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Rising minimum wages, a fluctuating lira exchange rate, and inflation approaching 80 percent: Turkey has lost its appeal as a business location in recent years. Despite this, thousands of German companies are still active there.
The new bright and spacious production hall of the North Rhine-Westphalian family business Ejot is located west of Istanbul. This medium-sized company has been in Turkey for more than 20 years and mainly produces all kinds of screws. He invested 25 million euros in the new factory – a clear commitment to the country.
“It’s an order of magnitude, we don’t do it every year in every country,” said Wolfgang Bach, Ejot’s chief financial officer, during a factory tour. “That’s almost half of last year’s total investment.” , so this is a very wise decision, knowing that there are risks.” But the family business has realized that the opportunities of investing in Turkey outweigh the risks.
60% salary increase
Thousands of German companies are active in Türkiye. Thilo Pahl is the Managing Director of the German-Turkish Chamber of Commerce and Industry (AHK) in Istanbul. He knows the problems the company faces. “Exchange rates and monetary policy are always mentioned first. We have seen the lira depreciate significantly in recent years. But in the last few months before the election, the lira has practically stopped depreciating and decoupled a bit from the lira. High inflation,” He said.
This contradicts the theory because: “In reality, the lira should depreciate further. For businesses, this means higher labor costs.” In addition, companies are faced with a large increase in wage costs: “Minimum wage increases in a year 60 percent,” Parr said.
Too expensive for the world market
Turkish President Recep Tayyip Erdogan announced further gains. Andreas Radel is the Managing Director of Ejot Türkiye. He had to take a deep breath: “The problem with the minimum wage is always that it causes a ripple effect. The minimum wage always raises the minimum wage, but of course there are pay scales in the company and then everyone has to go up at the same time.” This leads to Wages spiral in your own company, and costs increase significantly: “It usually hurts,” Ruddell said.
Many people in Turkey earn minimum wage, but at Ejot all 250 or so employees earn more, Radel said. You have to be well trained, and that costs money.
The screws produced here and packed into boxes on conveyor belts are sold all over the world. Thilo Pahl explained that the pre-election stable Turkish currency was a problem for many export-oriented companies, such as the many Germans in Turkey. They are too expensive in the international market.
80% inflation
In addition, the inflation rate is very high, some official figures exceed 80%, and unofficial figures are even higher. Experts have criticized factors such as the Turkish president’s strong influence over the central bank. Pal did not want to comment on Erdogan’s election victory in late May.
The company is not concerned with politicians, but with politics: “The past has shown that economic and political frameworks can change overnight. Today, for example, 25 percent of export earnings must be converted into lira, and it takes six weeks.” Later even forty percent. Pal said the uncertainty threatened investment plans: “It’s a risk factor for our company.” “
new central bank governor should calm down
President Erdogan’s appointment of Hafiz Gay Erkan as head of Turkey’s central bank may also be an attempt to calm the current uncertainty a bit. The finance manager is already the fifth central bank governor in just four years. The international community is under intense pressure to change the course of low interest rates and restructure financial policy.
The appointments of Erkan and new Finance Minister Mehmet Simsek are also seen as a signal to international investors that Turkey is heading in a new direction. Ejot manager Radel: “I think the appointment of Mehmet Simsek is a good thing. We will see what steps he takes. He just said that economic policy must return to orthodoxy, whatever that means.”
“Things have been going uphill for the last 20 years”
AHK regularly asks its member companies in nearly 100 countries about the current economic conditions. According to Thilo Pahl, managing director of AHK, Turkey ranks fourth: “When it comes to expectations for further business development, things are different. Turkey is sliding into the basement.” Certainty – In Turkey, people don’t know what will happen next with economic policy.
The German business colleagues of Ejot-Managers Radel and Bach also wondered whether the investment in Turkey was worthwhile. Bach: Of course. “Despite the general conditions, despite one measure or another, which of course annoys us as well, it’s worth it. If I look at Turkey, Ejot, things have always been difficult over the last 20 years.”
Most of all, he appreciates the short delivery routes and cheap workers who are motivated, young and rarely get sick. Still, most interested German companies are waiting for the time being.