Etihad launches daily service to South Korea as ties deepen


Daniel Bardsley
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SEOUL // A water cannon and a gleaming white Airbus yesterday heralded the latest step forward in relations between the Emirates and South Korea, when the first flight to Seoul by the UAE's national airline, Etihad Airways, landed in bright sunshine.

Coming a year after a South Korean-led consortium secured the US$20 billion (Dh73.4bn) contract to build four nuclear power stations in Abu Dhabi, the daily service is part of a wider pattern of political and economic interconnectedness.

Etihad expects 60 per cent of the people flying to Abu Dhabi on the route will stop off in the Emirates, higher than average for the company's services, while it predicts freight holds will be kept full with steel, machinery and other goods from Seoul required for construction and other infrastructure projects.

The first flight took off from Abu Dhabi International Airport on Friday evening and landed at Seoul Incheon Airport yesterday morning in clear weather, with two water cannons framing the Airbus A330-300, which had the UAE and South Korean flags displayed from the cockpit as it taxied in.

Kim Bok-Hwan, the first secretary at the South Korean embassy in Abu Dhabi, described the service as a great chance to further deepen ties.

"It gives us another chance to concrete the relationship," he said. "The construction contracts between Korea and the UAE have rapidly increased since 2006 and we're trying to increase the cultural relationship, including tourism and education."

As a further indication of the growing ties between the two countries, in the past week the South Korean parliament approved the sending of 150 special forces troops to the Emirates to train UAE military personnel in counter-terrorism and counter-insurgency.

The UAE is the second-largest supplier of oil to South Korea, accounting for 14 per cent of its supplies, while construction companies from the Far East nation last year secured contracts worth more than Dh117.5bn. Bilateral trade increased 43 per cent last year.

Among the most prominent South Korean firms in the UAE is Samsung, which won a Dh5.5bn contract in April with the Abu Dhabi Gas Development Company and was the main contractor in the building of the Burj Khalifa, the world's tallest building, in Dubai.

There are more than 5,000 South Koreans living in the UAE and at least 120 South Korean companies active in the country in fields headed by IT and heavy industry.

Jeong-Min Seo, a professor of Middle East politics at Hankuk University of Foreign Studies in Seoul, said there were many cultural exchanges in addition to the political and economic ties.

"I expect in the future the relationship will strengthen," he said. "If you look at the whole Arab world, the UAE has the largest Korean community. It reflects the very close relationship between the two countries."

James Hogan, Etihad's chief executive, said planning for the Seoul route began before the Korea Electric Power Corporation secured the lead role in the UAE's nuclear energy programme and was a natural part of the seven-year-old airline's growth. Seoul is Etihad's 65th destination, and services to the 66th, Bangalore, start on January 1.

"We've built a strong Middle East network. We've built more frequency to Europe. In the US, we offer to Chicago. We've opened up to Japan. China has been a success. The next logical step was Korea," Mr Hogan said. "There are other carriers operating into the Gulf [from South Korea] so there's an awareness of the Gulf as a transfer point."

Mr Hogan said the airline hoped to "build Abu Dhabi as a destination for the Korean market", adding that attractions such as the recently opened Ferrari World theme park would appeal to South Korean travellers.

There are strong links between the leadership of the two nations, with Sheikh Mohammed bin Zayed, Crown Prince of Abu Dhabi and Deputy Supreme Commander of the UAE Armed Forces, having made two visits to South Korea. During his most recent visit, in May, Sheikh Mohammed met the South Korean president, Lee Myung-bak, and the then prime minister, Chung Un-chan.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”