🚨 Expansion of SOC Projects Passing Preliminary Feasibility Study and Analysis of Economic Stimulus Effects

Today Korean Economic News | 2025.02.06

📌 'Preliminary Feasibility Study' Approvals 12 Times Higher Than Last Year... SOC Fast-Tracking Amid Economic Slowdown

💬 The government is accelerating investment in Social Overhead Capital (SOC) to respond to economic stagnation and declining growth rates. In this year's first preliminary feasibility study, over 8 trillion won worth of SOC projects were approved. This is more than 12 times larger than the same period last year. The government has also established a plan to execute half of this year's SOC budget in the first quarter.

1️⃣ Easy to Understand

The government is significantly increasing Social Overhead Capital (SOC) investment to counter the economic recession. Over 8 trillion won in large-scale SOC projects have passed the preliminary feasibility study, and the government plans to concentrate half of the SOC budget in the first quarter. I'll explain what this policy means for our economy and daily lives in an easy-to-understand way.

First, what is Social Overhead Capital (SOC)? It refers to infrastructure that forms the foundation of our economic activities, such as roads, railways, ports, airports, dams, and water supply and sewage systems. Rather than generating direct profits, these facilities facilitate other economic activities. Like the blood vessels or neural networks in our body, they're not always visible but are essential elements that would cause significant inconvenience if absent.

The Preliminary Feasibility Study (PFS) is a system that examines in advance whether such large-scale SOC projects are economically viable and genuinely necessary. Generally, large projects with total costs exceeding 50 billion won and requiring more than 30 billion won in national financial support must pass this study before proceeding. Simply put, it's a process of determining "will this project be worth the money?" before spending large sums.

The fact that the government has approved SOC projects worth over 8 trillion won through the preliminary feasibility study means that many new roads, railways, ports, etc., are planned for construction. This is 12 times larger than the same period last year, showing that the government is strategically expanding SOC investment for economic stimulus.

Additionally, the government has announced that it will intensively execute half of this year's SOC budget in the first quarter (January-March). Typically, government budgets are used evenly throughout the year, but this year they will be concentrated in the early months. This is similar to strongly pressing the accelerator in the beginning to gain momentum.

How will this SOC investment expansion affect our economy and daily lives? First, it will increase jobs at construction sites and boost production and sales in related industries such as cement and steel. Second, the income received by these workers will lead to consumption, creating a "multiplier effect" that positively impacts other industries. Third, in the long term, improvements in roads and railways will reduce logistics costs and promote regional development.

For example, when a new highway is built, construction workers, engineers, and material suppliers gain jobs and income during the construction period. Once completed, the highway reduces travel time for drivers and increases accessibility to surrounding areas, stimulating tourism and commercial activities. This is precisely why the government expands SOC investment during economic downturns. It can achieve both short-term job creation and long-term economic efficiency improvements.

2️⃣ Economic Terms

📕 Preliminary Feasibility Study (PFS)

Preliminary Feasibility Study (PFS) is a system that evaluates the economic feasibility of large-scale fiscal projects.

• The main targets are new projects with total costs of 50 billion won or more and national financial support of 30 billion won or more.
• It comprehensively evaluates economic feasibility, policy relevance, and balanced regional development to determine whether to proceed with projects.

📕 Social Overhead Capital (SOC)

Social Overhead Capital (SOC) refers to public infrastructure that serves as the foundation for economic activities, such as roads, railways, and ports.

• It refers to capital facilities that serve as the basis for other economic activities rather than direct production activities.
• It is mainly pursued as a government fiscal project rather than private investment and forms the basis for long-term economic growth.

📕 Fiscal Execution

Fiscal execution refers to the government's actual expenditure of the budget.

• The timing and speed of execution can be strategically adjusted according to economic conditions and policy objectives.
• Concentrated execution in the first half of the year is a fiscal strategy aimed at rapid economic stimulus effects.

📕 Economic Stimulus

Economic stimulus refers to the government's policy efforts to increase economic growth rate and create employment.

• Fiscal policy (expanded government spending, tax cuts) and monetary policy (interest rate cuts) are used as main instruments.
• Expanding SOC investment is often used as part of expansionary fiscal policy during economic downturns.

3️⃣ Principles and Economic Outlook

💡 Background and Current Status of SOC Investment Expansion

• The government's significant expansion of SOC investment is driven by policy considerations of responding to economic recession and securing growth engines.

