Rapid urbanisation has served Turkey well. Powered by pay rises that saw the minimum wage more than double between 2012 and 2016 to TRY1,647 (€509) per month, consumer-driven economic growth has consistently beaten concerns over security threats, politics and monetary instability. But with three-quarters of the population now living in urban areas, the authorities are hard-pressed to find solutions to issues like mobility, utilities, housing and waste management.
Megalopolis Istanbul is far from being the only city struggling with the high number of Turks arriving in search of better opportunities; the country now boasts 30 metropolitan cities with populations exceeding 750,000. In addition to established centres like Izmir, Ankara, Adana and Bursa, since the 1980s Turkey has also seen the rise of the Anatolian Tigers, cities like Gaziantep, Denizli, Izmit and Kayseri, that developed around one or several small businesses and that have grown into urban agglomerations in their own right.
The great diversity among Turkey’s cities explains why the International Finance Corporation (IFC), a member of the World Bank Group and and one of the biggest direct lenders to Turkish municipalities, does not have a blueprint for its urban development projects in Turkey, but rather subscribes to an entire programme, the Sustainable Cities Project, Aisha Williams, the IFC’s country manager for Turkey, explains in a phone interview with bne IntelliNews.
“We deal with municipalities on a case-by-case basis,” Williams says. “The World Bank has been working with the least credit-worthy municipalities, while the IFC with those that are stronger from a financial perspective, like Izmir, Bursa, Istanbul and Antalya, on project development and direct finance.” The main areas on which the IFC has chosen to focus its lending and project development in Turkey are transport, waste management and energy efficiency, she adds.
Turkey is the unquestionable darling of international financial institutions (IFIs). Between the two of them, the World Bank and its private sector arm IFC have invested $9bn in the country since 2011, making it the second largest destination for their financing in the world. Other lenders, like the European Investment Bank and the European Bank for Reconstruction and Development, have also allocated over €10bn on Turkish projects between them. Not only that, but Istanbul is also the IFC’s largest office outside of Washington, from where it manages investments to Europe, Central Asia, North Africa and the Middle East.
It makes sense, therefore, that Turkish municipalities would receive a large portion of that lending – $250mn in direct loans from the IFC alone. In addition, the IFI has provided a mix of loans to private service providers and public-private partnerships (PPPs) related to urban infrastructure and services, as well as advisory services to municipalities and private companies, all with the aim of improving urban infrastructure.
Managing municipal solid waste, in particular, is an area in which Turkish cities have lagged behind. Poor waste collection infrastructure and a lack of awareness among the population have resulted in low ratios of waste separation at the source, which was less than 5% in 2012, according to the EU statistics agency Eurostat. This makes it difficult for waste to be further processed and monetized – mixing cardboard or glass with organic waste renders it useless, for example – meaning that landfilling and dumping are the primary means of discarding waste in Turkey.
Not only does this threaten communities and ecosystems in the vicinity of the landfills or dumping sites through emissions of toxic leachates and greenhouse gases, but they also shorten the lifespan of landfills, which fill up faster with waste that could be put to better use instead. At this rate, the landfills that comply with EU regulations in Turkey will be filled by 2026, the IFC noted in a press release on June 28. In addition, the lender estimates that half of the population is not served with appropriate waste disposal and recovery systems at the moment.
To counter the problem, the IFC has embarked on a series of projects with municipalities like Izmir and private companies like Hexagon Solid Waste, which received a $128mn financial package in 2015 for two plants producing fertilisers, biogas, electricity and compost from waste. In a separate project, the lender is working with Izmir, the Aegean seaport that is also Turkey’s third largest city and a “long-standing partner of the IFC”, on a waste management and water and sewage project.
But individual projects alone are not enough. Rather, better coordination between the central authorities, municipalities and private sector is needed, Williams believes. “There is an important role today in Turkey for the private sector and municipalities to educate consumers about waste separation… Turkey has made strides in passing regulations that are in line with European [waste management] standards, but there is still a ways to go in implementing those regulations,” she says.
In its advisory capacity, the lender is taking steps to bring together precisely those stakeholders that can push forward the waste management agenda. In June, it organised a roundtable in Istanbul to discuss the challenges that private and public entities face in processing and collecting waste. And the low rate of waste separation was a complaint that many participants voiced during the event, Williams relates.
Green finance for greener cities
Promoting renewable energy and energy efficiency in hydrocarbon-poor Turkey is a core part of the IFC’s mandate, Williams says. The lender began investing in power projects in the mid-2000s, when the Turkish government liberalised power generation by unbundling generation, transmission and distribution, and focused more heavily on renewables in recent years to “help the Turkish government achieve its target of 30% renewable energy in its power mix by 2023”.
Since 2013, the IFC has invested $695mn in clean power generation, most recently through a $100mn purchase of a 16.67% stake in hydro, solar and wind power generator Akfen Enerji in June. But it has also sought to address the demand for power, which has increased by 50% to 170bn kilowatt hours (kWh) in the last decade, by making $1bn in financing accessible for energy efficient buildings, green mortgages and small-scale renewable energy projects since 2008.
Having pioneered green mortgages in Turkey, Williams explains that it took some convincing of local banks to extend such loans that are more costly, but that bring long-term energy savings for households and commercial buildings. The first bank that extended such loans in the country was Odea Bank, which is among Turkey’s top ten private lenders and in which the IFI purchased a stake on June 27.
The IFC also supported the introduction of another green financial instrument in Turkey, the green bond, by purchasing a sixth of the country’s first green bond issuance in May, which was met with “insane” demand, according to sources cited by Reuters. “We purchased $50mn of the Industrial Development Bank of Turkey (TSKB)’s $300mn green bond issuance,” the IFI explains in an email.
In addition to green finance, the lender pioneered ‘green hospitals’ – hospitals with a lower environmental footprint, a concept introduced by the US Green Building Council (USGBC) – that have made their way into Turkey thanks to the IFC and its $186mn investment in the Kayseri Health PPP, and in the Adana and Etlik green hospitals.
TOKI, Turkey’s housing authority, has also benefitted from IFC support in the form of consultancy to develop its own green building criteria. “We started this project with a pilot assessment of nine multi-family buildings in Ankara, Istanbul and Izmir to seek improvements in energy and resource efficiency,” Williams elaborates.
The long roster of the IFC’s municipal projects in Turkey would be incomplete without mentioning its investments in mobility and urban transport in bustling cities like Izmir and Istanbul, where the lender has allocated over €160mn to finance expansion and construction of tramway and subway lines.
But how high can sustainability be on the agenda of Turkish municipal authorities, when they are faced with bomb attacks and other security concerns almost every month? She concedes that the past year “has been challenging for Turkey for different reasons, including the election cycle and domestic and regional security threats”.
But Williams is also confident that the situation will improve after 2018. “We recognise that the next one to two years will be tough for Turkey and Turkish companies, as the country remains vulnerable to geopolitical and economic instability despite having proven its resilience so far. But we remain confident in the medium- to long-term prospects for Turkey, which is why we continue to support its companies and municipalities in weathering these threats,” she concludes.
To prove her point about the IFC’s trust in the Turkish economy, she says that the fiscal year ending June 30 has been a record year for IFC investments in Turkey. And that, by the end of the year, the lender is seeking to add at least two more municipalities to the list of four cities that it is already working with.