There has been an increase of 8.8% in the number of newly established companies in Turkey from January to September. Considering that the adverse effect of the pandemic is still continuing on businesses, and the country’s economic crisis is deepening, the rise in the number of firms is noteworthy. The figure was roughly 73,900 in the first nine months of 2020, but it has risen to 80,400 this year. A fascinating fact regarding the number of new businesses is that 9,600 of them are partnered with or financed by foreigners. On the other hand, the number of companies that went out of business in the first nine months is 11,706, which is higher than the previous year’s number. Moreover, in September 2021, 10,185 new businesses were founded, while 1,505 businesses closed, indicating that there was a very high fluctuation in the last month.
Uncertainty in the Turkish Economy
Foreign investment in Turkey has declined dramatically since most foreigners perceive the Turkish economy to be increasingly risky. The first to leave were the foreigners who had invested in the Istanbul Stock Exchange. The Turkish Central Bank’s illogical and unanticipated monetary policy aggravated the situation for investors. As a result, there is now a great deal of uncertainty for businesses.
Due to the uncertainty, the producers have lost control over cost-minimization in production, while their sale price has fluctuated considerably over time. Running a business amid high uncertainty and pandemic conditions is causing many companies to lose money, since many of their key production inputs are imported, and the lower value of the Turkish Lira in comparison to other national currencies is driving up production costs.
The Central Bank of Turkey has announced that the less valued Turkish Lira policy will be pursued to bolster exports and decrease the international trade deficit. That means the Turkish Lira might lose more value and the Turkish companies will face much higher production costs. Consequently, if the adverse conditions and the high uncertainty continue in Turkey, a higher number of companies will go out of business.
Cheap Labor and Increasing Foreign Investments
Turkey’s labor is less expensive due to high inflation and the lower value of the Turkish Lira. Turkey has one of the lowest minimum wages for unskilled labor in the world. This makes Turkey an appealing investment destination for some foreign investors, such as Chinese firms looking for a cheaper way to enter the European market. It is expensive for them to produce and ship products from mainland China. The Turkish government is thus making significant efforts to attract Chinese investments.
However, there has been a lot of talk regarding this. Despite the fact that these investments are in the form of foreign direct investments, Turkey’s approach of attracting Chinese investment has been heavily criticized. The biggest objection is that Chinese businesses will create unfavorable working conditions for Turkish workers while paying one of the world’s lowest minimum wages. Second, Chinese corporations disregard environmentalist concerns, which could result in significant environmental harm. However, the fact that Chinese investments are contributing significantly to Turkey’s new firms is difficult for Turkey to ignore.
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