By Lee Hyo-sik
Construction companies are having a hard time securing contracts in the Middle East because oil-rich countries have become reluctant to carry out construction projects due to low crude oil prices.
Marking the 50th anniversary this year since Korean builders first made inroads into foreign markets, the Park Geun-hye administration has pledged to create the “Second Middle East Boom.”
The President even selected four Arab nations ― Kuwait, Saudi Arabia, the United Arab Emirates and Qatar ― as her first overseas tour destinations for 2015.
The four countries are all major markets for domestic construction firms, placing orders worth billions of dollars each year.
However, things have not turned out as planned.
Construction orders local builders have secured from Arab countries have plunged 72 percent in the first five months of the year, from the same period last year.
Industry watchers say that Korea may not achieve its goal of winning $70 billion in construction orders abroad in 2015 if global oil prices continue to remain weak. In 2014, Korea secured overseas contracts worth $66 billion.
According to the International Contractors Association of Korea (ICAK), Monday, domestic companies secured construction orders worth a combined $23.13 billion from January to May, down 25.7 percent from $31.12 billion the previous year. Of the $23.13 billion, orders from the Middle East totaled $6.74 billion, down 72.6 percent from $24.64 billion.
“Oil-rich Arab countries have slashed the number of construction orders this year because they earn less from exporting oil in the wake of falling international crude prices,” an ICAK official said. “In addition, they have canceled several projects won by Korean construction firms as operating refineries and other facilities to process crude oil has become less profitable.”
In contrast, local builders, who have tried to diversify their business portfolios and markets, have won more orders from Asia and South America in 2015.
Korean companies secured building contracts worth $11.64 billion from Asia in the first five months of the year, up 150 percent from a year earlier.
South American nations have awarded local builders orders totaling $4.13 billion.
For instance, GS Engineering & Construction won a contract to build a $2.62 billion natural gas processing plant in Venezuela, while Hyundai Engineering will receive $2 billion from Uzbekistan for constructing natural gas facilities.
However, ICAK officials said builders have to secure more orders from the Middle East in order to achieve the $70 billion goal.
“We think things will improve in the coming months as Kuwait and other Arab countries are posed to place orders for several projects in line with the steadily rising crude prices,” the official said. “In addition, the U.S. move to lift economic sanctions from Iran could provide golden business opportunities for Korean construction firms.”