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Dec 05 2018

Traders reel as Turkey’s economic troubles spread east

Turkey’s economic slump is spreading eastwards, hitting tradesmen hard in the covered markets of Diyarbakır, the mainly-Kurdish region’s biggest city.

Hardy businessmen, much used to financial malaise in a region known for its three-decade conflict between the Turkish army and Kurdish fighters, are pulling the shutters down on their minis-shops in these sprawling markets, once teeming with customers. Others are just about making ends meet, hoping for a turnaround.

“We lost so many clients,” said Berat Aslan, who sells curtains at the Aşefçiler bazaar, a mini version of Istanbul’s grand bazaar. “Businesses who’ve been in existence ever since this market opened have shut up shop because of this crisis. We’ve also come to that point – some days we can’t even cover the rent.”

The atmosphere in Diyarbakır’s bazaars, located on an historical trade routes that once linked Mesopotamia with Anatolia, is a far cry from the upbeat tone at the presidential palace in Ankara, some 1,000 km to the northwest.

As shopkeepers worry about a jump in the price of wholesale goods - annual inflation has more than doubled this year to over 20 percent - Turkish President Recep Tayyip Erdoğan and his son-on-law, Treasury and Finance Minister Berat Albayrak, are claiming a currency crisis that struck in August is fading fast and Turkey’s economy is back on its feet, despite figures indicating a sharp slump in economic activity.

Diyarbakır, home to almost one million people, is not known for its export-orientated businesses, which the government says will help prevent Turkey entering a likely recession. In contrast to the western industrial cities of Istanbul, Izmir, Bursa and Izmit, the city’s businessmen, largely small tradesmen, rely on local consumers or trade across nearby borders. Many import goods on the black market from neighbouring Iraq and Iran. Others process crops or rely on government contracts in the construction sector. All are in the doldrums.

 

Diyarbakir bazaar
Berat Aslan, who works at a curtain-sellers in one of Diyakbakır's bazaars

One tradesman, who asked not to be named, said the slump in the lira meant the price of smuggled tea that he sells has more than doubled this year to 80-85 liras from about 40 liras. At the same time, he said the government, seeking to lower inflation, had ordered municipal police into Diyarbakır’s markets to check the price of goods, creating more problems for businesses that rely on grey imports.

“So many of our friends have left,” he said, saying rental costs were the final tipping point for some businesses. “We’ve been selling smuggled tea and cigarettes here for years. If we didn’t own this store, we’d be gone too."

Even after impressive gains for the lira from the depths of the currency crisis in August, when it reached a record low of 7.22 per dollar, the currency has lost almost a third of its value this year. That has led to a slump in demand for imported goods and raw materials as prices surged.

In response, the government has slashed taxes on items such as cars and home appliances, and called on major shopping chains to cut prices, helping inflation to slow a couple of percentage points to 22.6 percent in November. But that brings limited comfort to most consumers in Diyarbakır, many of whom consider such goods a luxury.

Businesses and households in the city are also reeling from a spike in interest rates – most loans carry annual costs of well over 30 percent a year, if they can get them at all. Banks, concerned about an increase in bad debt, are far less inclined to provide credit lines than they were just a few months ago.

Mustafa Vural, head of local tax advisers association, the DSDMMO, said some firms in Diyarbakır had now begun to apply for bankruptcy protection as economic problems seen in the west spread eastwards.  

Vural said eight large construction firms in the Kurdish regions had applied to the courts for protection from creditors, adding to some 350 cases across the country already confirmed by the government.

Turkey’s currency crisis has turned into a crisis of interest rates, said Mehmet Kaya, who runs the Diyarbakır Chamber of Commerce and Industry.

“Once exchange rates reached a certain point, the main problem became bank interest rates,” he said. “It’s one of the most critical problems for business people in the region now.”

The government should take measures to “ensure discipline” in the financial industry, including extending credit guarantees on loans to ensure that banks keep lending at reasonable rates, Kaya said.

Businessmen in Diyarbakır are also being hit by an economic embargo on Iran, meaning they cannot export products such as food to the Islamic Republic. In response, the government should work to improve trade relations with Iraq to compensate for the loss in trade, Kaya said.