REPUBLIC OF TÜRKİYE MINISTRY OF INDUSTRY AND TECHNOLOGY – CHEMICAL SECTOR REPORT (2020) (Part 2)

Turkchem 22 Dec 2020 31 10 dk okuma

TURKCHEM

1.2. General Situation of the Sector in Turkey Like in the world, the chemical sector in Turkey encompasses the manufacture of refined petroleum products, chemicals and chemical products, basic pharmaceutical products and pharmaceutical materials, and rubber and plastic products. The scarcity of natural resources in our country constitutes one of the most significant challenges to sector development. Dependence on imports is at high levels, particularly for products supplied as inputs to other sectors and in technological advancement. Domestic plastic raw material production can meet only approximately 15% of Turkey's needs. Moreover, this figure is based on calculations conducted over 4 different raw materials produced in Turkey—polyethylene, polypropylene, polyvinyl chloride and polyamide—and does not include raw materials that are not produced in Turkey and are only imported. Nevertheless, the manufacture of products for end consumers in Turkey has reached considerable scale in recent years alongside rising domestic demand and export potential. In the Turkish chemical sector, petrochemicals are produced as raw materials; paints, synthetic fibers, fertilizers, and soda are produced as intermediate goods. As final consumer goods, the manufacture of detergents and cosmetic products stands out. On the other hand, low labor costs in Turkey, rapidly growing domestic demand, and geographical location are seen as factors supporting the sector's competitiveness. While the prevalence of small-scale firms is notable in terms of firm numbers in Turkish chemical industry, a small number of large and global companies also operate. However, the need for capital and financing for large-scale investments to be made for high value-added production in the sector makes it difficult for the expected breakthrough in the Turkish chemical sector to materialize. The largest 10 firms realize approximately one quarter of sales from production, while the remaining sales are realized by numerous other firms. There are 29 companies manufacturing chemicals and chemical products on the 2017 ISO 500 list. Among these, the largest firm ranking 13th in the ISO 500 according to production sales data is Petkim, 51% owned by SOCAR and 49% publicly held. SOCAR realizes Turkey's largest foreign direct investments in its field. Second place is held by Eti Maden with 100% domestic capital structure, while third place is held by AKSA Akrilik Kimya, a private enterprise. However, there are world-leading firms that, despite not being listed in the ISO 500, have operated in Turkey's chemical sector for many years. The most prominent among these are: BASF, P&G, Henkel, Unilever, 3M, DuPont, Cargill and Dow. In the chemical sector, a manufacturing branch that supplies intermediate goods and raw materials to many sectors alongside final products it provides in numerous areas from plastics to cosmetics, from pharmaceuticals to paints, the production value in 2017 increased by 30.5% compared to the previous year, reaching TRY 163 billion. In the chemical substances and products manufacturing sector, the production index increased by 1.8% in 2019 compared to 2018, reaching 115. In the Basic Pharmaceutical Products and Pharmaceutical Materials Manufacturing sector, the production index decreased by 12.9% compared to the previous year to 140. In the Rubber and Plastic Products Manufacturing sector, the production index decreased by 1.7% compared to the previous year, reaching 112. In the chemical sector, capacity utilization developed in line with the country's general trend, considering the inputs it provides to other sectors. Over the last four years, the weighted capacity utilization rate was 74.0%. Since the chemical sector is a capital- and technology-intensive sector, labor intensity is low. For this reason, the sector's share in manufacturing sector employment has averaged 8.4% over the past four years.

