Turkey - Powerhouse of Europe

DISTRIBUTED BY THE DAILY TELEGRAPH -17 MAY 2011 INDEPENDENT FEATURE for IMAGE DIPLOMACY 

In under a century Turkey has endured some pretty seismic changes, not least the defeat of the Ottoman Empire. Independence came in 1923 - led by Mustafa Kemal Ataturk, credited as being the founder of the modern Turkish state – and it gave birth to a new mindset that most Turks hold very dear in both their business and personal lives.

Undergoing this transformation has not been easy but the nation has invested itself in its goals, achieving many in the last decade. They aim to reach other targets set, like their commitment to make Turkey one of the top 10 economies in the world by 2023; the milestone celebrating the centenary of the founding of the Republic.

There can be no doubt that the recent economic downtown ushered in a new world order in terms of fiscal regime, discipline and business practice. In light of the strife, Turkey’s performance has been little short of astonishing. Ilker Ayci, President of ISPAT (Investment Support and Promotion Agency of Turkey) proudly explains, “Turkey was the only OECD member that did not have to introduce any financial relief measures during the crisis. We had a similar financial crisis back in 2001, after which the whole financial system in Turkey was overhauled and restructured. With strong and subtle regulations combined with prudent fiscal policies, Turkey is now promising a bright future for investors.”

Perhaps then it is not surprising that, upon becoming Prime Minister, David Cameron chose Turkey as one of his first overseas visits - sending a clear message about the importance of relations between the two countries. It was a smart move for the newly- appointed leader who recognises that Turkey is Europe’s BRIC - referring to the fact that its burgeoning economy is not unlike that of Brazil, Russia, India and China - and that Turkey’s comparatively close proximity to the UK is a great advantage.

Cameron’s dynamic declaration of support for Turkey’s EU accession, coupled with other comments made during the trip to Turkey, did not go unnoticed. As Suzan Sabanci Dincer, Chairwoman of Akbank and staunch advocate of UK-Turkey relations, recalls, “The British Prime Minister, David Cameron, is very popular in Turkey and his statement about Turkey taking its place in the top 10 countries in the EU was well received. Indeed, the UK’s popularity in the country is very high. There is huge potential on both sides.”

It is exactly this potential that both governments are hoping to tap into. While current incumbent, Prime Minister Erdogan refers to bi-lateral relations with the UK as entering a “golden age”, Cameron suggests that they should “go platinum.” The value of trade relations between the two countries presently stands at $9bn (approximately £5.5bn) but Cameron has an ambitious plan to double it in the next 5 years. According to the British Ambassador to Turkey, David Reddaway, “That vision is being validated by the trade statistics all the time – last year, UK exports of goods to Turkey rose by 38 percent and Turkish exports to the UK rose by 17 percent.” In fact Turkey enjoys a trade surplus with the UK whereas elsewhere they have a trade deficit. That said, the UK government is looking at ways to redress the balance by further increasing its exports to Turkey whether they be products or services that the nation is lacking.

Apart from fostering UK-Turkey trade and commerce relations, there is also a wealth of investment opportunities available to UK businesses. Currently the UK is Turkey’s second largest investor, however the inference is that the country itself should not only be seen as a destination for investment but also a springboard to the region whereby Turkish and British companies can join forces, creating ventures in third party countries. Certainly British SME’s (small and medium-sized enterprises) would benefit greatly by partnering with Turkish firms who have knowledge and contacts in the domestic business arena as this would facilitate their entry into not only the local but also the regional market.

The UKTI with offices in Istanbul, Ankara and Izmir is well positioned to provide advice and assistance to Turkish entities wishing to enter the UK market and British ones striving to enter Turkey. Jessica Hand, British Consul General, believes in the need to make Turkey the destination of choice for UK business. Additionally the Director of UKTI Turkey, Hand’s passion for the country is palpable when she speaks about the incredible synergies the two nations enjoy. She cites both HSBC’s and Vodafone’s strong presence as evidence of the UK’s interest in Turkey’s phenomenal potential. Vittorio Colao, CEO of Vodafone Group qualifies this by stating that, “The subsidiary in Turkey is the fastest growing operating company within the Group and we are very proud of our participation in such a dynamic and growing economy.” Meanwhile Tesco is also expanding its operations in Turkey through its joint venture with Turkish partner Kipa.

