After investing a record €1.9bn in 2015, the European Bank for Reconstruction and Development (EBRD) plans to invest between €1.7bn and €1.8bn in Turkey this year, EBRD Turkey director Jean-Patrick Marquet tells bne IntelliNews in an interview.
The EBRD has been active in Turkey since 2009, during which time investments to date – focused on energy, finance, industry and infrastructure – have exceeded €7bn. With the financing of €1.9bn received from the EBRD last year, up from €1.4bn in 2014, Turkey confirmed its position as the top investment destination for the development bank, despite a challenging environment marked by two elections, regional conflicts, tensions with Russia and the flare-up violence in the county’s southeast.
The EBRD financed a total of 43 projects in the country last year alone. It acquired together with the World Bank’s International Financing Corporation (IFC) a 9.95% stake in Fibabanka, provided a $ 200mn loan (the bank’s largest investment in the country to date) and mobilised additional loans from commercial and development banks, and arranged long-term financing for the €1bn Etlik hospital near Ankara under public-private partnership (PPP) scheme.
The EBRD has already announced two investments this year: it provided a €75mn loan to steelmakers Erdemir and Isdemir in January. The bank also invested TRY100mn (€31mn) in bonds issued by Ronesans Holding, one of Turkey’s largest construction companies. This bond issue was the first in Turkey to use TRLIBOR – the Turkish Lira Interbank Offered Rate, as its benchmark rate.
The EBRD will continue to invest in energy efficiency, renewable energy and infrastructure, Marquet says, who previously held the position of EBRD director for municipal and environmental infrastructure, and took up the post in Turkey in March 2015.
Marquet says that helping Turkey deepen its capital and local currency money markets will be one of the bank’s top priorities this year. “The size of the equity market is rather shallow, accounting for about a third of Turkey’s GDP, whereas this figure is 100% in developed economies,” Marquet says, adding that the market needs more companies listed on the stock exchange, and more IPOs. “Improved corporate governance, and transparency is crucial for attracting more investors into the equity and debt market.”
To this end, the EBRD is working closely with the country’s Capital Markets Board (SPK) to promote enhanced corporate governance of companies listed on Borsa Istanbul, Marquet says, explaining that greater transparency will help to attract more international investors.
The EBRD’s equity investment in Turkey rose to a record €450mn in 2015, and this will continue this year, says Marquet, without providing other details.
The EBRD is undertaking pre-IPO investments to help prepare companies for going public. It became a shareholder in 12 companies, including Global Ports Holding and Borsa Istanbul in which it acquired a 10% stake in December. The EBRD will take an active role in Borsa Istanbul’s corporate governance and will help to introduce new products and services that will contribute to the expansion of the Turkish capital markets.
The EBRD will also support long-term investors such as pension funds or insurance companies, as local companies need to borrow through longer maturities – something that will be made possible through better corporate governance and transparency.
Marquet also points to the problems arising from the low savings rate in Turkey. Domestic savings are less than 15% of GDP, which makes the country highly dependent on external financing. Turkey’s foreign funding needs, according to the OECD, are projected to reach 25% of GDP in 2016, including the refinancing of external debt.
The EBRD more than doubled external loan co-financing in Turkey to over €700mn in 2015, Marquet says.
Challenges ahead for Turkish economy
There are challenges ahead for the Turkish economy in 2016, admits Marquet, who nevertheless is optimistic that the reforms recently announced by the government will help the country limit the effects from the headwinds blowing in from abroad.
The EBRD expects Turkish economic growth to continue at 3.0% in 2015 and 2016, but below the country’s long-term potential of 4.5%.
Volatility in global markets amid the post-Federal Reserve rate hike environment, high inflation, the high jobless rate, slower growth and the economic sanctions that Russia imposed following the downing of a Russian bomber near the Syrian border are posing serious risks to the Turkish economy. EBRD economists calculate that persistent sanctions could reduce Turkey’s GDP growth in 2016 by 0.3-0.7 percentage point.
The EBRD’s Turkey strategy, focused on scaling up private sector competitiveness through innovation, promoting regional and youth inclusion, and improving female labour participation, will support growth potential over the longer run, says Marquet.
In a sign of the bank’s commitment to support local companies’ R&D activities, it provided financing last year to carmaker Tofas to develop two new models for passenger cars.
Despite the economic challenges and geopolitical risks, Turkey remains a strategic country as a gateway to a wider region and hub for the bank’s operations. This importance will be highlighted at the Central Asia Investment Forum to be held in Istanbul on February 18. The event, supported by the bank’s local partner The Union of Chambers and Commodity Exchanges of Turkey (TOBB), will provide a platform to discuss the practicalities of doing business in the region, and the opportunities for international investors in Central Asia.
The event will be attended by EBRD President Suma Chakrabarti, who will also go to Ankara and Gaziantep, where he will pay a visit to a refugee camp.
Turkey’s refugee problem
The EBRD has also been asked to play a role in helping Turkey tackle the ever-growing refugee crisis triggered by the civil war in next-door Syria.
The bank plans to provide at least €500mn, the vast majority of its funding to help Syrian migrants, to Turkey and Jordan to improve the water, waste and transport systems, Reuters reported in December.
Turkey is currently hosting more than 2.2mn refugees from Syria. In December, the EU pledged €3bn in financial aid to help Turkey. But the government in Ankara says it has already spent close to $10bn to look after the refugees and more than €3bn pledged by the EU is desperately needed.
The EBRD will also host an event on February 3 at its headquarters in London to support refugee-hosting communities. The event will focus on the EBRD countries of operations most affected by the current crisis.
As part of its efforts to help Turkey to cope with the influx of refugees, the bank plans investments into infrastructure and in small and medium-sized enterprises to boost the local economy and create jobs in the country’s south-eastern provinces, which are trying to cope with the influx of refugees, says Marquet.