1 1 JANUARY 1985 MEED 19 al c en z 1g .. ~"li.r=J15J ~ •• ~ •• ~Iraq, Iran and Libya. Counter-trade agreements, looking 'S civilian government had much will be S 3,300 million, of which interest to a large expansion in two-way trade, to congratulate itself on after its first year charges account for S 1.400 million . were agreed with both Iraq and Iran as in office. Prime Turgut Ozal officials say this will have the government strove to maintain its could point to an impressive performance no detrimental effect Qn the government's studious impartiality in the Gulf war. The in trade, especially on the exports front, foreign currency reserves, which have conflict has already paid rich dividends and clear signs that the high rate of infla­ fluctuated between about $900-1,000 for Turkey's transit trade since the Gulf tion which persisted through much of million throughout 1984. outlets of both combatants were block ­ 1984 had at last been reversed. But suc· Figures for the first 10 months of ed by the hostilities. · . cess was tempered by the severe financial 1984 showed the improvements to be Although Iran relinquished its lead climate in which much of Turkish industry continuing - exports, for example, re ­ oosition in the two.-way trade table in was forced to operate. gistering a 27 per cent increase to S 5.711 1983 - taking second place behind West Harsh austerity at home was the million. Industry & Commerce Minister with sales of S 384 million in price paid for the rapid economic shake­ Cahit Aral predicted in early December January-June 1984- Iraq moved back up up decreed by Ozal. His government set that exports for all of 1984 would reach the league in the same period to take in train a comprehensive series of re­ about S 7,200 million, in line with third place with sales of S 314 million. forms designed to change fundamentally government hopes, although more con­ Business with Iran over the past 12 the character of the Turkish economy by servative estimates say the figure will pro­ months has been hampered by disagree­ opening it up to outside competition and bably be nearer S6,500 million. ment over the price and quality of Tur­ by gearing industries towards exports kish steel as well as delays in process­ rather than inward-looking import ing letters of credit. substitution. Incentives Major improvements have been made Business people generally welcomed Those with most to gain from the export in transport arrangements to cope with the IMF -style programme as the only boom are the large trading houses. the growing trade in onward transit of path to regain the economic recovery Twenty of these have become almost an goods, easing the previous congestion at which had slipped under the more lax exclusive exporters' club, favoured by the ports and border crossings. The lucrative hands of forrner Adnan government with special privileges and in­ nature of the transit trade has ensured Baser Kafaoglu. But by the end of the centives after attaining yearly exports of that at a time of general overcapacity in third quarter of 1984, the president of S 50 mi Ilion . The 20 "incorporated ex­ international shipping, Turkey's maritime the Union of Chambers of Commerce & port companies" took a 40 per cent share fleet has expanded dramatically since Industry, Mehmet Yazar, was calling for of total exports in the 1984 January­ 1980. The total merchant fleet grew to some relief to help small and medium­ September period. 2.5 million grt and 687 ships in 1983; in size firms. Other companies without such easy re­ January-November 1984, acquisitions Foremost of the pointers to the suc· course to exportijenerated earnings find totalled a further 1.3 million grt, including cess of the Ozal reforms were the per­ the going tougher. The general system of Turkey's first two ultra-large crude car­ formance figures for exports, imports and tax rebate incentives for exporters is be­ riers (ULCCs). the balance of payments up to the end ing phased out slowly in the attempt to However, Turkey's depressed ship­ of the third quarter. Exports had risen make Turkish industries more efficient building industry has not so far shared in by 29.7 per cent to S 5,071 million and and competitive. the general shipping boom, since owners imports by 14.8 per cent to S 7.494 mill­ "But," says Ali Kocman, chairman of find it much cheaper to buy secondhand ion compared with the same period in the Turkish Industrialists' & Business­ abroad in the present glut of vessels on 1983 - closing the trade gap by 7.5 per men's Association (TUSIAD), "even if the international market. cent to S 197 million. the government completely cuts out the In Turkey's more traditional markets Due in part to a hefty increase in ex­ export rebate system, there wi II not be a in the EEC, a slight thaw in the icy dis· ternal debt servicing for loans rescheduled dramatic fall in exports. People have approval of Ankara's human rights re­ in the early 1980s, the current account learned how to export and now need to cord since the 1980 military coup has deficit increased by 7.43 per cent to maintain the levels they have achieved." failed to bring release of a promised S 1,591 million compared with the same In the first half of 1984, the govern­ ECU 600 million (S425 million) in EEC period of 1983, but the overall balance ­ ment's first priority in foreign trade aid. At the same time, attitudes hardened of-payments deficit fell by 55.3 per cent diplomacy centred on expanding still fur· in Europe to Turkey's insistence on free to~ 594.3 million. ther Turkey's share of Middle East circulation of Turkish workers by 1986 Turkey's total debt repayments in 1985 markets, after the rapid advances under the country's EEC association

·• - 'tcc 20 'MEED 11 JANUARY 1985 CJ) z.