As Hand points out, “According to Goldman Sachs’ assessment of Turkey, it is one of the largest economies in Europe and it is poised to become the 9th biggest economy in the world by 2050.” Given the scope for all manner of enterprises, now is clearly the time to explore the myriad of prospects on offer. Yet, Hand ponders the seemingly slow uptake of the opportunities that exist, saying, “The biggest question that we have is: why has Turkey has been overlooked so much?” Perhaps the reason lies in the fact that few realise just how far the country has come in such a short space of time. Turkey, once the “sick man of Europe” has hauled itself up and gone on to become the rising star in Europe’s firmament.

FDI - Investment Climate in Turkey

For the international investor, Turkey offers lucrative opportunities across a diverse range of sectors from energy to research and development (R&D). Its robust economic performance, growing domestic market, skilled labour force and strategic location make Turkey one of the most attractive investment destinations in the world, attracting around $94 billion of Foreign Direct Investment (FDI) since 2002, compared to $15 billion FDI over the preceding three decades.

Over the last eight years the Turkish economy overall has demonstrated a remarkable performance with its steady and continuous growth. Sound macroeconomic strategy,

prudent fiscal policies and major structural reforms in effect since 2002 have seen the Turkish economy integrated into the globalised market. These same structural reforms, accelerated by Turkey’s EU accession process, have also paved the way for comprehensive changes in a number of areas and strengthened the fundamentals of the country. This is reflected in a dramatic fall in inflation, down from 30 percent in 2002 to 3.9 percent in March 2011 and a reduction in the public debt stock, down from 74 percent to 42 percent since 2002. As GDP

The potential financial rewards to be gained from investing in Turkey are not limited to the opportunities available in the domestic market. In addition to a vibrant and growing local market there are many prospects to be found in neighbouring countries with Turkey’s geo-strategic location enabling investors to access multiple markets across Europe, the Middle East, North Africa and the Caucasus. The Customs Union that Turkey enjoys with the EU, coupled with Free Trade Agreements (FTA) with 20 other countries, creates further export opportunities for its investors, allowing them to sell their products to these countries without incurring customs duties or other trade restrictions.

The areas in which Turkey offers the most abundant investment opportunities include automotive, ICT, energy, renewables, machinery, iron and steel, electronics, pharmaceuticals, agro- food and petrochemicals. One of the principle investment areas is R&D with Turkey not only supporting but also actively encouraging R&D and innovation through extremely attractive and profitable incentive packages. This commitment from the government has significantly boosted investment in this field with R&D expenditures having increased exponentially in recent years reaching $8.8 billion at purchasing power parity in 2009. This represents a cumulative increase of 194 percent from $3 billion in 2002. Similarly, the number of full-time R&D personnel in the country soared to 73,000 from 29,000 in the space of seven years between 2002 and 2009. Meanwhile the number of international patent applications increased by 325 percent, reaching 361 in 2008 up from 85 in 2002.

Today more than 1,000 companies are actively involved in R&D and innovation activities with the value of foreign investment from just 56 of these entities totalling approximately $500 million. More than 6,000 projects have been implemented and approximately 3,500 more are currently underway. In addition, a number of international companies have recently established R&D centres in Turkey including Roche, Pfizer, Fiat, Mercedes-Benz, Huawei, General Mobile, Bosch-Siemens, GE, Oracle, Accenture, Siemens, Intel, Alcatel-Lucent, Microsoft, ST-Ericsson and Nortel.

Turkey is firmly committed to attracting FDI as evidenced by the establishment of the Investment Support and Promotion Agency of Turkey (ISPAT) under the auspices of the Prime Ministry in 2006. ISPAT is the official organisation responsible for promoting Turkey’s investment opportunities amongst the global business community and providing assistance to investors before, during and after entry into Turkey.

