As of today, we have less than two months before the general elections scheduled for June 7. Election periods have always caused volatility in markets. Turkey has maintained a certain level of political stability by having the same government in power for 12 years, the ruling Justice and Development Party (AK Party). The AK Party's economy policies have been a success story for Turkey over the past decade, even though it has been criticized as being overambitious at times. The government has announced a series of targets, including being one of 10 biggest economies of the world and reaching a record export level totalling $500 billion, which is known as the "2023 vision." Daily Sabah and Oxford Business Group co-interviewed Economy Minister Nihat Zeybekci, who is responsible for actualizing this dream, and asked about the driving forces behind realizing the 2023 targets.
Daily Sabah and Oxford Business Group: "The Turkish Export Strategy for 2023" was partially devised by the Economy Ministry. What challenges have you faced along the path to 2023 thus far in reaching the targeted $500 billion export volume, and what makes you sure that Turkey will meet its stated goals?
Today, the way of increasing competitiveness and of having a better corner in world trade is research and development, innovation and technology-based production and branding. Indeed, over the past decade, our exports have not only shown a numerical increase, they have also undergone a qualitative transformation. In parallel with the structural transformation in the economy, the proportion of R&D and innovation-based products among exports has increased considerably.
It is well-known that we have set an export target of $500 billion for 2023. To this end, we need to achieve an average annual export growth of more than 13 percent in the next nine years. As far as our export performance in the last 11 years is concerned, it can be seen that this target is not such a distant dream. However, we should not forget that we are going through a process where the impact of global crises and economic vulnerabilities still persist. Instability still continues in Europe, which is an important trade and investment partner for us. We expect that these problems, which are elements beyond our control, might decelerate our export performance, but we do not think they will lead to permanently adverse effects.
In other respects, we are aware that we cannot achieve a $500 billion export target by maintaining the same export structure or by implementing the same policies and strategies. In line with this awareness, we focus on switching from price-based competitiveness to a sectorial structure that produces technology, quality, R&D, innovation and design, and aims to export branded and high-tech goods. It is of vital importance to increase the share of high-tech products in total exports from 4 percent to 15 percent. Therefore, with the policies we practice and the Turkish Export Strategy for 2023 in particular, we are on a quest for reformist and innovative approaches in trade. Furthermore, we attach priority to added value, innovation and advanced technology in order to gain access to new markets and to increase shares in existing markets with market diversification strategies. Additionally, as the Economy Ministry, we pull out all the plugs so that the tripartite mechanism of product-investment-export runs effectively.
DS & OBG: In order to achieve the 2023 export driven goals, Turkey will need to increase its rate of exporting finished goods, and value-added products. What initiatives have been put in place that will facilitate manufacturers to move up the value chain?
As part of reaching the $500 billion export volume, firstly, it is imperative to produce high-value-added goods by changing the production structure and then to increase the exports of branded and high-value-added goods in accordance with the renewed and transformed production structure.
At the ministry, we attach great importance to raising the global value chain so that our exports reach targeted levels, the proportion of value-added products in exports increases, the share of high-tech goods in total exports soars to 15 percent, our share in existing export markets increases and we ensure growth in new target markets in different regions. In this regard, we support all of our exporters with programs that are devised for each link in the product-investment-export chain, and we implement such programs in a way that encourages innovation, design, R&D and branding activities in Turkey.
In an attempt to guide our exporters during the first phase of the three-phase governmental aid system of exporting, we support them in such areas as training, improving their competitiveness and providing the required credentials for export transactions. In the second phase, we aid companies in conducting market research, attending relevant fairs and opening stores abroad in order to market their products. In the third and final phase, we support our companies, which conduct regular exports and want to become a global brand, from the design phase to the process of creating and marketing a brand.
As the Economy Ministry, we will continue to help our exporters and producers with our support mechanisms in the forthcoming period as well with mechanisms that can fully meet the current competitive conditions and requirements with their dynamic and flexible structures.
DS & OBG: Beyond the manufacturing base, have there been any concrete actions taken to transform a larger portion of the economy into a knowledge- and service-driven one?
In parallel with developments in the world, we introduced the "Information Society Strategy and Action Plan" in 2006 in order to encapsulate our efforts to transform into an information society in a medium-term program. This strategy is based on the objective of obtaining results from the network effects, which will emerge after information and communication technologies spread to all segments of society.
The strategy document set a specific strategic priority, which is predicated on the "Adoption of Information and Communication Technologies in the Business World." Accordingly, on the one hand, it is aimed to encourage Small- and Medium-Sized Enterprises (SMEs) to engage in e-commerce. On the other hand, it was aimed to implement sector-specific productivity programs by determining the requirement for information and communication technologies in strategically important sectors and regions.
Similarly, "Improving R&D and Innovation" has been described as another key strategic priority. As an innovative and high-value-added sector, it is vital to give precedence to R&D activities in the information and communication technologies sector and to support new technologies that will turn into products in this field.
Within the context of the Information Society Strategy and Action Plan, covering the period between 2006 and 2010, a number of wide-ranging actions and studies were conducted in seven axes encapsulating the aforementioned priorities. According to this picture, a 71.7 percent success rate has been reached in the adoption of information and communication technologies in the business world, while an 83.3 percent success rate has been reached in terms of improving R&D and innovation as of 2012.
The studies to renew the Information Society Strategy and Action Plan began in November 2012, and the newly created policy text was intended to cover the period between 2014 and 2018. We predict that the new Strategy and Action Plan will be approved and put into practice in the upcoming period in consequence of the renewal process, which will be completed after the comments of relevant stakeholders are received. As it was in the previous implementation period, specific policy axes that will serve to take our country's economic dynamics to a knowledge-intensive position have also been defined in the new action period.
