KFCIS Seeks Renovation, 
Brisk Overseas Investment

Korean Federation of Construction Industry Societies (KFCIS) is poised to proactively explore new construction policies with vivid voices of construction companies through the committee activities.
"The policies will be recommended to the government as part of efforts to rebuild the construction industry as contributor to the national economy while overcoming the distrust from the people, Kwon Hong-sa, chairman of KFCIS, said in an interview with NewsWorld. The following are the excerpts of the interview with Kwon.
Question: What is your impression in marking the Construction Day?
Answer: I feel happy to observe the Construction Day, which has been a festive day for construction people in recognition of their contribution to the development of the nation's construction industry and national economy over the past 50 years. We need to encourage each other while resolving efforts for further development in the future.
In addition, I would like to appreciate the prize winners thanks to their efforts for the development of the construction industry.
We expect the related companies's order receipts from overseas will reach 10 billion dollars again this year and the domestic construction market is also likely to pick up steam amid a steady rise in orders.
I feel burdened because of various pending issues like the BTL project, bottom-price bidding system, real estate regulatory policy and irrational construction-related system.
The gap between large and small companies and enterprises in Seoul and provinces has continued to widen and the BTL project has added difficulties faced with the construction firms.
I hope we will be able to find a clue to resolve the difficulties and the construction industry will see a booming period on the occasion of Construction Day.
Q: Are there any measures to cope with the ever rising prices of houses amid criticism that the government has failed to curb the real estate prices, only aggravating the situation?
A: Although the government has come up with a series of policies designed to apply brake to the soaring housing prices since Oct. 29 in 2003, such measures have largely failed to meet the purposes. On the contrary, the housing prices began to increase recently, affecting houses in Seoul's metropolitan area as well as the Gangnam district in southern Seoul. And there has been speculation that the real estate prices will continue to further soar.
The rising house prices can be attributed to the inconsistency in the government's real estate policies. In the process, the government has lost trust in the market. The government should have tried to curb the housing prices by supplying more houses in accordance with the market principle. But it only focused on strengthening regulations.
The government needs to carry out consistent policies so that companies can predict and allow construction of medium and large apartments to meet the growing demand for them. The government needs to adopt market-friendly policies by applying the principle of supply and demand.
Q: What is the effect of the BTL investment project initiated by the government?
A: The government has decided to introduce the Build, Transfer and Lease (BTL) system so that private capitals can invest in building public utilities for leasing them to government agencies. Without transferring the ownership to the government the private investors are supposed to retrieve their investment by receiving lease charges from the agencies.
But the government has failed to effectively carry out the project by pushing for its own idea regarding the new system. For one thing, it is improper to go with the system at "bundling"basis including small-sized projects. Under the system, the small and medium companies will face difficulties as they will be unable to get orders. And it will lead to further slowdown in regional economies.
This is serious in view of the fact that provinces' small and medium companies have been in charge of more than 90 percent (1.957 trillion won) of school facilities and more than 70 percent (1.162 trillion won) of tap water and sewage facilities in 2004.
And the small and medium constructors will not be able to take part in the project due to complicated business structure and investment burden. Further the purpose of the BTL project has been tarnished as expanding it to the scopes where the private investors will find difficulties in exercising creativeness and efficiency.
So I suggest the government to limit the BTL program to projects worth more than 50 billion won. And there should be steps to enable provincial companies to take part in the project as a way of reinvigorating the sluggish regional economies.
Q: What plans does the federation have to speed up reform and further develop the construction industry?
A: The nation's construction industry has seen remarkable development over the last 60 years as the locomotive of the national economy. But it's competitiveness has continued to weaken as the companies have lacked efforts to develop new technologies and have advanced construction culture take root.
Despite the rapid change in management environment at home and abroad, the current bidding system has failed to make progress, weakening the construction companies'competitiveness. So we need to set up a foundation for future growth.
Against this backdrop, the association, jointly with the Construction & Economy Research Institute of Korea (CERIK), has set up a ?ommittee on Construction Industry Renovation?within the research institute, which got into a full-fledged operation from May.
The committee will be in charge of studying ways of establishing new construction culture through renovation of construction-related policies and institutions. It will also seek means to ensure sound development of the construction industry through balanced development between the large and small-medium industries. The committee will select key tasks for policy recommendation.
The committee will consist of figures with deep understanding of construction industry from academic and industry and will explore ways of ensuring balanced growth between the large and small companies, renovating the bidding system, restructuring, technology development and creation of new demand.