ISPAT serves as a reference point for international investors and as a point of contact for all institutions engaged in promoting and attracting investments at national, regional and local levels. Working on a fully confidential basis, ISPAT offers a wide range of complimentary services including market information and analyses, industry overviews, comprehensive sector reports, assessment of investment conditions, site selection, identification of potential partnerships or joint ventures and negotiations with relevant governmental institutions. They also provide facilitation of legal procedures and legislation issues such as establishing business operations, incentive applications along with the procurement of licenses, work and residence permits.

Perhaps one of ISPAT’s greatest strengths is its ability to apply a “private sector approach” while enjoying and employing the full backing of all relevant governmental bodies. This puts the agency in the perfect position to enable and assist foreign investors as they foray into the Turkish market to take advantage of the myriad of opportunities that exist in this exciting and dynamic market.

 Finance- Istanbul set to become a regional financial centre

In stark contrast to the preponderance of banking sectors across the world, Turkish banks have by and large succeeded in emerging from the recent financial crisis in a position of strength.

As major players on the international banking stage paid a heavy - in the case of Bear Sterns and Lehmans fatal - price for over-exposure to so-called “toxic assets”, Turkey’s banking industry reaped the rewards of lessons learned from a previous financial crisis of its own. Indeed, whilst many banks globally registered crippling losses throughout 2008 and into the early part of 2009, their Turkish peers not only remained buoyant, but even began to post record levels of profitability.

Turkey’s resilience in the face of a sector in global freefall stems from the experience of the national financial meltdown of 2001-02 which, as Suzan Sabanci Dinçer – Chairwoman of Turkey’s exemplary Akbank - notes culminated in losses of around $45 billion (£27.5bn), representing approximately one third of the country’s GDP at that time. The ensuing fiscal discipline, regulatory reforms and IMF restructuring program resulted in a banking system well positioned to deal with the more recent 2008-09 crisis.

Sabanci Dincer specifically references the high capital adequacy ratios at around 19 percent (which are higher than would typically be found amongst foreign banks), loans-to- deposit ratio of 85 percent and low leveraging ratios at around 7.5 percent as critical factors ensuring that Turkish banks have not fallen prey to the government bailouts, bankruptcy and sharply declining profits suffered by its international counterparts. Neither have they been the object of the heightened public anger so evident in other markets, including the UK and the US.

In fact far from being seen as a burden on the state and its finances, banking institutions in Turkey are seen as its backbone. This is further borne out in Standard and Poor’s analysis of risk within the banking industry: “Unlike other emerging markets in the region (...) Turkish banks benefit from diversified funding and good liquidity, with relatively moderate reliance on wholesale funds” (Bank Industry Risk Analysis: Turkish Banks Withstand Heightened Environmental Hurdles).

The health and robustness of the Turkish banking sector also holds true in the post-crisis period where it dominates Turkey’s wider financial services industry, comprising 95 percent of the overall sector and owning 80 percent of assets by size as quantified by the Turkish Banking Regulations and Supervision Agency. Indeed, such is the international financial community’s belief in the quality and stability of Turkish banks today that an entity like Akbank is able to attract individuals like former World Bank Chief Economist, Lord Stern and Lloyds Banking Group Chairman, Sir Winfried Bischoff to their investment Advisory Board.

It is not just the strength of Turkey’s performance during and after the recent crisis which is of note, but also the Turkish government’s drive to maximise Turkey’s standing on the financial stage. As Hüseyin Erkann, Chairman of the IstanbulStock Exchange (ISE), elucidates, “Istanbul will become a regional financial centre within the next 10 years and a global centre in a few decades”.

It is an initiative that has already been launched and that is starting to take shape. Among its many domestic advocates is the country’s largest private bank, Isbank - recently ranked 75th in The Banker’s 2011 Top 500 Banking Brands. It believes that Istanbul possesses many advantageous characteristics to become an international financial hub; including the availability of appropriately skilled labour, realising the growth potential inherent in the location, together with the cost of doing business and the attractive lifestyle that the city offers.