H~:lJ m agreement. Nevertheless, Ozal in year capacity, most of it to EEC count­ change regime, which permits firms to December stated that Turkey still hoped ries. There are ways around the quota hold more of their hard currency earnings foT full EEC membership eventually. barriers through third-country agents, but overseas to lubricate trade, has led to Several issues need resolving first, the extra cost and effort involved is handsome profits for export houses, particularly EEC restrictions on imports frustrating. according to Asian Onel, president of of cotton yarn and ready-to-wear tex­ EEC protectionism even extends to lzmir-based Tekpa Dis Ticaret, which ex­ tiles. Yearly quotes on Turkish textile the glass industry, where major European ports electric fans and audio and video manufactures are being imposed by the manufacturers are asking for duties on cassettes, chiefly to the US. Now that EEC for the first time - previously they alleged dumping by Turkish bottle and firms can pre-finance even working capital ran for only a few months before re­ tableware makers. "Europe is only harm­ from foreign borrowing to meet export newaL The quota system creates pro­ ing itself by protecting declining indust­ orders, they can profit from the much blems for Turkish manufacturers and ex­ ries," says a senior executive for Turkey's cheaper interest rates obtaining abroad, porters such as the lzmir-based Taris co­ largest glass manufacturer, Turkiye Sise & Onel says. operative, which exports half its output Cam Fabrikalari. On the other hand, imports of subsi­ of cotton yarn from its 15,000-tonne-a- Turkey's newly liberalised foreign ex- dised European steel are largely to blame for a glut in the local market, says Enis Ozsaruhan, chairman of lzmir-based Meptas, whose iron and steelmaking OZAL POLICIES WIN The new body to supervise foreign investment will be welcomed particularly subsidiary, Metas, expects to produce INTERNATIONAL APPROVAL because it will integrate the decrees and more than 340,000 tonnes of steel in communiques which have reformed the old 1985. Both Ozsaruhan and Atilla Yurtcu, The international financial community legislation and covered its loopholes, president of lzdas, whose steel subsidiary signalled its early blessing in 1984 for the according to Can Goknit, deputy chairman ' has a capacity of 400,000 tonnes a year. Ozal government's dual policy of uncompro­ of the private sector's Yabanci Sermaye hope to see a revival in the building in­ mising austerity at home and drive towards Koordinasyon Dernegi (Yased - Association dustry from the government's housing an export-led recovery. The IMF's seal of for Foreign Capital Co-ordination). He says programme. Both argue, too, that more approval came first, in the shape of an interest among potential Western and SDR 225 million ($229 million) standby Middle East investors is growing every day . government support is required overseas credit, followed during the year by aS 300 Many of the inquiries are about agribusiness to match the subsidies enjoyed by their million Euroloan, a World Bank structural such as seed development and animal feeds . Western competitors. lzdas reckons to ex­ adjustment credit, and in the autumn, a Despite the cancellation of a S 200 port half its production, while Metas ex­ S 100 million loan from Arab banks to million Aegean tourism scheme planned by ported steel to the US for the first time in finance exports to the Middle East. Saudi investors, the foreign investment Turkish history in 1984. Each company Early in November, it was announced department of Turkey's State Planning will export through its own port facilities Turkey would go to the Euromarkets again Organisation expects a total S 150 million in 1985. for a $500 million loan to help cover the in private capital to have flowed into the expected 1985 trade deficit, but Ozal has country in 1984. A decree permitting the said his government will not be approaching formation of private financing corporations, the IM F for a further standby credit this with a specific eye to Middle East investors, Export credit proposals year. has opened the way for the establishment of The government, however, has heeded Central bank deputy governor Zekeriya three such houses with a total projected calls for more direct support to exporters. Yildir im said in November that Turkey capital of S 450 million. State-owned Anadolu Bankasi, which in would borrow about Z 2,450 million in The government also hopes private autumn 1983 was directed by the govern.' 1985, including the Euroloan, of which foreign capital and technology will form an ment to concentrate on foreign trade, has S 1,150 million would be short-term. important part of its programme to overhaul The government planned to place more and streamline the public sector's now been asked to propose the best way weight in future on project financing than cumbersome state economic enterprises of establishing an export credit institution. on borrowing to help the balance of (SEEs). These still account for 40-50 per "We will organise ourselves in 1985," says payments, he added. cent of Turkey's total industrial output but Ozcan Basar, manager of Anadolu's for­ In an attempt to attract foreign capital are a drain on the treasury for credit eign department. A separate institution, for private sector joint ventures and subsidies and on the public's pocket through with Anadolu as the main shareholder, investment projects, the government has price increases needed to cover recurring may be created. virtually thrown open Turkey's doors by deficits. The sale early in December of shares simplifying the country's previously Several preliminary joint-ve·nture in the revenues of the Bosporus bridge ­ labyrinthine foreign investment legislation, ac"<>ements have been signed in the mining to part-finance construction of the second greatly relaxing the laws in the process. . !Or by state mining agency Et ibank and Now a presidency of foreign investment is ,Jrospective Western partners, while Etibank bridge - was symbolic of the Ozal to be set up to oversee and promote inflov . has also discussed aS 170 million alumina cabinet's entrepreneurial approach to the of foreign capital, particularly from Middle processing and marketing project with public sector. This will be followed by a East investors. Dubai Aluminium Company. similar fund-raising exercise for the build­ Foreign financing totalling Z 3,253 Other SEEs are to be sold off to public ing of the giant Ataturk dam: shares in million is also being sought for 67 public ownership, the first being national airline revenues from power generated by the works projects, the largest request involving Turk Hava Yollari (THY). The whole completed Keban dam, part of the $2,114 million for 24 projects in the energy creaking SEE structure will gradually be massive southeast Anatolia irrigation and sector to ease the country's crippling exposed to open competrtion in the shortages in this field. marketplace. hydropower programme, will go on offer. The TL 12,000 million ('1>27.7 million) Bosporus bridge shares were snapped up c Ul z Icc{II; :II m