Table 2. Top 5 countries by export in sub-sectors

Source: TURKSTAT In 2019, the sector exported USD 17.8 billion to 197 countries and imported USD 36.2 billion from 147 countries. Table 3. Top 5 countries by import in sub-sectors Source: TURKSTAT When 23 sub-sectors are evaluated according to ISIC Rev. 4 in terms of their shares in exports, the Chemical Substances and Products Sector ranked 9th with a 5.1% share, and the Plastic and Rubber Products Sector ranked 10th with a 4.7% share in 2016. When 23 sub-sectors are evaluated according to ISIC Rev. 4 in terms of their shares in imports, the Chemical Substances and Products Sector ranked 2nd with a 16.2% share, and the Plastic and Rubber Products Sector ranked 10th with a 2.7% share in 2016. Within the total value added created in manufacturing, the Plastic and Rubber Sector ranked 11th and the Chemical Substances and Products Sector ranked 12th. The chemical sector's 2019 exports increased by 7.9% compared to the previous year to USD 10.1 billion, while imports decreased by 4.6% to USD 31.8 billion. The chemical sector became a major sector in 2017 with 24,155 enterprises, 350,404 employees, and production of 2,600 substances and preparations. The plastic and rubber products sector holds an important position within the chemical sector. 65.6% of employees and 76.0% of enterprises in the chemical sector operate in the plastic and rubber products manufacturing sector. According to TURKSTAT data, the new markets created by the sector in 2013 showed their impact, and in 2018, 44.7% of chemical sector exports were realized by the plastic and rubber products sector. 1.3. Production Trends in the Sector and Main Products Manufactured The chemical sector has a very wide range of products. The sector produces consumer goods such as cleaning products, paints, cosmetic products, and pharmaceuticals, as well as fertilizers and pesticides for the agricultural sector, organic and inorganic chemicals required by manufacturing industry including the chemical industry itself, paints, laboratory chemicals, thermoplastics and similar products. 83% of these products are manufactured by micro-scale firms. The remaining firms can be considered large firms according to Turkish standards. Approximately 2,600 chemical substances and preparations are produced in the chemical sector.

Some of the methods and technologies used in these productions are at a level that can keep pace with global competition. Although the Turkish chemical industry has an export target of USD 50 billion in line with its 2023 targets, it achieved USD 16.9 billion in exports in 2018. The sector generating the largest foreign trade deficit among manufacturing industry sectors had imports of USD 38 billion in the same period. The sector accounts for 31% of Turkey's total current account deficit and 54% of manufacturing industry's current account deficit. The primary cause of the current account deficit is insufficient domestic plastic raw material production.

In the petrochemical sector, only 11% of domestic demand for plastic raw materials is met by domestic production. The rubber sector is 100% dependent on imports in terms of raw materials. 27% of demand for fiber raw materials is met by domestic production. 85% of imports in the chemical sector are intermediate goods, while 35% of these intermediate goods consist of basic petrochemicals: plastic, rubber and fiber raw materials. The import value of petrochemicals with imports exceeding USD 200 million is approximately USD 10 billion. Considering all these data, it is assessed that one of the most important steps to be taken for production-based growth to materialize in our country and to reduce the current account deficit is the implementation of petrochemical investments. These investments are of great importance in terms of ensuring supply security of domestic production, creating value added in the petrochemical sector, and reducing import dependence of sectors fed by the petrochemical sector. It is possible to say that the detergent and cleaning materials sector is dependent on imports in terms of raw materials. Important inputs such as LAB, STPP, enzymes, optical brighteners and perfumes are import-based. Apart from these, although domestic production is used for packaging, its raw materials are also substantially imported. The important inputs of the soap sector can be defined as animal fats and tropical vegetable oils, packaging industry products, caustic soda and salt. Animal fats, which constitute the most important import item among these, are generally imported from the United States, while tropical oils are imported from Malaysia or Indonesia. Approximately 40% of production is consumed domestically, while 60% is exported. Although the sector's place in the country's economy is not very significant in terms of quantity and value, it is one of our rare industries that exports more than half of its production. According to TURKSTAT data, the number of enterprises manufacturing Basic Pharmaceutical Products and Manufacturing Pharmaceutical Drugs Related to Pharmacy increased by 8.5% compared to the previous year to 385 in 2017. The number of employees increased by 7.7% compared to the previous year, reaching 35,552 in 2017.

The sector provides employment for skilled personnel. In 2017, the sector's value added reached TRY 4.3 billion. The pharmaceutical sector is an advanced technology-intensive sector. In this respect, technological investments and high product diversity are among the main components affecting pharmaceutical costs. The fact that the sector has the highest expenditure rate of 14.4% in world R&D spending makes R&D expenditures one of the main cost components of the pharmaceutical sector. The R&D process in the pharmaceutical sector consists of five main steps.

