Turkey Infrastructure Report Q2 2008

Changes in the regulatory environment in Turkey's different markets that comprise the infrastructure sector have hitherto produced an overall positive effect. They have contributed to the ameliorating business environment and prompted more international attention and investments in Turkey's transport, utilities and construction sectors. However, there remains a 'glass ceiling' in certain heavily regulated and state-controlled sectors that is hindering private sector participation and competitiveness of the sectors in a regional context. Further, the court ruling for the suspension of the privatisation of the port of Izmir in February highlights the underlining tensions that still exist in Turkey's business environment, namely those between a more conservative-oriented, secular judiciary system and a pro-business and mildly Islamist government. These tensions show they have the potential to impede the business environment, especially if they are expressed to the detriment of the business community.

The economy is expected to gather momentum in the run-up to Turkey's anticipated accession to the EU in 2015. Large infrastructure projects involving investment of billions of dollars have been planned or are under way. The prospective accession of the country into the EU has seen foreign direct investment (FDI) flows increase substantially since 2005, reaching US$19bn in 2006 alone from an average of US$1bn between 1990 and 2003. The country can boast that it is currently constructing one of the world's most sophisticated transport projects, the Marmaray tunnels under the Bosporus. Investments into roads, have made its transport system one of the country's prized assets, whose privatisation is expected to bring in significant revenues for the state coffers. In energy, the construction of pipelines is fulfilling the government's objective of making the country a major transit point between the Caspian and Middle East and Europe.

Turkey is also a major producer of building materials such as cement, structural steel, bricks, timber and glass. The nation is among the leading manufacturers of cement in Europe and existing cement companies are looking at acquisitions or setting up new plants or enhancing capacities at existing plants to increase business activities.

The IMF-backed structural adjustment program, which jumpstarted a sweeping privatisation spree in the aftermath of the 2001 economic crisis, has produced undeniable benefits to the economy. It has however yet to reach parts of industries and sectors that have traditionally been under the protective umbrella of the state. The market is characterised by widespread corruption, rigid regulations in certain sectors and vertically integrated companies in transport and utilities exerting monopoly power On the economic front, high levels of external debt and reliance on domestic and international portfolio investment to support the balance-of-payments position lead to a precarious situation on the macroeconomic front. The country's current US$10bn standby deal with the International Monetary Fund (IMF) expires in May 2008.