Market In Flux, But Growth To Be Maintained
BMI View: We forecast 5.3% real growth in the construction sector over 2014 and growth should remain buoyant over the short-term thanks to projects already under construction fuelling industry value. However, we highlight the downside risks this quarter with allegations of corruption within the construction industry adding to the financing headwinds the industry is facing in light of a major depreciation in the lira. As such investor confidence in the Turkish construction sector will deteriorate posing a threat to our longer-term forecasts, as this 'perfect storm' of social, political and macroeconomic headwinds is certainly going to keep international investors in the sidelines.
A corruption probe of unprecedented scale is underway in Turkey, which has seen the detention of dozens of bureaucrats and businessmen within or related to the construction industry with regards to accusations of corrupt practices during the tendering of contracts and the violation of zoning laws. The government's position on the scandal is that outside forces have orchestrated the corruption investigation in an attempt to weaken Prime Minister Erdogan ahead of elections in March and August and prevent progress on his flagship infrastructure projects.
Projects caught up in the probe are wide-ranging; from residential developments with the private owners of real estate firms involved with the country's public housing administration Toki, to the developers of both the third bridge over the Bosphorus and the planned third airport in Istanbul receiving judicial summons with regards to the awarding of contracts.
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