Times are changing in Seoul. Over the past decade, South Korea’s diplomatic and business clout has surged and presented a formidable challenge to the pre-eminence of global powers in Asia, Europe and the Americas. The government of President LeeMyung-bak has engaged in a regional charm offensive aimed at securing Korea’s brand across Asia’s emerging markets.
One of the most competitive regions is Central Asia, flush with resources but also troubled by decades of instability and kleptocratic governments. Last month, Lee signalled his administration’s prioritization of ties with Central Asia by embarking on an extended trip that included stops in Mongolia, Uzbekistan and Kazakhstan. Seoul’s approach is fundamentally based around economic interests in the region, but doesn’t ignore the strategic implications of improved engagement with Central Asia, which has traditionally been an area under Russian and Chinese influence.
Mongolia
Lee’s visit began with a trip to Mongolia, where he met with President Tsakhia Elbegdorj and agreed to build a ‘Comprehensive Partnership’ that would build on bilateral ties on a broad range of issues ranging from increased trade and investment to cooperation on defence. Elbegdorj remarked that both countries share ‘common values of democracy and market economy’ – a point he wanted to emphasize ahead of Lee’s next stops in Uzbekistan and Kazakhstan.
This summer, Mongolia has taken over chair of the Community of Democracies (CD) – an international group of democracies or states that are democratizing. The CD’s move to Central Asia is symbolic of the organization’s push for greater transparency and democratic institutions in the region. Mongolia is proud to represent these ideals regionally, and is also shrewd in its projection of it status in order to procure a wide range of benefits from democratic states around the world, including South Korea.
While having a democratic ally in the region is important to Seoul, the most important part of Lee’s trip to Ulan Bator was the announcement of a Memorandum of Understanding (MOU) to strengthen cooperation of Mongolia’s booming mining sector. Through a joint statement released during the visit, the two countries agreed to expand South Korea’s participation in the development of natural resources such as coal, uranium, copper and steel.
South Korea has clearly done its homework, and recognizes the potential benefits of investing in the Mongolian market. According to figures from the World Bank, the Mongolian economy is set to grow by 22.9 percent in 2013, making it not only the fastest growing economy in Asia, but the entire world. Geopolitically, the two states also have aligned priorities. Both South Korea and Mongolia are concerned about the emergence of a Sino-centric continent and are interested in building up a strategic hedge – supported by other regional players such as the United States and Japan – against this.
Uzbekistan
The second leg of Lee’s trip was arguably the most important – Uzbekistan. While the Mongolian MOU on minerals was important, Seoul struck a much more lucrative deal in Tashkent by signing a $4.16 billion pact on the joint development of natural resources. The focal point of the agreement is the development of the Surgil gas field located near the Aral Sea. It’s estimated that the field in Surgil has a deposit of more than 130 billion cubic meters of natural gas, and energy-hungry South Korea is keen to have access to new flows of energy.
In addition to this deal, South Korean multinationals such as Samsung and Hyundai agreed to export information technologies to Tashkent in order to modernize Uzbekistan’s primitive stock market system. Seoul’s engagement with Uzbekistan isn’t a new development. Shortly after Uzbeks gained independence in 1991, South Korea targeted the Central Asian state as potential partner. Over the past two decades, Korea has gradually ramped up its level of investment.
Uzbekistan has always been tantalizing to corporate investors from Korea as a result of its oil and gas deposits, but recently it is also upping its stake in the country’s uranium assets. South Korea is heavily dependent on nuclear energy, which accounts for half of the country’s total electrical consumption. The nuclear safety crisis at Fukushima hasn’t deterred the growth of nuclear energy in Seoul, and the government is planning on going ahead with the construction of at least six new power plants. The Korea Electric Power Corporation (KEPCO) has secured multiple pacts with the Uzbek government to import thousands of tons of uranium over the next decade.
Kazakhstan
Seoul’s biggest bet in Central Asia, however, remains reserved for the region’s largest economy – Kazakhstan. Similar to its relations with Uzbekistan, South Korea has wooed the Kazakh government for years now, and has established a solid business relationship. During this most recent trip, Lee secured two important contracts for projects totalling more than $8 billion. The first agreement outlines South Korea’s role in constructing two power plants in the industrial city of Balkhash, located near the Kazakh capital of Almaty. The second pact governs bilateral cooperation on developing the construction of a petro-chemical compound near the Caspian Sea city of Atyrau.
The Balkhash agreement involves Korean heavyweights such as KEPCO and Samsung. The consortium successfully acquired priority rights to construct additional power plants in the area. Samsung officials have remarked that the deal will ‘mark a turning point in cooperation between Korea and Kazakhstan’ and promised ‘future cooperation in the fields of uranium mine development and nuclear power plant construction projects.’
The Atyrau deal is more ambitious and innovative, but carries greater risk. The project, if completed, will signal Kazakhstan’s first integrated petro-chemical complex. Construction and development will be a joint venture between Korean chemical company, LG Chem and the state-owned Kazakhstan Petrochemical Industries. Atyrau represents a coup for the government of Kazakh President Nursultan Nazarbaev as its geostrategic location ideally positions Kazakhstan to compete with energy exports from the Middle East and Russia.
An Understated Partnership
The amelioration of ties between South Korea and Central Asia is well received on both sides. The fundamental reason behind the successful partnership is grounded in economic interest from both sides. However, complementing financial incentives is the fact that cooperation comes with few geopolitical strings. Kazakhstan and South Korea use enhanced ties to increase leverage in their respective relations with Russia and China, but both realize that this need not equal a strategic alliance. This serves an optimal purpose for both states by creating a soft hedge rather than a more overt defiance of Sino-Russian influence. Expect Seoul’s shrewd corporate diplomacy to continue in Central Asia with light footprints.