Dogan Duman faces an uncertain future for his garment factory in central Turkey as soaring costs and economic pressures force him to scale back operations. Duman’s company, which produces coats and jackets for global fashion brand Zara, has had to lay off a third of its staff and reduce production to 60% capacity amid a broader crisis affecting Turkey’s garment sector.
The challenges for Duman’s factory in Corum reflect a nationwide trend of economic distress, exacerbated by a stringent policy-tightening approach that includes a 50% benchmark interest rate aimed at controlling inflation, which spiked above 75% earlier this year. The impact of these measures has been severe, with many businesses, especially in the textile industry, struggling with rising costs and diminished export orders.
Turkey, a key player in global garment manufacturing and a crucial supplier to European brands, is grappling with inflated energy and labor costs, as well as an overvalued lira. These factors have diminished the country’s competitive edge compared to rivals like Vietnam and Bangladesh. “The rising energy, labor, and foreign exchange costs are making it increasingly difficult for us to compete,” said Duman, expressing concern about the future viability of his 27-year-old business.
The economic strain extends beyond individual companies. The Turkish economy is feeling the repercussions of a dramatic shift in monetary policy, which began in June of the previous year and is aimed at reversing the effects of President Tayyip Erdogan’s previous expansionary policies. While inflation has moderated to 52% recently, the cost of credit remains high, and many businesses, especially those in apparel and textiles, are facing significant financial strain.
Data from the Union of Chambers and Commodity Exchanges of Turkey reveals that nearly 15,000 companies closed in the first seven months of the year, a 28% increase from 2023. Bankruptcy filings have surged, with 982 companies seeking court protection from debt, nearly double the number from the previous year. Construction and textile sectors have seen the highest volume of such filings.
The financial struggles of Turkish businesses have ripple effects throughout the economy, leading to delays in payments and increasing unemployment. Erdal Bahcivan, chairman of the Istanbul Chamber of Industry, warns that the repercussions of these financial strains could have widespread consequences, potentially affecting many creditor firms.
Economists anticipate that the aggressive monetary policies will lead to higher unemployment and more business failures. “The government faces a serious dilemma,” said Seyfettin Gursel, director at Bahcesehir University Center for Economic and Social Research. “It is attempting to reverse the damage caused by its previous policies but is struggling to manage the situation.”
In Corum, the economic downturn is visibly impacting local industries. Factories display broken windows and scattered garments, reflecting the broader challenges faced by manufacturers. Bulent Demirci, co-owner of a yarn factory, closed his business due to the “unpredictable economic outlook,” noting that the current situation is graver than past economic downturns.
The latest increase in Turkey’s minimum wage and the substantial rise in utility costs have further strained small and mid-sized manufacturers. The cost of production in Turkey is now significantly higher compared to competing Asian countries, and exporters are advocating for further currency depreciation to improve competitiveness. However, authorities have emphasized maintaining lira holdings through high deposit rates.
Companies like Mega Polietilen and 3F Tekstil have sought court protection to manage their debt amidst these harsh economic conditions. A 3F Tekstil executive noted that while such measures help in the short term, they also lead to greater suffering for suppliers and workers. “Businesses are paying the price for Turkey’s high inflation and interest rates,” the executive said.
The Turkish garment industry faces an uphill battle as it navigates these economic challenges, with many businesses uncertain about their future amid the ongoing crisis.
