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“The Turkish construction industry has become an international brand”

Interview - May 6, 2013
World Report speaks with Emin Sazak, President of Turkish Contractors Association (TCA), about current trends in Turkey’s construction sector and how Turkish contractors are getting more heavily invovled in new markets
Turkey is going through a very exciting time at the moment. During the global economic recession, Turkey has been the fastest growing economy in Europe out of two of the past three years, and GDP is expected to grow by a respectable 4% in 2013. Of course, the construction sector played a huge part in this. Some estimates say that directly and indirectly the construction sector accounts for 30% of Turkey’s GDP, but what impact would you say did the construction sector has on the growth of the Turkish economy?
When the economy grows, the construction sector grows slightly more, but when it shrinks, construction shrinks faster. So it is directly affected by the prevailing economic environment. We had very high GDP growth rates of around 9% in 2010 and 2011. But last year Turkey’s GDP grew by 2.2%. Construction sector’s growth rate was much lower than that, 0.6% only. As you can see, there is a time lag in the recovery of the construction sector when the economy is not doing so well.

But in the growth years, the construction sector was way ahead – up to twice as much as the rate of GDP growth. In 2010 for example, our economy grew by 9.2% and the construction sector by 18.3%. It actually has a direct pull of about 6.5% to 7% GDP, but with the related industries (construction materials, logistics etc.) it is correct to say that its contribution to our economy is about 30%. Construction is one of the largest employers as well, employing 1.8 to 2 million people. Of course, a significant amount of indirect employment is also generated in the related sectors.
What needs to be done to surpass China so as to become the number one contracting country in the world?
Turkish contractors have been very active outside of Turkey, especially over the past ten to fifteen years. They entered the international market in the early 1970s, and have a relatively short history in international business. In 2012 China had 52 contractors on the ENR’s “Top 225 International Contractors List” and Turkey had 33. But our actual aim is to get more market share. Turkish contractors are very successful abroad and especially in the nearby regions surrounding Turkey and the countries that can be reached within a four to five-hour flight. We have strong historical, social, cultural and religious ties with most of these countries. This also explains why more than 90% of our international works are in the CIS, North Africa and Middle East regions. We have extended our activities from the north of Russia to the east, all the way to Kazakhstan and the central Asian corridor, the Middle East and North Africa. The oil and gas producing countries are especially attractive for Turkish contractors as they are currently the largest infrastructure investors. 
What makes Turkish contractors more competitive is the quality of their works, time of delivery which is equal to that of the contractors from the western or developed countries, and their lower costs. Their logistics capabilities are well-established here in Turkey, especially land logistics. Of course, they take more risks compared to the contractors of western countries. The developments over the past two years relating to the Arab Spring have pushed our companies to go to different markets recently. You will see Turkish companies active in Sub-Saharan Africa and even in South America today. 
So you have seen a significant increase, which is almost directly related to the Arab Spring?
No, actually the Arab Spring is not a reason for our growth – it had negative effects on Turkish construction outside of Turkey. Especially in Libya, which had always been the number one or number two market for us. About 15% of our international activities was in Libya and that was halted abruptly. A lot of companies’ assets were tied in there and there were a lot of losses and damage made to their machinery and equipment. Furthermore, huge amounts of receivables were stuck there. So it had an adverse effect on Turkish companies. But as a result, Turkish companies have started to look at other countries. We saw part of that in 2012, when we saw a big chunk of new contracts being signed, but we should see if that is sustainable growth in 2013.  
Speaking about 2013, the Association of Real Estate Companies has projected that the construction sector will grow by 4% or 5%, which is quite substantial. What types of construction do you expect this growth to be in?
If you look at the period between 2004 and 2007 in particular, most of the growth in Turkey was via private investments in real estate development. At times, it moved up to about 20% to 22% growth in one year. But then of course there is always a supply and demand issue, and that might have slowed down over the past couple of years. I think it is settling down now, but last year there were special circumstances, including the VAT issue, which was not fully understood and implemented. There are about half a million new residential units needed annually – the Turkish population is growing and people are still migrating from rural areas to urban areas, and that is why our cities are constantly growing. So there is a lot of need for that.
On top of this, we expect a lot of infrastructure investment to come in line with the Turkish Government’s 2023 vision, so there will be a lot of activity in that regard.
What relationship do you have with some of the government institutions such as with the Ministry of Environment or Ministry of Development? Which government institutions do you normally cooperate with?
We have several. The largest infrastructure projects are coming from the Ministry of Transport, Maritime Affairs and Communication. These are government projects and some of them are financed from the public budget. But most of them are PPP (public-private partnership) projects. Some of them have been tendered and are at the financial closing stages, and others are being implemented.
The second ministry would probably be the Ministry of Forestry and Waterworks. We have a General Directorate called the State Waterworks, and they have a lot of hydropower plants as well as projects related to irrigation and drinking water supply in urban areas. Part of that is privately done. 
The third would be the Energy Ministry, and most of their projects are done on a PPP basis. Then we have the Ministry of Environment and Urbanisation, which is very important for us and used to be one of our major clients, because most of the investment directorates were under that ministry. In the past it was called The Ministry of Reconstruction and Resettlement. There has been a lot of restructuring in Turkey in this respect. For instance, even the highway authority and state waterworks were under that ministry six to ten years ago. But then the environment got more interrelated with urban development issues. The main mission of our Ministry of Environment and Urbanisation today is the transformation of the old and earthquake resilient buildings in the cities. This urban regeneration project could take up to twenty years to implement and could involve up to 7 million units, which need to be either strengthened or knocked down and rebuilt. While this is happening, obviously there will be new urban development areas. There will be a lot of activity.
When the Government proposes these tenders, is there any preference given to Turkish companies or contractors, or is it an open bid?
It is an open bid.

