Please fasten your seatbelts

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
01/12/2008 00:18

North braces itself for the worst 

By Simon Bahceli

AS THE global economic crisis continues to wreak havoc in money markets around the world, some are asking how deeply the already cash-starved economy of the Turkish Cypriot-run breakaway state will fare.



While some optimistic northern politicians have claimed that international isolation will buffer it from some of the worst effects of the economic downturn, others say it will bear the brunt even harder than countries which have governments with the power and resources to bail out failing financial institutions. 

“The Turkish Cypriot economy is already suffering a serious recession,” said Turkish Cypriot businessman Fikri Toros, whose Toros Group of Companies deals in motor vehicles, furniture, electronic appliances, insurance and tourism in northern Nicosia. Few know the Turkish Cypriot economy as well as Toros, and despite the straightened economic conditions of the north, this British-educated businessman has seen his family

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
01/12/2008 00:19

business grow since its establishment in 1957. Rarely, though, have things been as bad as they are now. 



“We have suspended all new investments, and are acting very conservatively and defensively in order to minimise the effects of the recession,” Toros said. He adds that he has been “contracting staff size” for almost a year and a half because he “foresaw this recession”. 



Another man who knows just about all there is to know about the Turkish Cypriot economy is Gokel Saydam, former head of the tax office and now a freelance chartered accountant who looks after the accounts of around 250 of the north’s registered companies. 



“People are spending only on what is essential, things like food, fuel and power,” Saydam said. The economic slowdown is present in every sector of the market, beginning with the importers, he said. 

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
01/12/2008 00:20

“If a businessman imported 100 fridges last month, this month he may import only 20.”



Asked how the companies on his books are dealing with the recession, Saydam said. “Some of them can’t even afford to pay my accountant’s fee. There are going to be redundancies. It’s started already, although I believe the real crisis will hit after the New Year.” 



Largely because of the north’s peculiar political status, it is no stranger to economic crises. Its dependence on Turkey’s financial aid and its use of the Turkish lira has meant that it often falls victim to economic downturns in Turkey. The banking and currency crises that rocked Turkey and north Cyprus in 2000 had a deeply felt impact on the lives of ordinary people as they saw the value of their earnings halved overnight. Hundreds of Turkish Cypriots also saw their savings disappear as numerous banks declared themselves bankrupt. 

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
01/12/2008 00:22

In fact it has only been in the past few years that the Turkish government has managed to bring the lira’s previously runaway inflation under control – and this is something which has encouraged ordinary Turkish Cypriots to borrow and spend more. 



But this relative wellbeing is under threat again as people struggle to keep up with repayments on their debts. 



The problem stems from the fact that all Turkish Cypriots working in the public sector, and most of those working in the private sectors, are paid in Turkish liras. However, the debts they have accrued for houses, cars and other consumer durables are invariably in British pounds, euros and US dollars. And, unlike in Europe, interest rates for hard currencies such as the euro are rising. The reason for the higher rates in the north, and in Turkey for that matter, is that Turkish and Turkish Cypriot banks are lent foreign currency by European banks at higher lending rates than counties within Europe.

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
01/12/2008 00:24

“. The economic recession in Western countries means that financial institutions have received immediate intervention by the governments. This reduced the rates there but here it has led to an increase, and this lowers the spending power of consumers in the streets,” Toros explained. 



“Whereas the interest rate for the euro a couple of months ago was eight or nine per cent, it is now around ten or 11 per cent,” he adds. 



As if that were not enough, problems are being further compounded by the domestically rooted problem of the public spending budget deficit. The deficit, as Toros explained, means that with all available funds being spent on public sector workers, there is nothing left over for infrastructural projects



“This has reduced the money in circulation as there are no tenders being offered, no projects, no injections of cash.” 



What may make this recession in the north bigger and longer-lasting than any in the past is Turkey’s increasing unwillingness to bail the br

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
01/12/2008 00:25

bail the breakaway state out. Earlier this month the Turkish Cypriot ‘prime minister’ Ferdi Sabit Soyer and several of his other ‘ministers’ travelled to Ankara to plead for a 400 million dollar bailout loan. Turkey refused, offering them only 100 million. 



“Turkey’s disposable resources are restricted and she is cutting down on loans to north Cyprus as well,” said Toros. 



Saydam agreed that Turkey cannot be expected to foot the bill indefinitely - and this could be why the current recession will most likely outsize any in the past. 



“The 2000 was similar in some ways, but then Turkey helped out. Therefore the crisis was limited in size. This time I don’t think Turkey will be able to give full financial support. She will be having much bigger problems than us.” 



One way in which the north used to make money independently from Turkey was through its once-thriving property industry. But that too has been all but killed off by the global crisis. With its almost exclusive relia

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
01/12/2008 00:28

reliance on British clientele, the credit crunch being experienced in the UK means that fewer than ever Brits are buying properties in a market already in depression since the boom days of 2004-5.



Ian Smith, Kyenia’s longest standing foreign estate agent, told the Sunday Mail that property prices had fallen by around 20 per cent since the start of the crisis, and that he expected little or no improvement until the end of 2009. 



“In the boom days there was plenty of spare cash and low interest rates, but now people are not willing to invest in a second home.” 



How the north fares the coming economic storm depends a great deal on Turkey. If it takes pity and hands over a large amount of cash to the north’s embattled ‘government’, things may be kept ticking over. As Toros said, “The only way for us is to get money from Turkey. Turkey can go to the IMF, but we can’t.

AlsancakJack



Joined: 14/08/2008
Posts: 5762

Message Posted:
01/12/2008 00:30

But if Turkey insists on not paying, things could get interesting politically. After all, it was the bank collapse of 2000 that led to the toppling of former hardline leader Denktash and heralded the election of an administration that espouses reunification of the island as its goal. 

Copyright © Cyprus Mail 2008

Groucho



Joined: 26/04/2008
Posts: 7993

Message Posted:
01/12/2008 07:51

At least Turkish Cypriots know how to get by on little... They've largely done this for 45 out of the last 50 years... It will be tough for people who have spent years building up a business to see it virtually disappear overnight...



Let's hope we can all do our bit to keep the TRNCs business sector going...



There is, I am minded to believe, little hope for the Building Industry at large because apart from those already locked into a purchase cycle that would be crazy to walk away from, it's difficult to see more than a handful of new buyers emerging in the foreseeable future... A few more prudent builders foresaw, like Fikri Toros, this downturn and did not fail to act accordingly they will prevail... an awful lot of others will go to the wall.... if they are not already there.



This is a fact of life all over the world... there are not many building industries that will not be affected... Small builders in the UK have historically mananged to tick-over...



Cont

Groucho



Joined: 26/04/2008
Posts: 7993

Message Posted:
01/12/2008 07:53

... on house renovations and improvements where once the owner would have moved and now they think of new ways to ride out the storm in their current homes.



'New build' businesses don't find it so easy...

fire starter


Joined: 19/06/2008
Posts: 3401

Message Posted:
01/12/2008 19:36

yes groucho,

its time to buy in the uk.

Groucho



Joined: 26/04/2008
Posts: 7993

Message Posted:
01/12/2008 19:48

Hold your horses... long way to go yet.

Groucho



Joined: 26/04/2008
Posts: 7993

Message Posted:
01/12/2008 19:55

"We simply attempt to be fearful when others are greedy and to be greedy only when others are fearful."



You can guess who this is a quote from.....