Directly responsible for a significant share of GDP and with its contractors active right across the globe, Turkey’s construction sector has been at the forefront of the country’s recent economic development. Over the last decade, the sector has transformed the skyline of Istanbul and other cities, renewed and extended Turkey’s transport infrastructure, and built new communities and facilities from the Aegean to the Caucasus. Construction employs tens of thousands directly and has also established a range of related industries – such as construction machinery (see analysis), building materials, engineering and architecture – as major sub-sectors of the nation’s domestic and export trade.
Despite recent signs of an economic slowdown – Turkey’s GDP growth came in at 2.9% for 2014, down from 4.4% in 2013, according to TurkStat, the state statistics agency, and the IMF forecasts expansion of 3.1% in 2015 – construction looks set to continue to play a significant role in the economy as the country embarks on an ambitious programme of urban renewal and a string of large-scale projects, while also seeking to accommodate the needs of a growing and increasingly prosperous population. According to Ali Babacan, deputy prime minister for economic and financial affairs, Turkey will need to spend $700bn on infrastructure in the years to 2023 if it is to meet the government’s goal of boosting GDP to $2trn by then.
Facts & Figures
According to TurkStat data, at the end of 2014 the construction sector was worth around TL79.7bn (€28.1bn) at current prices, up from TL69.6bn (€24.5bn) a year earlier. That represented 4.6% of GDP, though if a constant price formula is used, with 1998 as the baseline, the figure rises to 5.9%. A report from the European construction sector body, European International Contractors (EIC), argues, however, that when the sector’s impact on other parts of the economy is taken into account, the share of GDP attributable to it could be as high as 30%, with some 10% of the working population employed in and around the sector. At current prices, meanwhile, the sector has shown consistent growth every year since the global economic downturn hit Turkey hard in 2009. That year, the sector shrank 18.1%, but it rebounded quickly, growing by 24.9% in 2010 and 26.5% in 2011. In the following three years, growth was more moderate, coming in at 7.6%, 11.9% and 14.6%. TurkStat’s Construction Turnover and Production Index, which takes 2010 as a 100-point baseline, also shows growth in that period, with the calendar-adjusted index rising to 111.4 in 2011, 112.3 in 2012, 120.9 in 2013 and 124.6 in 2014. Quarterly year-on-year figures for 2014, however, showed growth slowing, falling from 6.3% in the first quarter to 4.5% in the second, 2.6% in the third and -0.8% in the fourth.
A reflection of these growth trends – as well as a bellwether for the near term – may be seen in TurkStat’s records for building permits. In the whole of 2014, some 1m permits were issued, up 21.2% from around 837,000 the year before and well above the roughly 650,000 issued in 2011. In terms of floor area, the figure was even stronger, growing at 24.3%, indicating a shift towards projects of a larger size.
Players
Of the world’s top 250 construction companies by overseas operations, 42 were Turkish outfits in 2014, according to rankings by the magazine Engineering News-Record (ENR). This was the second-largest group from one country in the list, after China.
The top Turkish firm in the list was Enka Construction and Industry at 52nd place, with headquarters in Istanbul and $2.4bn in international revenues, just one place ahead of Ankara-based Rönesans Construction, with $2.39bn. Third largest was TAV Construction (83rd place globally with $1.27bn in overseas revenue), followed by Polimeks İnşaat Taahhüt ve Sanayi (86th with $1.25bn) and Tekfen Construction and Installation (101st with $906m). In 2013, ENR gave TAV the title of second-largest airport construction company in the world (based on the projects it undertook in 2012), after US-based giant Bechtel. The rankings are also significant in that 11 years earlier, only eight Turkish companies made the list. Growth in the last decade has thus been exponential. From 1972 to March 2015, Turkish construction firms carried out some 7735 projects in 104 foreign countries. All of the above companies are also active domestically, as are key companies such as Çalık Holding’s Gap İnşaat, busy everywhere from Istanbul’s Tarlaba şı Redevelopment Project to a string of hospitals in Turkmenistan; Tepe İnşaat, which constructed the now-iconic İş Bank complex in Istanbul; and Cengiz İnşaat, part of the consortium building the new Istanbul airport, along with four other Turkish contractors, Kolin, Limak, Mapa and Kalyon.
