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Taking its wares to the world 22 novembre 2012

Posted by Acturca in Economy / Economie, Turkey / Turquie.
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Financial Times (UK) Thursday, November 22, 2012, p. 1
Special Report: Investing in Turkey

By Daniel Dombey

The country has rebalanced its economy towards exports and away from domestic demand, writes Daniel Dombey.

In a factory on the outskirts of Istanbul, a Turkish executive is emphasising his readiness to sell golden washing machines. As yet, there have been no takers – although clients from the Gulf are a definite possibility – but a gold-painted mock-up has pride of place in a showroom crammed with some of the more than 1,000 different models that the factory already makes.

The manufacturer, Arcelik, a subsidiary of Koc, Turkey’s largest company, sells to more than 100 countries across the world and has made a particular mark in the European market. Nazim Kadirzade, a plant manager, boasts that under its Beko brand, the group has, for example, become the leading supplier of washing machines and fridges to Britain.

The company has come a long way from the days, half a century ago, when it sold only one basic model to a largely captive market in Turkey alone. Arcelik’s story, and the issues that the company confronts, mirror many of the changes that have taken place in Turkey’s economic and corporate landscape.

In recent years, the country has been relying on surging domestic demand, fuelled by an explosion in credit, as the motor of economic growth. That has changed now as the economy rebalances. This year, domestic demand will be a drag on growth; exports have taken its place as the propulsive force behind the country’s economic success.

Even so, overall growth, which last year reached 8.5 per cent, has more than halved to about 3 per cent. The shift is largely the consequence of efforts by the Turkish authorities to effect a soft landing and rein in Turkey’s current account deficit by pushing banks to limit lending. « [This is] the first successful example of doing this in Turkish history, » Erdem Basci, governor of the Turkish central bank, said in a recent interview. He added that he was committed to bringing down inflation to foster the domestic capital markets that the country lacks. « Many companies would be better off if they had the opportunity to borrow in domestic currency long-term; that is simply not available at the moment, » he said.

Right now, Turkey is basking in the good reviews it has garnered for righting its course from the boom years of unsustainable growth. Fitch, the rating agency, this month awarded the country investment-grade status for making the shift. Turkish officials do not disguise their hope that another rating agency will follow suit, so paving the way for large-scale institutional investment.

Yet, the true extent of rebalancing and the appropriate level of economic growth remain fierce topics of debate. Political risk is a factor at a time when Turkey has been rocked by the war next door in Syria and when Recep Tayyip Erdogan – the man who, as prime minister, has dominated the country’s political life for almost a decade – is preparing to move up to become executive president, a position that does not yet exist.

Even the question of where Arcelik sells its washing machines reverberates at a higher level. Some countries are constrained by their geography. By contrast, Turkey’s place on the map, on the edge of southeast Europe, bordering the Middle East, opens up a world of possibilities.

In terms of trade, the country has a new focus on the growing markets to its south and east, a push that diminishes its dependence on the often stagnant economies of the eurozone and bolsters its ties with neighbours on which it long turned its back.

And yet the sheer volume of Arcelik’s trade with the EU attests to the unique advantage that Turkey enjoys as a neighbour of the bloc, with which it has a 17-year-old customs union.

Commerce with the countries of the Middle East, while booming, may be less stable than first meets the eye – not least because Turkey has significant political problems with two of its biggest trading partners, Iran and Iraq. The fighting in Syria has also reduced access to other markets in the Gulf.

p. 2

« It is important for Turkey to diversify the markets it is trading with, but I still can’t see any other market by itself replacing Europe, » says Umit Boyner, the head of Tusiad, Turkey’s biggest business confederation. Adding that the country only accounts for less than 3 per cent of total EU imports, she argues there is still space both to increase Turkey’s market share and achieve higher value-added.

« People felt the Middle East region was a low hanging fruit; we are seeing that that is not the case, » she adds. « In terms of political stability we see that they are not such easy markets. »

Meanwhile, Ms Boyner urges Turkey to keep up with economic reforms and infrastructure investment, to boost its capacity to grow.

In the short term, the news is likely to be good. It is not just investment-grade status and the demographics of the country’s young population that draw portfolio funds to Turkey; like other emerging markets, the country attracts capital let loose in the US and elsewhere by continued quantitative easing.

Public debt of about 38 per cent of GDP shines in comparison with European levels of 80 per cent or more. Nor do traditional exports such as white goods, televisions and cars represent all of Turkey’s international economic dynamism – Turkish companies now take second place after their Chinese equivalents in the international construction sector.

But the longer-term challenges remain. One underlying dilemma is that, after a decade in which Turkish per capita income tripled in dollar terms, the country is facing the same scenario as other upper-middle-income states: a lower, though still substantial, rate of growth.

While growth of 4-5 per cent is attractive to multinationals and investors of many stripes, for politicians it may not be enough.

Mr Erdogan, who has built his rule on the mutually reinforcing accomplishments of political stability and economic growth, has set out the much more ambitious goals of making Turkey into one of the 10 biggest economies in the world by 2023 and of bringing per capita income up to $25,000 by that point.

A recent Organisation for Economic Co-operation and Development paper argued that the country’s growth over the past decade had two causes: productivity growth in the exportoriented west – the greater Istanbul region around the Sea of Marmara accounts for 45 per cent of GDP – and employment growth in the Anatolian hinterland.

For Turkey to grow more in the coming decades – by closer to 6 per cent a year rather than 4 per cent – the paper argues that the country should loosen the labour restrictions that inhibit em-ployment in the formal sector and push ahead with educational reforms, including vocational training. It remarks that « Turkey still has the human capital characteristic of a developing country. »

Kemal Dervis, the architect of many of the economic reforms that pulled Turkey away from crisis a decade ago, highlights the country’s low savings rate – recently at about 14 per cent of GDP or less – as a constraint on its ability to achieve the growth goals that it wants.

Pointing out that the lower a country’s savings rate, the higher its current account deficit, the former minister of economic affairs adds that Turkey’s deficit remains largely financed by relatively fickle portfolio investment, and that it has attracted markedly less foreign direct investment over the past two decades than countries such as Mexico and Brazil.

« There are no miracles in economics, » he says. « If the savings rate does not go up to at least 17, 18, 19 per cent, the Turkish growth rate will be mediocre, not spectacular. »

Download full report (Format Pdf)

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