turkey 4/11/09 14:27 page 33...the automotive sector is integral to the turkish economy and a key...

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Turkey special report

November 2009 Turkey Special Report 35

Turkey: Bridge between worlds

With a population that is set toovertake Germany’s within adecade and a history of chemical

production dating back some 70 years,Turkey combines the demand potential of anemerging market with a supply side befit-ting that of a mature market.

Turkey has for many years exported chemicals to‘old’ Europe. There is, however, growing confidencewithin the industry that it is ideally placed to takeadvantage of a ‘crescent of development’ stretchingfrom Russia through the Central Asian republics tothe Middle East and North Africa. Ask a Turkishchemicals company CEO to list Turkey’s compara-tive advantages and its geographic location bridgingEurope and Asia and position as the sole sea gate toCentral Asia is sure to be mentioned.

This geographic advantage is reinforced by thehistory Turkey shares with Central Asia. The tribesthat conquered modern day Turkey originated fromthe Central Asian steppes and there are strong lin-guistic ties between them. Turkey also has a strongcultural relationship with its neighbours in theMiddle East.

From its birth in the 1930s, the chemicals indus-try in Turkey grew during the 1950s and 1960s toservice the booming textiles sector, which was cru-cial to the state-led economic polices of the time.Great emphasis was placed on the import substitu-tion of bulk petrochemicals, agrochemicals and basisorganic and inorganic chemicals.

The industry started competing at an internation-al level as a result of the free market reforms imple-mented by then prime minister Turgut Ozal – helater became president - during the 1980s and1990s. In 1995, Turkey entered into a customsunion with the European Union (EU) and the coun-try was recognised as a candidate member in 2005.

The World Bank describes Turkey as an “upper-middle income” country with a “dynamic emergingmarket economy” and a “lengthy track record ofsolid economic management”. Since the economiccrisis of 2001, its economy has sustained significantgrowth, averaging 6%/year between 2002 and2007.

In 2008, Turkey attracted some €12.4 billion inforeign direct investment (FDI). The United NationsConference on Trade and Development (UNCTAD)ranked it the 15th most attractive FDI destination for2008- 2010.

The global economic crisis has hit hard, however,belying claims by Prime Minister Recep TayyipErdogan in autumn 2008 that the economic crisishad by-passed Turkey. Public debt has risen thirteen-fold and predictions of the contraction in GDP thisyear range from the government’s optimistic 3.8%to the OECD’s 5.9%.

Inflation, which hit 54% in 2002, still stood at asubstantial 10.4% in 2008. In 2008, the unemploy-ment rate was 10.4% and the OECD predicts that this

will rise to 16.4% in 2010. A further 4% of the work-force in 2008 is estimated to be underemployed.

Despite the gloomy state of the economy in2009, there is widespread confidence that recoveryis imminent. Dr Ates Kut, chief executive of chemi-cals at the €2 billion/year industrial conglomerateSisecam, believes that the crisis “will be over in thenot too distant future.”

The OECD predicts recovery in 2010, while amid-2009 report by investment bank Merrill Lynchforecast average 4.5%/year growth between 2010and 2019. Confidence in the economy is based onTurkey’s demographics, improving political stabilityand export opportunities in the surrounding growthmarkets.

Turkey’s drive to join the EU has seen it open 11of 35 accession chapters and harmonise numerousregulations with EU standards. Regardless of theeventual outcome of Turkey’s quest for member-ship, it is clear that the process is making it easierand safer for foreign firms to invest here and isimproving the quality of the country’s chemicalproducts.

Domestic scene Turkey has a young and expanding population. Itsmedian age, 28, is 12 years lower on average thanmost of West European countries and is growing ata rate of 1.3%/year, more the twice the rate ofFrance and China.

Culturally and socially, Turkey is changing rapidly.Growing wealth, increased social and geographicmobility and the rise of consumerism, so evident inIstanbul’s ancient bazaars and gleaming shoppingmalls, is driving the consumption of chemical-basedproducts ranging from detergents to clothes.

Turkey is an important production centre formultinationals looking to gain access to theEuropean single market. Numerous Japanese andKorean companies have chosen to locate major pro-duction facilities in the country.

