R&D is the backbone of economic success. How does Turkey match up?
To be competitive in the 21st century means offering innovative and technologically advanced products that are at the cutting edge of the global market. Thus, R&D and innovation concepts have become driving powers in business and have gained significant importance in today’s competitive business environment. Countries are actively competing in R&D expenditures. Exports become sustainable only if firms can manufacture high-tech products efficiently. OECD countries and other large economies such as China, India, Brazil and Russia are implementing various incentive mechanisms such as tax breaks in order to attract foreign companies and their R&D programs to their countries.
R&D activities throughout the world
According to studies conducted by the IMF, companies are increasing their R&D expenditures at a rate of 26.4 percent in return for the increase in tax incentives. The latest data published by the OECD shows the total R&D expenditures of 42 of the world’s leading economies amounted to $1.6 trillion as of 2016 and R&D expenditures of the top ten countries was $1.4 trillion, representing 87.5 percent of the total. Meanwhile, the US and China made up 28 percent and 25 percent of the total respectively, and over 50 percent collectively.
Turkey ranks 15th in terms of R&D expenditures among the 42 countries at $18.4 billion (2016 purchasing power parity: $1 = TRY 1.34). According to the OECD report, Science, Industry and Technology Scores – The Digital Transformation of Turkey, the government budget for R&D has increased by 80 percent since 2008.
The stud es show…
There is a vast body of literature correlating R&D expenditures with increases in patent production, innovation, export and growth. Results repeatedly show positive effects of R&D on economic growth and exports as well as increasing a country’s competitive advantage, drawing foreign capital, increasing its productivity and reducing its reliance on foreign technology. Factor productivity appears to benefit significantly from technological innovation, increasing up to 50 percent in an environment where a firm invests in R&D.
Overall, studies conducted in 21 OECD countries show that a one percent increase in R&D expenditures leads to an average 0.76 percent increase in economic growth, and for Turkey, 0.63 percent. For high-tech industries and information/communication technologies, a one percent increase in R&D expenditures leads to a 6.5 percent and 0.6 percent increase in exports respectively.
By the numbers
In its November 2017 report, R&D Activities Research for 2016, the Turkish Statistical Institute noted that gross domestic R&D expenditures had increased by TRY 4 billion in 2016, compared to the previous year, reaching TRY 24.64 billion, an increase of 19.5 percent. The total share of domestic gross R&D expenditures increased to 0.94 percent in 2016 compared to 0.88 percent in 2015.
The rapid growth is part of the 2023 vision: to transform Turkey into a world leader in information and advanced technologies. With this goal in mind, the Ministry of Science, Technology and Industry has actively sought to increase the number of R&D and design centers through incentive programs, in cooperation with organizations such as the Foreign Investors Association and Turkish Industrialists and Businessmen’s Association. Incentive mechanisms in different countries are studied and Turkey’s R&D eco-system adjusted to remain competitive.
The scope of R&D and support incentives is defined by law number 5746 on Supporting of Research, Development and Design Activities and Regulation, passed on August 10, 2016.
Firms from various sectors often ask what constitutes successful R&D activities. According to national legislation and international guides (Oslo and Frascati Manuals), published by the OECD, R&D activities begin with literature research and end when experiments are completed and the production and marketing phases of a new product have commenced.
In Turkey, companies carrying out R&D and design activities have the opportunity to benefit from various incentives and supports in the scope of the R&D legislation and cash support programs based on projects. Incentives and supports covering income tax write-offs, insurance premium support, stamp tax and customs tax exemption as well as R&D discounts are all available. In addition, the Technology Development Zones Law, no. 4691, which entered into force in 2001, provides incentives to R&D and software development activities for companies carrying out operations in technology development zones.
The increase in the number of R&D and design centers is incrementally continuing thanks to the latest amendments made to Law numbered 5746. The number of firms having R&D center certification was only 20 in 2008 but increased to 360 in 2016 and 786 by the end of 2017. Today, as of the end of February, 2018, there are 795 active R&D centers and 156 design centers in Turkey, a rising trend that is expected to continue into the future.