On Wednesday, I held a series of meetings with the representatives of construction and textiles sectors in Adana, engaging in trade talks with our Ministry of Trade, Chair of the Turkish Exporters’ Assembly (TIM) and top executives from Adana’s Industry and Commerce environment.
Textile and raw materials sectors dominate the Adana business climate, so to speak. Although agriculture still remains as a powerful industry there, I have to admit that farmers of Adana were not happy at all. Their expectations about the future have turned really sour since the Government announced very low pricing of their agricultural produce. By the way, Adana Chamber of Commerce and Footwear Manufacturers have recently engaged in cooperation to launch a very large industrial site. As I was taking notes, Minister of Treasury and Finance Mr. Albayrak suddenly started to cite a list of upcoming Tax Cuts.
As a matter of fact, eight or nine month ago from now, I had delivered a presentation on the necessity for VAT and Special Consumption Tax cuts on products with price elasticity. However, then-current Ministry of Finance had violently disagreed with me on this issue. Apparently, the current Ministry of Treasury and Finance has decided to take bolder steps given the recent Turkish economic slowdown.
The Ministry announced big tax cuts on a number of sectors including Home Appliances and Automotive, and tax incentives for housing/construction sector. As far as I understand, the reason why the Government is set to release such big cuts and incentives designed to encourage the economic activity is because they are trying to recover 4thquarter by implementing a series drastic decisions as they fear that 3rd quarter growth data might turn out to be considerably lower than expected. The tax cuts I mentioned above are expected to remain in effective until the New Year.
However, the fact that the Government is preparing to reduce the rate of taxes without achieving a significant decline in public spending raises questions in Turkey. The first scenario that we can think of is that the Government will attempt to reduce budget deficit by borrowing more money. In such case, the reasons needed to ensure a decrease in interest rates would definitely become scarcer. But I have to admit that these soon to be implemented cuts and incentives have specific aspects to keep the demand alive while making it seem like inflation remains low. However, I still am not convinced how the Government will succeed in reducing producer prices.
“CBRT’s millionth time-revised inflation target…”
In the meantime, CBRT’s year-end CPI projection is announced to be 23.5%. In order to achieve a rate higher than 20%, inflation should continue to turn out to be lower than 1% during the remaining months. I think I don’t need to mention that this is such a very low probability event to happen.
Show must go on despite all negativity. That is why Turkish industrialists prefer not to engage in any significant investment for now, at least until they see “new balances” appear in the economy. The fact that capacity utilization rates have turned out to be lower compared to the previous months can be also seen as an obligatory “soft landing” that we’re experiencing because of the current financial bottleneck.
I would like to once again mention that, when doing business, providing loans or choosing suppliers, it is absolutely crucial to pay very close attention to every detail you have overlooked before, including what business your suppliers/partners/clients are engaged to other than the one you are operating together, the way they manage their companies, whether or not they are engaged in exports, the number of staff they employ, staff education level, pay scale, interactivity and design sophistication of their website, whether or not they are given incentives, customer profile and customer interaction, the way they measure customer satisfaction.
Trust me when I say that a lot of companies went bankrupt because of items (such as the ones I mentioned above) that have not been included in executive meeting agendas.