The automotive sector is integral to the Turkisheconomy and a key market for chemical products inTurkey. In terms of output, Turkey is Europe’s fifthlargest producer of vehicles. Companies such as

Toyota, Hyundai and Fiat have chosen choosing tolocate manufacturing and assembly plants here.

The Turkish automotive sector is overwhelminglyexport-oriented and it generated some €20 billionof export revenue in 2008. The government hasidentified the industry as a key area to defend dur-ing the economic crisis and has temporarily slashedits sales tax on new vehicles, which is normallyamongst the highest in the world.

The chemicals industry has taken advantage ofthe indigenous automotive industry to establish newmarkets. It is selling advanced plastics, powder coat-ings and textiles to the 14 car manufactures andthree tractor producers present in Turkey, as well astheir numerous downstream OEMs.

It is claimed that every fourth television used inEuropean households is manufactured in Turkey andthe electronics and white goods sectors are impor-tant consumers of Turkish chemicals. Last year,Turkey produced 9.3 million colour televisions, whilethe electronics industry turned over €6.6 billion in2007. Although the majority of sub-components areimported, the electronics and white goods sectorsconsume some 10% of Turkey’s plastics output andnumerous niche chemicals producers have emergedto service the wide-ranging needs of the industry.

Production in Turkey is focused on specialitychemicals and finished products. Turkey has limitedmineral reserves from which to produce bulk chem-icals, with the exception of soda ash (it has thelargest soda factory in the Middle East), sodiumbicarbonate and silicate, chrome ore, boron andsodium sulphate.

Mustafa Bagan, secretary general of the TurkishChemical Manufacturers Association (TCMA), notesthat it is hard for Turkish companies to compete withFar Eastern producers of bulk chemicals because ofthe high cost of energy, unstable and insecure rawmaterials supplies and bureaucratic hurdles. Turkey’sfuture, he says, lies in niche, speciality and valueadded goods.

Turkey remains one of the world’s largest pro-ducers of chemicals for the textiles and leatherindustries as well as for synthetic fabrics, but thecountry has now established itself as a major pro-duction centre of generic pharmaceuticals, plastics,coatings, soaps, detergents and cosmetics.

Most of the world’s major chemicals companies,including BASF, Cognis and Clariant, have estab-lished operations in Turkey. In addition, the country’shome grown corporations are now also beginningto demonstrate their presence on the global stage.

FDIAmongst emerging markets Turkey represents anattractive destination for FDI in terms of marketaccess, regulatory environment and political stability.Whilst only an estimated 314 of the 4,000 + chemi-cals companies in Turkey have foreign backers, thisfigure masks the fact that some of the largest firmsare partly or wholly owned by foreign investors.

Akyuz – Attitude to Turkey affects export trends

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The latest UNCTAD report estimates that Turkeyattracted in excess of €1.5 billion in FDI and thatoverseas money paid for over 15% of the totalinvested in Turkey’s property, plant and equipmentduring 2007. Key actors within the industry see aneed for even more FDI if the chemicals sector isgoing to reach its potential.

Selcuk Aksoy, president of the Turkish PlasticsManufacturers Research, Development &Educational Foundation (PAGEV) and head of AksoyPlastik, argues: “The biggest problem the plasticsindustry faces is the cost of capital. We need foreigninvestment here, notably in the petrochemicals sec-tor.”

The business climate in Turkey is unrecognisablewhen compared to ten or 20 years ago. Propertyrights have been strengthened and foreigners arefree to set up and register companies---- without alocal sponsor. In principle there can be no discrimi-nation between foreign and domestically ownedcompanies and there are some 80 bilateral invest-ment agreements and over 70 double taxationtreaties in place with other countries.

The chemicals industry benefits from special busi-ness zones, notably in Gebze, Tuzla and Istanbul.The tax breaks vary according to location, but insome of the zones, land purchase and constructioncosts are VAT-free, with five years’ exemption fromreal estate duties.

An additional benefit of the special businesszones has been to create specialist clusters. Themajority of Turkey’s chemicals plants are within 50km of Istanbul and sub-sector concentration is ofteneven more specific.

