ROLE OF CONSULTING AND CONTRACTING INDUSTRY IN ECONOMIC DEVELOPMENT OF

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ECONOMIC DEVELOPMENT OF TURKEY

16 May 2017, JeddahPresented by

Demir INOZUImmediate Past President of Association of Turkish Consulting Engineers and Architects (ATCEA)

Chairman of International Technical Consultancy Business Council of DEIK(Foreign Economic Relations Board) TURKIYE

Turkish Construction Industry is the main driving force in the economic uplift anddevelopment of Turkey. Construction Industry with its three main stakeholders;• Contractors,• Construction Materials Producers• Technical Consultants;plays an essential role in the socioeconomic development of Turkey.plays an essential role in the socioeconomic development of Turkey.

Located at the crossroads of three continents; Europe, Asia and Africa; Turkey hashistorical and strong political and economic relations in the region. Geographicalproximity of Turkey to the potential markets, provides a great advantage to theglobal competitiveness of the Turkish construction industry abroad.

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TURKISH CONTRACTING INDUSTRYTURKISH CONTRACTING INDUSTRY• 6% share in GDP of Turkey• Employing 1.900.000 people• 30% share in Turkish economy• 10% of employment excluding agriculture

Since 1972 working abroad• 115 countries• 9000 projects• Total value 342 billion USD

Ref: Turkish Contractors Association (TCA), April 20163

• According to rankings announced in 2016 by the leading internationalindustry magazine Engineering News Record (ENR), 40 Turkish contractingcompanies ranked among "The World's Top 250 International Contractors“,based upon 2015 data by overseas operations outside their home countries.

• Turkish contractors ranked second in number in the world after China for• Turkish contractors ranked second in number in the world after China forthe last 9 years.

• As of 2015, total amount of overseas projects undertaken by the 250international contractors in the ENR list is 500 billion USD; and the share ofTurkish contractors is 22.8 billion USD (4.6 percent), ranking 9th in totalvalues of international contracts.

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NUMBER OF TURKISH CONTRACTORS IN ENR “THE WORLD’S TOP 250 INTERNATIONAL CONTRACTORS LIST”

3133 31

3338

42 40

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

811

14

2022 23

YEARS

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ANNUAL VOLUME OF INTERNATIONAL CONTRACTING SERVICES UNDERTAKEN BY TURKISH CONTRACTORS (2002 – 2016)

ANNUAL INTERNATIONAL CONTRACT VOLUMES

(Billion USD)

Number of workersemployed abroad

(Ref: Türkiye Is Kurumu)2002 4,5 32.0002003 6,3 34.1512004 8,5 40.1982005 13,2 60.3552006 21,9 81.3792007 25,3 70.0242007 25,3 70.0242008 24,5 58.6022009 20,3 59.4792010 23,3 54.8472011 23,2 52.491

2012 30,2 57.593

2013 30,3 55.3692014 26,9 39.6442015 23,2 31.9662016 12,5

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DISTRIBUTION OF TOTAL INTERNATIONAL CONSTRUCTION WORKS OF TURKISH CONTRACTORS BY COUNTRY (1972-2016/3 months)

Russian Federation

19,9%

Turkmenistan14,8%

Other 23,8%

Libya9,0%

Iraq7,2%

Kazakhstan6,5%

Saudi Arabia5,2%

Algeria3,8%

Qatar3,60%

Azerbaijan3,4%

UAE2,8%

23,8%

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DISTRIBUTION OF INTERNATIONAL WORKS OF TURKISH CONTRACTORS BY NATURE OF WORK (1972-2016/3 months)

Social/CulturalFacilities

PetrochemicalPlants4,7%

TourismFacilities

4,6%

AdministrativeBuildings

3,9%

Other27,8%

Housing12,9%

Road/Bridge/Tunnel

11,9%Commercial

Centers8,6%

Industrial Plants7,4%

Airports7,1%

Power Plants6,1%

Facilities5,0%

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Main advantages of Turkish Contractors:• high quality and cost effective services at international standards,

• experience and know-how, strong technical and technologicalinfrastructure,

• risk taking market policies, client satisfaction and skillful management.• risk taking market policies, client satisfaction and skillful management.

•Turkish construction sector is contributing a lot to balancethe payments of Turkey arising from the foreign tradedeficit.

