Country Profile South Korea
South Korea, what is officially called the Republic of Korea, is the Southern part of the Korean Peninsula. South Korea has about 3000 islands and a total of 50 million inhabitants. The partition of the North and the South of the Korean Peninsula took place in 1948. The end of the Korean War included no peace treaty and as a result, the country has been at war for over 50 years.
South Korea has developed itself into one of the wealthiest countries of Asia thanks to its economic growth and is also a member of the Organization for Economic Cooperation and Development (OECD).
The Northern part of the Korean peninsula is communist and has slipped into poverty and a political system which is completely controlled by the government and where ordinary people have no power. The fragile economy of the North and their nuclear ambitions remained a major concern for the relationship between the two countries, especially for Seoul, South Korea’s capital city. Although their relationship was laborious, South Korea abandoned international calls for sanctions against North Korea with regard to their nuclear ambitions. This had led to a more positive relationship which resulted in economic cooperation and several tourist projects. Their current president, Lee Myung-Bak, who won elections in 2007, has been widely claimed as turning their relationship tense again after the implementation of a tougher attitude towards the North. But the straw that broke the camel’s back was the sinking of the Southern ship called Cheonan, in March 2010. It turned out that the ship sank because of a torpedo released from a North Korean submarine. After, South Korea simply stopped trade with the North. The military of South Korea had placed itself on the greatest non wartime alert. This is why the frontier between the North and the South is still one of the most heavily fortified borders in the world.
South Korea is ranked as the third largest economy in Asia and is set at the fifteenth place within the category world’s largest economic powers. Conglomerates such as Samsung and Hyundai contributed massively to their wealthy economy. South Korea heavily includes international trade and finance in their economy and was therefore one of the most affected countries by the by the international economic crisis in 2008. International trade represents 100% of their GDP. In 2007 their gross domestic product growth fell from 5.1% to 0.2% in 2009. Their recovery on the other hand was very fast because of their strong dynamics in exports and the implementation of a stimulus plan. The growth rate slowed down from 6.2% in 2010 to 3.9% in 2011; however it remained supported by its exports. It is expected that this trend will continue in 2012, with a growth rate of less than 4%, mainly driven by private consumption.
The South Korean government protects and stabilizes the country by using tax incentives and accommodating monetary policy. The central bank of South Korea seeks equilibrium between the price stability of the country and the stimulation of the economy. In 2007, South-Korea has signed a free trade agreement with the United States but these effects are yet uncertain, especially concerning the small-scale trade and agriculture.
The free trade agreement which came into effect in July 2011 eliminated 98% of import duties in agricultural products, services and manufactured goods between Europe and South Korea. With this ambitious trade agreement new trade goods and services worth 19.1 billion Euros were being realized. With this trade agreement, massive changes have been made in the field of the automobile industry, textiles and consumer electronics.
In 1963 the revenue per capita was 100 USD per year, whereas it now has risen to almost 20,000 USD. The unemployment rate of South Korea has been decreasing but the number of irregular workers (employed on a temporary basis) on the other hand, has been increasing.
Main sectors of Industry
The contribution of the primary sector to the country’s Gross National Product (GNP) is limited. The main agricultural crop of the country is rice. High cultivated products include soybeans, corn, wheat, barley and sorghum. The mineral resources are basically limited to silver and gold. The main sectors of activity include textiles, car manufacturing, ship building and electronics. Moreover South Korea is the largest producer of semiconductors. The manufacturing sector only represents about 35% of the GDP whereas the services sector is more than 60%. In 2010, the South Korean trade balance had a positive result of 41,172 million USD. South Korea’s trade balance represents a surplus and the expectation has been made that the balance will stay positive within the coming years. The weak won (the South Korean currency) contributes to support their exports. Their main trade partners are China, United States, Japan and the European Union. For 2012, a decrease in imports and exports is expected because of the European crisis, the slowing down of the growth of China.
Foreign Direct Investment
Because of the world’s recession, Foreign Direct Investment (FDI) decreased in 2009. After this year, FDI started increasing again. In 2011, South Korea measured a growth of 4.6%, despite of the unfavourable international environment. Nevertheless it is expected that its FDI will slow down in 2012.
South Korea’s fast economic development and high quality of infrastructure has aroused a high and appealing interest of foreigners for direct investment, but South Korea lacks the possession of general transparency in regulations. This is a major concern to foreign investors. The three main investing countries in South Korea are Japan, USA and The Netherlands.
The country has a high skilled workforce, and good research and development capabilities. Weaker points of South Korea are national regulations being very restrictive, the high costs of manpower and the private real estate being relatively expensive. Multiple measures were implemented by the government to protect Foreign Investment. These consisted of tax deduction provisions and an identical treatment to internal firms with regard to their business operations. Although South Korea has made a significant comeback regarding its economic position after the financial crisis in 2008, the country depends heavily on international trade and is very vulnerable for an international economic crisis.
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