Investments to continue in Turkey - ETRMA chief

ERJ ran an extensive feature on the Turkish rubber & tire industry in its Sept/Oct issue and interviewed various industry leaders for the article.

The following is the text of a Q&A interview ERJ had with the Turkish-born secretary-general of the European Tyre and Rubber Manufacturers’ Association (ETRMA) on the subject:

ERJ: Turkey has been an investment magnet for tire and rubber companies in the region. What prospects do you foresee for further investment by major tire and rubber companies in Turkey within the next two years? Please explain why.

Cinaralp: I personally believe that the investments will continue without interruption.

Look at the first signs after the failed coup attempt. Normally a developing country would face strong shocks in terms of currency exchange rate and interest rate fluctuations.

Neither of them happened; furthermore, a new investment incentives scheme is designed and put into practice. It is specifically designed to encourage investments. It is also true that Turkey needs hot money. Turkey is not a natural resource country.

Turkey needs to reduce the current account deficit; boost investment support for lesser developed regions; increase the level of support instruments; promote clustering activities; and to support investments that will create the transfer of technology.

Do you think the recent political upsets (e.g. a failed coup attempt and spillover effects from wars in Syria and Iraq) has impacted or will impact the industry and security of supply chain in Turkey?

Turkey is a middle-income country with good endowments such as strategic location, large domestic market, young population and some natural resources, but dependent on oil and natural gas imports. Turkey had sustainable economic growth after macroeconomic stabilization and structural reforms since 2001.

In the last couple of months Turkey was in the danger zone. Terrorists attacked the main airport in Istanbul, a failed coup raised questions about political stability, and the country is being downgraded by rating agencies. However according to Merrill Lynch, Turkish stocks and bonds were the best-performing investments in the global economy last month.

Emerging markets are known for their wild, discordant swings, but this mini-rally in Turkey, brief as it may be, highlights just how much risk yield-starved investors are willing to take on when $11 trillion worth of bonds of governments around the world are offering up negative returns.

That is why a Turkish 10-year bond that offers a 9 percent reward can be tempting, even if that country’s inflation rate is 8.7 percent and rising and its currency is heading south.

What have been the main elements behind the Turkish rubber & tire industry’s growth in the past few years?

Turkey has a very strong automotive industry. In 2014, Turkish automotive sector reached $33.8 billion in foreign trade volume and exports of automotive sector reached 11.5 percent of total export. Also $22.3 billion in export volume and automotive sector constitutes 14.1 percent of total export volume due to 4.5 percent increase in its exports.

Production went up by 16 percent while exports went up by 12 percent over the preceding year, marking two new records for Turkey’s automotive industry.

According to OSD data covering January-September 2015, Turkey ranks first in commercial vehicle production in Europe. The country is the seventh largest automotive producer in the continent and sixteenth in the world.

Turkey is home to Ford, Fiat, Hyundai, Renault, Toyota, Honda and several other automotive companies that have production operations in the country. It is increasingly becoming a design and engineering center in addition to being a manufacturing and export hub for global automotive brands.

Specific to the tire industry, take for example the fact that the use of winter tires in commercial vehicles (including taxis) has become mandatory in Turkey since 1 Dec 2014. Now the talks are on the mandatory use in consumer tires. Not to forget that Turkey is a heavy winter country.

If we consider the fact that there are currently over 4 million vehicles in Turkey which carry cargo or passengers intercity the growth of the rubber and tire industry was foreseeable.

What are the key government policies or programs in place to support the Turkish tire & rubber industry?

Turkey has gone through profound economic transformation over the last decade and the country's economic foundation is stable. As part of its investment support and promotion initiative, it established the investment incentive program in 2012, which is aimed at encouraging investments and reducing dependence on imports of intermediate goods vital to the country’s strategic sectors, such as the rubber and plastic manufacturing sector. The program also supports investors in the industry by providing tax reductions ranging from 15-65 percent.

Major local and foreign investors have equal access to various arrangements that are a part of the investment incentive program, such as General investment incentives scheme, Regional investment incentives scheme, Large-scale investment incentives scheme, and Strategic investment incentives scheme.

As I mentioned in the first question, these arrangements offer exemptions in VAT and customs duty, tax deductions, land allocations, support for interest on loans, VAT refunds, and support for employer's social security premiums. Such incentives have enabled the growth of manufacturers in the plastic and rubber manufacturing market in Turkey by providing a useful business environment.

Any other points?

A major sign that the industry is keeping up with the increase in the automotive industry is that Bridgestone Turkey, major player in the Turkish tire industry, signed two separate long-term loan agreements with EBRD and private International banks for $150 million and $160 million respectively. This is a huge investment for a tire company.

Hankook took over a seamless activity in the imports segment. Sumitomo invested on a new manufacturing plant and signed a giant distribution deal with one of the prominent local firms Petlas.

Retreading industry in Turkey is in a big development phase which is on its way to conform to the EU norms. I also know that Turkey also introduced tire labeling as applied in the EU and keeps up well with the harmonization of technical legislation.

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