Erdogan’s grand and costly projects fail one after another

Nicosia [Cyprus]: Turkey’s increasingly autocratic President Recep Tayyip Erdogan always had a penchant for very big projects and, according to official data, since 2003 when Erdogan came to power, some 181 mega public-private partnership projects were launched in Turkey. Many of these projects are modelled on the build-operate-transfer system and involve state guarantees if the often over-optimistic projections fail to materialize.
One such project is the “Wonderland Eurasia” in Ankara, which was supposed to become Europe’s largest amusement venue, like Disneyland, but instead of being “a symbol of pride” as Erdogan boasted, is now a symbol of failure.
Inaugurated in March 2019, the “Wonderland Eurasia”, built at an estimated cost of 801 million US dollars, failed to attract an adequate number of visitors and closed less than a year later, as the operator could not even pay the park’s electricity bills and the salaries of staff.
The amusement venue was beset with problems, as two days after its opening, a rollercoaster broke down, forcing scared families to climb down. Furthermore, it was never fully completed and now lies abandoned in a big area of Ankara, near Erdogan’s extravagant 1,150 room Presidential Palace built at a cost of 600 million US dollars.
Moreover, the Italian-Turkish consortium operating the third Bosporus Bridge and the Marmara motorway walked away from the project and is expected to be replaced by a Chinese consortium. Also, the Istanbul airport, mainly due to the devastating effect of the pandemic, is losing money and the Turkish government is trying to get China’s ICB Bank to refinance about USD 6.2 billion of its loans.
The system of build-operate-transfer used in more than half of public-private partnerships is not as successful, as the Turkish government likes to advertise. Some of the projects built in this way fail and the operator is entitled to be compensated from the state budget if the government guaranteed payments are not achieved.
A case in point is that of the Zafer Airport built at a cost of 59 million US dollars about 370 kilometers south of Istanbul. Last week IC Ictas, the operator of the airport, announced that it was putting it up for sale. Zafer Airport was used by only six per cent of the 1.3 million passengers target level set, below which the operator is entitled to government-guaranteed payments.
Abdullah Keles, the airport’s chairman, said that the company would transfer the airport to any party that would pay IC Ictas the money invested and assume the debt created.
Erdogan’s critics believe that the Turkish President, by implementing his extremely ambitious projects under the public-private partnerships – the projected revenues of which are often difficult to achieve – forks billions of lira from the depleted government coffers when the breakeven targets are not attained.
Haberturk newspaper reported that last year the Turkish government paid about 250 million US dollars in guarantees to the operators of the North-Marmara Highway. It also paid another 191 million US dollars for the same reason to the operators of the Gezbe-Izmir highway.
This year the government has included in its budget an amount of 3.5 billion US dollars for such payments, but given the sharp devaluation of the Turkish lira, this amount would be inadequate to meet the contractual obligations towards the operators of the various projects.
What could be more dangerous for the economy is that the Turkish government does not make proper contingent liability provisions and damages the operational capacity of future governments. It should be said that the International Monetary Fund has asked for more information on this question and admonished Ankara to supervise closely public-private partnerships.
In the past, cheap foreign credit helped drive a construction-fuelled economic boom, through which Erdogan created thousands of new jobs and dished lucrative jobs to his cronies. This has helped the ruling AKP party win eight consecutive national elections. But in the last eight years, the value of the Turkish currency has weakened against the dollar while inflation stands at 18.95 per cent. Many Turks now choose to store their wealth in foreign currencies.
Over the years President Erdogan has launched numerous megaprojects, like the Trans-Anatolian Natural Gas Pipeline to transport gas from Azerbaijan to Turkey and a new nuclear power plant in Sinop.
Nonetheless, concerns about the viability of many of these projects are already being raised by opposition politicians and investors.
Last March, Erdogan announced a series of ‘economic reforms, but economists say that “these do little to address the issues needed to restore growth and curtail inflation.
The reforms announced do not address the low value of the Turkish lira, which is currently at 8.35 to the US dollar. Investors are not likely to invest where the value of the national currency is unstable. The fact that Turks are keeping about USD 50 billion in foreign currencies, and that the central bank’s forex reserves are now stuck at a negative $40 billion is not likely to inspire investor confidence.
Turkish economist Gulden Atabay writes: “Erdogan fails to grasp that the main problem for the Turkish economy is his government’s failure to move away from investing in a subsidised construction sector towards focusing on ways to increase output across the economy through transparent and effective economic reform. He is failing to initiate change because he is aware that the ruptures that were already emerging in the economic circles he had established around his governing Justice and Development Party (AKP), based on the use of state resources, would intensify.”

Leave a Comment