A major factor driving FDI is the availability andquality of labour. While Turkey is not in a position tocompete with China and India in terms of labourcosts, the high unemployment levels - which countas a negative when viewed in terms of domesticdemand for products - are an asset in terms of pro-duction costs.

The government is keen to promote the low costof labour in the country. Including the relevant taxesand social security contribution; it is possible toemploy an individual full-time for €366/month.

The strength of the skills base in the Turkishchemicals labour force, combined with their per-ceived adaptability and work ethic leads Kut toargue that “the labour force is Turkey’s greatestasset.” Where skills gaps exist, the industry is actingto bridge them with some novel solutions. PAGEVhas run and funded a 360-student plastics vocation-al school in Gebze since 2002 and is in the processof opening a second 1,000-student school inIstanbul.

Export markets new and oldTurkey’s sustained economic growth between 2003and 2008 was largely driven by exports. While thegeneral economy expanded by 143% during this peri-od, the value of exports grew by 179% to €90 billion.

The chemicals industry has been at the fore of theexport gold rush. When Global Business Reports lastvisited Turkey for Speciality Chemicals Magazine inlate 2005, the industry exported €4.5 billion ofchemicals. By 2008, it was exporting €9.3 billion

worth of chemicals products, over 13% of Turkey’stotal exports.

Perhaps the most striking trend during the four-year period since our previous visit has been thechanging demographics of Turkey’s chemicals trade.In 2004 the EU was the destination for 30% ofTurkey’s chemical exports and this is still the case,with Germany the top export market in Q1 2009.However, non-EU markets had also risen to the foreby then, with Iraq second, the UAE fourth, Russiafifth, Libya sixth and Azerbaijan seventh.

Subject to the vagaries of exchange rates and rawmaterial prices, international trade figures are alwaysvolatile. Many in the industry argue, however, thatthere are wider political and economic driversbehind the growing eminence of Turkey’s regionaltrade partners.

“The UK government has reacted more positive-ly to Turkey’s EU aspirations compared to theGerman administration, with a consequential effecton business sentiment,” says Murat Akyuz, presi-dent of the Istanbul Chemicals & Chemical ProductsExporters’ Association (IKMIB) and the mancharged with representing Turkey’s chemicals indus-try on the international stage. This factor, hebelieves, has influenced the rising importance of theUK as an export market for Turkey.

There is a noticeable sense of frustration amongstchemicals chiefs with regard to the EU. The Turkishgovernment has pushed through legislation in par-allel with REACH and the country has numeroustreaties and agreements with the EU regardingchemicals standards, but Aykuz still believes that theEuropean Chemicals Agency “is treating Turkey as athird party country”.

In parallel to this mounting disenchantment is agrowing confidence in Turkey’s ability to tap busi-ness opportunities in the emerging Middle Eastern,Central Asian, North African and Balkan markets.Turkish industry is looking to the developing arc tothe north, east and south to drive growth rather thanits traditional Western markets.

In recent years Turkey has negotiated free tradeagreements with the EFTA (covering Iceland,Lichtenstein, Norway and Switzerland), Albania,Bosnia-Herzegovina, Egypt, Georgia, Israel,Macedonia, Morocco, Palestine, Syria and Tunisia tocomplement the EU trade union. Not all cover thefull gambit of chemical products, but they providethe framework for further market integration anddemonstrate Turkey’s commitment to buildingregional export growth.

It is inevitable that a report on Turkey will describethe country as a bridge between Europe and Asia,but the benefits of Turkey’s strategic location havehistorically been limited by the regional political cli-mate, notably the Soviet occupation of the TurkicCentral Asian states, and the level of development inthe region. After all, there is little economic advan-tage in neighbours who cannot afford, or are notallowed, to buy your products.

In recent times, however, the oil and gas boom inCentral Asia and North Africa has unleashed industri-al and consumer demand for chemicals and chemi-cal-based products. The pace of growth in these mar-kets has outstripped domestic production capability.

