黑洞社区

Turkey is in a state of flux. Domestic political instability, added to chaos on its eastern borders, has caused its economy to slow. Yet, despite these threats and worries, it is still the location of 拢228bn ($350bn) of active, new build construction projects - three times that of the UK. If you stand on Istanbul鈥檚 Galata Bridge, close to the historic meeting point between Europe and Asia, cranes bristle across the horizon in every direction you look.

Turkey has been 鈥渙ne to watch鈥� for a long time now. The country鈥檚 young population and dynamic economy earned it a place among the so-called 鈥淢INT鈥� economies in 2011 - the next group of fast-growing nations and emerging economic giants - and it recovered quicker than its European neighbours from the worldwide recession. However, since 2012 slow growth in the EU and difficulties in the Middle East, North Africa and Russia have had a knock-on effect, causing GDP growth in Turkey to drop from 4.2% in 2013 to 2.9% for 2014, according to data from the World Bank.

Domestic instability is also causing concern as the country鈥檚 deficit has increased to 拢156bn (698,783 Turkish Lira), following  the June election, which saw president Erdogan鈥檚 AKP lose its majority and subsequently fail to form a coalition, sparking new elections on 1 November, when the AKP regained its parliamentary majority. President Erdogan, speaking following the election results, said the 鈥渘ational will favoured stability鈥�.

While there is evidence of an unexpected second-quarter surge in private investment, the World Bank has put this down to the private sector carrying out previously postponed spending, anticipating the end to the political uncertainties. Its forecasts predict only a slight uplift in growth to 3.2% for 2015 and a marginal increase on this to 3.5% for 2016 and 2017. So is there space for UK construction businesses to win work, and given the country鈥檚 borders with Syria, what is the risk involved? 黑洞社区 went to Turkey to find out.

Where鈥檚 the work?

鈥淭hings have got worse rather than better over the last few years,鈥� says Nigel Peters, director at UK business promoter British Expertise, referring to a political and economic climate that some feel has seen Turkey, an overwhelmingly Muslim nation, move away from its liberal and dedicatedly secular constitution. Aecom鈥檚 chief executive for continental Europe, David Whitehouse, says external and internal political issues have had 鈥渁n effect on investment, both domestic and foreign鈥�.

This is echoed by his colleague Neslihan Aybar, Aecom鈥檚 country director for Turkey, who says activity has not recovered since the drop-off that preceded the election in June.

She adds that 鈥渘o new big government tenders have come to market, while the private sector is adopting a wait-and-see approach, spending time on designs and not moving into construction鈥�.
Despite this, there is still a huge amount of work taking place, including 拢98bn of active transport projects, and Serdar Karahasano臒lu, country leader for Arup Turkey, says that 鈥済rowth in the construction sector is still outstripping other sectors in Turkey鈥�. He believes the situation is 鈥渢emporary鈥� and hopes 鈥渂etter conditions politically and economically鈥� are on the horizon.

Other transport projects taking place include the ambitious Eurasia Tunnel - a 5.4km double-decker road tunnel crossing the seabed of the Bosphorus - and the new airport in Istanbul (see box right), which sits within the boundaries of a new city 30km from central Istanbul that has been masterplanned by HOK.

These 鈥渕ega projects鈥� and other government-led initiatives, are mainly funded via a form of private financing called BOT (build, operate, transfer) whereby a private sector vehicle receives a concession, usually from a government, to finance, design, build and operate a project for a period before transferring ownership back to the government. Other forms of private-public partnerships (PPP) are common, an example of which is the countrywide healthcare scheme to deliver the government鈥檚 target of 175,000 hospital beds by 2023, the centenary of the Republic of Turkey.

The Global Construction Perspectives 2030 report predicts that by 2023 the total investment in healthcare PPP projects alone will reach 拢130bn.

The government has also announced significant plans to expand its power sector as it aims to reduce reliance on imports. Over 80 new coal plants are in the pipeline and Turkey鈥檚 first nuclear project in the country started on site in April 2015. The 拢13bn project, to be delivered by Rosatom, a Russian state-owned company, is located in Mersin on the Mediterranean coast and is due to complete in 2020.

There are plans for a second facility in Sinop on the Black Sea to be built by a French-Japanese consortium and a third is in the offing.

The beginning of this year saw Turkey put in place its first National Renewable Energy action plan in line with the EU鈥檚 renewable energy directive with which it must conform as part of its ongoing European Union membership application. Forecasts reported in Global Construction 2030 predict that by 2024 Turkey鈥檚 electricity generation mix will see hydropower accounting for 22% and non-hydro renewable 12%.