This goal is inevitably not without its challenges including the perceived instability of the country’s tax regime, the low domestic savings’ rate and much needed legislative and regulatory reforms which would greatly facilitate the ability to do business in the country. To turn this ambition into reality, a report for The Banks’ Association of Turkey estimates that in the region of €2bn (approximately £1.75bn) of investment will be required in a 5-year timeframe. However, the upside of the creation of the centre would be a pool of approximately 150,000 qualified personnel and it is anticipated that this would contribute to a growth in GDP of up to 4 percent. 

While these are ambitious plans, Istanbul does however have some strong and expert backing for its objective in the shape of the UK’s capital. In a visit to Turkey in late January 2011 the Lord Mayor of the City of London, Michael Bear, reiterated that the City was available to assist as a key partner in this process.

Besides legislative and regulatory needs, going forward it will be critical to put in place the requirements to build a successful commercial centre. The Lord Mayor draws specific reference to the transport and infrastructure investments which are a necessary prerequisite to making this goal happen.

Highlighting the City of London’s expertise in the field of Public Private Partnerships and Public Finance Initiatives – which are likely to be the source of funding essential for most ventures – Rt Hon. Bear noted that these would potentially be of great interest to City firms. The input and expertise London has to offer Istanbul certainly seems to be welcomed.

As the President of ISPAT (Investment Support & Promotion Agency of Turkey), Ilker Ayci reaffirms, “Finance is an area where UK investors can have an impact on Turkey. As Istanbul is developing into an international financial centre, investors from the UK are welcome to contribute to, and benefit from, this development. The government launched the project, ‘Istanbul Finance Centre’, to make the city a regional financial centre from where global companies will be able to manage their financial operations in the region”.

Having successfully navigated the financially precarious waters of the recent crisis, Turkey now has much to deliver if it wishes to capitalise on its potential. Istanbul’s vision to become a regional financial centre also makes sense when taken in the context of Turkey now being the largest Muslim economy in the world, surpassing Indonesia.

This presents interesting prospects for the further development of Shariah-compliant financial products in the future. Niche markets aside Istanbul is not alone in wishing to become a “financial services hub” and competition is likely to get steeper in the coming years. Success in realising these undoubtedly ambitious goals, will greatly depend on Turkey’s ability to seize the opportunities for which it is now so well positioned.

Stock Exchange (ISE), elucidates, “Istanbul will become a regional financial centre within the next 10 years and a global centre in a few decades”. It is an initiative that has already been launched and that is starting to take shape. Among its many domestic advocates is the country’s largest private bank, Isbank - recently ranked 75th in The Banker’s 2011 Top 500 Banking Brands.

It believes that Istanbul possesses many advantageous characteristics to become an international financial hub; including the availability of appropriately skilled labour, realising the growth potential inherent in the location, together with the cost of doing business and the attractive lifestyle that the city offers.

This goal is inevitably not without its challenges including the perceived instability of the country’s tax regime, the low domestic savings’ rate and much needed legislative and regulatory reforms which would greatly facilitate the ability to do business in the country.

To turn this ambition into reality, a report for The Banks’ Association of Turkey estimates that in the region of €2bn (approximately £1.75bn) of investment will be required in a 5-year timeframe. However, the upside of the creation of the centre would be a pool of approximately 150,000 qualified personnel and it is anticipated that this would contribute to a growth in GDP of up to 4 percent. While these are ambitious plans, Istanbul does however have some strong and expert backing for its objective in the shape of the UK’s capital.

In a visit to Turkey in late January 2011 the Lord Mayor of the City of London, Michael Bear, reiterated that the City was available to assist as a key partner in this process. Besides legislative and regulatory needs, going forward it will be critical to put in place the requirements to build a successful commercial centre.

