The machinery sector is a locomotive industry with a significant driving force, owing to the value it creates, its necessity for technology development, its ability to establish a broad sub-industry network, reduce investment costs, generate employment for qualified personnel, decrease foreign dependency and foreign trade deficits, and supply inputs to numerous other sectors. The importance of the machinery manufacturing industry within total manufacturing has been steadily increasing in the development processes of countries. When examining the exports of developed countries, it is observed that the machinery and components sector accounts for around 20% of total exports.

DEVELOPMENT OF THE SECTOR IN TÜRKİYE

The foundations of Türkiye’s industrial sector were laid by the state under the First and Second Five-Year Industrial Plans, as sufficient private capital accumulation did not exist in the early years of the Republic. Although the majority of industrial enterprises covered under these plans focused on the production of basic consumer goods, facilities producing intermediate goods were also included. Over time, the plan was implemented in a manner that created beneficial industrial opportunities for private entrepreneurs as well. Periodic incentive and grant packages have opened up opportunities for the machinery manufacturing sector, and the sector’s development accelerated with the transition to a mixed economy.

The Work and Construction Machinery Cluster (İŞİM) was established on 22 May 2008 between OSTİM Organized Industrial Zone and Çankaya University, and has since carried out various activities.

The Machinery Promotion Group (MTG) was established by the Board of Directors of the Central Anatolian Machine and Components Exporters' Association to ensure the necessary funding for promoting the machinery sector more effectively abroad, increasing the exports of machinery and components, improving the sector’s domestic and international image, and organizing branding, R&D, and joint promotion activities. This initiative was approved at the Association’s Ordinary General Assembly for the 2006 fiscal year, held on 11 April 2007, and subsequently became operational.

SECTORAL PANORAMA

Machinery manufacturing is the driving force behind Türkiye’s industrialization, as it is worldwide, and it is evident that it will remain the cornerstone of future development. Since 1990, the sector has grown at an annual rate of approximately 20% and is also recovering in export performance. The Turkish machinery and components industry generates an annual foreign trade volume of around USD 40 billion.

According to the TOBB Membership Database, 0.7% of every 100 registered employees in Türkiye work in the machinery and equipment manufacturing sector, and 6% of these employees serve as engineers. Additionally, 0.5% of every 100 companies operate in this sector. Moreover, 0.3% of pre-tax profits generated by private-sector firms originate from machinery and equipment manufacturing.

The most significant sub-sectors within the machinery and components industry are the Construction Machinery Sector, the Machine Tools Sector, and the Agricultural Machinery Sector. Sub-sectors within the machinery and manufacturing industry continue to evolve dynamically. In recent years, the agricultural machinery sector has emerged as one of the industries that has expanded its domestic production capacity.

Machinery manufacturing in Türkiye is geographically concentrated in certain provinces, including Bursa, Istanbul, Kocaeli, the Marmara Region including Thrace, Izmir, Eskişehir, Ankara, Konya, and Gaziantep. The Çukurova region also fits within this framework. Machine tool production is primarily concentrated in Bursa, Kocaeli, Istanbul, Izmir, and Konya, while Gaziantep focuses mainly on textile (including carpet weaving), food processing, and construction machinery. Due to its proximity to neighboring countries and growing cooperation opportunities, Gaziantep has recently developed production capabilities in a wider range of machinery types.

SECTORAL ANALYSIS

The machinery and equipment manufacturing sector closed 2013 with USD 12.8 billion in exports and USD 23.4 billion in imports. According to data from the Machinery and Components Exporters’ Association (MAİB), the sector’s exports increased by 8.5% in the first seven months of 2014 compared to the same period the previous year, reaching USD 8.7 billion. While exports maintain a stable upward trend, the export-to-import coverage ratio rose from 45.2% in the first half of the previous year to 52.3% in the same period of the current year.

Germany, which accounts for 16% of Türkiye’s machinery exports, recorded a 13.8% increase in imports from Türkiye in January–June 2014. The United States, the second-largest export destination, saw a 27.9% increase, while exports to the United Kingdom, in third place, rose by 1.7%.

According to the “Sectoral Breakdown of Türkiye’s 2023 Export Strategy” conducted by the Turkish Exporters Assembly (TİM), in order for Türkiye to reach its target of USD 500 billion in total exports by 2023, the machinery and components sector is expected to achieve USD 100 billion in exports. This strategy envisions capturing a 2.3% share of the global market, an annual average growth rate of 17.8%, and an 18.34% share within Türkiye’s total exports.

Turkish machinery manufacturers, who export to more than 200 countries, believe that USD 25 billion of the USD 47 billion current account deficit generated by the machinery sector can be offset through exports. However, sector representatives also highlight a number of unresolved issues.

One such issue is the inadequacy of regional and R&D incentives in meeting the structural needs of the sector. According to industry stakeholders, the solution lies in amending Law No. 5746 to introduce an employee-based incentive rate, recognize engineers working in product development and production as R&D personnel, and apply incentives uniformly across all regions.

Financing difficulties also arise due to the sector’s low profit margins and insufficient availability of long-term buyer credits and financial support. Representatives emphasize the need for innovative mechanisms that eliminate credit risks for exports and enable micro and small enterprises in the domestic market to invest in machinery and equipment without requiring collateral.

Industry stakeholders also argue that TOBB should be authorized to establish a machinery registration and licensing system to record and certify machinery that meets specific criteria, thereby providing security to the banking sector and facilitating smoother financing.

Moreover, the 18% VAT applied to sector products categorized as capital goods leads to unfair competition and unregistered activity. Representatives note that many SMEs purchase machinery without incentives or leasing options and therefore request that the VAT rate be reduced to 8% across all sub-categories of the sector.

In distant markets, such as the United States and the Far East, it is noted that it is very difficult for SME-level manufacturers to independently seek out markets or secure a share of the market. This situation is expected to lead to rare instances of cooperation among machinery-manufacturing SMEs. According to industry stakeholders, in culturally distant markets, such as the Far East, the efforts of individual companies alone will not be sufficient. The professional support of commercial attachés will be absolutely necessary. This support is essential to ensure that companies’ initiatives and resources are not wasted. All of these efforts are reported to yield returns in the medium and long term.

Source: Dünya Newspaper