1980s and 1990s has led to intense competition and rapid improvements in
productivity. If the industry can overcome scale issues and consolidate, this
industry should reach close to its potential productivity of 103 percent of U.S.
levels.
Government Steps Aside
Government reforms over the past two decades have been successful in converting a state-controlled sector into a thoroughly competitive market. The sector operates at a productivity rate of 84 percent of the U.S. level. Turkish operators produce 1 million tons of cement per year; domestic prices are among the lowest in the world; and Turkey is the fourth-largest exporter in the world.
Finding Scale
One of the main factors keeping the cement industry from surpassing U.S. levels of productivity is that not enough companies exploit economies of scale. Only four of 39 plants in Turkey are at or above minimum scale and labor productivity suffers accordingly. To realize the efficiencies of scale, plant consolidation will be necessary.
But the government, which has been so good about removing itself from the industry through privatization, has continued to play a hand that discourages rationalization. Incentives in the form of tax subsidies for new capital investments - peaking at more than US $1 billion in the mid-1990s - have encouraged companies to add capacity rather than acquire existing players. Thus, capacity utilization and resulting labor productivity suffer.
The output of the industry is
expected to increase by close to 70 percent by the year 2015. If the government
eliminates distorting incentives and allows market forces to play themselves
out, labor productivity will exceed 80 percent. Launch this chapter (PDF - 572 KB)
