UAE and South Korea – old friends that can be winners together

In the early 21st century, the concept of “most favoured nation” in international trade seems archaic.

As bilateral and multilateral agreements have multiplied under World Trade Organization auspices, the idea of picking another country to be your “best friend” in international commerce seems almost quaint.

Nonetheless, picking a trading partner in a mutual exchange of unique advantages, and staying with them through thick and thin, was how world trade was conducted for decades, even centuries, until the globalisers came along. So it must have something going for it.

Sometimes, two countries with little apparent similarities in terms of economic structure, industrial base or business culture, can strike up an enduring commercial friendship. This is what seems to be happening between the UAE and South Korea.

The rapid development of the relationship is new, but the contact itself is centuries old, according to a new piece of analysis by HSBC. The bank has found a trading pattern that goes back to the seventh century, when Arab merchants first traded with Korea and introduced its name to western merchants previously unaware it has an identity separate from Cathay, the old name for China.

But in the past half-century the relationship accelerated. The new republic of Korea was besieged by enemies, and needed to secure energy supplies, so it made trade relations with the Arabian Gulf oil exporters a top priority from the outset.

When Korea began its rapid export-led expansion, the crude flowing to Seoul was paid for by manufactured goods heading in the opposite direction, and the Gulf became a leading market for the consumer goods Koreans were producing in direct competition to Japan.

Saudis, Kuwaitis and Qataris welcomed the Korean expertise in construction and engineering, but none embraced it as willingly as the UAE. In 1975, Korean contractors helped to build bridges that linked Abu Dhabi island to the mainland; 30 years later, the Korean national champion, Samsung, helped Dubai build the tallest building in the world.

Now, a Korean consortium is building the UAE’s first nuclear powered energy facilities, in a US$20 billion project that will revolutionise the economics of energy in the region, and make the UAE the first Arab nation to harness nuclear energy on a commercial scale.

Other deals have been done. Arabtec, the Abu Dhabi government-controlled contractor, is in the second year of a joint venture with Samsung Engineering to work together on some of the biggest infrastructure jobs in the world – refineries, petrochemical plants and other big civil engineering projects.

Arabtec also has a link with another Korean conglomerate GS Engineering and Construction to build rail and other transport projects in the Middle East and elsewhere.

Investment Corporation of Dubai (ICD), the emirate’s blue chip investment fund, took the relationship to a whole new level. ICD had already done a deal with Ssangyong Engineering and Construction for a reported Dh667m, when it announced last month that it would be entering into a permanent alliance with the Korea Investment Corporation.

It is thought to be the first time two sovereign wealth finds have come together on a permanent basis in a joint venture to assess and exploit investment opportunities around the world. Details of the joint venture’s financial and investment strategy are eagerly awaited, as is its first deal.

The combined financial firepower of the two groups, with combined assets of about $230bn, is enormous.

But then, the opportunities in the UAE are also enormous. With Expo 2020 looming, the Korean expertise and experience in staging big projects will be welcome. Since 1988 the country has staged an Olympics, put on two international exhibitions in the past 20 years, joint hosted (with Japan) a Fifa World Cup, and is currently planning the winter Olympics of 2018.

Perhaps more than any of its Asian regional neighbours, South Korea has the know-how to help get the UAE to its self-proclaimed goal of a future beyond oil. That is why the commercial relationship between the two can only get stronger.

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