  • First, the recent slowdown in Korea's economic growth has been a direct catalyst for SOC investment expansion. Korea's economic growth rate recorded 2.2% in 2024, and similar low growth is expected in 2025. Particularly in a situation where private consumption and investment are sluggish, voices calling for government-led economic stimulus have grown. SOC investment has gained attention as a means of responding to the recession because it has large short-term job creation and production inducement effects, and can also contribute to improving economic structure in the long term.

  • Second, the scale and content of SOC projects passing the preliminary feasibility study have significantly expanded. The size of SOC projects approved in this year's first preliminary feasibility study exceeds 8 trillion won, 12 times the level of the same period last year. Major projects include not only the expansion of road, railway, and port infrastructure but also water resource management, smart infrastructure, and green energy-related facilities. A notable feature is that project selection considered various policy objectives including economic efficiency, balanced regional development, and carbon neutrality goals.

  • Third, the policy of concentrated early execution of the SOC budget is also noteworthy. The government has set an aggressive policy to execute more than half of this year's SOC budget in the first quarter. This deviates from the typical fiscal execution pattern and is a strategy aimed at early visualization of economic stimulus effects. It appears to be planned especially to concentrate project orders and groundbreaking in the early year so that actual economic effects can appear during the construction season in spring and summer.

  • Fourth, qualitative changes in SOC investment are also progressing. Beyond simple civil engineering works, future-oriented SOC investments such as digital infrastructure, eco-friendly energy facilities, and smart city infrastructure are expanding. This can be seen as an approach to support economic structural transformation in preparation for the Fourth Industrial Revolution and carbon-neutral era, beyond short-term economic stimulus. Investment in improving aging infrastructure and enhancing safety is also increasing.

• This expansion of SOC investment can be seen as a modern application of traditional Keynesian fiscal policy that was used during past economic crises. However, unlike the past, a differentiated feature is that the focus of investment is directed toward promoting structural changes such as digital transformation and eco-friendly transition.

💡 Economic Ripple Effects and Limitations of SOC Investment

• SOC investment expansion affects the economy through various channels, and it is necessary to understand its effects and limitations in a balanced way.

  • First, the most direct impact is the short-term economic stimulus effect. SOC projects have large employment creation and production inducement effects, centered on the construction industry. According to the Bank of Korea's input-output analysis, when 1 billion won is invested in the SOC sector, it is estimated to create about 7-8 jobs and induce 1.8-2.0 times production effects. In particular, the construction industry has a large job creation effect for unskilled workers, which can contribute to employment stability for vulnerable groups. It also increases demand for related industries such as construction materials, equipment, and transportation, creating a multiplier effect throughout the economy.

  • Second, long-term productivity and competitiveness enhancement effects are also important. Improvements in transportation infrastructure such as roads, railways, and ports lead to reduced logistics costs and shortened travel times, increasing overall economic efficiency. Digital infrastructure expansion is essential for strengthening competitiveness in the Fourth Industrial Revolution era, and eco-friendly energy infrastructure contributes to responding to climate change and securing new growth engines. According to the World Economic Forum, when infrastructure quality improves by 10%, long-term economic growth rates increase by about 0.5-1 percentage points.

  • Third, it also contributes to regional development and quality of life improvement. SOC investment has the effect of strengthening connectivity between regions and promoting balanced development. When accessibility improves due to transportation infrastructure enhancements, it positively affects regional tourism, commerce, and real estate values. Additionally, the expansion of basic infrastructure such as water and sewage, energy, and telecommunications directly contributes to improving citizens' quality of life. In particular, infrastructure improvement in vulnerable areas has important implications for reducing regional disparities and social integration.

  • Fourth, the limitations and risks of SOC investment must also be considered. Excessive SOC investment can increase fiscal burden and may lead to inefficient resource allocation (so-called "pouring water into a leaky bucket"). Especially if projects with low economic feasibility are pursued for political reasons, they may leave long-term fiscal burdens such as increased maintenance costs. Additionally, excessive dependence on the construction industry raises concerns about deepening economic structural imbalances. SOC investments that do not consider structural social changes, such as population decline, may also potentially remain as "ghost infrastructure" in the future.

• Considering these various effects and limitations, SOC investment should be approached as part of a long-term national development strategy, not simply as a means of economic stimulus. In particular, 'smart SOC' investment with efficiency, sustainability, and future orientation is important, and project selection and execution that balance short-term effects and long-term vision are necessary.

💡 Policy Implications and Prospects of SOC Investment Expansion

• The government's SOC investment expansion policy presents various implications and prospects, considering the current economic situation and policy environment.