The Lord Mayor draws specific reference to the transport and infrastructure investments which are a necessary prerequisite to making this goal happen. Highlighting the City of London’s expertise in the field of Public Private Partnerships and Public Finance Initiatives – which are likely to be the source of funding essential for most ventures – Rt Hon. Bear noted that these would potentially be of great interest to City firms. The input and expertise London has to offer Istanbul certainly seems to be welcomed. As the President of ISPAT (Investment Support & Promotion Agency of Turkey), Ilker Ayci reaffirms, “Finance is an area where UK investors can have an impact on Turkey.

As Istanbul is developing into an international financial centre, investors from the UK are welcome to contribute to, and benefit from, this development. The government launched the project, ‘Istanbul Finance Centre’, to make the city a regional financial centre from where global companies will be able to manage their financial operations in the region”.

Having successfully navigated the financially precarious waters of the recent crisis, Turkey now has much to deliver if it wishes to capitalise on its potential. Istanbul’s vision to become a regional financial centre also makes sense when taken in the context of Turkey now being the largest Muslim economy in the world, surpassing Indonesia. 

This presents interesting prospects for the further development of Shariah-compliant financial products in the future. Niche markets aside Istanbul is not alone in wishing to become a “financial services hub” and competition is likely to get steeper in the coming years. Success in realising these undoubtedly ambitious goals, will greatly depend on Turkey’s ability to seize the opportunities for which it is now so well positioned.

Isbank - Growing with the Nation

Just one year after the founding of the Republic of Turkey in 1923, Isbank was set up. Ever since, this institution’s history has been closely linked to the development of the nation.

The proclamation of the Republic was accompanied by strong ambitions to create a national fiscal structure. Therefore, Isbank’s mission was to be the pioneer in the establishment of a national banking framework that could provide for the financing needs of this newly flourishing economic environment. Its remit was to reinforce savings within the financial system and to direct the accumulating funds towards such sectors that would bolster industrial development. Hence, since its foundation, Isbank has been one of the most influential entities in supporting the developing Turkish economy. It has been credited with establishing the national savings culture and financing fundamental economic breakthroughs.

Today Isbank is the largest private bank in Turkey in terms of asset size, deposit volume, branch network, ATM network and number of retail and commercial customers. With its sustainable and strong financial structure, the bank contributes significantly to the domestic economy, generates value for its shareholders and other stakeholders whilst managing its assets effectively and efficiently. Isbank’s workforce of some 24,000 highly trained and dedicated employees is the largest among all banks in Turkey. Its human capital comprises one of the cornerstones that give the competitive advantage to Isbank, known as the “banking academy” of Turkey.

Isbank is proud to provide service ubiquitously to millions of customers via a multi-channel delivery network. Not only does the bank boast the biggest personnel, it also has the largest number of branches – the last count was 1,146 – and the most ATMs with 4,276 throughout Turkey. The “Isbank” brand, identified with the phrase “Turkey’s Bank,” unites long-standing tradition, trust, a pioneering spirit and innovation. The bank enjoys a unique position in the Turkish banking sector in terms of its historic legacy and strong image. With its exceptional brand value, Isbank ranks 75th in The Banker’s “Top 500 Banking Brands” and the 1st among Turkish banks. In addition, Isbank is the leader among Turkish banks being 103rd in The Banker’s “Top 1000 World Banks” ranking.

Isbank’s target is to expand its international network further and is thus taking initiatives to enlarge its activities - first to neighbouring regions and then to other suitable markets. Its ambitious expansion plans include the signing of a share purchase agreement for the acquisition of a Russian bank (with expected completion this year), the application to establish a branch in Azerbaijan and the recent opening of both a branch in Iraq and a representative office in Egypt. The Middle East is cited as an important geographical region not only for the country but also for the bank. Despite the unrest Isbank’s representative office in Egypt and the Bahrain branch continue to operate, providing vital services to customers and correspondent banks.

