COVID-19 and the
effects on Turkey
Point of view
April 2020
Executive
summary
COVID-19 facts and
the global economic
impact
The COVID-19 pandemic has hundreds of thousands of confirmed cases, and it is
spreading rapidly around the world.
The outbreak has impacted the global economy, and GDP growth is projected to
plummet.
High-risk industries such as manufacturing; tourism, travel, and transportation; and
retail have been struggling the most.
COVID-19 has already had a negative impact on key industries in Turkey, including
automotive, retail, and transportation.
Going forward, we foresee three scenarios of the coronavirus impact on Turkey:
The impact on
Turkey’s economy
– V-shape. Quick recovery (two to three months): 3–5% negative impact on GDP
– U-shape. Recession (four to five months): 6–8% negative impact on GDP
– L-shape. Downturn (more than nine months): 14–16% negative impact on GDP
Most of Turkey’s trade partners are being impacted by the coronavirus, and supply
chains will be drastically disrupted.
A focus on five areas can minimize the impact of the global pandemic on your
business:
Building resilient
businesses
2
– Employee management
– Supply chain and planning
– Cash, liquidity, and external
management
– Operations
– Customer engagement
Developing a customized survival plan can lessen the impact of the global pandemic
on your business.
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1. COVID-19 facts and the global economic impact
2. The impact on Turkey’s economy
3.
Building resilient businesses
3
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1. COVID-19 facts and
the global economic
impact
4
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The COVID-19
pandemic has
hundreds of
thousands of
confirmed cases,
and it is spreading
rapidly around the
world.
Comparison of COVID-19 to other diseases
Key remarks
Total number of countries the disease spread to
Because of the reproduction
rate of the virus and
globalization, COVID-19
spread around the world,
unlike many other diseases in
the past.
Scientists are unable to
predict the end date of the
pandemic, raising serious
concerns in terms of health
and the economy.
150+
30
COVID-19
5
SARS
27
MERS
18
Influenza
H1N11
10
Ebola
2x average
4%
reproduction
rate compared
with the flu
fatality rate
10x increase in
2
Notes: 1. Influenza H1N1 in 2009. 2. Number of deaths/number of confirmed cases as of March 20, 2020
Sources: World Health Organization, Johns Hopkins Medicine; Kearney analysis
new cases
outside of China
over the past
two weeks
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Most countries
have been affected
by the pandemic,
but some have
taken a harder hit.
COVID-19 geographic impact1
Italy, Spain, France, and
Germany are among the
countries experiencing the
highest growth of new cases.
China
Cases are declining in China
as a result of strict
quarantines and hospital
construction.
United States
Iran
The United States has been
struggling to test for the
virus, which has delayed
diagnosis.
Iran is struggling to contain
its outbreak, and the number
of cases are rising rapidly.
Outbreak
6
Europe
Notes:1 As of March 20, 2020
Sources: International SOS; Kearney analysis
Local transmission
Imported cases only
N/A
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Global GDP growth
is projected to drop
significantly.
Global economic growth
slowdown
GDP growth projections have been
downgraded for almost every
country, and more downgrades are
expected.
-20%
6.1
5.6
4.9
Manufacturing activity
slowdown
China’s PMI dropped to 40 points,
and other economies are likely to
follow a similar decline.
51.5
40.3
2.9 3.0
2.4
2.3
3.2
2.0
1.9
2019
Manufacturing and services
are slowing down, and as a
result, stock markets around
the world are declining.
China
7
Effects will be more visible outside
of China in the upcoming months
as the virus spread accelerated in
March.
53.4
51.8 51.3 52.5 52.6
49.4
?
?
?
51.8
26.5
United
States
Turkey Eurozone
2020 (old forecast)
2020 (new forecast)
Stock market rout
Major stock indices show a
decline in the year-to-date
view.1
-25.99%
-29.28%
BIST 100
S&P 500
-28.67%
-29.53%
Nikkei 225
Index
STOXX
Europe 600
1Note:
China’s services PMI dropped to 26
points. Other economies are likely to
follow a similar decline.