quickly, as the government had hoped, in back from compet1t1on for foreign ex­ lzmir Chamber of Commerce's seven­ a move which was also seen as preparing change business and give more attention storey headquarters, in the course of people psychologically for wider priva­ to domestic lending, according to Halit reconstruction, stands as a further symbol tisation of the state economic enterprises Soydan, managing director of Garanti of the growth in trade. (SEEs). "It's a very shrewd and apt Bankasi and a veteran of the Turkish "The most important thing today is move," says a senior Turkish business­ banking scene. that the pessimism of the 1970s is no man. "People invested who would not Such help for domestic borrowers will longer with us," says Yasar Holding normally do so on Islamic religious still be sorely needed over the next 12 deputy chairman Ali Nail Kubali. "There grounds." months at least. Top business people, is a feeling that we shall succeed." His Many small and medium-size firms industrialists and bankers see 1985 as a sentiments are shared by Orhan Soysal, find little incentive to invest and ex­ year of transition in the government's assistant to the chairman of Koc Holding pand as they struggle to cope with the long-term plans to create a peculiarly Tur­ - although as one of Turkey's oldest high cost of working capital. Interest kish hybrid of the country's former in­ industrial groups Koc suffers from rates are held above the current infla­ sular structure and the free-market philo­ having developed under a far different tion rate, although government predic· sophies of the West. Although ambitious and inward-looking set of rules. "There tions are that they will come down in targets have once again been set for ex­ are three keys to the future for Koc," line with a fall in the inflation rate of ports, at home the prescription for 1985 Soysal says. "Modernise, specialise and 1985. Officials point to the progressive is one of continuing austerity and tight internationalise." decline in the inflation rate in the last monetarist restraints. The government's strategy of pushing quarter of 1984 and forecast a year­ exports while imposing tight monetarist end rate of 25 per cent for 1985. constraint domestically is a purgative Ali Nail Kubali, deputy chairman of that has not been without its negative Yasar Holding, is one industrialist who side-effects. The import system may would like to see more immediate action Reforms favour have been liberalised to a degree, but to help smaller firms. "Some supply­ domestic demand for consumer goods side measures should be introduced to industrial has been dampened. Some factories are supplement the demand-side measures," still running at only break-even rates he says, suggesting that investment of capacity - although the average will should be encouraged by bringing in­ giants probably be about 71 per cent for 1984, terest rates down in line with targeted PRIVATE industrialists in Turkey have 10 per cent up on 1983. The "fine forward inflation rates. lived through a year of sweeping change tuning" exercise carried out every day Difficulties experienced by domestic in government business controls aimed by the central bank in 1984, to control business and industry have not been at gearing the economy towards export­ the exchange rate of the lir-a and keep helped by the banking sector - a crucial led recovery. Larger manufacturers and the prices of Turkish exports competitive, area requiring radical reform, and des­ industrial groups generally have welcom­ has benefited exporters sourcing raw cribed by one businessman as a "time­ ed the Ozal government's implicit attack materials internally but undermined bomb in the Turkish economy." on the old system of state control, while companies importing raw or semi-finished Problems arose in the early part of 1984 for others - especially those enterprises materials to manufacture for the home when non-performing loans - as com­ nurtured under Turkey's pre-1980 closed market. panies struggled under the burden of high economy as import substitution Most importantly for those needing interest rates - amounted to as much as industries - the reforms have meant to borrow heavily to finance restructuring 25 per cent of some banks' lending port­ fundamental and often painful re­ or new industrial projects, the govern­ folios. This situation may have eased structuring. ment's determination to set interest more recently with gathering economic Industrial groups which since 1980 rates above the rate of inflation (reckon­ recovery. have grasped the Ozal challenge to ed to be between 40-45 per cent in The banks sought to cushion them­ capture overseas markets, and especially 1984) has created the extra burden of selves with high profits to be earned from groups with a contracting nucleus, high debt-servicing costs for working or foreign exchange dealings in the wake of are now officially preferred as the trading investment capital. Ozal's currency reforms. But by late houses which may give Turkey its own summer 1984, the banks became so over­ "economic miracle." liquid in foreign currency that the rush to Understandably, the expansionist Encouraging signs central bank exchange windows over­ mood is most apparent in export­ Despite the constraints, there are stretched the money supply. This was oriented areas such as lzmir, which is encouraging signs that industry may be partly responsible for a breaching of IMF noted both for its exporting industries responding to the government's pre­ monetary guidelines in autumn and, while and its agriculture. In the lzmir Chamber scriptions. Besides the increase in new guidelines were hastily drawn up to of Industry, senior industrialists meet capacity utilisation in industry, electricity accommodate the overflow, the need for frequently to discuss the implications of consumption is expected to have risen stricter regulation of the banking sector the new measures and to be addressed by 18 per cent in 1984 compared with had been forcefully demonstrated yet by leading members of the cabinet's 1983; some 69 per cent of imports again. economic policy-making team. A short to have been financed by exports, against However, if domestic interest rates re­ way down the palm-lined main boulevard, 59 per cent in 1983; and the industrial main at the1r present high levels well into where the cement mixers and rebuilding share of exports to have moved up to 1985, banks may be tempted to move work presage the new affluence, the 74 per cent of the total, according to

