Istanbul Managers of the Turkish textile industry made a desperate appeal to the government this week: the domestic currency is too strong and must lose value. Otherwise the sectors affected would be threatened with massive damage, including company bankruptcies.
Although inflation in the country has recently reached a record high of 85 percent, the currency has remained stable for months. One US dollar has been around 19 lira for months, and one euro around 20 lira. This is becoming a problem for companies and exporters: their products are becoming more and more expensive abroad – and are therefore slow sellers.
The advance of the textile entrepreneurs may come as a surprise. Because it has little to do with the laws of the free market economy if the exchange rate of the national currency is adjusted to the needs of an industry. But the suggestion is not new.
According to Ramazan Kaya, head of the Turkish Association of Garment Manufacturers, executives in the textile industry had already met with Finance Minister Nureddin Nebati in December and asked for a weaker lira to convert their foreign earnings. But the government under Recep Tayyip Erdogan currently has other concerns: victory in the elections. And that’s where the strong lira comes in handy because it strengthens consumers.
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The export-oriented companies are suffering, especially the textile sector, which is crucial for the Turkish economy, is badly affected. Garment manufacturers are part of the manufacturing sector, which accounts for more than 94 percent of Turkey’s total exports. Most exports go to Germany, Spain or the UK.
Textile exports from Turkey are stagnating
The most successful companies in the sector in Turkey include Gülsan Sentetik Dokuma Sanayi, Kipas Mensucat Isletmeleri and Sanko Tekstil Isletmeleri.
The Turkish currency has remained surprisingly stable over the past few months.
(Photo: Reuters)
These companies generate billions in sales. According to the Statista database, Turkish textile companies exported clothing worth 15.35 billion US dollars last year. In addition, there are exports of general textiles worth 11.7 billion US dollars.
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Accordingly, changes in the exchange rate are reflected in the balance sheets of Turkish companies. In 2020, the sector had a global market share of 4.3 percent. But Turkish exports have been stagnating for months, threatening the country’s economy.
A weaker currency could help. An example: A Turkish textile company sells a pair of jeans to Germany for 200 lira. Here the importer of the goods, for example a clothing store, would have to pay around ten euros based on the current exchange rate.
But Europe is approaching an economic recession, warns industry representative Kaya. As a result, importers and consumers would have less money at their disposal. According to him, the industry is therefore demanding that it can temporarily convert its export earnings with a fictitious exchange rate: 23 to the dollar and 24 to the euro.
In the example, that would mean: The Turkish company would sell the same pair of jeans for the same price, namely 200 lira. But the importer in Germany then no longer pays the equivalent of ten euros, but only around 8.30 euros.
The importing company would be more inclined to buy the Turkish company’s product. For the Turkish exporter, however, the turnover in lira remains the same.
President Erdogan: The strong currency will help him before the elections
What the industry representatives are demanding is not unusual in Turkey and other countries. Turkish pharmaceutical companies, for example, were allowed to calculate with a much stronger exchange rate for a long time. The industry has long had to import many medicines and ingredients to Turkey. With a special exchange rate, import costs should be kept low.
Turkish lira lie on a table.
(Photo: dpa)
It is questionable whether the textile companies in the country will be successful with their request to the finance minister. Because the stable lira benefits Turkish consumers in particular. Your income in lira is worth more if the lira keeps its value.
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Elections will soon take place in Turkey, probably in May. It would not help the ruling AKP and President Erdogan to dilute the value of the lira shortly before the election. But the textile managers have apparently also thought about it: As a precaution, they warned Finance Minister Nebati that they had already had to lay off 30,000 people because of their precarious situation and that “without help from the government” up to 100,000 more jobs would be at stake. And no government can afford a large wave of unemployment before the elections.
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