Rising Demand
Domestic construction has benefitted from strong economic growth in recent years, boosting demand for projects. Indeed, since emerging from a major financial crisis in 2001-02, Turkey has seen continuous GDP expansion – albeit with a shrinkage in 2008-09. In the 10 years to 2013, the country’s GDP grew by an average of 5% a year, although it slowed to 2.9% in 2014. Per capita GDP, meanwhile, rose from $4565 in 2003 to $10,404 in 2014, TurkStat figures show. At the same time, foreign direct investment in Turkey has grown, adding to demand for new factories, offices and facilities. These two factors – economic and population growth – have boosted demand for a sector which was already well established, able to draw on experience in many overseas markets too, particularly Germany. The country had also experienced an earlier boom, in the 1980s, following the first steps towards liberalising the economy. This built up a useful skills base among workers in the sector. The 1980s saw major housing developments, with the establishment of the Turkish Housing Development Authority (TOK İ), large transport projects – including around 2000 km of motorways – and construction activity in energy, with the South-east Anatolian Project seeing a string of dams built. The decade also ended with a surge overseas into the former Soviet states (Commonwealth of Independent States, CIS), particularly those with Turkic populations in the Caucasus and Central Asia.
Work Abroad
Turkey’s construction firms have for decades been increasing their footprint outside the country’s borders. Libya, Saudi Arabia and Iraq have been key markets, between them accounting for around 55.2% of all overseas business by the end of the 1980s. The MENA region has long been a crucial area for Turkish construction. In recent years though, companies have learned to balance this with activity in the CIS, as political instability has rocked the Middle East. This has stood the sector in good stead, particularly with the recent conflicts in Iraq, Libya and Syria. When these conflicts come to an end too, Turkey will likely be one of the first helping in the reconstruction. “There are significant opportunities abroad for Turkish contractors, especially in the Middle East, North Africa and sub-Saharan Africa. Countries like Iraq, Jordan, Libya, Algeria and Ghana have considerable potential,” Eyüp chairman of Beta Tek, told OBG. “Africa, in particular, is becoming increasingly important and will be even more so in five years time as its economy continues to grow.”
The countries of the Gulf region, meanwhile, saw a major construction boom start in the 2000s, with the rise in oil and gas prices fuelling the development of whole new city developments in the UAE, Qatar and Saudi Arabia, in particular. Turkish companies were well positioned to take up much of this work, leveraging their domestic experience, lower costs than Western outfits and reputation for good quality. A recent strong example of this is the Doha Metro in Qatar, with Turkish contractors Yapı Merkezi and STFA among the consortium of contractors that won the $4.4bn contract there to deliver the Gold Line. Reconstruction in Iraq has also resulted in contracts for Turkey, while economic growth in Northern Iraq, driven by oil revenues and relative stability, has been a source of work as well.
The CIS region, meanwhile, has grown in importance, especially Russia, although Russia’s economic troubles are likely to dampen prospects in the near term. By 2014 Rönesans Holding had established itself as the largest foreign contractor in Russia, with $2bn of projects in its portfolio there. These days too, Turkish firms are busy in new markets in Africa and Asia – a move given impetus by the economic downturn in more developed countries and the political turbulence in MENA.
Future Growth
Back home, a rash of public and private investment in buildings and infrastructure has also taken place in recent years, with much more in the pipeline. Again, the main focus for giant projects is Istanbul, which President Recep Tayyip Erdo taken a particular interest in. He announced a string of major works for the city during his three terms as prime minister, with these likely to continue to be the focus of much political attention in the years ahead.
