Turkish SMEs lament low profits amid wage debate

“Here is my recommendation for businessmen. Earn a little less than you do now and share your earnings with the low-income group,” said Erdogan at the sidelines of the G-20 summit in Antalya on Sunday. Yet his remarks were contradicted by the Young Businessmen Association of Turkey’s (TUGİAD) high consultation board.

In a press release on Tuesday, president of TUGİAD, Ali Yucelen, said the private sector, especially small and medium-sized enterprises (SMEs), have long suffered from declining profitability and added that Erdogan’s remarks might have been aimed at large conglomerates in the real estate and financial sectors rather than SMEs.

According to the Turkish Statistics Institute (TurkStat), SMEs were responsible for 75.8 percent of total employment in Turkey in 2014.

Underlining that the return on assets ratio in the Turkish private sector has dropped from 4.2 percent on average to 3.8 percent since the global financial crisis in 2008, Yucelen lamented that there is no profit to share in current conditions except for that of large companies in certain sectors.

The Justice and Development Party’s (AK Party) election promise to increase minimum wage by 30 percent drew rebuke from employer unions after the AK Party said the burden of the salary hike will be on businessmen rather than the government.

“Exporter SMEs operating especially in labor-intense sectors have been having difficulties in collecting their outstanding receivables due to low cash stocks and fluctuations in the foreign exchange market,” Yucelen said and maintained that companies in real estate and financial sectors are, instead, unfairly promoted by the government.

Yucelen pointed out that many SMEs have been operating at a loss hoping that the economy will recover soon and added that the status quo is not sustainable.

The AK Party government has long been at the center of criticism from market analysts for pursuing a domestic demand or construction sector-focused growth strategy. Critics argue that production in the construction sector makes little contribution to the country’s exports. Among the other widespread comments on this strategy is that companies in other sectors such as agriculture and industry lack the financial resources to bankroll their investments and boost their businesses.

Some SMEs in the manufacturing industry have even shifted to the real estate sector in a bid to make a profit, Yucelen concluded.