Furthermore, Isbank is taking important initiatives regarding overseas expansion in the region and they are in the process of concluding the approval process with Syrian authorities in order to establish a representative office in Damascus. Closer to home Isbank is embracing a myriad of prospects including the investigation of investment opportunities in the Balkans. Meanwhile, the Frankfurt-based financial subsidiary, Isbank GmbH, is continuing its expansion projects in Europe.

For those in the UK wishing to avail Isbank’s expertise, there is a proactive London branch offering a wide array of services and products to individuals and businesses alike. Located next to the Bank of England, Isbank’s branch also offers mortgage facilities to British investors buying property in Turkey. The team is on hand to help with legal and operational issues, providing full support to buyers who want to invest in the country for the first time.

Isbank currently offers standard variable rate, repayment mortgages in GBP for finished properties in Turkey. These mortgages are available for a maximum of 75 percent of the property’s valuation with repayment terms up to 15 years. It should be noted that Isbank Overseas Mortgages are housing loans extended to UK residents over the age of 18 for the sole purpose of financing their purchase of property in Turkey.

Industry 

Behind the exemplary Turkish success story that is Erciyas Steel Pipe Co. is the tale of a man who knows that his expertise lies in producing the very arterial systems indispensable to human civilisation. Ahmet Erciyas is justifiably proud of his conviction of how necessary pipes are to human societies’ growth and development. As he says, “You can feel us in the water that comes from your tap, the water you drink and that is used to irrigate your farms. Indeed, our pipes also carry you the fuel that makes everyday life a reality, we bring you energy to heat your house, run your car and drive business forward.”

An avowed history buff, Ahmet Erciyas maintains that his fascination with human progress has informed every aspect of his business career to date. He rightly reveres his role facilitating the transportation of vital, precious and life-enabling “liquids”. It is indeed a noble and historic occupation dating as far back as the third millennium B.C, when the first water canals were known to have been constructed in Egypt and Mesopotamia.

Few of us in the developed world ever pause to consider the almost miraculous, intellectual, logistical and organisational challenge that goes into supplying us not only with clean, safe drinking water but also oil and natural gas. These are products that we far too often take for granted and yet they are as vital to today’s industrial society as water was to those who lived millennia ago. “We feel true pride in carrying the vital substances of life; water, oil and gas to you. We are the producers of the steel pipes that are used to carry life to you. The Erciyas family are well aware of the responsibility on our shoulders and therefore, we are striving to produce the best pipes that play such an important part in human happiness.”

A man of humble origins – the son of a tailor – Ahmet Erciyas maintains that he had only two academic interests at school; history and chemistry. The latter led to him graduating with an MS in Metallurgical Engineering from Istanbul Technical University (ITU) in 1971. He landed his first job as a young engineer at the German industrial giant, Mannesman-Sumerbank Pipe Industry Co. which was, at the time, Turkey’s most important steel pipe factory. Here he was given the task of managing the quality department. It was an experience he claims shaped his life.

Learning first hand all the technical skill of manufacturing and gaining exposure to German technology, he still venerates German industrial and engineering prowess. “I studied in Germany, I worked in and was trained by German companies. So there are many traces of the German mentality in my drive and in my motivation.”

The early 1970s were a tumultuous period of rapid development for Turkey. Ahmet Erciyas, a vanguard of this, was prophetic in recognising early on that a nation in the throes of social upheaval and modernisation would be increasingly in need of steel pipes. This being the case, he threw himself into understanding every technical detail of steel pipe production. By extension he investigated and came to understand the structure and future importance of his chosen sector - not only to Turkey but the world.

These formative experiences led him to conclude that the three elements essential to human health and prosperity - water, oil and natural gas - could only be supplied continually and efficiently by steel pipes. Even now he affirms, “As humanity continues to progress our demand for these will be pressing and ongoing.”

Setting up his own business in 1977, in an idealistic entrepreneurial bid to realise his vision, has not been without huge personal challenges. Notwithstanding his significant success Erciyas has encountered setbacks

particularly those associated with entering a market historically dominated by foreign technology and capital.

