Integration with the Global Economy: The Turkish Case. Erol Taymaz and Kamil Yilmaz

Transcription

1 Integration with the Global Economy: The Turkish Case Erol Taymaz and Kamil Yilmaz Middle East Technical University - Koc University Commission on Growth and Development Workshop on Country Case Studies April 12-14, 2007

2 Turkey s Integration with the Global Economy Policy background Macroeconomic background Performance of the automotive and consumer electronics industries Performance of the automotive and consumer electronics firms Macroeconomic policies and growth performance Political Economy of Reform

3 Policy background Annual growth rate of GDP per capital, (5-year moving averages) 10 5 Annual growth rate (%)

4 Policy background : Export orientation and elimination of quantitative restrictions : Foreign trade liberalization 1989: Capital market liberalization : Changes in FDI legislation 1996: Customs Union with the EU 1999: EU candidate country : Military rule 1987: Elections and civilian government

5 Macroeconomic background Inflation rate, Inflation rate (%)

6 Dramatic improvement in net public savings

7 Sharp decline in interest rates 80 Secondary Market Real and Nominal Interest Rates (%) Re al* Nom inal Jan-02 Aug-02 M ar-03 Oct-03 M ay-04 Dec-04 Jul-05 Feb-06 Sep-06 *(1 + nominal secondary market rate)/(1+12-month ahead inflationary expectation)

8 Macroeconomic background Reel effective exchange rate, Index value (1995=100)

9 An impressive growth rebound Annual growth rate of real gross domestic product,

10 External Trade Growth rates of exports and imports ( ), manufactured products Annual growth rates (%) Exports Imports

11 How did this happen? Reforms and what we ve learnt the hard way -- started paying off (e.g., banking reforms, adopting a flexible exchange rate, sticking to fiscal adjustment) A very benign international environment for emerging markets (e.g., easy monetary policy in the US, the China effect, strong growth in the world economy overall, low interest rates in advanced countries, etc.) A very pragmatic government that, despite some hesitation at the beginnings, has gotten on the right path, namely sticking to EU membership goal and the IMF program

12 Two side effects emerged, though... High current account deficit and ext. debt ratios (adjusting, but still a key vulnerability)

13 High rate of unemployment (good job growth since the crisis, but not enough )

14 Now we have two major challenges... Turkey is still a vulnerable economy: Relatively high debt ratios public and external combined with a large current account deficit. But, we need to grow 6%-7% p.a. (against a population growth of around 1.5%) to catch up with the EU. How do we do this while reducing these vulnerabilities? And, inflation seems stuck at high single digits How do we get to price stability, i.e. 2%-3% inflation?

15 One possible answer: Combine openness, financial soundness (i.e. what we have), with supply-side reforms, or further, major improvements in the quality of institutions (i.e. what we have yet to have) But, given this year s politics, this is basically a job for the next government...

16 Growth Industries 1980s: Labor intensive, low tech Textiles and Ready-made garments Iron & Steel Late 1990s and 2000s ICT- Consumer Electronics Automotive

17 ICT industries Production Components Consumer Electronics 1,297 1,365 13,850 1,922 2,411 4,294 4,726 Telecom. Equipment ,250 Other Prof. Instruments Defense Electronics Computers Total 3,008 3,180 3,034 3,784 4,378 7,005 8,151

18 ICT industries Exports Components Consumer Electronics ,571 1,938 2,914 3,084 Telecom. Equipment Other Prof. Instruments Defense Electronics Computers Total 1,446 1,542 1,697 2,412 2,833 4,029 4,445

19 ICT industries Imports Components 958 1,146 1,038 1,417 1,735 2,310 1,990 Consumer Electronics ,057 Telecom. Equipment 2,002 2, ,097 1,911 2,330 Other Prof. Instruments ,261 2,183 3,172 Computers 1,173 1, ,336 1,545 2,286 Total 5,451 6,577 4,119 4,439 6,045 8,940 10,835

20 Consumer electronics Imports (1000 USD) Exports (1000 USD) Colour TV ,540 1,879 2,789 2,949 Audio Equipment Video Players Cash Registers Electronic Calculators Audio Video Casettes Radio and TV antenna trans Electronic scales and equ Total ,057 1,571 1,938 2,913 3,084

21 Industrial Production Index 450 Manufacturing Cons. electronics Automotive

22 Exports Automotive (%) Cons. elect. (%) Manufacturing exports (bil.usd) % share in manufacturing exports Billion USD

23 Automotive: Production, Dom. sales, Exports 1200 Total production Domestic sales

24 Labor Productivity (per worker) 300 Manuf acturing Cons. electronics Automotive

25 Total factor productivity ( imputed) 2.8 Automotive Cons. Electronics Series2 Series4 2.6 total factor productivity (1989=1)

