Frozen Middle East... Construction Companies Warming Up in Asia

Overseas Orders Reach $18.3 Billion
Asia and Middle East Orders Surpass Since March
Major Companies Focus New Orders on Southeast Asia

[Asia Economy Reporter Donghyun Choi] Amid a sharp decline in orders in the Middle East region, the Asian market is becoming a pillar for domestic construction companies' overseas orders.

According to the Overseas Construction Association on the 22nd, as of the 21st, the overseas order amount of domestic construction companies was recorded at $18.3 billion (approximately 21.3 trillion KRW). This is a 15% increase compared to the same period last year. Considering the worsening market conditions for orders since the second quarter due to the novel coronavirus infection (COVID-19), this is regarded as a relatively favorable performance.

By region, the main market, the Middle East, accounted for the largest amount at $8.4 billion. Next, orders from the Asian region recorded $7.8 billion. In terms of total amount, the Middle East market remains the stronghold for orders, but looking at the monthly status, the rise of the Asian market is remarkable. The Middle East only surpassed Asia in order volume during January and February before the COVID-19 pandemic declaration, and for the following five months, the order amount in the Asian region exceeded that of the Middle East. The proportion of the Middle East in total orders also dropped from 60% in January and February to 14.6% in August. Conversely, the share of orders from the Asian region increased from 30% to 60% during the same period.

In fact, recent new project orders from major construction companies are concentrated in Asia. Hyundai Construction secured a 670 billion KRW contract on the 21st for the Philippines North-South Railway Section 1, bringing its total orders in Asia?including Myanmar, Hong Kong, and Singapore?to 1 trillion KRW this year. POSCO Construction also independently won a 350 billion KRW contract in July for the construction of the vehicle depot for the Philippines North-South Railway. In Vietnam, Lotte Construction secured a 230 billion KRW contract for the new construction of Lotte Mall Hanoi. Especially, large-scale projects related to environment and energy are scheduled to be issued next year in Indonesia, Bangladesh, and Vietnam, and major construction companies are reportedly focusing their capabilities on the Asian market.

An industry official said, "In the Middle East, the shock of COVID-19 and increased volatility in international oil prices led to repeated delays and cancellations of bids," adding, "On the other hand, in Asia, the spread of COVID-19 was relatively limited, and the damage from large-scale infections was minimal."

Meanwhile, a recent research team from the University of Oxford in the UK forecasted that the global construction market will contract by 6.8% this year compared to last year. The team indexed government responses and economic support related to COVID-19 across 185 countries, and except for Iraq (0.2%), all Middle Eastern countries such as Iran (-22.1%), Kuwait (-20.9%), and Qatar (-18.2%) are expected to fall significantly below the average growth rate. In contrast, except for Singapore (-14.2%), India (-13.2%), and Indonesia (-7.3%), all Asian countries are projected to exceed the average growth rate.

Jihun Jeong, senior researcher at the Overseas Construction Policy Support Center, said, "Although the global construction market is expected to contract sharply across all regions and sectors, Asia will experience a relatively mild contraction of 1.9%," adding, "Especially, China and Vietnam, where the COVID-19 situation is recently improving, are expected to show a rapid recovery."