Turkey - Prospects for small-medium scale industry development and employment generation (Vol. 3) : Annexes and statistical appendices

Report No. 2913-TU FILE COPy Turkey - Prospects for Small-Medium Scale Industrv Development and Employment Generation (In Three Volumes) Volume Ill: Annexes and Statistical Appendices September 10, 1980 EMENA Projects IDF Division FOR OFFICIAL USE ONLY Document of the World Bank This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contents may not otherwise be disclosed without World Bank authorization.  CURRENCY EQUIVALENTS Turkish Liras per US$ 1959-70 - average 09.00 1970 - average 11.50 1971 - average 14.90 1972 - average 14.15 1973 - average 14.15 1974 - average 13.90 1975 - average 14.45 1976 - average 16.05 1977 - before March 16.05 - March - September 17.50 - September - December 19.45 1978 - January - March 19.45 - March - December 25.25 1979 - January - April 25.25 - April - June 26.35 - June - December 47.10 1980 - January to May 70.00 - June to July 78.00 - August to date 80.00 ABBREVIATIONS AND ACRONYMS DESIYAB Devlet Sanayi ve Isci Yatirim Bankasi DYB Devlet Yatirim Bankasi HB Halk Bank IED Department of Organized Industrial Zones and Small- Scale Industrial Estates at Ministry of Industry and Technology MIT Ministry of Industry and Technology PENDIK Leather Research and Training Center SBAG Small Business Advisory Group SEE State Economic Enterprises SIDO National Small Industry Organization SMI Small-Medium Scale Industry SPO State Planning Organization SSI Small Scale Industry SYKB Sinai Yatirim ve Kredi Bankasi A.O. TBTAK Marmara Institute for Science and Technology (at Gebze) TSKB Turkiye Sinai Kalkinma Bankasi A.S.  FOR OFFICIAL USE ONLY This report is based on the findings of a mission composed of Messrs. G.C. Maniatis, C. Goderez, E. Kepper and S. Banerji, which visited Turkey for approximately four weeks in November- December 1978, and subsequent extensive work at headquarters. The mission visited industrial estates and establishments in Ankara, Istanbul, Izmir, Gaziantep and Kaysezi, and had discussions with Government officials and the business and banking communities. The cooperation and assistance of all persons and agencies contacted is gratefully acknowledged. The report draws on a number of studies, referred to in the text. The report has been discussed with, and cleared for release by, the Government. This document has a restricted distribution and may be used by recipients only in the performance of their official duties. Its contenst may not otherwise be disclosed without World Bank authorization.   TURKEY DEVELOPMENT OF SMALL-MEDIUM SCALE INDUSTRY AND EMPLOYMENT GENERATION VOLUME III LIST OF ANNEXES ANNEX No. A. Istanbul - Demographic, Labor and Income Distribution Features Population Size The Spatial Growth Pattern of Population Forecast Growth of Labor Force Quality of the Labor Force Unemployment and Underemployment Income Distribution Recommended Employment Strategy Appendix 1: Population Growth Pattern of Istanbul Province by District, 1955-1975. B. Structural Characteristics of Small-Medium Scale Industry in Istanbul Province Structure of the Organized Sector Structure of the Unorganized Sector Extent of Regional Concentration of SMI Sectoral Distribution of Establishments and Employment Structural Trends in Manufacturing Spatial Distribution of Manufacturing Activities Appendix 1: Ownership in Manufacturing Industry - Istanbul Province and Turkey, 1973 Appendix 2: Establishments and Employment in Organized Manufacturing Industry in Istanbul Province - 1963 and 1973 Appendix 3: Employment Trend in Organized Manufacturing - Istanbul and Rest of Turkey, 1963-1976 Appendix 4: Sectoral Distribution of Establishments, Employ- ment and Value Added in Manufacturing Industry-- Greater Istanbul 1973 Appendix 5: Sectoral Distribution of Employment and Value Added in Organized Manufacturing in Istanbul, 1976 Appendix 6: Istanbul - Distribution of Employment by Size of Firm in Manufacturing (1977) Appendix 7: Employment Trend in Manufacturing Industry - Istanbul Province, 1963-75 Appendix 8: Geographic Distribution of Employment by Activity in Istanbul - 1975  -2- ANNEX No. Appendix 9: Trends in Number of Establishments, Employment, and Value Added in Organized Industry in Greater Istanbul by District - 1965, 1970, 1973 Appendix 10: Trends in Capital, Consumer, and Intermediate Goods Industries in Organized Manufacturing by Broad Zones (1965-1973) C. Industrial Estates and Small-Scale Industry Development Origin Institutional Arrangements Procedures Financial Arrangements Technical Considerations Industry Mix The Industrial Estate Development Program Unique Features of the Turkish Industrial Estate Program Costs and Benefits Conclusions Appendix 1: Selected Data on Industrial Estates Visited by