May presenting trouble for Turkish economy
Mustafa Sönmez - Hürriyet Daily News May/16/2016 While the month of May is a joyful month…
Turkish Privatization Agency (OIB) has completed the privatization of two hundred public enterprises, mostly during the last decade under the Justice and Development Party (AKP) administration. These privatization transactions have generated nearly USD 47 billion in revenues. Privatization processes have been used mostly to patch up budget deficits. Budget deficits had soared with the 2001 crises in Turkey, mainly due to the rescue package for the 20 insolvent banks that was to be funded by the public resources. In due course IMF had provided a USD 30 billion facility for the rescue package and privatization processes had been used for the debt service of this package.
Privatization activities have virtually leveled the economic presence of the public sector in telecommunication and manufacturing sectors. Energy and banking sectors are next to follow suit. At the present, the share of the public sector in all investments in the country is 20 % (in 2011) and 4% in GDP (as opposed to 29 % of the private sector) while the main focus of the public sector remains in construction of highways.
On the other side, AKP administration is creating a new giant public enterprise in the construction sector: TOKI (Mass Housing Administration). TOKI has been operating directly under the Prime Ministry since 2003 and is said to have contracted nearly 420.000 housing units. According to TOKI sources, the stated level activity of the agency corresponds to an investment spending of approximately USD 35 billion, equivalent of “20 new cities with 100.000 population each”.
On the surface, TOKI seems simply to be a public agency. But taking into account that it is administrating USD 35 billion of investments to build half a million, it could well be also named as a “Public Enterprise in Housing”. Yet this is only part of the story; the reality is far from it. Unlike an active public enterprise, TOKI is essentially a second privatization agency administrating the sales of public properties and public buildings -that normally belong to the state, thus all its citizens- to private commercial parties. While the public economic enterprises are being privatized by the Privatization Agency (OIB), the real estate properties of the state are being sold or appropriated for use by TOKI or OIB. It should be noted that TOKI does not receive any allocations from the public budget or any other public resources. The Agency uses public lands and other real estate properties as its capital.
TOKI has received its “capital”from the National Land Office (under the Ministery of Finance) and has contracted these properties with high market values to private construction groups under highly attractive revenue sharing schemes. These projects were mostly luxury housing projects where the revenues generated were put back to contracting of middle and low income housing projects, creating new construction projects through quite lucrative contracts for yet another group of selected contractors.
According TOKI records, the Agency has completed the construction of 419 thousand units between 2003-2010. Despite that the classification of 90% of these units as social housing serving the social good, the given classification does not quite reflect the reality. TOKI has sold 382 thousand of the 419 thousand units produced, consuming land that was orginally owned by the public. The Agency administered around 1.500 projects with a total investment cost of 32 billion TL. Nearly 30% of these projects were erected in Istanbul and another 11% in Ankara. The geographical distribution of these projects is the first indicator of regional inequalities in TOKI’s planning of its projects.
TOKI identifies itself as a social housing producing agency; however, a study of its top 25 projects provide a clear contradiction to this claim that TOKI actually functions as a rent-distributing agent for high income social groups through luxury housing and shopping mall projects, mainly in Istanbul.
TOKI has mostly consumed real estate investment trust (REIT) model. Studies reveal that while the number of units completed remains below 20% of the total units under construction, the cost of the units under the REIT scheme exceeds 50% of the cost of the total units built in all the projects. This vividly illustrates TOKI’s position as a social housing agency is an urban legend.
More importantly, although TOKI projects have been realized on land and capital owned actually by the public, data and information regarding the returns on these investments are kept strictly implicit. There is a big question mark over whether these investments justify the use of public assets in given projects. There exist no official mechanisms to ensure any accountability on the use of public resources, either. It is worth noting that TOKI is not subject to any of the available public inspection practices and public audits. As such, the Agency has grown into huge holding entity, based entirely on the personal directives of Prime Minister Erdogan. Practically, TOKI, under the auspices of the chairman of AKP, has been utilized as an effective “agent of conversion”converting the electorate into AKP voters.
The unchecked authority to exercise full range of ownership and operational rights over public lands, public facilities and especially the high-value properties in Istanbul is providing AKP a single-handed, an unprecedented power that greatly enhances its political clout in the country. The newly established Ministry of Environment and Urbanization, now headed by the former chief of TOKI, is currently envisaging to consolidate all the regulatory and administrative powers for zoning and planning activities in all of Turkey. This move signifies one of the biggest transfer of authority from municipalities to central government in the recent years. Land, as the fundamental element of capital formation in a developing economy like Turkey, is being capitalized by the central political authority through these new measures. The message from the ruling party is very clear that all authority is effectively and singly consolidated under the ruling party and that the ruling elite is now in the position to allocate and distribute property-driven wealth at its own will as a reward mechanism for support for its policies.
The observers of Turkish affairs who, in the past, generously blessed privatization transactions, must now be mindful of the imminent prospects of all green areas, parks, schools, hospitals and all other socially oriented areas in the urban center getting privatized, this time through TOKI and through the recent cabinet level re-organizations.
(*) Reflections Turkey (a monthly platform of op-ed commentaries on Turkish affairs), 2012