Conexio consulting

War in Ukraine Hits Turkish Textile Industry

Textile and leather products manufacturers in the ready-made clothing district of Istanbul say that they deeply felt the effects of Russia’s invasion of Ukraine.

Industry officials announced that customers in Moscow and Kiev canceled orders worth $200 million last week.

Authorities estimate that more than $1 billion in revenue for the textile industry alone is directly at risk if the conflict in Ukraine continues. This potential trade loss adds to the pressure on the struggling Turkish economy.

Mustafa Şenocak, President of Istanbul Leather and Leather Products Exporters’ Association, said that hundreds of thousands of shoes and thousands of leather jacket orders were cancelled.

Şenocak said,S ome Russian customers say that they can pay with the old ruble exchange rate. Otherwise, they cannot pay, he added.

Officials say Russia and Ukraine had a share of more than $1 billion in Turkey’s exports of leather shoes, leather jackets, finished and unfinished clothing last year.

According to the authorities, the figure in the unofficial “suitcase trade” in Istanbul is about three times that.

This trade blow is putting more pressure on the Turkish economy after the currency crisis last December and the resulting inflationary spiral.

Falling export revenues are adding to Turkey’s growing current account deficit, due to rising energy prices after Russia’s invasion of Ukraine last week and the expected decline in tourism this year.

After a series of orders and contracts with Kyiv and Moscow in February, Şeref Fayat, a ready-to-wear manufacturer and Chairman of TOBB Ready-made Clothing and Apparel Industry Council, said, “We are facing about 200 million dollars worth of order cancellations in the sector so far.”

Fayat added, “If this situation continues, this figure may exceed 1 billion dollars.”

Industry officials told Reuters news agency that Turkey’s trade with Belarus, Moldova and Romania was also stalled due to uncertainty in the region.

Some Polish customers demanded the suspension of their orders, while some Russian customers asked to pay according to the exchange rates before the war and the collapse of the ruble.

According to the data, while Turkey’s revenue from exports of ready-made clothing, textiles and leather products to Russia in 2021 is 718 million dollars, its export revenues to Ukraine are 308 million dollars.

The “suitcase trade” of small-scale tradesmen from Russia, Ukraine and other post-Soviet countries has also been hit, bringing in an estimated $3 billion in revenue to Turkey. The term suitcase trade is used for tradesmen from these countries to fill empty suitcases with the goods they bought from Istanbul and sell them back in their countries.

Gıyasettin Eyyüpkoca, President of the Industrialists’ and Businessmen’s Association in the Laleli district of Istanbul, which is seen as the center of the suitcase trade, said, “We had already started production for the new season, but now we all stopped.”

President Recep Tayyip Erdogan’s unorthodox economic plan aims to stabilize the lira by balancing the current account deficit.

But given the conflict in Ukraine, Goldman Sachs revised its budget deficit forecast for Turkey this year from 1.5 percent to 2.5 percent of gross domestic product.