Turkish firms face wave of closures amid economic reckoning
09/09/2024 11:18
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Turkey hit by fallout from inflation-fighting monetary
policy
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Soaring costs, overvalued lira, dwindling export orders
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15,000 companies closed this year, up 28% from 2023
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Apparel, textile firms seek court protection
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Knock-on effects for payments, employment, growth
By Ceyda Caglayan and Ezgi Erkoyun
CORUM, Turkey, Sept 9 (Reuters) - It is hard for Dogan
Duman to see how he can keep his garment factory in central
Turkey running much longer, even after firing a third of his
staff to cut costs that have soared for companies nationwide,
generating a wave of bankruptcies and closures.
Idle sewing machines are pushed to the side of his factory
floor in Corum, where outside "For Sale" signs and padlocked
gates dot the small city's once-buzzing industrial zone.
Such sober scenes are spreading across Turkey as part of the
fallout from a more than year-long policy-tightening effort,
including a 50% benchmark interest rate, to rein in years of
soaring inflation and overheated demand.
Thousands of companies like Duman's - which makes coats and
jackets for global fashion brand Zara - are squeezed by
inflation that topped 75% earlier this year, an overvalued lira,
hikes to electricity and gas prices and dwindling export orders.
"The orders are shrinking daily because we are losing our
competitiveness... and I think they will shrink even more," he
said of his 27-year old company that is now down to 60% capacity
and 210 employees.
Turkey is one of the world's top five garment manufacturers
and a critical source for Europe's top brands. But despite its
advantage of proximity to Europe, its main trade partner, Duman
says swelling energy, labour and FX costs have left him trailing
rivals in Vietnam and Bangladesh.
"Considering the current lira exchange rate and the expected
further rise to minimum wage next year, I think we won't be able
to compete," he said. "We will be at a point of shutdown."
These days, Turkish households and business are facing the
economic consequences of a cumulative 41.5 percentage points of
rate hikes that began in June last year and are now finally
beginning to cool inflation, which dipped to 52% last month.
Last year's dramatic policy U-turn, including fiscal steps,
aims to leave behind years of soaring prices and currency
crashes under President Tayyip Erdogan's formerly unorthodox
approach of monetary easing to stoke growth.
But with credit now out of reach for many, and lira
depreciation badly lagging monthly price rises, companies,
especially apparel and textile exporters, are in a crunch.
Almost 15,000 companies closed down in the first seven
months of the year, up 28% from 2023, according to the Union of
Chambers and Commodity Exchanges of Turkey.
Other data suggest bankruptcy stress is brewing.
Monitoring outlet konkordatotakip.com says 982 companies
were granted initial court protection from debt in the first
eight months of the year, almost double last year's total.
Construction and textile firms have made the largest number
of such applications to suspend debt payments to banks and
suppliers to continue operations, and also for bankruptcy
proceedings.
Such company strains have knock-on effects, slowing or
halting payments across the economy and lifting joblessness.
There may be "heavy costs," said Erdal Bahcivan, chairman of
Istanbul Chamber of Industry. "While trying to save a company,
dozens of (creditor) firms may end up in dire straits."
Some economists say that given the aggressive tools used to
slay inflation, rising unemployment and bankruptcies are all but
certain.
"This is a serious dilemma for the government," said
Seyfettin Gursel, director at Bahcesehir University Center for
Economic and Social Research. "It is trying to put the monster
it created back into its lair, but doesn't know how to do it".
STREWN GARMENTS
In Corum, 500 kilometres east of Istanbul, some factories
have broken windows and one had dozens of colourful
rain-drenched garments strewn across its grassy yard.
Bulent Demirci, co-owner of a yarn factory in the city with
50 workers, said he shut it down a couple of months ago due to
an "unpredictable economic outlook".
"We had production cuts from time to time in the past. But
this time it is all doom and gloom," he said.
Ankara's latest hike to the minimum wage was to 17,002 liras
($500) in January, which is up 100% from a year earlier and 500%
from the end of 2021, when a historic lira crash rocked Turkey.
Gas and electricity prices have risen about sevenfold and
threefold respectively since 2021 for small to mid-scale
manufacturers.
Turkey's overall production costs are now almost 40% higher
than in competing Asian countries in dollar terms, according to
interviews with exporters, who also blame barriers to financing
and dwindling working capital.
Exporters have lobbied for more currency depreciation given
that, year-to-date, inflation is 32% while the lira has fallen
only 13% to the dollar. Authorities however have urged lira
holdings, helped along by high deposit rates.
Istanbul-traded Mega Polietilen MEGAP.IS and garment
manufacturer 3F Tekstil are among those that applied for court
protection from debt payments.
An executive at 3F who requested anonymity said the move
helped as it struggled to survive with a total 600 workers, and
to continue supplying fashion brands such as Mango and H&M.
"But our suppliers and those who have receivables will
suffer more in this process," amounting to roughly 10,000
workers at outsourced manufacturers across the country, the
executive said.
"When interest rates reached 60-70% the companies could not
bear it. They cannot manage their debt," he said. "Businesses
have paid for high inflation in Turkey."
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Liquidation of Turkish companies https://reut.rs/3XwM7gE
Court protection figures up sharply https://reut.rs/4ghl7ck
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(Writing by Ceyda Caglayan; Additional reporting by Corina
Rodriguez in Madrid, Editing by Jonathan Spicer)
((Ceyda.caglayan@thomsonreuters.com; +90-212-350 7065; Reuters
Messaging: ceyda.caglayan.thomsonreuters.com@reuters.net;))