Second-half game plan
As Park Geun-hye approaches the halfway point of her term of office, it is as good a time as any to assess the performance of the president and her team thus far and suggest focal points for 2015 and beyond.
Seeds for the creative economy initiative - remember that? - are being sown with innovation centers popping up regularly around the country and the long-dormant real estate market seems to have regained some life. Skeptics, however, might well wonder how much, if any, benefit from the former will trickle down to working people and whether the latter is sustainable or just a reaction to the one-off stimulus measures of Finance Minister Choi Kyung-hwan.
Regardless, the focus in 2015 has shifted to two subjects: the erosion of overseas construction and stagnant wages.
Cheap oil and intensifying competition from China have certainly taken a toll on Korea’s vaunted industrial and infrastructure construction sector. Both profit margins and orders for heavyweight domestic builders have been shrinking since 2012. One culprit is Chinese companies with some of the world’s lowest labor costs that are aggressively trying to expand abroad. Another wrench in the works is the drop in oil prices that has squeezed revenue for the world’s biggest producers in the Middle East, who also happen to be some of Korea’s best customers. The result is a situation that has been tenuous at best, made far worse as countries in the region postpone projects or cancel them altogether.
In response, there has been a steady drumbeat for diversification. True, the Middle East represents nearly half of the overseas income of Korean engineering and construction companies, and no one can argue that establishing inroads in other regions is not desirable. But it would be foolhardy to neglect the competitive advantage of Korean companies’ exemplary track record in the Middle East. Give President Park credit: Her trip to Kuwait, the United Arab Emirates, Qatar and Saudi Arabia last month was well-timed and productive.
In Riyadh, she and Saudi King Salman signed a $2 billion deal for two Korean companies to construct a pair of system-integrated modular reactors. The president’s visit reinforced Korean companies’ successes, past and present, and was an explicit expression of how much Seoul values its ties to the region.
Also noteworthy, if largely overlooked by local media, was the presence of a substantial delegation from the Korean government and business community at the Egypt Economic Development Conference March 13-15 in Sharm el-Sheik.
Five years after the Arab Spring, there are signs the economy of the region’s most populous country may be starting to turn around. The International Monetary Fund increased its 2015 growth forecast for the Egyptian economy to 3.8 percent from 2.2 percent last year, and last month the stock market hit a six-year high. After decades of infrastructure neglect, Egypt has much work to do and deep-pocketed friends in the Persian Gulf who are willing to help. It would hardly be surprising if they put in a good word for Korean companies, which are known for advanced technologies and some of the most highly skilled workers in the world. Considering the crucial role of Korean workers in the success of Korean businesses at home and abroad, the contentiousness surrounding the ongoing discussions over wage growth is confounding.
Equally baffling is the Park administration’s lack of leadership on the issue. Finance Minister Choi has gone from describing regular workers as a “burden” last fall to declaring on March 3 that “without a pay raise at a sufficient level, the domestic market can’t rebound,” hinting at increases at least equal to the 7 percent planned for government employees. Even after 5-7 percent raises annually since 2010, Korea’s minimum wage is still only 5,530 won ($5.40) per hour or about $1,000 per month.
At a subsequent forum, Choi failed to persuade corporate leaders of the wisdom of a meaningful pay increase across the board. Those executives might want to remember that this year marks the 50th anniversary of the 60.9 mile Pattani-Narathiwat Highway in southern Thailand. It was built by Hyundai E&C and was the first heavy construction project overseas by a Korean company. Conditions were brutal, and Korean workers had to endure extreme heat and torrential rains.
“Our elders say the Korean workers were persistent and never took their work lightly,” Narathiwat Governor Naapong Sirichana told the JoongAng Ilbo for a story on the anniversary. “It surprised many when they completed the project in just 25 months, diligently persevering throughout the construction in the heat and pouring rain.
“That’s why it is called tanon kaoli (Korean Road).”
*The author is the business news editor of the Korea JoongAng Daily.
by Bertil Peterson