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Talking Turkey

Construction sector playing a huge part at home and in Middle East

Turkey's TAV is working on many regional airports including Doha's new $15.5bn Hamad International.
Turkey's TAV is working on many regional airports including Doha's new $15.5bn Hamad International.

Corruption allegations, rising unemployment, fears of a property bubble, upheaval over elections and some heavy-handed restrictions on social media.

This does not seem like the ideal climate for economic prosperity, but the country at the centre of all of this – Turkey – appears to be riding the storm. And a significant factor in its progress is the country’s buoyant construction market.

The country’s GDP has been growing fairly steadily at a rate of around 4.9% over the past decade, and although a recent report by Bank of America Merrill Lynch suggested that “deteriorated political outlook” meant this is likely to slow in the next two years, it also said that it had the potential to achieve GDP growth of 5% a year if it rebalances its economy away from one which has generated a lot of returns from domestic demand to one where it exports more goods and services.

“Turkey’s current account deficit-creating, domestic demand-driven growth middle, which is funded by the rest of the world, is no longer sustainable,” it said.

Thankfully, construction is an area where Turkey excels at exports, with its contractors working right across Europe, the Middle East and Asia.

According to the most recent ranking of the world’s 250 biggest international contractors by Engineering News Record, Turkey has more global construction powerhouses than any country other than China.

The list, which is based on the value of international contracts undertaken in the previous year, contained 38 Turkish companies. The total value of overseas projects secured by the Turkish construction industry in 2013 was $31.3bn – a 20% ($5.2bn) increase on 2012 ($26.1bn).

Economy minister, Nihat Zeybekçi, said: “This is a record level and a historic success; we also secured construction projects in South Sudan and Senegal for the first time last year.”

The dramatic rise in overseas contracting projects, which stood at just $1bn in 2000, was boosted by building on improved political relations, particularly in the Middle East and Africa.

Turkish contractors secured 374 projects in 45 countries last year. Between 1972 and 2013, they have undertaken 7,371 projects worth $274.1bn in 103 countries. In 2023, the 100th anniversary of the founding of the Turkish Republic, the industry aims to increase the total value of overseas projects undertaken to $100bn.

Some of the biggest developments in inftrastructure projects throughout the GCC are in the hands of Turkish contractors.

Saudi Baytur is building the new King Khalid University in Abha; while STFA has several infrastructure projects including Oman’s Port of Duqm and the Al-Ahmadi refinery expansion project in Kuwait.

Then there is airports specialist TAV Construction, which is part of several joint ventures working on the $15.5bn Hamad International Airport at Doha, the $3bn Midfield Terminal Complex in Abu Dhabi, the new $1.8bn Muscat International Airport and the Prince Mohammed Bin Abdulaziz airport in Madinah, Saudi Arabia.

The company is the world’s second-biggest in airport building, with a turnover of $709.7mn and more than $16bn worth of projects under its belt.

Yusuf Akcayoglu, TAV Construction Middle East director, said that the company has a current backlog of $10bn – the majority of which is for projects in the GCC.

However, he said the firm has no intentions of resting on its laurels, with airport and infrastructure projects key to their future plans.

He told Construction Week: “We are in tender stage for the state-of-the-art new passenger terminal building at Kuwait International Airport. It is a very prestigious project and if we get it, it will be our first venture in Kuwait.

“In Saudi Arabia, we are already building three airport projects: Riyadh KKIA Terminal 5, Madinah Airport and SAEI Aircraft Maintenance Hangars at King Abdulaziz International Airport in Jeddah.

“There are some upcoming airport projects in the Kingdom, such as Taif, which is being developed under a Build-Operate Model. Madinah Airport expansion is already a public-private-partnership (PPP) initiative and this successful experience certainly gives us an edge for future developments.

“On the other hand, the Dubai World Central and Al-Maktoum International Airport development is a prime target for us and we wish to take a part in the next phases of this ground-breaking development.

“For building projects, there are many opportunities that we explore; in particular in the hospitality and retail sectors in Qatar, Bahrain, Oman and in the United Arab Emirates.”

It would be wrong to say Turkish contractors escaped the global economic downturn in 2009 unscathed. But according to Gulizar Yavas, commercial attaché at the Consulate-General of the Republic of Turkey in Dubai, companies have come out the other end as much stronger entities.

She said: “Construction companies were here and established before the crisis and they stayed during the crisis. They finished the projects on time, even though some never got paid on time.

“As a result, this created a good image for Turkish companies and we received a lot of good feedback from agencies and developers who are willing to work with them in the Middle East and Africa.”

This is a sentiment echoed by Burak Kizilhan, board member at Arma-Elektroplanc, which has been active in the Middle East since 2003, when the firm's first office was opened in Dubai.

The company has completed prestigious projects including the Palm Jumeirah Shoreline Apartments, Jumeirah Zabeel Palace Hotel, Rixos the Palm Dubai Hotel, the Gold & Silver Towers at Jumeirah Lakes Towers and over 856 villas at Jumeirah Village.

And with further offices in Abu Dhabi, Qatar and Lebanon, Kizilhan said there is much more work that it is looking forward to winning. He said the firm never thought of closing its regional offices even during the height of the global financial crisis.

