The Turks are coming back to the Russian market. Will the Chinese let them?
At the end of last month, something unexpected happened: on June 27th, the president of Turkey, Recep Erdogan, made an apology for the Russian SU-24 shot down last November. On June 30th the RF Prime Minister, Dmitry Medvedev, following President Putin’s instructions, started the process of the restoration of trade and economic relations with Turkey. Construction was among the industries most hit by the crisis in Russian/Turkish relations. How will the Turks recapture their status on the Russian construction market?
Is the holy place empty?
In November, 2015 we wrote that although Turkish companies have taken part in the largest construction projects (“Moscow-City”, Olympic objects in Sochi), the majority of experts agreed that the Turkish builders leaving the market would be no tragedy.
On the one hand, we said the sanctions concerning the companies participating in the construction of such large-scale projects would not be too strict. On the other hand, the freed niches were likely to be occupied by domestic companies, and the quality of their work would not be inferior to that of the Turks, as our specialists have learnt a lot from them.
In fact it happened thus. The larger companies, such as Enka, Esta Construction, Renaissance Construction, and Ant Yap, were included on a special list and did not suffer from the sanctions, and Russian, Byelorussian and Chinese companies rushed onto the free part of the market.
It won’t be easy for Turkish specialists to come back to Russia. For example, the vice-premier of the RF Government, Dmitry Kozak, thinks that Turkish builders will regain their position on the market but not to the full, as many niches have already been occupied by Russian constructors.
The RF Minister of Construction, Housing and Utilities, Mikhail Menn, agrees with him, having announced that the Turkish constructors’ return will not influence the market significantly.
The majority of experts also affirm that sanctions against Turkish companies didn’t much influence the RF construction market and that the Turks will see the results of the crisis in the Russian/Turkish relationship in 2017, as large-scale projects are being discussed now without their participation. Besides this, prolonged stagnation on the market does not play into Turkish builders’ hands. According to experts, construction rates will decrease according to demand in the next two years.
However, there are people who think otherwise. The Director General of “Spectrum” GC, Vladimir Ivanov, is sure that the niche freed by a number of Turkish companies leaving the Russian market has stayed unoccupied by Russian constructors. He thinks that the strongest Turkish players have stayed on the market, and Russian companies haven’t offered services of the same quality as those provided by Turks.
“It will be difficult for the Turks to return to their share on the market”
We asked Nickolai Koshman, the president of the Russian Constructors’ Association, to comment on the Russian-Turkish relationship reboot in the sphere of construction.
— Mr Koshman, how do you think the situation in the construction sphere will change in connection with the latest thaw of Russian-Turkish relations?
— The President of Russia, Vladimir Putin, reacted very strongly to the shot-down aircraft, and he was absolutely right. The crisis in the relationship between the two countries has a negative impact mostly on the Turkish economy.
As far as the Russian construction industry is concerned, not all Turkish construction companies left the Russian market. Those who were busy working on complicated objects stayed. They were allowed to complete construction. Thus, we did not feel serious changes or disturbances.
— Experts have different opinions now. The majority think that it will be difficult for Turkish constructors to recover their former status, but others are sure that the niche freed by their leaving has not been occupied yet. What do you think?
— To my mind, the prospect for Turkish companies to join the market has been aggravated as Chinese and Russian companies have entered the market. A holy place is never empty! It will be very difficult for the Turks to retrieve their share of the market.
In this issue, they might address their President Erdogan as to why he was sitting around thinking for so long. He might have given his apology seven months ago, immediately after the aircraft was shot down, and, after apologizing, he should have taken strict measures and blamed the guilty parties.
— How fit were Chinese constructors to enter the industry?
— In March, the Russian Constructors Association, together with Chinese Embassy, held the first Russian-Chinese construction forum for Chinese companies to take part in large construction projects.
I know about a dozen Chinese companies which have started working in Russia, in Lipetsk, Bashkiria, etc. Serious objects are being built. For example, the Chinese together with Russian Railroads (RZhD) are building the Moscow-Kazan high speed railroad.
— Turkish construction companies are known to deal with statutory objects. May they hope for similar contracts now?
— All large-scale objects the Turkish companies are working on will be completed, in particular the objects to be built for the Football World Cup 2018. There are two Turkish companies working on this, if I am not mistaken. The president of FIFA, Gianni Infantino, has visited the objects and was satisfied with the course of the work.
As far as future contracts are concerned, rivalry at tender and competition levels will become sharper. The result will depend on how the Turks will manage.
— Many people think that in the 1990s, when the Turks entered the Russian market, they worked to a higher standard of quality than our builders. Have the Russians kept up with them?
— I absolutely disagree with the statement that the work of Turkish constructors was of higher quality. To remind you, in February, 2004, there was a catastrophe regarding an object being constructed by the Turkish “Transvaal Park” company. 28 people perished. There was a gross violation of work rules, which led to the most serious of imaginable consequences.
Also there were serious violations during the construction of Terminal 2 at Vnukovo, and at a number of other objects. I must say that the Turks did not perform on the market very successfully, and we had to monitor them seriously, mainly for the quality of their work.
As for Russian constructors, the 1990s were a harsh lesson for the construction complex of the country. In many regions it practically ceased to exist, as the construction volumes were too small.
We did not know much, and it was the Chinese who taught us. Two Chinese companies, “Visk” and “Yuanda”, taught us how to pour concrete for high-rise construction, how to use enclosure structures, etc. They built a wonderful object – “The Baltic Pearl” hotel in Saint-Petersburg.
— And why then was the Turkish, not the Chinese, market share 19% before the crisis?
— The Turks won via investments: 10 Turkish banks were deployed in Russia. The Chinese built only for budget money.
As for the above-mentioned forum, we made it a condition that they would work in Russia only with their own investments and credits, and they agreed.
— There is the opinion that Russian constructors lacked good-quality Turkish concrete during the crisis in the relationship. Will the new reboot support the industry in this aspect?
— I have already mentioned the “Transvaal Park” – here’s your Turkish concrete. Eight bulks broke, the roof folded, people were killed. How can we speak of good-quality Turkish concrete?
Russian constructors are in a difficult situation not because there are Turks on the market, but because the banking sphere has created unbearable conditions for loans: a 23—26% annual rate! It has become unprofitable to construct many objects. If banks were interested in the construction complex, we would not have this outrageous situation.
I would like to address the banks working with construction and the economy. They should take the first step in meeting constructors’ needs: lend preferential credits to those dealing with the construction of nursery schools, schools, hospitals, housing and other social objects. After that, it won’t matter to us who else works on the Russian market: the Turks, the Chinese or the Byelorussians.