Reformation of the gold sector in the Turkish economy
Date
1998
Authors
Oncel, Ozkan
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Abstract
The gold sector in Turkey, where there is no mine gold production, is based only on gold
processing and jewellery manufacture, driven by a strong domestic demand for gold
products. In the Turkish economy which was State-driven since the establishment of the
Turkish Republic in 1923, the gold sector had been ignored and driven underground as a
result of strict regulations. Despite operating through illegal channels, the sector had
already accumulated a considerable amount of technical and financial capacity when the
policymakers realised the potential of the sector in 1983, and started the liberalisation
movements. The liberalisation process produced positive results such as eliminating gold
smuggling and legalising the gold imports which had increased to 163 tonnes in 1993. It
also demonstrated the potential of the sector and revealed the need for further reformation
and development in the market structures. However, the mere legalisation of the sector
was not enough and the Government had to approve and include the implementation of a
Gold Sector Reform Plan in its protocol in 1993. The model included the initiating and
developing the major components of an efficiently operating gold sector, which are gold
mining, a gold exchange, gold refinery, gold based financial instruments, the jewellery
manufacturing industry and the promotion of the propensity to save in gold.
The Istanbul Gold Exchange (JGE) was given the highest priority in the implementation
process because it would necessarily pave the way for Turkish investors to adapt to
'paper' gold instruments, Success in the operation of the IGE and the introduction of gold
backed financial instruments would accelerate preparations to implement the remaining
components of the envisaged reform process,
In order to integrate with the international gold market, it was necessary for gold traded
on the JGE to meet the international quality standards in terms of purity and quality. Poor
quality standards were caused by the existence of a number of small unregulated refining
operations. The solution to the problem, and also the challenge, lay in the establishment
of a refinery with the capacity to, produce semi-final gold products, and also in the
refining of scrap gold.
Even after the liberalisation process, the Turkish jewellery manufacturing industry still
faces various financial and location problems, and is still constrained by the tax system as
well as constraints relating to taxation and unfair competition within the European
Customs Union. These problems are being addressed within the context of the gold sector
reform model in order to maximise the potential of this sector.
Essentially, Turkey is not a gold producing country, and its gold sector sources most of its
raw material from outside the country. Increased exploration activity has, however,
identified some reserves which are due to come into production. If environmental
constraints are overcome and these mines do in fact come into production, they will pave
the way for the development of a Turkish gold mining industry.
The World Gold Council (WGC), through its branch in Istanbul, made significant
contributions to the process of liberalisation of the Turkish market, the compilation the
Gold Sector Reform Plan, and the implementation of its various components. The WGC
also assisted the government by providing consultancy services such as the expertise lent
in the establishment of the Istanbul Gold Exchange.
This study records the various stages and components of the liberalisation and
reformation process in the Turkish gold sector. The purpose is to evaluate the successes
achieved and the failures faced in order to extract certain lessons which can be utilised by
pclicymakers who are in a position to develop a non-existing or illegal sector.
Description
A project report submitted to the Faculty of Engineering. University of the
Witwatersrand, Johannesburg, in partial fulfilment of the requirements for the
degree of Master of Science in Engineering.
Keywords
Gold -- Turkey., Turkey -- Economic conditions.