Turkish firms capitalise on region’s increasing need for infrastructure
After a challenging five years, which began with the global financial crisis and moved on to the events of the Arab Uprisings, Turkish contractors are once again reporting major growth in their international project workload.
“ was a truly successful year for Turkish contractors [overseas] and the total amount of their new contracts reached $26.6bn,” says Haluk Buyukbas, secretary-general of the Turkish Contractors Association (TCA). Of this, the Middle East accounted for the largest share of international work at 41 per cent, while Africa accounted for a further 16 per cent.
According to regional projects tracker MEED Projects, since the end of 2011, Turkish contractors have won more than $11bn-worth of deals in the region. The most rewarding market has been Iraq, accounting for 38 per cent ($4.4bn) of all deals. The TCA estimates that 114 schemes are currently being carried out in Iraq by Turkish contractors, accounting for 16.5 per cent of their entire international workload.
Turkey’s proximity to Iraq gives it some natural advantages in the construction sector. Shortages of materials and skilled labour are a major obstacle for Iraq’s reconstruction programme, but Turkey is among the world’s top producers of building materials from steel and cement to ceramics and glass. At the same time, Ankara’s support for stability in Baghdad, which led to the creation of a high-level strategic cooperation council in 2008, has reinforced the strong links between the neighbours. Iraq is now Turkey’s second-largest export market.
About 114 schemes (16.5 per cent of their international workload) are being carried out in Iraq by Turkish firms
Turkish Contractors Association
One firm that has had major success in Iraq over the past couple of years is Turkish construction group Enka. It began working in Iraq back in the 1980s when it built cement plants in Tasluja in Suleimaniyah and Karbala, southwest of Baghdad. More recently, it has won a series of deals in the energy sector, including the 100,000 barrel-a-day oil processing facilities at the Majnoon oil field, the 132MW power generation, gas treatment and power distribution systems at the West Qurna-2 oil field in 2011 and the $500m engineering, procurement and construction contract for a 1,500MW combined-cycle power plant in Erbil.
In 2012, Enka was awarded deals to build a 500MW simple-cycle power plant in Nejibya and a crude-pumping station in Rumaila.
Overall, the company has $1.9bn of deals under way in Iraq, and a regional portfolio worth $4bn. Its success in Iraq has come easy, however. “Working in central and southern Iraq requires patience, flexibility, financial stability and endurance in order to fulfil tasks, while manoeuvring through excessive bureaucracy,” says Oguz Kirkgoz, Enka executive committee member.
This bureaucracy has long been a feature of Iraq’s project market, with tender evaluations and contract awards being delayed and far from transparent. Formalities surrounding visas, customs clearances and limitations on the origin of supplies represent further challenges. “Security issues, while improving, remain a challenge in certain regions of Iraq,” says Kirkgoz.
Housing projects are another priority for Iraq. The Housing Ministry has committed $1.3bn for investment in 2013 alone. The ministry says it currently has 462 building and road projects under way, with 78 new schemes launched this year. Turkish firms are benefiting from this wave of investment and many including Marmara Engineering & Construction, Bilal, Eku Construction, Koray Group, Nurol, Tasyakan and Tek Celik are now working in housing schemes in Iraq.
In the wider region, Saudi Arabia also remains an important market for Turkish contractors, accounting for 16 per cent of new awards since the end of 2011. From petrochemicals and energy to airports and railways, the kingdom has presented a range of opportunities. Airport specialist TAV Construction, for example, added to its success as part of the Tibah Consortium (along with Saudi firms Saudi Oger and Al-Rajhi Holdings) on the $1.5bn Medina airport public-private partnership by winning a joint-venture deal for construction of the $800m aircraft maintenance hangars at Jeddah’s King Abdulaziz International airport. As in Medina, it joined forces with Al-Rajhi but its other partner was the UAE’s Habtoor Leighton. TAV Construction Middle East director Yusuf Akcayoglu says 2011 and 2012 were remarkable years for the company and that Saudi Arabia was the most promising market for the firm in the future.
Another market where Turkish firms have high hopes for the future is Libya. This is despite the massive losses that contractors experienced when civil war broke out and forced them to flee the country. “The outstanding progress payments amount to $1bn, the volume of performance and advance payment bonds $1.8bn, and the estimated total amount of losses and damages is $1.3bn,” says Buyukbas.
To date, no compensation payments or repayment of monies owed have been made to Turkish firms.
But earlier this year, on a visit to Turkey, Libya’s Prime Minister Ali Zeidan told industry representatives the Libyan government would pay 50 per cent of the outstanding progress payments owed to Turkish firms. It would then pay the remaining half in two instalments in order to ensure the firms’ return to Libya as soon as possible. Buyukbas says that although Zeidan also discussed establishing a mechanism for compensation for damages and losses, a timescale and clear process for this remains to be set.
Nonetheless, Turkish contractors have remained committed to the market and are in constructive dialogue with the Libyan authorities. “Turkish firms have visited their construction sites and expressed their willingness to resume the projects,” says Buyukbas. “They have [repaired for free] several public buildings such as police stations, schools and airport terminals [out of] respect to the good relations with the National Transition Council (NTC) and strong historical ties with the Libyan people.” He says some early construction work has begun to emerge, limited to schemes that address Libya’s immediate needs such as airports, highways and energy facilities.
Historically, Libya has been the region’s most important market for Turkish contractors, particularly in the 1970s and 1980s when it dominated the international workload for Turkish firms.
Since 1972, Turkish companies have delivered $27.8bn of projects in the country. Enka, for example, entered Libya in the 1970s working on the Brega and Ras Lanuf town projects, the Sirte Hotel and several industrial schemes. Before the revolution, it delivered four new desalination plants and a power plant. Kirkgoz says work in the country restarted in 2012 and a 640MW power plant is under contract in the Wadi al-Hayat region.
“Libya is one of the major markets where Enka is comfortable to operate and is constantly monitoring for opportunities,” says Kirkgoz.
Buyukbas agrees that the market remains of interest to Turkish firms. “[Notwithstanding] a difficult financial phase, Turkish companies are optimistic about the future of business in Libya, willing to resume unfinished projects and pursue new opportunities in the country in the coming period,” he says.
Beyond Libya, Turkish contractors are also expected to capitalise on the wider region’s growing need for housing, infrastructure and industry, particularly in Iraq, Saudi Arabia, Qatar and Kuwait. The TCA points to political instability as being the biggest challenge in the future, but weathering the recession and the Arab unrest with a record volume of work in 2012 shows that when the going gets tough, Turkish firms keep going.
Weathering the unrest
Between 2002 and 2007, Turkish contractors enjoyed year-on-year double-digit growth with respect to the volume of work being delivered in international markets.
At the industry peak in 2007, annual contracting volume was $25.5bn, compared with just $2.6bn in 2002. This sharp increase partly originated from a domestic financial crisis at the turn of the new millennium, which forced firms to aggressively pursue work overseas.
This, coupled with extensive experience gained on major domestic infrastructure projects in the 1980s and 1990s, the proximity and strong relationships with markets across the Middle East, Central Asia and Africa, was a recipe for Turkish success and saw huge growth in overseas contract awards.
Then the global financial crisis hit and uprisings began across the region. As a result, the value of international work fell for the first time since Turkish contractors had begun their overseas expansion. From $25.5bn in 2007, the workload dropped to $20bn in 2011. However, growth is returning and companies reported a workload worth $26.6bn in 2012. The figure is expected to be even higher for 2013.
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