Korean Construction Sector Experiencing Second Middle East Heyday

The Overseas Construction Sector on the Rise Again-

As of September 9, the total amount of money from orders that local construction companies received this year from foreign countries stood at $6.61 billion, up more than 50 percent from the same period last year ($4.27 billion).

If the current trend continues, this year’s figure is likely to exceed that of last year ($7.5 billion) at the end of this month and even surpass $10 billion for the first time since 1997 ($14 billion).

Korea’s overseas construction history started in November 1965, when Hyundai Engineering & Construction Corp. received an order for the Pattani-Narathiwat Highway Construction Project ($5.12 million) from Thailand. Korea has since experienced that its annual money of overseas orders exceeded $10 billion from 1981 to 1983, and in 1996 and 1997.

From 1981 to 1983, the proportion of overseas construction in the Middle East took the lion’s share of the total, accounting for 85 to 93 percent. At that time, Korea’s economy was boosted by gains from the region.

In 1996 and 1997, domestic construction firms focused on investment and development-style projects in which they supported financial funds to Southeast Asian countries and began their businesses. A slew of companies abandoned their businesses halfway in the wake of the financial crisis in 1997.

This year, the proportion of overseas orders in Middle Eastern countries, which have made significant sums of money thanks to soaring oil prices, accounted for more than 70 percent of the total and its scale amounts to $4.64 billion.

Citing this figure, the construction industry expects that if this year’s figure surpasses $10 billion, Korea will face a splendid achievement for the first time in 20 years.

On top of that, recently-received businesses have showed an enormous performance in terms of earning rates compared to past businesses.

Kim Min-hyeong, a researcher at the Construction and Economy Research Institute of Korea, said, “The extent of Korea’s overseas construction was to merely secure labor costs until the 1980s, and there were many cases in which Korea had losing businesses because it tried to seek reckless businesses in the 1990s.” He added, “Since most construction projects received recently are petrochemical plants with a high value added, profits are significantly increasing.”

Putting Emphasis on Specific Regions and Large Firms should be Resolved-

Small and mid-sized construction companies’ slack participation is a problem needing to be overcome. The total construction projects of the top five firms based on the money value of orders received is worth $5.16 billion, almost accounting for 80 percent of the total. Moreover, the proportion of overseas orders that the top five firms receive is showing an increasingly upward trend.

Since high technology and prodigious funds are required to receive large-sized plant projects that are currently being ordered, primarily from the Middle East, it is hard for small and mid-sized firms to receive these projects.

Accordingly, some say that it is necessary to come up with programs to help advance small and mid-sized construction companies abroad.

In addition, Korea should seek to diversify the current market concentrated on the Middle East to other regions.

Kim Jong-hyeon, the chief of the planning and management team of International Contractors Association of Korea, said, “Since the mid-1980s, Korea’s heyday in the Middle East has shrunk, which has led some firms to going bankrupt,” adding, “Korea should expand its market to Central and South America or Africa in a bid to prevent this situation from happening again.”

Jae-Seong Hwang jsonhng@donga.com