Sectoral Analysis of the Covid-19 Pandemic in Turkey

In this blog post for our group (Time and Space) project, our objective is to delve into the economic consequences of the Covid-19 pandemic shock in Turkey, leveraging sectoral financial statements rather than merely examining macroeconomic indicators. By this means, the breakdown of sectoral performance is desired to be explored identifying top performers against stragglers.

Key Takeaways

1. Real sector firms are observed to rely more on liability sources and the economy as a whole has become more leveraged in this period, which is considered a natural result of credit oriented policies for the last decade in the Turkish Economy.
2. Liquidity position of the firms deteriorated in this period although a slight correction is observed in the last few years. Transportation, Accomodation — Food, Real Estate and Professional Activities are the sectors whose liquidity position deteriorate most during Covid-19.
3. Profitability of real sector firms stayed on the positive territory although it followed a volatile pattern throughout the period. During Covid-19, the winners are Mining, Manufacturing, Information and Health in terms of improvement in their profits and this improvement seemed to continue in 2021. On the opposite end of the picture, Transportation and Services sectors were seen to be in trouble in terms of profitability.
4. Leverage of real sector firms increase in a synchronised way whereas variation across sectors increases significantly for liquidity and profitability indicators.
5. For 2021, a cross sectional analysis demonstrates that services related sectors are considered most risky in terms of financial metrics defined. To be specific, Education is considered most risky sector mostly due to its poor liquidity and high leverage which increases the firms’ probability of default as it raises doubts about payment of short term debts.

We utilize Company Accounts data, jointly published by the Central Bank of the Republic of Turkey (CBRT) and the Turkish Statistical Institute (TURKSTAT), in our analysis. Three financial ratios were used as indicators for liquidity, leverage and profitability status of economic sectors through their balance sheets and income statements.

In order to conduct our analysis, averages of financial ratios are calculated for each sector from 2009 to 2019, which gives us a glimpse of historical standards of each sector with respect to indicators mentioned above. Then, financial ratios for 2020, when covid-19 started, and for 2021 were compared to their historical averages in order to inspect the effect of pandemic shock on sectors and to measure the sectoral recovery after the shock.

Firstly, based on the liquidity positions of sectors, Transportation, Accommodation-Food, Real Estate and Professional Activities are the sectors whose liquidity deteriorated most during Covid-19. Although these sectors were managed to strengthen their working capital, their liquidity were significantly below their average for the decade prior to 2020.

Secondly, it is observed that upward trend in leverage of sectors seen before 2020 continued for almost all sectors except a few such as Entertainment, Construction and Mining. It is deemed natural as many subsidies to real sector firms are given through credit channel, which increased the reliance of firms on foreign liabilities rather than their own resources.

The winners are Mining, Manufacturing, Information and Health in terms of improvement in their profits at the end of 2020 and this improvement seemed to continue in 2021. On the opposite end of the picture, Transportation and Services sectors were seen to be struggling in terms of profitability which is not surprising as these sectors are more dependent on social mobility and are hit hardest during Covid-19 period. The recovery of these sectors from the pandemic shock is a slow process, as restrictions are being lifted gradually around the world.

Further details of our analysis can be reached through this link.