World Bank Mission Appendix 2: Small Industry Estates (Completed) Appendix 3: Small Industry Estates (Under Construction) Appendix 4: Small Industry Estates (Planning) D. The Small Industries Development Center (KUSGEM) Project Background Objectives of KUSGEM and the Pilot Industrial Estate Project Implementation, Organization and Funding Conclusions E. Government Procurement as a Means to Foster Small-Scale Industry Growth F. Subcontracting as an Instrument to Stimulate the Growth of Small-Medium Scale Industry Subcontracting in the Public Sector Public Encouragement of Private Sector Subcontracting International Subcontracting G. Deficiencies and Technical Assistance Requirements of SMI in Turkey H. List of Typical Items Manufactured by Small Scale Foundries I. Typical Engineering Industry Products Produced by Small- Medium Scale Industry  - 3 - LIST OF STATISTICAL APPENDICES TABLE No. Section 1: Population and Employment 1.1: Population Trends 1.2: Transformation in the Spatial Distribution of Population 1.3: Urban/Rural Distribution of Population 1.4: Change in the Regional Distribution of Urban Population 1970 to 1975 1.5: Distribution of Population by Urban Size Classes 1.6: Trends in City Population Size 1.7: Population in Ten Largest Cities 1950-1975 1.8: Unemployment in Major Urban Centers (1970-77) 1.9: Distribution and Growth of Urban Unemployment by Regions, 1965-77 1.10: Urban Unemployment by Level of Education 1.11: Labor Force, Employment and Unemployment 1.12: Population, Manpower, and Employment Levels Section 2: Banking 2.1: Distribution of Credits and Assets of Turkish Banks 2.2: Halk Bank, Sectoral Distribution of Borrowers, 1963-1977 2.3: TSKB, Fixed Investment per Employee - 1976 Section 3: Manufacturing 3.1: Public and Private Sector Shares in Production and Employment in Manufacturing Industry - 1975 3.2: Value Added in Manufacturing Industry (1963-1977) 3.3: Sectoral Distribution of Value Added in Manufacturing Industry - Private Sector, 1965-75 3.4: Sectoral Distribution of Value Added in Manufacturing Industry - Public Sector, 1965-75 3.5: Sectoral Distribution of Manufacturing Investment - Private Sector, 1965-75 3.6: Sectoral Distribution of Investment in Manufacturing Industry - Public Sector, 1965-75 3.7: Share of Private Sector in Manufacturing Exports, 1961-76 3.8: Size Distribution of Manufacturing Establishments and Employment, 1970 3.9: Distribution of Number of Firms by Size of Firm in Manufacturing (1977) 3.10: Distribution of Employment by Size of Firm in Manufacturing (1977) 3.11: Sectoral Distribution of Establishments, Employment, Output, Value Added, and Investment in Private Manufacturing Industry - 1970 (Unorganized Sector)  -4- TABLE No. Section 3: Manufacturing (Continued) 3.12: Sectoral Distribution of Establishments, Employment, Output, Value Added, and Investment in Private Manufacturing Industry - 1970 (Organized Sector) 3.13: Sectoral Distribution of Establishments, Employment, Output, Value Added, and Investment in Private Manufacturing Industry - 1976 3.14: Regional Distribution of Organized Manufacturing Enterprises - 1977 3.15: Capital-Labor Ratio in Manufacturing Industry - Public Sector, 1965-75 3.16: Capital-Labor Ratio in Manufacturing Industry - Private Sector, 1965-75 3.17: Value Added per Worker in Manufacturing Industry - Private Sector, 1965-75 3.18: Value Added per Worker in Manufacturing Industry - Public Sector, 1965-75 3.19: Capital/Value Added Ratios in Manufacturing Industry - Private Sector, 1965-75 3.20: Capital/Value Added Ratios in Manufacturing Industry - Public Sector, 1965-75 3.21: Real Wage Level 1965-75 - Private Sector 3.22: Real Wage Level 1965-75 - Public Sector 3.23: Average Daily and Minimum Wages of Insured Workers in Private Sector, 1972-78 3.24: Manufacturing Employment - Public Sector, 1965-75 3.25: Manufacturing Employment - Private Sector, 1965-75 3.26: Sectoral Distribution of Manufacturing Output - Private Sector, 1965-75 3.27: Sectoral Distribution of Manufacturing Output - Public Sector, 1965-75 3.28: Employment and Value Added in Small-Medium Scale Enterprises in Machinery Sector, 1967 - USA 3.29: Value Added and Annual Remuneration per Employee by Size Class of Firm, 1967 - USA 3.30: Number of Units and Employees in Manufacturing Establishments of Different Size Categories, 1970 - USA 3.31: Proportion of Manufacturing Employment in Small Establishments in Developed Countries Section 4: Foundries 4.1: Skill and Geographical Distribution of Employment in Small Foundries, 1975 4.2: Technology Employed in Turkish Foundries 4.3: Demand for Castings, 1974-81 Section 5: Footwear 5.1: Forecast of Footwear Production, 1972-83  -5- TABLE No. Section 6: Garments 6.J Estimate of Garment Production in Organized Sector, 1977 6., Garments: Estimates of Capacity, Production and Domestic