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S. Korean Builders Saw Rebound in Overseas Contracts for First Time in 3 Years
Rebounding but Not Much
S. Korean Builders Saw Rebound in Overseas Contracts for First Time in 3 Years
  • By lsh
  • December 28, 2017, 01:30
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The amount of construction contracts in the Middle East grew to US$14.5 billion (15.6 trillion won) this year, making up for the decline in other regions.
The amount of construction contracts in the Middle East grew to US$14.5 billion (15.6 trillion won) this year, making up for the decline in other regions.

 

The number of overseas contracts won by South Korean construction firms, which was on the decrease, has shown a rebound for the first time in three years. The industry believes that the worst situation is done. However, it will be unable to see a dramatic increase as Middle Eastern countries, which are the main orderers, are shrunk due to lower oil prices and political unrest.

According to the International Contractors Association of Korea (ICAK), the total amount of overseas contracts received by domestic constructors came to US$29.01 billion (31.21 trillion won) as of December 27 this year, surpassing US$28.19 billion (30.33 trillion won) of last year. The figure, which dropped by a whopping US$20 billion (21.52 trillion won) every year after recording at US$66 billion (71.02 trillion won) in 2014, succeeded in the rebound and halted the slide this year.

This is largely due to the growing number of contracts in the Middle East. The amount of contracts in the Middle East fell to US$10.6 billion (11.41 trillion won) last year but it grew to US$14.5 billion (15.6 trillion won) this year, making up for the decline in other regions.

Domestic construction companies won US$47.2 billion (50.79 trillion won) worth of overseas contracts in the Middle East in 2010 but they had seen the figures plummet every year since then owing to a prolonged period of low crude prices and an aftereffect of low-price contracts. There is a general consensus that oil prices have recently exceeded US$60 (64,560 won) but it is not enough to make Middle Eastern countries aggressively place an order.

Lee Yong-kwang, a general manager of the ICAK, said, “Starting from last year, the fall in overseas contracts hit the bottom. However, it is hard to expect to see a big recovery since Middle Eastern countries, which were the largest orders in the past, are not increasing the number of orders.”

Middle Eastern countries, which focused on oil business in the past, are recently seeking to give a boost to the economy through the development of infrastructure but they prefer a public–private partnership (PPP) because of a lack of funds. Accordingly, financial support has become the requisite to obtain orders abroad. Lee said, “Foreign clients prefer a PPP project accompanying funds now unlike the past when they just place an order. The role of infra funds raised by the government is important.” In fact, the Ministry of Land, Infrastructure and Transport (MOLIT) signed an agreement with the Korea Development Bank (KDB) and the Export-Import Bank of Korea to create US$85 billion (91.33 trillion won) worth of the global infra venture fund (GIVF) in October.

The amount of contracts received in the remaining regions other than the Middle East and Asia dropped. The figure in Latin America decreased from US$1.62 billion (1.74 trillion won) last year to US$362 million (388.82 billion won) this year, while that in the Pacific Ocean and North America fell from US$1.38 billion (1.48 trillion won) last year to US$554 million (594.89 billion won) this year. The figure in Africa also dwindled to half from US$1.23 billion (1.31 trillion won) to US$698 million (749.23 billion won) over the same period.

The decrease in overseas contracts is highly correlated with a boom in the domestic housing market. As the housing market has been flourishing in the last three years, domestic construction companies have showed a relatively passive move to win orders overseas. However, they are paying more attention to overseas contracts than before because the government will implement stricter regulations, such as heavy transfer taxes and reconstruction allotments, from next year.

The Moorside Nuclear Power Station in the United Kingdom is expected to be the key to overseas contracts next year. The Korea Electric Power Corporation (KEPCO) was selected as the preferred bidder for the project worth 21 trillion won (US$19.5 billion).