-~-. I cCP 24 MEED 11 JANUARY 1985 ~- z ~lcc{!l :II m ------Nuh Kusculu, executive board president which fall within the small-to-medium in which most of the large industrial of the influential Istanbul Chamber of range. But Ersoz believes these firms groups are investing heavily. The Middle Commerce. are generally coping well in the present East is an increasingly hungry customer To alleviate the high cost of borrow­ economic climate. "Smaller companies for Turkey's food products, compared ing, the government plans to extend a have organised themselves much better with traditional markets like Europe scheme introduced by Turkiye Sinai than I thought they would," he says. where EEC protectionism is presenting Kalkinma Bankasi (the Industrial "They use less credit and speed up their obstacles for Turkish exporters. Development Bank of Turkey) whereby turnovers with less capital inputs." The "We don't have to go very far to eight-year credits are offered at a fixed companies thus appear to be achieving search for buyers in the Middle East," concessionary rate of interest, with a the sort of rationalisation the Ozal says Sebahattin Gazanfer, assistant long initial grace period. Another pro­ government had in mind when formulat· general manager of Taris. "We are aware posal to channel funds to hard-pressed ing its domestic policies. of the potential and want to make the companies is for the establishment of Ersoz is also general manager of best of it." Taris hopes to step up its a stock exchange in Istanbul to encourage Rabak Electrolitik Bakir & Mamulleri, exports of sultanas and figs to the Middle public share issues. "This will spread a metals group manufacturing mainly East in 1985 - last year the company ownership to the bottom level of ordin­ copper, aluminium and steel wire pro· sold about 2,000 tonnes of sultanas to ary people," says Kusculu. "And if we ducts. Recent investment policy has Iraq and smaller consignments to other have a good secondary market, fund aimed to realign the product range to regional countries. raising will be easier for corporations achieve the highest possible value added Yasar Holding foresaw early on that and companies." between the raw material import cost the growth of import substitution But other commentators think a stock and the finished product's retail sale ­ industries in Turkey would create too exchange is premature and argue that for example, by drawing thinner wires. much demand for expensive foreign the high rate of return for investors Rabak 's capital investments in 1984 exchange to finance imports of raw and in government bonds will outstrip higher­ are expected to have matched 1983's semi-finished materials. This led the risk company shares. Talat Orhon, level of about S 10 million. group to a policy of investing in agri· president of glassmaker Turkiye Sise & Far from bringing plant closures, culture in the 1960s and 1970s, says Cam Fabrikalari, agrees such an imbal­ Rabak's reshaping has led it to increase deputy chairman Kubali. The strategy ance will exist. High inflation and interest its workforce by 10 per cent over the has paid off handsomely - exports rates, he points out, mean the securities past three years, and the company has increasing from S 3.5 million in the market at present consists mainly of steadily boosted its sales and output latter half of the 1970s to about S 90 bonds and, latterly, profit-sharing cert­ to offset the high cost of finance. Sales million in 1983. Much of Yasar's current ificates in the revenues of public measured by tonnage will be up by exports in this field are directed at utilities such as the Bosporus bridge, 25·30 per cent for 1984 compared with Iraq and Iran under government-to­ whose "shares" were sold out quickly to the previous year. But there have been government counter-trade agreements. small investors early in December. sacrifices - the company has been Pinar Entegre Et & Yem Sanayii, Small to medium-siz., tirms are forced to cut into profit margins .over a new investment for Yasar in meat extremely vulnerable to the government's the past year to the present 3·4 per processing, will start up early in 1985, tight monetarism, and Bahri Ersoz, cent. slaughtering 45,000 head of beef and chairman of Turkiye Sanayicileri 185,000 head of lamb a year for both Sendikasi (MESS the Turkish the domestic and Middle East export metalworking employers' union), believes markets. Yasar also has an aquaculture this will manifest itself in a number of Agribusiness growth project under study to rear two popular bankruptcies among smaller concerns One of the most promising areas of types of Mediterranean fish; the aim is in 1985. MESS has 410 members, most of export-oriented growth is agribusiness, to produce fresh fish for the local market

SWiiCI-IPANELS

10 I'.VA SOUNDPROOF 250 "'VA G SETS FROM ALL GENERATIN \~ 5 TO 3000 kVA bobinindus 1, Be\giurn Generating Sets 11 JANUARY 1985 MEED 27 cOJ (/) z

~~:::0 m and then move into processing and can­ ning for export. 1984 SEES UPTURN IN heavily protected, despite the general The group includes a dairy products liberalisation of import policy. In addition company, a plant making compound VEHICLE FIRMS' FORTUNES to customs duties, importers of complete fertilisers, a flour mill, a brewery and TURKEY'S automotive industry is a typical vehicles also have to pay a surcharge malt plant, an animal feed mill, and a example of a protected import substitution towards a special housebuilding fund, and tin can and container factory. It is thus sector founded during the closed economy in any new manufacturing venture well-equipped to invest further in agri­ phase. It went through hard times during regulations stipulate local content of at least business. the economic and political chaos of the mid­ 80 per cent. Nevertheless, the government's Prospects in the agriculture ~ector to-late 1970s, with demand and production intention is that protection will gradually be have proved an investment lure for by the end of the decade slumping to around removed. other major Turkish groups. Expanding half the levels of 1975. Turkey's leading car maker is Oyak­ Renault, currently accounting for about agribusiness potential largely influenced Production and sales have picked up since 1980 thanks to released demand, half of total output. Foreseeing a demand Tekfen Holding, for example, in its easing production constraints, and improved for more quality and choice, the company decision to double fertiliser output to labour relations, says Muhsin Yildirim, plans to introduce a new model to the 2,000 tonnes a day from its subsidiary. secretary-general of the Automotive country, the Renault 9, to supplement the Toros Fertilisers & Chemical Industries, Manufacturers' Association of Turkey rugged Renault 12 it has been producing for according to Tekfen chairman Necati (Otomotiv Sanayii Dernegi). Demand is more than a decade at its Bursa plant. In Akcaglilar. Turkey still imports fertiliser strongest for buses: in the first 1 0 months 1985, the Renault 91ine will assemble at a rate of 1 million-1.5 million tonnes a of 1984 plants operated at 66 per cent of 11,500 cars, increasing over the next five year. so the company thinks the TL 10,000 capacity for large buses, 95 per cent for years to 35,000 cars, says assistant general "midibuses," and 67 per cent for minibuses. manager Can Goknil. ($ million 23.1 million) investment will Total vehicle output in the same period was Production of the Renault 12 will not be well spent. 