Turkish officials have been hailing a notable rise in the country’s exports, but the increase has been marked by price cutting while the country’s imports have grown more expensive, official data show.
In the first nine months of the year, Turkey’s exports were worth some $188 billion, a 17% increase from the same period in 2021, while the bill of its imports topped $271 billion, increasing more than 40% from the same period last year.
Trade Minister Mehmet Mus praised the rise in exports as “a strong performance,” but said nothing about how the quantity of exports has changed.
The increase in export revenues was achieved by selling larger quantities of products and thus with lower export unit prices, foreign trade indices released by the Turkish Statistical Institute (TUIK) this week show. The export unit value dropped to 71% of the import unit value in September, according to the data. The export and import unit values were at par in August 2020. In other words, while Turkish exporters sold goods at lower prices, the country’s imports, chief among them energy, grew more expensive, resulting in a significant shift of resources overseas or a “capital hemorrhage” via foreign trade.
The change in the purchasing power of exports relative to imports is measured by the terms of trade (TOT) indicator. The TOT index is the ratio of the export unit value index to the import unit value index. A TOT index above 100 denotes a favorable outlook for the exporting country, with goods sold at higher prices and bought at lower prices compared to the base period, and vice versa, the TUIK says.
Turkey’s TOT index has seen significant declines in recent months, dropping to 71 in September. It had stood at 99.5 in early 2021. Simply put, the worsening index means the country exports a greater number of units to buy the same number of imports. The ultimate impact of such deterioration is loss of welfare for the country.
Exporters have been motivated by the depreciating Turkish lira, which has lost more than 50% of its value against the dollar since September 2021. Eager to make the best of higher exchange rates, they have been willing to cut prices to boost sales. Nevertheless, the bill of energy and other indispensable imports has grown at a higher rate.
The lira’s nosedive was stoked by the central bank’s unorthodox rate cuts, which began in September 2021, when the bank’s benchmark rate stood at 19% and inflation hovered at about 20%. Heeding pressure from President Recep Tayyip Erdogan, who holds the unconventional view that high interest rates cause high inflation, the bank delivered four cuts in as many months, totaling 500 basis points. The controversial policy fueled a flight from the lira. Having traded in the region of eight the dollar in early September 2021, the lira tumbled past 18 in December. Thus, the price of the greenback shot up 125% in just four months.
For Turkey’s import-reliant economy, this has meant surging costs, aggravated further by the spike in global energy prices. As a result, annual producer inflation topped 157% in October and consumer inflation hit 85.5%.
A similar trend is observed in Turkey’s tourism revenues, another major source of hard currency for the country. While both the number of foreign visitors and tourism revenues increased notably this year, the figures show that revenue per visitor has dropped 13.5% over a year.
According to TUIK data, Turkey’s tourism revenues totaled some $35 billion in the first nine months of the year — a nearly 69% increase from the same period in 2021. The number of foreign visitors, meanwhile, topped 39 million — a 94% increase from the first nine months of last year. Thus, the hard-currency inflow per visitor dropped to $809 from $1,028, which is seen as an indication that Turkish tourism packages have cheapened.
While the lira’s depreciation versus the dollar and the euro has motivated exporters and hard-currency-earning sectors such as tourism, it is also a known fact that they have sought to cut costs, including by lowering employee salaries.