26 Performance, firms Employees X rate M rate F/D Automotive Anadolu Isuzu F Ford Otosan F Karsan Otomotiv D Otokar D Tofaş Oto Fab F Parts and components Bosch Fren Sistemleri F Ditaş Doğan D Ege Endüstri D F-M İzmit Piston D Mutlu Akü D Parsan D Consumer electronics Arçelik D Beko elektronik D Vestel D

27 Performance, firms Net sales, million YTL (1993 prices) Net sales Isuzu Ford Otosan Karsan Otokar Tofaş Arçelik Beko Vestel Bosch Ditaş Ege Endüstri F-M Mutlu Parsan

28 Performance, firms Export rate, Export rate Isuzu Ford Otosan Karsan Otokar Tofaş Arçelik Beko Vestel Bosch Ditaş Ege Endüstri F-M Mutlu Parsan

29 Performance, firms Gross profit margin, (gross operating profit/net sales) Percent Isuzu Ford Otosan Karsan Otokar Tofaş Arçelik Beko Vestel Bosch Ditaş Ege Endüstri F-M Mutlu Parsan Average

30 Performance, firms Net profit margin, (net profit after taxes/net sales) Net profit margin Isuzu Ford Otosan Karsan Otokar Tofaş Arçelik Beko Vestel Bosch Ditaş Ege Endüstri F-M Mutlu Parsan Average

31 Macroeconomic policies and growth Automotive Well integrated within the international commodity chains Multinational firms, both in the final product and parts & components sectors Strong industrial base/strong supplier base Strong supplier-user links Fast adaptation to the EU rules and regulations Automotive Manufacturers Association Commitment to design and high quality (especially in the commerical vehicles)

32 Macroeconomic policies and growth Consumer electronics Dominated by a few large domestic firms Right time, right place, right product (conventional televisions) Reliance on on-the-shelf components Weak domestic supplier industries

33 Macroeconomic policies and growth The role of macroeconomic policies is questionable In the 1990s macroeconomic environment is inhibiting investment and growth Despite this, these two sectors grew rapidly through exports (to EU) Already existing private industrial base Customs Union with the EU in 1996 EU s December 2004 decision to start membership negotiations with Turkey

34 Political Economy of Reform Once the political incentives and constraints are correctly taken into account, policies that appear to be mistakes are perfectly rational responses to distorted and imperfect political incentives. The political economy approach attempts to explain why apparent mistakes repeatedly occur. This approach underscores that one cannot correct the "mistakes" without addressing the institutional features which make these so-called mistakes likely to occur. Alberto Alesina.

35 Elites versus Civil Society Strong state founded and later captured by military/civil bureaucratic elites Political Elites - As democracy takes a hold shares power and later dominates 1982 Constitution, Political party and Election Laws made it even more difficult for the civil society to control the political elites Political party and election laws give too much power to party headquarters and the leadership

36 Political Economy of Reform Each political party is captured by a group of political elites who are involved in Patronage, Populism, Rent seeking Once captured never leave the party leadership to opposition The failure of Turkish political parties to replace unsuccessful cadres with potentially successful alternatives No room for within-party opposition A plethore of political parties established In each election another party is given the chance

37 General Elections since RP 7.2% MHP 2.9% DYP 19.1% DSP 8.5% SHP 24.7% Bağ. 0.4% Diğer 0.8% ANAP 36.3% 1991 RP 16.9% MHP 0.0% DYP 27.0% ANAP 24.0% DSP 10.8% SHP 20.8% Diğer 0.4% Bağ. 0.1% 1995 RP 21.4% MHP 8.2% DYP 19.1% ANAP 19.7% DSP 14.6% CHP 10.7% Bağ. 0.5% Diğer 1.6% HADEP 4.2% 1999 FP 15.4% MHP 18.0% DYP 12.0% ANAP 13.2% DSP 22.2% CHP 8.7% HADEP 4.7% Diğer 4.9% Bağ. 0.9% 2002 AKP 34.3% Genc 7.2% MHP 8.3% DYP 9.6% CHP 19.4% DEHAP 6.2% Diğer 5.1% Bağ. 1.1% SP 2.5% DSP 1.2% ANAP 5.1%

38 Institutional Reform Without political reforms that will overhaul the top-tobottom power structure in political parties, the political system will not function properly to create an environment suitable for sustain economic growth. Political party and election laws must be changed immediately so that members and delegates of the party can replace proven unsuccesful leaders by promising candidates. Political parties will become the pillars of the democracy and last long rather than disappear in a decade or so. If not, the current and future governments will continue to resort to populist policies and the use of state funds in order to be reelected in This in turn means that we are back to square one...

39 Thanks...