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Cablegate: Gebze Industry Sees Awakening Economy

This record is a partial extract of the original cable. The full text of the original cable is not available.

UNCLAS SECTION 01 OF 02 ISTANBUL 001687

SIPDIS


SENSITIVE BUT UNCLASSIFIED


STATE FOR E, EB/IFD AND EUR/SE
TREASURY FOR OASIA - MILLS AND LEICHTER
USDOC FOR 4212/ITA/MAC/OEURA/DDEFALCO


E.O. 12958: N/A
TAGS: ECON EINV EFIN PGOV TU
SUBJECT: GEBZE INDUSTRY SEES AWAKENING ECONOMY

1. Sensitive but Unclassified. Not for internet
distribution.


2. (SBU) Summary: Industrialists in the Marmara region
industrial town of Gebze told visiting P/E Section Chief and
Poloff that recent positive economic developments are finally
beginning to be felt at their level, and that they are fairly
bullish on the region's economic prospects. While exports
remain the primary engine of economic growth (though they
have been hurt by low profit margins as a result of the
strong Turkish lira), our interlocutors reported that they
are beginning to see a pickup in domestic demand as well. As
a result, all firms reported a significant increase in
employment over the last eight months, with most increasing
their long-frozen workforces by 20-30 percent. A number of
problems continue to cloud the business horizon, however,
with high energy prices, high taxes, and unfair competition
from the informal sector topping the list. Gebze businessmen
give the AK government high marks for its initial year,
commenting that it is among the most "business friendly"
governments they have seen. End summary.


3. (SBU) An Industrial Center: An important center in the
industrial heartland of Turkey's Marmara region, Gebze is a
short 40 kilometers outside of the Istanbul city center, with
convenient highway, rail and sea connections to Central Asia,
the Middle East and Europe. Local business officials proudly
point to the area's dynamic industrial sector, which now
accounts for 13 percent of Turkey's industrial production.
During an October 30 day trip to the region organized in
conjunction with the Gebze Industrialists and Businessmens'
Association (GESIAD), P/E Chief and Poloff toured a number of
industrial facilities, ranging from low-tech flooring and
wood products production, to more high-tech production of
automobile radiators, automotive glass, and copper tubing.


4. (SBU) Exports and domestic demand: All the firms we
visited reported a sharp uptick in demand, which had prompted
them to expand employment over the last 9 months. Kale Oto
Radyator, for instance, noted that its work force had grown
by 50 percent to approximately 200 people, while Sarkuysan, a
manufacturer of copper wire and tubing and one of Turkey's
leading industrial success stories, noted that employment has
increased 30 percent to 450 employees. Turkey's recent
export boom explains the companies' success, both directly
and indirectly. Kale, for instance, supplies 95 percent of
the radiators used in the Turkish automotive industry, so
that while its sales are largely domestic, they form part of
a sector that has played a key role in leading Turkish
exports to record levels this year. Olimpia Oto Camlari
Sanayi and Ticaret, a leading auto glass manufacturer, has
benefited similarly, though it does not dominate its market
to the same extent. Sarkuysan, meanwhile, enjoys a dominant
local market share while also exporting half of its output.
Domestic producers are also seeing an uptick in demand,
though Yongapan Wooden Products General Manager Azem Gungor
noted that his Turkish market is largely saturated, so the
firm is currently focusing more on overseas opportunities and
expanding its factories in Bulgaria and Romania and looking
to open a new operation in Bosnia.


5. (SBU) Familiar Concerns: Gebze businessmen echoed
traditional complaints about Turkey's relatively unfriendly
business environment, pointing especially to concerns about
high Turkish energy prices. Two of the firms we visited,
Sarkuysan and Yongapan, produce much of their own energy, but
high natural gas prices and the high cost of electricity for
the 20 percent of their energy needs they buy on the open
market crimp profits. Sarkuysan VP Sevgur Arslanpay listed
high energy prices as a major obstacle to his firm's
international competitiveness and their single biggest
complaint about the local business environment. Gungor
pointed to sector specific problems: the high cost of forest
products, which he said were three times the level of
neighboring countries, largely because of government control
of forests. While logistics and the weight of many of its
products shield Yongapan from international competition, the
difficulties have led the company to focus its expansion more
on its foreign than its domestic operations.


6. (SBU) Informal Economy: Among other complaints were high
tax rates, including the lack of inflation accounting (which
the government has promised to implement next year), which
can lead to diminution of a company's capital, and the
difficulty in raising financing (most of our Gebze
interlocutors pointed to self-financing as the major source
of their funds-- only Kale noted that it has historically
been able to secure bank financing at very low rates, perhaps
stemming from its market dominance in an export-oriented
industry). Lower tech companies also complained about unfair
competition from companies that operate in the shadows,
avoiding payment of labor and other taxes. For companies
like Sarkuysan, which require extensive investment and high
tech processes, however, this is not an issue.


7. (SBU) Plaudits: Gebze businessmen were largely
complimentary about the new Turkish government, crediting it
with a more business-friendly attitude than its predecessors,
and arguing that the results of the past year show its
competence in addressing economic issues. As one would
expect from members of an industrialists' organization close
to Islamic spiritual leader Fethullah Gulen, the businessmen
we spoke to appeared pious. Likewise, as one would expect
from businessmen representing not only Gulenist but, more
broadly, Anatolian values, several criticized President
Sezer's decision not to invite the head-scarved wives of AK
parliamentarians to his independence day reception. Kale
President Celal Kaya even expressed support for the
government's plans to dispatch Turkish soldiers to Iraq
("necessary," he said, "to protect the Turkmen" and to
dissuade the Kurds from forming their own state). There was
some concern that AK's handling of the imam-hatip (preacher)
schools and higher education council reform was clumsy and
untimely, but overall our interlocutors judged AK's moderate
face to be sincere, and expressed hope that it would continue
to focus on the economy rather than other issues.


8. (SBU) Comment: If these companies are an indicative
sample, exports may turn out to be the engine that pulls
Turkey out of the lingering effects of the 2001 economic
crisis. Each of the companies we visited has been making
serious investments in production capacity, often by
purchasing foreign equipment, as well as by hiring more
workers, holding out the prospect of a pick-up in local
demand. The view of politics from this industrial heartland
is that this government has scored big points by taking steps
to stabilize the economy and improve the business
environment. AK will continue to enjoy widespread support
here as long as fixing the economy remains their top priority.


9. (SBU) Behind the scenes wrangling that preceded the trip
also set in bold relief the odd mixture of xenophobia and
openness to world markets that can characterize Turkish
business. We learned from Mustafa Gunay, whose Business Life
Association (ISHAD) worked with its affiliate GESIAD to
organize the program, that one company was hostile to the
planned visit, fearing that we represented American companies
that wanted to either steal his "cutting-edge" technology or
buy it out from under him cheaply. Gunay responded by asking
what century he was living in, and stressing the need for
mid-sized Turkish companies to reach out to and cooperate
with foreign partners. The exchange highlights the public
relations benefit of showing the flag in outlying industrial
districts, and we plan to follow-up by organizing a "Doing
Business with the U.S." program early next year in
cooperation with GESIAD.
ARNETT

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