COVID-19 not only health but also poverty outbreak

In Turkey, the severest quarantine rules against the COVID-19 pandemic were applied in May. While a travel ban between cities was in place, the longest and most frequent curfews were imposed during this month. The total days of curfew in big cities were 13 in this month when several national and religious holidays plus weekends were spent indoors. As of June 1, these bans were lifted. Those companies which were working online also started opening their offices gradually.   

Initial data from the beginning of June gives us the figures on how economic activities are “returning.”

A good sign of economic activity is electricity consumption. In April, it declined at a rate of 18 percent compared to the same month in previous years. In May, the decline was between 10 percent and 18 percent. In the first week of June, electricity consumption was 16.5 percent below the same period last year. In the second week though, this figure was 11 percent below.  

With the start of the pandemic, we saw that the tendency to keep cash was rapidly climbing, it even reached record levels. The amount of emission which shows the Turkish Lira banknotes in circulation reached its record level on May 22 at 231 billion, with an increase of 71 billion liras from its end of February level of 160 billion liras. 

The demand for cash was never seen to have increased this way before. The fact that the trend to hold Turkish lira banknotes of households and companies has “boosted” does not mean this has been directed to shopping. Obviously, the lira banknotes that have been drawn from banks with a precautionary demand for money are not spent and returned commercially, and from there to the banking system. They are kept at homes. As of June 10, the amount of money in circulation which is 221 billion is a proof of that. 

In fact, expenditures from credit cards were 18 percent lower in April compared to the same month last year. This amount was 8.9 percent lower in May. In the first week of June, though, there was an increase of 40 percent. We don’t know whether this is a quick recovery or the return to the market of delayed demands.  

Macro estimates 

In the baseline scenario of the IMF which issued the first estimates on the global economy, Turkey is expected to shrink 5 percent in 2020 followed by a 5 percent growth in 2021. The baseline scenario assumes that the pandemic would be under control as of the end of June. If the pandemic lasts longer, then there will be an additional 3 percent shrinkage for Turkey, which makes a total of 8 percent shrinkage. 

The World Bank in its Global Outlook report issued this week said Turkey’s economy was expected to shrink by 3.8 percent in 2020. It is expected to return to growth in 2021 and grow by 5 percent. 

In OECD’s economic Outlook Report, Turkey is expected to shrink 4.8 percent in 2020. It is expected to grow by 4.3 percent in 2021. In the case of a second hit by the epidemic, the expectation is an 8.1 percent contraction followed by a 2 percent growth. According to these projections, Turkey will not be able to reach its national income figures of 2019, even at the end of 2021. 

There is only one meaning to this: While unemployment is avalanching, poverty will spread to a wider segment.

The other day, Turkish Statistical Institute (TÜİK) issued workforce statistics for March, indicating an interesting picture. While employment figures, which is the number of people working, were decreasing, participation into the workforce was also decreasing. This situation, naturally, pulled down the unemployment rate. Even though this has initiated certain debates, in this extraordinary period figures should be reviewed outside their classical definitions. 

According to March data (February-March-April), in the past year, 1,662,000 people have lost their jobs. Those who have lost their jobs only in the month of March are 1,003,000. 

The decline in the workforce in the past year is 2,235,000 people while only in the past month the number of people leaving the workforce is 1,035,000. It is obvious that this is due to curfews and the closure of workplaces. 

Two segments among those who cannot join the workforce are rapidly rising: Those who have lost their hope of finding a job and those who are not looking for a job but who are ready to work any time. The increase in the number of people in these two groups is 1.4 million people in one year. Indeed, only in March, this increase is 521,000 people.

Another factor that needs to be taken into consideration is those who are seen under the category of employed but who are receiving short time working pay because they are not at their workplaces or are receiving unemployment allowance because they had to take unpaid leave. These people are defined as “underemployed” and the portion that is reflected on March statistics looks as 1,057,000 people. With the addition of short-term allowances in May, this figure is thought to have reached 4.5 million people. 

DİSK (Confederation of Progressive Trade Unions of Turkey) Research Center has calculated that according to the ILO broad unemployment definition, the number of unemployed people in Turkey is 8.9 million. When 6 million people are added to this figure with the COVID-19 outbreak, the total figure becomes 13.3 million. 

In the past year, according to the sector, in agriculture 538,000 people have lost their jobs, in construction, 248,000; in the services sector some 903,000 people. When April and May workforce data arrives, we will see that this trend continues. It is apparent that the segment of the workforce most affected by the pandemic is the unqualified and the unprofessional. This brings us somewhere else. 

No matter how long or short the COVID-19 crisis lasts, a broad range of working masses, but especially the unskilled labor force will be the ones exceedingly affected. They will lose income and their jobs. As a result, inequality will spread on a mass scale and poverty will soar.  

