Turkey in need of new growth model, says prominent businessman
Eczacıbaşı says Turkey's economy needs a new growth model to develop further and to overcome the country's chronic current account deficit (PHOTO SUNDAY’S ZAMAN, Selahattin Sevİ)
The debt crisis in Europe and the turmoil in Syria will strain economic growth in Turkey, but the very strong positive momentum in the country will not be interrupted by it, according to Bülent Eczacıbaşı, chairman of İstanbul-based Eczacıbaşı Holding, one of the country’s biggest industrial conglomerates.
In an interview with Sunday’s Zaman, the 62-year-old said that, nevertheless, Turkey’s economy needs a new growth model to develop further and to overcome the country’s chronic current account deficit (CAD).
Eczacıbaşı is also honorary chairman of the Turkish Industrialists and Businessmen’s Association (TÜSİAD) and the Pharmaceutical Manufacturers Association of Turkey (IEIS). His family-owned holding had 2.1 billion euros in revenue last year, mainly in bathroom products, ceramic tiles and pharmaceuticals. Asked for the reasons for the country’s success, he hailed the government and its willpower in implementing necessary political and economic reforms. “As we see today in Europe, vast differences in political agendas [of political parties] make it very difficult for countries to make rapid and effective decisions. In this regard, having a single party majority in Parliament with this ability has been a key factor in Turkey’s strong economic growth in recent years,” he said. Since 2002 the Justice and Development Party (AK Party) has won three elections in a row with increasing electoral support.
Given the record growth of Turkey’s economy, some analysts even see a risk of overheating and that a dangerous bubble could be developing. Eczacıbaşı does not subscribe to this point of view. “Global economic growth appears to be slowing down again. Thus, I would say that the challenge we face in the period ahead is maintaining our growth, not overheating,” the graduate in chemical engineering from the Massachusetts Institute of Technology (MIT) noted. Besides, the high growth rates should not put a smokescreen over the fact that Turkey’s economy faces major structural problems, he added. Eczacıbaşı especially pointed to the CAD. Turkey imports more than it exports; thus, the country’s current account exhibits a rising deficit. This September the gap reached the highest level in the ninth month of the past 18 years.
Focus on goods with value-added
This development strains the exchange rate of the lira and makes the country more dependent on foreign capital inflows. Turkey faces this deficit in spite of its good economic performance mainly due to three reasons: The growth is partly driven by private consumption, and consumers also like imported products. Second, Turkey has to import a large share of its energy needs. And third, industry depends on imported intermediate goods and machinery. Thus, their higher exports lead to higher imports, too. “We need many imports for our exports because the value added that Turkish industry appends to products is still very low,” Eczacıbaşı said. “We have to produce and export products with more value added. This is not something you can fix overnight, but the country is on the right path,” he noted. To this end, Turkey must focus more on innovation, and economic growth should be fueled by innovation and the creation of new markets, he added. The issues of sustainability and a product’s impact on the environment could drive innovation, from Eczacıbaşı’s point of view. “The topic of sustainability is an opportunity, not a threat, for Turkish industry. We have to take advantage of this.”
Eczacıbaşı appreciated that the government now grants tax subsidies for companies’ research and development investments. “It is the first time that we have seen serious efforts of this kind by a Turkish government,” he said. Likewise, the married father of two is happy that the state has recently established many new universities. Membership in the European Union would also ease the transition to a new stage of economic development, he said. “And from a political and social perspective EU membership is extremely important as well.”
Generally, the executive believes that the country needs what he calls “second generation reforms” after the first wave of economic reforms has been implemented. “There were times when we thought that inflation would never be tackled. We thought that the inability to export products, the inability to attract foreign direct investment [FDI] and the inability to develop tourism were chronic problems. But now great progress has been made in all of these areas. We have a solid and balanced macro-economic environment,” he said. Thus, the next mission of the government is to foster productivity and innovation. Apart from investments in education and research and development, judicial reform is necessary, he stressed. “Cases take too long. Due to this, the system has lost its effectiveness,” he stated.
One reason for Turkey’s high CAD is the dependence on energy imports. Although Turkey is an earthquake-prone country, the government wants to ease this strain by establishing nuclear power plants at a time when other European states such as Germany have recently decided to back away from this technology. Nevertheless, Eczacıbaşı is in favor of investing in nuclear technology. “I think Turkey cannot dismiss nuclear energy. Energy shortages can become a true handicap for the country’s development. Besides, all energy sources have their drawbacks,” he said. Renewable energies are still at a very low level and cannot grow fast enough in Turkey, he added. But he stressed that before a decision is taken, the government should make a transparent and thorough evaluation of the topic and explain all of the risks to the public.
The roots of the Eczacıbaşı group lie in the production of pharmaceuticals. Bülent Eczacıbaşı’s grandfather, Süleyman Ferit Bey, was the first university-educated pharmacist of Turkish origin in the city of İzmir. In 1934, he was invited to adopt the title of Head Pharmacist (Eczacıbaşı) as his surname. Bülent Eczacıbaşı’s father opened Turkey’s first modern pharmaceutical plant in the İstanbul suburb of Levent in 1952. Today the group’s healthcare division still accounts for one third of its operating profit. But the business faces “hard times,” Bülent Eczacıbaşı said, adding, “We have reduced our engagement in pharmaceuticals.” The Turkish social security organization continuously decreases prices for medicines and hence the industry’s profitability, he complained. He added that this hampers the ability to invest in new products. “But the fundaments of the industry are strong. We have much experience, world-class production facilities and trained staff.” In principle, the pharmaceutical market is still attractive according to Eczacıbaşı. “I just hope that one day the government says, ‘We punished you enough, your profitability is reduced as much as possible.’ Then the industry can stop fighting the government and concentrate on innovations.”