As for economic forecasts, 2023 evoked pessimistic scenarios. At the start of the year, tight monetary policies adopted by central banks around the world to combat high inflation, subsequent rises in interest rates, and concerns about energy supply were considered likely to cause a global recession. Despite the gloomy forecast, many countries surpassed growth expectations in 2023, and inflation began to decline. These developments were interpreted as signs of a soft landing and an unexpected quick recovery. Particularly in the second half of the year, energy and commodity prices approached pre-pandemic levels.
Although the overall economic recovery was promising, stringent financial conditions, a weakening trade volume, and an atmosphere of uncertainty exerted pressure on growth. In 2023, growth rates did not reach those seen in 2022 in many countries, and global manufacturing output weakened. Growth in G20 countries reached 3.3%, and in the USA, exceeded expectations at 2.5%. Despite facing high interest rates, rising costs affecting household expenditures, rising energy prices, and weakening global demand, the EU economy concluded the year with growth on the brink of recession. The OECD forecasts that the global economic growth, which registered at 3.1% 2023, will decline to 2.9% in 2024 and rise once again to 3% by 2025.
For the Turkish economy, the earthquake at the beginning of the year and the general elections in May were defining events. The low interest rate policy until the elections resulted in robust growth. However, it also led to high inflation and significant depreciation of the Turkish lira. Under the new economic management in the aftermath of the elections, the policy interest rate increased from 8.5% to 45% with ensuing increases in corporate tax, value-added tax, and duties. As a result of these actions, inflation, which soared above 80% during the summer, subsequently declined and closed the year at 64.77%. In 2023, the Turkish economy recorded a growth rate of 4.5%, significantly surpassing the global average and the average of G20 countries.
While traditionally a driving force of the Turkish economy, export predictably failed to contribute to growth due to the shrinking global and European markets. The foreign trade deficit in 2023 was $106 billion with the export-import coverage ratio at 70.7%. On the other hand, overseas contracting services, another significant export industry, experienced an approximately 40% growth compared to the previous year, reaching a project volume of $27.4 billion. Additionally, in the steadily growing international technical consultancy industry, $233.4 million of revenue was generated in 2023.
Despite progress in overseas contracting services, global constraints on investments, such as high inflation, economic stagnation, low oil prices and geopolitical risks, continue to pose challenges for the global construction industry. Although commodity and energy prices have relatively stabilised post-pandemic, a continued slowdown in major project investments is anticipated until global economic stability is reestablished.
Under these constraints, Tekfen Construction focused on efficiently completing its ongoing projects in 2023, while also accelerating proposal efforts targeting key markets in the Middle East and Europe. Tekfen Engineering, a significant asset to our Group with its valuable human resources, references, extensive experience, and competencies, strengthened its portfolio in 2023 by securing major projects domestically and internationally. In 2023, both Tekfen Construction and Tekfen Engineering were included in ENR journal’s “Top 250 International Contractors” and “Top 225 International Design Firms” lists, making Tekfen the only Turkish company to appear on both lists simultaneously.
Meanwhile, in line with our new Strategic Plan, a decision was made in 2023 to merge Tekfen Manufacturing with the Ceyhan Manufacturing Facility. This move aims to consolidate the manufacturing capacities under our Contracting Group, enhancing efficiency and developing specialised areas such as modular steel structures to give our Group a competitive edge. Following the same plan, renewable energy was introduced as a new business line on our Group’s agenda. Preparations began for new investments, particularly in green hydrogen and green ammonia, that will create synergies among Tekfen’s various lines of business and offer new opportunities for the Group.
As part of the organisational simplification within Tekfen Holding and restructuring based on the focus growth areas, all our activities have been consolidated under three main categories: Engineering and Contracting Group, Agricultural Production Group, and Investment Group. Among these, Agricultural Production continued to be one of Tekfen’s leading lines of business in 2023. Toros Agri, the overarching company of the Group, weathered a challenging year against the global conjuncture, and in particular, restrictions imposed on fertiliser exports.
The volatility in the global prices of fertilisers and their raw materials, along with the continued instability in the supply-demand balance since the pandemic, continues to pose risks for the industry. In addition to the recent spike in fertilizer prices caused by the rising costs of raw materials and energy, rising loan interest rates in 2023 adversely affected the purchasing power of farmers. The earthquake in February also disrupted agricultural activities in the area. Despite all these issues, 2023 fertilizer consumption in Türkiye is expected to increase by approximately 10 percent, reaching 6.5 million metric tons. In 2023, Toros Agri reached 1.6 million metric tons in sales, consistent with the previous year, across both domestic and export markets.
The effects of climate change, a major threat to agricultural production, continued to worsen in 2023. Data indicates that 2023 has been the warmest year ever recorded. Particularly in the second half of the year, global temperatures broke records nearly every day, with the average temperature increase nearing 1.5 degrees Celsius compared to the pre-industrial level. As our country is also located in the Mediterranean climate zone, a region most profoundly affected by global warming, we observe a steep rise in the risk of droughts, heatwaves, storms, and extreme rainfall day by day.
Despite the Paris Agreement’s goal to keep the global temperature increase below 2 degrees Celsius by the end of the century, and ideally to limit it to 1.5 degrees, scientists stress that the measures taken to combat climate change are woefully insufficient for these targets and that we are already at the limits. This clear threat against the future of our world was a main agenda item at the COP28 Climate Change Conference organised this year in the United Arab Emirates. Nearly 200 countries at the summit unanimously agreed that it is essential to pivot from fossil fuels for the sake of our planet’s future. While the summit did not provide a set deadline, this first-ever stance against fossil fuels in the final declaration is still considered a significant milestone.
Now that we are on an irreversible path, it is imperative for the future of every company, including the Tekfen Group, to position ourselves correctly, revisit all our areas of activity for the fight against climate change and for a sustainable future, and transform our goals and business models in line with rapidly changing conditions and risks. Our new green economy-oriented strategic plan, which builds on this perspective, provides us with a roadmap for a better tomorrow.
The ideals and principles we inherited from our late founders Necati Akçağlılar, Feyyaz Berker, and Nihat Gökyiğit will continue to guide and inspire us on this transformation journey. Preserving Tekfen’s position as one of Türkiye’s exemplary companies and creating value for all our stakeholders will remain our core objective in the new operational period. We will achieve this by mobilising our Group’s valuable human resources, along with our vast experience and expertise, aligning them with our new roadmap and primarily our goals for green transformation, and by implementing new business models.
Sincerely,
Zekeriya Yıldırım
Chairman of the Board
*The reference for this page is the Annual Report for 2023.