Demand in 1976 6.3: Production Growth of Garments and Household Articles in the Organized Sector, 1977-83 6.4: Estimated Foreign Exchange Requirements and Employment Generated by New Investment in Garments and Making-up, 1977-83 6.5: Garments and Made-Up Articles for which EEC Proposes Quantitative Restrictions for Turkey in the Medium Term 6.6: Turkey's Share of EEC Imports for Selected Clothing Categories, 1977 6.7: Penetration of Turkish Exports of Garments and Made-Up Articles into the EEC Market, 1977 6.8: Projected Garment and Made-Up Textile Exports, 1977-83 6.9: Optimum Capacities in the Ready-Made Clothing Industry MAP Turkey: Transportation and Major Population Centers   ANNEX A Page 1 ISTANBUL - DEMOGRAPHIC, LABOR, AND INCOME DISTRIBUTION FEATURES 1/ Population Size 1. Greater Istanbul has about 4 million inhabitants, accounting for almost 10% of Turkey's total population and 22% of the urban population. Istanbul's population has been expanding rapidly, and more than doubled since 1960 (Appendix 1). Migration from rural areas accounted for an estimated 75% of the growth of population of the Istanbul Metropolitan area, reflecting changes in rural and urban living conditions and the availability of better work opportunities. The population of Istanbul is expected to almost double by 1995: a high projection forecasts a population of 6.6 million by 1985 and 9.5 million by 1995; a low projection 5.6 and 7.0 million, respectively. The implications of this heavy demographic pressure are self-evident. The Spatial Growth Pattern of Population 2. The spatial growth pattern of Istanbul's population is shown in Appendix 1. In 1975, 72% of Greater Istanbul's population lived on the European side of the Bosphorus and 28% in the Anatolian districts (ilces) of Istanbul. The expansion of the Metropolitan Area was accompanied by a relative gain in importance of the Anatolian districts. Until 1970, this shift could be explained in terms of the relatively fast growth of the entire urban periphery. In recent years, however, the growth on the Anatolian side outpaced that of the peripheral European districts, stimulated by (a) the completion of the Ankara highway which opened up new land and accelerated industrial job creation; and (b) the construction of the Dosphorus bridge which eased the access from the Anatolian side to Istanbul's central business district. Forecast Growth of Labor Force 3. According to the 1970 population Census, 64% of the population of the Istanbul Province were in the economically active age group (15-64). Working age men outnumbered working age women, and there was a dispropor- tionately large number of young adults of both sexes. This age-sex structure is explained by the migration pattern: more men than women migrate and most of the migrants of both sexes are young. Only 12% of the inhabitants of the Istanbul Metropolitan Area who arrived there as migrants between 1965 and 1970 were 35 or older at the time of the 1970 Census, as compared with 31% of the entire population of Istanbul Province. Both the low and the high population projections indicate that, over the 1970-1995 period, there will be an increase 1/ This section draws on Istanbul - General Planning Study, 1977.  -2- ANNEX A Page 2 in the proportion of the population falling within the working age bracket and a corresponding decrease in the dependency ratio (proportion of children and persons beyond the working age to the total population). The low projections indicate that by 1995 about 66% of the population will be of working age; the corresponding high projection figure is 68%. The Master Plan Bureau estimates 1/ that the participation rate of men in the labor force will decline slightly from 54.9% in 1970 to 54.7% by 1995, while that of women will rise from 11.5% to about 15.0%. The growth of the population of Istanbul and the forecast changes in participation rates are likely to cause the labor force to increase from 1.05 million in 1970 to between 2.5 million and 3.1 million by 1995. This represents an annual growth rate of between 3.5% and 4.5%. 2/ The pace of growth is rapid and calls for a strategy to develop new employment opportunities (see para. 11). Quality of-the Labor Force 4. The literacy level of Istanbul's labor force is high relative to other provinces. According to the 1970 Census of Population, 88% of the economically active population of the Istanbul province was literate and more than 13% had completed secondary or higher education. In Ankara and Izmir provinces, both of which are highly urbanized and industrialized, the illiteracy rate of the labor force was double that of Istanbul - 24% and 26% respectively. In Konya, a large Central Anatolian province, 40% of the labor force was illiterate, and the illiteracy rate was even higher in Eastern Anatolia>. In terms