Turkey: Don’t Mess with Loki or TOKİ
Here’s the intro. to my latest Hurriyet Daily News (HDN) column, where I discuss TOKI and the economic distortions it is creating.You can read the whole thing at the HDN website. As I sent in the column yesterday, I was thinking that for a change, I did not have much to add. That drastically changed after the column was published, as it turned out to be very popular (as of 09.30 EST, it is the third most popular item at the HDN web site) and I got a lot of reader feedback, which got me thinking. So here are my additional comments:
First, the key part of the column is where, as a journalist who tweeted the column caught, I note that most TOKI contractors/subcontractors were founded after 2002, when the ruling Justice and Development Part (AKP) came into power. However, as Dani Rodrik of Harvard University noted over at Twitter, soon after the column was published, that analysis is incomplete. We would also need to know the founding dates of the companies that were not invited or those that did not get to win. To my knowledge, there is no data on non-winners, but you could get the founding dates of all construction firms from the Union of Chambers and Commodity Exchanges of Turkey (TOBB) database. But this is a bit too daunting of a task for a mere columnist who has a one-person outfit. So I was hoping Ankara think-tank TEPAV, where Guven Sak (the author of the Radikal column I mentioned in the article) is Managing Director, could do this (yep, this is an open invitation to them as well as to other Turkish think-tanks- and anyone else who might care).
Speaking of Sak, I had hyperlinked to a translation of his column I referred to, but here’s the original version. I highly recommend you to read it, as it elaborates on many of the points I make and explains what is wrong with TOKI’s current structure. I will concentrate on one of his particular points: My editor, who went ahead and read the English version of Sak’s article while editing my column, was right to argue that he is basically saying you are nearly forced to do business with TOKI if you’re a local construction firm, which can’t be good for the economy. But he has a more subtle point as well: Since TOKI works with so many subcontractors, the firms have not been able to make the leap from subcontracting to becoming big contractors. This is a very common development econ./industrial policy theme.
Sak has a second column, (there is an English version as well in case you don’t speak, or rather read, our beautiful language) where he concentrates on the urban planning impact of TOKI’s vision. A reader tweeted me (yes, Twitter is very useful) that the style of most of TOKI’s urban projects reminded her of socialist Romania. Reading my column, she noted she saw even more parallels. I learned from her that this program of urban planning carried out under Nicolae Ceauşescu’s communist regime was called systematization. Of course, TOKI is a very different animal altogether, and Turkey, despite all the journalists in prison and the like, is a democracy, but it is impossible to ignore the parallels.
Anyway, returning to the question of old versus new firms, several readers have confirmed that old, established Istanbul construction companies are restraining from TOKI contracts. Why is that the case? In the column, I concentrate on the supply side, i.e. TOKI only lets preferred contractors bid. But there may be a demand side as well. A reader noted, again on Twitter (I told you Twitter is useful), many established firms choose not to do business with TOKI because of the arbitrary payment process and the low margins. I would not know about the second, at least without talking to some sector representatives, but a couple of readers did tell me that Agaoglu, probably the largest contractor doing business with TOKI, is waiting for significant payments from the agency. Speaking of Agaoglu, a banker noted that merely a decade ago, the company would ask for loans of USD 3-5 mn; now they are in the billion-dollar territory. So it does pay to do business with TOKI, I guess.
Another important point I could not get to in the column is regarding TOKI’s (lack of) foreign partners. Since TOKI is such a big player, and is in such an advantageous position, you’d expect large international firms lining up to do business with it. To my knowledge, they only have one international partner at the moment. Their previous one, their first to my knowledge, has gone to arbitration court- you may see their side of the story in their Turkish web site. I guess large international firms don’t want to do business with a black box, even an all-powerful one, especially since a Dutch firm that did is now in court.
As I mentioned in the column as well, I was not planning on the “Samsun incident” at all, but a couple of readers told me why the houses had probably been built by the river bank in the first place. TOKI is under pressure from the government to build as much housing as possible in the shortest time. Even though they can change zoning laws, it is difficult for them to always find land big enough for their projects. The river bank was probably the only place available. So much for “the model many countries would like to emulate”, as an unhappy reader was commenting to my column.
