Korea to diversify overseas construction markets

By Lee Hyo-sik

Construction firms should make more efforts to diversify their overseas markets to reduce their heavy dependence on the Middle East and secure more orders in other rapidly growing emerging economies, according to Kwon Do-youp, minister of land, transport and maritime affairs.

Kwon said the government has and will extend more financial and other support to help builders advance into new markets and win more deals as they are locked in intensifying competition with Chinese and European rivals.

The minister also said the government will help train manpower and form business networks with foreign governments and enterprises to help builders win more orders abroad.

He said Korea should pay more attention to developing marine natural resources in anticipation of a depletion of land-based energy sources. To do so, the government has secured several exploration sites across the globe for manganese nodules and other minerals.

``We have secured large sites in the Pacific and Indian oceans for resources exploration. We will explore these areas and test whether it is economically feasible to produce minerals there,’’ Kwon said. ``The government will invest more in research to develop state-of-the-art technology for marine resources exploration.’’

The minister added the government will make it possible for a private enterprise to operate KTX bullet trains in 2015, abolishing Korail’s monopoly on the country’s railway management.

He urged the National Assembly to revise laws in order to remove a range of restrictions on the real estate market, which were adopted during the property boom, in order to help the sluggish property sector get back on track.

The following is the full text of questions and answers during an interview with Land, Transport and Maritime Affairs Minister Kwon Do-youp at his office on Aug. 6.

Q:

A growing number of construction firms here have made inroads into foreign markets over the years and achieved tangible results. The trend will likely accelerate further, given the prolonged local real estate sector problems. But builders have so far heavily focused on the Middle East. They are increasingly encouraged to put greater priority on Asia, Africa and South America to diversify their markets and secure more talented manpower specializing in petrochemical and other industrial plants. What will the government do to help builders advance into overseas markets? What do you think construction firms should do to achieve long-term success?

A:

The government has been extending financial and other support to constriction firms to propel their advance into Asia, Africa and South America for new business opportunities. We have increased financial assistance provided to builders seeking to explore new foreign markets. The government also sent a delegation led by senior ministry officials to Columbia, Peru and other emerging economies where local builders competed fiercely with foreign rivals for construction projects. We also signed agreements with sovereign wealth funds in the Middle East to secure necessary funding for local builders entering new markets. As construction companies do more business abroad, they need talented workers such as industrial plant engineers. We offered larger funds to the International Contractors Association of Korea this year to help it nurture workers with more skills. The number has increased to 3,500 from 2,500 in 2011. To encourage more young people to head overseas and work at construction sites, we will consider establishing a state-run vocational school. The government also plans to extend tax exemptions and other benefits to those working overseas. With a growing number of builders doing business in the Middle East and other parts of the world, sometimes local builders engage in undue competition against each other to win contracts. This inevitably lowers bid prices. For the sake of the national interest, companies should refrain from excessive competition.

With rising prices of crude oil and other resources, it is increasingly important to secure a stable supply of energy resources at affordable prices. To achieve such a goal, Korea has been trying to develop marine natural resources over the years. But it has not achieved visible results yet. What are the government plans for the exploration and development of marine natural resources?

It is necessary to develop natural resources in the sea to cope with the depletion of land-based energy sources and raise Korea’s low energy self-reliance. Korea has so far secured four exploration sites across the globe, totaling 11,200 square kilometers. We have one in the Pacific Ocean and one more in the Indian Ocean. The country also secured one site each within Tonga’s exclusive economic zone (EEZ) and Fiji’s EEZ. Korea is one of four countries in the world that have secured sites for exploring both manganese nodules and underwater mines containing gold, silver and other precious metals. The government has been upgrading exploration technology to make developing underwater mines economically feasible. Among others, we are seeking to develop technology enabling us to explore deep-sea mines 2,000 meters below the surface by 2015. The government also plans to encourage private entities to join in the marine resources development drive.

The ministry has been trying to make it possible for a private company to operate KTX bullet trains in 2015, breaking the 113-year monopoly maintained by Korail, the state-run railroad operator. However, such a plan has been facing opposition from Korail, civic groups and opposition parties who fear the privatization of KTX operations could hike fares and extend undue benefits to private entities. What is the ministry’s current position on the issue and how will it proceed from here?

Enabling private companies to operate KTX bullet trains is essential to remove harmful effects stemming from Korail’s monopoly on the country’s railway management, and boost the competitiveness of the industry. Competition is key to fostering every industry. The railway industry is no exception to this fact. If a public company maintains a monopoly for an extended period, it will create an operational inefficiency, downgrade service quality and raise user fees. To do away with these side effects, introducing competition to the railroad industry is a worldwide trend. In the early 2000s, we revised the law to establish a basis for the competition system following a strike by unionized railroad workers. It is true that our timeline has been pushed back due to opposition from the Korail union and political parties. But we stand firm on our resolve to abolish Korail’s monopoly. We want a private enterprise to operate KTX bullet trains departing from Suseo, southern Seoul, for both Busan and Mokpo in 2015. A new KTX line between Suseo and Pyeongtaek, Gyeonggi Province, is currently under construction. When the line is completed in 2015, a private company will operate KTX trains from Suseo to Busan on the Kyungbu line and Mokpo on the Honam line. We need to select the private railroad firm early next year at the latest, as the new KTX line will be operational in 2015. We are optimistic that we can do so as the public are increasingly in favor of the KTX competition system.

The real estate market is plunging into a deeper slump, driving more construction firms to the brink of collapse. The government has introduced a wide range of policy measures to reverse the tide, but to no avail. How do you assess the current market conditions and what is needed to prop it up?

An array of regulations, including the debt to income ratio (DTI), the loan to value ratio (LTV) and larger capital gains taxes on multiple homeowners, were introduced when home prices soared before the global financial crisis in late 2008. But these regulations are not needed any more under current market conditions. The National Assembly should revise the laws to abolish such hurdles and help the real estate sector return to normal. If the market crashes further, it will affect dozens of construction firms, millions of homeowners and create negative ripple effects across the entire economy. But in any given scenario, Korea will not follow Japan’s footsteps. During Japan’s property boom in 1980s, it did not have DTI, LTV and other restrictions in place. In this regard, Korea is different from Japan. Additionally, the world’s third-largest economy has long been suffering from the strong yen and the rapid population aging.

2012 is the final year of the Lee Myung-bak Administration. Are there any particular issues you would like to pay more attention to before the new administration steps in next February?

I will make more efforts to better manage the four-river system and turn them into a popular tourist destination. Furthermore, I would like to see a local consortium win a multi-billion dollar contract from Thailand and spread our superior water management knowhow across the world. The Yeosu Expo site should be fully utilized as a top tourist spot. The government will find ways to turn the venue into a comprehensive marine-based leisure complex to continue to attract hundreds of thousands of tourists from both home and abroad. I will double my efforts to have unnecessary restrictions on the property market removed as soon as possible. I will also put already-introduced property-boosting measures into practice and unveil more to help the sector get back on its feet.