Infrastructure in Turkey after the coup attempt – down but not out

A month on from the attempted coup of 15 July, Turkey’s political and business environment is still reeling. Cagdas Cataltas, who was in Istanbul whilst the coup attempt unfolded, reports.

Many questions remain unanswered following the coup attempt in Turkey, particularly how involved the sympathisers of the self-exiled Turkish imam Fethullah Gulen were in the coup, as alleged by the ruling Justice and Development Party (AKP). What is clear is that investor confidence in Turkey’s infrastructure sector has suffered. 

Business as usual?

Standard & Poor’s downgraded Turkey’s sovereign debt rating level on 20 July, citing rising political uncertainty that could scare away investment and undermine fiscal management. The Turkish lira also saw its steepest decline since 2008, along with a 7% fall in the BIST stock exchange. However, Deputy Prime Minister Mehmet Simsek remarked in his first full interview after the coup attempt that the “coup’s economic wounds are easy to manage”.

This stems from the government’s belief that the economic fundamentals are still intact. Turkey has experienced strong growth in the last decade, peaking at times around 8-9% of GDP, which still hovers at around 4%. This is due to a combination of a relatively well-educated young population and a single-party government dedicated to improving an economy located between Europe and Asia, which is still in negotiations concerning EU accession.

Now that the situation has started to stabilise, Turkey is working to return a real sense of ‘business as usual’. In order to maintain the influx of foreign capital and companies, Turkey needs to convince the West that after all, nothing much has changed. Since the state of emergency was declared on 21 July, however, the government has confiscated hundreds of educational facilities, dozens of media outlets and other companies linked to the Gulen movement – referred to by the government as the Fethullahist Terrorist Organisation / Parallel State Structure (FETO/PDY). 

Private businesses and personal assets of individuals have been seized on the grounds of being associated with the movement, and an incredible purge in the bureaucracy has taken place including 529 Ministry of Transportation officials, 500 officials at the Ministry of Finance and 300 at the Ministry of Energy and Natural Resources, to name but a few.

What exactly constitutes an illegal link to the Gulen movement, and in what timeframe, is still unclear. Foreign investors will either shelve new investment decisions until this clarity comes, or will need to do more thorough due diligence into their potential and existing partners. As infrastructure investments require foreign companies and their partners to hold relationships with key decision-makers in the bureaucracy, the significant reshuffle that has taken place only prolongs the uncertainty. In addition, arbitrary arrests, the assignment of guilt by association and the detention of journalists are neither good for democracy, nor for investment.

Opportunities remain

Although much of the AKP’s efforts have been spent fighting the so-called FETO/PDY, the government remains dedicated to their foreign investment-friendly economic model. Turkish prime minister Binali Yildirim recently proposed the establishment of a sovereign wealth fund of Turkey, with a capital injection of TRY 50m (£12.94m). This would stabilise markets by buying Turkish assets, if needed.

The Turkish government’s ambitious (over £10bn) plan to reinvent the country’s hospitals through public private partnerships (PPPs) is finally bearing fruit, with the first hospital projects being completed and almost half of the tenders being concluded. Similar PPP tenders for schools are expected to follow this year. The opening of the Euroasia Tunnel, an underwater passage for cars linking Asia to Europe, is due to be inaugurated in December and the government is likely to use the ceremony to show their dedication to infrastructure projects and Turkey’s potential return to the days of its economic success. 

Furthermore, privatisations have been key to the M&A efforts in Turkey ever since the AKP came to power in 2002, amounting to well over $70bn (£53bn) since 2002. An omnibus bill proposal was accepted on 13 August to maintain this effort and privatise the assets of prominent Turkish state-owned companies and further assets such as theatres, the Turkish history society and the Turkish language society. Turkey’s military schools, closed down after the failed coup attempt, also make a portfolio of prime real estate. 

Therefore, it is not the end of the road for the Turkish economy as we know it, but rather a fork in the road. The Turkish nation showed the investment community that they have passed the first test. To keep infrastructure investment flowing, the government needs to show that it will adhere to the rule of law and due process, respect private individuals’ rights and inject fresh blood into the bureaucratic apparatus, with selection criteria based on merit.

Cagdas Cataltas is associate director Western Europe at Control Risks.