Is Turkey's clothing industry unravelling at the seams?

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1:38The Documentary, home of the best documentaries from the BBC World Service.

1:47Hello and welcome to The Documentary from the BBC World Service. I'm Emily Wither. Today I'm in Istanbul, finding out why the famed Turkish textile industry has been unravelling after hundreds of textile and apparel factories have gone bust. What is gone is gone. We lost$20 million, 500 ,000 jobs. One of the reasons is labour costs. Turkey is battling inflation and some workers can no longer feed their families on minimum wage. It's a big emotional struggle because it starts with limiting your social life. You know, you don't get out, you don't spend time outside with your family. And this situation also creates problems at home.

2:32And we hear how Turkey's economic policies aren't making it easier for factories to offset rising production costs. I think the central bank doesn't have a tool independence to set interest rates where it needs to be in order to offset inflationary pressures. So is the Made in Turkey label being stitched out of our wardrobes? That's coming up on Business Daily from the BBC.

3:03We have more winding machinery over here, but this side is more for needlecraft, cotton products, very traditional products. Yes, I can see someone picking up lots of different pink thread. This is for hand embroidery. I'm on the outskirts of Istanbul, being shown around the family textile business by Mustafa Denziye. He's the third generation president and CEO of Diktas Group. They've been producing sewing thread, hand knitting, needlecraft yarns and scarves since the 1940s. Their thread is used in big brands from Levi's to H &M. We hear a lot of grim numbers in Turkey these days. Hundreds of bankruptcies, hundreds of thousands of jobs gone, factories running at a fraction of capacity.

3:54the minimum wage in Turkey has also risen dramatically and the lira hasn't necessarily kept pace and interest rates have hit, what, 50 %? As a business owner, which is hurting you most? Is it these rise in wages? Is it the financing? OK, there is an inflation which is not going down. Government is really pushing it, but it's not still lower than 35-40%. Of course, the borrowing rates are much higher. When you are borrowing at 35-40%, which means 3-4 % a month cost for your borrowing, this means you cannot invest. And if you are using your capital or working capital with bank finances, then you are really in a bad position because the gross margin in garment and textile doesn't really give you that much of a margin.

4:42So new investment is not possible. And a lot of people are in a bad position because they borrowed a lot of money in the past. So bankruptcies are happening, government protections are happening, on the bankrupted companies so you cannot collect your money. So all these are really making a big chaos in the market. Mustafa says about half a million jobs were lost in the industry in the last three or four years, and industry estimates suggest over 5 ,000 businesses have closed. A combination of high rents, labour and production costs, as well as the government's prolonged suppression of the exchange rate here, are all being blamed.

5:20Turkey effectively, artificially protected the lira by doing three things. It introduced state compensation for citizens and businesses saving in lira, sold billions in foreign dollar reserves to prop up the value of the currency, and enforced strict regulations on banks and exporters to limit demand for dollars. So throw in competition from textile makers in China, Bangladesh and Egypt, and it becomes clearer why it's increasingly difficult for Turkish exporters to compete on price. It's estimated over 100 Turkish textile firms have relocated to Egypt. Mustafa was one of the first and began slowly moving his main production there 20 years ago, where compared to Turkey these days, labour is far cheaper.

6:08Minimum wage is not reality actually, it's just a benchmark now because nobody works at a minimum wage at the moment. So we are talking maybe 50, 60, 70 percent higher. Even if you pay higher than a minimum wage, it's really hard to find workers. I see on their point of view, living cost in Turkey is really, really high. But at the end of the day, the industry cannot afford this because competition pays one-fifth what you pay. You're also the chair of the Turkey-Egypt Business Council. Why has Egypt become such an attractive option? OK, the last two, three years, it's just people are criticising the government by saying, I am going to Egypt.

