Container ships at Busan in South Korea. In the latest milestone in the two countries’ economic relationship, on March 5 the UAE and South Korea announced a 30-year, $2 billion agreement for two Korean companies to develop three oil fields in Abu Dhabi. Image Credit: Bloomberg

Dubai: South Korea is fast emerging as a key trade and investment partner of the UAE, with the huge potential for future economic partnerships signifying a strategic shift in the country's economic relations with fast growing Asian economies, according to Standard Chartered.

A relationship built solely on trade — oil from the UAE and electronics and cars from Korea — has become much more strategic in the last 10 years, Standard Chartered executives said in Dubai yesterday.

"South Korean firms are now important participants in many key projects in the UAE, from nuclear power to infrastructure. UAE firms are increasing their role in Korea, entering partnerships that aim to ensure Korea's energy security and running one of the country's largest ports," Shady Shaher, an economist with Standard Chartered, said.

In the latest milestone in the countries' economic relationship, on March 5 the UAE and South Korea announced a 30-year, $2 billion (Dh7.35 billion) agreement for two Korean companies to develop three oil fields in Abu Dhabi.

The growing strategic relationship between the two countries is likely to benefit business in both countries.

Strong trade corridor

"The UAE and South Korea are now linked by a ‘trade corridor' — a strong link driven by trade and two-way investment that builds on the unique strengths of both economies. With a history of more than 150 years, Standard Chartered is well positioned in the emerging trade corridors of the world to facilitate the growth of cross-border investments in the coming years," Jonathan Morris, CEO of Standard Chartered UAE, said.

The UAE is South Korea's largest export market in the Middle East. Trade between the two countries reached $22 billion in 2011, according to figures from the Korea Trade Information Service (Kotis). UAE exports to Korea rose 21.2 per cent to $14.75 billion in 2011 as oil prices increased, while Korean exports to the UAE grew 32.4 per cent to $7.26 billion. UAE exports are dominated by oil. The country is the fourth-largest exporter of crude oil to Korea.

The UAE's imports from Korea consist largely of machinery (33 per cent), electronics (25 per cent), and steel/metal items (22 per cent), according to Kotis data. The UAE's imports of electronics from Korea grew from $538 million in 2000 to almost $800 million by 2011, while automotive imports grew from $55 million to $843 million over the same period.

Standard Chartered's economists estimate that UAE-South Korea trade will grow by 21 per cent in 2012 to a record $26.6 billion.

The surge in trade is expected to be driven by a rebound in imports of goods for the construction industry (heavy machinery and building materials), largely to Abu Dhabi, as the emirate resumes spending on projects following a slowdown in 2011.

There are $40 billion worth of projects in the pipeline in Abu Dhabi, some of which could open for tender in the second half of this year, according to Standard Chartered.

"We see a likely increase in South Korean investments in the UAE, driven by public-private partnerships of South Korean government undertakings and private sector entities. We as a bank with presence in both countries can play a significant role in financing both trade and investment projects," Richard Hill, president and chief executive officer of Standard Chartered, said.

Better consumer demand

A rebound in consumer demand — driven by recovering domestic consumption, improving consumer credit conditions and improving confidence — is expected to support imports of automobiles and electronics goods.

"We forecast higher UAE oil exports to Korea this year, driven by both growing demand and potential supply disruptions elsewhere in the Middle East; the UAE has pledged to supply Korea on a priority basis if needed," Shaher said.