turkey’s economic transformation and the role of organized industrial zones
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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 - PowerPoint PPT PresentationTRANSCRIPT
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
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
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
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
Economic transformation in Turkey
Economic Overview
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
Economic transformation in Turkey
Some economic indicators
Economic transformation in Turkey
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
Economic transformation in Turkey
Excessive boom-bust cycles
Some economic indicators
Economic transformation in Turkey
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%
Average annual growth rates
Source : TURKSTAT, Central Bank, Treasury
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
Economic transformation in Turkey
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
Economic transformation in Turkey
Some economic indicators
Economic transformation in Turkey
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%
Average annual growth rates
Source : TURKSTAT, Central Bank, Treasury
Turkey’s historical growth performance
Economic transformation in Turkey
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
Economic transformation in Turkey
Crisis leads to contraction; let’s hope for recovery in 2010 and beyond...
Economic transformation in Turkey
GDP growth rate (y-o-y, 1999-2009)
Snapshots for Turkey’s transformation
Economic transformation in Turkey
Shrinking agriculture; expanding industry and services
Economic transformation in Turkey
Shares of main economic activities in GDP, (%, 1968-2007)
Transformation speeded up recently
Economic transformation in Turkey
Sectoral employment trends (2002=100, 2002-2007)
Shift from traditional to modern:case of manufacturing industry
Economic transformation in Turkey
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
Economic transformation in Turkey
Shift from traditional to modern:case of services
Economic transformation in Turkey
Number of retail stores and grocery stores (1998-2007)
Rapid increase in FDI
Economic transformation in Turkey
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
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
Economic transformation in Turkey
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 %)
Economic transformation in Turkey
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
Economic transformation in Turkey
Regional dimension of the transformation process
Role of Organized Industrial Zones
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
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
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
Economic transformation in Turkey
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....
Economic transformation in Turkey
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
Economic transformation in Turkey