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It is time to devise a new policy for Turkey’s industrial zones 22/08/2011 - Viewed 3751 times

Recently, the fiftieth anniversary of the Bursa Organized Industrial Zone (OIZ), Turkey's first OIZ, was celebrated. The fifty-year long adventure, which started with a World Bank loan in the process of the shift to a planned economy, played a major role in the industrial development of the country. Now, there is an OIZ in almost all provinces and everyone from industrialists to ordinary citizens knows where the OIZ of the province is located and what it looks like. The point about which we do not have an opinion is in which direction the function of OIZs in Turkey's economy should evolve. I believe that the answer to this question is closely related to the country's industrial policy and efforts to tackle the high current account deficit.

Before discussing this issue, we have to move beyond the successful examples in Turkey and examine the situation in the emerging and rapidly industrializing economies of the world. The World Bank recently published a report discussing the success and challenges of special economic zones, and future directions.[1] The first point that attracted my attention was that while Turkey can boast having founded more than 250 OIZs, the Bank made no mention of the Turkish experience of a half century. The second striking point was the difference between what we understand about OIZs in Turkey and the characteristics of special economic zones in East Asian countries. I think it is necessary to elaborate on this concept.

The OIZ phenomenon, in the Turkish context, is in fact a brilliant mechanism implemented successfully by the Ministry of Industry in order to counteract various impediments to industrial investments. To put it bluntly, it is a mechanism tailored to ensure that industrialists can access high-quality industrial land and cheap infrastructure services, communicate with other industrialists and domestic and global markets, and obtain permits and licenses with a predictable cost and time frame, without having to tussle with the "investor-friendly" (!) arrangements of municipalities. Provinces with industrial production capacity have allocated lands of 1 to 56 square kilometers for OIZs. For instance, the Gaziantep OIZ hosts 658 firms employing 71,000 people on 23.7 square kilometers of land.  The Kayseri, Bursa and Eskişehir OIZs generate employment for 50,000, 35,000, and 24,000 people, respectively. The total size of employment generated by the OIZs across the country is around 1 million.[2]

While we are trying to bring the current OIZ model, planned in the 1960s and extended in the 1980s, to perfection, other countries are seeking different special economic zone models. In the east of the world, OIZs have become separate cities themselves while in Turkey OIZs appear as structures that break off from cities and gain autonomy before municipalities. In the former model, which covered a larger geographic area, ports, airports, vocational schools and universities, housing and tourism areas were designed and managed together in addition to the industrial infrastructure. While Turkey recently has started to found vocational schools in OIZs and there are only a few OIZs that have technoparks and logistics centers, East Asian countries are turning industrial zones into centers of attraction as well as of industry. The Suzhou Industrial Park (http://www.sipac.gov.cn/), a joint initiative of China and Singapore, and the Incheon Industrial Park (http://ifez.go.kr/) in South Korea are two good examples of the above model. These zones, inspired by the system developed in England in the 1980s, are positioned on an area at least ten times bigger than the largest OIZ in Turkey. Each of these is designed as a residential, commercial, education, technology, and logistics center at the same time. Another common feature of these parks is their advanced governance mechanism: while the parks are managed by the private sector, efficient oversight is done by a public institution, running a checks and balance system. In the case with Turkey, however, the authority issuing permits might become the permittee, too.[3]

If you are curious about the details of the difference between the system in Turkey and in other countries, you might look at first the web site above and then the web sites of leading Turkish OIZs (Gebze: www.gosb.com.tr;  Bursa: www.bosb.com.tr;  Manisa: www.mosb.org.tr)

One could write pages on the differences and the problems facing Turkish OIZs. My main concern, however, is to remind you of the fact that in today's world, models other than the successful Turkish OIZ model exist, as well. The following suggestions may be the starting point of a debate on possible OIZ models for Turkey:

