Türkiye faces exodus of gold industry to Egypt

Burak Yakin, head of the Jewelry Exporters’ Association, announced a new 27.5% tax on gold imports to reduce the trade deficit. However, Yakin noted that this tax makes gold in Egypt 27% cheaper than in Türkiye. He highlighted the disparity in labor costs, with wages in Türkiye around $1,000 compared to $280 in Egypt. This cost difference has led to seven to eight firms relocating to Egypt, investing $1 billion in the process.

Gold industry moves to Egypt

After the textile sector, gold manufacturing companies, squeezed by import quotas, are shifting operations to Egypt. The restrictive import quotas have taken a toll on local production, prompting at least seven firms to relocate their factories to Egypt, with investments totaling $250 million. This trend extends beyond factory setup costs, with the total capital outflow reaching $1 billion.

Yakin explained the new tax structure: a 7.5% tax on raw gold and an additional 7.5% on labor, now increased to 27.5%. He noted the detrimental effect on Türkiye’s jewelry exports, which had been on a growth trajectory until this tax was imposed in mid-2023.

Workforce and investment shifts

Yakin proposed that instead of taxing raw gold, increasing the tax on labor costs to 27.5% would be more effective. He elaborated on the cost implications, stating that gold is now $300 cheaper in Egypt, where labor costs are significantly lower. This cost advantage has made Egypt the new China for the jewelry sector. Several firms have already moved $250 million worth of factory investments from Türkiye to Egypt.

30% of Turkish jewelry firms to relocate

Additionally, many Turkish and international investors are now purchasing gold from China and other Far Eastern countries instead of Türkiye due to the high costs. Yakin stressed that the jewelry sector is one of Türkiye’s most value-added industries, with high export values per kilogram. If the current quota and tax policies continue, he warned that 30% of Türkiye’s jewelry firms might relocate, equating to $6 billion yo $7 billion in lost revenue.

Proposed solutions similar to Italy

Yakin suggested that Türkiye adopt an approach similar to Italy, where firms can obtain gold-backed export credits. This system would allow Turkish manufacturers to compete internationally by accessing gold at competitive prices. He also recommended leveraging domestically produced gold stored in the Central Bank of the Republic of Türkiye (CBRT), reducing reliance on imports.

Bigger picture

Official records show Türkiye’s gold exports at around $8 billion. However, Yakin revealed that with unregistered exports and gold bought via credit cards, this figure could be as high as $16 billion. Foreign buyers often purchase significant amounts of gold in Türkiye, which doesn’t appear in official export statistics due to its classification as a service export.

Yakin concluded by emphasizing the need for immediate policy changes to prevent further losses in the industry and bolster Türkiye’s position as a leading gold exporter.