Lessons on the Turkish economy from its largest firms
The Istanbul Chamber of Industry (İSO) released the latest (2014) of its annual rankings of Turkey’s top 500 industrial firms on June 16.
The accompanying report and the rankings of second-tier 500 companies, which is usually published about a month after the first-tier rankings, have balance sheet information on these large firms as well. As far as I know, the rankings have been published regularly for the top 500 since 1993, and for the second group since 1997, making it the best firm-level panel dataset in Turkey.
There are myriad statistical studies that economists can undertake with these data. In fact, I wrote an analytical piece for the Hürriyet Daily News with my former student Ahmet Aşarkaya back in 2009. I am surprised academics do not make more use of them. One can learn a lot about the Turkish economy from just a cursory look at the data or going through İSO’s report:
As İSO President Erdal Bahçıvan underlined during his press conference to present the report and rankings, exchange and interest rates took their toll on Turkish companies in 2014. The top 500 firms’ operating margins fell by 16.4 percent from the previous year even though their net sales rose by 3.9 percent.
However, I am more worried about the general outlook of Turkish industry than one bad year. Even though manufacturing’s share of GDP has been hovering at around 15-16 percent since 2009, this is far lower than the 23.6 percent it was in 1998. Turkey simply cannot break free of its external financing and consumption-led growth model with such a small manufacturing sector.
To add insult to injury, the top 500 companies manufacture almost no high-tech products. While the rise in the share of high (from 2.6 to 3.2 percent) and medium-high (from 17.8 to 19.4) tech value-added products in is promising, Turkey cannot change its growth model without producing and exporting more sophisticated products.
Moving on, the government has said it would like to turn Istanbul into a financial center, even though I have my doubts that this is anything more than a rent-seeking construction project in the first place. But even if policymakers’ intentions are noble, they won’t succeed unless they manage to increase the depth of the stock market: Only 80 of the top 500 firms are currently listed on Borsa Istanbul.
Last but definitely not least, the emphasis in the media on the rise of the “Anatolian tigers” - which now make up exactly 60 percent of the top 500 companies - misses the big picture: Some 34 of Turkey’s 81 provinces are not present in the rankings with even a single firm. Unsurprisingly, most of the excluded provinces are in eastern and southeastern Turkey, but the right half of Central Anatolia is almost completely out of the picture too.
Last year’s dismal performance would only be a footnote in my take of İSO’s 2014 rankings and report. Unless Turkey can solve the longer-term and structural problems of its manufacturing sector, its economic prospects will continue to be mediocre at best - not just this year but every year.