Turkish company suffers pound fallout in Erdogan ‘lab’


In theory, Turkish businessman Vahit Yilmaz should benefit from the weak pound: foreign orders pour into Turkey’s $ 30 billion textile and clothing industry after the crash of the pound has reduced the cost of production in dollars.

But there was only a 50-50 chance that his wholesale clothing business would survive the next 12 months, he said. The cost of fabric, yarn and other inputs, all valued in dollars, has skyrocketed, and domestic producers such as Yilmaz in Merter, Istanbul’s ready-to-wear wholesale district, are bracing for an eventful spring.

“Turkish textiles are virtually free at this exchange rate,” said the 35-year-old. “Business was great when the dollar was rising steadily. Now it is dangerous.

Recep Tayyip Erdogan has presided over a 50% decline in the currency since the start of the year after ordering the central bank to cut interest rates repeatedly despite rising inflation. On Thursday, the central bank cut rates for the fourth month in a row. The Turkish president argued that a cheaper currency would help the country of 83 million people benefit from booming exports, investment and job creation.

But the president’s detractors say he is subjecting the country to a giant economic experiment. Durmus Yilmaz, a former central bank governor, said this month he was turning Turkey into “a crazy think tank.”


The pound falls this year after Erdogan ordered the central bank to cut rates repeatedly

In recent months, as the president launched a new round of easing, he has reportedly cited China’s economic transformation following the 1978 reforms as proof that his model would bear fruit.

But Ali Akkemik, an expert on the economies of China and Turkey at Yamaguchi University of Japan, said that while it was true that Beijing devalued its currency in the 1980s and 1990s, it had implemented a A clear “industrial vision” that was crucial for its transformation into the world’s second-largest economy over several decades. “Turkey does not have a clearly defined industrial policy,” he warned. “We don’t know what industry they’re trying to promote. “

A London-based banker with expertise in both economies who asked not to be named put it more bluntly. “It is economically crazy to think that a country can build an export-oriented economy simply on the back of a destroyed currency,” he said. “If that were the case, Zimbabwe would be a technological superpower. “

Erdogan’s determination to continue rate cuts despite growing dismay from voters and the business community has fueled speculation in Turkey that some constituencies should benefit from the lira’s decline. But, said Atilla Yesilada, analyst at consultancy GlobalSource Partners, “this is not a policy that benefits an identifiable constituency, including its family. . . or his friends ”.

Istanbul Municipality bakery: Many ordinary Turks struggle with soaring cost of living © Chris McGrath / Getty

Some companies are profiting from the decline in the currency. “Most of the companies listed on Borsa Istanbul are profiting from the weakness of the pound,” said Selim Kunter, equity analyst at Istanbul-based Ak Yatirim. He called publicly traded airlines, advocacy groups, auto makers and chemical manufacturers of companies that enjoy foreign currency denominated income and Turkish lira denominated personnel costs.

The success of these sectors has helped fuel an export boom, fueling economic growth that is expected to exceed more than 9% this year. But it will likely come at the cost of inflation of 30% or more in the coming months, hurting not only businesses that depend on imported energy and raw materials, but also ordinary Turks already struggling with the surge. the cost of living.

“Erdogan prioritizes exporters over households,” said Jason Tuvey of consulting firm Capital Economics. “If you think about his base of support, that doesn’t really make sense at all.”

Many large exporters have also criticized currency volatility, which they say makes it difficult to price their products and plan ahead. Tusiad, a group representing large industrial companies that account for 85 percent of Turkey’s foreign trade, excluding energy, warned that what the business world needs most is stability.

Musiad, a business association with close ties to the ruling party, recently added its voice to concern in a rare criticism of the president’s approach.

“A businessman needs to know what the exchange rate will be in two to three months and how much it will increase,” Mahmut Asmali, chairman of the group, told Turkish business newspaper Dunya last week. “The chart of exchange rates should not look like the chart of a person with high blood pressure.”

Despite the boom in home sales, the construction industry, which has close ties to Erdogan and other ruling party officials, is also complaining. Figures from the industry, which accounts for around 5% of Turkey’s economy, warned the sector is being crushed by the high cost of raw materials and energy, both of which grew by more than 90% on a slip. annual in November.

Erdogan “just doesn’t have a game plan,” Yesilada said, pointing to the fact that Turkish authorities have spent billions of dollars to defend the lira in recent weeks while simultaneously praising the virtues of cheap currency . “We can discuss it for hours. None of this makes sense, ”Yesilada said. “There is no logic.

Yilmaz, the clothing producer, said domestic sales which typically accounted for half of its business were already “dead.” He hopes overseas sales will offset the losses.

But he predicted that half of his neighbors in Merter would be gone within six months, driven by rents set in dollars despite the practice being banned.

“For now, I am optimistic we will weather this storm,” he said. “But I too may be disappearing soon.” “


Comments are closed.