Problems of Ceramic Sector in Turkey

Problems of the Ceramic Sector

It is clear that the deepest and most destructive impact of the economic crises our country undergoes from time to time is on the real sector. The traces of this destruction in the constricting economy have been eliminated by the obvious improvement in our economy with modernization and new investments taking place in production facilities. As the existing uncertain environment disappeared; our production, sales and exports increased. It is not possible for us to survive if we cannot increase our production and achieve producing at costs and productivities which can compete globally. Obviously, when the domestic market is inadequate, this can only happen through exports. For production and exports to grow, the major required step to be taken is to ensure that production inputs under government control are supplied at competitive levels. For the ceramic sector to maintain its competitive power in the world, for it to preserve and increase its domestic market share in the area of tiles and sanitary ware, and increase its share it has captured in world markets, the problems of the sector must be solved urgently.

Energy

What our export-oriented sector wants is to use energy which is one of its most important inputs under equal terms with international rivals. The way to do this is to hold the electricity and natural gas prices which are government controlled at competitive levels. The natural gas distribution network in Turkey has not yet reached all regions. Therefore, natural gas investments must be completed swiftly and production facilities, which do not yet have natural gas, must be able to use this fuel as soon as possible. In addition to its availability, the price of natural gas is also important. In our country, 20 % of the natural gas consumed in the industry is used by the ceramic sector. For our sector, which uses energy intensely, the price of natural gas is much more expensive than in most European countries. In the one year period from March 2005 to 2006, 10 % rate increase has occurred on electricity and 37 % on natural gas in foreign currency terms. Our purchasing cost, which is 2.24 Euro cent per kilowatt hour for natural gas and 6.82 Euro cent for electrical power excluding VAT is about 15-35 % higher than the competitor countries in Europe. While, on the one hand our sector is striving to get the cost structure in European countries, third countries like India and Iran, which makes power available for much cheaper prices than the energy prices in European countries and which are contentious in the area of ceramics, have appeared. Our government has to minimize the losses occurring in transmission of electrical power, must prevent contraband use and must not charge the cost of these to those consuming electrical power.

In addition, we expect the government to produce electrical power from sources with low generation cost, to emphasize hydraulic power, to make more use of our national coal resources by adopting none polluting measures and to give priority to renewable energy sources like wind energy.

Labor Cost

In our country, labor cost is lower than in European countries. However, the tax burden on labor cost is much much higher than those in these countries. The cost of the wages paid to workers reverts back to the employer, increasing many folds. On the other hand, the advantage of our country in respect of labor cost has disappeared if one also considers labor productivity. Furthermore, it is not possible for us to compete with the extremely low wages in Far Eastern countries like China and certain Middle Eastern countries. The tax load on labor must be mitigated and the labor cost must be brought down to a normal level without decreasing the money the workers receive. We expect our government to restructure tax polices and mitigate the high taxes on labor cost by spreading taxes over the base and creating new taxpayers without incurring losses in respect of the total tax collected.

Transportation

Transportation is a very important part of the total cost in the ceramic sector due to the nature of ceramic products. The total cargo capacity of the sector per year is about 10 million tons. The predominance of land transportation in the transportation system of the country, the inadequate sea and railway connections bring high transportation costs both domestically