in Turkey Some economic indicators Source : TURKSTAT, Central Bank, Treasury

  12. Economic transformation in Turkey 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

  13. Economic transformation in Turkey INDUSTRIAL POLICY VISION Becoming a production and services hub for medium and high tech industries Strategic Targets Raising the share of medium and high tech industries Creating strong and innovative firms Transforming the traditional industries towards a higher value added structure Horizontal Industrial Policy Areas Sector-specific industrial policy areas Business environment Technology and R&D Initiatives to address the binding constraints in every sector and region Foreign economic relations Physical infrastructure Environment Human capital and skills Strategies to strengthen clusters Access to finance Regional development Implementation, Monitoring, Evaluation and Coordination Mechanism

  14. Economic transformation in Turkey Some economic indicators Source : TURKSTAT, Central Bank, Treasury

  15. Economic transformation in Turkey Turkey’s historical growth performance Average annual GDP growth rate for selected periods, 1970-2007, %‏

  16. Economic transformation in Turkey How does the crisis affect the Turkish economy? • Foreign credit channel • Domestic credit channel • Foreign trade channel • Confidence channel

  17. Economic transformation in Turkey Crisis leads to contraction; let’s hope for recovery in 2010 and beyond... GDP growth rate (y-o-y, 1999-2009)

  18. Economic transformation in Turkey • Snapshots for Turkey’s transformation

  19. Economic transformation in Turkey Shrinking agriculture; expanding industry and services Shares of main economic activities in GDP, (%, 1968-2007)

  20. Economic transformation in Turkey Transformation speeded up recently Sectoral employment trends (2002=100, 2002-2007)

  21. Economic transformation in Turkey Shift from traditional to modern:case of manufacturing industry Average annual growth rates of manufacturing sub-sectors (2002-2007)

  22. Economic transformation in Turkey Technological structure of exports Turkey China 2000 2005 2000 2005 High tech 8,9% 6,8% 24,37% 35,04% Medium tech 24,2% 35,4% 44,75% 33,09% Low tech 52,7% 42,4% 20,86% 22,75% Resource based 14,2% 15,5% 10,02% 9,13% Changing structure of exports & changing opportunities and challenges Analysis based on UNIDO Technological Classification of Goods Source: UN COMTRADE

  23. Economic transformation in Turkey Shift from traditional to modern:case of services Number of retail stores and grocery stores (1998-2007)

  24. Economic transformation in Turkey Rapid increase in FDI Foreign direct investment flows, millionUSD

  25. Competitiveness: need for qualified labor-force quality-based focus on research and development marketing innovations Economic transformation in Turkey The new incentive structure for firms • Competitiveness • need for cheap labor • cost-based • very limited research and development • limited marketing Old environment Changing New enviornment • Investment Climate: • High Inflation • Generous incentives, subsidies • Pegged Currency (95-01)‏ • Investment Climate: • Low inflation • Limited incentives • Prudent banking sector • Floating Currency (post 2001)‏

  26. Economic transformation in Turkey The new game: Integration into the global economy Turkey’s import and export volumes, 2001-2007, billion USD Source: Central Bank of Turkey 2006

  27. Economic transformation in Turkey Competitiveness of Turkish Industries: Promising but also challenging… Size of the bubbles indicate export volume in 2006 Emerging Sectors (Av.1.8 %) Star Sectors ( Av. 35 %) Snail Sectors Traditional Sectors

  28. 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 Economic transformation in Turkey Emerging and star sectors Industry Services

  29. Economic transformation in Turkey • Regional dimension of the transformation process • Role of Organized Industrial Zones

  30. Economic transformation in Turkey 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

  31. Economic transformation in Turkey 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

  32. Economic transformation in Turkey 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

  33. Economic transformation in Turkey 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....

  34. Economic transformation in Turkey Performance of OIZs in Turkey Number of days to get infrastructure connected: firms in OIZs and non-OIZs Number of days to get licenses and permits: firms in OIZs and non-OIZs Kaynak: TEPAV – World Bank Investment Climate Assessment Survey 2005

  35. Economic transformation in Turkey 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

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