How Turkey’s "new economic model" affects exporters in Konya

Ingrid Woudwijk
June 28, 2022

The Gesaş headquarters in Konya. © Ingrid Woudwijk

When entering the city of Konya by car, you see nothing but industry. Countless factories, large industrial areas (or sanayi in Turkish) and construction sites. These are the hallmarks of the ‘Anatolian Tigers’, a nickname given to manufacturing centers in the Turkish heartland that have become important engines for the Turkish economy under Pres. Recep Tayyip Erdoğan.

From the outside, it's hard to guess how much work or production is taking place in these sites. Only when the call to prayer blares from the surrounding minarets do workers start appearing from all directions. They carry prayer rugs or a cardboard substitute under their arms and make their way to the local mosque. 

Konya is not just known for its industry, but also for its conservatism. This combination of entrepreneurship and religious values translated into natural support for Erdoğan’s Justice and Development Party (AKP) in recent decades, but amid spiking inflation and growing economic hardships, the city’s long-time AKP loyalists are increasingly questioning their support for the ruling party.

A new economic model

At the headquarters of the food company, Gesaş, general manager Abdullah Kara and foreign trade executive Muharrem Akkalp took the time to explain how Erdoğan’s economic policies are negatively affecting their business, and the industry in general.

In late 2021, during a slide in the Turkish lira, the government rebranded Turkey’s current economic crisis as a ‘new economic model’ with a focus on growth, exports and cheap labor. Gesaş, which started as a family business in 1974, was taken over by Aşçılar Gıda, a company that now has six factories in the region and exports to more than 80 countries worldwide. Apart from food products, it’s also in the packaging business and produces galvanized wire.

It’s the kind of company that should be benefiting from the new economic model and the depreciation of the Turkish lira, but the reality is different.

“A low lira exchange rate should be good for exporters, but that is not the case. All exporters want a stable Turkish lira and the lira is not stable now,” Akkalp told Turkey recap, adding a stable currency is a requirement for long-term profit projections and contracts. “Once you draw up that contract, you want to have a stable currency. Last year, there was a huge loss because of lira volatility.”

As we spoke, an employee brought in some helva, one of the main products Gesaş produces along with chocolate spread and tahini. After politely offering a few slices, Akkalp and Kara continued to outline their problems.

A shopper strikes a pose in central Konya. © Ingrid Woudwijk

Inflation

For starters, inflation is hitting the helva business hard, Kara said, before he questioned the official inflation figure.

“The government says the inflation rate is close to 70 percent, but in reality it is much higher – ” Akkalp, interrupted to remind Kara that the interview would be published.

“It doesn't matter, I don't believe the inflation figure!” Kara insisted. He is not alone. According to the independent economists of the Enag research group, Turkey’s inflation rate is closer to 160 percent.

The two main cost increases for Gesaş came from energy and salaries. Just this year, electricity and gas bills quadrupled. “Last year, we paid 30 million TL for four factories, now that is 120 million TL,” the general manager told Turkey recap.

Salary increases

As for salaries, the number of workers employed by the Aşçılar Group varies, but on average around 3,000 people work in company factories. They earn minimum wage, just like over 40 percent of all Turkish laborers. When the minimum wage was increased by 50 percent to 4,253 TL at the beginning of this year, that brought a lot of extra costs for employers.

Faced with growing difficulties, Kara underlined Gesaş remained financially stable, noting the company did not need to take out discount loans that were recently made available to exporters. Kara, who also serves as a board member of the Middle Anatolian Exporters Union, said he sees many companies in the area relying on loan after loan. Akkalp said there was little optimism regarding the new economic model among producers.

“The plan was good, cheap production and more exports are good,” Akkalp said. “[Then] your labor costs increase by 50 percent, and laborers lose purchasing power by at least 50 percent. There is no advantage for anyone in the economy here.”

Currently, a fresh minimum wage hike is being discussed, according to Bloomberg. Another recent state intervention includes the requirement for exporters to convert a minimum 40 percent of their revenue in foreign currency into Turkish Liras, which had some negative effects on the company as well.

“Once you bring the money back, you need to change 40 percent [of foreign currency] into Turkish liras, but they forgot that if you buy raw materials abroad, you have to pay in dollars,” Akkalp said. “You force the company to change its dollars to Turkish Lira, and once it's due to pay its imported goods, you need to buy dollars again, so you lose a lot of money.”

Gesaş GM Abdullah Kara at his desk. © Ingrid Woudwijk

Support for Erdoğan and the AKP

Gesaş proudly uses the phrase ‘yerli ve milli’, meaning literally local and national. The phrase is also used by Erdoğan more broadly for its ideological connotations. Like many of Konya's 2 million residents, Kara has long been pro-Erdoğan. In the 2018 presidential election, almost 75 percent of voters here voted for the Turkish leader.

While Kara didn’t really want to talk about politics, he was critical of the government, asking, “Is the opposition better? No, but something has to change.”

Still, Kara believes Erdoğan’s unorthodox economic policies are not the sole cause of Turkey's economic problems. He cited various theories, saying NATO should be blamed for the war in Ukraine before talking about the malevolent dış güçler, a vague term often used to blame all kinds of problems on ‘foreign powers’.

Asked if they truly believed foreign powers were behind Turkey’s current problems, Akkalp responded: “All Turks believe this, especially in this area.”

That's not entirely true, but a recent Metropoll found 23.8 percent of respondents in Turkey held these undefined ‘foreign powers’ responsible for the economic problems, while a majority (62.5 percent) blamed the government.

Throughout our conversation, Akkalp remained wary of discussing such theories along with his political stances.

"I see it this way, there are global impacts from global events: the pandemic, the war in Ukraine, the shrinking economy around the world," he said, adding that if Turkey had pursued the right fiscal and monetary policies, the current situation could have been blamed on international developments.

“But now, if a European country is feeling the impacts of global events, Turkey is feeling it double,” Akkalp told Turkey recap. “There are different issues coming together and they’re drowning the Turkish people.”