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Gridlines summer, 2013 Turkey: A snapshot There is much reason for optimism about Turkey’s economic future. While many countries have stumbled, the Turkish economy has proven remarkably resilient, expanding by 8.5% in 2011 — the fastest growth of any major economy other than China. This economic momentum has bolstered the government’s confidence in mapping out its ambitious long-term goals for the infrastructure sector. By 2023, the centennial of the foundation of the Turkish Republic, the government plans to build 10,000 km of new high-speed train lines, nearly 5,000 km of conventional rail lines, and 15,000 km of new divided highways. The government also intends for at least one Turkish port to be among the 10 largest ports in the world by 2023; and there are similarly ambitious plans for Turkey to produce 30% of its electricity using renewable energy resources by 2023, up from less than 20% in 2009. The overall goal is for Turkey to become the world’s 10th largest economy by 2023. Turkey’s infrastructure sector has already made impressive progress. In the World Economic Forum’s Global Competitiveness Index for 2012-131, Turkey ranks 34th out of 144 countries for the quality of its overall infrastructure, and the report notes that the country “benefits from its reasonably developed infrastructure, particularly roads and air transport.” Indeed, its roads rank 43rd in the index and its air transport infrastructure ranks 36th. However, Turkey’s ports (63rd) and the quality of its electricity supply (77th) are said to “require additional upgrading.” Various segments of Turkey’s infrastructure sector would clearly benefit from substantial investment. The European Bank for Reconstruction and Development (EBRD)2 says the country’s air transportation market remains underpenetrated, representing only 10% of total passenger traffic in Turkey. Likewise, EBRD says only 35% of Turkey’s population is connected to waste water treatment facilities, and that the country’s per-capita electricity consumption remains far below average. These shortfalls represent significant opportunities for growth. For example, Business Monitor International (BMI) expects the energy and utilities infrastructure sector to average real growth of 9% a year from 2011-16, and the transport sector to grow 11% a year in that period3. Still, considerable challenges remain. Among them, BMI mentions “rigid regulation,” “widespread corruption,” high inflation, and the nation’s hefty current account deficit. It’s also challenging for Turkish banks to finance major infrastructure projects. Nonetheless, the overall outlook for Turkey’s infrastructure sector is sunny, thanks to a fast-growing economy, a government with long-term vision for the sector, and mounting interest from private investors eager to participate in the country’s economic rise. 1 See The Global Competitiveness Report 2012-2013; http:// www3.weforum.org/docs/WEF_GlobalCompetitivenessReport_2012-13.pdf 2 See Turkey Infrastructure Industry report, March 2012; http:// www.ebrd.com/downloads/loans/14b.pdf 3: See Turkey Infrastructure Report Q2 2012; http://www. marketresearch.com/Business-Monitor-International-v304/ Turkey-Infrastructure-Q2-6839906/ © 2013 PwC. All rights reserved. PwC refers to the PwC network and/or one or more of its member firms, each of which is a separate legal entity. Please see http://www.pwc.com/structure for further details. PwC firms help organisations and individuals create the value they’re looking for. We’re a network of firms in 158 countries with close to 169,000 people who are committed to delivering quality in assurance, tax and advisory services. Tell us what matters to you and find out more by visiting us at http://www.pwc.com. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors. PwC | Gridlines, Summer, 2013 | 1 Major infrastructure projects Railways: Turkey has an ambitious strategy to expand its railways significantly by 2023. The government’s plans include the addition of 10,000 km of new highspeed rail lines and almost 5,000 km of conventional rail lines. A high-speed train operation between Ankara and Eskisehir began in 2009, followed by a second operation between Ankara and Konya. According to BMI’s Turkey Infrastructure Report Q2 of 2012, a $30 billion Chinese loan was granted to build 7,000 km of high-speed rail lines between Edrine and Kars, which some analysts suggest would cut travel time across Turkey by two thirds.4 Ports: Turkey’s ports have been undergoing a process of privatization aimed at boosting efficiency and capacity. This included the transfer of Samsun Port, followed by the sale in December 2011 of the rights to operate and develop Iskenderun Port in Anatolia under a 36-year concession, according to the investor, InfraMed.5 The government wants at least one Turkish port to be among the world’s 10-largest ports (in terms of handling capacity) by 2023. In a country with more than 8,400 km of coastline, international maritime trade is a vital aspect of the economy. About 90% of Turkey’s foreign trade is carried out through maritime transport. Infrastructure construction in Turkey, market segmentation By Category Type (%) 2010 Energy & communications infrastructure, 23.4% Other infrastructure projects, 34.0% Rail infrastructure, 11.2% Water infrastructure, 5.5% Sewage infrastructure, 6.9% Source: ICD Research Analysis 2 | Gridlines, Summer, 2013 | PwC Road infrastructure, 19.0% Air Transport: With air traffic surging in Turkey, the government’s plans include the construction of one airport with the capacity to handle 60 million passengers per year, plus three airports that can handle 30 million passengers per year. Another goal is to expand the nation’s civil aviation fleet to more than 750 aircraft, up from 340 in 2010. 