“We have always believed in this market,” he said.

“I believe that by 2015 the UAE will gear up again and there will be plenty of construction projects due to the Expo 2020. The same applies to Qatar as the World Cup 2022 is not far.

“We have a big expectation in the Levant region for the upcoming years.”

And there is a similarly buoyant outlook from Turkish companies operating in Saudi Arabia. According to Business Monitor International (BMI) in its Saudi Arabia Infrastructure Report published earlier this year, the Saudi construction sector should see growth rates of around 10% next year.

One of the more established Turkish players in that market is Saudi Arabian Baytur Construction Co (Saudi Baytur), which was set up in 2008 in Al Khobar, in the Kingdom's Eastern Province.

It is a partnership between Baytur Construction and Contracting Co, owned by leading Turkish conglomerate Cukurova Group, and prominent Saudi businesses Azmeel Group and Tanami Holding.

It employs more than 4,000 people in the Kingdom and in 2012 was awarded the second phase of the Jabal Omar Development Project in Makkah and an EPC contract for the non-process buildings of phase II of the huge Petro Rabigh plant. The company’s total value of contracts already exceeds $1.3bn (SR5bn).

CEO Murat Gray said: “Saudi Baytur views the future of the construction industry in the Kingdom as promising, with the major challenge of successfully meeting the increasing demand for labour, supply resources and project financing as more and more large projects are tendered – along with an elevating competition on prices between the key players.”

Home wins

The prospects for Turkey’s own construction market continue to look healthy

In its home market, the Turkish construction sector is forecast to grow by 5.3% this year, according to Business Monitor International. Although it believes the corruption scandal (see box) may have a medium-term impact on projects as people held off on committing to schemes in the run-up to the recent elections, it remains largely positive on prospects.

“Activity in the equity markets does not indicate that investors are overly concerned and as such we have not adjusted our forecasts. On the back of a strong project pipeline, we maintain a healthy growth outlook.”

It believes the sector will continue to grow at around 5% between 2014-2022.

In June last year, a consortium led by Hyundai Engineering and Construction, South Korea's largest builder, won a $697mn order to build a suspension bridge over the Bosphorus Strait in Istanbul.

Ambitious government-led infrastructure projects have been a significant driver of Turkey’s construction activity and economic growth, but links between the government, contractors and property firms have been at the centre of the recent corruption scandal.

Now accounting for $170bn, or approximately 20% of Turkey’s $789.3bn economy (when including related activities), construction of all types has been booming, particularly residential buildings, malls, hotels, skyscrapers, airports and other massive infrastructure projects. Growing by 42.9% in 2013, construction-related loans are a major component of Turkey’s overall credit bubble.

Since 2008, 39 new skyscrapers have been completed in Turkey, and there are 42 more currently under construction.

Mega-projects planned include a third airport in Istanbul that is expected to be one of the world’s largest when it opens in 2019, catering to 90mn passengers. Costing an estimated $29bn, it is currently Turkey’s most expensive mega-project.

There is also a $15bn, 26-mile shipping canal planned to link the Marmara and the Black Sea, a 24-tower, public-private real estate development that will contain approximately 5,000 luxury apartments and a third bridge across the Bosphorus that will cost $4.4bn.

According to a report by Forbes: “Public construction projects are the primary reason why Turkey’s government spending has increased by nearly two-thirds in the past decade.”

However, there is also plenty of enthusiasm from private sector developers. Dubai-based Emaar Properties has been a key figure in the country, through its subsidiary Emaar Turkey, since 2006.

Tuscan Valley, located in Büyükçekmece, marked the first of Emaar’s developments in Turkey, introducing the concept of master-planned communities to Istanbul.

This was followed by Emaar Square, a mixed-use development in the Çaml?ca area of the city.

An Emaar spokesperson said: “Turkey is one of our key markets, and we are committed to our projects in the country. Emaar has already defined its competencies in developing and handing over truly world-class developments with Tuscan Valley houses.

“We are currently developing Emaar Square, a brand-new integrated city within a city, which will contribute to the economy by supporting the growth of the retail and hospitality sectors, providing high-end residential and commercial property for investors from around the world, and driving the growth of ancillary industries.”

Seeing off a scandal

Turkey’s construction boom has been rife with scandal, with allegations of corruption involving allies of Prime Minister Recep Tayyip Erdo?an.

On 17 December 2013, news of a 15-month secret investigation broke that led to the arrest or questioning of over 100 people.

Among the people arrested were sons of three of Erdogan’s cabinet ministers, the CEO of a state-run bank, and a construction tycoon who has become one of the wealthiest men in Turkey over the past decade.

The allegations against those arrested range from taking bribes to bid-rigging. Millions of dollars in cash have been found in some of the homes of the accused.

Erdo?an has dismissed the criminal investigations of his allies as a plot by foreign interests to hamper Turkey’s economic boom.

He also recently banned social networking sites such as Twitter and YouTube, which he blamed for spreading misinformation. Many members of the police and the judiciary have also been been purged from active positions, according to the BBC.

The incident seems to have had little impact on the popularity of his ruling party, the Justice & Development Party. It received more than 45% of the total vote at local elections on 30 March, which was its best ever performance in local polls.

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