Naturally, the quality of this change and integration has been one of the major issues of concern in society. Are we going in the right direction so that the economy’s competitive strength and overall social well being will rise in the long term?
There are several criteria to judge the path Turkey is moving on. Among others, the profitability of companies and the share of the net value added among the factor holders is a critical one. Leaving aside the financial sector, a major service subsector and one that is increasingly dominated by foreign capital as well as whose profits are significantly above the world average, I will focus today on recent trends in industry.
The İstanbul Chamber of Industry (İSO) has been providing statistics on the largest Turkish industrial firms since 1997. The İSO announces its major findings twice a year. The İSO first releases its major findings on the top 500 companies, followed by its major findings on the next set of 500 companies. In my analysis today, I will use the average figures of these top 1,000 companies.
Because the share of İSO-1000 is almost 10 percent of gross domestic product (GDP) in Turkey, this survey has the ability to represent what is really happening overall in the industrial sector. As seen in Table 1, the rise of profitability in almost all categories of profit measures in the post-2001 crisis period is quite significant and robust. What is more striking is that the profit from sales, assets and economic profitability was one of the highest during 2009, the year of a global economic crisis.
Although net sales of İSO-1000 decreased almost 10 percent in 2009, the rise in profit(s) was triggered by three major factors: First, the cost of finance decreased dramatically in the industry. The share of interest expenses in the net value added can be seen in Table 2. With the exception of the 2001 crisis, the share of interest expenses declined from almost 35 percent on average to 14 percent by 2009. An improved risk appetite of the overall economic structure and political stability have been major reasons in this decline in the cost of finance.
As a matter of fact, the quality of macroeconomic management in terms of achieving financial and price stability, and sustainable high real growth was quite striking not only before the global crisis but also during the crisis. For instance, the Central Bank of Turkey decreased policy rates by 10.25 points, far above almost any other country, and long-term interest on Turkish bonds, which had been hovering around 10 percent before the crisis, declined for the first time in our recent history to almost 8 percent in the last one year. The real rate of interest on domestic Treasury borrowings declined to almost zero in the last few months.
Besides the declining cost of finance, the second important factor leading to an increase in profit during the crisis is the rapid decrease in the cost of almost any factor inputs such as major commodities, including energy, iron, steel and agricultural inputs. However, we should add the significant decline in the cost of labor because of rising unemployment figures. The cost of employment was dramatically repressed by massive layoffs and hiring. As can be seen in Table 2, the share of wages and salaries in net value added has been in continuous decline in the post-2001 crisis era. It decreased from an average level of 70 percent in the early 2000s to almost 57 percent as of 2009. Therefore, recent trends work against employees in the industry. In this increased global competition, pressures mainly in labor-intensive industries have been a major factor.
A third factor came from the exchange rate front. During the 2009 crisis, the competitive strength of the Turkish lira rose significantly and positively contributed to rising profits.
A final observation that I want to focus on is the quality of asset composition and, therefore, the riskiness of İSO-1000. Table 3 shows both short-term and total debts as well as equities. As can be seen, the share of short-term debt rose by almost 40 percent of total assets in 2008 from 33 percent in 2004.
However, companies unexpectedly became net lenders during the crisis and short-term liabilities decreased to 37 percent in 2009. Furthermore, the share of total debts, which rose to 55 percent of total assets before the crisis, declined to 52 percent in 2009. As a result, the leverage ratio along industrial companies has been fluctuating around 50 percent, which means there is no risk of a credit default in Turkey, a fact that was proved once again during the global crisis.
An overall assessment of Turkish industry based on the given specific indicators is that the Turkish economy is on the right track.
