Those who want to sell machinery to Turkey should come and produce here
“If half of the machinery imported with investment incentive certificates is made locally in 20212030, a TRY 760bn contribution will be made to the national economy and TRY 593bn of this figure will be domestic valueadded.”
HOW DID THE MACHINERY INDUSTRY SPEND THE LAST TWO YEARS DURING THE COVID˹19 PANDEMIC? WHAT ARE YOUR GOALS AND EX˹ PECTATIONS FOR 2022?
The change in the global supply chain raised the new capacity investments and brought machinery and equipment investments to over USD 5tr in 2021. Many investments were made in sustainability, digitalization, and green energy. Independently of the pandemic, our industry exported around USD 3bn more at the end of 2021 than in 2019. Turkey was top in proportional terms of countries in the world with an annual machinery export volume of over USD 20bn per data from the third quarter of 2021.
Turkish machinery exports reached USD 23bn at the end of 2021. The technology level and price surge in our products and the diversification of our markets played an important role in this. Our machinery and equipment investments have risen by more than 50% for new and high technology products and extended modernization projects over the past two years. Our share in the global market reached 1.0%. Our production, which rose by 9% and 31% successively, played an important role in this.
Our orders show that our market shares continued to increase in the European Union (EU), the U.S., Russia, and Ukraine through February. Our monthly machinery exports had been able to exceed USD 2bn without difficulty and all these developments led us to set our target above USD 27bn for 2022. Now, we must see how the war develops to understand if we need to revise this target.
Russia and Ukraine are among the countries where we are increasing machinery exports the fastest. Tens of thousands of SMEs will be established in this region in the next 10 years and a large volume of machinery will be imported.
We see this development in Russia, the Ukraine Turkic Republics, and in EU member states. With the support of diversification of machinery and technology categories, Turkey will develop solutions to be affordable for everyone in these markets and will rapidly grow.
HOW DEPENDENT IS THE MACHINERY INDUSTRY ON IMPORTED RAW MATERIALS?
As an industry we measured foreign dependence in terms of input usage with a study called ‘Production, Export, Machinery Sector in Domestic Consumption, Value-Added and Imported Input Usage Analyses’. The total imported input density was separated into direct and indirect impacts in the study. The study showed that the imported input density totaled 33.8%. 21% of this stemmed from direct imports while 12.8 points was from indirect imports. The reason why indirect imports are so high is that the production of the machinery industry is linked with other sectors. Turkey has a lower value than Canada and the same value as France when its direct import density is compared with other countries.
There is a frequent argument in Turkey that exports are dependent on imports. Although this is based on the fact that Turkey’s foreign trade posts a deficit, it’s objectionable - it’s a generalization. The Organization for Economic Cooperation and Development (OECD) determined that the domestic value-added of 76.7% was created by machinery exports by Turkey. For comparison, Germany has domestic value-added of 77% created by machinery exports.
WHAT ARE THE ELEMENTS OF THE INVESTMENT INCENTIVE LEGISLATION IN PLACE THAT WORK AGAINST THE MACHINERY INDUSTRY?
Although we have a competitive capacity that can export 60% of our production, we can only capture one-third of the demand of the overall manufacturing industry. This figure is 67% for energy, 60% for mining, and 95% for agriculture. The greatest danger we face is not good imported from the West using credit, but low-technology goods coming from the East. The advantages provided by the Investment Incentive System direct investors to imported machinery despite the risk of the foreign exchange (FX) rate. Mechanisms to encourage and support localization in major projects and industrial investments should not be implemented. This creates weakness. Around 20,000 Investment Incentive Certificates were prepared between 2020 and January-October 2021. Their investment amount totaled TRY 430bn. As part of these investments, TRY 191bn worth of foreign machinery and equipment was imported, excluded from protective measures. Turkey is among the largest machinery markets in the world and it can’t continue to import machinery. We want those who want to sell machinery to Turkey to manufacture in the country. But the sector can’t attract investment as it is too open to imports. If an incentive mechanism to reduce the demand for imported machinery is set up and domestic production is supported, Turkey’s current account deficit will be positively affected. On the other hand, though the additional customs duties levied on goods from certain countries do not seem to be efficient, they are important in terms of being a declaration of intent. These implementations should be expanded and reciprocity should be ensured for rates.
IF THE REGULATIONS THAT YOU DESIRE HAD BEEN MADE WHEN IMPLEMENTING THE IN˹ VESTMENT INCENTIVE SYSTEM, WHAT KIND OF CONTRIBUTION WOULD THIS HAVE MADE TO THE COUNTY AND THE SECTOR?
If the manufacturing industry had bought half of the machinery imported in 2020 from domestic producers, our sector’s production would have increased by TRY 45.5bn. We would have had the possibility for the general manufacturing industry to make TRY 11.4bn in production and other sectors excluding the manufacturing industry would have gained TRY 10.2bn. A TRY 66.1bn contribution would have been made to the national economy. Moreover, the domestic value-added would have increased by TRY 33.6bn and TRY 6.4bn would have been delivered to employees. The value-added increase in the manufacturing industry would have been TRY 42.3bn, while the value-added increase in the overall economy would have reached TRY 51.6bn excluding taxes. If half of the machinery imported with investment incentive certificates is made locally in 2021-2030, a TRY 760bn contribution will be made to the national economy and TRY 593bn of this figure will be domestic value-added.