Istanbul, Turkey – About 500 years ago, Sultan Suleyman the Magnificent planned to build a canal to bypass the Bosphorus. Today, that dream is about to come true with Turkey’s latest and most ambitious âmegaprojectsâ launched under the leadership of President Recep Tayyip Erdogan.
The project to build a 40 km waterway along northern Istanbul to link the Sea of ââMarmara with the Black Sea has been given the green light, with work scheduled to begin this summer in mid-2021.
With an estimated construction time of seven years and a price ranging from $ 9.3 billion to $ 14.6 billion, according to government estimates, the Istanbul Canal has been touted by its supporters as a smart investment that will bring in revenue in the form of shipping revenue and reduced traffic in the Bosporus Strait.
But skeptics abound. Geopolitically, the project cast doubt on Turkey’s commitment to the international treaty that governs navigation in the Bosphorus and Dardanelles Strait.
It has also been criticized as another Erdogan megaproject that could endanger the environment, leave the state out of pocket and leave the Turkish economy, heavily dependent on external financing, even more vulnerable to changes in investor sentiment. global.
The Istanbul Canal is the latest in a series of infrastructure projects the government has embarked on since 2013, when Erdogan announced a 10-year, $ 200 billion construction spree.
The list of megaprojects completed to date includes one of the largest airports in the world, rail and road tunnels under the Bosphorus and a suspension bridge connecting Europe to Asia which ranks among the largest in the world.
Another intercontinental bridge at the Dardanelles is expected to be completed next year.
Dozens of smaller projects have also been built as barely a week goes by without a new section of motorway, an airport or a train line.
Istanbul’s canal, however, may well eclipse them all. Dubbed the ‘crazy project’ by Erdogan when he first suggested it in 2011, the canal is said to be the jewel in the president’s legacy, forever changing the city where he grew up.
The government praised the canal for its potential to reduce the volume of ships passing through the Bosporus – one of the busiest and most difficult to navigate waterways in the world. It also highlights the amount of money the canal could raise on ships passing through it.
But critics note that Bosphorus traffic has dropped significantly in recent years, especially as new pipelines make transporting oil and gas less efficient in comparison.
Between 2008 and 2018, the number of ships in the Bosporus increased from 54,400 to 41,100 per year, according to the Turkish transport ministry. Shipping accidents in the strait have also fallen by a third since 2003, according to the Turkish Coastal Safety Agency.
Some also question whether the canal will fill Turkey’s coffers to the extent planned by the government, noting that ships can currently cross the Bosporus for a small fee and that there would be little incentive to pay to use the canal. .
Additionally, previous megaprojects left the public out of pocket when expected revenues fell short of ambitious projections, leaving the state to fulfill guarantees for companies under build-operate-transfer contracts.
The government reportedly paid more than $ 515 million in 2019 to the operator of the Third Bosphorus Bridge, opened five years ago, to cover a shortfall in forecasted toll revenues.
Green Party co-spokesperson Koray Dogan Urbarli said the same could happen with the Istanbul Canal.
“As taxpayers, we will compensate the money for the ships that do not cross the canal as part of the guarantee given to the contractors,” he told Al Jazeera.
Urbarli also said the route of the canal would destroy the lakes and rivers that feed Istanbul’s water and threaten marine and freshwater ecosystems.
Gulcin Ozkan, professor of finance at King’s College London, said the cost-benefit analysis of such projects seemed “unbalanced” from a financial and environmental perspective.
“Most of the megaprojects in Turkey have significant environmental costs, as constantly argued by experts, environmentalists and professional bodies such as the Union of Turkish Chambers of Engineers and Architects, and consistently ignored by the government,” he said. she told Al Jazeera.
‘The lucky few’
Such counter-proposals to the government’s canal land have fueled speculation that the biggest beneficiaries of the megaproject will be private entrepreneurs building a “new town” on 8,300 hectares (20,510 acres) around the proposed canal.
Shares of real estate companies rose 8.65% on the Istanbul Stock Exchange after the approval of zoning plans for the canal on March 27.
Haluk Levent, professor of economics at Istanbul Bilgi University, described the canal project as “the first step in a Ponzi scheme” that could fuel inequality.
