Emin Sazak, CEO, Y üksel İnşaat, and Former President, Turkish Contractors Association: Interview

Interview: Emin Sazak

In what way have local construction firms contributed to the development of the sector in Turkey?

EMIN SAZAK: Construction accounts for about 3.5% of Turkey’s GDP, but, when related industries are included in the calculation, this contribution is closer to 30% of economic activity. Segments such as building materials and logistics have seen considerable growth as a result of the increasing size and strength of the local construction industry. The sector also employs 1.8m to 2m people, and this number is much higher when you take into account indirect employment. This is why governments in general try to stimulate construction when they want to speed up the economy, as it encompasses various sectors, businesses and job opportunities.

How will the recent rate increase and slowdown in domestic growth impact the Turkish construction sector at home and internationally?

SAZAK: Over the past decade the sector has vacillated between very high levels of growth and more lean times, but the overall trend is a positive one. This sustained rise has been driven by two main factors, major government spending on large-scale infrastructure projects and increased private investment in real estate developments. Higher interest rates will have a negative impact on both areas. The most immediate effects will likely be felt on the private side, as less people will be able take out loans to invest in property and real estate developers will have a far more difficult time financing new projects. While a lot of government infrastructure projects, especially public-private partnership projects, have been lined up and tendered in the past few years, many of them are still in the process of financial closure and will become more expensive as a result of the increase. It is expected that 2014 will be a more difficult year for the industry than 2013, which saw solid growth of around 6.8%. That said, a lower rate has more to do with macroeconomic and political factors than any issues with the industry itself. The sector will continue to expand at a faster pace than the overall economy in the coming year. In any case, many Turkish contractors are doing more business abroad than domestically, thus allowing for other sources of revenue less dependent on the performance of the economy.

What countries or regions offer the greatest opportunities for Turkish contractors abroad?

SAZAK: The majority of work done by Turkish contractors abroad is concentrated in the Middle East, North Africa, Russia and Central Asia. Markets such as Qatar, Saudi Arabia and the UAE have been very lucrative for the sector, and this will continue going forward owing to significant planned construction for upcoming events, namely the 2022 FIFA World Cup in Qatar and Expo 2020 in Dubai. Since the 1990s, Russia and Central Asia have also proven attractive markets, and still have major potential, especially as hydrocarbons-rich countries such as Kazakhstan embark on massive infrastructure-building campaigns. In recent years, following the Arab Spring, Turkish contractors have begun moving away from their traditional markets, particularly in North Africa. Turkey was second only to China on the Engineering News-Record’s “Top 250 International Contractors List” in 2013, with a total of 38 companies.

One area of focus is Sub-Saharan Africa. Indeed, Turkish contractors are pursuing opportunities in Angola, Ghana, Mozambique, Tanzania, Ethiopia, Kenya, Niger and Cameroon, among other markets. They are being aided by the spread of Turkish institutions across the continent, including Turkish Airlines and the Foreign Ministry, which has opened more than 20 new embassies and consulates in the region over the past few years. Having said this, Africa is still a very tough market and it will take time for Turkish contractors to make major inroads. While many of these countries do benefit from natural resources, they are not yet in a position to fully exploit them and direct the proceeds into infrastructure projects. Moreover, competition from China and easier access to cheap financing for Chinese companies than for their Turkish counterparts is another issue.