Sole proprietorships hit hardest
Whether you name it a crisis or employ euphemisms to avoid demoralizing people, the Turkish economy is being dragged into one of its worst periods ever, and this one will be far different than previous crises. Former crises erupted due to public deficit-debt and deficiencies in the banking system. But today we have this private debt problem. Poor policies have poisoned the corporate world with excessive borrowing.
It will be much harder to solve the current crisis as we face a much broader, more complex and interwoven set of problems. Therefore, the crisis may last longer than before, the destruction it causes may be broader and more sustained. Such characteristics of the crisis make improvements in the corporate world the key to the future.
Credit volumes, non-performing loan rates and relevant data will be closely monitored on the banking side. Data on newly-established and dissolved companies released by the Turkish Union of Chambers and Commodity Exchanges (TOBB) will attract attention more than ever.
As we analyze the latest TOBB data in this regard, we see that the earthquake has started to affect established and dissolved companies. The figures indicate that sole proprietorships have started to feel the earthquake sharply in the third quarter.
As short term data is much more relevant during this economic conjuncture, it is more appropriate to compare quarterly data. The level of buoyancy is best seen with the rate of established and dissolved companies.
In total, 9 companies were dissolved for every 100 newly-established companies during the second quarter. This rate rose to 17 in the third quarter. Despite the fast rise, this rate is still close to previous terms. The highest dissolution rate is in the energy and agriculture sectors. But more importantly, this rate soared to 84 in the third quarter for sole proprietorships, reflecting the extreme stress on craftsmen, compared to 35 out of 100 in the second quarter. The rate, which averaged between 4050 in the past, soared to a much higher level. Mining, trade, transportation, health and social services dissolved more companies than they established in the third quarter. It is not good news for the future that the vitality of small companies has been shaken so badly, even in the past.