In Turkey, businesses are finding their own solutions amidst a tightening cash flow due to demand shrinkage, with many manufacturers resorting to spot trading to recover their investments. As the country navigates high inflation and seeks a stable economic program, the dual challenges of declining domestic and foreign demand, coupled with expensive credit access, are leading companies to devise new strategies for collecting receivables.
With increasing instances of bankruptcy and concordat (a legal arrangement to settle debts), companies are working to minimize their losses. Some businesses are opting for return purchases, while others are turning to spot markets or selling goods at discounted rates. Çetin Tecdelioğlu, President of the Istanbul Ferrous and Non-Ferrous Metals Exporters’ Association (İDDMİB), emphasizes that “we have no choice but to salvage our funds,” highlighting the dire situation many are facing. He noted that rather than dealing with bounced checks in court, they prefer to sell their goods to other businesses, keeping their assets valuable.
Spot Market Emerges as a New Strategy
The emergence of a spot market is evident, as businesses unable to secure cash or credit are opting to sell their goods at a significant loss. For instance, instead of obtaining a bank loan at a high interest rate of 50%, a business may sell its 100 TL worth of goods for just 60-70 TL. Tecdelioğlu explains that this trend leads to informal trading practices, which further complicates the landscape of Turkish commerce.
He underscores the urgency for manufacturers to keep their operations afloat, pointing to obligations like paying checks and wages.
Selling Below Cost
Consumers are significantly curtailing their spending outside of essential needs like rent, food, healthcare, and transportation, says Mesut Öksüz, President of the Housewares Association (ZÜCDER). “Many are eagerly anticipating improvements starting in the last quarter of 2024,” he notes. However, changes like the removal of installment options on credit cards have severely impacted sectors like housewares, furniture, and white goods, which traditionally relied on installment purchases.
With both bank credit and installment options restricted, a drop in shopping demand is expected. Yet, businesses still face payment obligations for salaries, rents, and raw materials, even as operational costs continue to accrue. The lack of cash flow is pushing many to liquidate their stocks, sometimes at a loss, just to keep afloat.
The Ripple Effect of Bankruptcies
Öksüz points out that when a company declares bankruptcy, it can trigger a chain reaction affecting the entire industry. Tecdelioğlu concurs, stating that a single failure can stifle credit growth for thousands of firms and hinder long-term financing opportunities. The loss of trust among companies, compounded by the prevalence of bankruptcies, has led to tighter payment terms and a reluctance to engage in open credit transactions.
The Call for Action
In this challenging environment, exporters are urging for essential policy changes:
- Increase the currency support for exporters from 2% to 10%.
- Implement short-time work benefits and provide insurance premium support for employment.
- Maintain the standard workforce in businesses through similar employment assistance.
- Take steps to boost credit appetite in financial institutions.
- Reduce the foreign currency conversion requirement for exporters from 30%.
- Loosen the credit growth limit for SMEs from 2%.
- Subsidize financing for international contracting firms.
Personal Commentary
Navigating these turbulent waters is undoubtedly challenging for Turkish manufacturers. The creative solutions being implemented, such as spot trading, reflect a resilience that is commendable. However, it’s crucial for the government to step in with supportive policies that could provide much-needed relief and stability. Ultimately, a well-structured economic environment would not only safeguard existing jobs but also foster a more sustainable landscape for businesses to thrive. Insurance against financial shocks and operational disruptions should be a priority to ensure the ongoing vitality of this sector.
