Recent turmoil in the financial
markets led to many ‘firsts’
in the last two months, the effects
of which are already being
felt in the real economy at least
on two accounts :
1) As the investors sentiment
continue to remain weak, the
flow of money slowed to concerning
levels, whereby the real
economy is feeling the ‘liquidity
crunch’ ; and
2) With the rising unemployment in most countries, consumer
confidence sank to historical lows, causing significant
drop in demand.
With respect to the latter, some industries will hurt more than
the others, such as construction, automotive, retail, etc.
However, the liquidity problem is a challenge faced by all
companies, irrespective of industry or country.
Despite the painful correction experienced during 2000-
2001 banking crisis, Turkish real economy remains particularly
vulnerable to liquidity problem, due to the working
capital management practiced by our firms, and the inadequate
legal control.
Companies in Turkey have much greater reliance on unguaranteed
deferred payment arrangements (mostly via
dated checks) than their international peers, to fund their
ongoing operations. It is not uncommon to commit to deliveries
on the basis of such arrangements backed by multiple
dated checks that can have terms up to 8-9 months.
This practice clearly adds to the risk and the vulnerability of
the companies, as increasing number of players is unable
to access capital and find reasonable financing. Furthermore,
Turkey does not have efficient legal mechanism to
rectify the creditors’ losses in a default situation, putting the
industry at a higher risk against unwarranted default situations.
Anticipating a tighter liquidity environment and higher default
rates in the next two years, having a low cost-base,
strong market presence and an un-levered balance sheet
will be the key to survive in these current markets.
Needless to say, Turkish Paper & Board companies are no
exception to the abovementioned vulnerability. However,
given about 10% annual growth achieved the last 10 years,
I believe that our industry will continue its positive growth –
albeit at lower single digits- driven by exports and domestic
demand in packaging.
Presentation, in terms of numbers of the Turkish Pulp and
Paper industry can be seeing in the statistics section of this
magazine.