EMRE DELİVELİ > Why economists are not surprised by the graft scandal

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Of course, they are surprised. Even though I was expecting some kind of retaliation, I would not have dreamed of such a wide-scale operation. But most Turkey economists are probably not shocked that construction projects are part of the investigation.

Even a first-time visitor to Istanbul would notice right away that the whole city looks like one huge construction site. Interestingly, I have some difficulty explaining this real estate boom to foreign economists, who point out that home prices have not risen as much as in other countries that went through bubbles, or that the share of construction in GDP is lower than in many peers.

Prices have been held relatively at bay by the astonishing rise in supply, which has been financed by a Ponzi-like scheme: Construction companies start a new project before they sell a significant part of their completed ones. They finance this spree by borrowing from banks, which get extra business by lending to homebuyers.

And by the way, although we don’t have data on foreign currency (FX) lending by sector, my spider senses are telling me that a significant portion of the loans to construction companies are in FX. These firms would be in dire straits if the currency depreciated further, as most of their income is in liras.

I am sure Turkey is not the first country that has gone through this path. We are even lucky that mortgages are not being packaged into derivatives and then sold and resold. We have to thank our undeveloped financial system for that. But I am not sure if there is any other country where the government is supporting this process as much.

Take TOKİ, the state-run Housing Development Administration. It only answers to the prime minister, and therefore we don’t know much about its accounts, but many construction companies partner with it. That’s the only way to get access to otherwise off-limits Treasury land. The zoning goes through the municipalities, but that is easy to take care of, as my last column illustrated.

It is not only construction magnates who are thankful to TOKİ, which works with many subcontractors. Going through some of these firms last year, I found out that most of them were founded in the last few years. And for the really big stuff like the third airport, there is the government: 60 percent of the cabinet decisions in the first half of the year were about public works!

In fact, it is so easy to make money in construction, even without TOKİ or the government’s help, that many Turkish conglomerates have been rushing into the sector at the expense of manufacturing. When I say Zorlu, what is the first thing that comes into your mind? The Zorlu Center, which was built on the land of Department of Highways, or electronics brand Vestel? In a way, construction is Turkey’s “oil curse.”

You can now see why I am not surprised by the content of the graft scandal. And I didn’t even talk about the gold exports to Iran, another pillar of the operation that economists knew well about.


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Notice on comments

Robert Ellis

12/23/2013 11:49:41 PM

"Kefinin cebi yoktur." The shroud has no pockets. "What shall it profit a man if he shall gain the whole world and lose his own soul?" (Matthew 16:36) What do these people hope to gain by their dishonest conduct? They not only cheat their fellow countrymen but, in the end, they cheat themselves.

Laz Kemal

12/23/2013 8:37:27 PM

Nobody should be surprised considering AKP’s leader Erdogan when first elected had limited money, even supposedly owed his son~$200K. Yet within a few years he gained nearly a million dollars by supposedly selling his shares in a cookie company, Ulker. And few more years his son got a $5M ship and Erdogan and family got many mansions at prime locations in Istanbul. I guess PM gets unbelievable salary in Turkey or is it all part of Islamist hypocrisy as I commented on Yusuf’s article.

Blue Dotterel

12/23/2013 5:57:55 PM

Having been commenting on the construction mafia for a number of years, now, I can hardly say I am surprised, either. I am also not surprised that this has been chosen as the area to best exploit Erdoğan and his gang. But beware of Gülen. He and his Cemaat infiltrations into gov't institutions, that have also been long known, are not to be trusted. No doubt there have been fabrications as with Ergenkon. Erdoğan knows his enemy well having conspired with them on Ergenekon.

mara mcglothin

12/23/2013 3:15:32 PM

EMRE BEY I don't think anyone who can add is shocked by this scandal. The numbers simply do not work. I think the shocking thing is someone is actually going to catch them in it.

Emre Deliveli

12/23/2013 1:00:18 PM

@JRC JRC: It has been a while since TOKI went beyond affordable housing. They still do many such projects outside of Istanbul, but none of the partnerships in Istanbul is affordable...


12/23/2013 9:43:13 AM

I'm still waiting to see what TOKI does with the free land it got in Zekeriyakoy, from the former Jandarma base. For those that don't know the area, it's fairly wealthy with 99% villas. Will TOKI keep to its original format of affordable homes, or will these be luxury houses for the right wealthy people? No one knows, because the plans are being kept secret. On the open market this land would be worth millions, but it was free. Who will benefit?

Dayna Lewis

12/23/2013 3:20:01 AM

The only thing that has been surprising is that there were arrests made....all other was pretty much obvious, just most people couldn't put a specific name to the criminals and just refered to it as being the government. The more important question is....what now and how can the people's voice/will be made known before elections?


12/23/2013 1:25:29 AM

I would have been in disbelief had construction not been involved. It usually is, in any country, and your earlier columns on Loki's little brother made it clear that here is no exception.
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