Business as unusual

In many respects, Turkey is a bridge. It is a key NATO member straddling Europe and Asia, a staunch Western ally in a troubled region. It also enjoys strong trade and investment links to the EU, the Middle East and Africa. Its conglomerates have formed successful joint ventures with northern businesses looking to tap its market’s potential. Istanbul’s two main bridges, spanning the mighty Bosporus, symbolise Turkey’s claim to being a facilitator in commercial and diplomatic affairs.

But recently this assumption has been called into question in a very real sense. On 15 July, when rebel army factions blocked Istanbul’s main bridges in an attempt to seize power, it appeared as if drastic political change was on its way. This turned out to be true, albeit for different reasons. As the government went after the alleged masterminds of the failed coup, it proceeded to detain more than 26,000 people, according to reports, thinning ranks within the army, universities and the judiciary. Alarmed by the scale of the crackdown, Western capitals scolded Ankara. Relationships remain frayed.

On the ground, observers say the situation has stabilised. “On a general level, we feel no sense of danger,” says a legal advisor focused on Turkey. “Overall, there is a show of unity between all political parties.” Yet he recognises that “sweeping changes” are coming through the administration. Jane Louise Kandur, a board member of the Istanbul branch of the ruling AKP party, also says a new constitution is on its way. “Prior to the coup, the government was going to restructure the judiciary, the military and the bureaucracy, but gradually, so as not to upset the upper echelons – now they’re just going to do it.”

This ambivalence is mirrored in the business community. “The message we get is that Turkey is back to business as usual. People are very keen to move on, get over the events and try and keep going,” says Daniel Cousens, a partner at Linklaters and co-head of the law firm’s Turkey desk. The most important change on the ground, adds Ali Sokmen, an associate analyst at Control Risks, is the three-month state of emergency that was declared on 20 July. “But this has a limited impact on the operational environment for businesses,” he says. “The situation resembles the days prior to the coup.”

Still, stability should not be taken for granted. “The main lesson from 15 July is that there’s always potential for a sudden deterioration,” notes Sokmen. “Another coup is unlikely at this point but there could be political and social unrest that could have destabilising consequences.” Equally, with security forces busy investigating the failed attempt – and a lot of police officers suspended – Turkey’s anti-terrorism apparatus is somewhat weakened. “There is a short-term window during which hostile actors could carry out attacks,” Sokmen warns.


Despite the resident uncertainty, investors still seem willing to do business. Cousens says that out of four deals he is advising on, three are still ongoing. “I haven’t seen investors change their minds. If anything, there’s been an uptick in general interest. Turkey was on people’s watch list, they want to know what’s changed.”

Sokmen says he has not witnessed investors become hesitant about pending transactions, though those who were only evaluating prospects of a deal now seem to be reviewing the situation. “This should be a short-term issue. I expect this wait-and-see mode will change in September-October time.”

Tourism and the events industry, already shaken by terrorist attacks prior to the foiled coup, have taken a hit. That means lower revenues for the government – so potentially less funding available for big projects – as well as less traffic for infrastructure assets reliant on seasonal visitors. Delays to decision-making could also occur as a result of reorganisations within the administration, Sokmen says. For foreign firms, currency moves could cloud the picture further.
But experts Infrastructure Investor canvassed reckon infrastructure and energy will remain largely insulated. Such investments will continue to be a key priority for the government, they say, with mega-projects such as Istanbul’s third international airport or the privatisation of the city’s gas network still due to go ahead. Private involvement is very much sought after for what the state has grouped in a programme called the ‘2023 Mega Projects’.

It also seems unlikely that diplomatic rifts between Turkey and Western countries would endanger existing arrangements, even if ties may not intensify in the short to medium term. “Relationships haven’t been positively affected but not so much as to impact economic collaboration. The customs union treaty between Europe and Turkey, for example, is likely to stand whatever happens,” Sokmen says. “I would be surprised if the government was going to try and reverse these policies,” adds Henry Wilkinson, head of intelligence and analysis at Risk Advisory. “They need investment now more than ever.”


Caution is certainly warranted. For a start, it is not obvious if all the grand schemes featuring on the government’s to-do list deserve to receive private capital. As an investor familiar with the market told us, whether every mega-project responds to an essential need remains unclear, raising doubts on the economic rationale behind them. The state’s capacity to fund such initiatives through availability schemes – or the public’s ability to pay for it through fees – cannot be fully ascertained.

There are broader unknowns. “The challenge is whether the government is capable of providing the level of reassurance investors typically seek, such as the one you can rely on where regulations and laws relevant to your business are very clear and attractive,” says Wilkinson. “Businesses must also feel certain that if there is any problem they have sound legal guarantees.” In the context of a shaken judiciary, that could be put into question.

Another problem, Wilkinson adds, could be a side effect of the government’s increasingly authoritarian streak. “Autocracy does tend to bring corruption. Companies may have to think again about how they manage compliance risk,” he says.

In some areas, more assured progress is to be expected. With strong input from Meridiam and Ronesans, the French firm’s local partner, Turkey’s healthcare sector has recently seen a robust framework take shape. The country’s $12 billion hospital PPP programme, backed by the European Bank for Reconstruction and Development, has received support from numerous other multilateral and commercial lenders, suggesting return and transparency credentials on a par with international standards. A spokesperson for the EBRD, which approved €600 million to help further the framework in May, says that “the Bank stays engaged and committed to Turkey”.

Investors involved do not foresee a pause. Last month, Meridiam told Infrastructure Investor that it expected to reach financial close on two more projects by the end of the year: the Bursa healthcare campus, for which it hopes to raise €530 million, and the €400 million Elazig Hospital PPP, which it is looking to finance “through an alternative financing structure”, hinting that a capital markets solution may be in the cards. Observers say this model, as well as the PPP framework in general, could be exported to sectors like transport and energy. They also underline that these funding structures have been designed to withstand shocks, such as those that could arise should the financial climate deteriorate.

The clouds above the Bosporus have not dissipated. Provided they are watertight, however, infrastructure projects look well placed to weather the storm.