As Turkey tackles its Vision 2023 research and development (R&D) goals, the time is right for private firms and entrepreneurs to expand activities in a burgeoning research sector that will expand considerably over the next eight years. Although R&D activities still comprise a minor share of total GDP, growth in the sector is poised to soar in 2015 as the government invests heavily in new incentive programmes, higher education funding and partnerships with the private sector.
The country’s increasingly sophisticated post-secondary segment has expanded research output as private universities begin to access state and private sector funding for R&D activities, while a host of foreign multinationals have recently entered the Turkish market, lured by a highly incentivised business environment and far-reaching government support for new research activities. As the private sector ramps up its involvement in higher education and IT activities, the research sector is expected to show promising returns in 2015.
Overview & Growth
The Turkish research system is centralised and led by the Supreme Council for Science and Technology (BTYK), under the auspices of the Ministry of Science, Industry and Technology. The Scientific and Technological Research Council of Turkey (TÜB TAK) is responsible for improving the research environment, providing scientific advice to the government and acting as the BTYK’s secretariat. TÜB TAK also maintains the National Researcher Information System database. Research policy imperatives are outlined in the government’s National Science, Technology and Innovation Strategy 2011-16. The strategy aims to create more output from existing research capacity, enhance the country’s needs-oriented research capacity, and increase employment in the sector.
Middle-Income Trap
Turkey’s R&D targets under the Vision 2023 national development plan, as agreed to by the BTYK in 2011, are to increase the number of full-time equivalent (FTE) researchers to 300,000, increase the number of private sector FTE researchers to 180,000, and increase R&D expenditure to 3% of GDP, or $60bn, of which two-thirds will be supplied by the private sector. As a rapidly expanding emerging economy, Turkey is at risk of falling into the middle-income trap, in which high growth over a short period ends with years, or even decades, of economic stagnation. Heavy spending in R&D has historically helped countries avoid falling into the middle-income trap.
Expenditure
According to the results of the “R&D Activities Survey 2013”, published in November 2014 by the Turkish Statistical Institute (TurkStat), gross domestic expenditure on R&D (GERD) increased by 13.4% compared to 2012, reaching $14.8bn. The share of GERD in GDP was 0.95% in 2013, up from 0.92% in 2012, and nearly double the 0.48% in 2002, indicating Turkey is making progress on Vision 2023’s 3% target. The country is also moving towards more private sector involvement: 48.9% of R&D expenditure was financed by the private sector in 2013, up from 46.8% in 2012. There was a slight decline in state funding, with the government’s share down from 28.2% in 2012 to 26.6%, according to TurkStat. National sources and international funding comprised 3.3% and 0.8%, respectively.
The total number of FTE R&D personnel reached 112,969 in 2013, well up on the 2012 total of 105,000. Of the personnel employed in 2013, more than half were engaged by the private sector, around 36% in higher education, and just under 11% by the government. Regional disparities have long plagued education and research in Turkey, but R&D activities have increased dramatically in Turkey’s historically under-represented southern region, indicating that government incentive programmes for these regions have been successful. According to TurkStat, R&D expenditure in 2013 was the highest in West Anatolia at 27.5%, followed by East Marmara at 21.3%, and Istanbul at 20.3%.
Deloitte’s “Researcher’s Report 2014: Turkey” found that Turkish research and innovation is benefitting from EU funding, the main instrument being the EU’s Seventh Framework Programme for Research and Development. The total number of Turkish participants in the programme is 879, out of 5982 applicants, with Turkey’s participants receiving more than €145.1m. There has also been a steady flow of patent applications, indicating continued end-product activity in R&D, with the state-run Turkish Patent Institute reporting in 2014 that 4529 domestic patent applications were lodged in 2013, almost exactly the same number as in 2012.
Unfortunately, Turkey still falls below many EU countries for R&D activities. On its Innovation Union scoreboard for 2014, the European Commission (EC) described Turkey as a modest innovator, though one that was improving at a steady rate. The EC ranked Turkey 32nd out of 34 European countries for innovation performance, assessed under three main categories: open, excellent and active research systems; finance and support; and human resources.
A Way to go
With R&D GDP intensity growing by an average of 5.9% annually between 2000 and 2012, the country’s R&D expenditures are projected to hit 1.48% of GDP by 2020, according to Deloitte, although this will still sit below the projected EU intensity in 2020, and means the country will likely fall short of its 3% target in 2023, with the report stating that a significant catch-up is required if Turkey is to achieve the objectives set for the coming eight years.
Turkey ranked 54th on the Global Innovation Index 2014, a composite indicator that ranks countries in terms of their innovation outputs and environment, rising 14 rungs on the ladder from 2013. Although it fared better than other rapid-growth markets such as Indonesia (87th), the Philippines (100th) and Egypt (99th), it was behind China (29th) and Russia (49th). However, it managed to leapfrog both Brazil (61st) and India (76th), which it had trailed just one year before.