But do they try and partner with Turkish contractors when they can?
Yes. I will give you a couple of examples. One is the Gebze-Izmir motorway project with a suspended bridge. It is a $6.5 billion investment and there are five Turkish companies and one Italian company. There are companies – one Turkish and one Italian working on the third bridge, the Bosphorus Bridge. There is definitely a lot of interest. In terms of pure government contracts, there are a lot of foreign companies. The metro system has just been rebuilt by a Spanish and Turkish company.
What role does the TCA play in these mega projects? The excitement in the contracting sector is at an all-time high in the international press at least, because of these mega projects such as the Istanbul airport. 
The TCA does actually not get involved in the tendering stage. TCA is an NGO or an interest group whose primary aim is to lobby its members’ interests in front of the Government and regulators and ensure that the regulation and new legislative actions are taken in line with the industry’s input at least. Secondly, we do a lot of training and we pull in a lot of new ideas to be implemented in our construction industry through consultancies, training, conferences, panels and workshops.
We have a little bit of marketing outside of Turkey. We represent the entire industry in terms of marketing. TCA is not an official accreditation centre, but it is almost considered to be as such. When a Turkish company goes abroad for business, most of the time the client will ask whether the company is a TCA member or not. That is the profile we have internationally. 
There are 152 companies that are members of the TCA right now, and of course they have to meet certain criteria in order to become members. We have technical, legal, financial and ethical standards that they have to comply with. 
Where do you think the most improvements need to be made in the construction sector and therefore what are your top priorities for 2013?
We would like our engineering and design capabilities to move forward. We would like to have our engineering and consultancy companies to be stronger and have more know-how in doing different types of projects. We would prefer the engineering and consultancy companies to move ahead of us, especially when it comes to international projects. Currently, almost 90% of projects we realise outside of Turkey are designed and engineered by non-Turkish companies, and we see a lot of issues there. Turkish companies could be put in a better position if our consultancy companies moved forward. We work in close cooperation with the consultancy associations as well to make this happen. It is a long-term issue of course, and with the assistance of the Turkish Government’s incentive programmes, we would like the engineering capabilities to move forward.
We are also pushing for a lot of environmentally and socially responsible undertakings. We do guide our members to comply with international environmental and social standards, and show that we are serious about this. The TCA is building a new headquarters now, and we are trying to showcase the whole of the Turkish construction industry’s capabilities, from design engineering to materials and construction and do this with the international environmental and quality certificates. We will hopefully receive LEED Platinum certification for that. So it will be an example of doing business, design and construction as well as environmentally responsible construction to our members. 
One of the cornerstones of our report is what we call the “Turkish Stamp”, which is essentially the sectors of the Turkish economy that are leading the way and differentiating Turkey from the rest of the world, and fuelling this economic prosperity. You are literally building the cities of the world. How important is the message you are bringing to the international community in terms of world-class expertise to Turkey’s continued economic prosperity? Do you see Turkey as an ambassador to the world?
Inadvertently yes, although we are not necessarily saying that. The Turkish projects being realised abroad help increase our visibility. Government officials visit other countries and look at what Turkish companies are doing, and they have a very good rapport with their counterparts. In that sense, the Turkish construction industry has become an international brand. As far as construction is concerned we are able to offer world-class quality, on time delivery and competitive prices. In terms of design, I believe we can achieve a lot more. We are not yet where we hope to be, but as you can see, there has been a lot of activity in that sense in recent years in Turkey. New architectural design companies are coming up with new ideas and more internationally accepted models.

