Turkish Companies Are Expanding Rapidly -- Outside Turkey

 

The good news is that many of Turkey’s leading companies are making major investments and creating thousands of jobs. The bad news is that a great many of these investments are outside Turkey. At a time when Turkey desperately needs major industrial investment and increased employment these companies have found greener pastures elsewhere.

             They represent a wide cross section of Turkey’s large industrial base – textiles, glass, white goods, automotive, pipe manufacturing, and many others. This export of investments and jobs is explained in part by the simple fact that many of these companies are no longer just good local operators. They have outgrown the confines of Turkey as their skilled managers have grabbed growth opportunities spanning the globe. Turkish construction companies have long been active outside Turkey but now they have been joined by mainstream, large job-creating industries.

             The additional bad news for Turkey is that a number of global companies have taken a look at investment opportunities in Turkey and have decided to go elsewhere. This list includes Tesla, Volkswagen, and LG. There can be many reasons ranging from size of the market, labour quality and costs, distribution, etc. for deciding not to invest somewhere. I don’t know the specific reasons for these companies deciding to pass on Turkey, but in my experience of cross-border investments two of the major factors are rule of law and freedom from arbitrary regulations limiting movement of capital. In both cases Turkey comes up short. Exporters, for example, are required to sell their hard-earned foreign exchange revenues to the cash-strapped Central Bank.

             According to a report in the German news service Deutsche Welle, Egypt has been one of the major beneficiaries of the expansion of Turkish companies. One factor is, of course, the lower wage costs in Egypt. In Turkey the average monthly labour costs – for industries in the regulated part of the economy – are about $500 per worker. Monthly labour costs in Egypt are just $150. In addition, fuel costs are much lower in Egypt. This might explain in large part why Turkish companies like Arçelik, Şișecam, Temsa and Yıldız Holding have moved production there.

Beko has become a leading European brand

             Temsa makes buses and vans in Egypt and exports them to the rest of the world. Yeșim Textil operates factories in Cairo, Alexandria and Ismailia and supplies goods to world-famous sports brands. The giant white goods company Arçelik, known in Europe for its brands like Grundig and Beko recently invested $100 million in a new Egyptian factory. Many other companies like Iskefe Holding, LC Waikiki and the Eroǧlu Group have also announced additional investments in Egypt.

             At last count about 70,000 people in Egypt already work for Turkish companies. About one-third of all textiles and clothes in Egypt are now produced in Turkish-owned factories. By the end of 2023 investments by Turkish companies in Egypt could total $3 billion.

             This wave of outward investment by Turkish companies is by no means limited to low-wage countries like Egypt. Borusan, the country’s major pipe producer, recently purchased a pipe company in the United States for $160 million and now has four plants in the US that generate annual revenues of about $1 billion. Arçelik alone has 30 production facilities in nine countries.

Borusan pipe plant in Texas

            The huge, very successful Koç Group –  parent company of Arçelik and many others – has been in a partnership with Ford for decades. In 2001 the Ford/Otosan JV invested more than $2 billion in Turkey to build a greenfield plant to manufacture light commercial vehicles for the European market. Interestingly, in 2022 Ford Otosan acquired Ford’s plant in Romania for €700 million. The Romanian plant has now become the global manufacturing hub for Ford’s to light commercial models.    

Ford/Otosan added a Romanian manufacturing plant

            Şișecam has long outgrown Turkey and is now one of the top five glass manufacturers in the world. It is planning to invest more than $5 billion to develop two soda ash mines in the United States – not exactly a low-wage country.

             While Turkey can take pride that many of its companies have graduated to the major leagues of global industry, the country is hard pressed to find similar high value-added, job creating inward investment to equal the outward flows. Turkey’s official unemployment rate is just over 10%. However, few things are as misleading as official unemployment figures. Leading economists adjust this number sharply upward for huge marginal employment – several people at a petrol station doing nothing and getting paid less, significant seasonal employment, and the large unregistered segment in the so-called grey economy where wages are low and infrequent and benefits non-existent.

             Turkey’s new financial management team has made an impressive start in turning around the disastrous economic policies that led to spiralling inflation and a disappearing currency. But in order to attract significant inward investment and stop Turkey from becoming the Rust Belt of Southeastern Europe much more has to be done in areas like the rule of law to convince global companies that Turkey is a safe place to invest.