•Construction sector creates new employment areas andcontributes a lot to the employment.

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YEAR

TOTALEMPLOYMENT

EXCLUDING AGRICULTURE ( people )

EMPLOYMENT INCONSTRUCTION

SECTOR ( people )

% EMPLOYMENT IN

CONSTRUCTION SECTOR (excluding agriculture)

2005 15.553.000 1.171.000 7.53 %2006 15.241.000 1.189.000 7.80 %2007 15.588.000 1.224.000 7.85 %2008 15.959.000 1.125.000 7.00 %2009 16.324.000 1.297.000 7.94 %2010 17.082.000 1.442.000 8.44 %2011 18.079.000 1.512.000 8.36 %2012 19.080.000 1.647.000 8.63 %2013 19.755.000 1.753.000 8.87 %2014 20.632.000 1.829.000 8.86 %2015 21.127.000 1.916.000 9.06 %Ref: The Turkish Employers Association of Construction Industries, 2016 10

TURKISH CONSTRUCTION MATERIALS INDUSTRY

TURKISH CONSTRUCTION MATERIALS INDUSTRY

• Construction Materials Industry is one of the Turkey’s most competitiveindustries in the international arena.

• Among the world’s top 12 producers• Ranks in the top exporters of construction materials• Ranks in the top exporters of construction materials• Total market size USD 61,5 billion

Domestic market size USD 44,5 billionExport volume USD 17 billion

• Focus on sustainable development, energy efficiency, nanotechnology, R&D investments and innovation.

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TURKISH TECHNICAL CONSULTANCY SECTOR

TURKISH TECHNICAL CONSULTANCY SECTOR

• Total number of engineering, architecture and technical consulting firms isapproximately 22.000 with 85.000 employees.

• 120 members are registered with the Association of Turkish ConsultingEngineers and Architects representing 5000 staff.Engineers and Architects representing 5000 staff.

• Total annual revenue of these companies reach 400 million USD, of which 290million is from the domestic market and remaining 110 mln USD frominternational markets.

• Annual total revenue of the other companies, which are not members ofATCEA, is estimated as 4 bln USD.

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• Turkish technical consultancy firms, with their diversified experience gained in many challengingprojects in Turkey and abroad, are also playing an important role in the booming of Turkishconstruction industry.

• Some of the Turkish consulting engineering firms are also included in the ENR Top 225 International Design Firms List since 2011. My company “Temelsu International EngineeringServices Inc”, which provides multidisciplinary engineering services locally and internationally since 1969, entered into this list first in 2011 and for the consecutive six years listed in thesince 1969, entered into this list first in 2011 and for the consecutive six years listed in thetop 225.

• As of 2016, Turkish technical consultants were involved in 1471 projects in 99 countries witha total value of 1.8 billion USD by winning international tenders financed by internationalfinancing institutions, and through PPP and EPC contracts. By total value; 34.5% share of these projects were in CIS countries, 21.4% in Gulf, 20,2% in Middle East, 15.2% in North Africa.

• Sustainability, innovation, quality-time-cost control and risk managementare the first priority issues of Turkish consultancy sector. 13

DISTRIBUTION OF TOTAL CUMULATIVE OVERSEAS PROJECT VOLUME OF TURKISH TECHNICAL CONSULTANCY SECTOR (Total 1.8 billion USD)

SAUDI ARABIA17,4%

IRAQ17,2%

UZBEKISTAN2,6%

QATAR2,2%

KAZAKHSTAN2,1%

OTHERS17,4%

Building40,5%

Water

IndustrialStructures

7,2%

Others9,7%

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17,2%

AZERBAIJAN16,7%LIBYA

10,9%

GEORGIA6,5%

RUSSIA4,3%

ALGERIA2,7%

BY COUNTRY

Transport ation27,4%

WaterStructures

15,2%

BY SECTOR

DISTRIBUTION OF TOTAL ANNUAL REVENUES OF MEMBERS OF THE ASSOCIATION OF TURKISH CONSULTING ENGINEERS AND ARCHITECTS - 2016

more than 20 mln $7,4%

10-20 mln $3,7%

5-10 mln $11,1%

3-5 mln$

PRIVATE SECTOR

25,0% ABROAD15,0%

mln$18,5%

less than 3 mln $59,3%

BY TOTAL VALUE

PUBLIC SECTOR

60,0%

BY SOURCE

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TURKISH ECONOMY & CONSTRUCTION SECTOR

TURKISH ECONOMY & CONSTRUCTION SECTOR

Based on 2015 WB figures Turkey is the:

• 18th largest economy with a GDP of approximately 717,88 billion USD

• According to the estimates made for the year 2023, when Turkey will celebratethe 100th anniversary of the Republic of Turkey, total GDP is expected to reach1,1 Trillion USD.

