Turkey’s loss of market share in low-value-added goods has accelerated the shift towards medium-technology products in both production and exports.
Turkey’s price competitiveness eroded and it was forced to change the composition of its exports when it was pushed out of the game in cheap products. While the share of medium and low-technology products in exports fell to its lowest level, companies started to focus on innovative categories.
Leaving behind a year dominated by deteriorating demand conditions, exporters were almost thrown out of the game by their Far Eastern competitors in low-value-added products when they were unable to meet prices due to high-cost pressure.
According to foreign trade data, the share of low and medium-low technology products in exports was 59.8 percent in 10 months, the lowest level since 2014 when the data started to be released. The loss of altitude in low-value-added products was also reflected in the industrial production index data. According to the October data of the index, there is a 4.1 percent decline in low-tech products on an annual basis.
While the data reveals the need for technological transformation in the manufacturing industry, exporters say that Turkey has no chance to compete in low-value-added products under these cost conditions and that it is not a choice but a necessity for the industry to increase added value and productivity.
Lowest level in data history
According to TurkStat’s Foreign Trade Statistics, exports increased by 0.2 percent in the January-October period of 2023 compared to the same period of the previous year and reached USD 209,90 billion. Looking at the foreign trade of manufacturing industry products according to technology intensity, exports of low-tech products decreased by 3.7 percent in 10 months of the year compared to the same period of the previous year and realized at USD 61.79 billion, while their share in total exports decreased by 1.1 points to 31.2 percent.
There is a similar loss of momentum in medium-low technology products. In 10 months of the year, exports of medium-low technology products decreased by 9.8 percent to USD 56.66 billion, while their share in total exports fell by 3.1 points to 28.6 percent. Thus, the total share of low and medium-low technology products was measured as 59.8 percent, the lowest level since 2014, when the data started to be released by TurkStat.
The share of medium-high technology products has gradually increased over the years. While exports in this category increased by 10.5 percent in the January-October period to USD 72.51 billion, the share of medium-high technology products in overall exports increased by 3.5 points to 36.6 percent. This was again recorded as the highest rate in the history of data based on the first 10-month periods. Exports of high-tech products also increased by 27 percent in the January-October period, reaching USD 7.3 billion, and its share increased by 0.8 points to 3.7 percent.
Exports of sectors with low technology fall
On a sectoral basis, almost all of Turkey’s low- and medium-low technology manufacturing sectors are in decline. Chemicals, ready-to-wear clothing, steel, ferrous/non-ferrous metals and textiles are among the leading export sectors in the low- and medium-low technology category. According to the November export figures announced by the Turkish Exporters Assembly (TIM), exports of chemicals, Turkey’s second-largest export sector after automotive, fell 9.6 percent in 11 months to USD 27.8 billion. The chemical industry also has medium-high and high-tech product categories, but since the most exported subgroup of the industry in Turkey is plastic products, the export loss here also came from the medium-low category. The loss in ready-to-wear clothing, the third-biggest export sector, was 8.6 percent in 11 months, and exports of this sector decreased from USD 19.4 billion to USD 17.8 billion in January-November.
In steel, the fifth sector with the highest exports, the loss reached 31.2 percent in 11 months. The sector’s exports in this period fell from USD 19.6 billion to USD 13.5 billion. Exports in ferrous and non-ferrous metals also fell by 13.2 percent in 11 months to USD 11.5 billion. In the textile and raw materials sector, exports in the January-November period decreased by 7.9 percent to USD 8.8 billion. On the other hand, it is noteworthy that high-middle-high technology sectors such as automotive, electrical electronics, machinery and components, air conditioning, defense and aerospace industries increased their exports in the same period.
Value added is key for sustainable exports
The negative effects of the appreciated foreign exchange rate on exports are frequently voiced, especially in labor-intensive sectors. Real sector representatives argue that it is difficult to meet rising costs with the current demand at the level of exchange rate suppression and that the price gap between Turkey and its Far Eastern competitors in export prices has widened to the detriment of Turkey, which accelerates market loss. The Central Bank, however, says that the contribution of the undervalued Turkish lira to exports is very limited. “Permanent and sustainable gains in exports can be achieved through high value-added and technological product diversification rather than price competitiveness.” the bank said in a recent report.
Signals of change from new enterprises
TurkStat’s Entrepreneurship and Business Demographics 2022 data also point to a shift towards more value-added production. According to the study, 59.7 percent of enterprises born in 2022 in the manufacturing industry were low-tech, 27.5 percent were medium-low, 11.8 percent were medium-high and 0.9 percent were high-tech enterprises. Looking at the data history, the share of low-tech enterprises started to decline steadily after its peak in 2019 with 63.7 percent; it was 61.2 percent in 2020, 60.7 percent in 2021 and 59.7 percent in 2022.
There has also been a gradual increase in the mid-low technology among new enterprises for the last 3 years. 26.3 percent of enterprises born in 2020, 26.8 percent in 2021, and 27.5 percent in 2022 were at the medium-low technology level. While there has been a negligible increase in the share of medium-high technology level for 3 years, the share of high technology level enterprises continues to skid, remaining below 1 percent.
A similar picture can be seen in the survey of Turkey’s Top 500 Industrial Enterprises 2022 announced by the Istanbul Chamber of Industry. In the distribution of value-added created according to technology intensity, giant companies were predominantly located in medium technology categories. The share of low-tech industries declined in recent years; was 40 percent, 37.3 percent, 33.3 percent and 28.9 percent, respectively, between 2019 and 2022, while the share of medium-low-tech industries increased gradually in the same years: 29.6 percent, 31.5 percent, 32.4 percent and 37.7 percent. The share of medium-high technology industries, which was 23.5 percent in 2019, was measured as 24.8 percent in 2020, 28.3 percent in 2021 and 27.2 percent in 2022. The share of high-tech industries declined from 6.9 percent in 2019 to 6.2 percent in 2022.