Park Calls for Second Middle East Boom to Revive South Korean Economy

During the first week of March, South Korean President Park Geun-hye travelled to the Middle East to meet with leaders from Kuwait, Saudi Arabia, the United Arab Emirates, and Qatar. Her trip focused specifically on efforts to increase economic cooperation between South Korea and Middle Eastern countries in an attempt to create a second “Middle East Boom.” To this end, representatives of the various nations signed bilateral agreements to cut regulations on trade, making it easier for Arab countries and South Korea to conduct business. Upon her return to South Korea, Park elaborated on her plans to boost trade and investment from the Middle East as part of a wider initiative to revitalize the South Korean economy, while focusing on renewable energy sectors and younger workers. Park is looking to build on past economic cooperation with the Middle East that profited South Korea during the 1970s and 1980s, a period widely considered the first “Middle East Boom.” Following the oil crises and economic recessions of the 1970s, Middle Eastern companies contracted Korean enterprises to develop their infrastructure, leading more than one million Korean laborers to migrate to the Middle East. This development helped to stimulate South Korea’s economy and increase the quality of its own companies’s services by forcing them to becoming more competitive and efficient.

Park hopes that Middle Eastern businesses will once again contribute to the informal partnership between South Korea and the region through close cooperation with their South Korean counterparts as well as trade in resources and labor. However, although small and medium-sized enterprises (SME’s) in Korea benefitted from increased trade with the Middle East in the 1970s, today multinational corporations may take the lead in trade with the Middle East. Multinational corporations have more connections worldwide and offer more advanced technology to Middle Eastern nations looking to develop their infrastructure.

The timing of Park’s renewed call to strengthen South Korea’s economic ties with Middle Eastern countries is not coincidental. South Korea’s economy remains stagnant and is not expected to grow significantly in the coming year, according to new studies conducted by domestic economists. Foreign direct investment has also fallen 1.5% since 2013. To reverse this trend, Park’s cabinet announced it would funneling nearly $4.5 billion by 2017 to South Korean businesses to help them develop services that could cater specifically to Middle Eastern needs, export labor abroad, and compete with larger companies.

Ultimately, Park hopes these companies will use government funds to increase their attractiveness to Middle Eastern investors. Government estimates show Park’s recent economic agreements, which include relaxing regulations and providing  financial assistance to Korean companies, will help South Korea attract $70 billion in Middle Eastern investments in 2016 and $80 billion in 2018.

The Korean government has stressed the importance of allocating funds to increase Korean companies’ competitiveness in areas pertaining to renewable energy infrastructures. The Middle East offers a unique new market for renewable energy infrastructure because of its traditional dependency on fossil fuels, although their use is declining due to their limited nature and impact on the environment. Aside from renewable energy infrastructure, another focus area is health care; South Korea brings much expertise in medicine and hospital infrastructure, while Middle Eastern countries face shortages of hospital beds and doctors, offering a large potential market for Korean companies to thrive. Park also hopes to capitalize on major events in the region, like the 2020 World Cup in Qatar and the 2020 Dubai World Exhibition,  which require large-scale construction projects.

Although most media outlets across the Middle East and Korea caught onto President Park’s phrase calling for a “Middle East boom,” her intentions, understandably, lie in increasing South Korea’s growth rate and foreign direct investment over the coming years. Specifically, South Korea hopes to cater to young people in order to remedy an unemployment rate for those aged 15 to 29 that has reached over 11%, according to South Korea’s National Statistical Office.

However young people have resisted Park’s recent push for them to work in the Middle East. Ultimately, young people believe that most Korean labor will be contracted for little more than construction projects rather than well-paid labor appropriate to their skills. Rather than looking to build on the past, many have called for Park’s administration to engender progressive change by increasing salaries in Korea’s SMEs. Thus, although both Korean and Middle Eastern businesses could profit from increased cooperation, Park will also have to consider the demands of her younger constituents who would rather she focus on developing domestic working conditions.