Turkey’s top industrialists under heavy financing burden
A recent report by the Istanbul Chamber of Industry (İSO) has shown how the top industrialists in Turkey operated under quite a heavy financing burden last year.
According to the ISO’s “Top 500 Largest Industrialists 2015” report, the financing costs of industrialists increased by 75 percent in 2015 compared to the previous year, and they needed to spend most of their operating income to meet their financing costs.
“The industrialists lost over 63 percent of their profit so as to pay their financing costs, as the reaching loans were very expensive,” said İSO President Erdal Bahçıvan in a press meeting to announce the results.
This was much higher than the world average, as the country’s industry groups paid almost two-thirds of their revenue in a year when the U.S dollar gained over 25 percent of value against the Turkish Lira by continuing its rally, which has hit mainly emerging markets since May 2013.
Lira depreciation has continued to put balance sheets under pressure and raised the debt service burdens of the corporate sector, which has large foreign exchange exposures.
“The financing costs-to-operating margins of Turkish industrialists are almost four times higher than the world average. While their short term debts-to-the-total-debts ratio is around 25 percent in the world, this rate is almost 40 percent in Turkey. While the global private sector mainly uses loans to make more investment, our industrialists take loans to be able to manage their financials,” warned Bahçıvan.
While the number of profitable top-500 companies which closed the year as “profitable” was 400, the remaining 100 announced losses in 2015.
It is almost impossible for the country’s industrialists to focus on innovation, make investments or create new jobs during a time when the Turkish economy is in an urgent need of developing a “new narrative.” This situation is also not good for banks.
“While the world has been discussing the Industry 4.0 revolution, Turkey needs to change the current climate immediately. If we want to recover from the middle-income trap and write a new success story by returning to the production economy, we must change the quality of our economic growth model,” added the İSO president.
The top 500 industrialists’ total exports also declined by around 13 percent in 2015 compared to the previous year, according to the İSO data, again due to parity losses as well as rising regional risks.
Another crucial point of the report was that there was no industrialist from more than 30 cities on the list.
Besides this, a total of 16 cities were represented by only one company across Turkey, which is composed of 81 cities.
Last but not the least, the latest report showed that the number of industrialists with foreign capital in the top 500 list decreased to 125 in 2015 from 153 in 2009.
To realize its underlying growth potential, Turkey immediately needs to accelerate structural reforms and improve trust in its institutions, both inside and outside. With the existing system, it will be unlikely for the country’s economy to achieve this.