Select Committee on Trade and Industry Appendices to the Report


Memorandum submitted by Balfour Beatty plc

This memorandum is in response to the announcement of 4 July that your Committee intends to undertake an inquiry into Trade and Industrial relations with Turkey.

  It tries to set out how one large British construction and engineering company, Balfour Beatty, sees the market prospects; what its past experience has been; and how it will attack the market in future. It is hoped that in this way it will give your Committee, in practical terms, some helpful background as to the opportunities and realities of an important part of the Turkish market.


  Turkey has a large (65 million) and rapidly growing population. Officially its economy was growing fast at a real rate of 3.8 per cent in 1999 and 8 per cent in 1998. These figures need, however, to be treated with caution due both to the difficulty of producing precise statistics which a background of high inflation, and a large "grey economy" causes. For practical purposes, it is sufficient to accept that the economy is certainly growing strongly today, and at times in the past has been doing better than official figures might suggest.

  The economy still suffers from high inflation. Like Brazil, however, business and industry, and the population generally, seem to have learned how to live with this, albeit in a somewhat unsatisfactory way. One reason inflation was not tackled effectively in the past was political instability, or more accurately perhaps Turkey's hyperactive political and parliamentary process. The political scene now seems rather more stable and certainly, with IMF support, inflation seems to be coming under better control. Most important, it is now becoming accepted that any idea of joining the EU is quite unrealistic unless this can be done. Equally, although slowly, the entrenched nationalistic attitude which has sometimes discouraged foreign investment is being replaced by a more realistic outlook. The practical problems caused by traditional nationalism have been reflected in such examples as reluctance to accept outside arbitration of contracts, and in another sphere that human rights issues are a strictly internal Turkish matter rather than a legitimate international concern. It will take time for such attitudes, which reflect the history of modern Turkey, to change but they clearly are changing.

  For companies like Balfour Beatty, the major opportunity lies in the growth in the economy and population combined with an inadequate infrastructure. Currently the Turkish construction market is estimated by us to be of the order of US $12.5 billion per annum. The main constraint on its growth is financing, but there is no lack of attractive and essential potential projects. These lie in the following areas:

(a)   Power

  This is a large potential market both for hydro-electric and thermal power stations. Recent surveys show that industrial growth will face a crippling bottleneck in power supply, unless heavy investment is quickly made both in more power generation and in a major upgrade in the transmission and distribution system.

(b)   Rail

  The new government is rightly putting heavy emphasis on modernisation and upgrading the mainline system and on the development of Mass Transit and Light Rail Municipal Schemes.

(c )   Airports

  This is another priority and some of the need is likely to be met by private sector investment (eg the new Istanbul terminal built on a BOT basis).

(d)   Water and Sewage

  There is a huge unsatisfied demand for improved supply and treatment facilities, driven not only by the rapid growth of major cities but also by the needs of a growing tourist industry. Fortunately, Turkey is the only country in the area which actually has a water surplus available.

(e)   Building

  As a result of the recent earthquake there are signs that a new culture of quality building may be emerging.

(f)   Ports and Harbours

  Represent another good opportunity driven by a strong growth in container traffic and the development of oil transhipment.

(g)   Roads and Bridges

  Much investment is required.

  In conclusion, there are considerable opportunities for UK business in many of these areas, which correspond to established UK capabilities. The way we will ourselves attack these is set out in the final part of this memorandum.


  Up until now, Balfour Beatty, although it has been undertaking projects in Turkey on a fairly regular basis since the late 1980s, has nevertheless had a somewhat ad hoc approach to the market. Some typical examples of past work are as follows:

    (i)  Together with a local partner we designed and constructed a substantial part of the Ankara-Istanbul motorway in a contract worth $250 million over five years.

    (ii)  We designed, supplied and installed the overhead electrification system for 35km of the Istanbul Light Rapid Transit rail system.

    (iii)  We designed and supplied the trackwork for 39km of the Ankara Rapid Transit system.

    (iv)  We constructed the £75 million wastewater treatment plant for Adapazari. It was near the centre of the 1999 severe earthquake, but withstood it with minimal damage. The project site was a base for rescue teams.

    (v)  After the earthquake we led an initiative of the UK construction industry to provide technical assistance to the earthquake-hit area. With financial assistance from DETR this has led to the formation of the British Earthquake Consortium for Turkey.

  In addition, the Committee will be aware, from the past appearance of our Chief Executive before it, of our involvement as chosen lead civil contractor for the Ilisu Dam. We have not thought it appropriate to comment specifically in a general paper like this on the important issues this particular project raises, and of which you are well aware. We would only remark that if the UK Government were to instruct ECGD to take a harder line than other countries and their ECAs are inclined to do, it would certainly cause an unfavourable reaction in Turkish Government circles towards working with UK companies generally.

  Finally, we would add that we are currently undertaking a major highway project in Kazakhstan in partnership with a Turkish firm.


  The local contracting industry in Turkey has developed considerably in recent years and has several companies of considerable size, some of which are energetic, competent and resourceful to the point that they do not limit themselves to the local market but also undertake work in neighbouring countries.

  Although Turkish contractors may lack the full capability which a company like Balfour Beatty has in more sophisticated engineering and technology, large scale project management, project finance and the like, nevertheless the industry has developed past the point where more complex projects can only be undertaken by expatriate companies using local labour contractors.

  It is therefore now both feasible and attractive to undertake many projects in Turkey through a local organisation, with external specialist support when needed. We have therefore now become joint owners (with a large Turkish private sector group) of their existing construction operation and will develop it as our vehicle for the market and improve its capability. It should be made clear, however, that this is unlikely to have an adverse effect on the amount of services and equipment we have traditionally sourced from UK suppliers, mainly in the SME sector. Indeed, if we can grow the business in Turkey it should benefit our suppliers, so long as they remain competitive, as they need to do in any case. Logically, if a UK company can become a leading Turkish contractor, as is our ambition, it cannot be other than a favourable development for UK business generally in Turkey. Moreover, if we have a strong presence there on the ground in construction, other parts of our own business, such as railway systems, rail electrification, and power transmission, should be much better placed to win contracts in Turkey with all the potential benefit to our UK suppliers which that implies.

  Local investment of this kind is doubtless also becoming more appropriate for UK companies in other sectors.

  We would add that we would also use our Turkish business as our arm for attacking opportunities in Bulgaria, Romania and neighbouring former CIS states.


  Turkey is a market of considerable potential for most UK exporters, and those who carry out overseas contracts. It has much more potential than Greece, for example.

  We hope that the conclusions of your own inquiry will not only support this view, but that you will also urge HMG to do everything it can to help develop business there. If we do not do this, the Germans and others most certainly will.

  One specific measure might be to consider giving direct support to the Turkish British Business Council, in the same way that support is given to the China Britain Business Council (who have therefore been able to set up local offices in China).

  Equally in assessing the state of the Turkish economy, and therefore in setting premium rates and the amount of credit, ECGD should take care in judging official figures for the economy. To those familiar with the country, the economy is very often doing better than the figures suggest, due to the large grey economy, and ECGD's judgement should reflect this reality.

  For some businesses, Turkey is not only important in its own right, but is a useful staging post for some neighbouring countries.

  In its general dealings with Turkey, HMG needs to tread carefully in the face of the strong inbuilt national pride and sensitivity. Failure to do this will impact unfavourably on trade relations.

  Finally, the Committee should note that we are very well represented by our Embassy who are highly informed and most helpful commercially.

6 October 2000

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