The Turkish ruling AK Party has doubled down on its efforts to shore up economic growth ahead of the snap election on June 24 by announcing major spending to regenerate urban areas across the country, beginning with Istanbul, the old capital of the Ottoman empire and the country’s cultural and business hub.
“We want the construction sector to be the engine of our economy,” environment and urban planning minister Mehmet Özhaseki told an audience at real estate exhibition Mipim in March.
Istanbul's changing face
Istanbul has been a poster child for president Recep Tayyip Erdogan’s grand ambitions. He was mayor of the city for four years in the mid-1990s before founding the AK Party and becoming Turkey's prime minister in 2003, and president in 2014. The city has undergone tremendous development in the past few decades, adding major infrastructure along and across its iconic geographic features.
Mr Erdogan is now raising the stakes, given the city’s seemingly unstoppable growth – the population has grown to more than 15 million people, from fewer than 3 million in 1980 – and is committed to a project to build an artificial channel parallel to the Bosphorus strait (which links the Black Sea and the Sea of Marmara), called Kanal Istanbul.
“Our president has done all the things he said he would do. I wouldn’t pay attention to the project if he wasn't be emphasising the project so strongly,” says Mehmet Kalyoncu, a member of the board of Turkish major construction group Kalyon.
The project entails digging a 50-kilometre canal, and the development of new urban and industrial areas under a free-trade zone regime. Kanal Istanbul will cost about $10bn, however, and even if the geographical and financial hurdles can be overcome, it would imply a tough renegotiation of the 1936 Montreux Convention regulating the maritime traffic along the strait. Yet the government and private sectors are keen to give it a chance.
“Companies from Russia and China keep calling us to [enquire about] a joint venture for the canal. We are expecting a tender by the end of the year,” says Mr Kalyoncu.
While the new canal remains a vision for the mid to long term, Istanbul’s new airport is about to open. With an initial capacity of 100 million annual passengers, the new airport will become the hub for flagship carrier Turkish Airlines from October 2018. The city is also at the heart of a national urban regeneration plan worth about $15bn a year, which looks to renew the stock of real estate countrywide in order to better withstand Turkey’s high seismic risk, as well as the estimated 3.8 million Syrian refugees in Turkey. In Istanbul alone, 150,000 buildings will be demolished and redeveloped.
Yet there is a question mark over the economic feasibility of the government’s grand plans. Traffic at Istanbul’s new airport will initially be lower than original expectations. This is due to the political and social turmoil Turkey has experienced in the past three years, which has hit tourism and business heavily, Mr Kalyoncu says – the Kalyon group is leading the consortium developing the airport hub.
At the same time, traffic flows at some of the new bridges stretching over and underneath the Bosphorus and the Marmara sea are reportedly falling below expectations. As the Turkish lira keeps plummeting in the currency market, economic feasibility, particularly in the presence of external project finance, becomes even more critical.
Mr Erdogan is now facing a united opposition in the June elections – an opposition coalition has the chance to undermine the AK Party’s majority in the legislative assembly, and may even have a shot for the presidency, should the vote go to a second round, according to opinion polls in May. A victory for Mr Erdogan would be an endorsement for his government’s grand infrastructure ambitions; a defeat would mean the opposite.