When the Republic of Turkey emerged from the ashes of the Ottoman Empire 90 years ago, the fledgling nation had little indigenous industrial capacity. This was especially clear in the construction sector, which was dominated by foreign firms. Things began to change during the Cold War climate of the 1950s, when Turkey began receiving more development assistance from the US and the international community. This support enabled rapid domestic infrastructure development, and led to an influx of technology and expertise. In turn, Turkish construction entrepreneurs and civil engineers embraced international best practices, left their jobs in government, and started creating their own businesses, many of which still exist today.
These newly established businesses began to expand overseas during the 1960s and 1970s, when infrastructure development demand was quite high in the Middle East and North Africa (MENA). Indeed, Turkish companies have always had a competitive advantage in this region due to the Ottoman legacy, which forged deep cultural ties between Turks and Arabs. As local firms completed major construction projects in countries such Libya, Saudi Arabia and Iraq, they developed wide-ranging expertise and experience.
Regional expansion was further encouraged by trade liberalisation and the economic reforms passed by the Turkish government in the 1980s. As a result, many Turkish firms have now established a strong presence in markets worldwide, as demonstrated by the fact that Turkey has the second-largest number of major international contractors in the world, after China.
Thus, in less than half a century, the construction business has evolved from being heavily underdeveloped to being globally competitive. Turkish companies have learned how to execute complex projects in some of the most difficult political and geographic environments, obtain funding for capital-intensive ventures, and establish rewarding partnerships with foreign firms.
Over the past two decades local construction firms have diversified their activities and begun playing a larger role in national development. For example, under the supervision of the Energy Market Regulatory Authority, they have helped to maintain the country’s energy security by building power plants, distributing natural gas and electricity nationwide. Given Turkey’s dependence on fuel imports, as well its rapidly escalating electricity demand, construction companies have also been called upon to develop facilities for renewables generation to support energy basket diversification.
Nonetheless, the Turkish construction sector still suffers from key weaknesses, not least of which is the fact that it has not yet become a driver of innovation. Like Turkish businesses in general, local construction businesses do not spend enough on research and development; further, they lack highly specialised engineers. Although they enjoy numerous opportunities in the domestic projects market, and benefit from competitive advantages in Central Asia, the Balkans and the MENA region, our construction firms need to invest more in new technologies and developing human resources to remain competitive over the long term. A stronger focus on these areas will also be key to winning more contracts in advanced markets.
As we look to the future, we also see that the Turkish government’s 2023 development strategy calls for a vast array of domestic infrastructure projects, many of which promise strong investment returns. Yet, businesses in our field will never fully capitalise on these opportunities unless the authorities develop a regulatory framework that can handle the tendering process with greater openness and efficiency. Improvements to the tendering regime would also help mitigate the documented concerns of prospective foreign investors, who have been deterred from several major projects due to a perceived lack transparency. Further, a more comprehensive regulatory framework is needed in the area of green building standards, where stronger environmental requirements and targeted state subsidies could create incentives for the development of more energy-efficient urban buildings in Turkish cities.
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