As another bumpy week comes to an end, we have witnessed a number of events including the US bank trial, sharp movements in exchange rates, Israeli and American provocations in the Middle East and the interest rate pressure on the CBRT.
It can be seen that exchange rates’ bumpy ride continues as International Institutions make statements that the Central Bank is expected to take a drastic rate hike action. Apparently, the upcoming will be quite difficult for a lot of companies. Not to mention their decreasing profit margins, now they will have to survive the next 6-month period.
Months ago, I told you that the 2018-2020 period would be dominated by the high growth-high interest rate-high inflation trio, which is expected to bring significant impacts not only to Turkey but to the world as well. I, however, pointed out that Turkey has sadly missed the “Golden Years” of the 1990s, engaging in unfortunate things, thus leading to the 2001 financial crisis. If you wish to learn about further details, I kindly recommend you to read the book that I co-authored with Mr. Yalin Alpay.
In the 1990s, the business world carried out their operations based on an import-substituting mentality, continuously receiving incentives and protection from the government. With the signing of the Customs Union Agreement, a new era had begun, where domestic firms manufacturing questionable products in terms of quality were being pushed away from the chess board, having left with no choice but to comply with international standards of production.
“Financial Institutions should be more rational…”
As a matter of fact, Turkey is going through a similar process today. Somehow having achieved to conform with international standards, Turkish companies operating in Domestic Appliances and Automotive Industry today are sadly late for undertaking value-added activities for the global market. They have fallen way behind in conforming with global standards set forth in offering goods and services (from rubber shoes to smart phones that are considered “prestigious products of today”) as well as in brand creation.
And the funny thing is that they continued with their demand for higher tariff walls so as to maintain their conventional way of production instead of taking actions to remedy this huge delay. Ten years ago, they had turned their noses up at the Digital Transformation. Now, they are all working day and night to successfully implement it.
As the economy is going through difficult times, these companies will probably not have time to take an interest at the brand-design-innovation-R&D-high tech combination while trying not to get collapsed. Accordingly, it might work for the favor of Turkey of Financial Institutions choose to act more selectively, offering loans to companies that take the right action, and not solely focusing on the profit margin and collateral of the ones going down the wrong path.