BIRLESIM_2021_ANNUAL REPORT

BİRLEŞİM MÜHENDİSLİK 2021 ANNUAL REPORT 35 The Construction Industry Because of the added value and employment opportunities that it creates, the construction industry has strong leveraging effects in any national economy but this is especially true in Turkey, where economic growth is traditionally nourished by construction and by the real estate market. Relying largely on domestic capital for its funding, Turkey’s construction industry has a significant impact on the country’s employment and production processes because of the huge number of occupational and skill categories that it involves and the subsidiary industries with which it interacts. Encompassing more than 200 subsectors and with extensive national and international experience and potential, Turkey’s construction industry is truly an engine of the national economy. Highly correlated as it is with GDP growth, Turkey’s construction industry has been contracting for the last three years. Reeling from the pandemic’s overall impact on economic activity as well as from high inflation and exchange-rate- driven increases in costs, in 2021 the construction industry experienced a sharp and sudden 5.9% third-quarter contraction after having registered first and second-quarter growth rates of 3.2% and 3.8% respectively. The sector’s share of single-quarter GDP, which was around 5.0% as of end-2020, weighed in at 5.2%, 5.7%, 4.9%, and 4.7% in Q1, Q2, Q3, and Q4 2021 respectively. Upward movements in input costs, which had in any case been on the rise during the previous two years, became even more pronounced in 2021 and were reflected in cost indexes and in the conduct of ongoing and newly undertaken projects. A Q2 2021 rise in construction investments was supplanted by Q3 and Q4 contractions of 9.6% and 8.0% respectively. The December 2021 construction cost index was 15.70% higher than that of November 2021 and 67.74% higher than that of December 2020. Similarly, the rises in the construction materials and labor indexes were 20.35% and 1.44% on a one-month and 85.77% and 24.01% on a twelve-month basis. Looking at municipality-issued building permits in 2021, we see year-on increases of 14% in their total number, 24.1% in their total area, and 16.8% in total dwelling units. Higher construction costs and heightened economic volatility in a sector whose appetite for investment was in any case declining began to obstruct ongoing projects while stifling new ones. Although the volume of works in progress recovered significantly with complete relaxation of pandemic restrictions as of 1 July and continued to increase until about the end of September, it faltered in October and in December it was 2.0% less than what it was in November. The sector’s autumn volatilities in newly- ordered business were followed by a 2.6% one-month decline in December. Continuing to reflect the sector’s lack of optimism about its existing and future prospects, the TurkStat Construction Confidence Index declined by 3.9 points in December to 90 as compared with November, ten points below TurkStat’s sectoral confidence threshold of 100. The sector’s booked-orders subindex was down by 3.2 points to 79.2 and its expected number of employees by sectors for the next 3 months subindex was down by 4.4 points to 100.9. With 1,491,856 units sold in 2021, residential property sales in Turkey as a whole were down by 0.5% year-on. Only 30.1% of these were sales of new properties however: the continued increase in the number of second-hand properties sales brought their share of total sales to 69.1% last year. In the conduct of its international activities, Turkey’s construction industry also contributes to the country’s FX earnings and total employment. Benefitting from expanding vaccination coverage in dealing with the pandemic as well as from weak oil prices, more project contracts were undertaken in other countries than had been targeted. According to 2021 figures published by Turkey’s trade ministry, the country’s international contractors booked USD 29.3 billion worth of new business in the conduct of 384 projects in 67 countries. In the period ahead, the most important issues on the Turkish construction industry’s agenda will be foreseeable contractions in global liquidity, mounting geopolitical risks, rising exchange rates, and the risks that interest rate movements pose for construction investments. Only marginally less important will be the ongoing progress in digital and green transformation and the increasingly wider impact this has throughout the sector. SECTORAL REVIEW AND OUTLOOK Highly correlated with GDP growth, the construction industry has been contracting for the last three years.