Turkey Infrastructure Report Q2 2009

It seems that the second quarter of 2009 in Turkey's infrastructure sector will be dominated by the upcoming privatisation of two more power distribution networks. The tenders are due to get underway with approximately a month's delay (the privatisation authority originally had said that it was planning to begin in late February or early March), which - considering the circumstances and the global financial environment - is a positive step.

The rapid unfolding of events since this report was last updated has made us revisit our short-term outlook for Turkey and are now much more bearish than we expressed in Q408, when we said in late August that Turkey's infrastructure sector begins the fourth quarter of 2008 with renewed confidence.

The full year figure for 2008 came worse than expected at YTL44.8bn; we were forecasting YTL46bn.

Real growth rate according to the statistics institute was -7.6% in 2008 (probably due to the very high raw material prices that eroded industry real value). In BMI's Q209 Turkey Infrastructure Report we have yet again revised downwards the industry value for 2009 from our previous YTL49.6bn to YTL44.1bn; this represents a real growth decline of -9.6%. Our confidence about the viability of new investments in infrastructure, however, is evident from the anticipated robust recovery of the industry in 2010, when we forecast that the construction industry value will reach YTL48bn, or a real growth increase of 3.6%.

We have also introduced BMI's new Project Finance Ratings in an effort to provide a globally comparative, numerically based assessment of the breadth and depth of risks facing major infrastructure projects, which will in turn affect the source, availability and cost of finance. Turkey's score is 46.6, which places it in last place in the Middle East region and penultimate place in Europe. Notwithstanding low position on both tables, mainly due to currency volatility risks that are indeed quite pertinent, the presence of several international majors in the country's transport and utilities sector and the government's willingness to create an environment conducive for the privatisations of transport and utilities assets are factors that are significantly in favour of the viability for project finance to develop in the country.

On the back of record low capacity utilisation in December, we now believe that Turkey will experience a full-year economic contraction in 2009. We have revised down this year's real GDP growth forecast to -3.3%, with a marked contraction in fixed capital investments and private consumption weighing on headline growth. As was the case with Turkey's other recessions over the past two decades, we expect a recovery to positive growth in subsequent years. That said, we caution that with the external climate likely to remain weak, the recovery will be mitigated, with growth of 1.7% in 2010 and an average of 5.0% between 2011 and 2013.