Building and construction to Turkey
(Last updated: 11 Dec 2011)
Trends and opportunities
The market
Turkey is one of the key countries in the Middle East region when it comes to infrastructure projects. According to a report by Goldman Sachs, Turkey will become the world’s 9th largest economy by 2050 (Source: Sabah Newspaper: Goldman Sachs: Turkiye 2050’de dunyada dokuzuncu buyuk olur). Although Turkey saw a rapid decline in its economy during the global financial crisis, its banking sector has not suffered the same problems of toxic assets as many other countries, and a more rapid recovery was realised than other counterparts. Turkey commands a unique position bridging Europe and Asia, and its construction sector has grown rapidly. It has done this by not only exploiting opportunities from the development of the local economy, but by successfully penetrating opportunities in the Middle East, Central Asia and Russia. Collaboration with Turkish contractors or consultants could simplify market entry into some of the more challenging but potentially lucrative markets of the Middle East and North Africa and the Central Asia Republics.
The European Union has already allocated pre-accession funding to Turkey, which is mainly bound for the building and refurbishment of highways; railways and ports. This in turn will create opportunities for Australian companies with experience in similar projects in other developing markets. In addition to the EU, the World Bank is also active in this space. Furthermore, concession contracts, including very large transportation projects and PPP projects are continuing to present opportunities for those providing technical and legal services to lending banks and project consortia. Such major projects may also provide opportunities for Australian companies that supply niche design services, materials or products to form part of the supply chain. Contracts for such projects are often formed by consortia of Turkish and foreign contractors.
While Turkey has its own strong construction consultancy sector, there are opportunities for Australian companies especially in the commercial and retail sectors where institutional investors are involved. Tourism projects remain a growth area, with plans for further resorts and marinas built to international standards, and a growing interest in heritage tourism. Regeneration of city centres is a growing area of interest as well. In Istanbul, competition for the master planning of parts of the run-down areas of the city has already commenced.
Increased energy costs and concerns over security of supply are beginning to drive a commitment to greater energy efficiency in buildings and the sustainability agenda, and there appears to be limited local expertise in this area. Project management and construction management services do not appear to be well developed, and there are indications that even the larger contractors are recognising a skills shortage due to rapid expansion which is beginning to impact on performance and profitability. This is a growing area of opportunity.
The construction sector
The construction sector represents approximately six per cent of GDP in Turkey employing around 1.3 million people, and there is a strong presence of both contracting and consulting companies. The sector realised 14.7 per cent growth in Q1 of 2011 and 13.2 per cent growth in Q2 of 2011. As of the first half of 2011, the sector grew by 13.9 per cent. The market size of the sector was A$6.8 billion in Q1 of 2011 and A$8.2 billion in Q2 of 2011. (Source: IMSAD - Association of Turkish Building Material Producers July 2011 Bulletin)
The Turkish construction sector had developed a strong export base to a number of emerging markets, such as the Russian Federation, Libya and Turkmenistan. The economic downturn has had a serious impact on the Turkish construction sector and has dramatically slowed the domestic construction boom as well as impacting international demand.
European standards are generally being applied to materials and products although there remain issues with certification and testing laboratories and the enforcement of regulations. Turkey is a major supplier of marble and travertine but much of the finishing work has to be undertaken outside the country as the specialist equipment is not generally available in Turkey.
The engineering and architecture consultancy sector
This area is one of the key opportunity areas for Australian exporters. The Association of Turkish Consulting Engineers and Architects is an NGO that represents the interests of the professions. Most of their members can be categorised as small businesses. The members of the association work in Turkey and in the overseas markets, mainly in the Middle East, North Africa and the CIS countries. They closely work with the members of Turkish Contractors Association.
Turkish contractors
The constant increase in global competitiveness among Turkish contractors and construction material providers is facilitating the yield of significant contributions to the balance of payments.
Over the past 38 years, to the end of 2010, Turkish contractors have undertaken almost 6,000 projects in 89 countries, with a total value of approximately A$175 billion. (Source: Turkish Contractor’s Association July 2011 Bulletin). This places Turkey among the top 12 producers of building materials in the world, particularly in the supply of such products as cement, glass, steel and ceramic tiles.
As is the case with many other export-oriented economic activities in Turkey, the unique geographical location of Turkey contributes a great deal to the global competitiveness of Turkish construction products and contracting services abroad. That said, Turkey's strength in the field is not only due its location, as the country also boasts cost-effective service at international standards, high client satisfaction, credibility in partnerships, extensive knowledge and vast experience in a wide variety of projects, familiarity with the business environments in the nearby regions, qualified manpower and a calculated risk-based approach to business.
