With a weak lira, Turkey is courting foreign companies

0

There is a silver lining to Turkey’s currency crisis and global supply chain crisis: the country is becoming an attractive alternative on Europe’s doorstep for foreign businesses.

Turkey is using its geographic advantage to woo businesses as soaring sea freight costs and pandemic-related supply chain disruptions push some European companies to reduce their dependence on Asia.

President Recep Tayyip Erdogan, whose policies have contributed to the fall of the lira, has promoted a new slogan for exports: “Made in Turkiye”, using the country’s language instead of the internationally known “Made in Turkey”.

But his vision must overcome concerns about Ankara’s complicated relationship with the European Union, the independence of the judiciary and political uncertainty ahead of next year’s elections.

Nevertheless, Turkey’s exports reached a record $225.4 billion last year, with a target of $300 billion in 2023.

“Many international companies are taking steps to source more from Turkey,” Burak Daglioglu, head of the Turkish presidential investment office, told AFP.

He said the country offers automakers or textile companies “a competitive talent pool, sophisticated industrial skills, well-developed service industries, perfect geographical location and state-of-the-art logistics infrastructure.”

Ikea announced last year that it wanted to relocate part of its production to Turkey.

The Italian clothing group Benetton told AFP it wanted to “increase its production volumes in countries closer to Europe, including Turkey”.

Peter Wolters, vice president of the Netherlands-Turkey Chamber of Commerce, said the business group had received “requests from the home and garden, textile and fashion sector as well as the yacht building industry who are looking for new partners in Turkey”.

– Soaring transport costs-

It has become extremely expensive to ship goods from Asia.

Due to the shortage of containers, the cost of freight between China and Northern Europe has increased ninefold since February 2020, according to the Freightos Baltic Index.

While a freighter can take weeks to travel from Asia to Europe, Turkey is only three days away by truck.

A study by consulting firm McKinsey published in November placed Turkey in third position among the countries with the best textile supply potential by 2025, behind Bangladesh and Vietnam but ahead of Indonesia and China.

“Apparel companies are also looking to change their mix of sourcing countries…to secure the supply chain,” the authors of the global report wrote.

The report states that Turkey offers “cheaper production costs due to the falling lira”.

The lira has fallen 44% against the dollar since 2021 as the central bank – pushed by Erdogan – cut interest rates even as inflation rose.

Turkey’s new net minimum wage is now $315, only slightly higher than Malaysia’s.

Erdogan, in power for two decades and seeking re-election in 2023, is betting on a weak pound to boost exports and growth, some observers say, even if it destroys Turks’ purchasing power.

– Europe, ‘friend’ and ‘enemy’-

The collapse of the lira is also problematic for several industries due to the country’s dependence on imports of energy and raw materials.

“It’s not like Russia, for example, which has a lot of raw materials,” said Roger Kelly, chief regional economist covering Turkey and Russia at the European Bank for Reconstruction and Development.

He said Turkey also faces competition from EU countries.

“I don’t think we should ignore those southeastern European countries like Romania or Bulgaria, which are actually in the EU – which helps them to some extent – and also have weak production costs and strong production bases.”

Erdal Yalcin, professor of international economics at the German University of Applied Sciences in Konstanz, said uncertainty about Turkey’s judicial system and institutions was also of concern.

“We don’t see big investments, although Turkey, from a purely economic point of view, would be the perfect place to bring production closer to Europe,” Yalcin said.

Another issue concerns Turkey’s rocky relationship with the EU, with Yalcin noting that in the rhetoric of Turkish leaders, “one day Europe is a friendly nation, the other day it is an enemy.”

He also pointed to Volkswagen’s decision to postpone building a factory in Turkey after Ankara’s operation in Syria against a US-backed Kurdish militia in late 2019 before abandoning the plan during the coronavirus pandemic. .

“As long as people are killed, we are not laying the foundation stone next to a battlefield,” VW CEO Herbert Diess said at the time.

For Yalcin, no major decisions will be made by companies before the 2023 election and “until this uncertainty about the political future of this country is resolved”.

rba/ach/fo/raz/lth

Share.

Comments are closed.