19 per cent up on January-October 1983, stop, he says. In addition to local demand Koc Holding, the nucleus of aS 2,900 and included 45,399 passenger cars and for the model, there is a healthy export million turnover group ranking 161st 38,040 tractors. market to Francophone West Africa, as well on the US' Fortune 500 for 1984, has set Several joint ventures to import cars as to Egypt and other Middle East countries out to identify new export-oriented were set up in 1984 with foreign car with a strong Turkish contracting presence. areas of investment and includes agri­ manufacturers- particularly the Japanese, The plant also supplies spare parts to business among the candidates. At who have yet to penetrate the market , where the Renault 12 has been present, Koc group products account for significantly -but the local industry is still discontinued. about $60 million of the $200 million­ a-year export volume handled by the group's trading house, Ram Dis Ticaret. "Increasing exports is no easy thing," and set the scene for serious industrial in the US will move east through Europe says Koc's Orhan Soysal. "Most companies unrest. Investment by the government to Turkey. ''We should not expect don't know much about going in the labour-intensive construction miracles and change overnight," cautions ·international." sector will hopefully take up some of the Yasar's Kubali. But in general, he The use of abundant local raw slack. predicts, 1985 will be a fair year for materials in another sector, glassmaking, Although the first strike officially Turkish industrialists. partly explains the success of Turkiye permitted since the 1980 military coup Sise & Cam Fabrikalari. Its sales of ended with a negotiated settlement mainly glass products totalled TL 88,722 early in December 1984, most employers million ($205 million) in 1983, 13 per do not expect a resurgence of the trade cent up on 1982, and the sales target union activity which crippled industry Privatisation for 1984 was TL 216,300 million ($500 in the late 1 970s. Wage increases by million). Exports in 1983 earned and large have not lagged too far behind ofSEEs hits TL 56,238 million (S 130 million). inflation in the private sector - in MESS "Over the past five years, our growth averaging about 40 per cent, for example rate has been unique," says Talat Orhon. - and high unemployment has under­ early snag "We've virtually doubled production and mined worker dissatisfaction. VAH IT Erdem, a quiet man with a increased our exports fivefold." At a Most companies are cautiously modest smile, sits in an office in central time when others were cutting back, optimistic about 1985, even though Ankara ruefully contemplating his work­ Turkiye Sise, because of its cost advant­ none expects the government to load. Until last spring Erdem was a senior ages in export markets, has been able relent much in its domestic austerity figure at the State Planning Organisation.·· to plough back profits into heavy programmes. "Inflation will come down Now, in. addition to heading the govern­ investments in additional plant and to about 30-35 per cent next year, and ment's housing fund, he is the man , equipment since 1980. at the same time interest rates will start responsible for moves to privatise state­ Orhon believes the only handicap of to decline," says Rabak's Bahri Ersoz. owned industries, and as such oversaw the the government's present policies is "This will stimulate industrial pro­ recent sale of revenue-sharing certificates that the general reluctance to invest duction." The coming year will be one for the Bosporus bridge. could feed through into deepening of transition, with recovery much more No-one, and certainly not Erdem unemployment, currently at around 18 noticeable in 1986. Tekfen's Acaglilar himself, imagines that a wholesale sell-off per cent including agricultural workers, thinks that in 1985 industrial recovery of the state economic enterprises (SEEs) ' -·--- . CD 20 MEED 11 JANUARY 1985 cen !Icc~! :xJ m Turkish ministerial visit to Tripoli. The export lines to be built through Saudi partners for the Bosporus project. The agreement calls for Libya to supply Arabia and possibly Jordan. Turkish government is asking consortiums to .some 3 million tonnes of oil to Turkey firms were among the first to accept oil tender on the basis of financing and so that the Turks can reimburse their barter terms from both Iraq and Iran, building the scheme themselves and own contractors for Libyan debts. These partly because of the transport advantage recouping their costs from a franchise are estimated by Libya at about $ 270 they enjoy over rivals. This could cushion to operate tolls. A similar franchise deal million and by the contractors themselves the Turks against a possible credit financ­ was put to the groups negotiating for at up to $1 ,000 million. ing squeeze for foreign contractors work· the $1 ,000 million contract to build Disagreement over the size of the ing in Iraq, should Baghdad be unable to Turkey's first nuclear power station at debts, the amount of oil needed to cover meet its mounting burden of deferred Akkuyu. So far, these proposals have them and transport arrangements have payments. met with mixed reactions from bidders. stalled. the plan so far, even though In Iran, the going remains tough for Other major transport plans for several alternative schemes have been Turkish entrants, since Tehran, like Istanbul also advanced in 1984. A canvassed . The problem was considered Tripoli, insists on joint ventures with feasibility study was commissioned for sufficiently severe to warrant high scarce local firms, and the use of a high the $1,000 million Bosporus tunnel priority on the agenda when Prime proportion of local labour. There have and associated Istanbul metro scheme, Min ister Turgut Ozal visited Tripoli been bottlenecks in the processing of and tenders were invited for both a last May . letters of credit, partly because all trans­ light railway system and construction Firms also find it hard to keep track actions with Iran have to be channelled of a third bridge across the Golden of changing regulations and priorities through Bank Mellat. Horn. The first contracts for the long· in the Libyan construction market. The dwindling number of major in· delayed Istanbul sewerage scheme are Recently, the Libyan authorities de· frastructural projects in the Middle East being awarded. creed that foreign firms should seek has forced contractors to widen their joint ventures with local contractors, but sights. "I see many companies pulling out the latter are few in number. Further of the Middle East in future," says Power projects problems have arisen from the decision Tekfen chairman Necati Akcaglilar. "We Several