1.2 1.3
0.8
China
United
States
Turkey Eurozone
Jan
Feb
Mar
China
United
States
Turkey Eurozone
Jan
Feb
Mar
Lowering government
bond yields
The 10-year government bond
yields of major economies have
declined.
(%)
Major drop in China’s projected GDP,
manufacturing, and services PMI
Effects will be more visible outside
of China in the upcoming months
as the virus spread accelerated in
March.
51.9 50.7 51.3 52.4
49.2
? 47.9
?
?
2.7
0.9
World
Services activity slowdown
12.0
13.0
3.2 2.7
Turkey
1. As of March 20, 2020
Note: PMI is Purchasing Managers Index.
Sources: OECD, Moody’s, Istanbul Chamber of Industry, Kearney analysis
China
1.9
1.0
0.8 0.5
United
States
1-Jan-20
United
Kingdom
20-Mar-20
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Automotive
A variety of highrisk industries
have been
struggling the
most.
Even though China is slowly
getting back to work, the
automotive industry is still at less
than 50 percent of its pre-virus
production rates.
China, one of the largest
automotive markets, saw an 80%
sales drop in February.
Many original equipment
manufacturers, including Fiat
Chrysler Automobiles, PSA
Group, Renault Group, and
Volkswagen, have temporarily
shut down their factories in
Europe.
Retail
Heading
Sub-heading
Text level
– First bullet level
– Second bullet level
Foot traffic to US retail stores
decreased 31% in mid-March
compared with last year.
Industry experts are expecting
15,000 US stores to go out of
business this year.
In China, retail has been one of
the hardest hit sectors as stores
of all sizes have been empty or
closed.
Kearney estimates indicate that
retailers in China will lose $213
billion to $426 billion in the first
quarter of 2020 alone.
Tourism, travel, and
transportation
8
Source: Desktop search, Kearney analysis
Tourism and travel is one of the
world’s most severely hit
industries:
– The global hotel chain Marriott
has said it has seen a 75%
drop in revenue in most
locations around the world.
The world’s biggest airlines are all
facing huge drops in revenue as
a result of international travel
bans:
– Europe’s biggest low-cost
carrier, Ryanair, announced it
will reduce seat capacity by
80% for April and May.
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The impact on
Turkey’s economy
9
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As cases of
COVID-19 have
started to increase
in Turkey,
precautions and
safety measures
have been
strengthened.
Turkey has imposed travel bans on 68
countries, including China, South Korea, Iran, Iraq,
All schools in Turkey have been
suspended, and distance education has started via
Italy, Germany, France, Spain, Norway, Denmark,
Belgium, Austria, Sweden, Netherlands, the United
Kingdom, Switzerland, Saudi Arabia, Egypt, Ireland, and
the United Arab Emirates.
online channels and TV. Additionally, all gathering places
such as cafes, cinemas, theaters, and gyms
Turkey decided to quarantine all
passengers returning from the
countries with the travel ban for 14
days and have already quarantined 10,330 people
COVID-19 test labs have increased
from 4 to 16 for fast diagnosis of potential cases.
have stopped their business activities.
that returned from Umrah.
Citizens who are older than 65 and
suffer from a chronic illnesses have
been restricted from leaving home.
Restrictions also include walking in open areas such as
parks and gardens.
10
“Pandemic hospitals” are extended to
private hospitals and are required to dedicate
several wards and ICUs for patients who have COVID19.
Note: As of March 22, 2020
Source: Kearney analysis
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COVID-19 has
already had a
negative impact
on key industries
in Turkey.
Ford Otosan announced it will suspend
production in its Kocaeli Gölcük factory.
Toyota announced it will suspend production
After Turkey imposed travel bans on 68
countries, including some of its most important
markets, the country’s aviation sector is
expected to experience a $5 billion drop
in its Sakarya factory for two weeks.
in revenue in 2020.
Hyundai announced it was unable to start
Many tourism reservations have been
cancelled, and hotel occupancy rates
have dropped below 30% in some
areas.
producing i20s because the expert technicians
from South Korea were unable to come to
Turkey.
With consumers avoiding leaving home, visits to
shopping malls have decreased more than 50%,
and many malls have been forced
to shut down.
Leading Turkish and international brands have
stopped their brick-and-mortar
operations across the country.
