Asian Infrastructure Investment Bank invested $1.4B in Turkey-related projects in 2018

Following a fruitful 2018, the Asian Infrastructure Investment Bank (AIIB) continues to look for new opportunities in one of its largest investment markets, Turkey, and looks to invest in new projects in the country in the upcoming period.

Established in 2016 in response to the infrastructure needs of the Asian region, AIIB has invested around $1.4 billion in projects related to Turkey last year. Since 2016, the bank has made loan and financing commitments of almost $7.5 billion as of the end of 2018, and expects to approve projects worth another $4 billion throughout this year.

As a further example of partnering with Turkey's financial sector, AIIB is currently considering an up to $100 million investment in the Development Bank of Turkey (TKB) Infrastructure On-lending Facility.

AIIB officials came together with the members of the press at a meeting in Istanbul yesterday during which they discussed the bank's operations in Turkey.

In his address at the meeting, Vice President of Policy and Strategy for AIIB Joachim von Amsberg said Turkey is AIIB's third largest investment market, right after India and Indonesia.

"India is a country with the second highest population in the world, a continental economy and it needs a very serious infrastructure investment. Due to its size, it is our customer number one. Similarly, Indonesia has a population of 250 million. We are evaluating projects. We are pleased to enter into a financing agreement with countries that offer high quality projects. Turkey has a very large economy. More than one investment opportunity came to us in the country. We carried out investments in two projects in Turkey so far," Amsberg said.

In support of the government's goals and aligned with AIIB's priorities-sustainable infrastructure, cross-border connectivity and mobilizing private capital, in 2018 AIIB's Board of Directors approved up to $800 million for two projects in Turkey.

Amsberg said the bank approved $600 million for the capacity expansion project of Lake Tuz underground natural gas storage facility, which will increase the reliability and security of Turkey's gas supply, and $200 million for Turkey's Industrial Development Bank (TSKB) Sustainable Energy and Infrastructure On-lending Facility that will support long-term financing, primarily for renewable energy and energy efficiency projects.

"We also have a third investment; in the Trans-Anatolian Natural Gas Pipeline Project's (TANAP) Turkey part. But the liabilities of the project lies with the Azerbaijani Government. The value of our investment is $600 million. When we include it as well, our total investment in Turkey reaches $1.4 billion," he explained. Amsberg further noted that the bank is expected to invest around $4 billion this year and $5 billion next year. "We might invest $10 billion a year in the upcoming years. Some 15 percent of this amount, namely $1.5 billion, may flow to Turkey... all these figures are within possibilities. We want to play a catalyst role," he said.

So far, AIIB's board of directors has approved up to $7.5 billion in investments for 35 projects in 13 countries.

Furthermore, the officials also revealed details about the bank's inaugural Asian Infrastructure Finance report.

This inaugural report features benchmarks in three areas - infrastructure financing volume, infrastructure financing cost and road construction costs - to provide a snapshot of the health and direction of project financing in eight markets, namely Turkey, Bangladesh, China, India, Indonesia, Pakistan, Philippines and Russia.

The report says there continue to be long-term infrastructure investment opportunities in Turkey despite recent market uncertainty and short-term challenges. It noted that Turkey's relatively developed financial markets, as well as a public-private partnership (PPPs) model, can help the private sector sustain infrastructure investment through a challenging environment. The report highlights cross-border infrastructure as an attractive investment promoting trade and integration, including long-distance transmission lines to transport renewable energy across geographies.

"The Government of Turkey aims to have 61 GW [gigawatts] of renewable energy by 2023, tapping into the vast economic potential of hydro, solar, wind and geothermal resources available in the country," according to the report.

"The pipeline of potential infrastructure transactions in Turkey still seeking financing are largely in the power sector (75.6 percent), followed by the transport sector (13.3 percent). This is consistent with the government's ambitions to become a regional energy hub," the report reads.

"It is critical to enhance cross-border transmission of energy, which is central to matching supply and demand across geographies," said Amsberg. "A big part of creating a regional energy hub, and a large investment opportunity, will be to build these long-distance transmission lines to export this power to neighboring countries."

According to the report, Turkey has spent nearly $100 billion in the past 15 years to build new railways, roadways, tunnels, bridges and airports, and plans to spend an additional $325 billion over the next five years. The report notes that in the near-term the macroeconomic environment, currency depreciation, and rise in interest rates will weaken the outlook for Turkey's construction sector. This will impact the sector's ability to build power and transport projects that are in the current pipeline.

"This is where multilateral development banks like AIIB must step up with additional capital, practical solutions, data and insights to help sustain a higher level of infrastructure investment during challenging economic times," said Amsberg.

The report further adds that, as governments grapple with the need for macroeconomic stabilization and sustaining a high level of infrastructure investment to meet growing demands, AIIB is developing strategies to help its members respond to short and long-term challenges in infrastructure development.

"Good data can help policymakers and investors track the development of infrastructure markets, allowing them to better respond to both near and long-term issues," said AIIB Senior Economist Han Xuehui. "This is the first of what we expect to be a series of reports that will elevate the level of data quality on infrastructure financing in Asia to facilitate high-quality discussion among key players."

The AIIB is a multilateral development bank with a mission to improve social and economic outcomes in Asia.Headquartered in Beijing, it began operations in January 2016 and has now grown to 93 approved members worldwide. By investing in sustainable infrastructure and other productive sectors in Asia and beyond, it is eager to better connect people, services and markets that over time will impact the lives of billions and build a better future.