Incentives
Government incentives and spending are acting as one of the biggest growth drivers in the research sector. Turkey’s R&D law provides special incentives for R&D activities in private companies, on the stipulation that a minimum of 50 personnel be employed in the company’s R&D arm. The incentives within the law, which will be in effect until 2024, also include a 100% deduction of R&D expenditure from the tax base if the number of researchers exceeds 500.
Other incentives include income tax exemption for R&D employees, a 50% exemption from social security premiums over five years, stamp duty exemption for applicable documents, tax deductions for certain funds granted by public and international bodies, and techno-initiative capital for scientists, to a maximum of TL100,000 (€35,210) per project.
TÜB TAK and the Turkish Technology Development Foundation (TTGV) compensate or fund R&D-related expenses as well as capital loans for R&D projects in Turkey. Eligible projects include concept development, technological and feasibility research, laboratory studies, design and sketching studies, prototype production, construction of pilot facilities, test production, patent and licence studies, and activities concerning the removal of post-sale problems from product design.
In addition, the TTGV offers long-term, interest-free loans for technology development, renewable energy production, energy efficiency improvement and environmental impact-reduction projects. The TTGV covers a maximum of 50% of project costs with maximum budgets of $1m, with companies given four years, including a one-year grace period, to pay back the loan.
In early April 2015 the prime minister, Ahmet Davuto ğlu, announced plans to provide funding support to R&D-based industrial investments through the Turkish Development Bank. The plan was part of a broader economic support package aimed at encouraging investment and what Davuto ğlu described as “high-technology, intensive production and employment”.
The new package also envisions tax incentives for companies making investments in advanced technologies, which would support firms involved in many R&D fields, with higher levels of tax breaks being offered for investors operating in areas away from the main population and business hubs.
Higher Education
The contribution of post-secondary institutes to the R&D sector has been significant. According to a 2013 joint research evaluation event with Elsevier and Hacettepe University, Turkey ranked 18th out of the world’s top-20 countries for research output, and has already established itself as a global competitor in research.
Strong Suit
Turkey has been identified as being particularly strong in chemistry, engineering and medical research, with the country becoming increasingly interdisciplinary in the scientific sector. However, according to a 2012 Atilim University report titled “A look at the Turkish higher education system from the institutional economics point of view”, “The emergence of multidisciplinary fields such as biotechnology, molecular biology and technology studies, has created an urgent need for reorganisation of departments in universities, and a move towards ‘problem-based learning’ ”, rather than independent innovation.
Perhaps of more concern for the future of R&D in some of these fields is data from the Higher Board of Education released in March 2015 showing a steep fall in the number of students opting to undertake science-based courses at university. From 2010 to 2014 there was a decline in the levels of enrolment in mathematics, biology, chemistry and physics.
New Funding
The government has been moving to enhance its support of R&D activities at universities in recent years. In 2011 TÜB TAK launched a promising funding programme called the Technology Transfer Offices Support Programme, targeting R&D development at post-secondary institutions. Under the programme, various institutions, both public and private, are eligible to receive TL1m (€352,100) annually for five- and 10-year periods, to be used for long-term science and technology research projects and programmes.
Private universities, which are eligible to receive up to 50% of operating costs from the government, but seldom get more than 1-3%, have benefitted from the technology transfer programme. Bo ğaziçi University, Istanbul Şehir University (ŞEHİR) and Middle East Technical University have each received T ÜBİTAK funding in recent years. ŞEHİRwas among two private institutions selected to receive technology transfer funding in 2013, and is also one of only two that have been granted state support twice within three years.
“These developments are promising, but we see a need for the government to synchronise services. Increasing R&D activities is one of the most important agendas we have, but the industry is still young and more cooperation is necessary,” Yasemin Kilit Aklar, international relations coordinator at ŞEHİR, told OBG.
Private Spending
While government support is important, increased collaboration between universities and the private sector will be a crucial component of R&D expansion. Indeed, increased private sector partnerships are a key target in the government’s plans to expand R&D activities at the post-secondary level.
The Public Research Grant Committee was created to increase the number of scientists and researchers working in Turkey, while the Engineering Research Grant Committee funds national scientists working on engineering and architecture projects. The Technology and Innovation Funding Programmes Directorate helps industry and academia collaborate in technology development and innovation activities across five sectors: manufacturing, electronics, metallurgy and chemistry, biotechnology, and information technology.
The past five years have also seen foreign multinationals increase their participation in post-secondary R&D activities. In February 2015 South Korean electronics firm Samsung announced that it had established an R&D centre in Turkey in cooperation with local tech company Semper-Tech. The centre, located at Teknopark Istanbul, will carry out research and development of next-generation wireless technologies, with a particular focus on health care and educational software.
Technoparks
Often located near universities, technology development zones (TDZs), commonly termed technoparks, have been set up to attract investment in high-technology fields while increasing collaboration between private firms and university research departments. There are currently 59 TDZs in Turkey, of which 40 are operational and a further 19 are under construction. These parks host 2500 companies, while 148 domestic and international companies have active R&D centres in Turkey. The concentration of TDZs in Istanbul and Ankara has made these cities preferred destinations for ICT investment, with a significant part of foreign direct investment initiated by European and North American companies.
