Terrible education, suppressed foreign exchange, and exports

Exporters frequently state that the exchange rate is being suppressed, remaining far below inflation, and that as a result, they are losing money at current price levels in the face of rising costs and are unable to export. Indeed, especially over the last two years, the exchange rate has remained below not only the real ENAG inflation but even the "made-up" TUIK inflation. 

In 2022, the dollar rose by 38 percent, TUIK inflation by 64.3 percent, and ENAG inflation by 137.5 percent.

In 2023, the dollar rose by 56 percent, TUIK inflation by 64.8 percent, and ENAG inflation by 127.2 percent.

Under these circumstances, the real effective exchange rate indicator calculated by the Central Bank loses its meaning. By a rough calculation, when we exclude US inflation, the exchange rate level expected by exporters compared to the last two years is 35 TL according to TUIK, and 69 TL according to real inflation... If we take only the last year, according to ENAG inflation, the dollar should be around 42 TL. Exporters frequently voice these concerns. Mehmet Şimşek gave a rather peculiar response to these complaints from exporters on his X account.

“The main determinant of exports is foreign demand, and the exchange rate does not have a significant effect. Gaining a share of world trade is only possible through productivity growth, innovation, high value-added, and branding.” 

The minister is apparently unaware of the price elasticity of demand for goods. There are certain goods. Regardless of the price, the consumer is dependent on that good. They may reduce consumption slightly, but they still buy it. For example, gasoline, diesel... There is no such thing for the goods Turkey exports. There is ruthless competition. Nearly 70 percent of the goods we export are low and medium-low technology goods. Especially in ready-to-wear clothing, the biggest advantage has remained proximity to Europe. Egypt is threatening this advantage. Cambodia, Pakistan, and India have become the biggest competitors in textiles. In the textile sector, 100 people were laid off in the last year alone. Especially in the last two years, the exchange rate has not been correct, so our foreign trade balance has also been thrown off. Our foreign trade deficit, which was at the 48 billion dollar level in 2021, became 109 billion dollars in 2022 and 106 billion dollars in 2023. This data alone shows how incorrect the exchange rate level is.

Did the minister perhaps send this message to exporters and business people? “Yes, the exchange rate level remained low, but we also lowered wages by taking TUIK inflation as a basis. At the beginning of 2022, the cost of the 4,250 lira minimum wage to the employer was 5,879 lira. At the end of 2023, the cost of the 11,400 lira minimum wage to the employer became 15,762 lira. If the minimum wage had also increased by the rate of ENAG inflation, its cost to the employer would not be 15,762, but 31,600 TL. Furthermore, while inflation was at the 130 percent level, the cost of loans used by exporters for the last two years was 15-20 percent. Sit where you are.” 

Why do I say this? It is impossible for someone who has received so much economics education and is within the business world to be unaware of demand elasticity. It is clear that he is brandishing a stick under the guise of a threat. 

While on the subject, Turkey has two products that do not have much price elasticity and should determine the market in the world. One of them is hazelnuts... There are different statistics. But we predominantly produce 75 percent of the world's hazelnut production. However, Turkey does not determine hazelnut prices. Swiss traders at the Frankfurt Stock Exchange determine them. Their representatives in Turkey also collect goods from hazelnut producers at cheap prices. We will understand how much the hazelnut producer's back has been broken or not from the local election results in Ordu and Giresun. 

The other product for which Turkey could determine prices in world markets is boron ore. 83 percent of the world's boron ore reserves are in Turkey. However, instead of processing and selling its valuable minerals, Turkey exports them as raw materials like the colonial countries of Africa. If we invested in people, science, and technology and sold boron as a processed product rather than as a raw material, Turkey would be among the developed countries of the world. Turkey sells 1 ton of boron ore raw material for 384 dollars. In exchange for one ton of raw material, it can import an average of only 150 grams of processed boron output. The difference is 1 to 7,000. Depending on the different boron outputs, this difference goes up to 1 to 5 million. We can buy back what we sell for 1 dollar for an average of 7,000 dollars, or even 5 million dollars. 