On a separate note, I mentioned in the column that Moody’s and Fitch, which have rated TOKI, did not bother to answer my emails asking for some info. But they do have some statements, such as Moody’s announcement of the annual credit report. You may find some more stuff on the rating agencies’ web sites by searching for the word “TOKI”, or simply with google searches “TOKI Moody’s” and “TOKI Fitch”- you mainly end up reaching Turkish newspaper articles on rating decisions about TOKI, nothing more.
Finally, I cannot finish this addendum without referring to the last paragraph of the column: A friend told me politely that “it would have been better if I hadn’t written that”, and it wasn’t long before someone tweeted that those final remarks were “sexist and pathetic”. I agree I was speculating by linking the TOKI contracting money to covered ladies’ SUVs, but let me make one thing clear once and for all: I have no problem with the headscarf. In fact, I had a huge fight with a retired general during my Ankara days: The gentleman (what he was doing was not very gentle, as you’ll see, but alas), who was a consultant to TOBB and had an office at TOBB-funded Economics and Technlogy University at the time, would not let covered students take off their headscarves under the canopy at the entrance of the university, as he noted the area was university territory and the students could not enter the university covered. Seeing this scene play everyday from my office upstairs, I said “basta” when it was raining cats and dogs one day and intervened. And it got ugly: He called me a fundamentalist, me him a fascist, and so on… Anyway, I don’t want to digress too much, but my problem is that the SUVs may have been bought off with unfair TOKI money- simple as that. I don’t care that the ladies driving them are covered or naked!
Before I conclude, I should note two “ironies”, for lack of a better word, related to the column: One is that, as a reader noted, I am telling others “don’t mess with TOKI”, but I am messing with the agency myself:) And thanks to another reader, I became aware of a story in Today’s Zaman, which appeared, despite what the name implies (OK, bad joke), yesterday- shortly before my column (impeccable timing): The article reports that OYAK, the Turkish Armed Forces Assistance Center, bought land cheaply in the 80s and 90s. This was revealed as a result of a Parliamentary Investigation. I am happy such practices are brought to surface, even after more than two decades. I wish the Parliament was as sensitive about TOKI’s dealings as well, as the agency also gets land from the Treasury. But oh wait, they only report to the Prime Minister, and are therefore untouchable!…
Yep, I didn’t have much to add at all!:)…
5 Responses to “Turkey: Don’t Mess with Loki or TOKİ”
Thank you for the article, it is very interesting. I am an outsider so correct me if I am wrong, here is my comment: My understanding of what TOKI does is to build modern quality apartments at reasonable prices generally targetting the middle class. As you said above the construction companies do not want to deal with TOKI because of low margins which means they have to match TOKI standards with low cost that, at the end, benefits buyers. Last year I took a double deck bus from Taksim to outskurts of Istanbul with the intension exploring the suburbs and see which fits me. I was amased with the TOKI projects, they have created neighbourhoods from bare hills. Again as you said they have the ability to do so whereas construction companies do not.
Another point I would make is that the construction is very powerfull sector in growing the economy, especcially economy like Turkey where most of raw materials and workforce are domestic. It was a very smart move by the government to kick start massive project like this especially because Turkish housing infrastructure is in shambles. Private construction companies will build where the money is TOKI can build where the real need is.
Last but not the least, having such a strong public competition keeps private companies somewhat in check, prevents house prices bubbling up.
Let's not be naive every government has its beneficiaries and there will always be favoritism but if the regious wing has advantage and they are using it to boost construction sector, to refresh infrastructure, to give a chance to small guy own a house that withstands 5,3 eartquake (it's a joke in Japan where I live) and keep greedy construction companies at bay, in bigger picture, covered ladies in SUVs are the small price to pay, do you agree?
You raise many important points. It is best I respond to them in a separate post. I will have something in the next couple of days…
leap from subcontracting to becoming big contractors. This is a very common development econ./industrial policy theme. Lloret
It is definitely an interesting study. The problem is, glaringly missing are the open source focused and vendor-neutral NTAPs.