of the proportion of secondary school and university graduates, Istanbul is surpassed by Ankara (14%). By contrast, only 7% of Izmir's and less than 3.5% of Konya's economically active popula- tion had a secondary or higher education. The general level of education in Istanbul, and in the country as a whole, rose at a rapid pace over the last twenty years, with intermediate, secondary and higher education making especially impressive strides. Between 1954-55 and 1969-70, middle secondary attendance rose almost sevenfold in the whole country and fivefold in Istanbul. Over the next decade the level of schooling in Istanbul is expected to improve further as is the average educational level of Istanbul's labor force. The higher and rising level of education of Istanbul's labor force points to the need to create an increasing proportion of skill requiring jobs. The gap between the average educational level in Istanbul and in the rest of the country also suggests that skilled job creation is likely to satisfy the local population job needs, without attracting an undue number of migrants from rural areas, most of whom seek low skill employment. 1/ Istanbul General Planning Study, Annex 2. 2/ Based on these growth rates, Istanbul's labor force is estimated at about 1.4 million in 1978.  -3- ANNEX A Page 3 Unemployment and Underemployment 5. In 1966, 7.4% of Istanbul's economically active inhabitants were involuntarily unemployed. 1/ Higher unemployment rates prevailed among the less educated than among the more educated workers, and among women than among men. Further surveys indicated an overt unemployment rate of 3.5% for Istanbul at November 1968 and a rate of 3.2% at November 1969. 2/ In Turkey as a whole, 2.6% of insured workers sought jobs through the labor placement office in 1966, 3.0% in 1968, 3.3% in 1969, and 3.3% in 1973. 3/ The unemployment situation is more serious in slum (gecekondu) areas. An unpublished survey made in 1965 of a sample of 6,393 gecekondu households in Bursa, Diyarbakir, Istanbul (Anatolian Side), Izmir and Samsun, showed that 14.9% of heads of households were jobless. 4/ The number of unemployed is likely to be higher in the gecekondu areas which serve as reception centers for new arrivals. 6. Underemployment, defined as the situation in which a person works for less than the normal full-time working year, seems to have been rela- tively low in the past. A survey showed that in 1969 only 4.5% of respon- dents with a job had worked for less than 35 hours during the preceding week, while 17.8% had worked for 65 hours or more. 5/ In general, people with relatively low earning power tend to make up for this by putting in as many hours' work as they can, in order to gain an adequate standard of living. 7. At first blush, the unemployment situation in Istanbul does not seem to be grave. The large unorganized sector 6/ readily releases labor to the organized sector when job opportunities are created in the latter, replacing it by drawing on available labor surplus - mostly rural migrants; and the rapid growth of the organized sector of industry has built up a strong demand for labor in this sector. Furthermore, demand has been intensified by the need to replace the skilled labor that leaves Istanbul to work abroad. However, with the slowdown in emigration in recent years 1/ State Institute of Statistics, Labor Force Survey in Selected Main Cities, August 1966. Unemployment was defined as involuntary job- lessness during the week preceeding the survey. 2/ State Institute of Statistics, Household Labor Force Survey, November 1968 and November 1969. 31 Estimated on the basis of the Social Security Institution, Statis- tical Bulletin (various issues) and the Labor Placement Office, Work and Manpower Bulletin (various issues). In 1965, 6.9% of the economically active population were covered by social insurance; by 1968, their number rose to 8.3%. 4/ State Institute of Statistics, Household Labor Force Survey, November 1968 and November 1969. 5/ State Institute of Statistics, op.cit. 6/ The "unorganized sector" refers to establishments employing 1-9 workers, while the "organized sector" to establishments employing 10 or more.  -4- ANNEX A Page 4 and the decline in the rate of growth of employment in manufacturing and services (para 2.03), continued rural-urban migration will inevitably lead to an increase in unemployment among unskilled labor. Indeed, unemployment (including underemployment) probably reached 8% in 1978. This necessitates a reorientation in the development of the industrial sector in Istanbul to bring it into line with the dictates of locational and environ- mental constraints and to take advantage of the higher skill endowment of the indigenous labor force. Income Distribution 8. Per capita gross product in Istanbul (TL 17,200 in 1973 at current prices) is about 2.5 times as high as the country's average and 1.5 times as high as the average for other Turkish cities. The gap in per capita dispos- able income is smaller, 2.2 times as large as the average for Turkey. Between 1963 and 1973, the annual growth rate in the per capita gross product (at constant prices) averaged 2.2% in Istanbul, compared with 3.4% in the country as a whole. Through Istanbul is still relatively better off, the regional economic development and urbanization of the country tends to narrow inter-regional income gaps. 9. The income distribution in Istanbul province presented the following picture in 1973. The poorest 20% families had disposable personal incomes of TL 9,500 per year or less (at 1973 prices); the second poorest 20% TL 9,500 - 15,200; the third, i.e., the middle 20% group, TL 15,200 - 22,300; the fourth quintile TL 22,300 - 57,000; and the highest income group over TL 57,900. 1/ The poorest 12% of the families had an income lower than would have been earned by a single bread-winner receiving the minimum legal wage (25TL/day) and holding a full-time job. Those are the families whose head and other family members are partially or totally unemployed. Most of the breadwinners whose families fell in the lowest two quintiles were in petty trade or small scale, low-skill services or did menial industrial jobs. Payments to persons engaged in the organized manufacturing sector averaged TL26,300 in 1973, placing them in the lower part of the fourth quintile. This implies that over 60% of Istanbul's families were worse off than the families of "average" manufacturing workers. Within the organized manufacturing sector, annual wage payments averaged from TL 18,000 to TL 22,000 in textiles, clothing, wood products and other labor-intensive industries using a relatively simple technology, to TL 30,000 or more in high skill sectors. 1/ Based on calculations reported in Istanbul - General Planning Study.  -5- ANNEX A Page 5 Recommended Employment Strategy 10. Istanbul's labor force is projected to grow from about 1.4 million in 1978 to 2.5 - 3.0 million by 1995. To provide employmeit for the increasing labor force would require the creation of jobs at an annual rate of 3.5% - 4.5% per annum (para. 3). Between 1955 and 1970, non-agricultural jobs in Istanbul Province were created at an average annual rate of 3.3% per year, with the highest rate (4.9% per year) achieved during 1966-1970. In the light of these figures, the future job requirements appear high, but manageable, if an appropriate strategy and policy measures can be devised and implemented. It should be noted in this connection that the ownership pattern of Istanbul's manufacturing industry (mostly privately owned) has one important policy implication, namely, that to influence industrial investment and job expansion, the Government must rely primarily on indirect inducements and deterrents. 11. A future job-creation strategy should take into account the job generation-population growth nexus. To limit the growth rate of Istanbul's population without jeopardizing the city's economic position, an industrial policy favoring the establishment of advanced technology oriented, skilled- labor intensive industries and discouraging the expansion or creation of unskilled labor-intensive industries is advocated. Such a policy would tend to reduce the availability of unskilled jobs and hence deter rural-urban migration; would better utilize the advanced educational background of the city's indigenous population; and would shift the locus of unskilled employment opportunities to regional, labor surplus areas.  ANNEX A - 6 - Appendix 1 POPULATION GROWTH PATTERN OF ISTANBUL PROVINCE BY DISTRICT 1955-1975 P O P U L A T I O N 1955 1960 1965 1970 1975 Eux'opean Districts Besiktas 84,698 93,647 107,442 136,105 174,925 Beyoglu 208,158 216,425 218,985 225,650 230,515 Eminonu 146,896 134,852 137,849 136,997 124,126 Fatih 286,733 300,594 344,602 417,662 503,936 Zeytinburnu (a) 88,341 102,874 117,905 123,782 Sub-total 726,485(b) 745,518(b) 911,752 1,034,519 1,157,284 833,859(c) Other Districts Bakirkoy 107,287(c) 102,617 168,694 341,743 570,091 Eyup 90.996(d) 180,011(d) 168,417 238,831 299,265 Gaziosmanpasa (e) (e) 89,538 125,667 l59,661 Sariyer 40,012 48,990 52,445 67,902 83,251 Sisli 125,554 181,402 268,143 365,621 440,447 Catalca 63,334 60,944 62,005 69,523 70,259 Silivri 28,588 33,231 35,380 37,443 39,770 Sub-total 455,771 695,536(c) 844,622 1,246,730 1,662,744 607,195(b) Total European Districts 1,182,256 1,441,054 1,756,374 2,281,249 2,820,028 Anatolian Districts Adalar 16,564 19,334 15,219 17,600 12,804 Beyko- 48,832 58,317 67,758 76,385 92,230 Kadikov 102,926 131,328 166,425 241,593 359,271 Uskudar 98,228 111,821 135,056 171,267 254,941 Kartal 41,35' 68,462 97,803 168,822 236,027 Sile 16,994 18,175 18,098 19,427 18,554 Yalova 26,671 33,101 37,090 42,689 54,270 Total Anatolian Districts 351,566 441,038 537,449 737,783 1,078,097 Total Istanbul Province 1,533,822 1.882.092 2.293823 3-019.032 3*898,125 (a) Included in MakIrKoy lIce (c) Including Zevtinburnu (b) Excluding Zeytinburnu (d) Including Gaziosmanpasa (e) Included in Eyup Source: Population Census, 1955-1970, seriatim: 1975, preliminary unpublished results.  - 7 - ANNEX B Page 1 STRUCTURAL CHARACTERISTICS OF SMALL-MEDIUM SCALE INDUSTRY IN ISTANBUL PROVINCE Structure of the Organized Sector 1. Istanbul is the nation's major industrial center, accounting for 42% of all manufacturing establishments, 38% of total employment, and 35% of total value added in the organized sector (Appendix 1). Istanbul's manufacturing industry is predominantly in private hands, which reflects historical develop- ments, locational advantages, the strength of local private initiative and, in part, the Government's long standing policy to locate public enterprises in less developed regions. In 1973, 10% of the nation's public enterprises (38 firms) and 44% of the private enterprises in the organized manufacturing sector (2,462 establishments) were located in Istanbul, employing some 21,000 and 93,000 persons, respectively (Appendix 2). The number of establishments in the private organized manufacturing sector increased by 95% while employ- ment by 130% between 1963 and 1973, reflecting the rapid industrial growth of the period. In 1976, consumer goods industries accounted for 30% of total employment in the organized manufacturing sector, intermediate for 32%, and capital goods for 527.. Since 1973, the growth of employment in the consumer goods industries has continued, while that in the intermediate and capital goods declined considerably (Appendix 3), probably reflecting the impact of the severe restrictions in granting investment incentives since the end of 1973. 2. The sectoral distribution of establishments, employment and value added in the organized manufacturing industry located in Istanbul for 1973 and 1976 is shown in Appendices 4 and 5. The textiles industry has the largest number of establishments (14%), accounts for over 24% of total employment in the city 1/ (up from 20% in 1973), and the major contributor to value added (15.5%). Food and beverages, clothing and footwear, chemicals, non-metallic minerals, rubber, fabricated metal products, motor vehicles, and electrical and non-electrical machinery, represent the next most important industries in terms of number of establishments, employment and value added. Structure of the Unorganized Sector 3. Employment in the unorganized sector in Istanbul can only be approxi- mated. It is estimated that this sector employed roughly 125,000 persons in 1976, of which probably one-quarter (30,000) in the manufacture of leather footwear. Other important small industries comprise garments, weaving (about 2,500 workers), leather products excluding footwear, furniture (the carpenters' dernik has 3,700 members), auto spare parts manufacture and repair (5,750 workers) and glassware decoration. Value added per worker in this sector is 1/ The textiles industry is the largest employer of female workers - 43% of the local labor force.  - 8 - ANNEX B Page 2 relatively low because of low productivity and wages. This is particularly true in the footwear industry, which employs obsolete working methods and produces low quality and low value footwear. Extent of Regional Concentration of SMI 4. The table below shows the degree of regional concentration of SMI in Istanbul. Some 40% of the total number of manufacturing establishments employing 10-199 workers in the country, accounting for 41% of total employ- ment, are located in Istanbul, suggesting the largest concentration of SMI in any major urban area and requiring policies pertinent to the peculiari- ties of the region, as mentioned in Annex 10 (para 11) and para 14 below. ISTANBUL Share of Establishments and Employment in National Total (1977) (Percentages) Size of Firm Number of Establishments Employment 10 - 49 39 39 50 - 99 38 45 100 - 199 41 40 Total 40 41 Source: Annex B (Appendix 6); Appendix Tables 3.9, 3.10. Sectoral Distribution of Establishments and Employment 5. The sectoral distribution of employment and establishments for units employing 5 workers or more in 1977, based on data on firms registered with the Union of Chambers of Commerce and Industry, is shown in Appendix 6. Firms employing 5-200 workers provide some 70% of total employment in leather pro- cessing and leather products, 40% in textiles and garment industries, and about one-half of total employment in engineering, basic metals including foundries, plastics, cellulose and paper products, wood and cork products and chemicals industries. The table below shows the distribution of establish- ments and employment for each size group of firms for the manufacturing sector. It can be seen that firms employing 5-200 workers provide some 52% of employ- ment and comprise 96% of the total number of firms employing 5 or more workers.  - 9 - ANNEX B Page 3 ISTANBUL Distribution of Employment and Number of Firms By Size of Firm in Manufacturing Industry - 1977 Percent Share of /a Firms in Each Size of Firms Size Group of: 5-9 10-49 50-99 100-200 200-over Total Total Employment (%) 4.4 16.7 11.6 11.4 48.2 100% Total Number of Firms (%) 46.8 38.4 7.3 3.9 3.5 100% Average Employment (Number of Workers) 4.4 20.2 74.3 136.6 642.0 466 /a In terms of employment. Source: Appendix 6, Mission's calculations. Structural Trends in Manufacturing 6. During 1963-75, manufacturing employment in Istanbul grew by 5% per annum. Employment in the organized industrial sector increased on average by 6.6% annually in 1963-70 and 6.4% in 1970-75, raising its share in total manu- facturing employment from 52% in 1963 to 70% in 1975 (Appendix 7). Within the organized manufacturing sector, employment in the capital goods industries grew at 11.2% a year during 1963-73, in the intermediate goods by 8.2% and in the consumer goods by 5.2% (Appendix 3). This pattern reflects national trends during this period. New, relatively capital and skill intensive industries grew vigorously while traditional ones relying on low labor skills and simple technology grew more slowly. However, from 1973 onward the structural trends were different. Employment in organized sector manufacturing hardly increased (by only 0.9%) between 1973-76 (Appendices 4 and 5). Employment in capital goods and intermediate goods declined in absolute terms which also resulted in the decline in the share of Istanbul in national employment in both intermediate and capital goods (Appendix 3). Employment in consumer goods (notably textiles, clothing and tobacco) increased by 17% to slightly increase Istanbul's share of national employment in consumer goods industries. While the major reasons for the decline in employment in capital and intermediate goods is the economic recession of 1974-75 which had particularly adverse impact on these industries, the change in the incentives policy for the Istanbul-Izmit region may also have been a contributory factor. 7. The level of employment in the unorganized manufacturing sector increased from about 106,800 to 116,800 persons between 1963 and 1970, or 1.3% annually, but remained unchanged since then. As a result, its share in total manufacturing employment declined from 48% in 1963 to 39% in 1970 and further to 30% by 1975 (Appendix 7). The virtual stagnation in the growth  - 10 - ANNEX B Page 4 of employment in the unorganized manufacturing sector during 1963-75 probably reflects locational barriers to new entry and expansion, increasingly more demanding markets, low productivity and profitability levels exacerbated further by the persistent loss of skilled workers to the organized sector to fill the gap created by growth and migration--a process which in turn forced small firms to draw on the pool of unskilled migrants from the rural areas. 1/ Spatial Distribution of Manufacturing Activities 2/ 8. The Current Locational Pattern. Istanbul's manufacturing activities, and more generally all economic activity, is heavily concentrated in the busi- ness center of the city which includes the districts of Eminonu and Beyoglu. In 1975, both districts accounted for about 70% of the jobs (over 80,000) in the unorganized manufacturing sector and 15% (40,000) in the organized (Appen- dix 8). The trend in number of establishments, employment and value added in the organized industry in Greater Istanbul by district is shown in Appendix 9. Some 13% of all organized manufacturing establishments are located in Beyoglu, 16% in Eminonu, and 60% in other European districts; about 11% are located in the Anatolian districts (Appendix 9). As expected, there is greater concen- tration of intermediate and capital goods industries on the Anatolian side (Appendix 10) as they could not have been accommodated within the narrow con- finements of Istanbul proper. 9. Consumer goods oriented industries are currently concentrated within ready access to the central areas. Garment manufacturers are mainly in Eminonu, Sisli, Bakirkoy, Fatih and Eyup, shoe makers in Eminonu and in Beykoz, furniture makers in Eyep, printers in Eminonu. Industries which need less contact with customers tend to locate further out where land is less expensive. Industries which sell an important proportion of their output to Anatolia or which obtain a large proportion of their material inputs from Anatolia tend to locate East of the Bosphorus, and those mainly tied to Istanbul or to European markets (e.g. textile firms) on the West. In general, availability of land and water and access to transport routes are important factors in site selection for these industries. 