We do believe that in the coming years, we will see more Turkish designers and engineers involved in international projects outside of Turkey.
One of the essential mandates of TCA is to increase competitiveness, more importantly the alliances between Turkish companies operating domestically as well as the ones that are operating internationally. How are you working to achieve this with your members? 
We usually get in touch with our counterparts in different countries and start dialogues with them. We either invite their members to Turkey or we take our members to their country and basically start networking. There have been a lot of successful collaborations – there are companies partnering with other companies that they would not have necessarily known about before. We have MOUs (memorandums of understanding) with China and a lot of central African countries right now. Next month we are going to sign an MOU with the Mongolian Construction Association actually. Our prime minister will be going there in mid-April I think. Just a few days ago Prime Minister Cameron was here, and the Ghanaian President also came here. So there is a lot of activity in building new international relations for Turkey and enhancing the existing ones. Of course the European crisis has pushed Turkish contractors and exporters. The European crisis affected Turkish exporters more but the Arab Spring affected the contractors more. That is why we are spreading our international activities to the non-traditional markets. This is moving very fast. 
As I said earlier, one of our strengths in international contracting is the logistics capabilities in Turkey, although this also used to limit the geographic scope of our activities. But now we are more courageous to go further away from Turkey, and not necessarily relying on Turkish logistics. The distance is not as critical as it used to be. This also relates to telecom technologies. Also, Turkish Airlines has increased the number of destinations it serves, which is very helpful for us. As long as there is a Turkish Airline flight to a destination, then you will see more exporters and contractors with increased interest in doing business there. It is a waste of time if you have to take three different planes to get somewhere, as well as a waste of money. Turkish Airlines’ flights are indeed a very good pull for the exports and international contracting.
We attended the IOC’s Istanbul 2020 bid for the Olympics, and the excitement was buzzing. What do you think this bid means for the Turkish construction sector if it is successful, as well as the country as a whole?
I was there on Sunday morning actually, at the 10 o’clock session, which concerned the sports facilities and infrastructure. I represented the TCA there. The Olympics is a high visibility event, so for the general marketability and visibility of Turkey it is very important, and for Istanbul as well. About 13 billion of investment is going to take place anyway, regardless of whether we get the bid or not. But 6.5 to 7 billion of that is for the new sports arena and related facilities. So of course it will create additional work for the construction sector and will increase the visibility of the sector even further. I think Istanbul deserves it. For the first time, I am very optimistic about the outcome. I think Istanbul has a very good bid, when you compare it to the competition (Tokyo and Madrid).

The Istanbul Olympic Committee did very well, and they also used a lot of British expertise. They almost mirrored the London Olympic presentation and preparation. I am hopeful. 
How important is FDI (Foreign Direct Investment) to the continued growth in the Turkish construction sector? Where do you see possible opportunities for British companies?
FDI is not just important for construction – it is important for the Turkish economy in general. Turkey has been improving its regulation and systems so it can attract more FDI. The investment environment is very good in Turkey, and it is especially promising for the next ten to twelve years. Construction is a major industry with regard to the 2023 vision of Turkey and all the infrastructure projects that are being planned. Almost 90% of them are planned as PPP projects, and without taking the urban development/transformation project into account, there is still $180 to 200 billion of infrastructure that needs to be realised by PPPs. Of course there is some capacity in Turkey, but I do not think it will be possible to do all that. So it is important that we do attract foreign investors. As far as I can see, the Turkish Government is taking the right steps in this direction.
My only concern (and I do voice this quite often) is that all of these projects are coming on top of each other a little. My preference would be to spread the projects out a little, so you do not saturate the capital and financial markets. It will be challenging for Turkey to realise all these projects in the timeframes given, but it is also a very exciting time. If we get a couple of more ratings points, that will make Turkey a more secure and credible environment to invest in. FDI is always important, and we do hope that there will be growing interest.
British companies are mostly involved in the design and engineering side of the construction sector. There are a lot of British consulting firms that are active in Turkey actually, and they are heavily involved in most of the infrastructure projects that are being planned. I am sure that there are funds that will come out of Britain again for certain investments. British companies are mostly staying inside Britain at the moment, and some of them are even being bought by consulting companies. We are seeing more and more consultancy activity in the engineering, design, legal and financial side.
If we were to come back here in five years’ time, optimally, what improvements or achievements would you like to have completed?
I would like to see our members being more actively involved in sustainable development, and take the lead in that area. Secondly, I would like to see our design and engineering capabilities grow substantially. I am sure I will see more construction companies turning into concessions, which we are beginning to see already. I will probably see more Turkish construction companies becoming concessions and doing more investment outside of Turkey. Currently, some of our members are investors in tourism and real estate projects outside of Turkey. I would expect them to be moving to the field of energy outside of Turkey for instance. 
What is your final message to all of the potential investors and even tourists about Turkey and the construction sector, or maybe something they do not already know?
These are definitely exciting times. I think in terms of construction, engineering, design and consultancy, Turkey will have a lot of potential. I believe that except for a few projects that may experience challenges in terms of implementation (because of financial and technical requirements) Turkey is definitely on the right track. With the new political developments, I think this will provide a very good environment for foreign investment in the construction and consultancy sectors. I do of course hope that Turkish and foreign companies collaborate more in the third world countries, especially when it comes to the development of Africa. I think Turkish construction implementation is one of the best in the world, so putting this together with engineering and technology consultancy will bring very good projects for the world.