Abdurrahman Kaan, President of the Independent Industrialists and Businessmen Association (MÜSİAD), shared his assessments with Anadolu Agency on the effects of the pandemic period on the economy and the business world, the work MÜSİAD carried out during this period, the axis to which trade wars have shifted after the outbreak, and the post-Coronavirus recovery process.
Could you evaluate the pandemic period in general?
The subject should not be addressed solely along the axis of the pandemic. The pandemic became something like a rupture point for a world system that was already under strain. All countries of the world are in fact living through a period in which crisis management, conventional risk management methods and political approaches are being tested. The crisis itself was not economic. Yet in terms of its effects, we can say that we stand on the threshold of a period that will affect us deeply and reshape both the economic architecture and the socio-cultural architecture across a broad spectrum ranging from our business models to our system of values.
When we examine the global economic data prior to the pandemic (which we as MÜSİAD shared with the public in the form of a report), the OECD and WB growth forecasts before the COVID-19 outbreak pointed to a contraction in production worldwide. The projections revised in November had been calculated by simulating the effects of the trade wars. Not only the trade wars, but also OPEC's oil policy, the impact on markets of the risks posed by political uncertainty in Syria and the Middle East, and the decline in global investment appetite were already steering countries towards expansionary monetary policy. In line with sluggish global growth expectations, most of the price forecasts for 2019 were revised, particularly those for energy (-15 percent). While energy and metal prices were expected to continue falling in 2020, agricultural commodity prices were expected to gain partial stability.
In the statements we made at that time, we underlined that a sharp commodity crisis awaited the world in 2020 and the period thereafter. Not only in commodities: we repeatedly emphasized that we were caught in a vicious circle in which real economic problems were being solved through financial instruments and policies, and that this situation, particularly through the inflation of the derivative markets, would cause money to lose both its value and its definition, and would even bring the monetary system to the point of collapse. Because if strategic analyses are to be made on a subject, two elements must be taken into account: 1. You must read history and the process well. 2. You must read the figures and the micro data from the field well. Thanks to MÜSİAD's breadth in the field, we had seen the data sets reaching us both domestically and globally in the pre-pandemic period as the footsteps of a crisis and the starting point of a transformation, and we had shared this on various occasions.
Leaving aside the pre-pandemic shift of trade towards the East, the marked declines observed since 2017 in global merchandise trade and in logistics volume on the basis of ports and air transport were already telling us that the global economy needed a new model and a new motivation in order to revive. Yet there is a critical point here that matters for the future course of the pandemic's effects: before the crisis, while the production-based growth trend of the top 20 developing countries was upward, in the developed 20 this trend was downward. As the world economy shifted eastwards, production bases were changing hands and capital was finding new fields of production. In a world where national economies were regaining strength, the production capacities of the developed countries dominated by large corporations were declining, while the world's new field of investment and production was the blocs formed by the developing 20. Now, together with the heavy fiscal packages announced by the developed countries during the recovery process, this also points to a far more radical decline in the growth rates of these countries in the coming period and, correspondingly, to their turning towards tighter fiscal policies.
Therefore, at this stage it may not be correct to give a near date for economic normalization or for coming out into the clear in global terms. Because it appears that both the IMF and the World Bank are revising their recession forecasts towards worst-case scenario simulations. If a contraction in the %10-12 band is being spoken of, this means it would be no surprise for the domino effect to continue for a long time in the interdependent trade and investment chains of all the world's countries. Because the essential point here is that the course of the pandemic varies from country to country; in other words, the “pandemic course that varies from country to country” requires waiting for the scenario to be completed in all countries. Even though in a few countries the disease has been brought under control either through social immunity or following the measures taken, the continuation of its radical course in other countries brings with it two important dangers for industrialists or for those engaged in trade: 1. Exposure to country risk. 2. Exposure to sector risk. For companies working predominantly in foreign trade, exposure to country risk is in question. The normalization processes in the countries to which they export must be followed. Factors such as falling incomes in the countries traded with, the depth of losses in sectors, and changes in quarantine policy mean that our companies will be exposed to country risk. Therefore new commercial partners must be found and supply chains must be diversified. Companies in services, tourism, transport-logistics and manufacturing industry, which are directly affected by the scope of quarantine, still carry sector risk. Here, changing business models will be in question.
Moreover, the pandemic should not be addressed solely within the scope of its economic elements. Yes, the world economy was definitely caught unprepared by such a crisis. But here we are not facing a turning point merely for a change in the economic architecture. We are also on the threshold of a technological transformation that will affect our social life enormously. We can say that we are going through a simulation in which we test our own competencies and habits in many areas, from remote working to distance education.
