[Public Voices] Four Key Strategies to Revitalize Overseas Construction Contracts

Park Sun-ho, President of the Overseas Construction Association

Overseas construction in South Korea has played a breakthrough role during economic crises such as the oil shock in the 1970s and the financial crisis in 2008. However, since 2015, due to a reduction in orders caused by low oil prices and the impact of COVID-19, recent contract amounts have sharply decreased to around 30 billion dollars. This is less than half of the 71.6 billion dollars recorded during the boom period of overseas construction in 2010. The number of companies entering the market has decreased by an average of 5% annually since 2015, falling to 319 companies last year. The number of workers also plummeted to 9,200, about 60% of the 2010 level.

Currently, concerns about a global economic slowdown coincide with adjustments in the domestic construction market. At this juncture, interest in the ‘Overseas Infrastructure Contract Activation Strategy’ announced at the 7th Emergency Economic and Livelihood Meeting presided over by the President on the 31st of last month is rising within the overseas construction industry.

According to the global market research firm IHS Markit, the global construction market is expected to grow at an average annual rate of 6% until 2025, and the Middle East market, projected to expand by 8% annually due to improved fiscal conditions, presents active business opportunities. This strategy, released at a ‘golden time,’ is expected to serve as a catalyst for achieving the policy goal of ‘annual contracts worth 50 billion dollars and entering the ranks of the top four overseas construction powers.’

Briefly reviewing the direction of this strategy, it includes region-specific contract strategies, One Team Korea cooperation, strengthening the role of the private sector, public sector forward and backward support, and expansion of contract fields. Among the four strategies, the first is consolidating contract capabilities. In particular, the plan is to maximize contract capabilities through the public-private joint ‘One Team Korea’ strategy for securing projects with significant ripple effects and scale.

The second is strengthening the private sector’s leading role by establishing a virtuous cycle of private finance and fostering advanced companies. Raising the statutory capital limit of the Korea Overseas Infrastructure & Urban Development Corporation (KIND) will lead to enhanced financial competitiveness. Positive follow-up measures are also expected in studies on institutional reforms related to working hours, which are cited as factors lowering contract competitiveness, as part of regulatory rationalization strategies.

The third is expanding public sector forward and backward support. Notably, the significant increase in the preliminary feasibility study threshold from 100 billion won to 200 billion won is expected to strengthen the role of public institutions as developers. Additionally, the role of effective public-private joint response channels such as the Overseas Contract Council to resolve difficulties like unpaid receivables and unfair local systems and practices is considered more important than ever.

Finally, comprehensive support for activating contracts in the rapidly growing nuclear power and eco-friendly business sectors is planned. In particular, the ‘Nuclear Power Export Strategy Promotion Committee,’ launched in August, is drawing attention for preparing promising country-specific contract strategies and dispatching high-level diplomatic delegations to nuclear power ordering countries such as the Czech Republic and Poland.

The government’s careful consideration is evident in this overseas infrastructure contract activation strategy, and it is expected that the private sector will be able to carry out more active contract activities backed by the government’s strong support policies.

At the recently successfully held major ordering party invitation event, the Global Infrastructure Cooperation Conference (GICC) 2022, the strong willingness for infrastructure cooperation with many developing countries eager for the entry of Korean companies was palpable. The potential of the Middle Eastern oil-producing countries’ infrastructure market, expected to experience explosive growth due to high oil prices, was also reaffirmed. Now is the time for our overseas construction industry to pool its capabilities to export the best infrastructure worldwide and once again create a new overseas construction legend.

Park Sun-ho, President of the Overseas Construction Association