Jonathan Moore looks at the recent troubles in
the Turkish economy and how the country is managing to remain a
growing force in the world
It could be said the writing is on the wall for Turkey. As was
widely expected, the latest figures show the country failed by
some margin to meet the government's 3.3% GDP growth goal for
2014, achieving a rate of just 2.9%. While concerns about
inflation were somewhat calmed by the massive drop in oil
prices in the second half of the year, that rate was still an
issue when it reached around 9% year-on-year by November, with
some sectors like food prices rising above 14% in the same
period. According to the World Bank, while disinflation is
expected to take place in 2015 the renewed depreciation trend
in the Turkish lira remains a potential downside to the
positive inflation news. Indeed, in dollar terms the nation's
GDP actually shrunk by 2.8% in 2014 as the local currency
slumped 9% against the US dollar.
Civil unrest continued to grip the populace. Following from
2013's Gezi Park protests there were various marches and
demonstrations throughout the year. The government's new
internet laws sparked outbursts early in the year and later
demonstrations demanding more action be taken in Syria saw the
deaths of at least 19. A local human rights group says that
more than 11,000 people were arrested by Turkish authorities in
the year 2014.
Probably the most savage conflict being fought in the world
today is taking place on the country's south east border, with
floods of refugees crossing that boundary in a bid to escape
the violence. On top of all this the country also suffered the
worst mining disaster in its history when fire raged through a
mine in Soma, killing 301.
With all this going one, it would be easy to say Turkey is
on the verge of, if not in, a crisis. Yet speak to people on
the ground and they are very positive about the future.
"There was some impact from the elections last year and with
the controversy [related to corruption] there was some slowdown
on government-backed infrastructure projects," says Ender
Özeke, a partner at Hergüner Bilgen Özeke.
"Private finance has been progressing pretty much as planned,
though. We don't expect a huge in-flow of projects but we are
involved in a number of large ones already and if they pick up
we will be very busy in 2015."
While the disappointing GDP figures could be seen as a
negative, they are actually higher than some analysts
predicted. While they do represent a slowdown, commercially
2014 could be described as a staccato year for the Turkish
economy. Local elections in March and the presidential election
in August caused a lull in projects and deals as parties held
firm on concluding matters until later in the year. While there
were fewer deals completed in 2014 than in 2013 the total value
of deals actually went up. With the election season concluding
with the general election in June 2015 many of those in the
market expect to see a better year this year for work across
"If Turkey is to succeed,
the energy market will play an enormous part"
The government expects that too. While sluggish growth in
Europe and around the world certainly contributes to the
economic slowdown Turkey experienced this year, government
ministers point out that its growth remains above that of many
other emerging market economies – expected to be
around 2.7% for 2014.
A robust local banking sector – shaped by reforms
brought in before the global financial crisis that shielded
them from some of the worst problems faced by other nations'
banks – and a strong local entrepreneurial spirit mean
the country remains an attractive investment prospect. But
foreign direct investment actually declined by 1.7% in 2014 and
many say this figure will need to increase if the economy is
going to see the kind of growth hoped for by the
Energising the market
If Turkey is to succeed, the energy market will play an
enormous part. In 2014 the country brought online 5,500
megawatts of newly-installed capacity, the equivalent to the
total installed capacity of a country like Ecuador being
brought online in a single year.
As a consequence, the demand in the market is enormous
across the board. There is an appetite for all projects
– recent deals have seen renewables, nuclear, imported
coal, domestic coal, hydro, wind, geothermal and gas power
plants complete financing or begin construction – and
a steady stream of this work is coming through on a regular
"The interest and the opportunity exists in all areas of
power and infrastructure and I think it's up to the skill of
investors to really find the deals that are more attractive
than others," said Aygen Yayikoglu, founder of Crescent
Capital. "Turkey is a country which is trying to keep up with
demand for power so in terms of additional capacity coming
online and the pipeline of projects in the coming years it is
renewables, thermal, and all types of other projects."
There are a large number of examples to demonstrate this
trend, among them the Yukari Kaleköy hydro-electric power
plant project, financing for which was finalised in August.
This was one of the biggest hydro projects of 2014 in Turkey
and, unusually, the financing was achieved through a consortium
of only Turkish banks including: Yapi ve Kredi Bankasi, TC
Ziraat Bankasi, Türkiye Halk Bankasi and Finansbank.
"The energy market was also
where the most significant developments in legislation
were seen this year"
Many of Turkey's biggest infrastructure projects are also
related to the energy sector. This year the biggest deal
– indeed the largest project financing in Turkish
history – saw the State Oil Company of Azerbaijan
Republic (Socar) complete a $3.29 billion financing with 23
banks and export credit agencies as part of the $5.5 billion
Star refinery project. This will see the construction of an oil
refinery off the Aegean coast to supply petrochemicals maker
Petkim and help cut the country's dependence on imported
refined oil products, a major part of the national energy
The energy market was also where the most significant
developments in legislation were seen this year. The
Electricity Market Law enacted in 2013 brought new clarity to
private investors. Subsequent secondary legislation enacted by
the Energy Market Regulatory Authority (Emra) has provided even
more. Most notably this deals with licensing and helping new
players come to market more quickly, but there are also a
number of other changes aimed at making the whole process
clearer for new investors.
Building for the future
As part of former Prime Minister – now President
– Recep Tayyip Erdogan's ambitious plan to bring
Turkey into the top 10 economies of the world by 2023 the
government is also heavily involved in a number of large-scale
The biggest of these is the ongoing work of the Republic Of
Turkey Prime Ministry Privatization Administration. In 2014,
nine of the 20 biggest deals in the market were privatisations
and this will continue to be one of, if not the, biggest
drivers of transactions for the near future.
In terms of transactions, the ongoing work related to the
construction of Yavuz Sultan Selim Bridge and Istanbul New
Airport, both multi-billion dollar long-term construction
projects in Istanbul, show the government is still strongly
investing in new projects. There are also a number of highway
developments in the works, including the Gebze-Izmir Motorway
project, the largest in the nation's history.
Turkey's meteoric rise has certainly faltered of late, but
the political troubles and economic slowdown seem to be more
hiccup than long-term malaise. While the country still has a
way to go before it achieves its bold ambitions there remains
optimism within the market. It certainly seems that as far as
Turkey is concerned the future is not yet written.