Saudi Arabia’s “Love East” Policy Calls for Korean Companies
RIYADH, SAUDI ARABIA — According to MEED, a Middle East business magazine, the scale of construction plant projects that are either in progress or being planned in the Middle East amounts to USD 2.5 trillion. Saudi Arabia is responsible for USD 750 billion, about 30 percent of the total, reaffirming its status as the top market in the region.
Although Saudi Arabia is the world’s largest oil producer, the country is also actively engaging in development of new towns, the manufacturing industry, human resources, and information communication industry, in order to prepare against the future depletion of petroleum resources. These efforts have resulted in shifting the center of the project markets from UAE to Saudi Arabia. Especially, the economic sanction following the nuclear development of Iran has amplified the importance of Saudi Arabia as an alternative market for construction projects in the Middle East.
From 1970 when Korea first became part of the Saudi Arabia project market up until last year, Korea has accumulated orders of USD 100 billion in total, which without a doubt has been the main contributor of the country’s economic development. In 2011, Korea secured USD 16.6 billion of project orders, which accounts for 28 percent of the total overseas project orders in Saudi Arabia, totaling USD 59.1 billion, ranking first in the world. Korea has practically dominated the Saudi Arabia construction plant market by occupying 23 percent of the USD 72 billion market.After the accumulated orders in construction plants from Saudi Arabia to Korea surpassed USD 10 billion in 2010, the figure soared to USD 16.6 billion in 2011, spurring exports of plant equipment and machinery from small and medium businesses, especially pressure vessels, valves, pipes, fittings, prime movers, electric transformers, heavy equipment, and boilers.
KOTRA Riyadh Business Center expects the second Middle Eastern boom based on high oil prices in recent years to provide a new opportunity for Korean construction companies when the domestic construction market is struggling. The Business Center creates a USD 80 million export of Korean companies to Saudi Arabia every year.
Saudi Arabia’s call for Korea
Kim Hyung-wook, director of Riyadh Business Center of Kotra, said, “Saudi Arabia has a huge interest in Korea,” explaining that, “Even King Abdullah, who came to the throne in 2005 is turning his attention to Korea from the US and Western Europe with his “Love East” policy, calling for Korean companies to assist in the country’s development.”
Mr. Kim emphasized, “Saudi Arabia is in a vastly different situation from Europe, which is undergoing an economic crisis.” After the Arab Spring last year, Saudi Arabia promptly began to place orders for projects relating to the expansion of housing, medical, and educational facilities in an effort to improve public welfare.
Infrastructure such as airports, ports, hospitals, and railways, which form the basis for future development of a country, is the strength of Korean companies in export, according to Mr. Kim. “The oil money is being poured into post-oil industrial diversification to foster manufacturing, petrochemistry, and information communication industries,” he said. In other words, Korean companies that have focused on securing project orders and exporting products will now need to begin local production and investment following Saudi Arabia’s domestic industry policies, to establish themselves in the market for the long run.
To celebrate the 50th anniversary of the diplomatic ties between Korea and Saudi Arabia this year, Korea was invited as a main guest country to the Janadriyah Festival in February and ran the Korean Pavilion for 17 days. The interest of Saudi Arabia in Korea is comparable to the sand storm, as around 600,000 visitors of the total 3 million in attendance visited the pavilion. Korea, which was a poor laborers’ country during the first Middle East boom in the 1970s and 1980s, now has developed into an unquestionable technology powerhouse with its IT power, plants, K-pop and brands like Samsung Galaxy.
Korea evolves into a top-5 exporter to Saudi Arabia from a poor laborer country
The recognition of Korean brands within Saudi Arabia has led to increases in export. In 2011, the exports by Korea to Saudi Arabia increased by 53 percent from the previous year, with USD 7 billion in total. Of the USD 117.4 billion in imports to Saudi Arabia, Korea holds a 6 percent share in the market, and is now the fifth highest exporter to the Middle East country following the US, China, Germany, and Japan. The top 10 export items from Korea to Saudi Arabia include: automobiles, steel products, key industry machinery, heavy electric equipment, industrial machines, petrochemical products, industrial electronics, fabrics, rubber products, and nonferrous metal.
Cars, in particular, make up 27 percent of the export. Thanks to the improved image of Korean brands and Saudi Arabia’s increasing preference for small to medium cars, the export of automobiles has increased more than 24 percent from the previous year, reaching USD 1.9 in total. Of the 560,000 cars that were sold in Saudi Arabia last year, Korean cars accounted for 140,000, which represent 26 percent of the market share. Hyundai cars take up 20 percent, second only to Toyota, which has a 40 percent market share. Kia is the fifth highest seller in the market, following GM, at 12 percent, and Ford, at 8 percent. The supply is hardly catching up with the soaring demand for Korean cars, namely, Accent, Elantra, Sonata, Starex, and Azera. From this year, the demand within Saudi Arabia for higher-end cars like Genesis and Centennial is increasing. It has led small and medium businesses to export more parts – USD 260 million in total in 2011, which is an increase of 42 percent from the previous year.
Korean home appliances like air conditioner, smartphones, refrigerators, TV, Galaxy Tab, and washing machines, are amongst the top sellers in the Saudi Arabia market. Samsung Electronics have a 36 percent share in the smartphone market in 2012, which rapidly grew from 2 percent in 2010. The entire 38,000 Galaxy S3 models in stock were sold out in only three days. About 68 percent of the 3D TVs sold in Saudi Arabia are of a Korean brand. Korean electronics manufacturers like Samsung and LG hold 65 percent of the air conditioner market. In particular, LG is exporting air conditioners to a neighboring GCC as well as to Saudi Arabia based on its investment in local production.