Increased Expectations for Korean Construction Companies' Orders
Success Could Lead to a Second Middle East Boom
Samsung C&T and Hyundai Construction Consortium
Awarded $1 Billion Tunnel Construction Contract
[Image source=Yonhap News] Saudi Arabia's de facto ruler, Crown Prince Mohammed bin Salman, the first in line to the throne, has declared his intention to transform Saudi Arabia into an open and moderate Islamic country.
[Asia Economy Reporter Kwon Jae-hee] As Saudi Arabia's national wealth increases due to rising international oil prices, leading to large-scale infrastructure investments, Korean construction companies' expectations for winning contracts are rising. A representative project is 'Neom City,' led by Saudi Arabia's de facto ruler Crown Prince Mohammed bin Salman. This project is the world's largest infrastructure project with a total budget of a staggering $500 billion (approximately 640 trillion KRW). The competition for contracts in this project is already fierce behind the scenes, and if Korean construction companies succeed in securing large-scale contracts, it is expected to trigger a 'second Middle East boom.'
According to the securities and construction industries on the 1st, the infrastructure construction boom originating from Saudi Arabia is increasing domestic construction companies' expectations for winning contracts. Saudi Arabia is executing its national strategy under the 'Vision 2030' announced in 2016, which is a project aimed at transforming the economy, previously dependent on oil, into one centered on advanced manufacturing industries. Neom City is one of these projects.
Saudi Arabia has already conducted a confidential bidding process, and domestically, Samsung C&T and Hyundai Engineering & Construction are known to have formed a consortium to win the tunnel construction contract for 'The Line' in Neom City. The contract amount is approximately $1 billion (about 1.3 trillion KRW). Hyundai Motor Company, which is promoting a 'smart city' with future growth engines such as robotics and autonomous driving, is also reported to have a high possibility of winning contracts.
Accordingly, the five major overseas infrastructure construction companies?Samsung Engineering, Hyundai Engineering & Construction, Daewoo Engineering & Construction, GS Engineering & Construction, and DL E&C?have raised their targets for new contract achievements excluding housing.
Based on the current expansion of the order market, these five companies are expected to achieve a combined new contract amount of 32 trillion KRW in 2023, representing growth of over 20%.
Even excluding the largest infrastructure project, Neom City, the scale of the overseas construction market is expected to grow steadily in the future. This is a factor that raises construction companies' expectations for winning contracts regardless of the Neom City bidding competition. According to global market research firm IHS Markit, the overseas construction market size last year was $10.9 trillion (approximately 1,400.285 trillion KRW), an increase of 10.7% compared to the previous year. This year, it is expected to grow 5.5% year-on-year to $11.5 trillion. Despite rising raw material prices and the Russia-Ukraine conflict, the overseas construction market continues to show solid growth. The overseas construction market size is expected to reach $12.1 trillion next year and $13.8 trillion in 2025, growing at an average annual rate of 4.8%.
Park Sera, a researcher at Shin Young Securities, said, "The third wave of orders centered on Middle Eastern oil-producing countries has now begun," adding, "Accordingly, this year, the five major companies' new contract target amount excluding housing was raised by 16% from 27 trillion KRW to 23 trillion KRW compared to the previous year."
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