• The OIZ program of Turkey needs to be assessed thoroughly. What progress has Turkey made in five decades? What is the contribution of the OIZs to the production/export/innovation performance of the firms operating in these zones? What is the function of the OIZs in the creation and development of industrial clusters? What is the capacity of the OIZs to attract foreign direct investment? How should the regime in developed zones be differentiated from that in the OIZs located in less-developed industrial regions? To what degree can the current governance model respond to future demands? How can the Housing Administration of Turkey (TOKİ) pursue the industrial land generation function, successfully fulfilled by the land office until today, under a new city planning approach? How can OIZs and municipalities, which are hostile to each other in most cases, build a win-win relationship? How can tax revenues generated via production in OIZs be extended from large cities towards local administrations in the OIZ's neighboring region? Without a comprehensive assessment of OIZs that will cover the above questions, no realistic roadmap for the future can be prepared.[4]

• Turkey might start testing a new OIZ approach. Evidently, it is not possible to establish the above-mentioned East Asian model in all of the OIZs in Turkey. Moreover, we do not know whether or not this model will be a good fit here. I believe that Turkey might test the performance of integrated solutions with a pilot study. Although it suffers from certain problems regarding its governance model, "The ICT Valley Project," which came onto the agenda in the 1990s and which has yet to be initiated, actually was designed according to a quite similar logic. Initiating another pilot project that focuses on life quality alongside the industrial and technological infrastructure somewhere outside of the Marmara region might also be a good starting point. Depending on the success of the project in the first five years, scaling-up the program in geography and scope might be considered. Moreover, these zones can be used to test new economic policies and second generation reforms. For instance, the Higher Education Council reform or university autonomy could be tested in universities in a pilot project zone. Similarly, tax reform could be initiated in such a zone. The current legal system, however, is the biggest impediment to the development of a new model and an ideal governance structure in particular. On the other hand, simultaneously with the debates on the content of the new constitution, this new model could be taken into consideration and hopefully be accommodated in devising the new legal system.

• It is time to share the five-decade OIZ experience with other countries in a more organized manner. There is a lot that neighboring countries or even a wider geography can learn from Turkey's current industrial production structure and OIZ experience. The OIZs that the Turkish private sector launches in other countries might not only contribute to the local economy, but also spread the value chains of Turkish industrial investments to those countries. This way, the business climate in those countries might be improved for the advantage of Turkish investors. In this context, it will be useful to start discussing whether the public should direct incentives for projects fulfilling these conditions. For instance, the Chinese government decided to finance 30% of the investments cost of 50 new OIZ projects to be launched by Chinese firms in Africa, the Middle East and Asia, in order to facilitate the globalization of Chinese firms. Turkey had better not miss the opportunity at least for its natural hinterland.

We need to adopt a different growth strategy in order to ensure upgrading our industrial and economic structure to an higher league. A new OIZ policy must be an integral part of this new growth model. The ministries, the missions of which have been redefined recently: the Ministry of Science, Industry, and Technology; the Ministry of Environment and City Planning; and the Ministry of Economy, in particular have an important opportunity with this respect. Moreover, the new constitutional process is maybe the most crucial opportunity for planning the second fifty years of OIZs. I hope Turkey does not miss this train.

[1] The study can be downloaded at: http://www.wds.worldbank.org/servlet/main?menuPK=64187510&pagePK=64193027&piPK=64187937&theSitePK=523679&entityID=000386194_20110816014424 Thomas Farole and Gökhan Akıncı (eds.) (2011) Special Economic Zones: Progress, Emerging Challenges and Future Directions (Washington DC: The World Bank Group, )

[2] Data on OIZs in Turkey are accessible on OSBÜK web site: http://www.osbuk.org.tr

[3] The OIZ law gives a number of authorities and powers including expropriation and issuing licenses and permits to OIZ management bodies. The usage of public powers by OIZs, however, may be interpreted as being against the constitution since OIZ management bodies are private law entities. In fact, similar authorities were canceled by the Constitutional Court in the case with the Law of Technology Development Zones.

[4] The most comprehensive study on this subject was written last year by State Planning Organization (SPO) Expert Mehmet Cansız. Still, there is need for a thorough economic analysis taking departure from this study titled "Organized Industrial Zone Policies and Practices in Turkey."