Far East reaches far
Trade agreements with emerging Asian nations have shaped the Gulf
The distance between business in the Middle East and the Far East has narrowed in the last few years, with a number of trade agreements established between governments and an increased flow of products and services in both directions.
Gulf-based construction has been one of the main industries to see the result of this enhanced cooperation and openness.
The result has been an increasingly diverse and international market, leading to more competition at the tender stage of major infrastructure projects and a wider choice of tools and materials.
In fact, the deepening financial crisis since 2007, initially contained in Western economies, actually seemed to have quickened the establishment of economic ties between the two geographic areas.
In January 2007, Japan announced that it was close to a trade agreement with the GCC.
By the end of the year, when the West first coined the phrase ‘credit crunch’, Japanese ministers and HH Sheikh Abdullah bin Zayed Al Nahyan, minister of foreign affairs for the UAE, held the first meeting of the country’s Joint Economic Committee in Tokyo.
Since 2008, South Korea has sought a free trade agreement with the GCC, mainly based around an exchange of natural resources and technology.
“The Arab world has a lot of natural resources … Korea supports some kind of technology, and the Arab world can provide the energy so that we can have some kind of joint ventures,” said Jeong-Min Seo, head professor of the Department of Middle East and African Studies at Hankuk University of Foreign Studies, at a panel discussion last November.
Two months earlier, South Korea and Yemen signed a bilateral agreement in Geneva, based on tariff levels on certain commodity prices, a move that would help Yemen’s accession into the World Trade Organisation, which requires such an agreement with an existing member.
Korean construction firms were estimated to win record overseas orders last year of more than $60billion, thanks largely to a growing demand in the region for power plants and refineries, according to South Korea’s Ministry of Knowledge Economy.
Last month, Malaysian prime minister Najib Tun Razak and GCC Secretary-General Abdul Rahman bin Hamad Al-Attiyah shook hands on a framework agreement on cooperation between the country and the Gulf group in Abu Dhabi, the latest landmark in Malaysia’s business ventures in the region, that have seen significant help from the media-friendly Malaysia External Trade Development Corporation (MATRADE).
At the same time, Mubadala Development Corporation, the diverse state-backed investment firm, is expected to double the UAE’s investments in Malaysia when it fulfils its commitment to invest nearly $720million in infrastructure projects in the country, according to state newswire WAM.
Mubadala had reiterated its commitment to the Kuala Lumpur International Financial District, a $8billion joint property development between Malaysia Development Berhad and Mubadala, according to Razak.
The increased cooperation between the two regions has been anticipated by economists for the last few years. Mohammed El-Erian, for example, the CEO and co-CIO of PIMCO, the world’s largest bond investor, stated in his 2008 book ‘When Markets Collide’ that high-growth, emerging markets would increasingly use each other as business counterparties, with a reduced emphasis on their relationships with the US and Europe.
In construction, Korean, Japanese, Taiwanese and Malaysian firms have become increasingly expected at the tender stage of major oil, petroleum and infrastructure work.
Hyundai Engineering & Construction Company’s successful bid for a $329million contract to work on the Khalifa Port Industrial Zone, and its link with HBK Contracting to work on the first phase of Dohaland in Qatar, are key examples of the contribution Far Eastern firms will make to some of the Gulf’s biggest infrastructure development.
The Dohaland success boosted the value of the company’s portfolio in the region to $4.4billion. The establishment of Far Eastern contractors and direct investment by governments in the region occasionally go hand-in-hand.
Last year the Export-Import Bank of Korea said it would lend the UAE around $10billion to help fund the Arab state’s first nuclear power plant, to be built by Korea Electric Power Corporation.
More often, similar export-import banks provide loans to their indigenous companies for materials and equipment when they make the push to the Far East.
Some analysts say that the Middle East reflects huge potential for some companies coming from markets that might have reached saturation point.
“Korean firms have been looking abroad as in the domestic market there is a bit of a downturn – you cannot build endless roads or airports,” says Anderson Chou at Macquarie in Hong Kong.
“There are still underdeveloped parts of the world. The Middle East is seeing more expansion than in Europe and China, though the density of population is a lot lower.”
Graham Wood, group director at CityBuild Abu Dhabi, one of the region’s biggest real estate and construction events with increasing international interest, says South Korea offers the ‘A to Z’ of design, engineering and products in the region.
The country will be well-represented at this year’s event in April, he says, with the Korea Trade-Investment Promotion Agency endorsing the exhibition.
MATRADE, Malaysia’s equivalent body, will make the biggest mark on the event among the nationalities represented at the show, he says, in having the largest pavilion, and it will run the Malaysia Services Exhibition in conjunction with CityBuild.
Around 60% of the country’s products and services to the Middle East are in construction, he says. “Malaysia recognises the benefit of exhibitions, which is why it has its own.”
Wood adds that the Far-Eastern Asian countries will be seeking foreign direct investment in return for promoting themselves in the Middle East, and that the investment by Mubadala is a key example.
$10bn Estimated EximBank Korea loan to UAE
$10.3bn Medium and long-term underwriting commitments of Korea Export Insurance Corporation in 2009
2007 Japan signs trade agreement with GCC.