We are poised to proactively explore new construction policies with vivid voices of construction companies through the committee activities. And the policies will be recommended to the government as part of efforts to rebuild the construction industry as contributor to the national economy while overcoming the distrust from the people.
Q: The federation has recently called for expansion of social overhead capital (SOC) budgets. What is the rationality of such recommendation?
A: The government recently announced it would reduce the annual SOC-related budget growth rate to 1.6 percent for the 2005-2009 period.
Now South Korea's SOC stock is equivalent to only 20 to 30 percent of those in developed nations. Its transport cost amounted to 92.8 trillion won in 2002, equivalent to 12.2 percent of gross domestic product (GDP), while its traffic congestion cost also accounted for 3.71 percent of GDP.
Given this background, further delay in construction of SOC-related facilities will only undermine the nation's growth engine, resulting in long-standing economic slowdown.
Failure in securing SOC-related budget will deal blow to planned projects, increasing the social burden arising from the collapsed businesses. It will also lead to have negative effect on the government's much-touted goal of creating jobs and weaken the national competitiveness.
Edged by the decrease in construction orders recently, the construction industry has been suffering from sluggish trend and prolonged lackluster construction trend, affected by less investment, will result in an increasing number of collapses of relevant companies, and jobless people.
A decline of 10 trillion won in construction orders will thus generate 200,000 jobless people. As a matter of fact, some 500,000 people lost jobs due to a drop in construction order from 75 trillion won to 47 trillion won when the nation was hit by the financial crisis in 1997 which invited bailout assistance from the International Monetary Fund (IMF).
The nation's domestic demand has remained extremely sluggish due to the government's strong policies designed to curb real estate prices. So the government needs to make further investment in social overhead capitals in order to strengthen the national competitiveness by reducing transport expenses. It will also help ensure social safety net by creating more jobs. In 2006, the government needs to increase the budget for SOCs at least at the same level as the general budget increase rate.
Q: The construction companies are expected to enjoy special demand from the Middle East nations mainly owing to the continued high oil prices. How will the industry address the upcoming booming trend?
A: The domestic construction companies are again seeding "Korean soul"in the desert Middle Eastern soil, changing the sand wind to golden wind.
Oil exporting nations, replete with oil dollars due to high oil prices from last year, are attempting to expand or repair oil-related facilities. Our enterprises have been receiving orders for major projects, heightening expectation for second Middle East boom.
We expect the orders received from overseas will reach 10 billion dollars this year in eight years since 1997. Such booming overseas businesses will enliven the domestic economy and expand the growth foundation of the construction industry.
As of the end of May, overseas orders amounted to $5.2 billion, of which 71 percent or $3.7 billion came from the Middle East, compared with $3.571 billion and $2.258 billion registered in 2002 and 2003, respectively.
What is encouraging is the fact that the companies have begun to focus on more lucrative areas like petroleum, and chemical plants although they had previously dealt with less profitable engineering and construction projects by the middle of the 1960s.
Now we need to discard the old practices of bloody competition seen in the past in the course of getting orders from the Middle East. And the companies are asked to set up consortiums as part of efforts to refrain from engaging in excessive competition.
They need to raise their design capability and make more efforts to raise the added values. The government, for its part, is also advised to spare no assistance to the domestic companies in their bids to advance into the foreign markets in terms of diplomatic support, financial assistance and globalization of construction regulations.
Q: Low-price dumping has been tarnishing the bidding system. Do you have any alternatives to prevent such excessive competition?
A: The bottom-price bidding system can take root only when the order issuers, construction firms and insurance organizations do their proper roles. Toward that end, the current low price deliberation system should be improved to provide companies with chances to get orders at appropriate prices.
Q: Which measures do you have in mind to expel insolvent and disqualified companies from the market with the goal of ensuring sound development of the industry?
A: The construction market order has been undermined with the steady increase in the number of small-sized companies, prompted by easing requirements for bidding. The number of companies, which amounted to only 4,000 in 1997 rose to 13,000 as of the end of May this year, an increase of 300 percent during the period. But the construction order increased only 19 percent to 94 trillion won last year, from 79 trillion won in 1997.
Many firms compete to get orders for limited number of projects and in this situation a certain firm fail to get even a single order a year. Due to insolvent and disqualified firms, sound companies are feared to get damages.
The Construction and Transportation Ministry has been taking steps to ensure sound development of the construction market and prevent the simultaneous collapses of disqualified and qualified companies by strengthening requirements for the construction companies. Research institutes say the number of construction firms should be curbed at 5,000 for the nation.
Accordingly, the federation will exert its utmost efforts to exclude insolvent firms from the market and ensure the growth of qualified firms by conducting surveys of the companies on regular basis and strengthening registration requirement.

Kwon Hong-sa, chairman of KFCIS

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