Political Turbulence in Turkey: How Municipal Corruption Risks Threaten Foreign Investments

The arrest of nine mayors from Turkey's main opposition Republican People's Party (CHP) since March 2025—including Istanbul's charismatic leader Ekrem İmamoğlu—marks a critical escalation in the ruling AKP-MHP coalition's campaign to destabilize opposition-controlled municipalities. These detentions, framed as anti-corruption probes, signal a systemic effort to undermine governance stability, erode public trust, and create regulatory unpredictability. For foreign investors, particularly in construction and real estate, the implications are stark: political interference in tender processes, delayed infrastructure projects, and heightened reputational risks now overshadow opportunities in Turkey's municipal markets.

The Escalating Crackdown: A Strategy to Weaken Opposition Governance

Since October 2024, at least 14 CHP mayors have been arrested on charges ranging from bribery to organized crime, with investigations often citing evidence from cooperating witnesses linked to criminal networks. While the government insists these probes are independent, the timing and targeting suggest a coordinated strategy to disrupt opposition-led municipalities. For instance, the arrest of Antalya Mayor Muhittin Böcek in July 2025—based on alleged $210,000 bribes funneled through his son—occurred just as his city's tourism infrastructure projects faced delays due to budget disputes. Similarly, Adana Mayor Zeydan Karalar's detention followed probes into construction tenders for a $200 million metro expansion.

The broader pattern is clear: key mayors are being removed from office at pivotal moments for local development, while investigations disproportionately target cities where the CHP has flipped AKP strongholds (e.g., Adıyaman and Ankara). This creates a climate where municipal contracts are politicized, and foreign firms bidding for infrastructure projects—such as highways, housing, or utilities—face risks of sudden legal scrutiny or favoritism toward pro-government bidders.

Data note: As of July 2025, the BIST 100 Construction Index has underperformed the MSCI EM Index by 12%, reflecting investor anxiety over regulatory risks.

Risks for Sectors Reliant on Municipal Contracts

Foreign investors in construction and real estate are disproportionately exposed to these political dynamics:

1. Tender Process Vulnerabilities:
   Investigations into mayors like İzmir's Tunç Soyer—who was arrested alongside 137 municipal officials over allegations of rigging €1.2 billion in construction tenders—highlight how tender processes can be weaponized. Firms partnering with local contractors tied to opposition leaders face reputational damage if probes expose irregularities, even if unintentional.

2. Project Delays and Cost Overruns:
   With mayors replaced by state-appointed trustees (kayyums), municipal decision-making grinds to a halt. For example, Istanbul's İmamoğlu-led metro expansions and housing projects now face potential redesigns, delays, or budget cuts under interim management.

3. Reputational and Legal Risks:
   Engaging with municipalities under scrutiny could expose firms to anti-bribery compliance issues (e.g., FCPA or UK Bribery Act violations) if contracts are later found to involve illicit payments.

Assessing the Investment Climate: A Fragile Balance

While Turkey's infrastructure needs remain vast—its urbanization rate of 72% demands ongoing investment in housing, transport, and utilities—the political risks now outweigh near-term opportunities:

• Governance Instability: Over 2,000 arrests in protest-related crackdowns since March 2025 have eroded public trust in institutions. A June 2025 poll by Gündemar shows 57% of Turks now view municipal investigations as politically motivated, not judicially driven.
• Currency and Inflation Pressures: The lira's 20% slide against the dollar in 2025, compounded by 40% annual inflation, further strain municipal budgets and project financing.
• CHP Resilience: Despite arrests, the CHP retains control of 35 major municipalities due to its local council majorities, creating a stalemate where neither side can fully dominate tender processes.

Strategic Recommendations for Investors

Foreign firms must adopt a risk-aware approach to Turkish municipal markets:

1. Stress-Test Contracts for Political Exposure:
   Prioritize projects in municipalities with stable leadership (e.g., pro-government cities like Konya) and avoid those under investigation. Use due diligence to map contractor ties to mayors or ruling party figures.

2. Diversify Geographically and Sectorally:
   Shift focus to renewable energy infrastructure (e.g., wind farms in Aegean provinces) or technology-driven projects (e.g., smart city IoT systems) where technical expertise mitigates tender politicization.

3. Engage Proactively with Local Stakeholders:
   Build relationships with municipal engineers and technical staff, who often retain operational control despite mayoral changes. This can provide early warnings of regulatory shifts.

4. Monitor Legal and Leadership Changes:
   Track court decisions on the CHP's 2023 leadership dispute (which could force a party重组) and the pending appeal of İmamoğlu's corruption charges. A CHP leadership split or his acquittal could reset the political calculus.

Data note: Infrastructure spending is projected to grow 8% annually, but political instability scores (0–100, 100 = highest risk) have risen to 82 in 2025, up from 67 in 2023.

Conclusion: Proceed with Caution

Turkey's municipal markets remain a high-risk, high-reward proposition. While the government's crackdown on opposition mayors aims to consolidate control, it has instead deepened political polarization and eroded investor confidence. For now, foreign capital should focus on short-term, low-exposure opportunities—such as maintenance contracts or tech partnerships—and avoid long-term bets on large-scale infrastructure. The path to stability lies in judicial independence and fair governance, but until those conditions materialize, Turkey's municipal sector will remain a minefield for unwary investors.

Investment thesis: Underweight Turkish construction and real estate equities until political risks subside; prioritize partnerships in non-politicized sectors like renewable energy.