South Korea Infrastructure Report Q2 2008

After an impressive bounce-back from the 1997 financial crises that hit East and South East Asia, the Republic of Korea (South Korea) is now on its way to becoming one of the most industrialised nations in the world. The construction industry - which has been a major foreign-exchange earner for the country - was valued at US$53.26bn in 2006, and accounted for 6% of the Gross Domestic Product (GDP). This report forecasts the industry to grow at 3% per annum during 2008-2012.

However, the boom in the sector has also created a grey market of mainly small firms operating without licences, which has proved damaging for the industry's reputation and led the government to introduce tougher registration rules. In 2005, the government launched a crackdown that saw 2,674 building licences revoked, while 1,043 firms had their operations suspended.

Overseas contracts form the mainstay of the South Korean construction industry. Some of the world's largest international contractors, including Hyundai Engineering & Construction, Daewoo Engineering & Construction and Samsung Engineering & Construction are based in the country. A South Korean construction consortium has entered into interim deals worth more than US$25bn for infrastructural development in Iraqi Kurdistan. Major projects in the pipeline in South Korea include the construction of world's largest tidal power plant, construction of two 77-storey World Trade Centre (WTC) buildings in the Incheon Free Economic Zone, and the Seoul expressway project. The government has also committed US$31.3bn for the development of power plants in the country.

Since its recovery from the Asian financial crises, the Republic of Korea has been encouraging foreign investment. Currently, there are no major barriers to entry. However issues such as over-reliance on overseas contracts and inflationary pressures on the economy due to high crude oil prices may require some attention.

BMI believes that future growth will be driven primarily by increased demand from China and Europe.

Possible Free Trade Agreements (FTA) with the US and European Union (EU) may also benefit the country's construction industry which is forecast to reach KRW69,325.95bn (US$81.56bn) by 2012, accounting for nearly 6% of the GDP.