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Rising Energy Costs Rattle Manufacturers in Turkey, Pakistan

Factories around the Turkish production hubs of Istanbul, Denizli, Izmir and Bursa are reeling after the nation’s Energy Market Regulatory Authority hiked electricity prices by 50 percent for households and 125 percent for business. On top of that, state-owned Petroleum Pipeline Corporation (BOTAS) said natural gas prices would jump 25 percent for homes and 50 percent for industrial use.

“We are making every kind of sacrifice to protect our own citizens at a time when energy prices have increased between two and fivefold all over the world, especially in Europe,” said Fatih Dönmez, the country’s minister for Energy and Natural Resources.

Energy costs are escalating worldwide. Natural gas prices have climbed in the U.S. as well as Europe and Asia, the result of low supply and higher demand in the past year. The focus on renewable energy has shifted some of the burden in the garment sector, but the slow process is especially onerous for Turkey’s numerous smaller enterprises, analysts noted.

The energy crisis comes amid a depreciating lira, and inflation that jumped more than 35 percent in December in Turkey.

This onslaught of challenges has put the industry’s survival in jeopardy. Analysts believe that while there is a greater need to step up renewable energy sources, the industry has shown an ability to stay buoyant despite the turmoil. Turkey’s apparel exports were up in 2021, at $15.11 billion from January to October, ahead 23 percent from the $12.25 billion for the same period in 2020. Knits and crochets in particular have gained ground, up 31.2 percent to $8.85 billion.

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Turkey has benefited from sourcing shifts over the past year, driven in part by Covid-19 hitting Asia badly, including Bangladesh, Vietnam and India, with lockdowns as well as persisent delays in container shipments. Despite its troubles, many manufacturers in Turkey report full production schedules until April.

Small business are feeling the impact of the energy crisis in other parts of the world, as well.

In Pakistan, the fallout from the global energy shortage, and the shortfall of liquefied natural gas (LNG), shuttered businesses for more than two weeks in December as mills could not get enough power to continue operating, similar to the problem that roiled China’s textile supply chain late last year. “More than $250 million was lost for textile exports after mills in Punjab were forced to shut,” said Shahid Sattar, executing director of the All Pakistan Textile Mills Association.

Pubjab, where 70 percent of Pakistan’s textile industry is based, faced not only a gas price increase double that of states like Sindh, but disconnected supply lines as well, Sattar added.

Like Turkey, the country is also facing growing inflation and a weakening currency, and manufacturers believe the sector urgently needs more support on the energy front. Pakistan is targeting $20 billion in textile exports in its fiscal year 2022 ending in June, having seen an increase of 26.5 percent year-on-year in the July to October period for 2021, with $6.01 billion in revenue from textile and apparel exports, according to the Pakistan Statistical office.