In 2010, 33 Turkish contracting companies were listed in the ‘Top 225 International Contractors’ announced by Engineering News Record, the leading international industry magazine, with Turkey ranking second in the world after China. (Source: Turkish Contractor’s AssociationJuly 2011 Bulletin). Turkish contractors are open to international partnerships, not only in the field of contracting, but also in construction industry investments, ranging from the manufacture of construction materials to infrastructure, housing, industry and tourism projects.
The extensive know-how and experience gained through working abroad for nearly four decades, in all kinds of challenging engineering projects and in all forms of business environment, constitute the distinctive elements of the Turkish construction sector.
Turkish international contracting services (1972-2010)
In the 1972-2010 periods, with a share of 18 per cent, the Russian Federation has been the leading market for Turkish contractors, followed by Libya (14.1 per cent) and Turkmenistan (11 per cent). Despite the fact that the Russian Federation share has decreased in recent years due to the negative effects of the global financial crisis, it has maintained its position as the largest market for Turkish contractors in terms of total projects undertaken between 1972 and 2010. (Source: Turkish Contractor’s Association July 2011 Bulletin).
Within the 38 year period between 1972 and 2010, the shares of CIS, Middle-Eastern and African countries in the overall international business volume of Turkish contractors were 43 per cent, 25 per cent and 21 per cent respectively. In other words, the total share of CIS-Middle East-Africa countries reached almost 90 per cent.
International projects undertaken by Turkish contractors in 2010
Building and construction
Istanbul is in the Top 5 largest cities in Europe by population, and the urban planning for the city is therefore critical. The population is currently estimated to be 16 million in Istanbul. The 2008 OECD Territorial Report (Source: OECD Territorial Reviews: Istanbul, Turkey) for Istanbul reports that over the last three years, there has been progress towards a more open, integrated and decentralised system of urban planning in the city. The Metropolitan Planning and Urban Design Centre (IMP) has been established within the municipality as a focus to drive forward, in a coordinated way, urban planning for the city. The planning aspect recognises the need for urban regeneration whilst taking into consideration the environmental considerations, seismic risks and urban transportation, however these are not necessarily being translated into reality due to the diversity and large number of stakeholders involved in progressing redevelopment.
The OECD report acknowledges that moving towards more sustainable development is probably one of the greatest challenges for Istanbul and that environmental and sustainability issues are only now moving properly onto the agenda.
Another problem has been the high level of illegal and uncontrolled development that has taken place over recent years with the expansion of the city and the complex web of political and commercial interests in regeneration.
Market drivers
- European Union accession process
Turkey is a candidate country to become a full member of the EU. Turkey is already a member of the Customs Union in the EU and discussions to align laws and regulations to the EU standards have been very successful.
- Ambitious privatisation programs
According to the Turkish Transport Ministry high-value projects in transportation sector will be in service by the end of 2015. These projects include a highway underneath the Istanbul canal, Marmaray, a rail transport project on construction of an undersea rail tunnel under the Bosphorus, which will start to operate on 29 October 2013. Marmaray rail tube tunnel will link the city's Asian and European sides via an undersea commuter train line. The project also includes the modernisation of suburban rail lines along the Sea of Marmara from Halkali on the European side to Gebze on the Asian side. Another important project, a highway beneath Istanbul Strait, is estimated to finish by 2015. The Istanbul Strait Road Tunnel Crossing will be used only by light vehicles. The tender for Gebze-Orhangazi-Izmir Highway will take place on January 10, 2012, and this project will be carried out on Built Operate and Transfer model. Meanwhile, North Marmara Highway, including the third Bosporus Bridge in Istanbul, will start to operate in 2015.
- Turkish contractors
Turkish contractors have grown to become multinational companies with an emphasis on the projects in the nearby regions. Due to their strong presence in the Middle East and the CIS countries, there is a big opportunity for Australian companies to partner up with Turkish contractors for projects in Turkey and in third markets.
- Energy corridor
Turkey is an important energy terminal and corridor in Europe connecting the East and West. Seventy per cent of energy resources are located in the south and the east of Turkey, while the largest energy consumer, Europe, is located in the west of Turkey.
Opportunities
Pre-project studies and technical assistance
EU funding will increase as Turkey progresses towards EU membership. This will create opportunities for Australian consultancies to participate in projects relating to project identification and feasibility, capacity building of local institutions, technical assistance and project supervision. Current areas of opportunity include the new highway projects and new rail road projects. The Nabucco pipeline project, a proposed natural gas pipeline from Erzurum in Turkey to Baumgarten an der March in Austria diversifying natural gas suppliers and delivery routes for Europe, may also present opportunities. This includes the pipeline itself, the associated environmental issues around it, and also the related infrastructure improvements that will be required.
New projects
Tourism is a growth area requiring continuing investment in many areas. The development of international hotels, holiday villages and resorts, marinas and other facilities present opportunities for international designers since the facilities have to compete in quality and concept on the world stage.
