At the beginning of this year, domestic construction companies succeeded in winning large overseas projects, leading to forecasts that achieving the annual target of $40 billion would be smooth. However, due to rising construction costs and geopolitical uncertainties, new orders have decreased, effectively making the target achievement impossible. Furthermore, there have been cases where negotiations for government contracts abroad were canceled or contracts were terminated, impacting the overseas orders of domestic construction companies.
According to the Overseas Construction Association and the construction industry on the 24th, the overseas order amount for domestic construction companies from January to November this year is $32.69352 billion. With only one month left until 2024 and the domestic situation deteriorating due to the impeachment political climate, forecasts suggest that achieving the effective target of $40 billion is now impossible.
Due to the deteriorating domestic situation, there have been changes in order plans for projects awarded by other governments. According to the construction industry, Samsung C&T and Hyundai Construction could not hold a meeting scheduled for the 5th with Swedish Prime Minister Ulf Kristersson and representatives of the Swedish government. This is because Prime Minister Kristersson canceled his visit to Korea for the first time in five years following the aftershocks of the state of emergency. Initially, it was planned that domestic corporations, including the two companies, would first hold a meeting with the Swedish government at the 'Korea-Sweden Strategic Industries Summit,' after which Samsung C&T would sign a memorandum of understanding (MOU) with the Swedish small modular reactor development company, Kanfullnext. The MOU was carried out as planned, but there are concerns within the industry that the lack of meetings necessary for projects requiring close communication with the government could put them at a disadvantage in future bidding.
There have also been instances of contract cancellations for overseas projects. Samsung E&A received a notice last month regarding the cancellation of a contract for a $1.9 trillion refinery project awarded in Algeria in January 2020. Daewoo Engineering & Construction signed two MOUs for a fertilizer plant construction project in Turkmenistan but failed to win one of the projects in the final bidding due to disagreements over construction costs. Hyundai Construction recently had the contract amount for the 'Amiral petrochemical plant package 1-4 project' contracted with Saudi Arabian state-owned enterprise Aramco reduced from $3.32759 trillion to $3.077 trillion.
The main reason for most contract cancellations is disagreements arising during the price increase process due to rising construction costs. One construction company official noted, "In the process of negotiating business conditions such as construction costs, disagreements can arise, prompting the client to express intentions to terminate the contract or leading the construction company to determine that it is better to halt the project rather than proceed."
Another construction company official remarked, "As the domestic situation has deteriorated recently, there are forecasts that the continued high exchange rate trend could further drive up the prices of construction raw materials," adding, "The already stagnant construction industry could suffer further damage due to increased material costs, leading to a heavier burden in construction costs."
Though achieving the target of $40 billion has become difficult, the orders from January to November show a 17.8% increase compared to the same period last year ($27.73739 billion) and the highest level recorded since 2016. Therefore, there are also expectations that the domestic situation is not as severely damaging as anticipated, and that it could lead to achieving the target next year.
Lee Eun-hyung, a researcher at the Korea Construction Policy Institute, stated, "To identify problems in overseas construction, one must consider that the issues can arise at the bidding stage and after the contract, where the construction companies might not be able to complete the project on schedule. Most of the companies operating overseas construction sites among domestic firms are top-tier companies," suggesting that the impact of the domestic situation on the overseas orders of large construction companies may not be significant.