[Initial Perspective] Neom City: Where Profit Comes with Risk

Crown Prince and Prime Minister Mohammed bin Salman of Saudi Arabia shakes hands with President Yoon Suk-yeol before departing after completing a meeting and luncheon conversation at the presidential residence in Hannam-dong, Yongsan, Seoul on the 17th. [Provided by the Office of the President] [Image source=Yonhap News]

[Asia Economy Reporter Cha Wanyong] On the 17th, the entire country was abuzz with the visit of Saudi Arabia's influential Crown Prince and Prime Minister Mohammed bin Salman, who stayed for just one day. This demonstrated the power of the $500 billion NEOM City project he is promoting.

President Yoon Suk-yeol held a one-on-one meeting and an official luncheon with Crown Prince bin Salman. To show a warm welcome, an event was even held at the presidential residence instead of the presidential office, marking the first time a foreign VIP was invited there.

Business leaders including Samsung Electronics Chairman Lee Jae-yong, SK Group Chairman Chey Tae-won, Hyundai Motor Group Chairman Chung Eui-sun, Doosan Chairman Park Jung-won, CJ Group Chairman Lee Jae-hyun, Hanwha Solutions Vice Chairman Kim Dong-kwan, and HD Hyundai President Jung Ki-sun visited the Lotte Hotel in Sogong-dong, Seoul, where Crown Prince bin Salman was staying, to meet with him.

The hospitality shown was so lavish that it seemed almost excessive. However, it is well justified. Despite soaring prices and a global economic downturn, Saudi Arabia is steering the world economy amid the boon of rising oil prices. Even U.S. President Joe Biden visited Saudi Arabia to meet Crown Prince bin Salman. It is safe to say that the entire world is looking to Saudi Arabia’s investments and support to overcome the economic crisis.

Korea is no exception. The NEOM City project promoted by Crown Prince bin Salman is a futuristic city beyond imagination. It integrates technologies from all existing industrial fields, including civil engineering, renewable energy, flying cars (urban air mobility, UAM), and artificial intelligence. If Korea succeeds in winning even about one-tenth of the project contracts, it could aim for economic recovery through a second Saudi Middle East boom.

Moreover, if Korea succeeds in securing contracts and participating in the project, it will gain an opportunity to further advance its future industries. Development follows investment. It is also a great chance to test advanced technologies that may one day be applied to Korean cities.

However, as the ancient military strategist Sun Tzu said, “Where there is profit, there is also risk.” The Middle East market has brought both joy and sorrow to Korean construction companies. During the first oil shock in 1973, Hyundai Construction (Saudi Jubail Industrial Port project) and Daewoo Construction (Pakistan highway project) entered the Middle East market chasing oil money. The government also actively supported this by forming the 'Middle East Economic Cooperation Committee' chaired by the Prime Minister to pioneer the Middle East market. Through this, the Middle East contract amount, which was about $24 million at the time, surged to $8 billion by 1978. Subsequently, benefiting from the second oil shock (1978?1979), Korea grew to become the world’s second-largest construction exporter after the United States.

However, the atmosphere began to change from the 2000s. With China entering the market, a low-price bidding competition unfolded. Additionally, after several years of low oil prices since 2013, many domestic construction companies that had previously secured local projects suffered massive losses. Cases of not receiving proper payment or unilateral contract cancellations occurred frequently. Some construction companies have recently recovered their losses, while others are only now winding down their projects.

Now, the Middle East market has brought news of the NEOM City project. It is true that tangible benefits are again visible in the Middle East region. However, given that past risk factors still remain, a cautious approach is necessary. As Land, Infrastructure and Transport Minister Won Hee-ryong, who is leading the NEOM City contract efforts, said, “We will avoid low-price bidding,” a profitability-focused contract strategy is essential.

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