Thirds
Already under way is the construction of a third Bosphorus bridge, further north than the existing two. This requires a new road network as well, with one of these linking to the site of another grand project, Istanbul’s third airport. The $2.5bn bridge, to be named the Yavuz Sultan Selim Bridge, will carry both road and rail, with the road part of the planned 260-km Northern Marmara Motorway, a major bypass highway for the city. The bridge is being constructed by Turkey’s İnşaatand Italy’s Astaldi, with an initial completion date of May 29, 2015. However, as of April 2015 the project was expected to be completed by the end of the year. When finished, it will become the world’s longest combined road and rail bridge.
The third airport, meanwhile, is being constructed to the north of the city’s European side, in a largely forested area towards the Black Sea coast. Construction thus involves the clearing of 7569 ha of land, with the four-stage project seeing runway and terminal space gradually expanded. By completion of the fourth phase, in 2025, the airport will have a capacity of 150m passengers per year, six runways, 1.4m sq metres of indoor space and four terminal buildings, along with a range of associated facilities. The five-company consortium that won the tender for construction bid some €22.2bn, and was granted a 25-year operating lease.
A Man, A Plan, A Canal
The government also has plans to construct an even larger project in the years ahead – a canal linking the Black Sea and Marmara Sea. Known as Kanal Istanbul, this would cut across the European outskirts of the city, running for 43 km with a reported depth of 25 metres, allowing the passage of the new generation of supertankers and even submarines. The cost was first announced in 2011 as around $10bn, although it is widely expected to be much higher and feasibility studies are still ongoing.
While the canal – as with the airport and the third bridge – has proven controversial, attracting a great deal of criticism on environmental grounds, its construction would likely provide a major boost for the sector. It is also intended to shift Istanbul’s real estate focus to the north, with plans for new communities mooted along its course. Then-Prime Minister Erdo announced he would like to see its completion coincide with the 100th anniversary of the Turkish Republic’s founding, in 2023, although there are doubts that this will be achieved. As of early 2015, the project had not yet moved forward, but Erdo ğan had reiterated his support and called for it to be expedited.
Urban Renewal
On another level, the government has also begun a major urban renewal programme, aimed at readying Istanbul and other cities for future earthquakes. The North Anatolian Fault runs across the north of the country, passing south of Istanbul. In 1999, a giant earthquake struck, centred on the north-western industrial cities of Izmit and Adapazarı, causing great devastation and loss of life. Much of this could have been averted with better building quality, with the urban renewal programme aiming to either demolish or strengthen at-risk structures. The programme is set to roll out over a 20-year period and cost $400bn, with some 6.5m housing units affected. TOK İ is spearheading the programme, which is already under way.
Roads & Hospitals
Turkey is also carrying out a major motorway expansion project, with the 2200-km network of 2013 set to expand to 9680 km by 2035, according to the General Directorate of Highways.
Another key project is the City Hospitals initiative, a €12bn programme to build or expand around 60 hospitals across the country in collaboration with the private sector. As of the end of the first quarter of 2014, contracts for 17 hospital public-private partnership (PPP) projects across Turkey had been signed, with three of these already under construction. A new law on PPPs in the health sector supports this effort, with the hospitals built and run by private sector companies on the basis of 25-year leases.
Pipeline & Power
Another large project in the works is the 1850-km Trans Anatolian Natural Gas Pipeline (Tanap), which began construction in April 2015. When completed in 2019 at an estimated cost of $10bn, it will carry gas all the way across Turkey from Kars in the north-east, where it will tie into the existing South Caucasus pipeline carrying gas from the Shah Deniz field in Azerbaijan, to its border with the EU in Eastern Thrace, where it will tie into the planned Trans-Adriatic Pipeline running through Greece and Albania to Italy. Jointly owned by Azerbaijan’s state oil company Socar (58%), Turkey’s state-owned oil and gas pipeline operator Bota ş (30%), and BP (12%), Tanap forms the key link in a major plan by the EU – the 3500-km Southern Gas Corridor – to reduce its dependence on Russian gas and diversify export routes for supplies from the Caspian Sea region. As of March 2015, $3.4bn in contracts had been signed, with more on the way for building stations, compression units and offshore operations, according to Saltuk Düzyol, Tanap’s general manager, who said the project will create 5000 Turkish jobs.
