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Turkey 2013 | INDUSTRY | REVIEW: INDUSTRY

Following a strong 2011, Turkey proved once again in 2012 why it is the chosen destination for manufacturers looking for an export base and a strong domestic market.

The manufacturing sector represents one-fifth of Turkish GDP and is the country's main weapon in the drive to boost value-added exports. An increasingly wealthy domestic market is more than a nice bonus for international investors setting up shop in Turkey, with a view to export to the region.

The Turkish manufacturing sector represented 20% of GDP in 2012, with intermediate goods taking the largest share (10%), followed by non-durable consumer goods (6%), investment goods (3%), and durable consumer goods (1%). The country's domestic market is driven by the increasing disposable income of its large population—GDP per capita expanded by approximately 11% between 2007 and 2012—while foreign investors have also been attracted by Turkey's proximity to other large markets. “Turkey holds a significant internal market with its population of 75 million people… [and] is emerging as an attractive country with… easy access to a population of 1.5 billion people," said Nihat Ergün, Minister of Science, Industry, and Technology. Following a slump in industrial production in December 2012, down 3.8% on an annual basis, it picked up again in early 2013, reaching a nine-month high in February at 4.4% compared to the same period in 2012. April figures showed an increase of 3.4%, with manufacturing growing 3.6%. Manufacturing also led growth in May, expanding by 2.5%, while overall industrial production was below consensus on 2%.

AUTOMOTIVE

Automotive production fell by 9.8% in 2012 compared to 2011, realizing 1.1 million units, with a lower capacity utilization rate (CUR) of 68%, down from 75% in 2011. While passenger car production fell almost 10%, minibus production soared by 30.5%. Domestic retail sales also fell by 10% to 817,620 units over the year, due to a decline in the number of passenger cars sold. Exports also slipped by 7.7% to 729,923 units, generating $19.3 billion in revenue, down 5% on 2011. Imports were 409,676 units in 2012, down 1.1% from 414,031 in 2011. Volkswagen was number one in import terms, with 66,792 units, followed by Opel, with 49,143, and Ford, with 47,030.

Boosted by a new incentive scheme, investments worth TL5 billion are planned for 2013, one-fifth of which will be made by Ford as it plans to add four new models to its product line in Turkey. Another $1 billion in investment will see Hyundai upgrade its Kocaeli plant to prepare for the production of its i10 model, boosting capacity to 200,000 a year. Other investors include Toyota, Fiat, and Renault, all of which are expanding capacity. “There is more competition because more companies are now coming to Turkey to get a share of this growing pie," said Haydar Yenigün, General Manager of Ford Otosan, commenting on the growing popularity of the country with auto manufacturers.


TEXTILES & FASHION

Turkey's transformation from bulk producer into value-added fashion exporter continued over 2012, attracting attention from investors—the sector pulled in 1.5% of the year's FDI total. Textiles and clothing represent more than 6% of GDP, and accounted for just under 20% of total exports in 2011, according to the Ministry of Economy, at a value of over $15 billion. The sector remains a significant employer, with 40,000 textile firms employing 750,000 people. The government is eyeing quality over quantity, however, and is pinning its hopes on Turkish clothing ambassadors such as Mavi, Koton, and Silk & Cashmere, which continue to increase their presence abroad. Sales of apparel are also strong in the domestic market, and, according to a Deloitte report, will grow, beginning in 2012, at a CAGR of 12% to reach $41 billion in 2016. “In Europe, it is hard to imagine a shop growing by more than 5% or 6%. In Turkey, it is possible to grow by 25% or 30%," said Ayşen Zamanpur, CEO of Silk & Cashmere, a local brand with shops in 26 countries. On its journey toward emulating European fashion hubs such as Milan and London, the twice-yearly Istanbul Fashion Week has also become a significant calendar date for the sector, drawing 40,000 visitors, one-quarter of whom come from abroad.

MACHINERY

In 2012, the machinery sector exported goods worth $14 billion, according to the Turkish Machinery Promotion Group (TMPG). In terms of machinery manufacturing, the country is in fifth position in Europe. The challenge now is to reduce the import of primary and secondary inputs. “Turkey has a current account deficit problem, and the ability to produce our own machinery can help mitigate the problem," said Adnan Dalgakıran, Chairman of TMPG. Growing at a rate of 20% a year since 1990, the machinery sector figures heavily in the government's Vision 2023 plans. By then, machinery sector exports are expected to total $100 billion a year, one-fifth of the targeted $500 billion. Machinery exports grew 18.9% between January and April 2013, and were worth $4.5 billion. Germany is Turkey's top trade partner in the sector, while air conditioning and cooling machines represent the largest export grouping, followed by engines, accessories, and spare parts.

CONSUMER ELECTRONICS & WHITE GOODS

Although consumers may not know it, Europe's second largest supplier of televisions is Turkey's Vestel, with its 12,000-strong workforce. Manufacturing mainly for other brands, the firm has an 18% market share in Europe, second after Samsung. In 2012, it exported 8 million of the 10 million television units it produced to the EU. Locally, consumer electronics have a 4% share of the Turkish retail sector and the sector is set to grow by 65% over the next five years, with per capita spending increasing 50% over the same period.

The export of white goods accounts for around 3% of total exports, a figure that is increasing due to the country's lower production costs compared to Europe. Exports grew by around 5% in 2012, with 14.5 million units sold, a fact helping to offset dampened domestic sales, which dropped 1% in the first eight months of 2012. Turkey's largest producers of white goods include Arçelik, Europe's third largest manufacturer, Vestel, and Germany's BSH, which announced a €300 million investment in early 2013 to turn its operations in the country into a hub for Central Asia, the Middle East, and North Africa. The investment brings BSH's total investment in the country to €1 billion. Around 60% of its products, which include the Bosch, Siemens, Profilo, and Gaggenau brands, are exported.

FOOD & RETAIL

The increase in food and beverage production has gone hand in hand with the transition of Turkey's retail sector into organized blocs. Indeed, the food and beverages sector represents more than 50% of the overall retail sector, and is set to grow at a CAGR of 9% over the next five years to reach $233 billion in value, according to Deloitte. The manufacture of food, beverages, and tobacco attracted 7% of Turkey's FDI total in 2012, on the back of rising disposable incomes, more women in the workplace, and shifting consumption patterns toward processed food. Mass grocery retail sales are set to grow by over 10% in 2013, with food consumption also up 7%, and the sale of alcoholic drinks up 3.6%. Retail sales increased by 7.40% in 1Q2013 over the same period the year before, according to TurkStat.

GLASS & PACKAGING

Packaging is also beginning to show off its strength. According to the Turkish Packaging Manufacturers Association, the size of Turkey's packaging industry reached more than $11 billion in 2012, and exported goods to over 100 countries. Paper and cardboard comprise 39% of the overall sector, followed by plastic packaging (33%), glass packaging (13%), wood packaging (8%), and metal packaging (7%). Şişecam is one of the most prominent firms in the sector, and the third largest glassware producer in the world. “Our export initiative in 2000 enabled us to become a major worldwide exporter with an annual turnover of $3 billion, producing goods in 10 countries and exporting to a total of 150 countries," commented Prof. Dr. Ahmet Kırman, Şişecam's Vice-Chairman and CEO. The firm has an export volume of $800 million, making it one of Turkey's top 20 exporters. Şişecam is also preparing to open new furnaces in Russia and Bulgaria, taking its capacity to 850,000 tons a year. “Turkey's GDP growth is estimated at 4% in 2013, and that is just not enough. We must increase the proportion of value-added products in Turkish exports," he concluded, a sentiment shared by both the government and industrialists in the country.