The export data for the third quarter of 2020 has revealed that Turkey’s export success continues despite the shrinkage in global demand. Turkey is among the four countries whose exports continued their upward trend and surpassed $16 billion (TL 124 billion) in November, despite the lockdown imposed in the second wave of the COVID-19 outbreak.

According to Turkish Exporters’ Assembly’s (TIM) provisional foreign trade data for November, exports fell by 1% year-on-year, reaching $16.8 billion, due to the restrictions in the second wave of the pandemic.

In November, a total of 1,726 firms carried out their first export operations, reaching an export volume of $83.3 million. A total of 42,187 firms exported goods in the same period. Meanwhile, the export-import coverage ratio, with the exception of gold, stood at 86.3%.

In November, Turkey exported goods to 206 countries. During this period, the share of the top 10 importers of Turkish goods was 50.1%, and in the top 20 at 67.2%. The automotive industry carried out exports worth $2.6 billion, becoming the export champion once again.

Also, the export of medical equipment surged by 212% to $87 million due to the pandemic. In November, the export of respiratory equipment soared by 420% year-on-year, surgical masks and aprons by 575%, diagnostic kits by 319% and disinfectants by 20%.

Road map for exporters

Obviously, Turkey needs to improve value-added production to reach its goal of running a foreign trade surplus. For this, it is important to support brands that produce innovative products. Turkey needs to build its future with companies that look to the future, care about customer satisfaction, their employees and design, highlight technology and digitalization, and focus on branding.

Here, innovation needs to be well-understood. Innovation means to develop a product or a service that is unique, makes a difference and uses new methods. It calls for efficiency and effectiveness while providing a competitive edge to the firm and the country.

Countries that produce innovation also have the opportunity to export their own products for higher prices by adding high-technology and added-value to them.

Turkey can achieve its goal of achieving a foreign trade surplus by making its export records permanent and integrating innovation and technological transformation into its production and exports.

Microeconomic impacts

The proceedings of the Central Bank of the Republic of Turkey’s (CRBT) Monetary Policy Board meeting held on Nov. 19 say that reserves will be increased. Currently, the exchange rate of the U.S. dollar hovers around TL 7.83.

Although Turkey’s economic policy has changed, by and large, President Recep Tayyip Erdoğan’s remark, "We will not allow the real economy to get crushed under high-interest rates," means: If there is a dramatic decline in exchange rates, this will heavily harm exporters as well as domestic producers since they will fail to compete with imports.

So, I think the CRBT might stop interest rate hikes for a while or prevent the exchange rates from going down somewhat through foreign exchange purchases.

As Turkey has an export-based growth model, it does not want exporters to suffer serious losses due to the exchange rates. The country has more than 50% in foreign currency accounts, so the CBRT has a way to increase reserves.

The data regarding industrial production, capacity utilization rates, turnover indices, the Baltic dry index and other parameters point to a rapid recovery since May.

The real effective exchange rate (REER) is an indicator that shows the inflation-adjusted value of the Turkish lira compared to the currencies of our trade partners.

By definition, a decrease in this index means that the lira depreciates in real terms. Whether the exchange rate is competitive or not is usually determined by the real exchange rate.

So, by looking at the level of the real exchange rate alone, it is impossible to say anything about the competitiveness of firms. This is because competition in a broader sense is a much deeper concept than price advantage.

For this reason, Turkey strives to reduce imports so that exporters could be more competitive in international markets and domestic consumers could be protected.

Erdoğan also spoke of the "bitter recipe." This is the reality of the situation Turkey is in, and the fact that it has been acknowledged is an important step.

This means tightening policy and monetary tightening is not always contractionary. During periods of increased inflation and exchange rate risk, interest rate hikes reduce uncertainty and limit the risk of contraction in the economy.

The period of September 2018, when the commercial loan-deposit interest rate difference was significantly reduced following the drastic interest rate hike, is just a case in point.

A coordinated progression of monetary and fiscal policies is crucial so that the economic slowdown that comes with interest rate hikes does not have a disruptive effect on financial stability in the real economy.

At this point, the combination of tight monetary policy and supportive fiscal policy seems the best option. The country should be able to use the existing financial space wisely and efficiently toward its targets. It needs models that support household income and strengthen companies’ balance sheets.

*Economist, lecturer at Istanbul University Cerrahpaşa