conventional power station to give agriculture top development are looking for operations and mainten· projects have reached the bid .stage as priority instead of housing. Enka , for ance and commissioning contracts. We the government forges ahead with a example, has waited for over a year to are also looking for joint ventures and programme to redress Turkey's crippling make a start on a $551 million housing even joint-venture investment projects if energy shortages. They include a $ 140 contract at Marsa ei·Brega because the we can find the right partner." Tekfen, million-145 million combined gas and foreign currency portion of its down· he says, is also expanding into sophisticat· steam plant at Hamitabat, and the $200 payment has not been forthcoming . ed process engineering, and has been million-250 million Saray thermal power Turkish workers are also growing negotiating with a Western company to plant and associated coal mine develop· restive about Libya's restrictions on develop a turnkey capability in the con· ment project. Meanwhile, work progress· their remittances, now cut to 50 per cent struction of high-technology plant. ed throughout 1984 on the 2,400-MW of wages in an effort to conserve foreign Larger firms are seeking work further Ataturk dam in the southeast, for which exchange. There have been severa l strikes afield. "We would like to get into the Far $458 million in European credits to over this issue and over associated griev· East market," says Enka chairman Sarik support equipment purchases was agreed ances such as delayed wage cheques. Tara. What is now needed, he says, is in the spring . In Saudi Arabia , the listing by the a government export credit agency which The private sector is promoting the Saudi Arabian Monetary Agency (SAMA will allow Turkish firms to compete with construction of large power station pro· - central bank authority) of two more the Japanese . State-owned Anadolu jects which it hopes will attract finance Turkish banks - Yapi & Kredi Bankasi Bankasi has been charged with the task from outside Turkey. One of these is and Ziraat Bankasi - has helped to ease of formulating such an agency, which Cukurova Electric's $80 million, 273-MW contract financing for smaller firms may be set up during 19B5. Sir dam project on the Ceyhan river. out of the 40 or so Turkish contractors which may be funded by the World Bank . working in the kingdom. Larger compan· These large projects, however, are ies had already been able to draw on Domestic upturn beyond the scope of Turkey's small-to· their connections with third-country Fortunately, firms hard-pressed by medium-size contractors, struggling under Western banks. Increasingly keener pric· difficulties overseas may find some the burden of heavy interest rates for ing poses problems for small and large comfort inside Turkey, where the market working capital. In the past few years, firms alike , but Turkish contractors still has started to turn after several years in the domestic construction sector has managed to notch up a total $442 the doldrums. A number of major borne the brunt of economic recession million in new work in Saudi Arabia in schemes have been moving forward, at home, partly accounting for the the first seven months of 1984. among them the project to build a second exodus of smaller contractors along with Contracts for Turkish firms still bridge over the Bosporus . Last autumn, their larger compatriots to libya. emerge regularly from Iraq . The larger the bridge was offered to contractors as At home, a rash of unrealistically low pipeline contractors are watching closely the jewel in a package for the completion prices for public works projects resulted Iraq's plans to build a second oil export of a 250-kilometre Europe-Asia motor· from cutthroat competition and forced pipeline and a liquefied petroleum gas way system. the government to regulate the industrY . (LPG) pipeline through Turkey , and Novel terms are being suggested to It recently decreed tender prices must hoping for subcontract work on the international firms and their local fall within a 20 per cent margin of cost 11 JANUARY 1985 MEED 33 cto Vl z Icc{!I~

------estimates. The result, according to one a JOint venture between Enka, Mitsui of ~ contractor, is that tender evaluation now Banks pull and Chemical Bank of the US ­ relies more on assessment of a company's are on the way. track record capability and financial through after Stark differences, however, have strength. appeared between the various types of The government has injected some • • bank operating in Turkey. More than money into the building sector in an crtsts years half the market is occupied by the state ( attempt to stimulate confidence and INDUSTRY is groaning, but high interest banks, headed by Ziraat Bankasi and recovery. It has set up a housing fund rates - believed to be soaring in some Turkiye Is Bankasi. Mainly based in which was expected to gross TL 50,000 cases to nearly double the rate of inflation Ankara, and close to the government million ($ 116 million) by the end of - may be helping to pull Turkey's of the day, the state banks have the 1984 from special taxes on luxury goods banking sector out of its crisis of the past preference of many Turk ish savers and services. Builders say speculative four years. Six banks went out of business because they are thought to be safer. house-building is also starting to pick up. in the 12 months to March 1984, but Then there are the foreign banks, But domestic contractors, like compan­ they were all small or relatively small the majority of which have found the ies throughout the economy, cannot private institutions, and state banks Turkish market extremely lucrative expect direct support from the govern­ took over their assets and liabilities in a because they have been able to pick up ment, which has studiously avoided quiet and efficiently managed operation. customers from the major international expensive reflationary measures such as The field is still crowded. and has and Turkish companies. That could a broad programme of public works. been supplemented recently by both change in the years ahead as competition Instead, companies must look to long­ foreign and local newcomers. At the end grows tougher with 15 or more foreign term recovery as promised in the govern­ of 1984 a new wholesale local bank ­ banks largely fighting for the same pool of ment's economic programme. For the The Import-Export Bank of Turkey ­ business - mostly linked to international short term, 1985 holds out more promise opened up. Earlier in the year the US' trading. than the previous 12 months - but it Chase Manhattan and Manufacturers All the banks seem to accept this. It is will still be a lean year for the construc­ Hanover joined the ranks of foreign also recognised that they are performing a tion industry. banks in the country. Others -including major service to the Turkish banking IK\ 1Rl ATTiLA DOGAN ~ CONSTRUCTION &INSTALLATION CO. INC.

