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Earthquake rebuild to impact Turkish interest in Saudi

2 March 2023

The Kahramanmaras earthquakes that struck Turkiye and northern Syria on 6 February have left more than 44,300 people dead and another 1.5 million homeless.

The disaster could also impact Turkish contractors’ appetite for work on projects in Saudi Arabia as their domestic market focuses on the $70bn reconstruction effort.

Over the past year, Turkish contractors have had increasing appetite to take on large volumes of the construction work that Saudi Arabia plans to complete as part of Vision 2030. Some $569bn-worth of contracts could be awarded between 2021 and 2025, according to MEED’s Saudi Gigaprojects report.

The expectation stems from the fact that Turkish contractors have traditionally played an active role in the Middle East on projects such as the Kuwait, Doha and Abu Dhabi airports, the Haramain railway in Saudi Arabia and Dubai Metro. According to regional projects tracker MEED Projects, Mapa, Yapi Merkezi, Yuksel and Tekfen have been the most active Turkish contractors in Saudi Arabia.

Turkish contractors were unofficially blacklisted in Saudi Arabia for political reasons in recent years. In 2020 and 2021, no contracts were awarded to Turkish firms. The annual total had averaged $1.3bn for the 10 years before 2018, with a peak of $2.3bn of awards in 2011, according to MEED Projects.

The embargo ended last year, and since then, Turkish contractors have been making a comeback in the kingdom. 

Over the past six months, several major construction contracts have been awarded to Turkish contractors. The first major award to a Turkish contractor came in August 2022 when Saudi Baytur secured a contract from Umm al-Qura for Development & Construction Company (Umm al-Qura) to build part of its Masar mixed-use development in Mecca.

The number and total value of contracts awarded to Turkish contractors had been forecast to grow as more projects move into the construction phase. However, those expectations may have to be revised due to the scale of the damage caused by the earthquakes.

The extent of the reconstruction effort required is only just being quantified. According to a report published by the World Bank on 20 February, direct damages from the earthquakes are estimated at $34.2bn, equivalent to 4 per cent of Türkiye’s 2021 GDP.

The report adds that based on global experience, recovery and reconstruction costs will be much larger, potentially twice as large, which puts the price at close to $70bn.

Market reversal

The expected spike in construction work will reverse a market that is in decline. According to GlobalData’s Construction in Turkey – Key Trends and Opportunities to 2026, published in December last year before the earthquake, the Turkish construction industry was expected to decline by 9.9 per cent in 2022 and 3 per cent in 2023, owing to weaknesses in the general economy amid the ongoing lira crisis and disruption stemming from the Russia-Ukraine conflict. According to GlobalData, Turkiye’s most active local contractors are Limak, Kolin, Dogus and Yapi Merkezi.

Industry figures in Turkiye do not expect the earthquake rebuilding programme to affect the appetite of these internationally active contractors for work in Saudi Arabia.

“There are two groups of contractors in Turkiye,” says an industry leader. “There are companies that work internationally, and there are others that are purely domestic. There are many mid-sized contracting companies that only work in Turkiye that are going to be involved with the rebuilding efforts.”

But even if the internationally focused contractors are still keen for work in Saudi Arabia, their ability to execute projects cost-effectively may be challenged as the earthquake rebuild programme increases the overall demand for people, materials and equipment.

There are already signs that Turkish resources will be redeployed to Turkiye from the GCC.

“There are people looking to source equipment in Qatar and send it to Turkiye to help with the reconstruction efforts,” says a Turkish contractor working in the GCC.

Companies focusing their expertise on national rebuilding efforts is nothing new. In 2011, when the Tohoku earthquake and tsunami damaged large parts of northeastern Japan, many Japanese construction companies working internationally and in the Middle East concentrated on rebuilding Japan. The construction work required for the 2020 Tokyo Olympics then meant many Japanese contractors did not return to the Middle East region.

Japan is different to Turkey. Japan is further away from the Middle East, its construction sector is widely regarded as lucrative with healthy margins, and its economy was less fragile. These things combined should mean Turkish interest in Saudi projects remains strong.

The more subtle question is how hungry for work contractors will be if there are more opportunities to work at home, and secondly, how cost-effective they will be if the demand for resources increases sharply.

Image: Hatay, Iskenderun, Turkey – 6 February 2023

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Colin Foreman

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