Meanwhile, private investment outside of PPP projects is predominantly centred around the major cities of Istanbul, Ankara and Izmir, with some investment on the Mediterranean coast. The focus of this investment is mainly on high-end hotels, luxury offices and housing projects such as Ritim Istanbul, a mixed-use project comprised of six towers, the Pearl of Istanbul, which encompasses a marina with man-made islands, and the 375m Highlife Tower in Izmir, which will be Europe鈥檚 tallest once completed. The retail sector is also seeing substantial investment according to Maurice Rosario, director at Scott Brownrigg, as Istanbul seeks to compete with London and New York as a shopping destination.

Hakan Agca, architect and urban designer at HOK, says clients in Turkey are highly aspirational, which 鈥減rovides opportunities to push boundaries,鈥� adding that the 鈥渟cale of projects can be huge鈥�. 鈥淭urkish clients have understood the desirability and sustainability of building mixed-use developments, rather than the creation of the stand-alone office block,鈥� he says.

There is also, Arup鈥檚 Karahasano臒lu says, 鈥渉uge potential鈥� in the tourism sector, which is growing year by year. This sector has seen Japanese firm Okura announce plans to open its first 130-room spa resort in the Anatolian region of Cappadocia in 2017, with more hotels in Ankara and Istanbul to follow.

International relations

Turkey began formal talks for its accession to the European Union in 2005, but little progress has been made in the intervening decade and last year the president of the European Commission, Jean-Claude Juncker, said there would be a five-year pause before any more countries would be allowed to join.

But while not a member, Turkey does already have a free trade deal with the EU, as well as having a huge pipeline of work, meaning legally there are no particular barriers to entering the Turkish construction market.

However, there are plenty of experienced Turkish contractors and the market for construction delivery is highly competitive, especially now as the external markets for those contractors, such as the former USSR countries, are being squeezed by depressed oil prices. Aecom鈥檚 Aybar says this is 鈥渇orcing the Turkish contractors to look back to their homeland for work.鈥�

Yet, British Expertise鈥檚 Peters sees 鈥済ood opportunities鈥� for consultants, with Aecom鈥檚 Whitehouse saying there is a lack of a strong project management culture in the country, making these skills sought after.

Even so, firms wanting to enter the market will need to be able to bring something different to the table to make themselves competitive. This is primarily because local firms can produce
work more cost effectively due to smaller overheads than foreign firms, even if not always to the same level.So HOK鈥檚 Agca says international firms have to 鈥渟tart offering something the local firms can鈥檛鈥�.

鈥淚 think advances in sustainability and technologies such as BIM can provide that edge,鈥� he adds.

Specialisms such as facades and acoustics are also sought after and it is these types of disciplines, Arup鈥檚 Karahasano臒lu says, that his firm is considering expanding on and diversifying to keep its offering competitive.

Having an international name also helps, as Salini Impregilo鈥檚 project executive Gianni Botteon explains. 鈥淐lients in Turkey always want the best they can find around the world to work on their projects鈥�.

There are, though, other challenges for foreign firms working in certain areas of the country. For example, Salini Impregilo is working on the 鈧�260m (拢186m) new hydroelectric dam in the province of Siirt in southeastern Turkey, close to the Syrian and Iraq borders. The project - because of its location - has come with 鈥渁 lot of safety and security problems and the workers are having to be guarded by 100 soldiers,鈥� Botteon says.

Cultural challenge

Existing relationships are very important in Turkey, which can make it a difficult market to enter. However, Whitehouse says once you are in and have gained the trust of locals, the market is 鈥済ood and sustainable鈥�. Essential, he says, is showing the client 鈥渢hat they are going to get good value for paying more than the local market [rate]鈥�.

Some firms, including Aecom and Arup, maintain permanent offices with predominantly Turkish staff, which Whitehouse says makes Aecom鈥檚 offer more attractive as they are able to provide careers and training to Turkish employees. The country has one of the youngest populations in the world, many of whom are also 鈥渧ery ambitious鈥�, says Whitehouse.

Other companies partner with local firms, particularly if working on state-funded projects. For HOK鈥檚 Agca, local architecture firms are important partners as they can navigate the building regulations and planning laws which are 鈥減retty stringent and can be very different from European building methods - things like floor area ratios and plot coverage ratios for example can create challenges鈥�. But partnering itself can be a challenge, with Botteon saying that in Turkey people have a 鈥渄ifferent way of viewing things and managing works鈥�.

Foreign firms are likely to find it easier to work with private investors, as government contracts can sometimes be affected by the changing political landscape in Turkey. Whitehouse says 鈥渢he government as a client has had a chequered record over the years, with many instances of contract disputes, and there is a perception that the courts are not always as independent as they should be鈥�. He adds that clients in Turkey can 鈥渄elay and delay decisions,鈥� but once decisions are made things can move very, very fast.

Overall, though, the market is 鈥渂ooming,鈥� Rosario says, and the amount of work taking place means that local companies cannot service it all.

So there is plenty of work in Turkey for UK consultants, but they have to be able to provide services that the highly competitive market cannot offer and be willing to invest in establishing themselves in the market. Do that, and this thriving country at the stepping point between Europe and Asia is theirs for the taking.