• Projections made by the authorities in the United States and WB indicates thatGDP of Turkey will be around 1,6 Trillion USD in 2030.

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Based on 2015 GDP figures Turkey is the18th largest economy in the world (717,88 billion USD)

(Ref: World Development Indicators, WB 31 Dec 2016)

Rank CountryGDP

trillionUSD

Rank CountryGDP

trillionUSD

1 United States 18,0 11 South Korea 1,4

2 China 11,0 12 Australia 1,3

3 Japan 4,1 13 Russia 1,33 Japan 4,1 13 Russia 1,3

4 Germany 3,4 14 Spain 1,2

5 United Kingdom 2,9 15 Mexico 1,1

6 France 2,4 16 Indonesia 0,862

7 India 2,1 17 Netherlands 0,752

8 Italy 1,8 18 TURKEY 0,718

9 Brazil 1,8 19 Switzerland 0,665

10 Canada 1,6 20 Saudi Arabia 0,64617

• TOTAL GDP COMPARISON(Ref: Global Construction Handbook, 2015)

• VOLUME OF WORLD CONSTRUCTION SECTOR2015: 9,72 trillion $2020: 11,90 trillion $ (estimation)

YEAR WORLD TURKEY2015 74 trillion $ 718 billion $

2023 projection 109 trillion $ 1,1 trillion $annual growth rate 2,5%-3% 4,5%

1% of World GDP

SHARE OF TURKISH CONSTRUCTION SERVICES

500 bln $ int’l construction works 22,8 bln $ int’l construction works of Turkish Contractors 4.6%

SHARE OF TURKISH CONSTRUCTION SERVICESIN WORLD TOTAL SERVICES EXPORT -2014

(Ref: WTO, World Trade Statistical Review, dated 2016)

ALL SERVICES EXPORT TRADE (2014) CONSTRUCTION SERVICESEXPORT INCOME (2014)

WORLD 4,8 trillion $ 105 billion $TURKEY 46 billion $ 1,28 billion $

1% of World services 1,2% of World construction services export2,8% of Turkey’s services export

Target for 2023 is 2.5 billion USD18

INTERACTION BETWEEN TURKISH CONSTRUCTION INDUSTRY AND TURKISH

ECONOMY

INTERACTION BETWEEN TURKISH CONSTRUCTION INDUSTRY AND TURKISH

ECONOMY

• Being the leader sector in Turkish economy, growth of construction sectorand growth rate of GDP are closely related. This relation and dependencyis clearly observed on these graphics:is clearly observed on these graphics:

• GDP Growth Rate• Construction Sector GDP Growth Rate• Share of Construction Sector GDP

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YEARS GDP GROWTH RATE OF TURKEY (%)

CONSTRUCTION SECTOR GDP GROWTH RATE (%)

SHARE OF CONSTRUCTION SECTOR GDP (%)

1999 -3,4 -3,12000 6,8 4,92001 -5,7 -1742002 6,2 13,9 5,02003 5,3 7,8 5,12004 9,4 14,1 5,22005 8,4 9,3 5,82006 6,9 18,5 6,42007 4,7 5,7 6,52008 0,7 -8,1 5,92009 -4,8 -16,1 5,22010 9,2 18,3 5,72011 8,8 11,5 5,82012 2,1 0,6 5,72013 4,2 7,4 6,02014 3,0 2,2 5,82015 4,0 1,7 5,7

Ref: Turkish Contractors Association (TCA), April 2016 20

13,9%

7,8 %

14,1%

9,3%

18,5%

5,7%

18,3%

11,5%

0,6%

7,4%

2,2%1,7%

-5,0

0,0

5,0

10,0

15,0

20,0

25,0

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

-8,1%

-16,1%-20,0

-15,0

-10,0

-5,0

CONSTRUCTION SECTOR GROWTH RATE

OF TURKIYE

CONSTRUCTION SECTOR GDP GROWTH RATE (%)

GDP GROWTH RATE OF TURKEY (%)

GDP SHARE OF CONSTRUCTION SECTOR (%)

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• 1999 and 2001 economic crises had a negative impact on the construction sector.

