[Asia Exclusive] "Construction Companies Alone Face Limits in Overseas Markets... Government and Finance Compete as 'Team Korea'"

Lee Geon-gi, President of the Overseas Construction Association
Despite COVID-19, orders increased by 60% last year
Sustained growth through high value-added project orders
"Competition with advanced countries, vast information is key
Understanding local laws and financial systems is fundamental
The name should also change to 'Overseas Construction Support Association'"

Lee Geon-gi, Chairman of the Overseas Construction Association, is being interviewed by Asia Economy on the 24th. / Photo by Moon Ho-nam munonam@

"In the past, overseas construction was pushed forward with low wages and labor. Not anymore. We need to secure high value-added projects, and for that, information capability is paramount. It’s not something construction companies can achieve alone; institutional support from the government must back it up. When a high value-added project is secured, it opens the way not only for the construction company but also for small and medium-sized partners to go overseas together. Construction companies, partners, government, and financial institutions all need to become ‘Team Korea.’"

Lee Geon-gi, Chairman of the Overseas Construction Association, recently completed preparations to even change the association’s signboard. Considering the scale and capabilities of Korea’s construction industry, it is no longer possible to pursue sustainable growth in the overseas construction market with low-wage labor and simple EPC (Engineering, Procurement, and Construction). We must compete with the US, UK, France, Japan, Canada, and others for high value-added industries. Based on understanding local laws, financial systems, customs, practices, and culture, we must discover and secure construction content that even surprises locals. For that, the Overseas Construction Association should not remain merely a collection of individual large construction member companies, he believes. He emphasized, "The name of the Overseas Construction Association should be changed to the ‘Overseas Construction Support Association.’"

Chairman Lee particularly predicted that the ‘super cycle’ of overseas construction would begin this year, overcoming the COVID-19 crisis last year. From this year, vaccine inoculation will expand, and economic stimulus measures in various countries are also anticipated. While promoting qualitative changes in the Overseas Construction Association, Chairman Lee expressed confidence in expanding orders in Asia and the Middle East, Korea’s traditional strongholds. Furthermore, he said he would actively support the targeting of South America and Africa.

On the 24th, at the Overseas Construction Association in Seosomun-dong, Jung-gu, Seoul, we met Chairman Lee to hear about the outlook, challenges, and response strategies for the overseas construction market.

- Last year, the construction industry faced an unprecedented crisis worldwide due to COVID-19. How would you evaluate last year?

▲ Despite the unprecedented COVID-19 pandemic, Korea’s overseas construction achieved an order performance of $35.1 billion, a 60% increase compared to 2019. It was quite a good performance. Even as oil demand decreased, there was strong demand and many orders for eco-friendly plants. Especially, there were good results in the Middle East and Asian markets.

- Looking at last year’s orders, the progress in the Latin American market stands out. What is the background?

▲ That’s right. It increased by more than 200% compared to 2019. This was due to mega projects such as the Mexican refinery and Panama metro project. In South America, financial structures are very carefully considered in projects. Sometimes loans are directly obtained and used for orders, and sometimes investments are attracted in the form of Public-Private Partnerships (PPP). In Panama’s case, loans were obtained from Japan. However, even if loans are obtained, they cannot be used immediately. Panama secured the loan as a guarantee, and we developed a new system of pre-investment with the Export-Import Bank and Korea Trade Insurance Corporation. The Panama project was secured by creating this new financial structure.

- How do you see the market this year?

▲ The key variable is oil prices. Statistically, if oil prices rise by 1%, Korea’s overseas construction orders increase by 1.4%. The global trend is moving toward eco-friendliness and ESG (Environmental, Social, and Governance), and it is a reality that we must follow this trend. Nevertheless, in terms of energy demand, oil demand is still expected to increase for the time being. The Fourth Industrial Revolution technologies such as robots and artificial intelligence (AI) also increase energy demand. Considering this, additional local facilities in the Middle East may be necessary. Therefore, even if oil prices are low, demand exists, so plant orders are expected to continue.

- How should we respond in terms of order strategies?

▲ We need to move one step beyond simple EPC business areas. Now, basic engineering (FEED) is important even in plants. When doing basic engineering, materials are determined. This is directly linked to co-export. For example, if you want to use domestically produced parts for turbines, this must be reflected in the basic engineering. Basic engineering is practically monopolized by advanced countries such as the US, UK, France, and Canada. We must also move in this direction. Among the areas of basic engineering, Korea’s design itself is at an advanced country level. Design focused on deliverables is at a considerable level. However, the capabilities in management perspectives such as planning, cost analysis, scheduling, client requirements, and feasibility review are lacking.

- How should this be supplemented?

▲ Information is very important. To plan, we need to estimate costs in the target country, which requires collecting vast amounts of information. The same applies to high value-added investment projects. Therefore, this year we have started a revolutionary improvement of the informatization system. It is the Overseas Construction Industry Information System. Not only equipment but also content is important. The Overseas Construction Association is leading efforts to form networks with public and private enterprises dispatched overseas to exchange and upgrade information.

- The domestic construction market is saturated and domestic sales will continue to decline. On the other hand, overseas markets are also highly competitive.

▲ We cannot let the capabilities we have built go to waste, so going overseas is the right choice. It is no longer about cheap labor as in the past. Our domestic equipment and design can all be exported at once. For that, finance and law must follow. Therefore, I believe the Overseas Construction Association should be changed to the Overseas Construction Support Association. The structure of member companies must also change. Member construction companies do not do overseas construction alone. When doing plant projects, turbine companies go together, so turbine companies should also become association members. Financial companies can also join. It must become ‘Team Korea’ for joint overseas expansion.

- Support for small and medium-sized enterprises is also an important topic.

▲ The most vulnerable areas for SMEs are risk management and legal issues. Due to weak information bases, many make orders but do not make profits. They expect profits and complete projects, but if they pay taxes twice domestically and internationally, nothing remains. They complain, "We lose money because of ignorance." Therefore, we investigated tax systems in countries with high demand and provided data. We know there are many SMEs desperately needing tax and legal consulting, and we plan to expand support further.

Lee Geon-gi, Chairman of the Overseas Construction Association, is being interviewed by Asia Economy on the 24th. / Photo by Moon Ho-nam munonam@

- What difficulties did construction sites face due to COVID-19?

▲ Last year was serious. We couldn’t even export masks. Overseas workers are also our citizens. We requested the government to allow sending masks to overseas construction site workers and did various things. Recently, we have been accepting vaccine inoculation applications for construction workers who need to travel overseas. The demand is quite high.

- The situation in Myanmar remains unsettled. Many Korean companies have advanced there.

▲ GS Construction, Doosan Heavy Industries & Construction, and Korea Land & Housing Corporation (LH) are operating there. There are also Official Development Assistance (ODA) projects funded by the Economic Development Cooperation Fund (EDCF), but the government decided to suspend and review these to sanction the Myanmar military. Construction is already underway, and if EDCF is suspended, significant damage to companies operating locally is expected. Even if new EDCF investments are not made, I hope support continues for ongoing projects. There are no safety issues for workers on site.

Interview by Jung Doo-hwan, Head of Construction and Real Estate Department

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