Turkey’s long had an ill-tempered relationship with foreign investors. By enlisting their help to build giant hospitals, it may have found a cure
Turkey has more problems than there are feathers on the homonymous bird. Supposedly committed to combating IS on its Syrian border, it is also engaged in a violent campaign against independence fighters in the Kurdish region. The standoff has spread across the country, pitting civilians against each other in what have on occasions been deadly clashes. It is also creating a rift between Turkey and its Western allies – who would prefer Ankara to have different priorities – at a time when the country is offering shelter to 2 million refugees.
Nor is the economy providing any relief. A bout of risk aversion across emerging markets has hammered the domestic currency; GDP growth is sagging. Things could get worse: The Economist reckons Turkey is the second most vulnerable country to capital outflows in the world, suggesting many more foreign investors could soon be packing up. That could easily happen if Recep Tayyip Erdogan, Turkey’s President, further tightens the leach on the courts and central bank in the run-up to next November’s general elections. In the meantime he's heating up his rhetoric and cracking down on dissent.
There’s at least one bright spot, however. Notwithstanding its current troubles, the country recently won plaudits for hosting some of the world’s most ambitious healthcare projects – and for garnering enough international backing behind them to make them happen.
The first champagne cork popped last December, when the Adana Integrated Healthcare Campus clinched a €550 million financing package from the EBRD, the IFC and a group of international commercial lenders. The transaction also saw Paris-based fund manager Meridiam become the first overseas-based financial investor to complete a deal in the Turkish public-private partnership (PPP) market.
This was followed by the successive closings of the 1,250-bed Mersin Health Campus, the 3,700-bed Bilkent Integrated Healthcare Campus and the 475-bed Yozgat Education and Research Hospital Project. The Etlik Hospital Campus, near Ankara, is expected to reach a €1.12 billion financial close by the middle of next month.
These successes took a while to come through. Turkey’s ministry of health (MoH) launched its first healthcare tenders in 2007, at a time when the government was also working on involving the private sector in building motorway and tunnel projects. MoH was keen to innovate: understanding that the classic Build-Transfer-Operate (BOT) model was less suited to complex assets like hospitals than transportation projects, it went down the PPP route.
Although MoH’s first project agreements were largely inspired from the proven UK and Spanish PPP frameworks, however, tweaking them so that they would comply with Turkish law made most of them non-profitable. Which is why none of the tenders that completed before 2010 initially managed to achieve financial close.
It took five more years – and endless hours of public-private negotiations – for the first milestone to be reached. But the wait was worth it. According to Infrastructure Investor, a specialist publication covering such matters, MoH has already finalised seven of these mega-projects. It is now well advanced in the planning of the programme’s second phase, which like the first one should see 16 hospitals built for a total cost of about €6 billion. These include Istanbul’s Sancaktepe PPP, a €2 billion project with a planned capacity of 4,500 beds – enough to make it the largest hospital in the world.
MoH’s success has inspired others. Other departments are now convinced that private investment could help them put their own show on the road without burdening their books. The ministry of education, for instance, is planning to build as many as 90 new campuses throughout the country. Authorities are considering grouping several of them under one roof – either by vertically integrating age groups or tendering projects in bundles – so as to reach the scale needed to attract foreign backers.
The water sector could also open up to private sector involvement. Few local authorities have the skills required to run treatment plants, so they often shut them shortly after construction. That enrages the environment ministry (MoE), who ultimately pays for it and has to meet environmental targets. The MoH example may also prompt it to seek help – and capital – from international experts.
Of course, MoE and others are still testing the waters. Much of the above only exists in the minds of ministers; little is likely to happen before the elections. Still, Turkish hospitals could soon offer a template for private investment in public projects. Investors may be growing warier of emerging markets, but most of them continue to believe in Turkey's long-term growth story. All that is needed to lure them in, perhaps, is for the government to provide enough guarantees to sweeten the pill.