x Abu Dhabi, UAEFriday 19 January 2018

Seminal atomic accord proves West to East flow

The US$20 billion agreement between the UAE and South Korea to build four nuclear reactors in the Emirates over the next seven years is epochal.

The US$20 billion (Dh73.46bn) agreement between the UAE and South Korea to build four nuclear reactors in the Emirates over the next seven years is epochal in several ways. It is the biggest foreign contract ever awarded by the country and is therefore proof that, despite the credit crisis and short-lived recession, the Emirates has the resources to continue pursuing the goals of its central economic strategy.

It is simultaneously a signal of political maturity that the country was able to negotiate with the international community over the sensitive issue of nuclear power and conclude a deal without any of the uproar that accompanied Iran's declaration of its nuclear ambitions. The confrontation between Iran and the US over the nuclear issue is still the single most serious threat to stability in the region. The UAE's demonstration that there is another way to get world approval for atomic power is a triumph for common sense and good diplomacy.

By far the most significant aspects of the agreement, I believe, are these: the Asian country won the contract in the face of competition from France, the US and Japan had the commercial confidence to go with a comparatively untried partner. It is the latest example of what the historian Niall Ferguson calls the "tilting" of the world from West to East and the most significant illustration yet of the Middle East's pivotal role in that process.

The decision to go with Korea Electric Power Corporation (KEPCO) rather than more established companies in Japan, the US and France was based partly on price considerations. KEPCO could guarantee building costs about a third cheaper than those from the West for the four nuclear plans. At $5bn per reactor, the Koreans' offer demonstrated once more the price competitiveness of Asian industry compared with European and American rivals.

(Note the complete absence, by the way, of any British involvement in the tendering process. The UK, once a world leader in nuclear technology, these days is not even an also-ran.) The Koreans offered a state-of-the-art design that will enable the plants to supply electricity at much cheaper rates over their 70-year life cycle. Affordable energy is one of the central planks of the UAE energy strategy and dovetails perfectly with Abu Dhabi's Masdar green-power initiative.

Beneath the household practicalities of price and efficiency, there is a grand strategic shift confirmed by the accord. Plenipotentiaries from the UAE have made the long trip to Seoul several times in the past few years to discuss the increasing bilateral trade between the two countries. It was a fairly simple equation: the Koreans got crude oil and the Emirates in return received hi-tech consumer goods. Now we know those UAE delegations had more on their shopping list than dishwashers and digital cameras.

This is not just the cliched "new silk road" in operation. It is confirmation of a historical trend that has been gaining momentum from 1989, when the Chinese premier Deng Xiaoping opened up the country to capitalist practice, ditching the Maoist orthodoxies of the previous 40 years. In doing so, he set in motion the most significant process of the modern age: the flow of financial power and economic power from West to East. In the two decades that have followed his decision, the Chinese economy has grown by a factor of 10 and will be bigger than that of the US in 2027.

The UAE has been influenced by that process of Asian dynamism from the beginning. Dubai's extraordinary growth of the past decade owes a lot to the models of Singapore and Hong Kong, the chief beneficiaries of the economic awakening of the Chinese hinterland. Asian companies played a prominent part in the construction of "new Dubai". Similarly, companies from Korea, Japan and China have been prominent in the Abu Dhabi construction boom.

The global financial crisis has taken the relationship a step further. The subprime contagion that began in the West and then spread to the rest of the world dented confidence in western financial systems. The Gulf countries have good reason not to trust western financial engineering, so why trust their technology? Add in the fact that Asian economies, despite some sharp and painful fallout from the financial crisis, appear to have played the leading role in pulling the world out of recession. Pile on the additional fact that Asian capital savings are going to bankroll western recovery for the foreseeable future and you have the final conclusive arguments for the "tilt" theory.

The UAE nuclear deal shows it, too, is tilting in the right direction. @Email:fkane@thenational.ae