The pandemic should spur us to question the efficiency of three fundamental points: 1. The efficiency of capital and the capital stock. Look, the saving power of a state in times of crisis is its capital stock. Yet many countries saw during this period just how fragile a capital stock they possess. Many countries, ourselves included, realized that capital accumulation had clustered in a few countries, China above all, that their own national capital stock was insufficient and that it had taken shape far from efficiency. 2. The efficiency of incentives and supports. That is, I am talking about testing how efficiently supports are converted into investment. Incentive systems and supports make the capital cycle efficient as long as, at the end of the day, they serve investment and capital accumulation. But the pandemic has shown us that we live within a system that keeps itself occupied inside a serious paradox between capital and wealth. 3. Our Entrepreneurship Policies and entrepreneurial efficiency. The pandemic period in fact offered all the world's companies a testing environment proportional to their scale. We may think of it as a kind of resilience test. While encouraging entrepreneurship, we need to consider this: is it necessary for everyone to be an entrepreneur or a producer? This must have certain preconditions and limits. Otherwise, fragile companies become a burden on states in such times of crisis. We have seen this too during the pandemic.
Finally, the pandemic has not only opened a door for us to change our economic paradigms. It should also be regarded as a serious warning mechanism at the point of reviewing our bond with our system of values in our social life. We are passing through a period in which we hear the footsteps of ways of doing politics, of the fact that the element of trust nations feel towards one another does not actually exist, of leader-based forms of governance being able to survive only through the support they find at the grassroots, and of course of state capitalism and of the return to national economies. The essence of the matter is this: since we are speaking of a turning point, it is clear that many old concepts must go into the bin. It is essential that we assess this period with new conceptualizations and new sets of models. The outcome we would reach with a new Bretoon Woods, or again with the same polarized economic structure, may leave us face to face with the outright bankruptcy of a world system that will no longer be able to bear this burden in new pandemics that are likely to recur.
How do you assess the supports the government has provided to sectors during the pandemic and in the new normal period?
We can say that Türkiye has definitely displayed very good crisis management during the pandemic. The source of the crisis is the disease itself. Until the disease passes completely, normalization in the crisis will be achieved gradually. We must take this as clear data. In other words, we continue to act with caution. Countries with a much stronger fiscal position managed the process with broader packages. Yet the prevalence of the outbreak in those countries is this time swallowing the supports they gave to the system like a black hole. America is an example of this. Because the size of the packages and the scale of the outbreak advanced at the same rate, the financial losses in the developed countries too came out at almost the same level. Of course the difference in the size of their supports will be an important factor in increasing the speed at which they emerge from the crisis, but this time they will struggle in the coming period with the sectoral contraction and the tight fiscal policies awaiting them. In short, it is clear that as the money they spend and the resources they allocate for the outbreak increase in proportion to their national income, these countries will move towards a tighter fiscal discipline in the coming period. Thus the contraction in the countries we trade with and the financial condition of the companies there will also directly affect our trade and our normalization process. Türkiye managed the process by bringing the outbreak under control and shortening the process with less financial loss (by reducing the scale and speed of the outbreak). By bringing the outbreak under control in a short time, we started the normalization process early. Otherwise our waste of resources would have begun. Türkiye does not have the luxury of wasting resources. By bringing the outbreak under control in a short time through its health system and its measures, Türkiye also forestalled possible financial losses. Unfortunately we saw during this period that criteria such as so-called democracy, human rights and respect for the right to life in the developed countries remained mere rhetoric because of the fragilities in their health and social security systems. In other words, the developed countries paid a very heavy price during this period for the monopolization and the unjust distribution in their social security systems. As for us, praise be to God, the health investments we made in advance, which were much questioned at the time, and the adequacy of our social security system kept us standing firmly upright during this period. Indeed, with the field and pandemic hospitals that were established, we are in a measure of comfort thanks to the financial resources that health exports and health tourism will provide us.
The government announced the support packages gradually and without relaxing the measures. That is, it did not flood the market all at once. Taking feedback from the field, it ran this process in three different dimensions: 1. At the level of households, 2. At the level of protecting the working population, 3. At the level of protecting the real economy on a sectoral basis across a broad spectrum of producers, from SMEs to industrialists.
While keeping the real sector on its feet, steps were also taken through the regulatory bodies and the Central Bank of the Republic of Türkiye (CBRT) in order to prevent volatility in the financial markets and to minimize monetary erosion. Expansionary monetary policy was of course implemented in our country as it was all over the world. However, although the increase in the rate of emission here may be perceived as a second problem to be set aside during the crisis, I would also like to underline that this rate must be brought down and the excess cash gradually withdrawn from the market as the new normalization continues in the period ahead.
