The textile and clothing industry, which is facing challenges in the competition in the recent past, is now seeking for a resolution due to the recession which shown its affects a year ago and that is expected to maintain its negative impact more on the industry in 2023. Textile investors came together with the Minister of Treasury and Finance Nebati and requested "private currency" protection for the exporter.
The Turkish ready-made clothing and textile industry that is falling behind in the competition with rival nations and that experienced rising prices, is now seeking for a resolution due to the recession that is expected to increase its effects more in this year. Key representatives from both industries that came together with the Minister of Treasury and Finance Nebati consulted the ministry officials regarding the problems and solution proposals about the EYT legislation, minimum wage and energy costs with the ministry officials. One of the issues that came to the agenda at the meeting was the "private currency implementation" proposal. In relation to the proposal on the agenda, 50 percent of the export revenues of the companies which corresponds to the labor and energy costs will be designed to protect them from high currency in return for their benefit. It was underlined that the Ministry will carry out works on this issue.
Energy Cost of Textile Increased Tremendously
Ahmet Öksüz, President of Istanbul Textile and Raw Materials Exporters' Association (İTHİB) in his statement, Öksüz emphasized on the energy discounts taken into effect in the last week of the preceding year which albeit has a little positive impact on the industry in terms of morale and said, ‘’ The energy prices, which is falling to 20 cents with the latest measures in our country still stands at around 7 cent in competitor nations. The increased minimum wage and the EYT legislation are also other problems that significantly increase our costs. Cost per employee with the food and transportation exceeded $700. Turkey, in general, cannot afford the expense that is more than 500 dollars. The only remedy to this situation is to up stream of currency or the implementation of private currency for the exporter. We came with similar suggestion. We communicated this to the Minister of Treasury and Finance." While Öksüz stated that private currency implementation is essential for the amount of exporter’s labor and energy costs in exchange for its compensation in the minimum and said, ‘’We should set upper limits. Raw material is a commodity that already has a global price. The field in which we are losing our competitive power is labor and energy costs. We are expecting an action on this subject. Of course, it would be true that keeping the foreign currency at this level to control the inflation may be feasible for them but we should also keep our exporters alive. It was a productive meeting and we received feedback that an evaluation and effort will be made.’’ On the other hand, Öksüz reminded about the reduction in freight that made Far East competitor once again and said, ‘’We have the close geographical advantage but it cannot be considered for the whole. We can sell at a high price but there is a limit. At this stage, laying off employees may increase slightly more. While considering this, it is important to reduce energy costs sustainably’’ Based on the information given, the minimum wage associated with Egypt that is 150 dollars, a nation which is amongst the competitors of the Turkish textile industry and in which energy and labor currently enjoys a 50 percent share in costs, with Uzbekistan and Turkmenistan that is 100 dollars and with Pakistan, India and Vietnam that are around 200-250 dollars.
''We Should Set a Private Currency''
Amongst the attendees of the meeting, President of the Turkish Clothing Manufacturers Association (TGSD), Ramazan Kaya said that to reduce the burden associates with the minimum wage slightly, it will be important to determine the level of support for each employee that is 250TL and that should be in between 500-750TL for at least a year. Defining the coming period as a difficult turning point, Kaya said, ’’This year, due to the contraction in business, we voiced our concerns for the implementation of short-time wage to control the increase in the number of employee layoffs. The EYT legislation came into effect and most companies still was not cooperating in their share. Although the state provides a fund for this, in the end, the amount is the one that will come out of the company's capital and assets. It comes with a burden for companies. While considering the average age of the employees, those qualified for EYT are considered to be the most valuable and productive age range.’’ While giving information about another issue on the agenda that is the currency under pressure, Kaya continued with the following, ‘’A message was communicated to us, not to expect any action in currency. Within this context, ‘private currency’ proposal was discussed. The proposal was made to set a private currency that will not surpass the amount of exports as well as the energy and labor costs. As said, we should work. If not any measure is taken, we expect a contraction in quantity by 20 per cent and in value by 10 per cent this year. Depending on the issues come to the fore, it is inevitable to face a 10 percent reduction in employment.’’
Severance Pay is a Big Burden
Ramazan Kaya evaluated on the EYT legislation that may be troubled the industry. While talking about the employment power of the ready-made clothing and apparel industries that is 1.3 million worker whose numbers composed of 10-15 per cent EYT holders, Kaya continued with the following, “There are at least 200 thousand EYT holders. At a point where businesses shrink, turnovers decline, and profitability falls, within the scope of EYT legislation, a rise in the capital once again will force companies even more. While considering minimum wage workers in the same corporation for a period of 10 years, whose numbers are reaching 200 thousand, their severance pay, when we talk about 200 thousand employees, will carry around 20 billion TL burden for the industry. In comparison to the additional payments and salary, these figures may reveal much higher ratios. While considering that the labor cost, a share of 35 percent in the total cost and shown an increase by 50 percent with the most recent rise, this can be translated into 15 percent more costly rates compared to the rival nations in remain. Big buyers who do not accept this price also change their purchasing preferences to competitor countries.”
Biggest Cost Item is Labor
Şeref Fayat, Chairman of TOBB Ready-made Clothing and Apparel Sector Assembly, has drawn attention to the main problem that is being unprofitable in the ready-made clothing sector that leaves behind 2022 with nearly 5 percent rise in exports. While stating that sales were made in the last quarter revealing a loss, Fayat said, ‘’While assuming that our cost is 10 unit, there has been an increase in the labor cost with the new year by 55 percent which corresponds to the 35 percent of this. We are already an industry that can generate a unit of profit. Therefore, since the exchange rate will not increase and we cannot change the prices, this rise is certainly incurring losses for us. Thus, we will make an upsetting kick-off to this year. Compared to the first 3 months of 2021, when we broke a record with the currency effect compared to the previous year, we will reveal losses in exports in this quarter at around 10-15 percent.’’ While expressing that being unprofitable is a bigger problem, Fayat said, “It is good to see a reduction in energy, but falling prices is not very meaningful in the last year which witnessed a 423 percent increase. We use energy three times more expensive than the global usage. The prices that are around 8 cent in Pakistan, Vietnam and India on an average amounts to 23-34 cent in our country. It now has dropped to 20. Household natural gas use subsidy has also fallen to industry. If there is no activity in the currency, I do not expect a contraction of less than 10 percent in the sector's exports. The currency has started to hit not only labor-intensive sectors, but also medium and high-tech companies.”
What is the Requested Implementation?
According to the information given, the private currency implementation, which is still in the idea phase, will operate as follows: If a company exports 1 million dollars, 50 percent of this that equals to as maximum as the labor and energy costs with its top level amounted to 1 million dollar, can be exchanged for an unreal high amount of 22-23TL instead of spot currency 19.7 TL.
