Turkey: business in difficult economic times

Turkey fell in the past years ever more deeply into an economic crisis. For businesses, the weak Turkish currency is becoming an ever-increasing risk. How important is business in Turkey for German companies?? How they can continue to invest safely and protect themselves from defaults and the fall of the lira?

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Does Turkey have to fear the wrath of foreign countries? What does the conflict mean for the German economy? How vulnerable is Turkey to a financial crisis?? Dr. Ulrich Kater, Chief Economist of DekaBank, clarifies.

1. The economy in Turkey is in crisis. What are currently the biggest problems?

Sofie Quast: Political uncertainties continue to weigh on the economy. Turkey’s key export countries are undergoing difficult adjustment processes in economic terms. These include Russia, countries in Central Asia and the Middle East.

Add to that the decline of the Turkish lira, persistently high inflation and rising unemployment. These uncertainties mean that business leaders are currently acting cautiously. Many new project investments are being questioned, a lack of confidence in the Turkish economy is spreading.

2. Are there also positives?

Yes, absolutely. The Turkish economy is growing again. Less dynamic than intended, but it grows. Economically speaking, we have to look at Turkey’s east and west in a differentiated way. East and southeast are agricultural, lack of skilled jobs in industry.

The West, on the other hand, is flourishing. There are twenty urban centers with more than one million inhabitants. Many industries are booming: textiles, mechanical engineering, the automotive industry and its suppliers, electrical, chemical and energy, and renewable energies. Tourists are also returning – the tourism industry is more hopeful than it has been in three years.

3. The Turkish lira has lost a lot of value. What this means for Turkish companies?

Not only Turkish companies are suffering from the loss in value of the lira. Investors are also unsettled. The domestic political situation after the local elections and also the central bank’s monetary policy play a role. The fall in the value of the Turkish lira reflects the lack of confidence.

In particular, tensions between Ankara and Washington, which also have repercussions for the EU, are making their contribution to the loss of value. Since the beginning of 2019, it already accounts for 11 percent. In the previous year, the Turkish lira had already fallen by 29 percent.

Turkish companies are feeling significantly higher burdens from credit financing on a foreign currency basis. Demand for corporate loans in foreign currency has slumped accordingly.

4. How important is the Turkish business for the German economy?

We are the number one trading partner for Turkey. Germany is the largest supplier of intermediate products for the Turkish export industry. German technology continues to enjoy great popularity. This is also evident at the newly built Istanbul airport, which many German companies were involved in constructing.

At the same time, the Federal Republic is the largest importer of Turkish products, above all food and textiles. Ten percent of Turkish exports go to Germany.

From a German perspective, Turkish companies are reliable partners who place great emphasis on sustainability. Suppliers are logistically well positioned, goods are available quickly, reliably and in high quality.

5. Should German companies withdraw from Turkey now??

By no means.

6. What German companies must now expect?

The weak Turkish lira makes imported goods and service products purchased on a foreign exchange basis more expensive for Turkish companies. If the manufactured products are sold exclusively in Turkey, this increases the prices. Domestic consumption has already weakened. This has a negative impact on local sales opportunities, at least temporarily.

About 7.300 German companies have branches in Turkey. Competition for qualified personnel is high. Fortunately, German companies remain loyal to the market, they continue to rely on Turkey’s potential.

7. Is it still worth investing in Turkey??

Definitely yes. Due to its geographic location alone, Turkey is and will remain a central hub. The location is an excellent starting point for exports to surrounding countries. Infrastructure, airports and sea routes guarantee fast delivery times.

In addition, a population of around 82 million represents an attractive sales market. In geographic proximity, Turkey opens the door to other markets such as Africa, CIS and the Middle East.

Every foreign entrepreneur should now ask himself whether he wants to expand into Turkey under the current favorable circumstances. The general conditions are good. For example, a company such as the Limited Sirket, similar to a German GmbH, can be set up quickly and at low cost.

Savings banks actively support the search for business partners. At EuropaService, German companies can obtain information about business opportunities and establish contacts.

8. What German companies need to watch out for?

It should be taken into account that companies in Turkey currently face higher risks. Due to the fall in the lira, many companies have had to restructure their loans. Nevertheless, this is no reason to put business on hold.

Companies should use traditional tools to hedge their risks. An export letter of credit confirmed by the company’s bank is an effective means of protecting against payment delays or defaults, even for long-standing customers.

When making new investments in Turkey, never enter a new market without qualified advice. The Sparkassen-Finanzgruppe supports German companies in these areas.

Foreign markets mean foreign languages, different mentalities. For investments, new financial structures have to be established, banking relationships have to be established, reliable tax and accounting auditors have to be found. For us, the focus remains on the customer. We have an interest in reducing risks.

9. Which industries and regions are particularly suitable for investment, which are not?

The Marmara region and the greater Aegean area with the major cities of Istanbul, Bursa and Izmir are already preferred locations with excellent infrastructure. The nationwide supply of electricity, telecommunications and a well-trained workforce is working.

Other attractive industrial centers have sprung up in central Turkey and southeastern Anatolia. Here are mainly opportunities for exports and investments in the field of textiles, mechanical engineering, food and vehicle construction. The infrastructure is developing rapidly, connections to transport networks are being optimized. In addition, government subsidies that offer regionally varying incentives are attractive.

Depending on the business model, Turkey also offers free trade zones that provide additional, regional investment incentives such as the waiver of VAT on land purchases, low electricity, natural gas and telecommunications costs.

10. Where companies can get information?

The international network of the Sparkassen-Finanzgruppe " S-CountryDesk" is the right contact for this purpose. From general consulting to specific intercultural consulting, from banking services to tax services: S-CountryDesk is an established international network and benefits from very experienced cooperation partners. With these competences every investment can be planned.

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