Two large nuclear power projects are also planned. As of April 2015, bidding was under way for a contract to design and build the first hydraulic structures for the Akkuyu nuclear power plant, the country’s first, to be built in the south-central province of Mersin at a cost of $20bn. Consisting of four Russian-designed units of 1200 MW each, the plant will eventually produce a total of 35bn KWh a year. Also in April the Turkish parliament approved a law creating the legal framework to start construction on a 4800-MW plant in the Black Sea town of Sinop. It will be built jointly by France’s GDF Suez and Japanese firms Mitsubishi Heavy Industries and Itochu Corporation at an estimated cost of $22bn. Construction was expected to begin after approval is granted by domestic and international regulatory bodies, with a target of bringing the facility on-line by 2023.
Building Blocks
With many of these projects, Turkey has the advantage of having developed its own PPP model in the 1990s, with a proven track record for build-operate-transfer agreements with the private sector. Such major works have also helped develop a significant domestic construction materials sector in Turkey.
Iron and steel have long been manufactured in the country, but both have undergone a major expansion on the back of growing demand for rebar, girders, steel pipes and pipe fittings for construction. Turkey’s crude steel production capacity reached 50.2m tonnes in 2014, up slightly from 49.25m in 2013, according to the Turkish Steel Producers Association. The country also produces aluminium, with Eti Aluminyum a global player and Turkey’s sole liquid aluminium producer.
According to a Ministry of Economy (MoE) report from 2014, Turkey has 67 cement plants, divided between 19 grinding units and 48 integrated units. Much of the output of these plants is also exported. Total production in 2014 was 71.2m tonnes, with 63.2m tonnes sold domestically and 7.7m tonnes exported.
Turkey also has around one-third of the world’s total marble deposits. The MoE states there are some 5.1bn sq metres of probable reserves in the country, with around 4m tonnes of marble, worth around $2.2bn exported in 2013, according to the Turkish Natural Stone, Marble and Machinery Manufacturers’ Association. The Istanbul Mineral Exporters’ Association estimates that total natural stone exports were worth $2.2bn in 2013 and $2.13bn in 2014.
The country also has major ceramic tiles and ceramic sanitary ware industries. MoE figures place total production capacity of wall and floor tiles at around 2.37bn sq feet, with 1.12bn of these exported. The MoE also ranks Turkey as Europe’s largest producer and exporter of ceramic sanitary ware, with production of 112,200 tonnes in 2012. Glass production is also extensive – with one group of companies, Şişecam, producing around 90% of Turkey’s total output in this field. The MoE ranks the company sixth in Europe and 13th in the world in terms of glass production capacity. Turkey has a significant building plastics subsector as well, with around 5000 firms operating in this field. There is also a thriving domestic paints and coatings segment, which – as with plastics – has developed expertise and grown in tandem with Turkey’s automotive sector.
Outlook
With the domestic market providing a strong base, and with Turkish contractors having successfully diversified their markets and projects in recent years, the construction sector is well positioned to continue growing, though Turkey’s reliance on foreign capital inflows to fund its high current account deficit makes it vulnerable to external shocks and constitutes a chief concern in the medium term, according to the IMF. The sector’s fortunes globally are closely linked to economic growth in general. In this regard, the recovery in developed markets is a plus, although the decline in oil prices and ongoing turmoil in some areas will no doubt impact the key MENA and CIS markets. That the sector has managed such strong growth in difficult times is a tribute to its continued resilience and foresight.
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