Saudi Arabia, South Korea expanding trade ties

South Korea is fifth among countries in trade volume with Saudi Arabia.
Saturday 03/08/2019
South Korean President Moon Jae-in (R) shakes hands with Saudi Crown Prince Mohammed bin Salman bin Abdulaziz during a meeting in Seoul, South Korea, June 26. (AP)
Pivot to Asia. South Korean President Moon Jae-in (R) shakes hands with Saudi Crown Prince Mohammed bin Salman bin Abdulaziz during a meeting in Seoul, South Korea, June 26. (AP)

ABU DHABI - Saudi-Korean relations have become increasingly important as indicated by the Saudi Ministry of Commerce and Investment’s announcement that the countries’ trade volume had reached $30 billion in 2018, an increase of 21% over the previous year.

The ministry said the increase was supported by 60% growth of non-oil exports, a positive indicator that meets the objectives of Saudi Vision 2030.

South Korea is fifth among countries in trade volume with Saudi Arabia. Saudi exports totalled $26 billion last year, compared with $4.3 billion in Saudi imports from South Korea.

Metal products topped the list of Saudi goods exported to South Korea, in addition to organic and inorganic chemicals, copper and plastics and their derivatives. Vehicles and their parts emerged as the main goods imported from South Korea, followed by electrical appliances, machinery, iron and steel.

“The South Korean economy is a highly diverse export economy and the fifth largest exporter in the world,” said Iyad Abu Hweij, managing partner at Allied Investment Partners. “South Korea has a comparative advantage in technology. [Its] primary exports include integrated chips (microchips), LCDs, [liquid-crystal display panels] cars, machinery and equipment.”

The ministry said foreign direct investment (FDI) from South Korea in Saudi Arabia included 117 investments in construction, manufacturing, electricity, gas, steam, air conditioning, information and communication, among other sectors. Mining is one of the most important sectors of investment between the countries.

“South Korea specialises in producing and exporting so-called ‘Made in Korea’ products, such as cars, electronics and machinery,” said Basem Hashad, an economist at BlueBlox, a trade compliance and consulting company. “This comes because of the high-calibre economic and educational environment that South Korea enjoys, especially in ideas’ development, design, engineering, manufacturing and maintenance.”

To meet the goals of Vision 2030, Saudi Arabia plans revolutionary changes in its economic structure, requiring expertise Seoul possesses.

“South Korean companies can work with Saudi companies in areas such as idea development, design, engineering, manufacturing and even maintenance,” Hashad said. “In this process, strengths that both countries possess, [such as] technology and expertise from South Korea and finance and plentiful young labour from Saudi Arabia, will create synergies for greater achievements.”

The World Bank said South Korean world exports followed an upward trend in the past ten years, with an average annual growth rate of about 5%. FDI flows to South Korea increased from $1 billion in 1990 to $14.5 billion in 2018.

“These increases reflect the presence of highly comparative and competitive advantages in the South Korean economy,” said Nirmeen El Sayyad, senior economist at the American University of Cairo’s School of Business. “As per the external trade balance structure, around one-third of the South Korean exports were capital goods in 2017, followed in importance by machinery and electric products, accounting for 20%.”

She said increasing FDI flows from South Korea to Saudi Arabia reflected a growing interest in investing in the Saudi economy, which, the UN Conference on Trade and Development said, went up from $1 million in 2001 to $524 million in 2012.

“Increased attraction of FDI flows to the Saudi economy will not only foster non-fuel based sectors, which is considered to be one of Saudi Arabia’s priorities, but also more advanced FDI will definitely include positive spillovers, such as training of labour, transfer of knowledge and know-how and increased value-added in the Saudi economy,” Sayyad said.

“The positive spillovers will reach their maximum efficiency as the Saudisation process proceeds effectively across these targeted sectors, in which Saudi labour will become more skilled, possessing extensive knowledge and innovative skills.”

The Saudi Ministry of Communications and Information Technology earlier signed two agreements in South Korea to speed up digital transformation.

“I see very fruitful bilateral relations expected in the future, where the political leaders in both countries believe in the mutual benefits that could be created through the potential exchange of capabilities,” Hashad said. “I am optimistic.”

Saudi Arabia has allocated a large amount of resources to transform the country into an industrial powerhouse and reduce oil dependency.

“This strategy will provide a unique environment for South Korean companies to work with their Saudi counterparts,” Hashad added. “The Saudi government seeks professional partners to help in this transformation through accumulated experience in the industrial sector and South Korea is a leading country in this field.”

Cyril Widdershoven, director at Verocy, said the main driver for Saudi Arabia is to lock in a very attractive energy and chemical consumer country in South Korea as it is one of the leading Asian markets.

“For Riyadh, South Korea is also possible leverage between China and Japan, because it is partly neutral but has access to all markets,” he said. “The future relationship will be built on a mutual need for open markets in energy, petrochemicals and minerals, and South Korea’s technology, construction and mining expertise and capabilities to be transferred to the kingdom. A possible other option is a deepening military-technology and aerospace cooperation, as Riyadh has these sectors high on its bucket list.”

Widdershoven said an underlying reason for Saudi Arabia included becoming less dependent on US-EU technology and development because Riyadh still encounters “struggles” with Western political change and sanction threats.

“Asian clients and partners do not face the same issues in general with the kingdom,” he said. “Also, any further and deepening cooperation will put more pressure on a future positive relationship between Seoul and Tehran. This includes a trade-off on substituting Iranian oil volumes by Saudi volumes the coming years.”