Lira Losses

German companies uneasy with Turkey’s seesawing lira

Berat
The problems are even making Erdogan's son-in-law, Berat Albayrak, sweat. Mr. Albayrak also happens to be the country's finance minister. Source: AFP

Last year German companies exported €21 billion worth of goods to Turkey. The chances they’ll see similar results this year are growing slimmer by the day after the country’s currency, the Turkish lira, took a fresh plunge Monday, falling 8 percent against the dollar, only to rebound 6 percent today.

The fluctuating currency and worries that the Turkish government is unable to stabilize what could become a financial crisis are of huge concern for some 6,500 German companies with operations in the country.

“Many companies are reconsidering their engagement,” Holger Bingmann, president of the Foreign Trade Association, said. But few companies are talking about it openly.

The German energy giant E.ON entered the Turkish market in 2012, lured in by above-average energy use growth rates. The company invested in a big way — €1.5 billion to build its operations.

“We’re watching the currency turbulence with great concern,” E.ON CFO Marc Spieker said.

Market conditions aren’t as rosy as they were back then, but Mr. Spieker sees no reason to withdraw. So far, operational development has not been impaired by the currency fluctuations. “In view of the operating performance, we’ll be holding on tight to the Turkish market,” Mr. Spieker said.

The firm, together with its Turkish partner Sabanci, manages the joint venture Enerjia Enerji, which supplies about 9 million Turks with electricity. E.ON holds 40 percent after the partners listed the company in February.

Harder for Germany’s Mittelstand

German utility EWE has been active in the once-promising Turkish market longer than E.ON — since 2007. The company supplies around 920,000 Turkish citizens with gas, mainly in the cities Bursa and Kayseri.

Unlike E.ON, EWE would like to scale back from Turkey. “If we find someone who can give us a fair deal, we will sell the business,” CEO Stefan Dohler told the Neuen Osnabrücker Zeitung.

German Mittelstand companies, like outdoor clothing supplier Schöffel, are most impacted by the tumbling lira. As it falls, suppliers must calculate the cost of their operations from scratch, Georg Kaiser, head of purchasing in Turkey for Schöffel, said.

Given that Schöffel’s transactions are in euros, the weak currency means local manufacturers receive more lira when they swap in their euros. On the plus side, it helps them better pay the employees; on the downside, fabric and machines are becoming more expensive.

As a result, Turkey is falling behind other common supplier countries, like Vietnam, China and Indonesia. Even despite Turkey’s ideal location, which allows goods made in the country to be put up for sale in London or Rome within a few days. Products from Asia take weeks.

A tradition of Turkish operations

Many companies operations in Turkey go way back. Chemical company BASF, for example. It has been active there since 1880. Currently, Europe’s largest chemical company runs six production sites where just under 800 employees generated around €850 million in 2017. The products range from synthetic fabrics to textile and leather chemicals, and the base substances for care and cleaning supplies.

“We are closely monitoring the situation and expect measures from the Turkish government to counteract the current currency decline and the resulting decline in the competitiveness of foreign companies,” it said in a statement.

Comparatively, Björn Gulden, CEO of sportswear company Puma, said Turkey is “currently the most difficult country” from which to import and export goods. Unrelated to the country’s worsening economic and financial situation, the Turkish government’s plans to restrict imports from China are cause for worry. Sporting good suppliers in Turkey need fabrics and yarns imported from China to produce textiles. Plus, higher import tariffs on shoes also make it more difficult to sell sneakers in Turkey.

Companies’ balance sheets are already reflecting the crisis. In the first half of the year, Volkswagen sales dropped 19.5 percent to 54,280 vehicles. And exports from Germany’s engineering companies shrank by 4.7 percent between January and May compared with the same period in 2017.

Fulya Çayir is a Handelsblatt intern. Ulf Sommer covers finance and business news for Handelsblatt. To contact the author: sommer@handelsblatt.com

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