BIRLESIM_2022 ANNUAL REPORT

BİRLEŞİM MÜHENDİSLİK 2022 ANNUAL REPORT 35 The Construction Industry The construction industry, a major driver of Turkey’s economy, production capacity, and job creation, contracted by an annualized 7.7%, 9.9%, and 14.1% respectively in the first three quarters of 2022, with demand and jobs in over 200 subcategories affected. As of Q3 2022, the industry accounted for just 4.8% of GDP, down from 9% six years earlier. The contraction in the Turkish construction industry actually began in 2018-2019 due to unforeseeable rises in exchange rates; it was exacerbated by the arrival of Covid-19. Public health measures introduced during the pandemic, followed by a series of CBRT monetary policy tightenings, caused further momentum loss. Economic growth resumed in the first half of 2021 as vaccination programs took hold and restrictions on movement and gatherings were eased, but it was weak at best. It was also too insubstantial to withstand subsequent global and national economic developments. The sector contracted by an annualized 0.6% in 2021 and this process continued apace in 2022. It does not appear likely that the Turkish construction industry will resume growing anytime soon. In 2021, basic input costs increased by as much as 150% in some cases due to the pandemic and to exchange rate movements. Between January 2021 and November 2022, global raw material prices shot up by over 170%, following Russia’s invasion of Ukraine. The Turkish construction industry’s confidence level remained below the critical 100 threshold, unlike all the other primary sectors regularly reported by TurkStat. This shows that the sector’s actors were fairly apprehensive about their immediate or future prospects. Despite this, it is worth noting that the sector’s confidence level did increase by 1.2 points in December 2022 to 92.6. In conclusion, the construction sector, which is a major driver of economic activity in countries around the world, has been facing significant challenges in our country. It is unlikely that construction activities, which have experienced a prolonged decline, will witness sustained growth in the near future. In the past, Turkish building contractors could often ride out contractions in their home market by seeking out and undertaking projects in neighboring countries. However this is now largely impossible due to the region’s current state of war, economic crisis, and security risks. Despite the current challenges, the Turkish construction industry is more than likely to play a significant role in the reconstruction of Ukraine and other countries in the region given its geographical location and proven track record. In the period ahead, Turkish contractors are also expected to be particularly active in Gulf countries such as Saudi Arabia and the UAE. In addition, it is expected that new opportunities will arise to use Islamic Development Bank-provided funding more effectively. Finally, Turkish building contractors are also keeping a close eye on Sub-Saharan Africa, the Far East, and Latin America for potential business opportunities. The decreased profitability of construction projects in Turkey and around the world also makes digital transformation a necessity. Building Information Modeling (BIM) is now being used in the Turkish construction industry, but other digital technologies such as augmented reality, blockchain, and smart contracts are still not widely used. However, there are a number of Turkish startups that are developing digital solutions for the construction industry and many of these solutions have already been launched commercially. The quickest and most effective way to increase productivity in the Turkish construction industry is to make certain that these startups are supported and strengthened so that their products and services can be rapidly deployed. SECTORAL REVIEW Still reeling from the accelerated contraction that it suffered in 2022, the construction industry is unlikely to resume growing in the near future.