Impact of Coronavirus Pandemic on Turkish Economic Sectors

EPC | 11 Jun 2020

The coronavirus pandemic (or COVID-19) has struck the economic sectors throughout the world and caused a sudden disruption in the financial and economic activity. Yet the effects of the pandemic have not been even across the various economic sectors in the world. While some sectors were severely affected which led to their bankruptcy and collapse, others were only partially affected. In contrast, some economic sectors thrived with the increase in market demand for their services such as the health sector. The decisive factor determining the extent and depth of those effects will be the duration of the pandemic in a country and the lockdown and quarantine measures that the government has to take.

The above applies to Turkey as well, except for one important difference, namely that the coronavirus pandemic erupted at a time when Turkey had already been experiencing a significant financial crisis. That is why the consequences of the pandemic are expected to be twofold for the Turkish economy.

Determinants in Turkey

As far as Turkey is concerned, four main factors have to be taken into consideration while determining the impact of the coronavirus pandemic on the economic sectors and the particular sectors that have been affected more than others, namely:

1- Foreign trade and the associated decline in international demand and faltering production and supply chains.

2- Foreign investments that received a global shock that drove frightened investors to withdraw their investments and funds from many countries for fear of the bankruptcies that could take place. Turkey has so far lost nearly seven billion dollars of those foreign investments that were withdrawn over the last two months.

3- Domestic demand which declined due to job losses and the imposition of government lockdown and quarantine.

4- Government support and encouragement plans that were developed to rescue the economy during the pandemic, their size and the sectors that were targeted for rescue at the expense of other sectors.

All of those four factors are affected by a fifth factor that had started before the pandemic, namely the economic instability that has started to strongly affect the economic sectors due to the accumulated mistakes as a result of the policies adopted by the current government. Any economic sector that has been affected by more than one factor (two or more) of the above four factors will be facing serious economic difficulties whose impact will last for a long time. This group of sectors includes tourism, transport, airlines and airport management and operation, construction and real estate, restaurants, sports and entertainment.

The economic sectors affected by the pandemic


In 2019, the tourism sector grew significantly as nearly 51 million foreign tourists visited Turkey and the sector received nearly 34 billion dollars in external revenue. The tourism sector in Turkey had just started to recover after the shock of the 2016 coup attempt that then dealt the tourism sector a knockout blow. Great hopes were attached to 2020 with the decline in the lira value which attracts foreign tourists. However, the pandemic shock started early since February 2020 and the government ignored offering the tourism sector any financial support in its rescue projects. It simply allowed the tourism sector to resume business as of early June 2020. However, in view of the continued spread of the virus and the associated health fears, foreign tourists are not expected to arrive in Turkey in the summer or till the year end. This would cause the sector to suffer and be economically depleted.

While some tourist companies rely on local tourists and tourism, the more important problem here, in addition to the decline in income, is that most tourist companies borrow their money in hard currency from abroad because they are sure to collect foreign currency from foreign tourists. Therefore, even if local tourists replace foreign ones this season, the problem of securing hard currency to pay the debts will persist. In addition, the decline of the price of the Turkish lira against the dollar will double the volume of debt for the tourism sector.


In parallel with the tourism sector, the air transport sector was also affected. The two main airlines in Turkey, namely Turkish Airlines (THY) and Pegasus, sustained losses because of this pandemic due to the suspension of most flights. The only factor that benefited this sector and will continue to do so in the future is the decline in oil contract prices. Since this sector is of strategic importance for the Turkish State, the government is expected to support those two companies to rescue them. The two companies are expected to make up for their losses in 2021. However, plans by the Turkish Airlines to expand and buy more planes according to previously signed contracts will make the company face financing problems in 2020 and 2021.

Among the most affected companies by this pandemic as well are the airport management and operation companies (TAV, IGA, Fraport), especially that those companies rely on collecting their profits directly from passengers through the tax imposed on air tickets. However, due to the critical importance of this sector, and considering that those companies are close to the government, they are expected to receive government support in case they are exposed to a financial crisis.

In contrast to this sector, the land transport and logistical supplies sector in Turkey will suffer a severe blow this year, especially transport by bus and transport of goods by truck as those companies did not receive any government support because of the pandemic. Despite the decline in oil prices, the government has tended to significantly raise taxes on this sector this year by nearly 30 percent. This wasted the advantage of the decline in oil prices to activate this sector.

