OBG talks to Zafer Çağlayan, Turkish Minister of Economy

Interview: Zafer Çağlayan

What complementary traits do Turkey and South Africa share? How can these be leveraged?

ZAFER ÇAĞLAYAN: Though located on different continents, Turkey and South Africa are often considered to have much in common. South Africa is the biggest economy in its region, and despite certain structural challenges, it has a functioning political system and relatively stable and well-defined business environment. This makes it generally accepted as the “gateway to the African continent”. Turkey – due to its geographical location and rich raw materials, as well as sound economic characteristics such as a strong banking system, low levels of public debt and increasing volume of foreign trade – is also considered a regional hub.

Key to achieving enhanced bilateral trade and investments would be an agreement to create a free trade zone which would bring forth more equitable trade, investment and mutual communication between our businesses. Due to the Customs union between Turkey and the EU, South African goods are able to enter the Turkish market tariff-free, while Turkish products still encounter high tariffs and non-tariff barriers into South Africa. Greater communication between our countries would provide South Africa with knowledge transfer needed for the production and exportation of value-added goods, while Turkey could benefit from better access to the most vibrant market in Africa, as well as essential raw materials required by Turkish industry.

What factors have helped cultivate the growth of Turkish small and medium-sized enterprises (SMEs)?

ÇAĞLAYAN: The significant profile of SMEs in Turkey’s economy can be considered as both the cause and the outcome of Turkey’s recent transition period. The economic and political crises we experienced in 2001 set off a period of international expansion for firms aiming to survive the turmoil in the national economy. An export-oriented growth strategy adopted after the crisis ensured that both government and enterprise moved towards foreign markets in full coordination. The restoration of political stability and a subsequent reduction in the role of the state in the economy via privatisations expanded the functions of the private sector. The state reoriented itself to focus on exercising its role in market surveillance and inspection, as well as facilitating and accelerating access for businesses to foreign markets. As an example, we had only six commercial counsellors based in Africa in 2003 and this number has increased to 23 in 2013.

A main challenge for many African economies is that the state continues to play a dominant role, creating a lack of opportunities for local entrepreneurs.

Are there any lessons that can be learned from Turkey’s experience in the textile industry?

ÇAĞLAYAN: The manufacturing industry represents 32.8% of the total value added production in our country, with the textile and apparel sector accounting for 15.2%. The sector also represents 14.4% of total manufactured goods and 6% of GDP, with recorded exports of $25.6bn in 2012. All this demonstrates that textiles are not only a strong income earner, but also that value is being added to basic manufacturing and that we are not competing on price with low-wage economies.

The largest importing and exporting countries in the textiles field today are the US, Germany and China. So the assessment that the industry is completely shifting to industrialising countries is not fully accurate.

Rather, what is happening is that the production of simple products are now left to industrialising countries with low-cost labour, while the production of fashion-brand products with higher added value and technical requirements are still carried out by industrialised countries. Competition in this area is increasingly determined by quality rather than cost, and it has become a sector in which top-grade high-quality fashion and information-based products are produced. Adopting policies that enhance the global competitiveness of SMEs and increase the capacity of domestic manufacturers can help contribute to employment and exports.