Under these circumstances, the second sentence in Mehmet Şimşek's X post also remains meaningless. “Gaining a share of world trade is only possible through productivity growth, innovation, high value-added, and branding.”  

The share of our high value-added exports within manufacturing industry exports is only at the 3 percent level. This share needs to reach 20 percent. There is a comparison with 20 years ago. Prof. Dr. Ercan Uygur wrote it. While Turkey exported 1.6 billion dollars worth of high-tech products in 2002, it increased this to 2 billion dollars in 2022. Vietnam, which exported 500 million dollars worth of high value-added products—a little less than a third of Turkey's—in 2002, saw its exports in this field increase by exactly 274 times in 2022, reaching 137 billion dollars annually. How did Vietnam do this? Through education... It prioritized science, mathematics, computer usage, and analytical thinking in the education of children and young people. Labor productivity and technology development capability increased. As these increased, more foreign direct investment came into the country, and investments turned toward exports. 

During the AKP era, in the early periods when it drew closer to the EU, over 90 billion dollars of foreign direct investment came to Turkey. But none of it turned toward exports. They bought ready-made firms doing business for the domestic market. Those who sold their factories to foreigners turned to construction and imports. Because the monetary, exchange rate, and interest rate policies implemented by the AKP were policies that discouraged Turkey from producing and made it dependent on imports. 

When the topic turns to technology, everyone from business people to politicians makes fancy statements like “Turkey must transition to high value-added production.” In the early years of the AKP era, taking out loans in foreign currency was attractive. The business world increased its foreign currency loans, but did not invest in high value-added areas. Especially in the last two years, while inflation in Turkey was 130 percent, investment loan interest rates were 15-20 percent. With such a high rate of negative interest, why didn't the business world invest in high value-added production? Who held your hand? Is there any investment environment left in the AKP's lawless one-man regime? Many investors, local and foreign alike, are looking for opportunities to move their facilities abroad. 

And of course, most importantly... High value-added production requires a well-trained workforce. Countries that started industrialization late, such as Germany and Japan, and countries that made moves in the second phase of industrialization, such as South Korea, Singapore, and Vietnam, achieved these things both with planning and, more importantly, with education. The AKP, on the other hand, removed science from the education system, and a system based on superstitions became dominant. Let alone expanding vocational high schools, regular high schools were distanced from basic sciences, and weight was given to Imam Hatip schools. That was not enough; imams under the control of religious sects began to enter classrooms from kindergarten to the final year of high school. With this education system, which high-tech production is Minister Mehmet Şimşek talking about, and what productivity increase is he expecting? 

The education system before the AKP was not perfect, but it was not in as terrible a state as it is today. It deteriorated step by step after 1980, and with the AKP government, it ceased to be education with each passing year. The education system of the old Turkey that they dislike gave a child from a poor family in a remote corner of Southeastern Anatolia, like Mehmet Şimşek, the opportunity for education and enabled him to become a globally recognized financial executive. Does Finance Minister Şimşek think about how a poor child in the same conditions can be raised in state schools in today's education system? Please do not give me one-in-a-million success stories.

JANUARY INFLATION

I have been measuring inflation with the inflation basket I have prepared since January 2022. Since the exchange rate is suppressed, I measure the inflation basket both in Turkish Lira and in dollars. Those who earn in dollars in Turkey are also victims of inflation. As stated in the article above, exporters are not complaining in vain. My calculation for January inflation this month is as follows:

For those earning in TL

Monthly 7.41%

Annual 136.57%

For those earning in $

Monthly 4.3%

Annual 46.3%

Annual inflation was 129.92% last month (for 2023). The monthly rates that TUIK and ENAG will announce on the 5th may be higher than mine. It was like that last year too; the difference closed in February and March.