These stages encompass the process from the start of research to obtaining a license and creating marketing and sales strategies, which requires high R&D costs and a long period. In Turkey, pharmaceutical imports are made from many treatment groups, including preparations requiring new and advanced technology, some vaccines, blood products, some drugs with modified release systems, insulin and cancer drugs. The aforementioned imported products are high value-added innovative products. Therefore, although imported products have less share on the market on a unit basis, they have a large share in terms of value. On the other hand, the licensing and permit costs of chemical raw materials and manufactured drugs are other factors affecting production. The pharmaceutical industry, including in developed countries, imports pharmaceuticals and pharmaceutical raw materials in all countries. What is important for the pharmaceutical sector is not the import quantity, but rather that exports lag behind sector capacity and the foreign trade balance is in favor of imports. 1.4. Sub-sectors of the Sector and Other Sectors with Which It Interacts The chemical industry, while providing final products in many areas from plastics to cosmetics, from pharmaceuticals to paints, also serves an important role in the economy as a manufacturing branch that supplies intermediate goods and raw materials to many sectors. The sector is a manufacturing branch that increases our living standards, provides protection against and treatment of diseases, contributes to cleaning and hygiene matters, and meets humanity's needs in clothing and nutrition.

Figure 16. Relationship of Chemical Industry with Other Sectors

Source: CEFIC The chemical industry provides final and intermediate products to many manufacturing fields such as pesticides, synthetic fertilizers, veterinary pharmaceuticals, synthetic fibers, soap, detergents, cleaners, plastic raw materials, pharmaceutical industry, cosmetic industry, paints, auxiliary substances, leather, textiles, construction (pipes, sheets, doors, windows, etc.), adhesives, sealants, fillers, insulation materials, photographic materials, gunpowder and explosives. 1.5. Regional Structure and Clusters of the Sector The chemical industry is largely localized in the country's coastal regions in terms of logistical importance. Most chemical firms producing oil and petroleum products, detergents, soaps, pharmaceutical chemicals, and paints are located in Istanbul, Kocaeli and Sakarya, the three major industrial cities of the Marmara Region, and in Izmir in the Aegean Region, while most fertilizer and petroleum product firms are concentrated in the Mediterranean Region. In addition, important production centers such as soda and bichromate, which are primary raw materials, are also located in the Mediterranean region. In the Black Sea Region, fertilizer factories also stand out. One of the most important factors that will strengthen the competitiveness of our industry with other countries is ensuring efficiency in production. High-efficiency production increases the chance of competition by reducing costs and also reduces the impact of industry on the environment, ensuring production is sustainable in all respects.

The amount of energy used per unit product in our country is twice that of OECD countries and four times that of Japan. Considering our country's import dependence in the energy field, it is clear that cost reduction efforts to be undertaken at every stage of production, particularly in energy efficiency, will provide very significant contribution to strengthening our industry.

The clustering approach has become quite widespread in recent years as a successful method in increasing the competitiveness of enterprises. The clustering model is widely applied in global investments in the chemical sector. This model is used as a tool for developing the competitiveness of sectors. Chemical clusters also contribute to the inflow of direct foreign investment. These chemical clusters create infrastructure for investors that will allow them to implement their investments in the shortest time and commence production. While Europe hosts approximately 2,500 strong clusters, there is no chemical cluster in our country. The success of industry clusters is based on shared use of infrastructure and auxiliary input production facilities, easy access to main transport routes, and proximity to market and customers. Chemical industry cluster structures worldwide generally consist of firms that have entered into production integration with each other, specialized service providers, technical support and training institutions. Currently, chemical parks are at the center of these chemical clusters. Chemical parks can be evaluated as a type of specialized chemical cluster. Chemical parks are structures that can be used to develop chemical industry concentrations currently existing in our country and increase communication among them within a cluster structure. If existing concentrations are transitioned to the clustering stage around chemical parks, the competitiveness of our country's chemical industry firms can be increased. The fundamental reason why the European Union can maintain its competitive advantage in the chemical industry is that it has achieved integration in the value chain of sector products. It achieves this advantage through industry clusters. The success of the aforementioned industry clusters is based on shared use of infrastructure and auxiliary input production facilities, easy access to main transport routes, and proximity to market and customers. In world examples, there are clusters comprised of small, medium and large-scale firms centered on petrochemicals and/or petro-refinery operations, supporting industries, research institutions, technology development centers, educational institutions, testing and measurement laboratories, where firms trade in raw materials and products, where logistics and energy infrastructure are located and shared, and industrial zones containing these clusters. The PETKİM peninsula, which has growth potential to meet the short-term investment needs in the petrochemical sector, is the most suitable region for the formation of Turkey's first chemical park. The region has the potential to attract foreign investors with the presence of its port, dam and power plant. *This report was prepared by the Republic of Turkey Ministry of Industry and Technology – General Directorate of Industry.