Entrepreneurs sound the alarm in Ankara

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

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

Structural problems instead of 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 do not fall, little has been gained. We need structural solutions."

During his travels around the country, he sees increasing underutilization of industrial capacity. "I visit factories where production lines stand empty. Where 300 people should be working, only 100 are still producing," Özdemir said. It makes no sense to build new factories as long as existing facilities are not operating at full capacity.

The long-term decline in industrial importance is particularly alarming. 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, especially 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 clothing 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 industry—companies that are effectively insolvent but continue to exist thanks to regulatory leniency toward their debts.

Officially, annual consumer price inflation stood at 30.65 percent in January. However, many Turks doubt 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. Loans are available, but 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.