11
Sources:
TÖSHİD;
Kearney
Source: Desktop
search,
Kearneyanalysis
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To minimize the
impact of the
virus, Turkey is
launching fiscal
and monetary
stimulus
packages.
Turkey has announced a 100 billion TL
stimulus package with 19 action items
Turkey’s central bank has decreased
reference interest rate by 100 bps
Major action items include the following:
The one-week repo rate has been discounted
from 10.75% to 9.75%.
– The Credit Guarantee Fund (KGF) loan limit
has been increased from 25 billion TL to 50
billion TL.
– Principal and interest rate payments of bank
loans for impacted firms have been delayed
for three months.
– Exporter companies can get inventory
financing support to tackle slowing exports.
The central bank is ensuring it will meet all
liquidity requirements for banks.
The central bank will begin additional threemonth maturity repo tenders.
Required reserve ratios have been decreased
by 5% for foreign-denominated reserves.
– The minimum pension level was increased to
1500 TL.
– Financing support is available for households
in need.
12
Source: Kearney analysis
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Looking ahead, we
see three possible
scenarios for the
coronavirus
impact on Turkey.
V-shape: quick
recovery
V
The virus is contained
across Turkey’s major
economies and trade
partners within the next few
months.
A negative impact of the
virus lasts from mid-March
until the end of May.
Disturbance to business is
mild.
2–3
months
U-shape: recession
U
Containment of the virus is
largely unsynchronized
initially, with strict
cooperation among
countries from the middle
of the second quarter of
2020.
The negative impact of the
virus lasts from mid-March
until mid-July. The
disturbance to business is
real but manageable.
L-shape: downturn
L
Containment of the virus is
largely unsynchronized.
The negative impact of the
virus lasts from mid-March at
least until the end of 2020.
Disturbance to business is
real, and economic
prospects remain
pessimistic.
4–5
months
More than
9 months
13
Source: Kearney analysis
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In our baseline
scenario of a
moderate
recession, we
predict a 6 to 8%
negative effect on
Turkey’s GDP.
14
V
U
L
Quick recovery
Annual GDP converges to last year’s performance. Most
industries rebound starting in June.
Travel and tourism industries are severely hit but rebound
during the second half of the year for a mild recovery.
There is a lagged consumption boom in the second half of
2020.
3–5%
negative
impact on GDP
Recession
Annual GDP is moderately below 2019. Some industries
struggle to recover in the second half of 2020.
Travel and tourism industries slowly recover in the fourth
quarter, but a strong stimulus is required.
Small industrial players are severely hit. Cash-flow
management in all players is a hot topic.
Consumption is weak across durable and semi-durable
goods.
6–8%
negative
impact on GDP
Downturn
Annual GDP is significantly below 2019. Most industries
struggle to recover in the second half of 2020.
Travel and tourism industries are on the brink of collapse.
All industrial players are severely hit. Bankruptcies roll out.
Consumption is concentrated on basic goods.
14–16%
negative impact
on GDP
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Critical industries
are expected to be
severely impacted
by the COVID-19
outbreak.
Automotive
Tourism,
travel, and
transportation
Construction
Retail
Textiles and
garments
manufacturing
Domestic car sales
plummeted last year
and were expected to
rebound in 2020.
However, with the
expected shift in
consumption to nondurable goods, the
chance of growth is
low.
With significant
restrictions for nonessential travel
globally, the halt of
flights to more than 68
countries, and
reservation
cancellations, the
tourism industry is
being severely hit with
a low chance of a
rebound, at least until
the middle of the third
quarter of 2020.
Private projects are
expected to slow down,
which will create
significant cash-flow
bottlenecks to the
construction industry
as most work is done
through progress
billings.
Durable and semidurable goods are
expected to be more
severely hit than nondurable goods.
Domestic garment
sales will be severely
hit as a result of the
halt in brick-and-mortar
sales.
Major retail players in
apparel have already
halted their brick-andmortar channels, which
will severely impact
shopping malls.
International sales will
be severely hit with
order cancellations that
already started in midFebruary.
Automotive and original
equipment
manufacturer sales
have a large
concentration to
exports, where the
European Union has a
70% share. With an
outbreak in major EU
economies, automotive
exports are expected to
plummet.
