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Devaluation may benefit Turkey’s apparel exporters

Turkey’s currency has lost almost 50 per cent of its value over 12-months. For Turkish apparel and textile exporters, there are short term benefits to a devalued currency. Apparel exports from Turkey increased 7.4 per cent in the first seven months of 2018. A similar increase, perhaps even greater, can be expected in the next half year.

The problem for exporters in Turkey is raw materials. Most mills source raw materials from international markets in denominations of euros or dollars. With raw materials making up more than half of fabric costs, the challenges for mill owners are obvious. Many mills will be locked in fixed price term contracts in Turkish lira, yet with raw material costs effectively increasing 30 per cent, their bottomlines are being affected as they absorb cost increases internally.

Turkish companies have borrowed heavily to benefit from a rapid growth in the construction industry. Now they will have to struggle to pay back loans as borrowing costs rise to 18 per cent a year. Inflation is also at dangerously high levels. Inflation goes hand in hand with a weakened currency, and is currently running at 18 per cent in Turkey. This can be stopped only by rising interest rates.