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Turks feel that they are at an advantage whendealing with Central Asian customers because oftheir shared history and close linguistic and culturalties. According to Birgen Kaleagasi Ozemre, gener-al manager of Kale Kimya Group, which distributeswater treatment chemicals and cosmetics ingredi-ents, the Central Asian republics have establishedpayment channels into Turkey and find it a lot easi-er to raise credit lines and make transactions withTurkish companies.

The new-found confidence in Turkey’s ability totake advantage of the chemicals boom in emergingregional markets is underpinned by the belief thatTurkish companies have the skills and know-how todeal with the particular challenges that developingmarkets present.

Recep Sukru Ergin, managing director of theTurkish arm of Norwegian coatings giant Jotun,notes that his generation internationalised theTurkish chemicals industry during the 1980s and1990s and can use the same skills in today’s emerg-ing markets. For players such as Ergin, the regionalmarkets do not merely offer the chance to increaseexport revenue. Turkish subsidiaries of multination-als such as Jotun are being used as the vehicle toaccess the Central Asian market, with the local oper-ations often reporting to, and being run by, theTurkish intermediate.

Many Turkish companies are in, or are activelylooking for, partnership opportunities with multina-tionals to target the regional markets. For some,such as Turkey’s fifth largest paint producer Polisan,which has a well-established JV with Rohm andHaas, the local partner takes on the production anddistribution roles, with the multinational supplyingraw materials and industry expertise.

Ahmet Yigitbasi, president of Turkey’s thirdlargest paints company Yasar Coatings, observes:“Local knowledge is very important to the multina-tional company, particularly in terms of brand anddistribution capabilities.”

Turkey is also beginning to exploit its geographicaladvantage through distribution. Turkey’s transportinfrastructure is still relatively undeveloped, but a num-ber of high quality toll roads have recently been com-

pleted and the country is making significant invest-ments to develop its nascent railway network, includ-ing a high-speed link between Ankara and Istanbul.

The crowning point of the Ankara- Istanbul linewill be the first tunnel ever to cross the Bosphorus,creating a direct freight route between Europe,Syria, Iran and Iraq. At the time of writing, a trialfreight service between Pakistan and Istanbul hadjust begun. Proponents say that the service willboost trade between the two countries by 50%.

Polisan is positioning itself as a third party logisticpartner to other chemicals firms. Its ‘Poliport’ opera-tion at the facility in the Gebze Industrial Zone, pro-vides liquid and bulk chemicals handling services.The company is in early discussions to provide logis-tics services throughout the Middle East. CEO ErolMizrahi says: “Logistics are everything, our logisticpossibilities are really a big advantage.”

Environmental & quality issuesTurkish chemicals companies have reacted to theemergence of low-cost Chinese and Indian compe-tition since the turn of the century by differentiatingthemselves via quality levels and environmental

standards. Nearly all of the 40 companies GlobalBusiness Reports interviewed while compiling thisspecial report have the relevant ISO certification andthe TCMA has run a Responsible Care programmesince 1993.

Due to their close links with EU clients and part-ners, Turkish companies have been quick to seekREACH certification. Companies such as TeknikKimya, a plastics and chemicals producer that hasdiversified into the coatings, lacquers and rubbersectors, claim that they seek to distinguish them-selves from the competition through their qualitystandards and environmental policies.

The safe disposal of hazardous waste represents achallenge to chemical companies across the world.In Turkey, which produced an estimated 1.2 milliontonnes of dangerous chemicals refuse in 2008,there has been a significant gap between theamount produced and disposal capacity.

Omer Salman, founder and CEO of EkolojikEnerji, is looking to capitalise upon this shortfall andoffer a safe disposal method, while also producingelectricity. Ekolojik Enerji has developed and patent-ed a novel gasification plant which superheats


Phone: +90 212 324 00 00Fax: +90 212 324 37 57E-mail: [email protected] www.artkim.com.tr


Ekologic has developed novel syngas technology

38 November 2009 Turkey Special Report

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chemical refuse in order to generate syngas andinert slag. The syngas powers a turbine and the elec-tricity generated is sold onto the national grid.

Salman is allowed to dispose of over 160 types ofhazardous waste at his plant. He says that theEkolojik Enerji process produces less than a hun-dredth of the emissions allowed under governmentregulations. Ekolojik Enerji intends to build plants inTurkey’s main chemical production zones and even-tually to take advantage of recent EU directives andestablishing JVs in European markets.