15
Passenger travel will
be severely affected
both domestically and
internationally.
Public projects are
expected to see a
milder impact.
However, because of
the potential redirection
of public institutions’
budgets, a slow-down
is inevitable.
The shift to online sales
will accelerate with most
players increasing their
capabilities and online
infrastructure.
More than 70% of
garment production
and more than 50% of
textile production are
targeted to export
markets, where Europe
is the largest buyer.
The effect on cargo is
expected to be milder
since there have been
no restrictions to cargo
movements.
Source: Kearney analysis
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Outbreak. There are more than
1,000 cases, locally acquired
cases in many areas, and many
exported cases.
Local transmission. Cases have
been acquired in the country, and
some may have no known links to
confirmed cases.
52.8%
of total
exports
7%
United Arab Emirates $4.3 bn
United Kingdom $5.4 bn
South Korea $5.6 bn
France $6.4 bn
India $6.6 bn
$8.6 bn
Italy
$11.2 bn
United States
$18.0 bn
Germany
Local transmission
Europe
(excluding EU-27 and the United Kingdom)
Europe
(excluding
EU-27
and
the
United
Kingdom)
North
Africa
7%
6%
Middle East and
Caucasus
Outbreak
19%
Imported only
Turkey’s import composition
(2019, $ billion)
Turkey’s export composition
(2019, $ billion)
Remaining Asia
$18.5 bn
$7.6 bn
France
Imported only
Russian
Federation
$7.7 bn
Spain
Romania $3.9 bn
$8.1 bn
United States
Israel $4.4 bn
$9.0 bn
Iraq
Netherlands $5.4 bn
$9.3 bn
Local transmission
China
Outbreak
Italy
$10.9 bn
United Kingdom
$15.4 bn
of total
exports
$22.5 bn
47.5%
Germany
Most of Turkey’s
trade partners are
impacted by the
coronavirus, and
supply chains will
be highly
disrupted.
Turkey’s top 10 export partners are affected by
the outbreak in varying degrees
15%
North America
5%
Middle East
and Caucasus
8%
North America
6%
7% Others
23%
171.5
202.7
14% Others
Remaining Asia
16
49%
EU-27 and the United Kingdom
Sources: International SOS, TÜİK; Kearney analysis
34%
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EU-27 and the United Kingdom
Consumption will
be hit by a
massive blow to
tourism and
restrictive
domestic activity.
At least 60% of household consumption
segments are under significant pressure
Housing, rent
Leisure and shopping make up the majority of
inbound tourists, which is non-essential travel
24%
Food, non-alcoholic
beverages
Transportation
Restaurant,
hotels
Furniture,
house appliances
Clothing,
footwear
Other
Downside pressure
20%
10%
18%
Family visit
7%
19%
6%
5%
Alcoholic beverages,
tobacco
44
million
inbound tourists1
71%
4%
Leisure and
shopping
16%
Others
Total household
consumptıon
100%
Consumer confidence has not been severely hit
but is weak
The tourism industry makes up a significant
portion of the economy, and any disruption will
hurt growth
Consumer confidence index (January 2018 = 100)
Ratio of tourism
income to exports (%)
Ratio of tourism
income to GDP (%)
105
1Note:
1.Excluding accompanying persons
Sources: TÜİK,TÜRSAB; Kearney analysis
20.1%
1%
0%
2019
17.5%
2018
2017 16.7%
2015
2014
12%
2016 15.5%
21.9%
21.8%
16%
21.3%
2%
19.2%
20%
2013
17
3%
2012
70
Jan-18
Feb-18
Mar-18
Apr-18
May-18
Jun-18
Jul-18
Aug-18
Sep-18
Oct-18
Nov-18
Dec-18
Jan-19
Feb-19
Mar-19
Apr-19
May-19
Jun-19
Jul-19
Aug-19
Sep-19
Oct-19
Nov-19
Dec-19
Jan-20
Feb-20
75
24%
20.8%
80
4%
2011
85
28%
21.9%
90
5%
2010
95
32%
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Ratio of tourism
income to GDP (%)
Ratio of tourism
income to exports (%)
100
The share of investment in GDP was 25% in 2019
Total investment (% of GDP)
Foreign direct investment, net inflows (% of GDP)
Foreign direct investment, net inflows (current $)
$40bn
32%
2.5%
$35bn
30%
2.0%
$30bn
28%
$25bn
1.5%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
$8.4bn
$13.1bn
$19.3bn
$11.5bn
$0bn
1.0%
$14.0bn
20%
$13.3bn
$5bn
$13.6bn
$10bn
22%
$13.7bn
$15bn
24%
$16.2bn
$20bn
26%
$9.1bn
Investment is a
crucial part of
GDP, and FDI in
2020 will be
severely affected
as international
investments are
expected to slow
down globally.
