Turkey builds big for the future

Ankara is pursuing huge construction projects, attracting interest at home and overseas. But the competition within the sector is fierce.

The $2.8 billion Istanbul International Financial Center project. Kerem Uzel / Bloomberg

The market for active construction projects in Turkey currently stands at around $350bn and offers ample opportunity for contractors and consultants from the GCC market to get involved, according to a new survey by Meed Projects.

It says a booming economy and a fast-growing population has led to Turkey accelerating a nationwide infrastructure programme in recent years, with US$135 billion of major projects (those worth more than $100 million) in the transport sector alone.

The biggest and most noteworthy of these, of course, is the plan to build the world's biggest airport by area. Istanbul New Airport will cost $11bn for its initial phase, and will sit on a 76.5 square kilometre site some 35km away from the existing Atatürk airport. Once complete, it will have six runways, four terminal buildings and a capacity to serve 150 million passengers a year – with the potential to extend to 200 million.

There is also a $35bn high-speed railway between Edirne and Kars and in the power sector there are plans for a $15bn nuclear power complex – the country’s third in total.

Add in some of the huge property projects that have been taking place within Turkish cities, such as the $2.8bn Istanbul International Financial Center, and it is easy to see why so many are excited by Turkey’s prospects.

By the end of 2013, Turkey’s annual GDP had grown at about 4.6 per cent over the previous decade, although this slipped back to about 3.4 per cent last year, to approximately $800bn. About 5.9 per cent of this is directly attributable to construction activity.

Turkey has also seen plenty of investment from the Arabian Gulf as well, particularly through the likes of Emaar Properties, which is building more than 1,000 homes, a hotel and a mall at its Emaar Square project in Istanbul. Kuwait’s Mazaya also announced its Ritim Istanbul project containing six towers and a shopping mall in February.

However, just because Turkey’s construction sector is active that does not necessarily mean there is an abundance of opportunities for all.

The market is particularly tough for contractors as it is one of the most competitive in the world. Only China has more contracting firms in the 2014 Engineering News Record (ENR) ranking of the 250 biggest international contractors. Turkey has 42 firms on the list, compared with China’s 62. In comparison, only 31 US firms, three German companies and two from the United Kindom made the cut.

TAV Construction was one of the Turkish firms that made the list but even it is not particularly active in its home market. Instead, it has targeted niche projects abroad such as high-rise towers and airports, including Abu Dhabi’s Midfield Terminal, Muscat International Airport and the recently-opened Madinah Airport.

“The contracting industry keeps getting more competitive and profit margins are shrinking, mainly driven by procurement policies from clients,” a spokesman for the company says.

Another company on ENR’s list is Nurol Construction, which is currently leading a consortium building an $8bn highway between the cities of Gebze and Izmir. The work involves 433km of motorway and the Izmit Bay crossing, which is set to become the world’s fourth-longest suspension bridge.

Nurol Construction is part of a huge group of companies with interests in everything from manufacturing to tourism and finance. It has a real estate investment trust, Nurol Reit, with assets of $500m and a number of projects under development including three mixed-use schemes in Istanbul. The biggest of these is the 55,000 square metre Nurol Park project including offices, cafes, shops and 1,186 homes.

Ceyda Çarmikli Kiliçaslan, an executive board member of Nurol Reit, says the construction and property sectors had been “a propulsive force” in driving Turkey’s economy over the past 15 years.

“Turkey is a great place to invest,” she argues.

And although it has proved to be a tough market to crack for contractors, the services of international consultancies are in much greater demand. Thomas Boyle, the Turkey district manager for the US-based Parsons, says that although the ENR list for contractors is full of Turkish firms, the same tables produced for architects and engineering consultancies hardly have any.

“Almost all the top contracting firms have their engineering divisions but only very few of them, I would say maximum about 20, would perform engineering and consulting in the American or European sense.

“Furthermore, when it comes to significant projects [such as the new Istanbul airport or a $3bn Bosporus bridge crossing currently underway in Istanbul] local companies do not possess the required know-how and experience,” he says.

Hill International, another US-headquartered construction consultancy that specialises in project management, also sees significant opportunities in the local market. It boosted its presence in Turkey in April following its acquisition of IMS – a local construction risk management practice that employs around 80 staff. IMS had been led by Serdar Gucar, who has since become Hill International’s senior vice-president and managing director in Turkey.

Mr Gucar believes the Turkish construction market “is a promising one”, citing the major infrastructure projects as well as urban regeneration work required to provide more housing for a rapidly-growing population.

It is targeting more work from government clients, although he describes both these and local developers as being “demanding”.

“Local expertise is extremely important in meeting requirements, as a project management company or consultant,” Mr Gucar says.

Parsons’ Mr Boyle says that although Turkey’s construction market had enjoyed healthy growth in recent years, it currently “appears to be in slight contraction”.

“The impact of the recent general election, which moved the ruling party away from the single-party government position, has created political uncertainty resulting in contracting companies acting cautiously,” he says.

Indeed, the relationship between Turkey’s ruling party, the Justice and Development (AK) Party, and the country’s construction industry had been a close one. Opponents argued it was too close and, in late 2013, a corruption probe was launched in the country which saw the sons of three Turkish ministers arrested alongside the developer of Istanbul’s International Financial Centre, Ali Agaoglu and a number of other major business figures. Turkey’s president, ­Recep Tayyip Erdogan, dismissed the charges, describing them as politically-motivated.

The election last month which forced his AK Party into a potential coalition, has “raised a lot of uncertainty”, according to the Capital Economics’ senior emerging markets economist William Jackson.

“Against this backdrop, it’s hard to see any new investment projects getting off the ground in the near-term. Moreover, amid the uncertainty this has created, the private sector too may postpone large investment decisions,” he says. Others remain upbeat about Turkey’s longer term prospects, so long as they make the right connections.

Ms Kiliçaslan says the key to success in the market is choosing the right local partner.

“GCC firms can create great value in Turkey’s construction and infrastructure industry, if they select the right partner to enter into the market with. The exchange of knowhow and experience is essential when you enter a new market,” she says.

Mr Boyle says a “long term approach” is key to ensuring growth and that one of the best ways for international firms to do this would be through building their own workforce through the hire and training of young ­engineers.

“Over half of Turkey’s population is under the age of 30,” he says.

“The majority of the top students elect to pursue engineering degrees.”