Turkey Loses Its Way

The nationwide protests that have convulsed Turkey this month couldn’t have come at a worse time for the transportation sector.     

Just weeks before anti-government protesters clashed with police in Istanbul’s Taksim Square, sparking mass demonstrations in other major cities, transportation was commanding Page 1 coverage in newspapers and leading television news bulletins, as Europe’s fastest-growing economy looks to foreign investors to help fund infrastructure development.

An ambitious plan to build the world’s biggest airport finally took off in early May when a consortium of Turkish construction companies successfully bid approximately $29 billion for a 25-year concession to build and operate the six runway hub 40 miles from Istanbul near the Black Sea. The airport, due to open in 2018, eventually will have capacity for 150 million passengers, 60 million more than Hartsfield-Jackson Atlanta International, currently the world’s busiest.

Ironically, a third airport for Istanbul was on a list of mega-projects slated by the government, including the redevelopment of Taksim Square, one of the city’s few green areas, which sparked the demonstration by environmentalists that rapidly fed into broader anti-government sentiment.    

Some of the mega-projects have attracted scepticism and derision, notably a plan for a 32-mile canal linking the Black Sea and the Sea of Marmara that would divert shipping, including oil tankers, from the heavily congested Bosporus Strait. Prime Minister Recep Tayyip Erdogan concedes his pet project is “crazy” but says it will outshine the Suez and Panama canals.

Other, more realistic, projects include a third bridge over the Bosporus, a new tunnel, a high-speed train between Istanbul and the Ankara, and a $6 billion highway, including a 1,700-meter suspension bridge, the world’s second-largest, that will cut the travel time between Istanbul and Izmir, an industrial hub, to 3 ½ hours from nine hours now.

While the Ankara government pores over grandiose plans, the transportation industry is pushing ahead with more immediate projects. Turkish Airlines, one of the world’s fastest-growing carriers, recently ordered 82 Airbus jets with a list price of around $9 billion with an option for another 35 aircraft. Earlier, Pegasus Airlines, Turkey’s second-largest carrier, signed a contract for 75 Airbus jets.

The country’s growing attraction to foreign investors was underlined by APM Terminals decision to invest an initial $400 million in a 28-year concession to build and operate the Aegean Gateway Terminal, a container and general cargo facility near Izmir that will open in 2015 with an initial annual capacity of 1.5 million 20-foot-equivalent units.

KKR, the U.S. private equity fund was one of the first outsiders to see the potential of Turkey’s transportation sector, paying around $1.3 billion in 2007 for UN RO-RO, a shipping company that shuttles trucks between Istanbul and Toulon, France, and Mersin and Trieste, Italy.                                   .

Turkey also has broken into the global container shipping and terminal markets with privately owned Yildirim group coming to the aid of troubled CMA CGM with a $600 million capital injection in return for a 24 percent stake in the French ocean carrier. Yildirim also paid around $300 million for a 50 percent stake in CMA CGM’s Malta container transhipment hub that is now part of a port portfolio worth more than $2 billion.

The private sector can only play a relatively minor role in meeting the country’s infrastructure requirements, which could cost 200 billion to 400 billion euros ($286 billion to $536 billion) over the next decade, according to the European Bank for Reconstruction and Development.

And that means Ankara must woo foreign investors to raise capital, an uphill task given that net foreign investment totaled just $8 billion in 2012. The decision of Moody’s rating agency to raise Turkey to investment grade in early May underscored the country’s growing status in the international community, but this was punctured a couple of weeks later when the bulldozers and riot police moved into Taksim Square. 

Investors already were spooked by the brutal civil war ranging across the border in Syria, the deepening crisis in the eurozone — Turkey’s biggest export market — and a sharp slowing in the domestic economy after a couple of years of China-style growth.

Although the merits of the “crazy” canal project are debatable, there is no doubt about the key role the other mega-projects will play in Turkey’s bid to become a global trading and logistics hub.

The new Istanbul airport might appear to be another vanity project and a potential white elephant. But its location between Europe, Asia and Africa makes it an ideal passenger and freight hub to challenge Dubai — home of Emirates, one of the world’s largest cargo airlines — and Doha, the hub of Qatar Airways that aims to be a top five cargo carrier by 2018. Although money is no object to the oil and gas rich Gulf states as they consolidate their position as global air hubs, Istanbul’s new airport will have the vital advantage of a domestic market of 75 million consumers.  

And there’s no denying Turkey’s potential as an international trading and logistics hub with major multinationals including Coca-Cola, Microsoft, Pfizer, McKinsey and Boston Consulting Group setting up regional headquarters in Istanbul.

The city got a further boost in June when it was ranked 11th in a survey of European logistics hubs, ahead of Frankfurt, Milan, Munich and Barcelona.

The survey, by Colliers International, a global commercial real estate company, ranked Istanbul fifth and Izmir 21st for infrastructure and accessibility, and fifth and sixth respectively for logistics competence. Istanbul was Europe’s second-ranked manufacturing center behind Kiev.

Strategically located hubs such as Istanbul increasingly are integrating into the global supply chain and will gain further importance as trade links with the Far and Middle East strengthen, Colliers International says.

But the timetable for Turkey’s admission into the top tier of logistics hubs risks being slowed by the negative impact of the images from Taksim Square unless Ankara manages to assure foreign investors that it can restore stability.

Contact Bruce Barnard at brucebarnard47@hotmail.com.

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