With a sluggish economy and growing tension on the Korean Peninsula, the beleaguered government is desperately trying to seek a “breakthrough.”
We cannot smoothly exit the current situation without taking any initiatives, just as we had surmounted past trials.
For instance, construction and engineering companies have been suffering dues to losses from overseas projects and decreasing market share due to the curtailed or suspended number of oil and gas projects after the oil price drop in recent years.
The conventional construction business has become a “red ocean” in overseas markets owing to the highly competitive market conditions. Even the world’s top three construction companies -- ACS, Hochtief, and Bectel -- have suffered from 12 percent, 16 percent, 9 percent sales drop, respectively, in 2014, compared to the previous year.
Amid all the limited circumstances, our economy has no recourse but to overcome the unfavorable economic conditions.
Despite these unfavorable factors, some overseas construction companies like France’s Vinci and Spain’s Ferrovial have achieved continuous sustainable growth by diversifying their business structure and minimizing risks in construction and investments.
As a key factor to restore stable growth and obtain appropriate profits for domestic construction and engineering companies, there should be an emphasis on diversifying investments based on engineering, procurement and construction management capability.
A recent market survey by the World Bank Public-Private Partnership Group and Public Private Infrastructure Advisory Facility showed that the market has increased around three times to about $100 billion in 2015, which is equivalent to 13 percent of the world EPC open market with a total of $800 billion over the past 10 years.
In terms of infrastructure construction, developing countries prefer build-operate-transfer or build-operate-own projects rather than self-raised funding and construction due to investment risks. In particular, reopening the Iran market following the lifting of sanctions presents more opportunities for PPP projects.
I visited Iran in late-February amid a flurry of diplomatic and economic activities by some countries to strengthen ties with the country and explore new business opportunities there. In my meetings with top government officials, I discussed issues related to future prospects of Korea’s economic relations with Iran and further exchanged information on investment development project opportunities between the two countries.
As we are keen to participate in Iran’s emerging market, it is undeniable that developed countries have led PPP projects with their capital power, experience, and government support of influential power to develop infrastructure.
Although Korean PPP business parties are lagging behind western countries, there has been a marked increase in cooperation between the public and private sectors in overseas projects for the development and operation of infrastructure with a wide range of economic activities. The capacity of the South Korean engineering and construction industry has been contributing greatly to the success of relevant projects.
An overseas infrastructure project like LNG takes a long period to recover investments, so a private company could be reluctant to participate in the project due to unexpected risks while developing countries prefer to hold reliable and fully experienced investors in order to hedge the unexpected risks.
Gas infrastructure business is a long-term project that requires high investment and the most essential factor is guaranteed reliable participants.
One of the successful PPP cases is the Mexico Manzanillo LNG Receiving Terminal Project, in which the investment and construction has been led successfully by Korean public-private sector partnership. Korea Gas Corp. which has a lot of experience in such projects participated in the project.
Needless to say, KOGAS has been inducing direct and indirect effects such as allowing small and medium-sized enterprises in construction, manufacture, and operation, as well as creating job opportunities and building a solid foundation by amicable reputation.
This overseas project generated profits of $850 million, with $380 million invested and operated by KOGAS. In addition, it built a foundation to expedite major PPP projects and make profitable achievements in the blue PPP market.
Should our engineering firms continuously evolve the engineering capability to cooperate with overseas companies for PPP projects, we will be able to gain greater trust of global customers and eventually increase our national brand power.
All major projections about the future of gas energy are very rosy and natural gas will be a dominant energy source by 2050.
With limited natural resources in the Korean Peninsula, the only way to survive in a stalled domestic business is to pursue “overseas business” for a new sustainable development.
I have, for a long time, emphasized the importance of globalizing domestic construction and engineering industries and advancing into overseas markets. Especially now that I have been elected as the 31st president of the International Federation of Consulting Engineers, I am increasing my efforts to globalize our firms and enhance our presence on the world stage.
However, companies should not rush for securing overseas projects, and should do proper cost-benefit analysis. The government should also expedite overseas infrastructure investment business as a national growth engine.
We are standing at a crossroads on the way to survive and rebound the country’s exports. Currently, the overseas PPP projects can be one of the alternatives to jump to a leading position among the world’s business, and it is the time to boost cooperation between public and private companies. I anticipate that our engineering firms –- public and private sector -- will play a leading role in these endeavors, thereby reviving the second Middle East boom which will contribute to our nation’s economy.
By Lee Jae-wan
--------------------------------------------------------------------------------
The writer is chairman of Korea Engineering & Consulting Association and president of International Federation of Consulting Engineers. The views reflected in the article are his own. –Ed.