Foreign direct investments are poised to drop
below 2019 levels
0.5%
0.0%
2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
18
Note: FDI is foreign direct investment.
Sources: TÜİK, TCMB; Kearney analysis
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Building resilient
businesses
19
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Focusing on five
areas can
minimize the
impact of the
global pandemic
on your business.
Employee
management
1
Build a dedicated
committee, and give
employees clear direction and
reliable information to alleviate
pandemic-related stress.
Review the organization’s
policies, and involve
relevant partners to ensure
appropriate, applicable, and
flexible plans.
Cash, liquidity, and
external management
4
Stabilize cash flows to ensure
enough liquidity.
Ensure continuous and
transparent communication
to all external stakeholders.
Supply chain
and planning
2
Diversify the supply chain to
reduce the risk of a supply
shortage.
Re-evaluate inventory and
safety stock levels to
increase buffers and maintain
service levels.
Customer
engagement
Operations
3
Identify points of lower
utilization, and prioritize
supporting activities, such as
educational activities and
annual or regular
maintenance.
Keep operations at a
minimum while retaining the
agility to ramp up quickly.
5
Establish a transparent
communication line for
B2B and B2C customers.
Reconsider marketing and
sales channels with a
potential shift to online.
20
Note: B2B is business to business; B2C is business to consumer.
Source: Kearney analysis
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We have identified
key actions in
each focus area
(1/3).
1
2
Employee
management
Supply chain
and planning
1. Employee management
Create a committee, a single point of coordination between HR, C-level
executives, senior leaders, and representatives to formulate a centralized
response, ensure consistent messaging, and quickly develop a solid plan
Assign HR as the organizational source of truth to headquarter
communications in one trusted place and provide consistent messaging for e.g.
changes in working hours, communication of work-from-home policy
Review your organization’s policies (sick leave, vacation, customer visits,
meetings, travel), and consider allowing negative sick leave balance, not counting
sick days used during the crisis, allowing employees to take care of dependents
Provide support in setting up the infrastructure to work from home
3
Companies have already
started establishing a
dedicated committee,
providing clear direction,
reliable information, and a
transparent response to
alleviate pandemic-related
stress
4
Provide educational content for prevention, e.g. informing employees on simple
tips, important global news
Follow guidelines from global authorities (e.g. WHO)
Cash, liquidity,
and external
management
Involve partners (health and life insurance, international SOS, emergency
evacuation partners) to ensure appropriate, applicable, and flexible plans for
emergency situations
Boost morale of employees with ongoing communication and virtual video
check-in calls
Real-life examples
– About half of companies in the US have taken measures to handle the crisis:
5
21
Operations
– Temporary remote working (46%)
Customer
engagement
– Travel restrictions and mandatory virtual meetings (55%)
– Postponed international conferences (47%)
Sources: Dun & Bradstreet, Willis Watson; Kearney
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We have identified
key actions in
each focus area
(2/3).
