The Koreas

South Korea and the UAE’s Lucky Convergence

Complementary defense sectors and business climates are speeding up the development of ties.

South Korea and the UAE’s Lucky Convergence
Credit: Cheong Wa Dae

With their bilateral relationship elevated to the level of “special strategic partnership” and the Akhi Unit episode behind them, UAE Crown Prince Mohamed bin Zayed’s recent trip to South Korea signals an important milestone in the 40-year history of the two states’ relationship. According to WAM, the Emirates News Agency, the two sides discussed and signed agreements covering a range of sectors including investment, economy, trade, education, culture, technology, science, renewable energy, and infrastructure.

Putting aside how the evolving relations between South Korea and the UAE provide a unique insight into the small states’ foreign policy making, two particular aspects of this flourishing relationship tend to stand out, thereby explaining why they have been able to achieve such a high level of mutual trust in a relatively short period of time. The 2009 nuclear agreement and its accompanying guarantees have been the catalyst, but the wheels of the relationship have been greased by a fortunate convergence of each country’s defense sectors needs and priorities and the coincidental similarities of their economic development models, both of which have been dominated by family-run conglomerates.

As the UAE embarks upon an ambitious national defense industrialization plan, aimed at becoming a regional weapon exporter, Abu Dhabi has been on the look out to not only diversify its defense partnerships and/or weapon suppliers but to also find and lock in reliable partners for technology and know-how transfer. As the UAE seeks to expand its commercial and strategic footprints in its immediate neighborhood as well as the Horn of Africa, not to mention its current involvement in Yemen, it is bent on acquiring a degree of self-sufficiency in meeting its defense needs through both offsets and strategic partnerships. This endeavor, moreover, has gained added urgency thanks to an increasing level of congressional or parliamentary scrutiny in Western capitals with regard to the sales of weaponries to the UAE and Saudi Arabia — a trend that is yet to reach to its peak and hence it is here to stay for some time.

To fulfill this need, South Korea comes across as a natural choice. Seoul, as its official policy, has the ambition of becoming a major arms exporter as stipulated in its Defense Reform 2020 Plan. Accordingly, and regardless of who is sitting in the Blue House, the defense sector is the newest frontier in South Korea’s export-led economic development model, which must be backed by the government in order to expand its overseas marketshare and thus contribute to the country’s economic growth. This means that defense industries are now a tool for both national security and economic development and hence the government must adopt a more hands-on approach toward their internationalization. South Korea’s strong presence and active participation at this year’s IDEX event in Abu Dhabi is evidence of this new initiative.

In addition, South Korea, by the global standard, has adopted a deliberately liberal stance on foreign direct investment into its defense industrial sector. Red tape and market entry barriers are few and thus foreign investors have almost a free hand in choosing and picking their preferred sectors or weapon systems to invest in. This could be of immense interest to the UAE and its major investment funds like Mubadala, which has two major local defense companies as its subsidiary — EDIC and ADSB — and its CEO is the recipient of the Grand Gwanghwa Medal. Add to this Seoul’s relaxed knowledge transfer policy as part of its marketing strategy, whereby it is trying to use its defense ties with the UAE as a showcase for other Arab states as well as its close ties to the United States, and it then becomes clear why the first stop on Mohamed bin Zayed’s itinerary was a high-profile stop at the Memorial Tower in National Cemetery, followed by a visit to Samsung Semiconductor Research Center.

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South Korea’s own path toward defense industrialization, which was centrally planned and had a noticeable reliance on the likes of Hyundai, Daewoo, Doosan, and Samsung — the so-called chaebol or family owned businesses — could also be of relevance to the UAE. This, more importantly, leads to the second salient aspect of Korean and Emirati ties: the central role of family-owned businesses in their respective economies.

Just like South Korea, where chaebols account for a large chunk of the economy and exercise a near monopoly over all the key sectors, the UAE’s market is similarly dominated by a handful of politically connected family-owned businesses, which have received state backing and favorable treatments in return for their political loyalty and contribution to the economic growth of the country. This arrangement has its roots in the tribal culture of the country and is so well-consolidated that it is not unreasonable to claim that a large part of the private sector in the UAE, like other GCC states, is indeed an extension of the public sector. Given this fortunate convergence of economic models, one can convincingly argue that establishing long-term business relationships between Emirati and Korean companies has been relatively easy, perhaps even natural, as the same, albeit not identical, norms and customs apply in both countries. Looking into the future, therefore, one could contemplate a very strong and functional relationship between Korean and Emirati family-owned businesses in East Africa whereby they can team up to bid for and execute mega-infrastructure projects. As the UAE begins to establish a meaningful presence in Ethiopia and Eritrea via the financing of pipelines and road projects, for instance, the engineering and construction arms of its major family-owned businesses could benefit from partnering with their more experienced Korean counterparts.

Furthermore, as family-run businesses in the UAE grapple with the thorny issue of generational transfers, they could look into their Korean peers’ experiences as an invaluable source on how to manage the pending process. After all, and in spite of their claims to the contrary, major chaebols are still managed and owned by the grandchildren of their founders, some of which have had to weather intrafamily rivalries.

Last but not least, the UAE government seems to be aware of the once-in-a-lifetime opportunity that South Korea’s experience in dealing with and curbing the influence of chaebols provides. Similar to South Korea, family owned businesses have been very apt at stifling competition and innovation in the UAE, which is evident in the country’s flat start-up scene. As more extended members of the royal families enter the market, usually in partnership with the major family-owned businesses, the prospect of a post-oil economy and the subsequent need for innovation looms larger, and the wider public become more acutely aware of existing income inequalities and/or unfair commercial practices, ruling elites do have a vested interest in regulating and redefining the nature of their relations with the merchant elites. In other words, it cannot be business as usual for much longer.

Nima Khorrami is a Research Associate at the Arctic Institute.