The Turks have a long history of international expansion and the country’s contractors are no different. During the past decade, they have become increasingly active overseas, with the Middle East and North Africa (Mena) region being of prime focus, along with Central Asian republics.
Since 2005, Turkish companies have won regional contracts worth $30.6bn across a range of sectors, from airports and water infrastructure to industrial projects and power stations, according to regional projects tracker MEED Projects.
In recent times, Saudi Arabia, Qatar and Libya have been the biggest markets. Of these Libya has traditionally been dominant for Turkish companies. Historically, however, Libya has been the biggest market for Turkish companies. A legacy of close relations between the two countries saw Turkish firms invited to bid for construction projects throughout the 1970s. According to the Turkish Contractors Association (TCA), $26.4bn worth of projects have been delivered by Turkish contractors in Libya since 1972.
The TCA estimates that at present Turkish companies are involved in 360 projects in the country worth $18bn, which makes Libya’s political crisis a very Turkish problem. “The value of machinery and construction equipment on the construction sites is approximately $1bn,”says the association’s secretary general Haluk Buyukbas. “Liabilities arising from guarantee letters, bonds and credit payments also represent additional financial burdens. Today, the future of Libya is an important and unpredictable issue not only for the Turkish, but for all international players.”
Turkish firms have delivered more than $10.6bn of projects in Iraq since 1972 … [in Mena contract volume]
One of the Turkish firms hardest hit by the current instability is Gama Energy, part of the Gama Group, which, according to MEED Projects, has won contracts worth more than $3bn in the Mena region since 2005. In Libya, it had been delivering the $1.46bn 1,400MW Al-Khaleej steam power plant in Tripoli for General Electric Company of Libya with South Korea’s Doosan Heavy Industries & Construction and Hyundai Engineering & Construction. But in February, Gama Energy announced it was evacuating 947 personal and a further 52 subcontractor staff from the country.
Fortunately, it still has the $1.1bn Disi water conveyor under way in Jordan to absorb some of its resources. The project will see 100 million cubic metres a year of freshwater from the Disi aquifer moved 340 kilometres north to Amman under a 25-year build-own-transfer contract. Construction is more than 50 per cent complete.
|Turkish Mena contract awards: Contracts won by sector* ($m)|
|Sector||Value of contracts won since 2005 ($m)||Percentage|
|Mena=Middle East North Africa. *=Since 2005. Source: MEED Projects|
Fellow Turkish contractor Tekfen has also been affected by the Libyan uprising, but not to the same extent. Although its $484m Al-Khufra to Tazerbo water conveyor is now on hold, it only represents 16.5 per cent of the company’s regional awards since 2005. It has won $2.12bn of contracts since 2005, making it the fifth-largest Turkish contractor in the region. The company says 34 per cent of its work is in North Africa and 31 per cent in the Middle East, making the region accountable for 65 per cent of its total work load.
The Libyan contract is part of the legendary Great Man-Made River project, which moves water north from the Nubian Aquifer via more than 4,000km of water mains into the cities of Benghazi, Tripoli and Sirte. According to Tekfen, the 380km conveyor pipeline project in the centre of the country is one of the most challenging on the scheme, requiring the placement of more than 50,000 of 4-metre diameter concrete pipes. In total, the firm estimates the project, which began construction in June 2006, is worth $324bn to Tekfen with the remainder to its joint venture partner, fellow Turkish contractor TML Construction Company.
Oil and gas: Key markets
Looking ahead, Tekfen aims to continue its expansion throughout the region. “Geographically, Tekfen aims to increase its current backlog in all the Mena countries where it is already operational, with special interest in Saudi Arabia, Qatar, the UAE and Morocco,” says the firm’s president Umit Ozdemir.
|Turkish Mena contract awards. Work won by geography*|
|Country||Value of contracts won ($m)||Percentage|
|Mena=Middle East North Africa. *=Since 2005. Source: MEED Projects|
Oil and gas is a key market for the firm. “This area of contracting will continue to be Tekfen’s primary focus,” says Ozdemir, who says civil infrastructure, particularly in Qatar, is also of interest.
Not surprisingly, given its expertise in the energy sector, Iraq is high on Tekfen’s agenda. It worked extensively in the country until the invasion of Kuwait in 1990. “Due to the uncertainty, stemming from the post-war situation, the rebuilding of Iraq remains one of the most pressing questions of today. Tekfen is closely monitoring new business opportunities in Iraq.” says Ozdemir.
Turkish firms have delivered more than $10.6bn of projects in Iraq since 1972, according to the TCA, making it second only to Libya in terms of contract volume in Mena. Since 2005, the market accounts for 6.6 per cent of regional awards for Turkish contractors, at just over $2bn. Although this is expected to grow, it will be some time before it matches the increasing importance of Qatar and Saudi Arabia to Turkish firms. Accounting for $5.45bn of contracts awarded since 2005, compared with a total of $8.6bn since 1972, the workload for Turkish firms in the Kingdom is accelerating fast.
