Turkey’s clothing makers squeezed by production costs

Istanbul — Turkish clothing manufacturers, the third-largest suppliers of apparel to Europe, face higher production costs and risk falling further behind their Asian rivals after the government hiked taxes on textile imports, sector leaders say.

Ankara raised tariffs by 30%-100% on hundreds of incoming textile products last week, aiming to support local yarn and fabric manufacturers that appealed for support against a wave of cheaper imports.

Apparel officials say the new taxes are squeezing the industry, which is among Turkey’s biggest employers, supplying heavyweight European brands such as H&M, Mango, Adidas, Puma and Inditex.

Job cuts could come, sector representatives say, as import costs rise and Turkish producers shed market share to rivals such as Bangladesh and Vietnam. Exporters can technically apply for exemptions from the tax, but industry sources say the exemption regime is costly and time-consuming, and in practice does not work for many companies.

The sector was already fighting soaring inflation, waning demand and lower profit margins due to what exporters see as an overvalued lira, as well as the effects of Turkey’s years-long experiment with cutting interest rates as inflation rose, a policy recently revisited.

The price of a Turkish-made T-shirt is now 40% higher for a European shopper than one from Bangladesh, said Seref Fayat, chair of Turkey’s TOBB Clothing and the Apparel Industry Assembly. A couple of years ago the gap was 15%-20%, another source said.

“Fashion brands can bear higher prices up to 20%, but anything more leads to market losses”, Fayat said.

Timur Bozdemir, president of DF Manhattan, which manufactures women’s garments for the European and US markets, said the new tariff will raise the cost of a $10 T-shirt by no more than 50c. He does not expect to lose customers, but said the changes reinforced the need for Turkey’s apparel industry to shift from mass production to value-added.

“If we insist on competing with Bangladesh or Vietnam for a $3 T-shirt, no doubt we will lose,” he said.

Competitive edge

Turkey exported $10.4bn in textiles and $21.2bn in clothing in 2022, making it the world’s fifth and sixth biggest global exporter respectively. It is the second-largest textile and third-largest clothing supplier to the neighbouring EU, European Apparel and Textile Confederation (Euratex) data shows.

But its share of the European market slipped to 12.7% in 2022 from 13.8% in 2021. Western customers turned to Turkey during the Covid-19 pandemic to cut freight costs amid supply disruptions. When it ended, the combination of plunging shipping costs and rising domestic inflation dulled its competitive edge.

Textile and apparel exports fell more than 8% through October 2023, while overall exports were flat, sector data shows.

The textile sector, facing a rise in cheaper imported fabrics and yarns which in part sparked the need for the tariffs, saw its number of registered employees falling 15% through August. Its capacity utilisation rate was 71% in October, compared to 77% in manufacturing overall, and sector officials say the rate is near 50% for many yarn manufacturers.

“I’ve almost stopped production and cut most of the jobs in my yarn facility — and I’m not the only one in this situation,” said Fatih Bilici, who runs an Osmaniye-based yarn factory that supplies local and foreign markets. His company cut daily production to five tonnes from 50 tonnes a few months ago. He said the tariffs are vital for an industry struggling to survive.

“It costs me $3.20/kg to manufacture, whereas my Uzbek rival sells it at $2.70. How can I can compete?”

The lira has shed 35% of its value to the dollar in 2023 and 80% over five years. But exporters say the lira should depreciate yet more to better reflect inflation that is running above 61% and touched 85% in 2022.

TOBB’s Fayat said the textile and apparel sector had cut 170,000 jobs so far this year. As monetary tightening cools an overheated economy, it is expected to hit 200,000 by year-end.

Reuters