CoatingsCoatings chiefs paint a rosy picture of the industry’sfuture in Turkey. Despite the collapse of the con-struction and automotive sectors (household paintsrepresented 58% of coatings output, automotivecoatings 8%), the industry has held up well through-out the crisis and there are strong signals that thesector will continue to experience rapid growth.

Polisan’s Erol Mizrahi notes that the peak of theeconomic crisis occurred during the winter, a time oflow consumption. This partially shielded the house-hold paints sector from the crisis, he says.

Turkey is Europe’s sixth largest paint producer,with capacity of 850,000 tonnes/year. Production in2008 was 600,000 tonnes - coatings companiesprefer to build extra capacity for peak demand peri-ods rather than stockpile products during the lowparts of the seasonal cycle - and the market wasworth approximately €2 billion.

Both production and demand in Turkey are dom-inated by household paints, but the country is also amajor supplier of furniture coatings and industrialpowder products. Turkey is the world’s fourth largestship builder and marine coatings, dominated bymultinational Jotun and local firm Moravia, consti-tuted 3% of the market in 2008.

The coatings sector is dominated by three multi-nationals, Bayer, Betek and Akzo Nobel (which ownsMarshall Boya and has a 75% stake in Akzo NobelKemipol), together with two domestic players,Polisan and Yasar Coatings. Beyond these largeplayers there are an estimated 600 SMEs operatingin the sector, plus an indeterminate number ofunregulated firms.

The government’s Export Promotion Centre esti-mates that the sector grew by 11%/year between2001 and 2006. BOSAD, the Association of thePaint Industry, believes the market grew by 4% in2007, remained static in 2008 and will shrink by5% in 2009.

However, the medium- and long-term futurelooks promising. Average paint consumption inTurkey is estimated to be 8 kg/head. In neighbour-ing countries, such as Greece, this figure stands at10 kg/head and in some Western European marketsconsumption is as high as 20 kg/head, so the scopefor growth is plain.

Turkey’s changing demographics and alteringsocial trends, including the tendency of the youngergenerations to move out of the parental home ear-

lier, will drive the construction sector. Turkey hasurbanised rapidly over the past decade and there isa movement amongst municipalities to enforce dec-oration statutes in order to beautify run-down citycentres and improve the appearance of hastily con-structed apartment blocks.

The above factors lead BOSAD chairman AhmetBitlis to argue: “When you consider the consump-tion figures, it is obvious that the Turkish paint mar-ket has a huge potential. We see a very bright futurefor our industry.”

PlasticsDevoid of major oil reserves, Turkey is not an obviouslocation for a major plastics industry. Nevertheless, thecountry’s plastics capacity is the same as that of theUK, one of Europe’s largest oil producers, and isranked joint fifth in Europe. The industry employsover 200,000 people in Turkey, and the €10 bil-lion/year market represents 3% of GDP.

The majority of demand for plastics comes from thepackaging and construction sectors, which represent-ed 40% and 22% of consumption respectively in2008. The sector averaged 15%/year growth between2002 and 2007, slowing to 4% in 2008 according toBarbaros Demerci, secretary general of PAGEV.

The economic crisis pulled utilisation rates in theplastics sector down from a high of 81% in February2008 to 65% in February 2009, but there is wide-spread confidence that the industry will recover andprosper. Consumption of plastics in Turkey is twice

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40 November 2009 Turkey Special Report


the international average at 64 kg/head/year, butwell behind the levels seen in Western Europe andthe US, and the Turkish plastics industry has well-established capacity to produce value added semi-manufactured goods for the footwear, automotive,electrical and white goods sectors.

The rise of the Turkish plastics industry is all themore impressive when one considers that Turkeyonly has two oil refineries, in Izmir and Kocaeli, andthe industry is dominated by the recently privatisedPetkim. State involvement and lack of competitionhas stifled petrochemical production. There are,however, some signs of progress in the petrochemi-cals sector, with competing applications on the tableto build a new refinery at Ceyhan.