6:49It takes time. And when you are in crisis and then you say, OK, now I move out, it's too late. A lot of people are calling me, asking how I should act, how I should start. And I'm trying to help them. There is good financing in Egypt. If you make a nice balance sheet over the last four or five years, Egyptian banks are very positive to loan monies to the Turkish investment or any foreign investment. But it takes time. Does it make you feel sad that the textile industry in Turkey is not the mighty giant that it once was? It will be still a good player. It will be still a giant. But, I mean, you have to accept the truth and the reality.

7:31If you are a successful entrepreneur or an industrial manufacturer in Turkey, the next step is to move out. China started after us. Now Chinese are saying made by Chinese anywhere in the world. So it should be made by Turkish anywhere in the world. So this is normal. And Egypt is not the only location. I mean, I am telling everyone, look into North Africa. Wherever there is a garment textile industry which serves Europe, that's another potential. So Morocco, Tunis, Egypt is going to be new potentials for Turkey, not only for textile.

8:10I travel across Istanbul from the Asian side to the outskirts of the European side of the city to a district with smaller factories and many informal textile workshops. While some of the bigger factories may be able to survive, many smaller operations are finding it very hard to continue. Okan Kandacham is showing us around. He's the head of Dev Textile, a labour union advocating for the rights of workers in the textile, apparel and leather industries in Turkey. It doesn't take long before we pass a shuttered workshop, blinds half down with tables on their side pushed against the window. So we've just walked past one of these small workshops and it looks like it's closed.

8:54Is that quite common around here? Yes, and not only that place, there are many places, big or small, closed. 300 ,000 people end up jobless and 100 ,000 of them is in Istanbul. And these are only the formal numbers. Yeah, because there are many informal workshops and factories. Are they also closing as well?

9:21These informal smaller workshops are usually working for bigger factories. actually, informally. And when the factory is gone, they don't have anything else to do. Sometimes they fire some of the workers and continue in a very small scale. But usually when the factory goes, this informal workshop also goes because they're working for the factories, they're producing for the factories. This is Business Daily from the BBC World Service. With the new Schwab Teen Investor Account, teens can gain hands-on investing experience and build positive money habits. It's an account co-owned by you and your teen, so you can monitor and engage with the account while your teen learns how to invest and manage money.

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10:46I'm Emily Wither, and today I'm in Istanbul, where Turkey's famed textile and clothing industry has been coming apart at the seams. In Turkey's textile industry, labour groups, including Okan's, estimate there are at least as many unregistered workers as registered ones, roughly a million people off the books. And some labour groups and NGOs believe that figure is even higher. So it's hard to put a number on the true scale of job losses. Okan says all these shuttered workshops are changing the social makeup of neighborhoods.

11:23It's a big emotional struggle because it starts with limiting your social life. You don't get out, you don't spend time outside with your family. And this situation also creates problems at home. The violence, the divorces. The main reason of divorces in this area is that you don't have enough money. You can't finance yourself. People don't have money and they're having a real psychological struggle because of this. Every day a new place is closing down. We are fighting for workers' rights with them. But because they always close with bankruptcies, it's very hard for workers to get their pays as well.

12:11Workers' protests are common in Turkey these days, as textile companies stop paying or go under. At the Şükmakas denim factory in the Black Sea region, problems over pay began in January 2025, before a mass walkout nine months later over unpaid wages and laid-off workers. The company blamed a sector in crisis. It sparked a 260-day standoff, resolved only this July, when workers won their unpaid salaries. The family firm has a factory in Egypt too, and workers alleged they were told to accept lower wages in line with what is paid to Egyptian workers or leave.

12:55I asked Okan Karacham, the head of the Labour Union Dev Textile, how workers feel when bosses complain about rising labour costs making it harder to operate their factories in Turkey.

13:09So the bosses always say that wages of the workers are high and even before the economic crisis they were telling this. In Turkey 16.5 million are working and 70 % of them are earning minimum wage. It means 28 ,000 lira. With 28 ,000 lira, you need to live for one month. You need to pay rent, children's expenses. Obviously, a worker cannot do the things they want with this kind of money. So they work overtimes. Because they work overtimes, they don't rest. They always say that there is a crisis in the business and paying them minimum wages. But especially out of Istanbul or Izmir, in the smaller cities, it's way worse in cities like Antep or Batman.