4 China’s Land Bridge To Europe, F. William Engdahl, : The China-Turkey High Speed Railway: http://low-intensity-conflictreview.blogspot.co.uk/2012_05_12_archive.html 5 http://www.eib.org/about/press/2012/2012-046-eib-sponsored-fund-inframed-investing-for-turkish-port.htm By the numbers • • Total infrastructure investment in Turkey rose from $14.2 billion in 2010 to an estimated $20.1 billion in 2012, according to the European Bank for Reconstruction and Development. Turkey’s Central Bank says FDI inflows to the country’s infrastructure sector surged from $747 million in 2004 to $3.7 billion in the first nine months of 2011, with the largest portion of this money invested in infrastructure for electricity, gas and water supply. • In 2011, Turkey had 21,681 km of divided highways. By 2023, the Ministry of Transport expects the total to reach 36,500 km. • According to the European Bank for Reconstruction and Development, only 35% of the Turkish population is connected to waste water treatment facilities, versus 50-60% in similar countries. • In 2010, the total number of passengers in Turkish airports was 105 million, up from 34 million in 2002, according to the Ministry of Transport. To meet rising demand in the booming civil aviation sector, the Turkish fleet expanded from 110 aircraft in 2002 to 340 in 2010. Turkish infrastructure industry overview Sub-sectors 2010 2011F 2012F 2013F 2014F 2015F 2018F 2020F Total Infrastructure Investment Size (US$ bn) 14.2 16.8 20.1 24.3 28.7 32.2 45.8 55.1 Energy & Utilities Investment Size (US$ bn) 10.9 12.7 15.1 18.1 21.3 23.9 33.7 40.5 Transport Investment Size (US$ bn) 3.3 4.2 5.1 6.2 7.4 8.4 12.1 0.0 Infrastructure Industry Value Real Growth (Percentage) 19.2 13.0 10.5 9.3 9.2 6.4 4.9 0.0 Infrastructure Industry Value Real as of GDP (Percentage) 1.9 2.1 2.2 2.3 2.3 2.4 2.5 2.5 Source: BMI Turkey Infrastructure Report Q4 2011 *Includes: Transmission grids, power plant, oil and gas pipelines and water infrastructure FDI Inflows to the infrastructure sector in Turkey US million Sub-sectors 2004 2005 2006 2007 2008 2009 2010 2011 Electricity, Gas and Water Supply 66 4 112 568 1,068 2,126 1,814 2,597 Construction 3 80 222 285 336 208 330 220 Hotels and Restaurant 1 42 23 33 24 54 113 34 Transportation, Storage and Communications 639 3,285 6,696 1,117 170 391 212 178 Real Estate, Renting and Business Services 3 29 99 560 641 560 409 478 Education 0 17 0 0 0 1 17 49 Health and Social Work 35 74 265 177 149 106 111 160 Total 747 3,531 7,417 2,740 2,388 3,446 3,006 3,716 Source: Central Bank of the Republic of Turkey (CBRT) *2011 January-September PwC | Gridlines, Summer, 2013 | 3 To discuss the issues Global capital projects & infrastructure leader Richard Abadie Tel +44(0) 20 7213 3225 [email protected] Argentina Maximiliano Galli Tel +54 11 4850 6887 [email protected] Australia Brian Gillespie Tel +61 7 3257 5656 [email protected] Brazil Carlos Biedermann Tel +55 51 3378 1708 [email protected] Canada Michel Grillot Tel +1 403 509 7565 [email protected] Central and Eastern Europe Julian Smith Tel +7 495 967 6462 [email protected] China/Hong Kong Gabriel Wong Tel +86 (21) 2323 2609 [email protected] France Peter Vickers Tel +33 1 56 57 73 05 [email protected] Germany Hansjörg Arnold Tel +49 69 9585 5611 [email protected] Russia Julian Smith Tel +7 495 967 6462 [email protected] India Manish Agarwal Tel +91 996 757 4800 [email protected] Singapore Mark Rathbone Tel +65 6236 4190 [email protected] Indonesia Rizal Satar Tel +62 21 5289 0350 [email protected] Africa Jonathan Cawood Tel +27 (11) 797 523 [email protected] Italy Guido Sirolli Tel +390 6 57083 2125 [email protected] Spain Patricio de Antonio Tel +34 679 186 806 [email protected] Japan Yumiko Noda Tel +81 3 3546 8512 [email protected] Sweden Lars Tvede-Jensen Tel +46 8 555 33 403 [email protected] Malaysia/Vietnam/Thailand/Cambodia/Laos Andrew Chan Yik Hong Tel +60 3 2173 1219 [email protected] UK Tony Poulter Tel +44 20 780 45814 [email protected] Mexico Francisco Ibañez Tel +52 55 52 63 60685 [email protected] Uruguay Jorge Seré Tel +598 29160463 Int 1383 [email protected] Middle East Charles Lloyd Tel +971 56 682 0617 [email protected] US Peter Raymond Tel +1 703 918 1580 [email protected] Netherlands Martin Blokland Tel +31 8879 27586 [email protected] Contributors Strategic direction Richard Abadie Tony Poulter Peter Raymond Marketing + outreach Lee Ann Ritzman Jenni Chance Becky Weaver Editor William Sand Design Odgis + Company Janet Odgis Rhian Swierat