Turkey Turkey: Plans for growth have given wings to the turkish machine building industry

Author Stéphane Itasse

The government in Turkey has big plans: By 2023 Turkey will advance to become one of the ten biggest economies of the world, currently it is the 17th. Even if observers have doubts about the feasibility, the machine building industry will get highly powered through this plan.

The Turkish industry is growing and becoming modernized. Thus, a number of opportunities are opening up for the machine building industry. (Photo: Siemens)
The Turkish industry is growing and becoming modernized. Thus, a number of opportunities are opening up for the machine building industry. (Photo: Siemens)
(Photo: Siemens)

The government's plans also include decreasing the high amount of import of industry and energy. To achieve this they will not just carry out in-depth reform of the structures but also promote starting their own production.

Growth in Turkey has weakened a little lately

However, the economic growth of Turkey has weakened in the last year to an estimated 3 %, in 2013 according to the world bank it was still 4.1 %. But this was preceded by a boom for a long duration: According to the information provided by the German-Turkish chamber of commerce, in the last ten years from 2002 to 2012, Turkey has more than tripled its gross national product (GNP) from 231 billion USD to 820 billion Dollars. Many industrial nations suffered temporarily from one of the biggest financial crises since the 1930’s, Turkey had an average growth rate of 5.1%.

For OECD, Turkey is the fastest growing economy from its member countries. According to the chamber the exports have highly increased in the last decade and now stand at 152 billion dollars. The most important exports also include industrial products.

The Turkish machine building industry is growing strongly

According to the chamber, Turkey will enter a free market economy and has joined the EU-agreement for customs union. The revenues of privatization administration amounted to 46 billion dollars between 1985 and 2012. In 2013, an annual record was made with 12.5 billion dollars. Since 2012 there is an addition of a new system of investment incentives. This has had a positive effect on the influx of foreign direct investments. The new government is focussed on tax exemptions, subsidies for social security contributions, tax benefits and allocation of properties for investments in technology parks, industrial parks and free-trade areas, reported the chamber of foreign trade. In this way investments in R&D and regional, strategic and major investments for reducing the dependability on imports will be promoted.

Machine building is one of the dynamic branches in Turkey. Observers estimate the sales growth for the previous year to be 5 %, significantly above the general economic growth. According to the Turkish investment promotion agency Ispat, since 1990, this branch has gained by almost 20% every year, since 2009 it has gained by 30 % every year. The growth of the Turkish machine building industry is supported by small and medium sized enterprises (SME). They make up for 50 % of the machine production.

Machine imports in Turkey remain high

According to Ispat, the branch has an increasing share in the Turkish exports; in 2013 it reached 14 % of the total exports with 22.5 billion dollars. The most important export destinations for the Turkish machine products are Germany, UK, Iraq and France. At the same time Turkey also imports machine products mainly from China, Germany, Italy, South Korea and France. With a total of 47.9 billion dollars, the imports were more than double the exports in 2013 according to information given by investment promoters. This indicates an increasing domestic demand for machine products.

The machine building industry in Turkey has set ambitious goals for itself for the 100th anniversary of the country in 2023, reported Ispat. To achieve exports in the amount of 100 billion dollars with a share of 2.3 % in the world market, the Turkish machine building industry must achieve an annual growth rate of 17.8 % till then. Also, the share of this industry in the total exports from Turkey must be at least 18%.

This is already visible in the spending for research and development: According to information from investment promoters, from 2010 to 2012, the R&D expenditure in this branch increased by 33 % and thus it was much stronger than in the general production sector (24 %) and the average in all industries (19 %).

The machine building industry profits from skilled labour

SME’s are the driving force of this industry. According to Ispat, these companies profit in Turkey from inexpensive and well trained labour. The Statistical Office of Turkey (Tüik) specifies the total population of Turkey to be 77 million and half of the population is younger than 30.4 years. Over 28 million people were actively working according to this report and every year another 700,000 high school graduates and 610,000 university graduates were added to the workforce, 450,000 of them were engineers. The active labour force also went through certification programs for vocational training according to details provided by the German-Turkish chamber of foreign trade in the framework of EU-harmonization.

Even foreign investors are now discovering the machine building industry: With a growth of 64 % in the influx of foreign direct investment since 2005, this branch has become the driving force within the manufacturing industry, reports the investment promotion agency. However, the foreign direct investments in machine building have 15 % share in general manufacturing.

The International Investors Association of Turkey (Yased) feels that there is need for action: The associations report published at the end of 2014 for the topic “Turkey, a regional centre for sustainable global competition” it was stated that four main functions must be strengthened: Management, research and development, modern manufacturing and services.