Overseas Construction Orders Decline for Three Consecutive Months Due to COVID-19 Impact

Prolonged COVID-19 Pandemic Expands Order Losses from Middle East and Europe to Asia
Order Market Heavily Influenced by Oil Prices, Performance Worsens if Core Middle East Market Fails to Recover
Government Prepares Active Countermeasures... Companies Must Also Manage Risks

[Asia Economy Reporter Choi Dong-hyun] Overseas construction orders this year have more than doubled compared to the same period last year. However, due to concerns over a global economic downturn caused by the COVID-19 pandemic, monthly order amounts have been declining for three consecutive months, and orders in the key Middle Eastern market are faltering, intensifying the industry's sense of crisis. Additionally, it has been revealed that order losses are occurring consecutively at major overseas project sites.

◆Brief Recovery in Orders... Losses Also Increasing= According to the Overseas Construction Association on the 20th, the cumulative overseas construction orders in the construction industry amounted to $14.3 billion (approximately 17.63 trillion KRW) as of the 19th this year. This represents a sharp increase of 90.7% compared to $7.5 billion during the same period last year. Numerically, this is a significant improvement compared to last year, which experienced severe stagnation. However, considering that last year’s order performance was the lowest since 2006 ($6.4 billion), the industry analyzes that the base effect is substantial.

Moreover, the order trend is not favorable. After peaking at $5.64 billion in January, orders have decreased for three consecutive months: ▲$3.72 billion in February ▲$1.82 billion in March ▲$1.79 billion in April. This month, orders have only reached $1.29 billion as of the 19th.

Order reductions are also increasing due to the prolonged COVID-19 pandemic. Order reductions refer to the decrease in the initially reported order amount caused by factors such as rising labor and material costs or construction delays during project execution. In January, a $1.19 million order reduction occurred in Saudi Arabia, and in February, a $12.57 million reduction happened in Kuwait. Particularly in March, a large-scale reduction of $216.29 million occurred not only in the Middle East, including Saudi Arabia and Kuwait, but also in the European market. Recently, order reductions have also appeared in Asian markets such as India and Uzbekistan, indicating that the impact of COVID-19 is spreading beyond the Middle East to Europe and Asia.

A recent survey conducted by the Korea Research Institute for Construction Industry targeting 25 domestic construction, design, and engineering firms operating overseas revealed that the industry is facing issues such as ▲difficulty in dispatching personnel (29%) ▲reduced site operations due to administrative measures by ordering countries (21%) ▲site closures (21%) due to the COVID-19 situation. According to the Overseas Construction Association’s data, among 1,800 overseas construction sites where Korean construction companies are working, about 70 sites have recently suspended construction due to COVID-19.

◆Crisis Deepens as Middle Eastern Market Falters= A concerning factor is that the sharp drop in international oil prices has increased the likelihood that the traditional stronghold Middle Eastern market will fall into another prolonged slump. When international oil prices hovered around $20-$30 during 2015-2016, Middle Eastern countries reduced orders, causing Korean construction companies’ overseas order amounts to plummet by more than 30%. A report published by the Overseas Construction Association at the end of last month forecasted that international oil prices would remain around $20 until the fourth quarter of this year. Although orders are still holding up with projects such as Daewoo Construction’s $5 trillion liquefied natural gas (LNG) plant and GS Construction’s 450 billion KRW Singapore railway project in Africa and Asia, the industry consensus is that if the Middle Eastern market does not recover, the overseas performance of domestic construction companies will inevitably deteriorate. A representative from Company A said, "The overseas order market is more affected by oil prices than by COVID-19," adding, "If low oil prices persist, the petrochemical plant sector will be hit especially hard."

Experts have called for the government to prepare proactive countermeasures and have also advised companies to engage in risk management suited to the new normal era. Son Tae-hong of the Korea Research Institute for Construction Industry emphasized, "The pandemic and resulting national lockdowns are situations that domestic construction companies have never experienced before," and stressed, "It is necessary to establish response organizations required for project execution and to advance risk management systems."

This content was produced with the assistance of AI translation services.