By  on September 18, 2007

ISTANBUL — A four-month crisis over the election of Turkey's next president kept political and economic issues as heated as the record summer temperatures here.

The turmoil has touched all aspects of Turkey's economy, the apparel sector included, as domestic customers took the lead in reduced spending over lack of confidence in the government.

The government, which had been doing well economically, had to call early elections to thwart stymieing tactics from the military and judiciary political opposition suspicious of the presidential candidate for his disavowed political Islamist past.

The stock market wobbled, the Turkish lira occasionally teetered and interest rates rose slightly, but it is a testimony to Turkey's improving economy that the fallout was so little in a country where just six years ago the incident of the president hurling a copy of the constitution at the prime minister sparked a severe economic crisis.

In July, the incumbent party won a landslide election, showing the public faith in strong numbers and a steady hand rather than likely unfounded scare stories about rising Islamic influence. Its presidential candidate, Foreign Minister Abdullah Gül, was elected in August, putting a lid on the summer of turmoil.

However, the lingering uncertainty has soured the business climate.

"People don't react as dramatically as before, but there has been a noticeable drop in orders as people refrained from taking a position while the picture was unclear,' said Banu Payasli, public relations manager at Altinyildiz Textiles, which has a profile of domestic and international clients. "Now there is a tentative return to normality, but people are taking very slow steps just to make sure we are not plunging back into uncertainty again."

This was particularly true of the domestic sector, where the atmosphere and remote fears that the military might attempt to dislodge its fifth government since 1960 were felt the most. The political crisis, although couched in the terms of Islamism versus state secularism, had become a battleground over the right to run the country.

Cem Boyner, head of Boyner Holding, which includes the upscale department store Beymen and the more moderate-priced Boyner chain, said the psychological effect of the crisis had affected his businesses, if temporarily."The people's morale is very closely linked to our business," Boyner said. "There was an earthquake [in 1999] and sales only fell by 25 percent that month. [In 2003], HSBC bank was bombed — that month sales just fell by 25 percent. In 2001, there was an economic crisis and sales only fell by 25 percent again. In the past couple of months not that much actually really happened, but sales still fell by 25 percent. The presidential election, military warnings, debates, they upset people — there does not need to be a big crisis."

The latest figures released for August by the Turkish State Statistics Board show a 0.02 percent rise in consumer prices. The consumer price index for apparel and footwear fell by 7.13 percent in just one month. Consumer spending for the second quarter of 2007 fell by 0.3 percent.

The consumer confidence index showed a drop in June for the period that followed a first, abortive presidential election process and rose again by 1.4 percent in July, election month, but still remains below the levels indicating a positive consumer attitude.

On a more general scale, Turkey's gross national product, which has been growing relentlessly for 22 quarters, recorded one of its smallest rises, at 3.9 percent, in the second quarter of 2007, compared with 6.8 in the first quarter and 9.3 percent in the second quarter last year.

But in the textile manufacturing sector, those companies working with a more internationally weighted clientele benefited from the foreign business view that the crisis was always going to be a tempest in a teapot.

"About 85 percent of our product is exported and most of our clients are world leader companies. I haven't sensed that they have had any particular concerns," said Seyhan Aktemur, marketing and product development manager at Soktas Textiles, a high-end mill based in the western Turkish town of Soke that supplies brands such as Dolce & Gabbana and Gucci.

Suleyman Orakcioglu, head of clothing group Orka Holding and active in the Istanbul Apparel & Textile Exporters' Union, also known as ITKIB, pointed to the export figures as proof that the industry has been resilient throughout."There are over 200 countries in the world, they all have elections and crises, but the world of business keeps going," Orakcioglu said. "The performance of Turkish ready-to-wear and textile exports for 2007 is very good, so far. All our efforts toward training, design, branding have been bearing fruit. If a country can survive a critical year like 2005 [when export quotas were lifted and lower-price China became a dominant factor], then it can certainly weather this summer's storm."

Quoting ITKIB figures, he said for the first eight months of 2007 rtw and textile exports had risen by 16 percent. The combined export value of both sectors last year had been $19.5 billion, while the target for this year was $22.5 billion.

One factor preventing even better figures was the strength of the Turkish lira against the dollar, proving the renewed robustness of an economy where previous political crises could reduce the currency to peanuts overnight.

"The lira is overvalued, but we expect that to change, too," he said. "All the factors will find their own level with time."

The textile industry has also narrowly avoided the headache of a workers' strike that would have cost an estimated $3 billion as it spread across 17 companies, including Soktas, Yünsa, Altinyildiz, Levi Strauss & Co., and luxury goods house Vakko. A last-minute deal involving raises of up to 6 percent and bonuses averted a walkout just hours before the Sept. 11 deadline.

Financial analysts predict that the election of a stable government with a strong mandate and a record for economic improvement will bring better performances now that the political crisis is over.

"It's not just retail, there have been reactions across the board," said Selim Kunter of Express Invest. "But the ending of political uncertainty has had a positive effect and macroeconomic developments are ensuring economic growth over and above the effects of the political situation."

Boyner said: "The thorn for the past period was the presidential election and we have survived this period without much real damage. I am extremely hopeful of this government in the next five years."

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