Lira Woes Impact Business: Turkish businesses suffer from tumbling lira

World
Europe

02:35

The tumbling Turkish lira is causing major headaches for the country's small businesses. Many operate with costs denominated in US dollars. We head to the Grand Bazaar in Istanbul to take a look at how business owners there are coping.

In Istanbul's 15th-century Grand Bazaar, shopkeepers say they suffer from soaring rents. Most of their overhead costs are denominated in U.S. dollars, NOT the Turkish lira.

CUNEYT SIPAHI, SHOPKEEPER GRAND BAZAAR, ISTANBUL "Of course we lose money. We pay rent in U.S. dollars and are also gold dealers. Our rent is calculated based on USD and gold prices. Our rent currently stands at 5,000 dollars a month. But just last year, we paid only 3,500 dollars. Soon, our rent will increase by another one-hundred dollars to 5,100. We have lost a lot of money from this."

Hefty import prices mean even heavier pressure for shopkeepers.

YAKUP TEKINOGLU, SHOPKEEPER GRAND BAZAAR, ISTANBUL "There are businesses that import raw materials. For example, I import perfume from France in euros. I used to buy goods worth 40,000 Turkish liras or about 7,300 euros. For the same amount of goods, I now pay double the price."

The Turkish lira has been battered since the beginning of the year. The currency has lost nearly 20-percent of its value against the U.S. dollar year-to-date. Many are turning to safer currencies as a better store of value.

YUNUS SHOPKEEPER "I exchanged for more euros, U.S. dollars and British pounds. Rates have gone up. This was profit-oriented. I am a shopkeeper. Sometimes I sell goods in euros and dollars. It was in my best interest to conduct more foreign exchange transactions and make a profit."

Even with currency hedges, it's still difficult to shield businesses from the weak buying power of the Turkish lira. Turkey's consumers have reined in spending, hoping their currency will rebound. The Turkish Statistical Institute said on Wednesday that consumer confidence fell to its lowest level this year in May.

YAKUP TEKINOGLU, SHOPKEEPER GRAND BAZAAR, ISTANBUL "When I raise the price of my goods, demand falls and I lose money."

However, President Erdogan insists the lira's turbulence does NOT reflect the country's true economic state, adding that he will take new measures to maintain financial stability and tackle high inflation.

RECEP TAYYIP ERDOGAN TURKISH PRESIDENT "I say this once again, developments in the financial markets have nothing to do with Turkey's economic realities. There are no challenges we cannot cope with. We will take measures to lower inflation and decrease the current deficit through various means after the election."