According to the machinery manufacturing industry consolidated data shared by the Machinery Exporters’ Association (MAıB), Turkey’s total machinery exports, including free zones, increased by 10 percent and reached 14.1 billion dollars at the end of the first half of the year. Kutlu Karavelioğlu, Chairman of the Machinery Exporters’ Association, stated that new filters are being developed to eliminate supplier companies in this period when it is difficult to receive new orders from abroad, “In this period, when large penalties await companies that do not comply with the rules in terms of the audit mechanism, European companies will be very meticulous in monitoring the development and competence of their value chain partners. We believe that the Central Bank, Eximbank and public banks should finance exports and investments with more affordable costs, in a way that does not contradict the principles of returning to rational policies.
According to the machinery manufacturing industry consolidated data, at the end of the first half of the year, Turkey’s total machinery exports, including free zones, amounted to $14.1 billion. The sector increased its exports by 2.7 percent compared to the same month of the previous year, despite the missing working days in June, with the Eid al-Adha holiday in the last week of this year. The sector, whose export unit prices per KG rose to 7.2 dollars, exceeded the 1 billion dollars threshold in Russia after Germany in the 6-month export period. Among the top 10 markets, only France experienced a decline, with Germany’s share approaching 14 percent and Russia’s share approaching 10 percent.
“Growth in our largest market depends on sustainability investments”
Stating that industrial demand slowed down in the first half of the last year, which was stagnant on a global scale with the effect of the tightening in monetary policies, Kutlu Karavelioğlu, Chairman of the Machinery Exporters’ Association, stated that they expect the growth in machinery and equipment investments in Europe, where 60 percent of Turkey’s total machinery exports are realized, to be at the level of 2.5 percent this year, depending on sustainability investments, despite all the difficulties:
“Decrease in orders as a result of demand below the global supply capacity turns into a decrease in profits, and decreased profitability turns into a reluctance for new investments. In this period, when producer prices cannot be prevented, companies are focusing on pending orders, as business decreases. There is another aspect of the decline that is not reflected in the figures, and that is the shift of existing investment budgets to the R&D side in developed countries, and investments that focus on productivity and quality increase in the new period. This investment trend, which will continue for a long time, will also affect the quality and technology class of export products. Investments in green transformation, digitalization and automation will have a positive impact on the demand for machinery and equipment.”
Pointing out that the Corporate Sustainability Obligation of Due Diligence, which is still under the legislative process in the EU, will bring a second filtering in this period when it is difficult for exporting businesses to get new jobs, Karavelioğlu said, “If they fall under the law as turnover, European companies will be very meticulous in monitoring the development and competence of their value chain partners in this period when large penalties await companies that do not comply with the rules in terms of sanctions and inspection mechanism.”
“Our client’s finances are just as important as ours”
Pointing out that the financial tightening had effects on access to finance as well as on the investment dimension, Karavelioğlu stated that the need for borrowing and the increase in production costs had a negative impact on sales in this period when machinery prices increased:
“Investment goods are sold with trust and customer financing, payments are spread over time in installments. For this reason, the main factor of competitiveness is that machine manufacturers can borrow money with low interest rates and find medium and long-term loans for their customers. We see that our competitors are more advantageous than us in this regard, especially in our country and in all major machinery markets where we enter into fierce competition. In the last year and a half, on the one hand, as the industrial sector with the highest domestic value-added ratio in Turkey, which makes most of its expenses in TL, we have been affected by the horizontal exchange rate more than anyone else, and on the other hand, we have tried to cope with our competitors, who suppressed their prices with the expectation of recession, within limited financing opportunities. As a result, although it has been seen that we have reached the strength to carry this heavy load; We believe that the Central Bank, Eximbank and public banks should finance exports and investments with more affordable costs, in a way that does not contradict the principles of returning to rational policies. It is very important for exporters to regain our ability to save on our foreign exchange income, in other words, to be able to take a free position in order to be protected from the multiplicative risks of more than one reserve currency.”
“Rationality is trying to close the back doors in the import regime requires”
Expressing that it is necessary to focus on the import boom, which is the main source of the foreign trade deficit, in this period when exporting is difficult, Karavelioğlu said, “The attraction created by the overvaluation of the Turkish Lira in imports has led to the purchase of foreign machinery worth 42 billion dollars in the last 12 months. Our support for the technology development of rival countries continues at an accelerating rate. Machinery imports, which increased by 28.6 percent in the first 5 months of this year and reached 18.5 billion dollars, signal an import size that will reach 45 billion dollars at the end of the year and a trade deficit close to 15 billion dollars. The fact that a significant part of this deficit is against Far Eastern goods also shows that we are not able to protect our domestic manufacturers as much as our Western competitors, who are increasingly tightening their measures.”
Karavelioğlu stated that the advantages provided by the Investment Incentive System facilitated the import of dumped and low-tech goods, especially from the East, and concluded his words as follows:
“In 2022, the amount of machines whose imports were encouraged within the scope of Investment Incentive Certificates was around 19 billion dollars. In the first 4 months of this year, in which 5,400 Investment Incentive Certificates amounting to 360 billion TL were issued, it is seen that the share of domestic machinery in the machinery needs of the general manufacturing industry, which will make 65 percent of the investments, only reached 40 percent. However, the rate of locality in mining investments is 72 percent, in agriculture 97 percent, and in energy investments, which is one of the most technologically advanced branches, it is around 89 percent. We need to underline again that the Investment Incentive Legislation’s zeroing of the Additional Customs Taxes established to protect our domestic machinery manufacturer against unfair competition creates a very important weakness. Being rational; We think that it is necessary to quickly close all the back doors in import mechanisms and to protect machinery manufacturing, which has been declared as a strategic sector in all plans of the public, with a determination that will not fall behind our competitors.”