Saudi Arabia and Qatar are key markets for MEED’s largest Turkish contractor TAV. It has won positions in contracts throughout the region worth $8.4bn since 2005. Its success in the airports business means that many of these are joint ventures on schemes such as New Doha International, Muscat International and Tripoli International airports. The company estimates that total work value to TAV of the $8.4bn is $3.7bn. Like other firms its Libyan projects are also on hold.
“We are very interested in the Saudi market,” says the firm’s Gulf regional director, Yusuf Akcayoglu. The company is currently in the running for three major projects. “The TAV-led consortium placed its bid for Medina Prince Abdulazziz Airport in early June. We are also in tender process for King Abdul Azziz International Airport airfield works and Saudi Arabian Airlines aircraft maintenance hangars in Jeddah,” he says.
Expansion of airport facilities is a priority for the Gulf and TAV says that early recognition of this need has positioned it well. “We saw this niche a long time ago and the winning of the Emirates Airline Airbus A380 Maintenance Hangars in Dubai and Cairo International airport terminal three were the start of our ventures into the Arab World,” says Akcayoglu. “The Gulf remains our top priority. Our mission here is to take our place in every airport development in the region.”
|Largest Turkish contractors in the Middle East and North Africa ($m)|
|2||Gama (through Gama Construction Company, Gama Energy and Gama Industry)||3,043|
|3||Baytur Construction & Contracting Company||2,534|
|4||Enka (through Enka Insaat and Enka Technik)||2,404|
|7||Yuksel Construction Company||2,005|
|8||Mapa Construction & Trading Company Incorporated||1,480|
|10||Nurol Group of Companies||1,289|
|11||Sezai Turkes-Feyzi Akkaya Limited (STFA)||1,224|
|12||Dogus Insaat Ve Ticaret AS||915|
|14||Guris Construction & Engineering Company Incorporated||610|
|15||Fernas Construction Company||397|
|16||TML Construction Company||534|
|Source: MEED Projects|
Another Turkish contractor to be awarded more than $2bn in work since 2005 is Yuksel. The firm began its international expansion into Saudi Arabia in 1983, carrying out construction work through contracting arm Yuksel Insaat. It also works in Iraq, Afghanistan, Qatar, the UAE, Libya, Jordan, Uzbekistan and Kazakhstan and focuses on major infrastructure including dams, hydro-electric power stations, roads, bridges, tunnels and water projects.
Over the past six years, Yuksel has won major contracts in the core markets the TCA expects to be of most interest to contractors in the future: Saudi Arabia, Qatar and Iraq. “In all the countries Yuksel worked in, it stayed there for long period,” says Tuna Aksel, Yuksel Insaat board member and general coordinator of Yuksel Holding. “Yuksel never goes for a country just for one project and it utilises local resources. In this regard, Yuksel wants to invest in countries that it works in. By doing this, Yuksel respects local laws, regulations and institutions.”
Aksel says the firm is looking to expand into Algeria, Oman, Turkmenistan and Azerbaijan: “In these countries, Yuksel will focus on general contacting projects, public investments and infrastructure projects.”
Diversification has been a feature of Turkish contracting strategy for decades. In the 1990s, political uncertainty in the Middle East, combined with a sluggish domestic market sent Turkish companies out to Russia, Ukraine, Kazakhstan, Uzbekistan and Pakistan, among others. Russia accounts for 18 per cent of all international work carried out by Turkish contractors since 1972, estimated to be worth $33.8bn. However, in recent times, Russia’s economic issues have led to a drop off in work, making growth in markets, such as Kazakhstan, Saudi Arabia and Iraq increasingly important to Turkish firms.
Sectorally, the focus has changed too. Throughout the 1970s, much of the work carried out by Turkish contractors was in the housing sector, but by 2000, this had changed dramatically. “A remarkable change took place after 2000 and the total share of industrial buildings, oil refineries and road-tunnel-bridge projects reached 59 per cent, while the weight of housing projects declined to 20 per cent” says Buyukbas.
The reason for this was that Turkey itself invested heavily in new infrastructure between 1985 and 2000, equipping firms with new expertise through major projects, such as the Ataturk Dam and the 2,000km motorway programme. “This helped Turkish contractors to enjoy partnerships with international players in the Turkish market. They also got acquainted with the international financial institutions and their tools,” says Buyukbas.
This local experience has served Turkish firms well when it comes to expansion – as has the strong domestic construction materials market. However, contractors agree that winning new work is becoming increasingly difficult in the current market, which see purveyors of goods and services dictating the terms.
“The region, especially the GCC countries, reflect a very competitive market environment for construction,” says Tekfen’s Ozdemir. “The move to local low-cost construction where applicable, superior construction management, high speed and productivity, and global sourcing initiatives enable Tekfen to mitigate the negative effects of this environment in the region.”
This increased competition, coupled with the political instability that has shaken North African states in particular, means Turkish firms – in fact all contractors operating in the region – are facing challenging market conditions.
By broadening their Mena workload and entering new markets, most firms are protecting themselves against shocks in individual markets. At the same time, however, they are opening themselves to new risks.
Firms that have been employing this strategy for a long time and can build on current relationships will be best placed to continue the growth story for Turkish contractors.