Record number of small businesses went bankrupt in Türkiye in 2022

A tailor's shop in Bahçelievler, İstanbul. (Photos: Wouter Massink)

A distinctive characteristic of Türkiye's streets is the sheer amount of shoemakers, tailors, independent grocery stores, and other small businesses taking up most of the ground floor of the country's low-rise urban areas.

These esnaf, roughly translated as small businesses, artisans, or tradespeople, are still one of Türkiye's largest employers, with approximately 2.5 million small businesses directly responsible for employing around 7.5 million people. A significant share of the country's labor force of 32.5 million people, according to numbers from the World Bank.

"Our tradesmen and artisans, with their thousands-of-years-old knowledge and experience, continue to be the cement that holds together these lands," President Recep Tayyip Erdoğan remarked in April 2022 while sharing an iftar with a group of business owners.

While small businesses have long been considered the backbone of Türkiye's economy with their traditions rooted in the Ottoman past, the days of these independent shopkeepers' eyes looking at the country's vibrant streets seem numbered. Changing markets, surging inflation, rent increases, and declining profit margins resulted in record numbers of small businesses forced to close.

"This year is unprecedentedly bad"

In the first 11 months of 2022, nearly 86,000 small businesses took down their shutters for good, according to statistics from the Confederation of Tradespeople and Craftspeople (TESK). In November alone, 8,951 small businesses went bankrupt, and in the last 17,5 years, over 2,1 million were closed down.

Those still in business have accumulated large quantities of debt, with small business owners' debt reaching 62.4 billion lira (3.33 billion US dollars) in April 2022. The situation seems so dire that an organization aiding small businesses that went bankrupt went bankrupt itself in 2022 due to a lack of "financial and moral strength" to deal with the number of people going out of business.

"The last five years were not good, but this year is unprecedentedly bad." Nazım Usta utters while smoking a cigarette outside his small tailor's shop in İstanbul's Fatih District.

Nazım Usta has been a tailor for 63 years. He learned his profession from the deceased Haydar Usta in the eastern city of Elazığ, where he worked for around 20 years before moving to İstanbul. The name usta refers to becoming a "master," and dates back to the 13th-century Ahi vocational training system, whereby people work their way up from a çırak (apprentice) to an usta (master).

The mastery of Nazım Usta is seemingly known in the area as a neighbor picks up his newly sewn suit, reiterating that Nazım is a real usta. However, regardless of his mastery and being open 12 hours per day, seven days a week, Nazım sees his current condition as grim. "Women come in the shop with coins, what am I supposed to do with that?"

Rent hikes

One of the factors crushing small business owners is rent. Türkiye's inflation numbers have hit a 24- year high, ranging from 84.39 percent officially to 170,70 percent unofficially.

Where residential housing is protected with legislation limiting yearly rent raises to 25 percent, this is not the case for small business owners, who will likely see a 70 percent hike based on TURKSTAT's inflation numbers for November.

"Since December, the shopkeepers have been exposed to a rent increase of 70 percent, as a rent increase limit has not been imposed on workplaces like in residential housing." CHP Manisa Deputy Bekir Başevirgen reacted to TESK's bankruptcy statistics.

"In other words, tradespeople whose current rental price is 5 thousand liras, will pay 8 thousand 518 liras, an 70.36 percent increase. The annual rent paid will exceed 100 thousand liras. Small business owners cannot earn such amounts in a year. They can only give this to their rents."

Inaccessible loans

The government has not turned a blind eye to the increasing pressure on small businesses. Last year, small enterprises with an annual turnover of less than 240,000 lira (12,800 US dollars) would be income tax exempt.

And in October this year, President Erdoğan came with "good news," announcing that a new credit support package for small businesses was passed.

Halkbank, founded in 1933 to finance Esnafs, was granted to provide a 100 billion lira (5 billion euro) loan support package to small businesses with a relatively low-interest rate of 7,5 percent, with each small business able to obtain a loan of up to 1.5 million lira (80,000 dollars).

Nevertheless, the "good news" was not everywhere received with applause. In the daily Cumhuriyet, the President of TESK, Bendevi Palandöken, remarks that small business owners have difficulties meeting the conditions. For example, the annual turnover must be sufficient to qualify for a loan. "Actually, 100 billion liras is a big package. Everyone could benefit, but our friends cannot meet the requirements," Palandöken says.

"...considering that there are over 2 million tradesmen, the number of tradesmen currently receiving loans is 2.25 percent of the total number of tradesmen. In other words, only 2 out of every 100 tradesmen have been able to get a loan," CHP Muğla Deputy and Parliamentary Plan and Budget Commissioner Süleyman Girgin reacts.

"Buy dried fruits"

Others express concerns over chain markets and shopping malls destroying small businesses and artisans, rapidly changing the outlook of its urban centers.

In 2005, when Türkiye saw İstanbul's Cevahir Shopping Mall, one of the largest in the world, being opened, the country counted 106 shopping malls. By 2021 this expanded to 436 shopping malls.

Similarly, chain markets are mushrooming throughout the country, with three of Türkiye's leading discount supermarkets, A101, BİM, and Şok, opening up over 3 thousand stores in 2021, reaching a total number of 31 thousand stores in the country.

"Buy dried fruits from your small business" is, therefore, the New Year's message of Latif Altın, President of Yozgat's Chamber of Tradesmen and Craftsmen.

"The chain markets open branches in almost every district and street, and shopping malls are opening in metropolitan cities all over Türkiye. This not only hurts our tradesmen in all sectors but also negatively affects our dried fruit shop shopkeepers," Altın writes in Yozgat's local newspaper İleri.

"The trick is to adapt"

Back in İstanbul's Fatih district, glass decorators Mustafa and Ahmed are helping two clients with buying glass frames. They seem less concerned with the current situation.

"The markets always go up and down," Mustafa explains, who learned the trade from his father, Ahmed. Their family business is already a couple of generations old and known in the neighborhood attracting clients from other areas.

"The trick is to adapt according to the market," Ahmed adds, who only finished primary school and learned the trade from his father.

"We used to do more glass and window, but as mass production took over this sector, our work focuses now more on frames."

Mustafa shows the corner of a plastic frame. "The plastic is from Türkiye, but the coating is from Italy, which is imported and becomes more expensive with the inflation." Adding that Türkiye should have more local industry. Ahmed describes the margins were much higher when he started working in his father's shop. Yet, he shrugs and refers to the present situation as just being today's market. (WM/VK)