DS & OBG: What initiatives have been put in place in order to improve the best practices and increase the capacities of SMEs?
We are pleased that SMEs, which are the cells that make up the economy and whose importance we understand better every day, are increasingly opening up to foreign markets. We know that SMEs that aim to increase their sales potential, to grow in a more balanced way by spreading risks and to make effective and quality production with lower unit costs need to export goods. Competing with their peers and even with corporate companies in a more competitive environment in foreign markets, our SMEs will enjoy the advantages of such a competitive environment by improving themselves and institutionalizing themselves further. Another element that is as important as increasing the number of exporting SMEs is to make exports sustainable and to build them on added value. In other words, our SMEs need to engage in exports on a regular basis, not only at times when the domestic market is congested. They also need to produce and market goods with the standards that can satisfy the requirements of the day. With state subsidy programs, our ministry has always encouraged SMEs and entrepreneurs to export; we have given all kinds of support to our SMEs so that they can switch to R&D and innovation-based production as well as to brand- and design-based exports, which are the prerequisite for surviving in international markets.
To instantiate the supports of our ministry further, we aid SMEs especially in such main topics as gaining access to information and markets both with individual and cluster approaches. It is obvious that SMEs, if they act together, can find easier access to the markets that they have difficulty in reaching individually. With a cluster approach, our ministry created the "Development of International Competitiveness" as a very effective support mechanism by combining the topics of accessing information and markets. This mechanism was specifically designed for SMEs under the guidance of cooperation agencies. During the process, all expenses and bureaucratic procedures are conducted between the ministry and cooperation agencies, and our SMEs merely benefit from value-added activities. In other words, in addition to other supports provided by the ministry, within the framework of the Development of International Competitiveness support mechanism, projects are conducted with cooperation agencies in order to increase the competitive capacity and productivity of SMEs, which are newly engaged in exports and that do not have regular exports, as well as to ensure regional development.
In this regard, we update subsidies that we conduct with a tailor-made approach that is predicated on the branding and clustering methods, and we introduce new and up-to-date government aid. On December 12, 2014, in addition to our existing supports, a completely new support mechanism called the Turkish Trade Centers, which was designed in an attempt to ensure direct access to overseas distribution channels for our exporters, was published in the official gazette. With this new support mechanism, we will provide new opportunities for companies that have difficulty in establishing their presence in foreign markets and in opening stores and offices abroad. Legal and financial consultancy services will be continuously offered to our companies, which are included in these centers that are slated to become Turkey's promotion and logistics base. In addition to support programs launched to enable our SMEs to gain access to new markets and to ensure a permanent presence in these markets, we have initiated the Support Design program for design-based production, which is the first step for SMEs toward switching to branded, R&D and innovation-based exports that will improve their production structure. With this initiative, we aid our companies in establishing design offices in order to create a design culture in Turkey. With respect to the companies that have already understood the importance of design and established design offices, we have offered additional supports for them to develop their offices.
Moreover, within the framework of the Medium-Term Program, which has been projected to run for the next three years, SMEs will be effectively supported so that they can increase their R&D, innovation and export capacities, become a brand, institutionalize and develop their innovative business models. Additionally, it is of vital importance to develop alternative financing methods that will ease SMEs' and entrepreneurs' access to finance. The implementation of relevant action plans, which were prepared in line with this objective and were included in the Turkish Export Strategy for 2023, will continue. In addition to the Turkish Export Strategy for 2023, a number of action plans were set in the Primary Transformation Programs introduced by the prime minister in order to strengthen SMEs, and to increase their export capacity – and these polices will be put into force urgently. Consequently, as you know, when we officially took over the G20 presidency on December 1, 2014, we also took over the leadership of the global economy for 2015. As a country, we will shape the global economy in 2015. In this regard, we will take this subject to the agenda of the G20 countries in order to attract their attention to the significance of SMEs in countries' economies.
DS & OBG: To what extent is it possible to quantify the cost to the economy of instability with our southern neighbors?
To understand the impact of the instability that is being experienced in these countries, we have to thoroughly scrutinize the course of foreign trade. Even though a significant decline was experienced in 2012 as a result of the incidents that occurred in Syria in 2011, we have been experiencing a recovery period since 2013. In 2013, our trade volume with Syria exceeded $1 billion once again. As is apparent, this recovery has grown stronger since 2014, and our trade volume with Syria exceeded $1.5 billion, reaching $1.7 billion – a figure that is close to the trade volume that was realized in 2011.
On the other hand, following the incidents that unfolded in Iraq in early summer last year, it was observed that our foreign trade underwent a short period of disruption. With the seizure of Mosul by Islamic State of Iraq and al-Sham (ISIS) militants in June 2014, the process that arose in the south of Turkey resonated throughout the whole of Iraq. The developments in this period led to a loss of only 7.7 percent in foreign trade volume between Turkey and Iraq over the whole year. However, I firmly believe in the improvement of trade with this country. As seen from our prime minister's visit to Iraq and Iraqi Prime Minister Haider al-Abadi's visit to Turkey in December 2014, a new era will begin in the economic and trade relations between Turkey and Iraq.
As has been witnessed, Turkey rapidly managed to make up for cyclical losses occurring in its nearest neighbors, and it is competent enough to make up for similar losses in the future as well. Our government's leading political approach and practices, along with the vigorous efforts of our businessmen and businesswomen, who are the greatest asset our country has, constitute a synergy that yields significant results.