  • First, the effectiveness and sustainability of expansionary fiscal policy are important considerations. In the current environment of low growth, low inflation, and low interest rates, the effects of expansionary fiscal policy can be relatively large. With limited room for monetary policy, the role of fiscal policy has become more important. However, concerns about increasing national debt are also growing, and finding a balance between investment efficiency and fiscal soundness remains a challenge. Particularly considering Korea's pace of aging, sustainable fiscal management that does not leave excessive burdens on future generations is necessary.

  • Second, structural changes and diversification of SOC investment are underway. The investment area is expanding from traditional SOC focused on roads, railways, and ports to digital infrastructure, green energy facilities, and smart city infrastructure. This reflects future trends such as the Fourth Industrial Revolution, carbon neutrality, and digital transformation, showing that the concept and scope of SOC are evolving. This investment in 'new SOC' is expected to simultaneously support the innovation of traditional industries and the nurturing of new industries.

  • Third, strategies linking with private investment activation are becoming more important. With fiscal limitations in government-led SOC investment, a policy approach that effectively attracts private capital is needed. Various financial models such as Public-Private Partnerships (PPP) and Blended Finance are being explored to expand private participation. In particular, encouraging long-term investors such as pension funds and insurance companies to participate in profitable infrastructure projects is emerging as a policy challenge.

  • Fourth, connectivity with balanced regional development is also being strengthened. The regional distribution of SOC investment is a complex issue that must consider values such as regional balance and social integration beyond simple economic feasibility. Resolving infrastructure gaps between metropolitan and non-metropolitan areas, and between urban and rural areas, is a key task for national balanced development. Recently, the weighting for balanced regional development in the preliminary feasibility study system has been strengthened, making regional allocation of SOC investment more important. However, inefficient resource allocation due to political considerations is an element that should be guarded against.

• Overall, the SOC investment expansion policy is simultaneously pursuing the dual goals of short-term economic stimulus and long-term economic structure improvement. The success of this policy depends on the validity of project selection, efficiency of fiscal execution, creation of synergy with private investment, and the ability to proactively respond to future trends. Particularly, SOC investment will maximize its effect when directed toward responding to structural changes such as global supply chain reorganization, accelerated digital transformation, and climate change response after COVID-19.

4️⃣ In Conclusion

The government is significantly expanding SOC investment to respond to the economic downturn. Over 8 trillion won worth of SOC projects passed this year's first preliminary feasibility study, more than 12 times larger than the same period last year. Additionally, a policy has been set to concentrate half of this year's SOC budget in the first quarter. This policy is aimed at achieving two goals simultaneously: short-term economic stimulus and long-term improvement of economic structure.

SOC investment expansion can expect various economic effects. In the short term, job creation and production increases will occur in the construction industry and related sectors. Beyond direct employment at construction sites, economic ripple effects will spread to various fields including construction materials, equipment, transportation, food and beverages. There is also an expected effect of providing job opportunities for vulnerable employment groups.

In the long term, it will contribute to strengthening national competitiveness and improving productivity. Improvements in transportation and logistics infrastructure lead to cost reduction and efficiency enhancement for businesses, while the expansion of digital infrastructure promotes the emergence of new industries and business models. Additionally, eco-friendly energy infrastructure will help achieve carbon neutrality goals and secure future growth engines.

Regional economic revitalization is also an important effect. SOC investment particularly contributes to increasing accessibility to provincial small and medium-sized cities and rural areas and strengthening the foundation for economic activities. This has the effect of mitigating regional imbalances and promoting balanced national development. It will positively impact regional industries overall including tourism, commerce, and real estate, and contribute to improving the quality of life for regional residents.

However, there are also some points to be cautious about with SOC investment expansion. Efficient use of finances is most important. Overinvestment in projects with low economic feasibility can increase fiscal burden in the long term. Also, excessive dependence on the construction industry raises concerns about deepening economic structural imbalances. Particularly considering the trend of population decline, careful investment decisions based on future demand forecasts are needed.

Transition to future-oriented SOC investment is also an important task. A shift in investment direction from simple civil engineering works to digital, green, and smart infrastructure is needed. This should be part of the national strategy to respond to two massive changes: the Fourth Industrial Revolution and climate change. Sufficient attention should also be paid to enhancing the safety and improving the performance of aging infrastructure.

In conclusion, the government's SOC investment expansion policy can be evaluated as an appropriate response in the current economic situation. However, to maximize its effect, validity of project selection, efficiency of execution, and future-oriented investment direction setting must be supported. Particularly when infrastructure investment linked to securing future growth engines, such as 'digital SOC' and 'green SOC', is strengthened, the goal of long-term national competitiveness improvement beyond short-term economic stimulus can be achieved.