Teknopark Istanbul, the largest in Turkey, opened its first phase in August 2013 on the Asian side of Istanbul. The $4bn technopark will house the R&D labs of about 1000 local and foreign companies from technology-intensive sectors. The first phase opened with 100 companies, 10 of them international, across a 650, 000-sq-metre space that will eventually accommodate 30,000 employees engaged in R&D projects for strategic sectors including defence, ICT, electronics, energy, biotechnology, aviation and aerospace. Teknopark Istanbul is expected to generate $5bn-7bn of annual income when it becomes fully operational in 2023.
Within its TDZ network the Turkish government offers a number of incentives to attract new investment. Offices come ready to rent, with infrastructure facilities already provided, while profits derived from software development and R&D activities are exempt from corporate tax until 2024.
Deliveries of application software produced exclusively in TDZs are exempt from value-added tax, and wages for researchers in TDZs are exempt from income tax over the same period. The government will also pay 50% of the employer’s share of social security premiums for five years, according to Invest in Turkey.
Defence
Turkey’s push to enhance defence self-sufficiency will also serve to boost R&D activity and investments. At present, Turkey is able to meet roughly 60% of its own defence equipment and technology needs, a figure that rises to 90% if co-production or technology transfer agreements or projects undertaken as part of international consortiums are factored in. According to the Undersecretariat for Defence Industries, Turkey now only directly imports 10% of its defence equipment requirements. The Turkish government has said it wants to be completely self-reliant for its defence technology needs by 2023, the centenary of the founding of the Turkish Republic.
However, much of the stock in Turkey’s defence inventory is ageing, with new technology required to maintain the military’s cutting edge. Turkey is in the process of developing its first indigenous main battle tanks and unmanned aircraft, and is also aiming to produce its own front-line fighter aircraft. All of these projects will require further investment in R&D capacity, In mid-March 2015 electronics specialist Aselsan, Turkey’s largest defence company, inaugurated a $157m facility in Gölba şı outside of Ankara, specialising in radars and electronic warfare suites for land, air, naval, space and unmanned platforms. Aselsan accounts for one-third of all defence-based R&D activity in Turkey.
Both the government and T ÜBİTAK are expanding their investments in defence research, funding a series of projects in the defence industry and space sector, with much of this development taking place outside of Ankara, which is fast becoming a hub for military-focused R&D activities. Also in March 2015, the government announced plans to establish a qualified defence-industry site in Kazan, close to Ankara, to house hundreds of local and foreign defence and aviation companies. Construction on the $6bn project will begin later in 2015, with an estimated 30,000 people expected to be employed across a 3m-sq-metre site when the facility opens for business.
Telecoms
Years of intense competition in an increasingly challenging market have led Turkey’s mobile operators to make major investments in R&D activities. Today the country’s big three mobile operators – Turkcell, Vodafone and Avea – have each established their own R&D centres in Turkey, developing in-house technology to improve smartphone affordability, as well as increasingly fast internet technologies in the 4G and fibre-optic internet segments.
Turkcell’s R&D arm, Turkcell Teknoloji, was established in 2006, later launching Turkey’s first domestically designed smartphone in September 2013. Turkcell’s T-series phones offer all the standard features of an imported smartphone at half the price of foreign models. Vodafone’s mobile wallet money transfer service launched in October 2012, and major financial institutions including Garanti Bank, Akbank and Yapı Kredi are among those that have adopted the service.
Avea opened the country’s first government-certified R&D facility in 2010, aiming to increase its competitiveness through new in-house technologies. AveaLabs Customer Experience Centre opened to the public in February 2012, showcasing projects in e-services, digital publishing and health care apps, amongst other services. The centre is currently working on nine projects with companies including Linxa, Intellica, Havooz, Bayt and Crenno, and produced its first batch of graduates in 2013. Avea also has a line of in-house, low-cost smartphones called inTouch.
Oksijen, Vodafone Turkey’s R&D arm, was acquired in 2000, and is currently involved in software design for both export and domestic consumption, with the goal of eventually exporting Turkish technology to Silicon Valley. In February 2015 Vodafone announced that its Silicon Valley incubator, Vodafone Zon, would be cooperating with Oksijen for the mutual transfer of technology and know-how. With the planned rollout of 4G mobile phone services in the latter part of 2015, it is likely that R&D activity and investments in the telecommunications and ICT segments will gain further momentum that year and beyond.
Outlook
Although there is much work to be done in bringing Turkey up to EU standards in terms of R&D spending and outputs, the country’s R&D sector is nonetheless showing promising growth, with Turkey hoping to avoid the middle-income trap by increasing its research expenditure and innovation. Led by strong post-secondary output, government incentives and funding, and increased private sector participation, Turkey’s fledgling R&D ecosystem will continue to develop human capital, enhance education and bolster overall economic development well into 2015 and beyond.
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