âThe long predominant growth model in Turkey is based on rent monetization,â he told Al Jazeera, âand as a result, has led to worsening social problems such as unemployment and inequality. of income. â
âThe important thing is the city that will be built around the canal and the income of this city,â said Urbarli. “Farmland that was acquired at low prices will suddenly be turned into residential areas and we will see some of the lucky ones get richer.”
Commitment to the Montreax Convention
The canal has also raised concerns over Ankara’s commitment to the Montreux Convention, which gives Turkey control of the Bosphorus and Dardanelles and guarantees access to civilian ships in peacetime while restricting passage. warships.
A group of retired Turkish admirals who warned of the retreat of the 1936 Montreux Convention were arrested last week.
Asked for comment on the criticism of the channel, the president’s office referred Al Jazeera to a section of its website describing the government’s case for the proposal and Erdogan’s comments on Wednesday.
In a question-and-answer session with young people, Erdogan said the canal had ânothing to do with Montreuxâ and would allow Turkey âto completely establish our own independence, our own sovereigntyâ.
Most lawyers agree that the canal falls outside the scope of the convention but could threaten the treaty, raising the prospect of further militarization in the Black Sea as well as questions about how traffic in the Bosporus would be. regulated.
Growth and vulnerability
Under the 19-year reign of Erdogan’s Justice and Development Party, Turkey experienced a prolonged period of economic expansion, largely supported by a construction boom propelled by easy credit from foreigners.
But in recent years, the situation has gotten darker, as Turkey’s dependence on external financing comes back home every time global investor sentiment turns against the lira.
The lira has halved since the 2018 currency crisis, hitting a record low of 8.52 against the US dollar in November.
Currently, inflation is stubbornly stuck in double digits, last month reaching 16.2% on an annual basis. Unemployment also remains high, reaching 13.4% in February.
The lira’s woes escalated last month after Erdogan suddenly sacked Turkey’s central bank chief Naci Agbal, who had raised interest rates in a bid to contain inflation – and who, what in doing so, had recovered some credibility for the bank among investors. Agbal had only been in his post for four months when Erdogan showed him the door, making him the third central bank chief sacked by the president in the past two years.
Many have suggested that Agbal lost his job due to Erdogan’s belief that high interest rates fuel inflation – an opinion that clashes with economic orthodoxy because higher interest rates rise. borrowing costs and are therefore seen as a fight against inflation.
Agbal was also investigating how Turkey spent some $ 128 billion in foreign exchange reserves to defend the lira under the leadership of Erdogan’s son-in-law Berat Albayrak, who resigned as finance minister in November.
At Thursday’s first meeting under the surveillance of Agbal’s successor, new central bank chief Sahap Kavcioglu, the bank kept its benchmark interest rate unchanged and abandoned its commitment to maintain tight monetary policy.
The lira slipped from 8.05 to 8.15 against the dollar on the news.
The weakness of reading is not only felt by Turkish consumers. Every time the currency goes down against the dollar, Turkish companies loaded with debt denominated in foreign currencies, especially the dollar, see their service fees go up.
The fallout has cast a shadow over flagship construction projects such as Istanbul’s new airport.
Infrastructure projects had previously boosted growth, but the existence of foreign currency guarantees, often for up to 25 years of operation, undermines their value to Turkey.
A loss like the one the lire has suffered in recent years “greatly increases the tax implications of state guarantees for these large projects,” said Ozkan.
âState guarantees also extend to turnover guarantees, which seem to be set at unrealistic levels in normal times, thus leading to disastrous consequences following the shutdown of economic activity during the pandemic. COVID-19, âshe explained. “This was particularly the case for Istanbul airport, with most air routes closed since 2020.”
These shortcomings have led to “a growing hole in public finances,” said Ozhan. Turkey’s public debt stands at around $ 268 billion, or around 40% of gross domestic product at the end of 2020.
The mayor of Istanbul, Ekrem Imamoglu, who represents the main opposition party, has been one of the main critics of the canal, describing it as “one of the greatest risks this city has had in all of its history” .
He called for the money to be spent instead on public transport, water supply, social projects, education and earthquake protection measures.
âThe Canal Istanbul project is like a major and risky surgery that no one would want to undergo unless it is totally necessary,â he said at a meeting last year. “We are talking about a surgery that will cut off the city and fundamentally damage its vital systems.”