Moreover, I can say that steps such as the regulations issued through the omnibus law, particularly the facilitating arrangements regarding the opening and operating of workplaces, the relieving effects created by Credit Guarantee Fund (KGF) support for our companies that were struggling during this period, and tax deferrals and reductions, provided highly effective crisis management in terms of their timing, their coordination and their structures designed directly to meet needs.
The policies encouraging domestic and national production and the import bans imposed on many product groups during this period led us to test our own national production capability and capacity as well. In this sense it is possible to speak of a business world that has gained courage. In addition, direct supports for exports and the strategic work launched towards diversifying supply chains are preparing a hopeful ground for us with regard to the post-Corona period.
What kinds of support did you as MÜSİAD provide to your members during the pandemic?
As MÜSİAD, we brought our Crisis Management and Coordination Centre into operation on 16 March, immediately after the announcement of the first case. With more than 11,000 members and a broad member profile, MÜSİAD is the most widespread capital organization in the field. It manages a broad spectrum ranging from its scale to its sectoral coverage and of course to its extensive organizational network abroad. Therefore we took an active role in the field so that first our members and then our entire nation would come out of the crisis with the least damage. We shaped the crisis centre we established under four headings: 1. The unit providing the flow of data from the field. Here, by immediately compiling and reporting the information coming from our members and from our branches and representative offices both at home and abroad, we regularly informed state institutions and organizations about the course of the pandemic, needs, demands and shortcomings. In this sense I can say that we acted as an intermediary in order to ensure that the measures taken were effectively implemented in the field and to support the spread of supports and incentives in the field. During this period we contacted our members one by one, whatever their scale, continuously gathered their needs and demands and conveyed them to the relevant authorities. In other words, during this period MÜSİAD once again placed the breadth and depth of its presence in the field at the service of its State and its nation. As the second unit, we ran bureaucratic management. Being in constant contact and coordination with the relevant ministries and institutions, we sought to prevent data leakages or duplicate procedures. We kept communication with our stakeholders such as TİM, DEİK and TOBB constantly fresh and effective on this matter. As the third unit, we ran the operational line. During this period, which also coincided with Ramadan, we reached those in need through our presence in the field. Within the scope of the “We Are Enough for One Another, My Türkiye” campaign launched by our esteemed President, together with our members who are devoted to Türkiye we stood by our nation with a total of TRY 125 million in support. In addition, we called on our members to donate to our MÜSİAD Qard al-Hasan Fund scheme. Along these lines we created financial resources for our members who had fallen into difficulty.
In addition, across the whole of Türkiye and in the countries where our branches are located, we prepared 98,000 food parcels and delivered them to those in need through the Vefa Support Groups at home and through the Turkish Red Crescent abroad.
During this period we also provided intensive support to the Zimem (Credit) Ledger campaign that MÜSİAD has been implementing since previous terms. By purchasing 425 Zimem ledgers from our tradesmen across Türkiye, our members ensured the payment of debts totalling approximately TRY 2,175,000 owed by indebted citizens.
Nor did we forget our healthcare workers, who put in the greatest effort and fought heroically during this period. We distributed masks, protective clothing, disinfectant products and many health products to health institutions and public institutions, placing them at the service of our citizens.
Moreover, both our MÜSİAD LOCAL and our MÜSİAD GLOBAL brands took an active role both in identifying needs and in resolving the difficulties experienced by our citizens abroad and in bringing them to Türkiye.
As the fourth unit, we ran the strategic reporting and research section. During this period, through the Corona Crisis Management Centre we established at the Head Office, we carried out work covering crisis management, the planning of post-corona processes and one-to-one support for our businesses on crisis management matters. We held approximately 232 online conference meetings via webinar with leading figures from politics, the business world, NGOs and society, foremost among them our Minister of Trade Ruhsar Pekcan, our Minister of Treasury and Finance Berat Albayrak, our Minister of Family and Social Policies Zehra Zümrüt Selçuk and AK Party Deputy Chairman Numan Kurtulmuş. We brought our members together with experts on the subject. We provided not only technical but also moral support. By calling our members one by one or by going to them in person, we made them feel that we were beside them throughout the process. Because MÜSİAD is not merely a capital platform; it is a large and strong family. During this period we once again saw and experienced the power of being a family.
Again during this period, our YOUNG MÜSİAD and MÜSİAD WOMEN structures played a highly active role in the field. I can say that during this period our youth organization and our women members left no place in Türkiye unvisited, both in delivering what was needed and in running the campaigns effectively.
How do you assess the low-interest financing packages, particularly for housing and automobile purchases? What kinds of contribution will they make to the market?