While the plastics industry has done well to over-come the failings of the domestic petrochemicalsindustry, the lack of raw material production doespresent a challenge to the sector. PAGEV estimatethat at least 80% of the polymers consumed inTurkey are imported and there is no domestic pro-duction of polystyrene, PET or ABS. Supply securityis clearly an issue.

Selcuk Aksoy argues that the petrochemicals sec-tor needs foreign investment to increase the volumeand range of raw materials being produced and thatthe country should produce 50% of the raw materi-als it requires to ensure security. He sees the privati-sation of Petkim, which the association lobbied for, asan important first step in the quest to build thedownstream elements of the plastics industry.

Cosmetics, soaps & detergentsMustafa Arin, board member and head of marketingat Evyap, Europe’s largest soap producer and a majorprivate label manufacturer for European companies,notes that Turkey’s personal care market is immatureand that rapidly changing social trends are drivingdemand and affecting the type of products consumed.

The sector has seen consistent growth over thelast decade and confidence is strong, despite, oreven because, of the crisis. Izi Morhayim, presidentof the water treatment to cosmetic chemicals distrib-utor Ilmor Kimya, argues that women see cosmeticsas near-essential and that the sector is relativelyrecession-proof.

Domestic producers control an unusually highproportion of the market in Turkey but the sector isalso becoming increasingly export-focused. Turkeyexported nearly €550 million worth of soap, cos-metics and personal care products in 2009. Arkimya,a producer of specialist resins and perfume waxes,generated approximately 80% of its revenue over-seas last year. General manager Ali Emiroglu statesthat in recent months he has been aggressively pur-suing contracts in the Middle East.

Turkey’s involvement in the cosmetics, soaps anddetergents sector extends through the value chainand exemplifies the way in which Turkish companiesare partnering foreign parties. Parkim Perfume andChemicals, a distributor and producer of fragrancesand cosmetics ingredients which is in partnershipwith Britain’s CPL, typifies this trend.

Ipek Mustecaplioglu, general manager of Parkim,argues that Turkey’s role in the international cosmet-ics, soaps and detergents sector will only grow overtime as Western companies look to outsource pro-duction to cheaper production centres without com-promising on quality.

ConclusionDespite the dramatic effect of the global economic cri-sis, an arduous and dispiriting EU accession processand the rise of Far Eastern competition, the messagefrom the Turkish chemicals industry is a positive one.Turkish chemicals CEOs like to remind you that theyhave overcome many economic crises in their timeand they seem far less fazed by the current creditcrunch than their counterparts in the West.

The focus in Turkey is on leveraging the country’slocation and cultural heritage to exploit a greatswathe of development taking place around it.Turkish companies are confident of their place in theinternational chemicals marketplace and companiessuch as Evyap and Atabay Fine Chemicals, theworld’s largest paracetamol API producer, demon-strate that the nation can play on the internationalstage.

As a market, Turkey has great potential and therecan be no doubt that over the medium to long term,population growth, increased affluence and culturalchanges will drive the consumption of chemicalsproducts, notably paints, cosmetics and personalcare products and plastics.

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The Association of Paint Industry(BOSAD) Tel: +90 216 384 7453Email: [email protected]: www.bosad.org

Global Business ReportsTel: +90 212 327 2464Email: [email protected] Website: www.gbreports.com

Istanbul Chemicals and ChemicalProducts Exporters’ Association(IKMIB) Tel: +90 212 454 0000 Fax: +90 212 454 0001 Email: [email protected] Website: www.immib.org.tr

Turkish Chemical ManufacturersAssociation (TKSD) Tel: +90 216 416 7644 Email: [email protected] Website: www.tksd.org.tr

Turkish PharmaceuticalManufacturers Association (IEIS) Tel: +90 212 353 1140Email: [email protected]: www.ieis.org.tr

Turkish Plastics ManufacturersAssociation (PAGEV)Tel: +90 212 425 1313Email: [email protected] Website: www.pagev.org.tr

Soaps and Detergents IndustryAssociation (SDIA) and Cosmetics &Toiletries Industry Association (CTIA)Tel: +90 216 368 7648Email: [email protected] Website: www.sdsd.org.tr,www.ktmd.org.tr

Useful Contacts

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