Founding several businesses he eventually established his first non-partner company, Erciyas Industry Co. in 1989. One year later he founded Erciyas Steel Pipe Co. At the time it consisted of a workshop with a bitumen coating machine, one engineer and three workers.

Today Erciyas is able to look back vindicated that the factory he set up in 1990 is now a source of pride for Turkey with a growing technical staff that continues to have great success both at home and across the globe.

His steel pipes demand the highest technical specifications and his manufacturing centre operates to international quality benchmarks. With nearly 400 highly qualified employees manning his head office and his factory, Erciyas is justifiably proud of his achievements.

So an adventure that began under German tutelage has coalesced into a domestic champion and an example of the technological transformation in Turkey. Recently celebrating 20 years in business, they are now the leading exporter in Turkey of steel pipes. The success Erciyas is currently enjoying has been hard won and many lessons have been learnt from the past.

Believing in the country’s future, Erciyas invested heavily but Turkey’s economic crisis in 2001 hit all sectors hard. Overnight, interest rates skyrocketed and the Turkish lira was dramatically devalued. Erciyas was forced to adapt quickly and had to radically change its business strategy to retain equilibrium in such a challenging business environment. It paid off and Erciyas not only recovered but went on to be an example of how to successfully survive and prosper in an economic crisis.

As a company Erciyas faced the trouble head-on and since then it has continued on an upward trajectory. In 1997 they laid the foundations of their now hyper-modern Düzce factory. Having obtained much-coveted ISO certificates, the company was awarded prestigious contracts by The Greater Istanbul Water Supply Project to produce the pipes that will deliver clean water to city residents until 2040.

Erciyas gained much respect by manufacturing the biggest HSAW pipes at that time, with a diameter of 304.8cm (120 inches). Meanwhile the company has moved on to add oil and gas pipelines to its growing range of products. They gained renown and admiration in the industry for having manufactured the toughest spiral steel pipe yet produced with a material quality of API 5LX-80 and a wall thickness of 21.6mm (0.85 inches).

In 2008 Erciyas won the contract to manufacture the 1,300km-long (81-mile) pipeline for the Tamanrasset potable water project in the Great Sahara desert. At the time it was the largest pipeline project yet undertaken by a single manufacturer. It certainly posed an enormous logistical challenge.

Unperturbed Erciyas relates his sheer exhilaration, “The pipeline was the only manmade structure in sight. For miles around all you could see were our pipes waiting to be laid below ground. I have never been so excited - there in the middle of the Great Sahara - to see nothing other than Erciyas’ pipes.” It certainly must have been quite a moment for a self-made man and an engineer whose vocation has been the business of pipes.

By 2009 the company had grown to become not only Turkey’s 25th biggest exporter but also the lead exporter among all pipe producers. According to a study conducted by Fortune 500, Erciyas was one of the “Fastest Growing Companies” – recording the second biggest jump in the ranking. Moreover, Erciyas has been chosen to represent Turkey among the best 3,500 European companies for the “European Business Awards”.

With his son, Emre Erciyas, now set to carry on as the successor in the family business, the company is in an enviable position. Erciyas continues to be among the most dynamic and qualified enterprises in its sector in Europe. Ready to tap into new markets and to undertake ever greater challenges, they are open to foreign partners. They continue to grow as they go from strength to strength.

The Driving Force Behind Turkey's Industrial Revolution

Turkey’s machinery industry is fast evolving into a national champion as well as an engine of expansion for the country, clocking up a turbo charged 20 percent growth year-on-year since 1990. Yet what makes this such an exciting success story is that this is far from a top-down “dirigiste” model. It is instead being powered by an innovative and knowledge-centric cluster of nimble home-grown small and medium-sized enterprises (SMEs).

It is these companies that are driving a revolution in Turkish machine production, taking advantage of Turkey’s cost-effective and increasingly highly skilled manpower. This trend has meant that Turkey is emerging strongly as a global force with the sector playing a vital role in Turkey’s industrialisation.

