VZCZCXRO1502
PP RUEHDA
DE RUEHAK #0566/01 1061324
ZNR UUUUU ZZH
P 161324Z APR 09
FM AMEMBASSY ANKARA
TO RUEHC/SECSTATE WASHDC PRIORITY 9443
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASH DC PRIORITY
RUEHIT/AMCONSUL ISTANBUL 5640
RUEHDA/AMCONSUL ADANA 3767

UNCLAS SECTION 01 OF 03 ANKARA 000566 
 
SIPDIS 
SENSITIVE 
 
DEPT FOR EUR/SE, EEB/BTA/TPP 
DEPT PLEASE PASS USTR MMOWREY 
COMMERCE FOR CRUSNAK AND KNAJDI 
TREASURY FOR FPARODI 
 
E.O. 12958:N/A 
TAGS: ECON ETRD EFIN TU
SUBJ: GLOBAL CRISIS CAUSES FURTHER DAMAGE TO TURKEY'S TEXTILE SECTOR 
 
¶1.  (SBU) Summary.  Turkey's textile sector - which had already been 
experiencing serious difficulties even before the economic crisis - 
is now faced with a sharp contraction in European demand.  Although 
the yearly decline in textile and apparel sector exports in 2008 was 
just 0.2%, exports fell 27% in the last two months of the year. 
Exports dropped even more dramatically in the first two months of 
2009, 32% in January, and 39% in February.   GOT economic stimulus 
measures have largely ignored the sector except for certain 
incentives for producers that move their facilities to Eastern 
Turkey.  As the sector has already suffered from competition with 
Chinese textiles and the over-valued TL in recent years, sector 
representatives warn that these new difficulties will likely lead to 
factory closures in 2009.  Given the large numbers of people that 
the sector employs and its contribution to Turkish GDP, the sector 
feels "rejected," asking if this lack of support by the GOT is a 
part of a "survival of the fittest" policy.  End summary. 
 
Turkey's Textile Sector 
----------------------- 
 
¶2. (U) Turkey's textile sector has historically been a key engine 
for exports and job creation.  Investments in the sector grew 
substantially in the 1990s, and Turkey's 1996 Customs Union with the 
EU provided new export opportunities for the sector.  The textile 
and apparel sectors in Turkey comprise close to 8.0% of Turkey's GDP 
and the 40,000 textile-related firms are estimated to employ 2 
million people (just under 10% of the entire labor force).  In 2008, 
textiles made up 17% of Turkey's total exports.  Europe is the main 
market for Turkish products, receiving 46.7% of textile exports and 
79% of apparel exports.  Turkey is the second biggest textile 
supplier for the EU, after China, and is the eighth largest textile 
exporter in the world and the fourth largest apparel exporter. 
 
¶3. (U) Turkish textile and apparel exports amounted to $21.88 
billion in 2008, down 0.2% from $21.9 billion in 2007.  The downward 
trend in exports started in October 2008, with an 8.7% fall, 
continuing in November (25%) and December (27%).  The drop was even 
sharper in the first two months of 2009, with a 32% fall in January 
and 39% in February.  The Istanbul Ready-Wear and Apparel Exporters' 
Union (IHKIB) announced on April 13 that they expected a 30% fall in 
Turkey's apparel exports in 2009.  IHKIB also noted the sharp fall 
in textile and apparel production in the first two months of 2009, 
with textile manufacturing down 10.6% and apparels manufacturing 
12.1% during this period, compared to a 1.8% fall in overall 
manufacturing.  Following a meeting among sector representatives in 
early April, Aegean Ready-Wear and Apparel Exporters' Union 
President Jak Eskinazi announced that 180,000 people in the industry 
had lost their jobs since the beginning of 2009. 
 
Textile Exporters: Our Crisis Started Earlier 
--------------------------------------------- 
 
¶4. (SBU) Commenting on the impact of the global crisis on the 
Turkish textile sector, Istanbul Textile Exporters' Association 
(ITKIB) Agreements Department Head Zuhal Bilek said the crisis in 
the textile sector started much earlier. Bilek noted the significant 
challenges the sector had faced in recent years, due to increased 
production costs and an overvalued lira, both of which dramatically 
reduced Turkish producers' competitiveness at the same time that new 
rivals such as China were entering into Turkey's traditional 
markets.  As a result, Turkey had been gradually losing market share 
for several years and its textile production had begun to decline 
sharply as early as February 2008, well before the onset of the 
global crisis. 
 
¶5. (SBU) Bilek commented that the sector went through a necessary 
but painful restructuring over the past 15 years, bringing its 
production standards in line with EU preferences.  The sector's 
geographic proximity to the European market and its flexible 
structure (able to respond rapidly to smaller orders) have helped 
Turkey keep its position as the second biggest supplier to Europe, 
according to Bilek, despite the negative domestic market conditions 
and increasing competition from East Asia.  With the shrinkage in 
European demand, however, the sector is hurting, Bilek observed, and 
there is not much room left for the sector to adjust itself to the 
new market conditions. 
 
