Liberalization since the 1980s has had a dramatic impact on the steel
industry, where productivity is now at 70 percent of Japanese levels. However,
government subsidies in the form of bailouts for the Kardemir company, and
spotty enforcement of quality and tax laws risk stunting further productivity
gains.
Competition Spurs Productivity
Competitive intensity in steel has increased significantly with reforms since the mid-1980s. Abolition of import duties subjected Turkish steel companies to the reality of worldwide overcapacity, forcing players to be more productive to survive. Integrated steel producers started to rationalize their operations. New and highly productive mini-mills entered the market. And the government privatized two of the three state-owned integrated steel producers.
The mini-mills have been a particular bright spot. Because investments in them have been relatively recent, they have incorporated the most modern technologies. As a result, their productivity rates are 133 percent of U.S. rates. However, mini-mills account only for 25 percent of employment. Thus, poor productivity numbers from the steel processor segment, and some continuing weaknesses by integrated fabricators, have dragged productivity down overall.
Holdouts: Subsidies and Informality
The main reason that the poor-performing steel processors have survived is that they operate outside legal boundaries. They use the savings from operating informally, i.e. avoiding taxes and social security payments, to stay in business. Worse, they sell substandard steel to those construction companies that also work on the fringes.
The large, privately-owned, integrated company, Kardemir has managed to survive thanks to government subsidies in the form of bailout packages. Political pressures are strong to continue the pattern but that would only artificially sustain poor performance.
Tough Measures and New Jobs
If the government can make the difficult decisions - ending
subsidies and enforcing tax and labor market laws - the steel industry can
continue its impressive performance. A vibrant and growing steel industry could
create 20,000 new jobs over the next decade. Launch this chapter (PDF - 339 KB)
