May 20, 2024
SEOUL – South Korean builders remain alert against geopolitical risks rising across the Middle East that could throw cold water over their expectations to take a ride on the region’s construction boom.
Instability in the Middle East, a key market for Korean construction companies overseas, has been sparking concerns over possible setbacks in infrastructure and maintenance projects undertaken by the builders.
“Oil-exporting (Middle East) economies are heavily dependent on oil prices, which are also highly sensitive to geopolitical issues, like conflicts involving Israel, Palestine and Iran,” an industry source said.
Local construction firms also expressed concern that ongoing geopolitical issues in the Middle East will likely have negative impacts on procurement and labor costs.
“Korean construction companies will have to see how the current geopolitical tensions unfold in the future, and whether they will continue until local construction firms start their construction projects,” a source from one of Korea’s top five construction companies said.
The uncertainties surrounding the area heightened as Korean builders were trying to capitalize on the recent construction boom in the Middle East.
Korean construction firms clinched $2.4 billion in orders from Middle Eastern countries in the first quarter of this year, accounting for 44 percent of the total project value they won from abroad in the period, according to recent data from the International Contractors Association of Korea.
The source added that construction firms are also looking into projects that are relatively free of those geographical issues to avoid risks, the source added.
Korean construction firms are also increasing their monitoring of the economy of Saudi Arabia, a country in which many local construction firms hope to secure new construction orders in the future, particularly in regards to the country’s Neom project, a $1.5 trillion development on the Red Sea coast.
In Saudi Arabia, Korean construction companies have been winning large-sized orders. In 2023, Korean firms’ total construction orders amounted to $33.3 billion, and $11.4 billion were from the Middle East. Orders from Saudi Arabia came to 9.5 billion.
“We are also expecting a slowdown in Saudi Arabia’s Neom project,” an official from a leading construction firm said on condition of anonymity.
Previously, foreign reports said Saudi Arabia would back its medium-term ambitions for the desert development of Neom as the sovereign wealth fund faces pressing financial considerations.
Local construction companies said they are taking a careful approach to construction projects in Saudi Arabia, in particular, because the country is known to be one of the most difficult regions to operate construction projects due to its “Saudization” policy that mandates employing minimum numbers of Saudi nationals and establishing regional headquarters for public projects. In the past, some construction projects had to grapple with high reserve prices and tax issues.
“However, we will continue to look into new opportunities in Saudi Arabia’s construction market because the market is simply too big to ignore,” the official added.