Hit by rising costs, Turkey’s textile producers move overseas

Alamy via Reuters

• PMI sentiment in sector at 41.1
• Companies moving operations to Egypt
• New export orders plunge

Textile manufacturers in Turkey, struggling with pricing pressures and labour costs, are moving their operations overseas, although at least some in the sector see a turnaround by the year’s end.

The Istanbul Chamber of Industry sectoral purchasing managers’ index for March showed sentiment among textile manufacturers was the lowest among the 10 sectors covered by the monthly survey.

It came in at 41.1 points, well below the 50 points indicating a positive outlook. The downward move in output for the sector continued a nine-month trend, and there was a steep drop in new orders as well as a fall in hirings and purchasing activity. 

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One of the sharpest falls was in the sub-index of new export orders, down from a near-neutral 48 points in February to 39 points in March. The only positive drawn by the study was that, while input and output costs remained high, there was some easing in materials inflation for the month. 

Rising costs, an overvalued lira and weaker demand in some important overseas markets meant Turkey’s textile exports fell last year. Shipments of finished and raw materials, at $12.6 billion, were down two percent from 2022’s total of $12.9 billion, the Istanbul Textile and Raw Materials Exporters’ Association said.

One step being taken by Turkey’s textile companies to reduce their exposure to rising costs and broaden export opportunities is to move some or all of their operations offshore. One favoured destination is Egypt. 

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The latest company to invest in production capacity in Egypt was DNM Denim, an arm of the Turkish clothing producer Eroğlu Holding. In early April it announced plans for a $40 million plant in Egypt’s Qantara Industrial free trade zone. 

Although there has been some criticism of the shift offshore, Ahmet Öksüz, chairman of the textile exporters’ association, said Egypt was just being integrated into Turkey’s textile manufacturing chain. 

“Egypt and Turkey complete each other, the fabric is produced in Turkey and then shipped to Egypt,” he told AGBI. 

“Egypt was already an investment destination. The main issue is that labour costs are cheap and it is easy to export from there due to free trade deals with the EU and the USA.”

While there are problems in the sector, Öksüz said high productivity and an end-to-end capacity will help to bring a rebound, once cost pressures ease.

“Turkey is one of the rare countries that can produce from raw material to the final product, ready-wear,” he said. “In our region there is no other country that can do that.”

With inflation forecast to peak in the second quartter and then begin easing from its March high of 68.5 percent, Turkey’s textile sector could undergo a recovery late this year, Öksüz forecast.