South Korea: Africa’s unsung Asian partner

When it comes to Africa’s emerging partners China has stolen the headlines. But lesser-known Asian players are looking to carve out their own slice of the African growth story. High among them is South Korea, which has fast risen from a marginal player to a fully-fledged partner as it looks to secure access to resources and export its manufactured goods to Africa’s growing markets.

Like other emerging partners, South Korea’s foreign direct investment stock in Africa has increased quickly: up to $287m in 2010, from $24.3m a decade before, according to Unctad. Bilateral trade reached $25bn in 2011, from just under $6bn in 2000 – one of the fastest growth performances among Africa’s external  partners, according to OECD data.

Despite that growth, trade is still at the lower end of the spectrum: Korea represents only 2.3 percent of Africa’s trade with the world, with Africa accounting for just 2 percent of Korea’s trade. And like other partners, Seoul’s imports from the continent are dominated by natural resources – notably crude oil, which accounts for over half of the total exports from Africa to the country. That means that only a relatively narrow band of resource-rich countries are exporting to Korea. In 2009, more than 90 percent of exports to the country originated from 10 nations led by South Africa and Equatorial Guinea, and including Algeria, Egypt, Zambia, Nigeria and Gabon.

But South Korea is interested in more than what’s under the ground. Between 2000 and 2011, its exports to Africa more than quintupled – an increase 2.5 times faster than its imports from the continent. More than three quarters of Korean exports are composed of electronic equipment and electro-appliances, phones and transport equipment, versus 40 percent for this category in the case of China, pointing to the growing importance of the region as a market for Korea’s manufactured goods.

“Whereas China’s imports and exports flows to Africa have grown at similar rates over the last decade, in the case of South Korea it is exports to the continent that drive that performance,” says Henri-Bernard Solignac-Lecomte, head of Africa at the OECD Development Centre.

“A lot of African markets are well suited in terms of their needs to what ‘Korea Inc.’ is very good at,” adds Philippe de Pontet, director for Africa at Eurasia Group, the risk consultancy. “There are a lot of synergies for Korean technology, light manufacturing, electronics, that Africa is an interesting market for.”

The tech charge

Leading the way is Samsung Electronics, which is looking to boost its regional business to $10bn by 2015, more than
three times the African revenues that local media reported last year. 

To support growth Samsung is putting its money where its mouth is. “Between 2010 and 2012 investment into Africa – whether new shops, partner technology, infrastructure, people – has been $150m. Over the next three years we could invest a similar or a greater amount,” says George Ferreira, vice president of Samsung Electronics.

The company has been operating a ‘Built for Africa’ strategy to provide locally relevant products to the region and forecasts that its technologies will win it a 60 percent share of the smartphone segment this year – a substantial increase on 2012’s 40 percent. There are set to be 265m data subscribers in Africa by 2015, according to Informa Telecoms and Media.

Meanwhile, Samsung will be expanding its 32-country footprint in Africa, establishing a physical presence in Gabon, DRC and Cameroon this year. It also plans to add to its local assembly plants, boosting job creation and the uptake of its technologies.

“One of our objectives for this year is that we will continue to grow our assembly plant investment across Africa, and we are looking at creating plants for refrigerators and washing machines,” Mr Ferreira states. “We are still researching which countries and regions to do it in, but we know that to fulfil the needs of the continent we need to do a lot of local assembling.”

As well as competition from China’s Huawei, Samsung may get a run for its money from LG Electronics, an arm of another of South Korea’s giant conglomerates. The group announced last year that it would invest $2.4bn in the research and development of products relevant to east and central Africa, as it looks to muscle in on the market.

KT, South Korea’s number two mobile operator, is also angling to gain a foothold. Together with the Korea Internet and Security Agency, KT announced in December that it had signed a $19m contract with the government of Rwanda to build information security systems. Also in December, the group  submitted a preliminary bid for a controlling stake in Maroc Telecom, Morocco’s largest telecoms  carrier. The operator is hoping to buy the French media group Vivendi’s 53 percent stake in the company as part of an emerging markets expansion strategy after it failed to acquire a 20 percent stake in South Africa’s state-run Telkom last year. It will face competition from the likes of France Telecom, and Qatari rival Qtel.

Construction boom

South Korean construction in sub-Saharan Africa is also booming, with Seoul’s own experience proving helpful in securing contracts.

“One thing that has been central to South Korea’s developmental success – and is also a top priority for most African governments – is infrastructure development. The Korean firms have experience doing this in what, not that long ago, was a frontier market and they have done it successfully. That benefits them when it comes to contracts,” Eurasia’s Mr de Pontet argues.

Last November, Daewoo International announced a $1.3bn deal with the Kenyan Electricity Generating Company to build a power plant in Kilifi. Samsung’s construction arm, Samsung C&T, also signed an agreement with the Gabonese government last July for a refinery project, and is negotiating the details. Overall, the value of South Korean construction contracts has trended upward to $2.2bn in 2011, from $1.5bn in 2008, albeit with a dip slightly in 2012, according to the International Contractors Association of Korea.

Korea is not quite following China’s state-led ‘infrastructure for resources’ model, but the government has been ramping up its commercial diplomacy. “There is a big dollop of state capitalism to Korea’s commercial ventures in Africa, particularly when resources and expensive infrastructure are bundled together—Korean firms get more state support, lines of credit, risk guarantees and the like than do their Western competitors,” Mr de Pontet says.

Loans and learning

If proof was needed that Seoul is serious about securing its share of the continent’s growth story, it came when the government pledged $590m in aid and loans to African countries last October. That package was barely a scratch on the $20bn that China offered the continent in July, but it signalled intent.

And Korea is also able to offer something more important than capital, Bahk Jae-wan, the country’s finance minister argues: developmental experience. “If Africa is to promote inclusive growth... it needs to take stock of the experience of Korea and other countries that have travelled along a similar path,” he said in a speech at the time.

South Korea’s population size matches that of many African nations, making its experience more applicable than the far bigger China’s, some economists argue.  Its progress relative to African counterparts has been astounding. At the time of Ghana’s independence, the country’s per capita income – under $500 – was roughly equivalent to South Korea’s. Today, Koreans can expect to earn an average $22,424 – more than 14 times those living in Ghana. Unsurprisingly, African governments are increasingly keen to learn from the country.

“A generation and a half ago Korea was poorer than Ghana and they found the means to develop. That development was not led by resource exports, but African leaders are not content to have commodities be the main factor to propel their economies forward. That means the Korean model potentially becomes even more relevant for those who are looking to grow other sectors,” Mr de Pontet says.

“Koreans have gone through this development process and have the real life lessons learned, and skill sets, and technologies that are badly needed by African countries.”