Sport and entertainment

One of the most interesting sectors that will face a serious crisis this year due to the coronavirus crisis is the sport and entertainment sector with the suspension of sport fixtures and bets thereon as well. Sporting  clubs have lost most of the commercial support and advertisement campaigns. They have also lost the proceeds from the sale of tickets. The only resource would be the remaining funds to be paid by the exclusive owner to broadcast those matches, which is Digiturk, a company that was purchased by Qatar. It has become a pure Qatari company that has the right to broadcast matches both domestically and internationally. The Qatari owner had started to search for a method to sell the company since 2019 due to its declined profits and frequent losses in Turkey.

Turkish sporting clubs suffer from the problem of having to pay salaries in foreign currency to local and foreign players alike, in addition to their high external debts. This had driven the government last year to reschedule many sporting clubs and transfer them to government banks to rescue them from bankruptcy. Therefore, the government put pressure for the resumption of matches of the football league in June 2020 despite opposition from the Health Scientists Commission that was set up by the government to follow the progress of the coronavirus pandemic.

Reconstruction and development

The construction and real estate sector remains the most affected sector in Turkey as a result of this pandemic. This sector had started to be depleted financially and economically since 2015. It managed to survive so far due to the overt and covert government support to its companies that suffer a lot because of its foreign-currency loans from abroad and the decline in local demand for real estate purchases. It is worth mentioning that the Turkish government has promised to offer Turkish citizenship to foreigners who purchase a new property worth more than 250 thousand dollars. Yet so far, this step has not brought about the required result, and the figures of property purchases by foreigners in Turkey continue to decline.

Despite the crisis of the decline in demand for property purchase in Turkey, the most important, biggest and most serious crisis will be related to repayment by real estate and construction companies of their foreign-currency debts to foreign banks at the end of this year. The government cannot offer strong assistance to rescue those companies in this respect. Therefore, many Turkish construction and real estate companies are expected to go bankrupt late this year and early 2021, and real estate prices in Turkey are expected to collapse.

Mining, energy and local manufacture

Some economic sectors are expected to experience a decline in their revenues due to the contraction of growth and demand locally and globally only to return to operate normally after a period of decline in profits and of losses. One of those sectors is the mining sector excluding gold. The mining sector (copper, silver, aluminium) has generally declined in Turkey due to the decline in global demand, although this is a temporary situation. On the other hand, demand for precious metals is expected to rise with the flight of large amounts of capital for investment or saving in precious metals, particularly gold, as a protectionist reaction in this crisis against any deterioration in any investment portfolios. The gold mining industry has been thriving in Turkey due to lack of full compliance with the standards for environmental preservation. That is why gold mining is profitable in Turkey. Consequently, an increase in demand for gold mining and a recovery of this sector in Turkey are expected.

On the other hand, the revenue of the energy and oil sector will decline due to the global decline in prices as well as the decline in demand at home. However, this sector will regain its balance in Turkey in 2021. Furthermore, the sectors of local industries and local assembly of electrical appliances and cars will sustain financial losses due to the two-month interruption of income and the decline in demand across the rest of the year. However, those sectors also are expected to recover in 2021. Naturally, this would only be possible if the government does not go too far in imposing taxes on this sector over the upcoming months. Indeed, the government has been surprising everybody by imposing more taxes on different sectors on a monthly basis. As for the chemicals sector, it is experiencing a limited recovery with the increase in local demand for detergents. The capability to manufacture locally and give up import have made this sector one of the beneficiaries the crisis.

Banking and technology

The banking and communication and technology sectors are among the sectors that have temporarily been affected by the crisis, but they will financially benefit from it. Banks have been facing many problems even before the pandemic. The government has increased its pressures on banks by imposing financial sanctions and forcing them to buy the bonds issued by the Turkish government in foreign exchange and offer low-interest loans. However, despite all those pressures and the increasing proportion of non-performing loans (NPL), high-interest lending by banks to the government’s trust funds and government bonds will bring about future financial benefits to those banks (in case of timely repayment by the government of course). The government had to set up financial support funds for some economic sectors because of the pandemic. Besides, due to the budget deficit, the government is forced to borrow from local banks, occasionally under special terms, to support those funds.