TURKEY'S LEADING NAME SPECIALIZED ON; • PIPELINES, PUMPING STATIONS FOR ALL PURPOSES • TURN- KEY DELIVERIES OF PETROCHEMICAL, • STEEL STORAGE TANKS & COMPLETE TANK FARMS CHEMICAL, MINING PLANTS

.: • 17::'4>:'\?..~".f..~ • _,..: OJ j'l~ '

,_ &:..-.-.j· . i­ l ~--~-: - ~ A TTiLA DOiJAN Construction & Installation Co. Inc. Head Office: Abdullah Cevdet Sokak, No: 13 (:ankaya -Ankara I TURKEY, Tel: (41) 38 21 10 (5 lines), Telex: 43 107 atdo tr. I clXI 34 MEED 11 JANUARY 1985 en ­ z ' ilcc~l :JJ m ------~ystem by creating a pool of managerial to 5 per cent, but on term money they ago, and recently Yapi & Kredi, one of talent which Turkish banks can draw on. have been raised -to 35 per cent on one­ the biggest private institutions, announced When Osman Erk, head of Citibank 's month funds, 52 per cent on 6·12 month that it will be the first major bank to be Ankara branch, took over as deputy deposits, and 45 per cent for anything audited by the US' Arthur Andersen. The general manager of Yapi & Kredi Bankasi longer. The intention is apparently to move is part of a clean sweep at Yapi & last autumn, he was at least the twelfth "Stimulate · the flow of funcfs -to the-banks Kredi by Ozyegin. Other large banks ­ foreign-trained Turkish national to make and mop up excess liquidity in the including some of the state concerns ­ such a move. At Yapi & Kredi he is economy. are expected to follow suit eventually. working with general manager Husnu During 1984, time deposits more than Though times are still tough for Ozyegrn;ariotnerrecent arrival and one doubled and total deposits grew by more Turkish banking, some at least of the of the first Turkish bankers, along with than 40 per cent. However some prominent major banks feel that the worst of the lktisat Bankasi's Erol Aksoy, to have a bankers - notably Aksoy -claim there is readjustment process is now over. foreign training background. "30 per cent of fat" between lending and deposit rates. Aksoy would like to see a move to a system in which the Keener competition emphasis is on holding lending rates At least one of the recently established down and encouraging more competition, Alarko places US banks is contemplating opening a as well as the introduction of 90-100-day network of up to 15 branches across the rules to make banking more realistic. emphasis on country, a move which would accentuate The central bank is now allowed to the element of competition with the local readjust interest rates once a quarter, and export growth banks. has introduced monthly rates to The latter, largely Istanbul -based and depositors. It is also working on schemes CAUTIOUS adaptation to the new econ­ always somewhat overshadowed by the for "transparent banking," under which omic regime is the approach of Alarko giant state banks, are starting to adapt it will be able to monitor the progress of Holding's chief executive, Uzeyir Garih, successfully to their new environment. the private banks at regular intervals. for whom strength, rather than growth, is Most grew up with close links to industrial The central bank shed many of its of prime importance. From its origins in groups during the 1950s and 1960s, when routine foreign exchange functions at the the early 1950s as a heating and ventilation rates to lenders and depositors were end of 1983 and is shifting to an essentially contractor, the Alarko group now has an usually below the rate of inflation. supervisory and regulatory role. The new annual turnover of about TL 19,000 When real interest rates were introduced foreign exchange system - which the million ($ 44 million) and encompasses a in 1980, the shock for many banks was banks, forced to take on a wide range of diverse range of companies engaged in severe. Within a few months, the banks responsibility for commercial transactions, turnkey contracting, process engineering, found themselves with a growing volume accepted with reluctance - now seems to heavy capital equipment manufacture, of bad debts. They struggled hard against be working well under close central bank domestic electrical goods, chemicals, government policies and for a long time supervision. Few complaints are heard canned food and international trading. operated a "gentleman's agreement" to from the commercial banks, and ordinary Alarko is also a shareholder in Tutunbank, hold interest rates down. Turks have got used to a system where which has an extensive network of However, all have eventually had to they can buy quite large amounts of branches in the Aegean and Marmara adapt to the new conditions, and now foreign currency over the counter, albeit regions . some of the better-managed banks are at a stiff rate. In 1983, total group profit before tax starting to pull ahead in the race. Akbank Central bank governor Yavuz Canevi iV was about TL 2,000 million ($4.6 million). says 1984 was by far its most profitable known to believe that interbank lending is Some 2,500 people are employed direct, year ever -and its competitors agree that another activity that needs fostering . The and the group ranks thirty-seventh in its performance has been outstanding. main problem here is the psychological Turkey's league table of top industrial Before his departure from Uluslararasi and geographical distance between the concerns, including the public sector state Endustri & Ticaret Bankasi (Interbank). cash-rich state banks in Ankara and the economic enterprises. Erol Aksoy was describing conditions in commercial banks in Istanbul. Garih 's caution is especially justified 1984 as "almost too good." Another obstacle is the lack of a by the present high interest rates for The government's present strategy tradition of interbank lending, though working and investment capital. "We seems to be to keep interest rates on some bankers - notably Erol Sabanci at must maintain a good equilibrium between loans as high as possible until the ailing Akbank - are trying to develop one. loans and growth," he says, adding that banks have become sufficiently strong Akbank currently has about TL 12,000 Alarko's board is not prepared to coun­ to be able to write off their bad debts million ($ 27.7 million) in interbank tenance a current ratio (current assets from industry. Under existing regulations, lending . "It's arranged over the telephone over current liabilities) lower than 10 :8. bank deposit rates are fixed but lending very easily most of the time," Sabanci By 1980, says Garih, Alarko had rates are negotiable . They tend in practice says. reduced its loan commitments to zero, a to be between 48·60 per cent - though Auditing is another growth area. position it maintained until the end of the net cost of the money to borrowers Sabanci relies largely on family -firm 1982, when the company realised growth is far higher, approaching 90 or even 100 methods, using a team of 150 inspectors had