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Turkish devaluation to fuel growth

27 August 2014

The devaluation of the lira has not yet produced a major benefit to the economy but the effect appears only to have been delayed by a few months, finds Nicholas Clayton

Read more: devaluation lira M&A FDI

Things do appear to be turning around, however. Turkey’s capital markets have largely rebounded, with the main Istanbul stock index reaching its highest level in July since just before the Gezi Park protests last year. Should the ruling party win the presidential election as expected, analysts say there could be a busy fourth quarter full of deal-closings that have long been on hold.

Ahmet Kesli, founding partner of Group Law Firm, says despite recent events, foreign firms would be wise to enter Turkey sooner rather than later. With a steadily expanding economy, a median population age of 30.4 years and rapidly increasing consumption, nearly all sectors in the country are primed for growth, Kesli says.

An increasingly popular way for foreign firms to invest in Turkey, he says, has been to partner local firms bidding on infrastructure projects and other public private partnerships (PPPs). Many international firms have chosen to avoid the risk of the tender processes and have instead become involved as lenders or equity partners in infrastructure PPPs after the winner has been announced.

Public-private partnerships
Last month, Turkish deputy prime minister Ali Babacan announced that the country was hoping to attract $700bn in infrastructure investment by 2023, with $200bn of that garnered through the country’s PPP model. According to Development Ministry data cited by Hurriyet Daily News, Turkey has signed 167 project contracts worth a total of $88bn since the government passed its first PPP legislation in 1994.

However, it has been only in the past few years that the Turkish government has used PPPs as a means of attracting capital for mega-projects. Last year, the government concluded a deal with Italian construction company Astaldi to build the $6.9bn Gebze-Izmir toll road in a consortium with five Turkish construction firms.

It is also expected to reach financial close later this year with a Turkish construction consortium on the $29bn PPP to build and operate Istanbul’s Third Airport for 25 years.

Kesli says Turkey is likely to see the financial close for the first of its hospital PPPs shortly after the presidential elections. Turkey is aiming to add 28,000 beds to its national hospital capacity through PPP tenders, which are currently at various levels of completion. All and all, the hospital projects are expected to require about $14bn in investment and include government-guaranteed bed fees to the operators of the complexes.

Another Turkish sector all but guaranteed to grow is energy. Turkey’s energy demand is expected to rise about 7% annually through 2020 and prices are already high. In the first quarter of 2014, Turkey had the highest consumer energy prices among OECD countries, with a price index 16% higher than the OECD average.

Although the largest electricity generation assets in the Privatisation Authority’s portfolio have already been sold, it plans to launch tender processes for its remaining thermal and hydro plants before the end of 2014, according to a source close to the authority.

Speaking at the Turkey Private Equity & Venture Capital Summit in June, Nadia Cansun, a partner at Bezen & Partners, said investments in greenfield renewables in the country were highly attractive. But with untested regulations and a bottleneck of projects awaiting approval, it may be 12 to 15 months before the ideal time to invest in solar power in particular.

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