Consequently, it should be said that the banking sector will benefit ‒ theoretically ‒ from this crisis because of the government’s need for it. However, practically, it is hard to speculate about the consequences, especially that the government is facing a big crisis in providing foreign exchange, which will reflect negatively on the price of the Turkish lira as well as on inflation. According to analyst expectations, Turkey will have to raise interest rates (to the benefit of banks). However, the government of President Erdogan rejects this solution and delays it in search of another solution.

As far as the communication and technology sector is concerned, it is the luckiest sector in this pandemic because of the increased reliance on it in communication, business and education. With the initiation by many schools, universities and firms of the experience of remote work, some of those establishments may continue with this method of work and invest more money in re-arranging the method of remote work for their staff by expanding the communications and technology network. This sector is quite promising for Turkey and investors, especially that Turkey has many promising communication and technology companies and young brains working in this sector.

Agriculture and animal wealth

This is a sector that has demonstrated its importance during this pandemic and exposed the shortcomings of the government that ignored it in the past years. The agriculture and food provision sector used to be local in Turkey. However, the government turned its back on this sector, favouring instead to support the construction and development sector during the last decade. This has led to a significant decline in the size of the agriculture and local animal wealth sector and instead to reliance on importing from abroad.

The Turkish government has learned an important lesson in this pandemic, namely the strategic importance of this sector to secure food at times of crisis when import would not be possible or when protectionism increases among countries so that trade in food and agricultural products among countries would be disrupted. Over the last two months, the Turkish government has had to stop the export of many foodstuffs, vegetables and fruit to meet local demand and decrease their prices locally.

Turkey has not faced a significant crisis in securing foodstuff during this period. However, the government is expected to become aware of the importance of this sector and start to support it locally as opposed to importing from abroad. However, the problem of the agricultural sector in Turkey is its reliance on importing raw materials such as seeds, fodder and fuel for agricultural machinery from abroad, in addition to the high cost of transporting agricultural products from the field to cities which is done by trucks rather than railways. This leads to the addition of another significant financial value of transport and fuel to the cost of agricultural products (most agricultural fields are located in the south and west of Turkey, while the largest consuming cities of those agricultural products are Istanbul and Ankara).

In case the government rethinks its economic policies, the animal wealth and agriculture sector would have to be among the government priorities for development in a country that is rich in water, arable land and cheap labour force. Consequently, the agriculture and animal wealth sector has not been greatly affected by the pandemic with the continuing local demand for food without change.

Health and medical supplies

The health sector is one of the sectors that were greatly affected by the coronavirus pandemic. It should be pointed out first that the Turkish government has for years adopted the system of hiring hospitals from the private sector as an alternative to building new government hospitals. Within this framework, it has been working on the so-called “giant hospitals” that are built and run by the private sector whose expenses are paid by the Ministry of Health. Those hospitals have recently occupied an important domain in Turkey. They have come to compete with the private sector although their efficiency has yet to be proved. On the other hand, the decline in the Turkish citizen’s purchasing power has made it difficult for him to go to private-sector hospitals. In the meantime, the number of insurance companies working with the private sector has declined owing to the decline in income generally in Turkey over the last two years.

Therefore, the private sector in the health domain has not benefited financially from the coronavirus crisis as opposed to the sector of pharmaceuticals, laboratories and health supplies such as sanitizers, etc. This sector has recovered with the increase in demand, particularly by the Turkish Ministry of Health. Besides, the government has supported a number of pharmaceutical companies in order to develop a vaccine and manufacture some experimental medications used in the treatment of coronavirus locally. Consequently, the pharmaceutical and medical supplies sector in Turkey is expected to recover.


The e-commerce sector has recorded a significant growth during this crisis due to the closure of trade stores and the imposed quarantine. Many stores have shifted to sale via e-stores in various sectors. This sector has been growing steadily in Turkey and investment therein is expected to grow in the future after this experience.


Upon review of the nature of responses by the various economic sectors in Turkey to the coronavirus crisis, it should be recalled that the Turkish economy in general is facing a big problem, namely the decline in the price of the Turkish lira. Analysts expect a collapse within months in the lira price before the start of any external or internal rescue operation. Therefore, investors will tend to be patient before investing in any of the sectors that are experiencing growth in Turkey pending the end of the lira crisis and the stabilization of the currency at a specific price, which may be determined in the autumn of this year.

Latest Featured Topics