First of all, I would like to express our satisfaction with the downward trend in credit costs. As we have stated repeatedly, we will always stand behind an interest-free system and behind alternative funding and support models. Still, it is possible to see this as a useful step taken to revive the market and, in particular, to run down housing stocks. Yet there is a point we must underline here: the increases in housing prices. Together with these increases, the efficiency of the new financing package will come up for discussion. The rise in second-hand housing and second-hand automobile prices has by now spread to first-hand housing and automobile prices as well. Generally speaking, it is possible to speak of a price increase of between %10-20. This in turn can cause the support provided to be eroded by rising prices. Our request is that the practice of reducing credit costs be extended not only to housing but also to the purchase of industrial zones and facilities within the scope of long-term workplace acquisition. Thus the producer whose production capacity increases will turn to housing and automobile purchases with the earnings coming from production. Otherwise, merely encouraging purchases can cause money to turn into stock rather than into production.
The trade wars between China and the USA have taken on a new dimension with the coronavirus outbreak. How is the global struggle affecting Turkish exporters?
Addressing the main axis here solely along the axis of the trade war between China and the USA would lead to a limited analysis. The process here needs to be examined. Analysing the years between 2000 and 2020 well will, on this point, provide us with an apt reading of history for the hegemony struggle to come. The process that began with the September 11 attacks in fact became the milestone of brand-new power struggles, and over time China joined the game as a giant player. With China's entry, economic production and supply lines also began to shift increasingly towards the East. At this point China in fact became the new centrifugal point of the eastern economies. We can even go a little further back and trace the matter as far as China's admission to World Trade Organization membership. As you know, China's WTO membership was much debated, and the fact that it would lead to competition-distorting practices was taken up at the G7 Summits of the time. Indeed, before long what had been foreseen began to materialize. Many applications originating from China were made to the World Trade Organization's Dispute Settlement Mechanism, and in most of them China's market-distorting moves, in the form of undercutting prices through its low-cost advantage and copying patented products, began to unsettle the Western economies. China here is not a single element on its own; as I said just now, it is a centrifugal field. When the Indian, Pakistani, Turkic Republics and Indonesian fronts also enter the picture, an Eastern Economic Bloc emerges. The fundamental element supporting this is China's Belt and Road Project, the expanded form of the historic Silk Road. What is at issue here is not merely establishing a new logistics network but also a plan to create a directed supply chain. Look, one of the reasons why we were caught so unprepared by the pandemic has been the policy of directed supply lines originating from China. Today an average of %7 of manufacturing industry production in the world depends on imports of intermediate goods originating from China. For our country this figure stands at % 6. In times of crisis this dependence creates an enormous domino effect. Likewise, the added value produced by China in the computer, electronics and other equipment sectors stands at % 27. In transport and related sectors this ratio stands at %145. Such a dependence, coupled with the linking of trade routes to one another within the scope of a belt project, issues an invitation to a power that is impossible to cope with.
However, Türkiye's geopolitical position here is not like that of other countries. Because of their geographical location, the Western Economies are in the position of being the recipient of this new logistics line. In a world where production is shifting increasingly towards the East, Türkiye must this time make good use of the destiny that geography has offered it. The EU, the USA, Africa and the Gulf Region have become consumption regions within this line. At this stage Türkiye is both a production point, because of its attractiveness for the Eastern economies, and a transit region in terms of delivering products to the Western Economies. Not only the Silk Road line: the Spice Road line, which includes Syria and extends from the south as an alternative, likewise runs within Türkiye's hinterland. Here, in order for the export advantages to be used correctly, the right investment policy must first be implemented. Running investment within a production-trade-investment synchronization, rather than treating it on its own as an independent component, means that in the post-Corona period Türkiye will become attractive both in terms of a positive product-production perception and as a safe investment area in the face of the foreign exchange flows being tossed about in the developed markets.
In the end, the struggle between China and the USA will not come to an end. On the contrary, now that the struggle between China and India has also been added to the game, it is essential that within a multilateral and complex equation our exporters diversify their supply chains so as to suit every eventuality and position their own alternative logistics lines as soon as possible in the form of plans A, B and C.
However, as I stated at the beginning of the interview, the complete normalization of the commercial process depends on the course of the pandemic. There is a four-stage course here: 1. If countries begin to normalize one after another and run their production lines in their own critical sectors, 2. If capacity increases in critical sectors, in manufacturing industry for example, reach a satisfactory level in almost every country including ours, 3. If the problem of confidence gradually begins to improve both between countries and among citizens, investors and producers within the country, and finally if qualified planning for exports, investment and foreign exchange earning transactions begins to be carried out from now on, then the post-COVID period points to an attractive international arena for exporters in Türkiye.