The concept of regeneration is now developing in Turkey although this appears to be focused on the generation of land value rather than a balance between this and community needs. As the process develops and matures, there is likely to be the opportunity for those with experience of urban regeneration to provide services to the private and public sectors. Within Istanbul, there will be continuing interest in this sector driven in part by the recognition of the risk of a further serious earthquake.
The concept of sustainability is beginning to be addressed in Turkey as energy costs rise and public perceptions change. However, these concepts are relatively new to Turkey, and there are opportunities for those with experience of sustainable design for both domestic and commercial development to raise awareness and take market share.
Services to Turkish contractors
As mentioned above, Turkish contractors have been very successful at securing projects in Turkey and also in developing countries at competitive prices and with a rapid mobilisation. A market is developing to sell specialist services in cost, project, and construction management to Turkish contractors in both their home markets and overseas in order to improve their performance and drive down costs. A good number of Australian companies (eg. Ausenco and Aconex) already have strong relations with Turkish contractors and have worked in projects in the GCC countries and the CIS countries.
What makes Turkey an attractive place to do business?
- Centrally located
Turkey is a natural bridge between both East-West and North-South axes thus creates an efficient and cost effective outlet to major markets. From Turkey, companies enjoy an easy access to 1.5 billion customers in Europe, Eurasia, the Middle East and North Africa.
- Economic stability
Turkey continues to be seen as one of the most important emerging markets. Companies have enjoyed strong growth over the last 18 months in particular, pushing Turkey to clearly become one of the fastest growing markets in the world for most multinational companies. Many firms are exploring acquisition targets in Turkey, but are also evaluating greenfield manufacturing opportunities. With a strong demographic boom expected to continue, Turkey will continue to be one of the most promising emerging markets in the next decade.
- Qualified and competitive workforce
Turkey has over 25 million young, well-educated and motivated professionals making it the fourth largest labour force compared with the EU. Each year approximately 500,000 graduate from 156 universities in Turkey. Many of the multinational companies have their regional headquarters in Istanbul and enjoy employing the qualified workforce for their businesses.
- Attractive market
Turkey is one of the fastest growing countries in the world. Many of the renowned economists now place Turkey along with the BRIC countries. In addition to being a hot market for trade and investment, Turkey is a very attractive place to visit, live and do business and has become a favourite destination for international conferences, exhibitions, trade shows and seminars.
Marketing your products and services
How Austrade can help with market entry
Turkey, with its growing project portfolio and import propensity presents significant opportunities for Australian businesses in the infrastructure, building and construction industry. However, the relative challenges in qualifying partners or customers and different business culture makes it difficult for Australian companies to identify the most suitable contacts and secure appointments.
Austrade's experienced Business Development Managers are members of relevant building sector business groups. They are well connected with key business people and able to open doors on behalf of Australian companies. Austrade arranges appointment programs for companies making individual visits.
There is a big difference between the commercial laws in Turkey and Australia, which if not understood by Australian companies, can result in decisions which impede the growth of business. It is very important to understand the legal context. Austrade provides information about agency/distribution and legal regulations and the different types of commercial entities open to Australian companies.
Links and industry contacts
Association of Turkish Building Material Producers – www.imsad.org
Association of Turkish Consultants and Architects – www.atcea.org.tr
The Building Information Centre – www.yem.net
The Chamber of the Architects of Turkey – www.mo.org.tr
Doing Business – guidance on various business issues – www.doingbusiness.org
European Bank for Reconstruction and Development – www.ebrd.org
European Investment Bank – www.eib.com
European Union – www.europa.eu
General Directorate of Highways – www.kgm.gov.tr
Greater Municipality of Ankara – www.ankara-bel.gov.tr
Investment Promotion and Support Agency – www.invest.gov.tr
Istanbul Metropolitan Municipality – www.ibb.gov.tr
The Marmary Project Istanbul – www.marmaray.com
Ministry of Tourism and Culture – www.kultur.gov.tr
Turkish Contractors Association – www.tmb.org.tr
Turkish Electricity – www.turkey-electricity.com
Turkish State Railways – www.tcdd.gov.tr
Urban Age, Istanbul – www.urban-age.arkitera.net
The World Bank – www.worldbank.org
Contact details
The Australian Trade Commission – Austrade – is the Australian Government’s trade, investment and education promotion agency.
Through a global network of offices, Austrade assists Australian companies to grow their international business, attracts productive foreign direct investment into Australia and promotes Australia’s education sector internationally.
For more information on how Austrade can assist you, contact us on:
Australia ph: 13 28 78 | Email: info@austrade.gov.au
A list of Austrade offices (in alphabetical order of country) is also available.