¶6. (SBU) Bilek acknowledged that the TL's decline against the dollar 
and euro in late 2008 will eventually help increase exports, but due 
to the long order timeframes typical in the sector the positive 
effects have not yet been fully realized.  As with most other 
products, the collapse of demand has also offset the gains that 
would normally be expected from the currency's depreciation. 
 
ANKARA 00000566  002 OF 003 
 
 
 
 
¶7. (SBU) Sabri Unluturk, Aegean Textile Exporters' Union Chairman, 
echoed Bilek's complaints.  Elaborating on the increased production 
costs, Unluturk said the TL-based costs, like energy and labor, 
doubled over the past five years, whereas the FX rate remained 
unchanged.  "We have been going through a serious restructuring and 
transformation since 2002 and as a result have increased our 
productivity by 40%," said Unluturk.  Only companies able to 
complete this restructuring were able to survive and remain 
competitive, according to Unluturk, and a number of firms closed as 
a result. Unluturk noted that all companies had to settle for lower 
profit margins in this new, more competitive environment and that 
the sector has invested heavily (and continues to invest) in 
technology and human capital.  Unluturk said these factors made it 
more difficult for Turkish textile producers to deal with the global 
crisis.  "We were already operating on such tight profit margins and 
having difficulty finding financing when the global crisis broke," 
complained Unluturk.  (Note: Most textile firms in Turkey are SMEs, 
increasing the difficulty of finding credit and trade financing when 
banks are loaning only to the safest of borrowers. End Note.) 
 
 
The GOT Response: "Leave Textiles Production to China" 
--------------------------------------------- --------- 
 
¶8. (SBU) Since the beginning of this year, the GOT has announced a 
number of economic stimulus packages to minimize the impact of the 
global economic crisis.  In its first package in February 2009, the 
GOT announced the extension of tax discounts for textile and apparel 
producers employing more than 50 people, as long as they move 
facilities to certain specified provinces, mostly in underdeveloped 
Eastern Turkey.  In subsequent packages, the GOT announced VAT 
reductions for the automotive, electronics, household goods and 
furniture sectors, but there was no additional support for the 
textile and apparel sector. 
 
¶9. (SBU) Bilek said the textile producers were frustrated with the 
GOT package, because they do not think the tax advantages justify 
the cost of moving their facilities and workers to less developed 
areas, especially as these regions may not possess the necessary 
support infrastructure.  Bilek noted Treasury Minister Mehmet 
Simsek's comments from July 2007, where he said Turkey should leave 
low value-added textile production to the Chinese.  "At that time, 
we decided that the GOT had let go of our sector," said Bilek. 
Bilek argued that sector representatives had made numerous 
suggestions to the GOT on helpful measures to mitigate the global 
crisis - such as reductions in social security premiums, lowered 
energy prices, eased payments for delayed taxes and the use of 
unemployment fund proceeds in employment creation - but none of 
these measures were included in the packages. 
 
¶10. (SBU) Unluturk suggested that the GOT's abandonment of the 
textile sector was the reflection of an unspoken policy, based on 
"the survival of the fittest."  According to Unluturk, that the GOT 
announced specific measures even for a relatively unimportant sector 
such as furniture and did nothing for textiles is meaningful, and is 
hard to understand given the large numbers of people that work in 
textiles.  He dismissed a proposed GOT plan to expand exports to new 
markets during the crisis, since those markets - many of them 
"closed" economies like Syria and Iraq - are Turkey's competitors in 
textiles and the high-end Turkish products destined for the European 
market would not sell as well in low income countries.  Unluturk 
stressed the importance of the market share Turkey had achieved in 
Europe and Russia after years of hard work, and said the sector 
would fight to survive 2009 despite the GOT's lack of support.  "We 
already lost several facilities to the crisis, and we know there 
will be more losses this year," said Unluturk. 
 
¶11. (SBU) In a public statement on April 13, IHKIB President 
Tanriverdi criticized the GOT for not announcing any specific 
measures for the textile and apparel sectors during the crisis. 
Tanriverdi reiterated the sector's demands for tax and social 
security premium relief, and suggested that the GOT meet 50% of 
export insurance premiums for textile exporters.  Tanriverdi also 
noted the impact of the overvalued lira on exports and said: "Our 
survival limits in exchange rates are 1.60 in USD/TL and 2.15 in 
EUR/TL.  The Central Bank should intervene if these levels change to 
disadvantage Turkish exporters." 
 
Comment 
------- 
 
¶12. (SBU) The textile sector does have some legitimate complaints 
 
ANKARA 00000566  003 OF 003 
 
 
about GOT policies that unnecessarily increase production costs 
(such as high taxation of inputs and relatively high social security 
contribution requirements) and it may eventually succeed in 
convincing the GOT to reduce those costs.  At the same time, the 
sector's problems are not temporary blips - the decline in 
competitiveness predates the crisis and will not instantly disappear 
when the crisis is over.  Given that textiles employ over 2 million 
people, it is unlikely that the GOT will allow the sector to 
collapse completely, especially in light of the January 2009 
increase in unemployment to 15.5%.  The GOT's focus on other sectors 
may indicate a realization, however, that the golden age of Turkey's 
textile sector has probably ended, and that a painful but necessary 
adjustment to a smaller sector is inevitable.  End comment. 
 
JEFFREY