TBY talks to Nihat Ergün, Minister of Industry and Trade, on plans to build on Turkey's industrial competitiveness through R&D and more targeted investment.

Nihat Ergün
Nihat Ergün worked in the fields of free trade, accounting, consultancy, and management advisory services before entering politics in 1994, when he was elected Mayor of the Derince district in Kocaeli. He was later elected as a Deputy from Kocaeli Province in the 2002 general election. Playing a key role in the AK Party’s decision-making unit, Nihat Ergün was appointed Minister of Industry and Trade on May 1, 2009.

In accordance with your industrial strategy for 2011-2014, how is the government supporting industrial R&D activities in both the public and private sectors?

We give great importance to industrial research and development activities in both sectors. In fact, the Turkish Industrial Strategy Document 2011-2014: “Towards EU Membership", which was approved on December 7, 2010 by the High Planning Council, consists of eight horizontal industrial policy areas. The “Technological Development of Companies" is one of these eight areas. The action plan of the document consists of 72 action points, 20 of which are on the technological development of companies in the field of horizontal industrial policy. This by itself shows the importance given to this topic.

I believe that, in the coming years, innovation and improvements in technological infrastructure should form the basis for competitiveness policies. In accordance, the weight of high-tech industries and the value-added of traditional industries must be augmented. In turn, this requires the further development of R&D and innovation activities. Accordingly, the private sector must engage in R&D, and R&D support must be implemented. The activities of the Scientific and Technological Research Council of Turkey (TÜBİTAK) must be expanded, information and communication technologies must be used more efficiently, and industrial and intellectual property rights must be protected.

In this respect, many initiatives have been undertaken recently to emphasize the role of innovation in competitiveness, including R&D support laws, tax incentive and exemption laws, techno-venture capital support, technology center operations, and technology development regions. Estimates indicate that the resources set aside through R&D support legislation in Turkey will reach 2% of GDP by 2013.

What role should a credit guarantee system play in financing SMEs for industrial activities?

Competitiveness has become more intense due to technological developments, rapid communications, and globalization, along with the economic stagnation witnessed all around the world. In this highly competitive environment, it is necessary to assist SMEs for them to survive, to increase their competitive power, make them follow new developments, and plan their activities. In the meantime, developing new mechanisms to create new entrepreneurs or strengthen and diversify the ongoing mechanisms also bears great importance.

High quality levels and standardization are the necessary ingredients for competitiveness. In order to satisfy this requirement, it is essential to closely follow changing technologies and high technology investments. On the other hand, investments further increase the requirement for the long-term financing of SMEs, which usually depend on equity capital. For this reason, it is of great importance to boost alternative financing mechanisms for SMEs and other corporations, especially for those operating in the manufacturing sector.

The high value and quality guarantees demanded from SMEs by the finance sector, especially for long-term investment credit, is probably one of the most difficult requirements to meet because the outcome of guarantee terms can hinder investments or postpone them for a long time. This may result in the postponement of desired targets regarding quality and production increases and lead to market loss due to the impairment of competitive power. Now, at this point, meeting the voluminous high-quality guarantee requirements of SMEs in long-term investment credits via credit guarantee establishments is considered to be one of the most crucial steps towards the provision of appropriate conditions for investment in our SME sector. In this manner, the existence of a credit guarantee system, in an environment in which financial institutions abstain from providing credit, is vitally important in delivering guarantees to new entrepreneurs and R&D based corporations, and in providing long-term investment, for which high-value guarantees are required.

In this context, we realize the importance of the Credit Guarantee Fund, which is unique in its field, and an affiliate organization of the Small and Medium Enterprises Development Organization (KOSGEB). In the last three years, great effort has been made to develop the company. Huge resources have been allocated to the Credit Guarantee Fund and its capital was increased to TL240 million in 2009. The Credit Guarantee Fund has extended its operations to 24 provinces, and the number of its branches has increased to 26. In the meantime, the number of financial institutions the fund has cooperated with reached 37.

The automotive sector is one of Turkey's fastest growing industries. In your view, how important is domestic demand in fueling this growth, and how important is the development of exports?

The automotive sector has a strategic value for our country, and I think that domestic and foreign demand are both important ingredients with respect to the sector's growth potential here. The vast majority of companies serving the automotive industry in Turkey are manufacturing in global markets under license and in partnership with global automotive companies. However, in respect to the number of cars per capita, our country is still an unsaturated market. A positive course of economic development, growth of per capita income, and the presence of a large young population are the reasons behind this flourishing market. In addition, particularly with the harmonization of EU technical legislation, the quality of manufactured products and production capability started displaying significant improvements, and in doing so the EU market has become the largest export market for Turkey. Thus, with the increase in the global integration of our country, Turkey has managed to become the production base of many important brands. This process has provided the establishment of an important production culture within the country since the 1960s. Furthermore, our country's geographical closeness to the Balkans, Middle East, Central Asia, and Africa also means new export potentials for Turkey. Both the presence of the existing domestic market and EU markets as well as the emerging markets are expected to have a positive effect on production.

You have called for the creation of a Turkish automotive brand. What would this step mean for Turkey and its industrial base?

Yes, we are highly focused on this important issue, and we believe in ourselves. Currently, endeavors are being made to access global markets, and to ensure the direct introduction of Turkish-branded vehicles to the domestic market. This issue is in particular emphasized in the “Automotive Sector Strategy Paper". In this context, “National Focal Projects" will be supported.

What potential would such a brand have in the global automotive market?

I believe that a local vehicle brand will be successful both in the domestic market and in the global marketplace. The vehicle should be in compliance with international technical regulations and be able to reach a comprehensive qualified consumer group. For this reason, the electric vehicle category, which is developing quickly across the globe, seems to be an appropriate choice at the moment. In addition, in terms of supporting the use of such vehicles, a series of measures will be implemented.