Is Turkey's clothing industry unravelling at the seams?

**Emily Wither** (0:03)
Hello, and welcome to Business Daily from the BBC World Service. I'm Emily Wither. Today, I'm in Istanbul, finding out why the famed Turkish textile industry has been unraveling after hundreds of textile and apparel factories have gone bust.

**Mustafa Denizer** (0:19)
What is gone is gone. We lost $20 million, 500,000 jobs.

**Emily Wither** (0:24)
One of the reasons is labour costs. Turkey is battling inflation, and some workers can no longer feed their families on minimum wage.

**Okan Kadicam** (0:34)
It's a big emotional struggle, because it starts with limiting your social life. You know, you don't get out, you don't spend time outside with your family, and this situation also creates problems at home.

**Emily Wither** (0:46)
And we hear how Turkey's economic policies aren't making it easier for factories to offset rising production costs.

**Selva Demiralp** (0:54)
I think the central bank doesn't have a tool of independence to set interest rates where it needs to be in order to offset inflationary pressures.

**Emily Wither** (1:05)
So is the Made in Turkey label being stitched out of our wardrobes? That's coming up on Business Daily from the BBC.

**Mustafa Denizer** (1:18)
We have more winding machinery over here, but this side is more for needle craft, cotton products, very traditional products.

**Emily Wither** (1:27)
Yes, I can see someone picking up lots of different pink thread.

**Mustafa Denizer** (1:32)
This is for hand embroidery.

**Emily Wither** (1:34)
I'm on the outskirts of Istanbul, being shown around the family textile business by Mustafa Denziye. He is the third generation president and CEO of Diktash Group. They have been producing sewing thread, hand knitting, needle craft yarns and scarves since the 1940s. Their thread is used in big brands, from Levi's to H&M.
We hear a lot of grim numbers in Turkey these days. Hundreds of bankruptcies, hundreds of thousands of jobs gone, factories running at a fraction of capacity. The minimum wage in Turkey has also risen dramatically, and the lira hasn't necessarily kept pace, and interest rates have hit, what, 50%. As a business owner, which is hurting you most? Is it these rising wages? Is it the financing?

**Mustafa Denizer** (2:22)
Okay, there is an inflation, which is not going down. Government is really pushing it, but it's not still lower than 35%, 40%.
Of course, the borrowing rates are much higher. When you are borrowing at 30%, 35%, 40%, which means 3%, 4% a month, cost for your borrowing, this means you cannot invest. And if you are using your capital or working capital with government, with bank finances, then you are really in a bad position because the gross margin in garment and textile doesn't really give you that much of a margin. So new investment is not possible. And a lot of people are in a bad position because they borrowed a lot of money in the past, so bankruptcies are happening, government protections are happening on the bankrupted companies, so you cannot collect your money. So all these are really making a big chaos in the market.

**Emily Wither** (3:14)
Mustafa says about half a million jobs were lost in the industry in the last three or four years. And industry estimates suggest over 5,000 businesses have closed, a combination of high rents, labor and production costs, as well as the government's prolonged suppression of the exchange rate here are all being blamed.
Turkey effectively, artificially protected the lira by doing three things. It introduced state compensation for citizens and businesses saving in lira, sold billions in foreign dollar reserves to prop up the value of the currency, and enforce strict regulations on banks and exporters to limit demand for dollars. So throwing competition from textile makers in China, Bangladesh and Egypt, and it becomes clearer why it's increasingly difficult for Turkish exporters to compete on price.
It's estimated over a hundred Turkish textile firms have relocated to Egypt. Mustafa was one of the first, and began slowly moving his main production there 20 years ago, where compared to Turkey these days, labor is far cheaper.

**Mustafa Denizer** (4:22)
Minimum wage is not the reality, actually. It's just a benchmark now, because nobody works at a minimum wage at the moment. So we are talking maybe 50, 60, 70 percent higher. Even if you pay higher than a minimum wage, it's really hard to find workers. I see on their point of view, living cost in Turkey is really, really high.
But at the end of the day, the industry cannot afford this, because competition pays one-fifth what you pay.

**Emily Wither** (4:50)
You're also the chair of the Turkey-Egypt Business Council. Why has Egypt become such an attractive option?

**Mustafa Denizer** (4:56)
OK, the last two, three years, it's just people are criticizing the government by saying, I am going to Egypt. It takes time. And when you are in crisis, and then you say, OK, now I move out, it's too late. A lot of people are calling me, asking how I should act, how I should start.