Business leaders are sounding the alarm in Ankara

According to leading business representatives, Turkish industry is facing an existential crisis. If structural problems, high financing costs, and persistently high inflation are not addressed decisively, the country risks a gradual loss of its industrial base.

This warning was issued by Burhan Özdemir, chairman of the business association MUSIAD (Association of Independent Industrialists and Businessmen), in an interview with the daily newspaper Nefes on February 16.

Structural problems rather than monetary policy alone

Inflation can no longer be combated by restrictive monetary policy alone, Özdemir said. “Inflation for goods has fallen to around 17 percent. But as long as rents and food prices don’t drop, little has been gained. We need structural solutions.”

During his travels across the country, he has observed increasing underutilization of industrial capacity. “I visit factories where production lines stand empty. Where 300 people should be working, only 100 are still producing,” said Özdemir. It is pointless to build new factories as long as existing facilities are not operating at full capacity.

Particularly alarming is the long-term decline in industrial significance. Industry’s share of gross domestic product has fallen from 25 percent in 1996 to around 17 percent today.

Pressure from China and rising financing costs

In addition, pressure from international competition, particularly from China, is growing. In sectors such as automotive, steel, and electronics, Turkish industry is “in mortal danger,” according to Özdemir.

The decline of the Turkish textile and apparel industry has been noted for some time. Orders are increasingly shifting to cheaper producers in China, Egypt, or Bangladesh. The number of so-called “zombie companies” is rising in the sector—firms that are effectively insolvent but continue to exist thanks to regulatory leniency regarding their debts.

Officially, annual consumer price inflation stood at 30.65 percent in January. However, many Turks question this figure. The independent inflation research group ENAG estimates the actual inflation rate for the past twelve months at 53.4 percent.

Özdemir described financing costs as the biggest burden on industry. While loans are available, he noted, they come at extremely high prices. “You can take out loans, but the costs are very high,” he said.

This article was produced in cooperation with our partner bne intelliNews