been smaller than projected. In 1983 per cent. directly responsible to him. But others it began borrowing again, but only for Rates on sight deposits have been are switching to external auditing . activities with a strong growth potential. cut by the government from 20 per cent Interbank led the way some years Chief among these was the production of 37 CD 11 JANUARY 1985 MEt:.O c (/) z [QH :II m goods for export, since most of the group's extract or powder for export. At present and the . To meet subsidiaries are not yet geared to external the liquorice plant is exported in raw rising demand, two major extensions have markets. Alarko expects to export about form. been built for the Kordsa plant during the S 20 million worth of products in 1985, The fourth project concerns Alarko's past four years, and annual exports are but this still amounts to about only 10 minority participation in a joint venture now valued at S 30 million. per cent of total output. concluded early in 1984 between state Sabanci says Lassa has exported as far The group's main activity lies in con· mmmg agency Etibank and West away as the UK, where it is able to struction and equipping of power plants, Germany's Preussag to mine an estimated compete on both price and quality with water supply and sewage disposal units, 20-million-tonne copper deposit in the the backing of an EEC quality-approval and industrial plants and factories Siirt region. Development costs are expec­ licence. Now the company is going for generally. Jobs completed in the past ted to total S60 million (MEED 16:3:84). the quality end of the commercial vehicles five years by its engineering and con· market with the production of heavy tracting division include a 220,000· duty radial truck tyres. tonne-a-year (t/y) fertiliser plant, a The same goal of integration is behind 35,000-t/y salt refinery, a 40,000-t/y the group's plans to build a plant in sulphur plant, a two-by-30-MW steam Integration Turkey to eliminate imports of refined turbine power station at the Aliaga petro­ material from the US for the dimethyl chemicals complex, and the terminal is keynote terephthalate (DMT) factory at its SASA buildings at Istanbul's Yesilkoy inter­ industrial . plant in Adana, claimed to be national airport. In the course of its work, the large.st wholly privately owned the division has collaborated with leading for Sabanci · industrial complex in the country. The manufacturers and contractors from the INDUSTRIAL growth can best be DMT plant, which produces synthetic US and Europe, including West Germany's achieved through integration of raw fibres, has built-in provision for expan· Brown, Boveri & Compagnie and the US' materials, products and markets, says sion, with relatively little investment, Bechtel and C E Lummus. Sakip Sabanci, chairman of Sabanci from its present capacity of 65,000 "Our aim is to be more and more Holding, the nucleus of the Sabanci group tonnes a year (t/y) to 120,000 t/y. Out· put is geared mainly to the domestic export-oriented," says Garih. "Our main of companies. The group traces its origins~ markets would be West Germany, and to farming and cotton processing in the market, but Sabanci says sales to then the Middle East." The group's heavy Adana region in the 1930s and 1940s; neighbouring countries are to be stepped engineering subsidiary already sells com­ soon after the second world war it founded up. ponents for cement plants to West Akbank, now one of Turkey's leading Germany's Krupp Polysius made according financial institutions, and followed this to the West German company's design up with a steady process of diversification Agricultural potential briefs - Turkey's low labour costs and into textile manufacturing, packaging, According to Sabanci, the most promising its proximity to Arab markets enable construction materials, plastics, and auto­ avenue of industrial growth in Turkey lies \ Krupp to bid very low for turnkey cement motives. The group has recently in capitalising on the country's agri· plant contracts, Garih explains. embarked on a TL 30,000 million ($69 cultural potential. The group already has The government's domestic economic million) horizontal and vertical invest­ several major agro-industry enterprises, programme has depressed local demand, ment programme, aimed mainly at and now is planning to develop seed he admits, forcing companies to upgrade improving its competitiveness in export growing, opened up to the private sector I their quality and efficiency in order to markets. for the first time by Turgut Ozal's govern- I survive. One example is in airport handling Sabanci's proudest example of his ment in 1984. Yields are expected to l equipment - where five years ago 20 integration policies is Lassa Tire, founded increase radically with the import of j companies were competing against each in 1974 and now accounting for 40 per . hybrid seeds and genetic technology from other in Turkey, now only three are in cent of Turkey's total tyre output. It the West. the market, one of which is an Alarko sources one of its main materials, cord In another move, Sabanci has signed subsidiary. fabric, from another group company, a letter of intent with the US' Philip Kordsa, established in 1972. Though the Morris for tobacco production, previously plants are still dogged by high debt· monopolised by state cigarettes and Investment plans servicing for loans raised in the 1970s ­ drinks combine Tekel. Trials with Alarko's current plans for new invest· when interest rates were far lower than imported Virginia and Burley strains have ment centre on four projects. The first is they are now - Sabanci has developed a. already proved very successful. for hydropower generation, with the lucrative niche for the two companies in "In this sort of area, government company planning to install a 12-MW unit Turkey's private industrial sector. monopolies will never work," says at an existing irrigation dam on the Melen Lassa, with annual capacity of 2.2 Sabanci. "Opening up an area like seed river and sell the output to the state­ million tyres and 1.5 million inner tubes, growing to the private sector brings owned electricity board. Preliminary is the largest tyre manufacturer in the competition, and with the resulting studies have been officially approved. Middle East. Besides providing all of dynamism, Turkey will take off in the The second scheme is for investment Lassa's tyre cord requirements, Kordsa agricultural area." in real estate - Alarko is planning to build supplies Lassa's multinational competi· a satellite town outside Istanbul compris­ tors in Turkey and exports 45 per cent of Researched and written in Turkey by ing 390 homes - and the third involves output to countries including Iran, Iraq, JIM BODG£N£R and the possibility of producing liquorice Egypt, West Germany, Yugoslavia, DAVID BARCHARD