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Viewing cable 07ISTANBUL438, KOCAELI PROVINCE: SATURATED WITH INDUSTRY

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Reference ID Created Released Classification Origin
07ISTANBUL438 2007-05-24 12:26 2011-08-24 01:00 UNCLASSIFIED Consulate Istanbul
VZCZCXRO5423
PP RUEHAG RUEHAST RUEHDA RUEHDBU RUEHDF RUEHFL RUEHIK RUEHKW RUEHLA
RUEHLN RUEHLZ RUEHPOD RUEHROV RUEHSR RUEHVK RUEHYG
DE RUEHIT #0438/01 1441226
ZNR UUUUU ZZH
P 241226Z MAY 07
FM AMCONSUL ISTANBUL
TO RUEHC/SECSTATE WASHDC PRIORITY 7061
INFO RUEHZL/EUROPEAN POLITICAL COLLECTIVE PRIORITY
RUEHDA/AMCONSUL ADANA PRIORITY 2313
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
UNCLAS SECTION 01 OF 02 ISTANBUL 000438 
 
SIPDIS 
 
SIPDIS 
 
E.O. 12958: N/A 
TAGS: ECON TU
SUBJECT: KOCAELI PROVINCE: SATURATED WITH INDUSTRY 
 
 
ISTANBUL 00000438  001.2 OF 002 
 
 
 1.  Summary:  Kocaeli province is Istanbul's blue-collar 
neighbor.  If Ankara is Turkey's Washington and Istanbul is 
New York, then Kocaeli is Chicago.  Heavily industrial and 
densely populated, Kocaeli hugs the eastern tip of the Sea of 
Marmara.  Chamber of Industry representatives and  Ford 
Otosan executives paint a picture of a province that is 
significantly wealthier than Turkey's norm, but still 
struggling to manage rapid population growth and urbanization 
as well as environmental challenges with little monetary 
support from the central government.  Kocaeli is the 
destination for much of Turkey's greenfield investment, so 
much so that one chamber official described the province as 
"saturated" and unable to accommodate much significant new 
investment.  End Summary. 
 
2.  Kocaeli province is home to 18 of Turkey's 100 largest 
industrial companies including TUPRAS's recently privatized 
oil refinery and Ford Otosan, the market leader in the 
automotive sector, the country's two largest industrial 
companies.  Despite the presence of these heavyweights as 
well as investments by over 100 multinational companies, 80% 
of the membership in the Kocaeli Chamber of Industry is 
comprised of small- to medium-sized family businesses. 
 
3.  Chamber of Industry officials ascribe much of Kocaeli's 
success in attracting investment to its location - directly 
east of Istanbul and bordering the Sea of Marmara - and 
excellent land/sea/air transport links.  The decision decades 
ago to locate a major oil refinery in Izmit, Kocaeli's 
capital, prompted investments in the chemical and 
petrochemical industry and helped form the basis for what is 
now Turkey's industrial heartland.  Kocaeli is home to 27% of 
Turkey's chemicals industry; however in recent years the 
automotive sector has eclipsed chemicals as the primary 
driver of Kocaeli's economy.  Ford, Hyundai, Honda and Isuzu 
have production facilities in the province as do local and 
international producers of automotive parts and supplies. 
 
4.  The unregistered workforce is unusually small in Kocaeli 
due to the presence of large, industrial companies whose 
workers are almost entirely registered and frequently 
unionized, according to Onur Erguney, Deputy Secretary 
General of the Kocaeli Chamber of Industry.  Erguney suspects 
well under 40% of Kocaeli's workers are unregistered.  By 
contrast, most observers estimate that over half of Turkey's 
workforce is unregistered.   Unemployment in Kocaeli is about 
12%, in line with the national average, according to Erguney. 
 Large multinational corporations report no difficulty 
attracting and retaining qualified staff both technical and 
professional.  However, senior professional staff still 
generally live in Istanbul despite a punishing commute. 
Anecdotally, we asked eight senior Ford Otosan executives 
where they lived and all were Istanbul residents.  The 
company provides compounded housing for 50 senior staffers 
who typically spend one or two nights a week in Kocaeli and 
the remainder in Istanbul.  Yasar Onay, Ford Otosan's human 
resources manager, explained that virtually all technical 
employees lived in Kocaeli, but that more than 60% of the 
company's professional staff lived in Istanbul primarily 
because schools were significantly better than in Kocaeli. 
Ford has provided substantial charitable support to local 
public elementary and high schools as part of a good 
corporate citizenship program. 
 
5.  Kocaeli is a preferred location for foreign direct 
investment in Turkey's manufacturing sector, but the small 
size of the province and recent large-scale unplanned 
urbanization constrain future growth.  Necmettin Bayraktar, 
Deputy Secretary General of the Kocaeli Chamber of Industry, 
notes that in many respects "Kocaeli is full."  Simply 
finding appropriate land for new industrial development is a 
challenge.  Bayraktar argued for carefully evaluating 
potential new investments with a focus on attracting projects 
that are higher-value-added and low environmental impact.  He 
cited a primary complaint of the Kocaeli business community - 
the province is a net contributor to the government budget 
and pays far more in taxes than it receives in services. 
Increased government spending on the mitigation of existing 
environmental problems, through the provision of solid waste 
treatment facilities and greater attention to air quality, 
are vitally important as is investment in education, roads 
and health, he argued. 
 
6.  Kocaeli residents' political views appear to track 
national trends.  Six of nine current MPs are from the AK 
Party while the remaining three represent CHP.  Corporate 
leaders and major industrialists are strongly in favor of EU 
accession, while the man on the street is much less 
positively inclined, in a phenomenon Bayraktar described as 
largely emotional.  Erguner noted that Kocaeli's many 
family-run businesses are typically part of the supply chain 
 
ISTANBUL 00000438  002.2 OF 002 
 
 
of major corporations and are thus more exposed to the risks 
and benefits of global competition.  This gives small and 
medium enterprises a more outward-looking focus and they are 
generally supportive of Turkey's EU aspirations, he claimed. 
 
7.  Erguney and Bayraktar agreed that the Customs Union has 
been a significant positive for Kocaeli, in part by forcing 
local companies to make changes in their management structure 
in order to adapt to a more competitive marketplace.  EU 
membership remains vital, with complete economic integration 
with Europe the ultimate goal.  Sticking with the Customs 
Union or a privileged partnership would not be in Turkey's 
long term interest, they argued.   Erguney explained that 
Kocaeli is competing with the new Central European EU members 
to be the EU's production base and that competing as a member 
would be more effective than as an outsider.   In a separate 
conversation that gave credence to Erguney's argument, Mike 
Flewitt, Ford Otosan General Manager, noted that production 
costs in Kocaeli were comparable to those in Slovakia, 
Hungary and other new EU entrants, but that Turkey's 
relatively larger domestic market made it a more attractive 
production location 
 
8.  Comment:  Kocaeli is an exception to norm as far as 
greenfield direct foreign investment in Turkey is concerned. 
However, only a few other provinces will be likely to 
replicate Kocaeli's location-based success.  Corlu in 
Tekirdag province west of Istanbul is a major manufacturing 
center with similarly strong transport links and proximity to 
Istanbul's financial and business communities.  Likewise, if 
Ceyhan, a port city in southern Turkey, takes off as a major 
energy hub, significant investments in chemicals and related 
industries could soon follow.  Kocaeli's experience with 
unplanned growth and insufficient government-provided 
educational and environmental infrastructure sound a 
cautionary note for those provinces wishing to mimic its 
success in attracting major industrial investment.  End 
Comment. 
JONES