ANKARA: Until recently a bastion of stability in a highly volatile region, Turkey is facing arguably its most difficult juncture in a generation, with a combination of domestic and geopolitical challenges weighing on the country’s immediate and medium-term economic prospects.
Factors behind the deteriorating economic outlook include the influx of refugees from Syria’s seemingly intractable civil war, soured relations with important trading partners Russia and Israel, and fissures in a relationship with the neighboring European Union that has been a cornerstone of the country’s success over the last decade. To compound matters, political and economic instability has been further elevated by an attempted military coup in July, which has since been used by Turkey President Recep Tayyip Erdoğan as a catalyst to crack down on political opponents in an attempt to bolster the head of state’s personal authority.
The challenging status quo follows more than a decade of solid economic achievement when a combination of relative political stability, prudent fiscal management and economic reform have seen a solid expansion in employment, household wealth and disposable incomes.
Strategically located at the crossroads between Europe and Asia, and a bulwark in the NATO alliance, the economy has also benefited substantially in recent decades from a substantial flow of European Union funding and foreign direct investment. With greater infrastructure development needs in line with the country’s economic advances, Turkey has also become the largest recipient of finance provided by the European Bank for Reconstruction and Development, or EBRD.
Notwithstanding the recent escalation in uncertainty, and possible further economic and political headwinds in the second half of 2016, a longer-term assessment of Turkey’s economic prospects point to a cautiously optimistic outlook, with billions of dollars in future government revenues earmarked for future infrastructure and construction projects creating continued opportunities for the international project cargo community.
While at slower growth rates than recorded during the previous decade, the Turkish economy is nevertheless projected to expand at a decent clip over the next several years, with the International Monetary Fund forecasting annual GDP expansion of about 3.5 percent during 2016-21. Business investment should also continue to expand over the next several years, with public and privately funded infrastructure development essential to cement Turkey’s middle-income country status.
Continuing the trend seen over the last decade, the principal opportunities for project cargo operators over the next few years look set to be found in the Turkish energy sector. According to Fatih Can, vice president for business development at Tekfen Construction, a major channel for public investment will target upgrading domestic power plants and further developing the country’s renewable energy capacity.
“Most of the infrastructure development in Turkey will focus around energy generation and distribution,” he said. As a strategic bridgehead connecting commodity-deficient Europe with resource-rich economies of central Asia and Russia, Turkey should also witness significant inflows of foreign investment required to improve energy sector linkages between these two regions, most notably regarding oil and gas pipeline infrastructure.
Given Turkey’s comparative deficiency in oil and gas reserves — an important pillar of current and future energy sector policy — efforts to increase energy security and self-sufficiency aim to increase domestic renewable energy output, as laid out in the government’s National Renewable Energy Action Plan, or NREAP, which targets increasing its share of electricity production to 30 percent by 2023. “The NREAP is a clear demonstration that Turkey wants to deploy renewables further in the next decade,” said Gaël Hankus, senior research analyst at IHS Energy.