REPUBLIC OF TÜRKİYE MINISTRY OF INDUSTRY AND TECHNOLOGY – CHEMICALS SECTOR REPORT (2020) (Part 4)

1.12. Sector Electricity Consumption Electricity consumption stood at 10,614,181 MWh in 2013 and increased by 35% over the following four years, reaching 14,368,194 MWh in 2017. Table 11. Electricity Consumption in the Chemical Sector (MWh) Source: TEDAŞ 1.13. Sector Foreign Trade The chemical sector today occupies a leading position in industrialized countries due to the high value-added products it supplies to sectors such as energy, agriculture, health, transportation, food, construction, electronics, textiles and environmental protection, as well as the technological innovations it provides to these sectors. In chemical substances and products, Turkey is highly dependent on imports both in terms of basic products and technological inputs and in value-added products. For this reason, the sector traditionally runs a trade deficit. However, in recent years, the growth in sector imports has remained relatively limited due to both low commodity price levels, particularly oil, and the investments beginning to yield results. On the other hand, the supportive effect of the Turkish Lira has allowed the sector's exports to continue growing. Figure 19. Chemical Industry Foreign Trade (ISIC Rev4 – 20,21,22) The chemical sector's 2019 exports increased by 7.9% compared to the previous year, reaching USD 10.1 billion; imports decreased by 4.6% to USD 31.8 billion. Table 12. Chemical Sector Foreign Trade (2018-2019) Table 12 shows the foreign trade of chemical industry subsectors for 2019. According to the table, the highest exports occurred in the manufacture of chemicals and chemical products, while the highest imports also occurred in the same product subsector. Table 13. Foreign Trade of Chemical Industry Subsectors in 2019 Figure 20 shows the chemical industry's share in manufacturing foreign trade. Accordingly, the chemical industry's share in manufacturing exports in 2019 was 5.9%; its share in manufacturing imports was 15.7%. Figure 20. Chemical Industry's Share in Manufacturing Foreign Trade Figure 21 shows the chemical industry's share of total trade deficit. This ratio reached 59.3% in 2019.   Figure 21. Chemical Industry's Share of Total Trade Deficit (%) Figure 22 shows the shares of subsectors in production and sales of chemicals in Turkey. According to the figure, in 2018 the largest shares were held by polymers at 28.7% and specialty chemicals at 24.5%. Figure 22. Subsectors' Share in Production and Sales of Chemicals in Turkey (2018) Source: CEFİC Although the chemical sector's imports declined in 2015 and 2016, sector imports rose to USD 38 billion in 2017. In 2018 it maintained the USD 38 billion level.

1.14. Sector Cost Components (energy, labor, raw materials, etc., general assessments, proportional data, findings, etc.)

As is known, many chemical substances produced by the chemical sector have negative effects on the environment and human health and are considered hazardous chemicals. For this reason, investments in the chemical sector are often equated with environmental pollution, causing serious problems in investment. Finding factory sites and implementing investment after completing all bureaucratic procedures affects costs even at the investment stage. The chemical sector is dependent on imports both in terms of raw materials and technology. Raw material imports in production are an important cost element. Even if customs duties are zero, raw material imports create ten percent costs. The chemical sector is subject to extensive regulations. It is inevitable that all of these create substantial costs for companies in the sector. SMEs can only comply with legislation that must be adapted to our country's regulations and investments needed to achieve environmental quality standards in line with European Union standards at 30% level, particularly due to EU regulations. The REACH Regulation entered into force in the EU in 2007. According to the regulation, companies operating in EU+EEA (Iceland, Norway and Liechtenstein) countries and producing or importing 1 ton or more of chemical substances per year are required to register such chemical substances in a centralized database managed by the European Chemicals Agency (ECHA), which is part of the EU organization. The regulation was published in the Official Gazette dated 23 June 2017, issue 30105, under the title "Regulation on Registration, Evaluation, Authorization and Restriction of Chemicals" and incorporated into our national legislation. With this development, not only companies exporting solely to EU countries but every company in our country producing 1 ton or more of chemical products annually became obligated to register with the Ministry of Environment and Urbanization database. Companies must also comply with the evaluation, authorization and restriction provisions in the regulation when producing substances listed in the annexes of the KKDIK Regulation. The sector should evaluate the transition periods allowed for implementation and begin taking necessary actions. In the chemical sector, storage and transportation costs for many products are higher than in other sectors. Every regulation enacted to ensure the safe and orderly transportation of hazardous substances without harm to human health, other living things and the environment increases the sector's production costs. In the chemical sector, hourly wages for employees are above the manufacturing industry average. In many subsectors of the sector, highly educated and technically trained personnel are employed. Employees receive additional training according to their unit of employment beyond the education they received in schools. This situation affects wages in the chemical sector and consequently production costs.

• Sector Future Outlook: Disruptive Technologies and Transformations

The sector's share in national exports is increasing significantly; this rise in foreign trade share is partly due to other sectors' decline while the chemical industry continues to develop. The sector has achieved recent production growth without stopping by using idle capacity. For growth to continue in the coming period and to enable a transition to higher value-added products in the sector, new investments are needed. If Turkey's chemical sector fails to achieve this transformation, it is inevitable that our exports will rapidly decline and our trade deficit will grow further as the technological levels of the countries to which we currently export improve. Turkey's chemical industry faces many problems. Chief among these are energy prices, logistics problems and bureaucracy. For "sustainable competitiveness," there are problems that need to be solved in the medium and long term. The answer to the question of "at what speed and with what adequacy" these problems are solved will reveal the development trend of Turkish chemical industry. Furthermore, the chemical industry not only produces consumer products but also supplies intermediate inputs to other manufacturing sectors. Therefore, the growth trend of the chemical industry will be significantly influenced by the demand from these sectors. The real issue is to identify strategically important basic chemical products in the chemical sector and investigate whether their production is profitable. Turkey's chemical sector is import-dependent. Lack of investment in the sector and the demand growth rate for chemicals exceeding the global average cause Turkey's chemical substance imports to continuously increase. Due to its characteristic as a leading sector providing inputs to many industrial branches, the chemical sector is important for Turkey's economic future. Such an important sector is dependent on imports regarding raw materials and technology. To reduce the sector's import dependency and increase its international competitiveness, foreign trade strategy must be determined, large-scale investments with high technology and R&D content must be supported, and particularly high value-added products must be prioritized and produced. *This report was prepared by the Ministry of Industry and Technology – General Directorate of Industry of the Republic of Turkey.

REFERENCES

1. Ministry of Industry and Technology of the Republic of Turkey
2. State Planning Organization Ninth Development Plan Chemical Industry Special Commission Report
3. CEFİC European Chemical Industry Report (2020)
4. TÜİK
5. Trade Map