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.”
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Brown rice: consume an amount that fits in the palm of your hand
Non-starchy vegetables, such as broccoli: consume raw or at low temperatures, and don’t reheat
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Fruit: a medium bowl a day and no more, and never fruit juices
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Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Alastair Cook, Mark Stoneman, James Vince, Joe Root (captain), Dawid Malan, Jonny Bairstow, Moeen Ali, Chris Woakes, Craig Overton, Stuart Broad, James Anderson