14:06In these places, mostly, they don't even earn minimum wage. A worker don't work in one place for the whole month. They find extra jobs. They do extra shifts. Turkey is battling a severe cost of living crisis. The official inflation figure is over 30 percent and the country's minimum wage is about 28 ,000 lira. That's just under$600. Labour unions estimate a family of four now needs to earn more than four times that amount just to afford essentials like food, rent and bills. Selva Demiralp is a professor at Turkey's Koch University and a former US Federal Reserve economist. I asked her how increasing prices in Turkey and the government's approach to tackling inflation were affecting exporting industries like textiles.

15:01I think the central bank doesn't have a tool independence to set interest rates where it needs to be in order to offset inflationary pressures. Well, if you cannot set interest rates where it needs to be in order to offset inflationary pressures, then you need a secondary tool. And for this central bank, the secondary tool has been the appreciation of Turkish lira in real terms. So by keeping or preventing Turkish lira from depreciating, essentially you're preventing the price of imported goods from going up. However, it had a side effect. From the exporter's perspective, the prices of goods, when local inflation rate is around 30%, but your currency is not depreciating around 30%, then your costs of production are going up.

15:50But the final price in terms of dollar is not going down because the local currency is strong. When that happens, the exporters lose the competitive advantage in terms of the prices. So the Turkish lira has devalued, but it's not devalued fast enough. So each US dollar, euro, pound or yen is effectively able to buy less goods. Is that what you're saying? So exports are becoming less competitive. Yes. So if you think about the beginning of this year, Turkish lira depreciated around 8%. Meanwhile, the inflation rate was around 16%. So we see that the depreciation in the lira is not catching up with inflation.

16:34So you could say costs of production for local producers are increasing around 16%. Yet when Turkish lira depreciated only 8%, then in real terms, Turkish goods are becoming more expensive in dollar terms. Selva and her colleagues at Koç University are building an index that measures competitiveness beyond price, looking at factors such as quality. And for some sectors, they found Turkey is getting better at competing globally. But that's not the case for the textile and clothing sector. What we observe in our research is that sectors that are focusing on innovation and branding and higher value added in the production process are the ones that have improved their competitiveness, such as pharmaceuticals and defense industry in particular.

17:21However, those sectors who were weak when it came to investment and innovation and product differentiation, including the textile sector, unfortunately, do not pair well when it comes to competitiveness. So it is for this reason that in the post-2023 era, where the real appreciation of Turkish lira is one of the main policy tools, our exporters had to rely on quality and price differentiation in order to improve their competitiveness, because the current economic policy does not allow them to be competitive through the price channel. Pretty tough conditions to run a business, it sounds like. Yes, it is.

18:07But at the end of the day, investing and improving your productivity is a gain that is going to be with you forever. Back on the textile factory floor on the outskirts of Istanbul, owner Mustafa Denizhe is clear-eyed and practical that Turkey's textile industry is facing a new reality and will never recover to what it once was. Turkey maybe would have been in that position in the next 15, 10 to 15 years. But due to our high inflation and our economic policies, Turkey became very expensive compared to our competitions. So we have to make our new plans with more value-added items, different products, more fashion.

18:59We need to be more on the design side. It's not going to disappear. Turkey was still an$80 billion industry, today it's a$60 billion industry. But the reduction in the capacities, I think, is coming to an end. From now on, I think we will see more stability. But what is gone is gone. Now it's time to move. Now it's time to conquer other regions. We have to make the young generation more interested in the textile sector still, in terms of their education, in terms of the schools they choose. We have to show them textile is not dying, but we have to be more qualified, more advanced thinking to be a part of textile in coming years.

19:44That's it for this episode of the documentary from Business Daily, made by me, Emily Wither. You can find more of our global business stories and discover how they affect workers, entrepreneurs and companies around the world at bbc.com or by searching for BBC Business Daily wherever you get your podcasts. Thanks for listening.