• After recovering, starting from 2002 the sector progressively grew until 2006,

• Then starting from 2007 economy entered into the recession period followedby 2008 and 2009 crises, consequently construction sector shrunk 8,1% and16,1% in these years respectively.16,1% in these years respectively.

• Recovered quickly in 2010 in parallel with the start of large projects in Turkeyand grew by 18.3%; but after 2012 again the growth rate slowed down.

• Due to political uncertainities Turkish construction industry grew by 1.7% in 2015.

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• Due to the general geo-political problems in the region and negative impacts of globalcrises; economic development slowed down at certain periods, and growth of Turkishconstruction sector was negatively affected during these periods.

• Due to its interrelations with the other sectors;• On one hand the inputs used in the construction sector helpdeveloping the production, manufacturing and transport sectors;developing the production, manufacturing and transport sectors;

• on the other hand the demand for other buildings (housing, education tourism,industrial buildings) increase the volume of construction activities.

• The power of construction sector for stimulating other sectors accelerates the growth ofTurkish economy.

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• Construction sector has a potential for bringing foreign exchange and capital to Turkeywhich supports Turkish economy during recession periods.

• It should be noted that because of the;• It should be noted that because of the;• diversification of markets and specialisations of the contractors,

• continuous demand from the domestic market for implementingseveral grand challenging projects

• urban transformation program,Turkish construction sector managed to overcome the difficult periods.

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Recently there are several ongoing and planned projects financed bygovernment as well as by local and foreign investors creating demandfor construction industry in domestic market :ØWith 7 PPP projects totalling USD 44,7 billion, corresponds 40 percent of global PPP investments(including 3rd Istanbul Airport), Turkey is the global leader of Public Private Investments (2015 Global PPIUpdate,WB)

ØIstanbul 3rd Airport (USD 35.6 bln) is under construction by PPP model.

ØUntil 2023; 5700 km motorways will be constructed by BOT model, 6000 km long highways,ØUntil 2023; 5700 km motorways will be constructed by BOT model, 6000 km long highways,13.000 km railways will be constructed.

Ø60 city hospitals (12 billion USD) will be constructed, most of them by PPP model.

ØUnder the Urban Transformation Project 350 billion USD will be spent.

Ø2 Nuclear power plants are planned to be constructed, total cost 45 bln$.

ØTrans Anatolian Natural Gas Pipeline is under construction.

ØCanakkale suspension bridge (3869 m long, the longest span 2023 m). will be constructed ( 3 billion $).

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As for the international markets:As for the international markets:

Ø there are huge investment opportunities in Africa, especially in infrastructure, where the benefits areexpected to be very high. In particular, Sub-Saharan Africa and East Africa are forecast to be the fastestgrowing regions in the world over the next five years.

ØAfrica’s absolute and relative lack of infrastructure necessitates establishment of international and regionalcooperation and strategic partnerships. In this regard, African countries are among the main targets forcooperation and strategic partnerships. In this regard, African countries are among the main targets forTurkish contractors, consulting engineers and architects for several ongoing and prospective PPPand EPC contracts.

ØEurasian, Middle East and North African countries are the key markets for the Turkish contractors, asbefore. Recently Turkish contractors entered into the Colombia, Venezuela and Peru in South America.

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CONCLUSION:CONCLUSION:Contribution of Turkish International Contracting and Technical Consulting ServicesIndustry together with the Construction Materials Industry to Turkish economy is veryimportant;• affects the foreign exchange input positively, • enhances economic growth,• enhances economic growth,• contributes to the balance of payments, • increases the export volume, • increases the employment rate, • helps expanding construction machinery capacity of contractors,• contributes to transfer of technology and innovation, • improves quality of locally produced construction materials,• increases the power of competition of Turkey in the international markets.

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Thank youDemir İnözü

ChairmanTemelsu International Engineering Services Inc.Temelsu International Engineering Services Inc.

Yildizevler 721. Sokak No:6, Cankaya 06550Ankara / Turkey

temelsu@temelsu.com.tr

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