Legitimate player: A file picture showing the meeting between Yoon and Prince Mohammed last month. The two leaders are at the stage of sealing contracts, says a South Korean official. — Reuters
A likely weapons deal between Riyadh and Seoul could help South Korea realise its ambition to be a major player in the global defence market.
The importance of such an agreement cannot be understated: Saudi Arabia is the world’s second-largest importer of major arms, and is shopping around just as the Asian supplier is looking to sell more-advanced weaponry.
High on the Gulf state’s wish list are surface-to-air missiles (Sams) to intercept air strikes from the Iran-backed Houthi rebels in Yemen, along the kingdom’s southern border.
The Cheongung II KM-Sam system, developed by a group of South Korean contractors including affiliates of Hanwha Aerospace, would fit the bill.
Should a deal go through it could top the US$3.5bil contract then-President Moon Jae-in inked with the United Arab Emirates for Cheongung IIs in January 2022.
Current President Yoon Suk Yeol met Saudi Crown Prince Mohammed bin Salman in October, and weapons purchases were at the top of the agenda.
The two sides “are at the stage of sealing contracts,” an official at the South Korean presidential office was cited as saying after the meeting without elaborating.
Hanwha declined to comment when contacted by Bloomberg Opinion.
Saudi Arabia lags only India in major arms cross-border procurement, accounting for 9.6% of global imports during the five years to 2022, according to data collated by the Stockholm International Peace Research Institute (Sipri).
South Korea is the ninth-largest exporter, with 2.3%, and has a goal of climbing to fourth place.
Landing the Saudis as a client would help break the stranglehold enjoyed by just three suppliers.
The United States accounts for 78% of the Arab nation’s purchases, followed by France (6.4%) and Spain (4.9%).
South Korea gets most of its business from Asia, chiefly the Philippines, India and Thailand, according to Sipri.
While South Korean companies are best-known for producing artillery, the nation’s reputation for more-sophisticated arms is growing.
LIG Nex1 Co, an affiliate of LIG Group, last year sold close to US$1bil in precision-guided munitions including land and sea-launched Sams and underwater torpedoes.
Korea Aerospace Industries Ltd, meanwhile, produces helicopters and planes. But both companies rely on South Korea for the majority of their sales.
Securing foreign clients is crucial for them to make a mark on the global market.
A sale of Sams this year or next to the Saudis would also be good timing, coming just as a 10-year deal to buy similar weaponry from the United States draws to a close.“Companies such as Korea Aerospace Industries, Hanwha Aerospace, and LIG Nex1 Co have been improving their defence systems on a world-class level at more affordable prices,” analyst Douglas Kim wrote on Smartkarma last month, noting the similarity between the multi-year deal signed with the United States and one likely to be agreed with Seoul.
“If there are major long-term arms deals between Saudi Arabia and South Korea, it could benefit the top defence companies in South Korea including Hanwha Aerospace and Korea Aerospace Industries.”
Confirmation of a multi-year big-ticket transaction between the two would signal to other would-be customers that South Korea is a legitimate player in the high-stakes business of supplying complex weapons systems.
To date, South Korean sales to India, the largest buyer at 11% of the total, is quite small. Hanwha’s latest earnings presentation lists only the 2017 provision of K9 self-propelled howitzer artillery to the South Asian nation, leaving a lot of room for growth.
Asia buys more arms than it sells
Supply of major weapons is dominated by Western nations, while the Asia-Pacific region is a chief recipient.
More importantly for Asia, it would rebalance weapons supply and demand.
Six of the world’s top-10 recipients of major arms are Asian, yet only two of the leading nations that supply weapons are in the region, according to Sipri data for the five-year period to 2022.
Getting an order from the world’s second-largest customer, followed by further sales from across the globe, puts more control back in the hands of Asian nations, reducing the need to rely on Western countries or other powers.
Rising tensions between China and Taiwan also open the door for Taipei to put in orders, though geopolitical considerations would likely mean that such a deal gets shuttled through Washington.
And while ties between Seoul and Tokyo aren’t always warm, increasing concerns about the common threat they face from Beijing means that arms trade between the two is not unthinkable, especially as Japan undergoes its greatest expansion in military power since the end of World War II.
The United States now supplies 97% of Japan’s arms.
Bold plans to become a big name in the global weapons market necessitates Seoul landing big orders from major clients.
If it does, it will go some way to achieving another objective: helping to reduce the leverage of external powers in Asia. — Bloomberg
Tim Culpan is a Bloomberg Opinion columnist covering technology in Asia. The views expressed here are the writer’s own.