The World Bank suggests that the number of extremely poor people – those who live on 1.90 dollars a day or less – are 595 million before the pandemic. After the crisis, the April estimate is 665 million people; now, it is 684 million people. In a worst-case scenario, this figure may reach 712 million people. In short, while the health crisis has massively destroyed public health and economies, on the extreme end, it will leave an additional 100 million extremely poor. The calculations of how many from the middle income group will become poor have not been able to be made yet.

The effect of COVID-19 on businesses 

Amid the rising concerns about post-corona, a field study was done by Business for Goals Platform (B4G). Founder Ümit Boyner issued the report named, “Survey on Impact of COVID-19 on Enterprises in Turkey. This is a report on results of the second survey carried out between May 11 and May 22, 2020.  

The survey was administered online over the nationwide network of TURKONFED (Turkish Enterprise and Business Confederation) and TÜSİAD (Turkish Industry and Business Association), founders of Business for Goals Platform, and UNDP. 

A total of 619 enterprises that participated in the survey responded to 26 questions about the impact of Covid-19 Crisis on enterprises, their prediction about evolution of the crisis and the kind of measures they need. An analysis of the survey was done by executive partner of Policy Analytics Lab., Esen Çağlar. Some of the results of the survey are these: 

1. The rate of enterprises which fully stopped operations dropped from March to May. Some 39 percent of enterprises have downsized their operations.

2. In March, 31 percent of enterprises reported full-stop against 22 percent in May survey. 

3. The impact of the crisis on enterprises went down, though only slightly, from March to May. Some 85 percent of enterprises reported adverse impact in March; however, in May this figure went down to 78 percent. The hardest hit were micro enterprises at 69 percent whereas the rate was 31 percent for large ones.

4.  While enterprises in general experienced loss in business volume, 53 percent lost business volume by more than half. Regionally, top losses in sales were 90 percent in East Anatolia, Southeast Anatolia and Black Sea, followed by 86 percent in Istanbul.

5. Half of the enterprises have difficulty in payments, with 17 percent in serious difficulty. Some 48 percent of those in the accommodation and food service sector reported serious difficulty, whereas only 7 percent in manufacturing did so. Some 33 percent of micro enterprises reported serious difficulty in payments whereas only 2 percent of large enterprises did so.

6. Out of all respondents, 76 percent reported no change in workforce. A large majority of enterprises which reported more than 50 percent reduction in workforce were micro-and small-scale enterprises.

7. If COVID-19 crisis continued, 48 percent of enterprises reported that their working capital could carry them forward at most three months while 22 percent reported that they have insufficient working capital or would be able to carry on for one month at most.

8. Syrian-owned enterprises were hit harder by the crisis. Some 38 percent of Syrian-owned enterprises reported full-stop of operations in May. The rate is 30 percent for micro- and small-scale enterprises and 22 percent for all scales across Turkey. 

9. Out of all the respondents, 64 percent of enterprises delayed new investments and growth plans. About half received government support, and 47 percent obtained new loans or restructured existing ones.  

10. Some 44 percent of respondents received support in the form of short-time working allowance. This support was able to reach even micro enterprises in a short while. Accordingly, 51 percent of small- and medium-scale enterprises and 56 percent of large enterprises benefited from this support. 

11. The rate of enterprises which had more than half of their staff able to work from home is 41 percent. 

12. COVID-19 crisis was reported to have a higher impact particularly on women workers due to increased domestic responsibilities such as child care, care of ailing family members, hygiene and food safety. Out of the total, 34 percent of enterprises reported that circumstances brought on by Covid-19 crisis affected women more adversely than it did men. This perception was more apparent and noticed in those companies which had women executives. 

13. Recovery projections of enterprises have changed significantly since March. Those which thought the crisis would impact 2021 and beyond increased from 11 percent in March to 48 percent. 

14. Enterprises, by their current risk perception, view this crisis as a crisis of domestic and foreign demand, rather than a financial one. Low domestic and foreign demand (contraction in export markets) stood out as areas of highest risk.

15. Out of the micro- and small-scale enterprises, 51 percent are not prepared against a second wave. For Syrian-owned enterprises, this rate is 78 percent. 

16. The rate of those enterprises that need postponement of mandatory payments is 62 percent while 38 percent of enterprises need additional short-term working capital. 

17. Some 68 percent of enterprises think their sectors will significantly change after the pandemic. Especially small-scale enterprises have a higher expectancy of radical change. 

Together with Esen Çağlar, also the UNDP Turkey representative Claudio Tomasi drew attention to the fact that inequalities will increase. They also noted that those companies that are suffering from loss of business volume are grouped in East Anatolia, Southeast Anatolia and Black Sea regions.

'Broadly defined unemployment in Turkey at 39 percent'