GLOBAL RISKS LED TO CONTRACTION

İsmail Somalı, Chairman of MÜSİAD Machinery Sector Board, stated that the global machinery sector experienced a contraction of around 2 per cent in 2024. He said that the risk of recession in Europe, the US presidential elections, the Russia-Ukraine war and geopolitical risks in the Middle East were effective in this contraction. In the first three quarters of 2024, machinery exports in Turkey maintained last year's level. However, Somalı pointed out that there was a decrease of 8.5 per cent in investments and said, ‘In the first three quarters of 2024, our machinery exports amounted to 21 billion dollars and our export value per kilogram increased by 3 per cent to 7.5 dollars. We expect an export figure of over 28 billion dollars at the end of the year.’ Despite this, he pointed out that there is a worrying picture on the import side.

MACHINERY IMPORTS INCREASE CURRENT ACCOUNT DEFICIT

Stating that the machinery sector has a current account deficit of over $15 billion on an annual basis, Somalı said that this situation weakens Turkey's competitiveness in some sectors. ‘For example, our imports in agricultural machinery and tractors have decreased significantly and we have started to have a current account surplus, but due to the increasing imports in air conditioning systems, we have started to have a current account deficit in this area,’ he said. In addition to these evaluations, Karavelioğlu emphasised that the level of exports must be maintained in order for the machinery sector to move forward without losing its scale and qualified personnel, and said, ‘We need to cut down on machinery imports, which reached $44.3 billion in the last 12 months. Our goal is to reduce Turkey's foreign trade deficit in machinery from 15.9 billion dollars to less than 10 billion dollars again.’ Somalı and Karavelioğlu emphasised that in order for the machinery sector to maintain growth, domestic production should be supported, imports should be balanced and digital transformation efforts should be accelerated. Stating that carbon regulations will become a determining factor in exports to Europe, Somalı said, ‘Our companies should complete their infrastructure regarding carbon emissions and accelerate certification studies.

HIGH COSTS WEAKEN COMPETITIVENESS

Unlike other production areas, the machinery sector experienced a decrease in exports on a quantity basis in 2024, while trying to balance this loss with unit price increases. However, the sector had a challenging year due to inflationary pressures and high costs. ‘Our industry, which had to export without increasing prices in the domestic market, was the manufacturing branch most affected by inflation with its high domestic value-added structure and qualified employment,’ Karavelioğlu said.

Despite these difficulties, growth in new export markets gives hope to the sector. However, Somalı made important warnings for the sustainability of this growth. Somalı said, ‘Despite the increase in new export markets, high operating expenses and financing costs weaken the competitiveness of the sector. It is essential to take additional measures in order not to lose our competitiveness and therefore our market share.’

The risk of recession in Germany and high costs across Europe are leading to a decline in industrial production. Somalı stated that this situation has negatively affected machinery exports to Germany. However, emphasising that Germany is still the number one export market, he said: ‘This market is of critical importance for Turkey's machinery exports. Despite the economic difficulties in Europe, we must take strategic steps to maintain our share in the region.’

CHANGING GLOBAL BALANCES OPEN NEW DOORS FOR THE SECTOR

Stating that Russia maintained its second place in Turkey's machinery exports despite international sanctions, Somalı said that machinery exports to the USA increased by more than 7 per cent. ‘This rise in the American market offers an important opportunity for our sector. We should make new investments and co-operations to increase this potential.’

Somalı stated that a recovery in the markets is expected in 2025 with the effect of the disinflation process. Pointing out that the re-election of Donald Trump as president in the US may put protectionist trade policies into effect, Somalı said, ‘While Trump is expected to slow down trade with markets he sees as a trade threat, the US could be an important opportunity for us. We should evaluate this market strategically.’ Referring to regional opportunities, Somalı emphasised that Turkey's diplomatic roles in Syria and Egypt have opened new doors for the machinery sector. ‘The efforts to normalise Turkey-Egypt relations have revitalised Egypt, which was a strong market in the past. In addition, important opportunities will arise for our sector with the start of infrastructure and construction activities in Syria.’

DIFFICULTIES IN EUROPE CAN BE AN ADVANTAGE

High energy and labour costs in Europe are causing production to shift to countries such as Hungary, Poland and the Czech Republic. Stating that these countries could be new markets for the Turkish machinery sector, Somalı said, ‘Maintaining our production capability in EU-compliant quality and safety standards with our projects in Europe, especially in Germany, will maintain and increase our share in existing markets.’

DIGITALISATION AND GREEN TRANSFORMATION IN LEADING ROLE

The sector continues to prioritise digitalisation and green transformation strategies in order to increase its global competitiveness and make the best use of regional opportunities. Sector representatives highlight the importance of transitioning to more efficient production processes in the face of high energy and labour costs, and emphasise that supporting domestic production and compliance with carbon regulations are vital for the future success of the sector.

Emphasising the need to focus on digitalisation, efficiency and green transformation efforts to balance high energy and labour costs, Somalı said, ‘Turning towards niche products with less international competition and producing products with high quality and efficiency will increase our profitability and enable us to differentiate positively in the market.’

The sector aims to implement digitalisation and green transformation strategies in 2025 in order to take advantage of regional opportunities and increase its global competitiveness. Both Somalı and Karavelioğlu drew attention to the need to support domestic production and reduce costs, and stated that the focus should be on sustainable growth models for the future of the sector.