Another indication of the growing sophistication of Turkish engineering expertise is demonstrated by the rate of domestic inputs into the manufacturing and production phase, with some 85 percent of components now supplied by a domestic production base. This sharply reduces Turkey’s reliance on external producers and feeds into a virtuous circle that is stimulating innovation and competition amongst related local industries.

Adnan Dalgakiran, Chairman of TMPG (Turkish Machinery Promotion Group), the body responsible for communicating the growing capacity of the Turkish machine manufacturing sector to a global audience, rightly points out that, “If it keeps on growing at this rate, by the year the 2023 total value of exports from the machinery sector is expected to surpass $100 billion.” Tellingly this group has attracted 6,000 members in just 4 years. Dalgakiran’s objective is unambiguous, “Our goal is to make ‘machinery’ the strongest sector in the Turkish economy within the next decade or so.”

Turkey’s machinery industry has certainly been given an ambitious export target of reaching a global market share of 2.3 percent by the landmark year of 2023, the 100th anniversary of the founding of the Turkish Republic. To achieve this would require a compound average growth rate continuing at or near the 20 percent mark, by which time the Turkish machine industry’s share of exports is expected to have risen to over 18 percent.

Perhaps unsurprisingly the machinery sector plays both a historic and strategic role in the development process of any nation’s economy. It acts as a catalyst for manufacturing skills and stimulates investment in related goods and services, further enhancing the critical competitive edge by creating a multiplier effect on economic development. In relation to Turkey’s engineering capability, the country has an additional advantage in that, thanks to its low labour costs and the sheer variety of its products and components, it is able to remain highly competitive in the international market.

As TMPG’s Chairman, Dalgakiran, goes on to explain, “The awareness we’ve been trying to build about Turkish machinery is now paying off. One of the key selling points of our products is that they can be bought at European quality standards but at prices close to those found in the Far East.” He believes that Europe is beginning to wake up to this critical advantage as more is learnt about the inherent benefits associated with Turkish machine production. The facts certainly seem to support this prognosis with major export destinations for Turkish products including Germany, France, the UK, Italy and Iran as well as to over 200 hundred other countries.

Moreover, Dalgakiran elucidates, “One of the main advantages we have is our geographical positioning. Turkey is located right at the heart of a region comprising countries with rich sources of oil and natural gas. Also consider that these countries will become very powerful in the next 20 years. Turkey is situated right at the cross-section of this region.”

Despite a persistent trade deficit for machinery products, the balance has now started to shift in Turkey’s favour with a long- term downward trend for imports versus exports. This change in fortune is the result of the two distinct benefits - low labour costs and an ability to offer world class quality which are individually significant but, when combined, the product is the clear and direct competitive advantage of Turkey’s engineering capability. 

This has allowed it to contend in international markets as a major and long- term player. Dalgakiran is full of ambition for his members, “Within the next 5 years we plan on becoming the third largest machinery producer in Europe, and by 2023, our goal is to become the second largest.”

For now, Turkey’s machine industry remains labour rather than capital intensive and, with an abundant and readily available workforce, this is expected to continue to be the case in the medium term. The young, skilled and industrious pool of human resource is undoubtedly a critical factor in guaranteeing the country’s continued competitiveness. However, despite its importance, this alone will not be enough to foster a world-class machinery industry. Instead, Turkey’s growing number of companies in the sector with their varying capabilities, strategies and strengths offering a diverse range of products, will be the catalyst. The cluster effect of this expertise means that they all feed off each other and provide a technological edge to the entire industry. The harmonisation of EU legislation, as required forTurkey’s accession process, means that Turkey will have to ensure local machinery producers are fully compliant with EU standards. 

This will provide a further fillip to the quality of Turkish machine production and thereby boost trade. Dalgakiran is certainly confident about the current situation and extols the climate for investment, “Turkey represents an immense opportunity, it is a country with a bright future and great capacity especially in the machinery industry. If investors want to come and take a closer look at our companies they will certainly not regret this decision but if in the future, after taking my advice, they do then I will personally pay for their return flight - and you can quote me on that.”