10. The existing geographic distribution of organized manufacturing enterprises reflects historical developments as well as locational factors. During the first phase of rapid industrialization (in the early 1950's) most of the organized sector enterprises concentrated on supplying market needs for consumer non-durables--hence they had to locate close to the city center. Since most of them were small, land was no major consideration. As the city expanded, newcomers had to locate further out; some of the already established enterprises also moved out in search of larger land parcels leaving their old quarters to new small units. 1/ In effect, the burden of creating new skills through on the job training was thrust on the unorganized sector. 2/ Based on Istanbul - General Planning Study.  -11l - ANNEX B Page 5 11. Manufacturing enterprises located in the central city area are on average smaller and have a lower value added per worker than the enterprises located in the peripheral European districts; the latter, in turn, are smaller and have a lower value added per worker than the enterprises located on the Anatolian side (Appendix 9). This reflects the preponderance of the unorga- nized sector within the city limits, which is characterized by low performance (para 3). 12. Trends in Spatial Distribution. Between 1965 and 1973 industrial growth on the Anatolian side outpaced that of the other city areas both in terms of number of enterprises and employment. In the European districts, growth was slowest in the central city. However, even in the central metro- politan areas employment in organized industry increased at an average of 10% per year. The number of firms locating in the Anatolian side increased on the average by 23.4% and the number of workers by 24.5% over the 8-year period (Appendix 10), greatly stimulated by the opening of the Ankara highway which improved access to land suitable for industry. 13. The future direction of expansion of Istanbul's industry depends largely on the location of and accessibility to new industrial land. Some industries are practically indifferent to good locations. However, for enter- prises which are linked functionally with the rapidly expanding Kocaeli- Sakarya-Bursa industrial area, Anatolia presents a superior location to the European side. For industries catering primarily to the Istanbul market, the European location will probably continue to be more advantageous. 14. Many branches of the unorganized industry currently seek to move from the old, cramped, central city quarters into cooperative buildings on the outskirts of the city. For instance, the small-scale weavers, now pre- dominantly located in Eminonu, have purchased through their association land at Haramidere (near Avcilar) where they plan to construct facilities for 300 of their members. Automobile repairmen have completed construction of a "site" near Kucukkoy. The most serious barrier to relocation of small busi- ness is the lack of appropriate land to accommodate the special locational requirements of small firms. Enterprises ancillary to large firms must locate within easy reach of the latter; those whose operations are complementary must group together; those who serve directly the consumers must be close to con- sumer markets. The trend toward relocation can be accelerated if the author- ities actively help by providing suitable sites and infrastructure in the form of industrial estates (paras 7.03-7.07).  1/ OWNERSHIP IN MANUFACTURING INDUSTRY - ISTANBUL PROVINCE AND TURKEY 1973 Total Public Sector Private Sector Istanlbul Turkey Istanbul Istanbul Turkey Istanbul Istanbul Turkey ls;t,ibul as % of as % of as % of Turkey Turkey Turkey l Number of establishments 38 377 10% 2,462 5,560 44% 2,500 5,937 42% Annual average 29 226 11% 212 412 51% 241 638 38% of persons engaged in '000's Value added in 3,849 26,383 15% 15,245 28,621 53% 19,094 55,004 35% millions of TL 1/ Establishments employing 10 or more persons Source: SIS Annual Survey of the Manufacturing Industrv, 1973 K  ANNEX B -13- Appendix 2 -/ -N13T ESTABLISHMENTS AND EMPLOYMENT IN ORGANIZEDfMANUFACTURING INDUSTRY IN ISTANBUL PROVINCE - 1963 AND 1973 Public Private Total Sector Sector 1963 Number of establishments 30 1,263 1,293 Number of persons employed 21,303 92,614 113,917 Average employment per establishment 710 88 73 1973 Number of establishments 38 2,462 2,500 Number. of persons employed 29,192 211,639 240,831 Average employment for 768 86 96 establishment 1/ Establishments employing 10 or more workers. Sources: Census of Manufacturing Industries, 1973; Annual Survey of Manufacturing Industries, 1973.  EMPLOYMENT TREND IN ORGANIZEDr