1
Employee
management
2. Supply chain and planning
Develop models to test scenarios on what will happen on the ground and
identify areas of shortage, and develop “sense and pivot” capability accordingly
Identify the effects on transportation networks and pre-book logistics capacity
Build a network of alternative suppliers, prioritizing potential areas of shortage
2
Supply chain
and planning
Diversify the supply chain, identify points of single sourcing in the supply chain
and evaluate multiple sourcing to reduce the risk of supply shortage
Incur necessary expenditures to secure alternative sources and expedited
shipping
Consider nearshoring, focusing primarily on shorter supply chains
938 of the Fortune 1000
companies have a tier 1 or 2
supplier already affected
by the virus
3
Operations
4
Cash, liquidity,
and external
management
Maintain a real-time full view of product inventory across delivery channels
Continuously review demand forecasts, identifying challenges and addressing
corresponding news updates
2. Supply Chain & Planning
Reallocate inventory across sales channels to address fluctuating demand, and
‒…
consider radical shifts toward e-commerce and home delivery
Re-evaluate inventory and safety stock levels to increase buffers and maintain
service levels in the crisis period for customer satisfaction and competitive
differentiation
Identify business-critical suppliers and extend financial support if possible
Real-life examples
5
22
Customer
engagement
– Food Retailer Association (GPD) in Turkey increased the inventory levels
especially for hygiene and personal care to prevent stock outs
Source: Kearney
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We have identified
key actions in
each focus area
(3/3).
Global companies started
keeping operations at
minimum while retaining the
capacity to ramp up.
Turkish retail companies
started providing updates
regarding their sales
channels
1
Employee
management
2
Supply chain
and planning
3
Operations
4
Cash, liquidity,
and external
management
5
Customer
engagement
23
Source: Kearney
3. Operations
Keep operations at a minimum, while
retaining the capacity and agility to ramp up
quickly once the situation begins to resolve
Identify points of lower utilization, prioritize
supporting activities (e.g. educational activities,
maintenance)
Shift capacity/resource allocations to
emerging product lines or services
Real-life examples
4. Cash, liquidity, and external management
Assess risk exposure regarding financial
implications and additional financing need
Stabilize cash flows to ensure enough
liquidity, e.g. hiring freeze, opex, capex,
working capital
Ensure continuous and transparent
communication to external stakeholders
Real-life examples
5. Customer engagement
Establish transparent communication line
for B2B and B2C customers
Provide fact-based reports to communicate
the situation and set proper expectations for
customers
Reconsider marketing channels, and avoid
freezing all marketing activities; lean in to
online
Conduct investigation on core customer
segments to anticipate customer behavior
Real-life examples
Major automotive
manufacturers in Turkey
partially shut down
operations (e.g. Ford,
Toyota, Honda, Temsa)
Although all major
companies are focused on
increasing liquid assets
during the crisis period, a
potential gap exists for
many companies including
Ak Enerji, Carrefoursa with
cash debt ratio <20%
Major airlines including
Turkish Airlines and
Pegasus established
communication line to
provide regular
announcements to
update customers
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Four steps can
help you develop a
customized
survival plan to
lessen the impact
of the global
pandemic on your
business.
Assess industry
strength
The impact significantly
differs depending on the
industry:
– Assess the impact on
the company’s industry
to take appropriate
measures.
– Conduct competitive
analysis with a focus
on operations.
– Leverage automation
features to minimize
personal contact.
– Identify labor-intensive
operations, and
develop alternative
scenarios.
Evaluate supply
chains
The transportation and
logistics industry is
feeling the epidemic on a
massive scale:
– Maintain full visibility in
the entire supply chain.
– Evaluate suppliers,
and identify potential
points for shortages.
– Identify diversification
and nearshoring
opportunities.
– Re-evaluate inventory
and allocation across
channels.
Review business
forecasts
Revising business plans
and strategy is
mandatory. Existing
plans are now
inapplicable:
– Anticipate changes in
demand for different
segments.
Develop a survival
plan
The repercussions are
expected to be felt for
more than a year:
– Establish a detailed
and flexible survival
plan focusing on
required investments
and personnel.
– Identify emerging
segments.
– Develop a scenariobased business
forecast for the next
three to 12 months.
24
Source: Kearney analysis
Kearney XX/ID
Thank you
Sean Wheeler
Partner
sean.wheeler@kearney.com
+90 530 234 1051
Istanbul, Turkey
Onur Okutur
Principal
onur.okutur@kearney.com
+90 530 234 1060
Istanbul, Turkey
Coşay Kaçar
Associate
cosay.kacar@kearney.com
+90 530 688 9128
Istanbul, Turkey
With the contribution of:
Ulvi Abdullazada
Idil Sezal
Can Yücel
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