South Korea courts East Africa with $155 million for projects

Monday November 7 2016



SOURCE | CHATHAM HOUSE

SOURCE | CHATHAM HOUSE 

By BERNA NAMATA

The region has become the latest beneficiary of South Korea’s foray into Africa, with pledges of $155 million in concessional loans for development projects in Kenya, Uganda, Tanzania and Ethiopia.

Tanzania will get $50 million for the construction of power transmission grids; Ethiopia will get a similar allocation for the development of agro-industrial parks while Uganda’s share of $30 million is expected to boost agriculture and forestry conservation programmes. Kenya will get $25 million for multipurpose water resources.

The funds, which will be disbursed through the Korea Exim Bank’s Economic Co-operation Development Fund and the African Development Bank, were pledged at the recently concluded fifth Korea-Africa Economic Co-operation conference in Seoul.

Analysts link South Korea’s renewed engagement with Africa to its quest for food and energy security; the establishment of new markets for its manufactured goods; and the enhancement of its credentials as a prominent global power, particularly to counter North Korea’s influence.

Researchers at the London-based think tank Chatham House say Seoul is playing a positive role in the development of countries while soft-power initiatives such as the Saemaul Undong Movement, Korea-Africa Aid and Investment and the Knowledge Sharing Programme are also bearing fruit.

However, there is concern over controversial deals such as the land-lease deal in Madagascar and South Korea’s implication in illegal, unreported and unregulated fishing practices on the continent.

“The country’s rapid industrial transformation after the Korean War (1950–53) saw the agricultural sector suffer greatly from the effects of modernisation. While 70–80 per cent of the population worked in agricultural production before the war, the figure today stands at around eight per cent. As a result, South Korea currently imports around 90 per cent of its food supply. Sub-Saharan Africa’s vast tracts of prime, arable land are of increasing interest to Seoul,” said Vincent Darracq and Daragh Neville of Chatham House in their paper titled South Korea’s Engagement in sub-Saharan Africa: Fortune, Fuel and Frontier Markets published in October, 2014.

Power generation

The researchers also said that domestic oil and gas resources are in short supply, meaning that the economy is deeply dependent on energy imports. South Korea, the world’s 26th most populous country, is the fifth largest net importer of crude oil and the fourth largest net importer of natural gas. The vast majority of its oil imports are from the Middle East, with 71 per cent coming from the Gulf Co-operation Council states.

“Such an overwhelming reliance on Middle East oil, coupled with Seoul’s policy of buying substantial amounts of cheap Iranian oil — despite US misgivings — makes South Korea highly vulnerable to supply disruption and market volatility, both of which are significant concerns in the Middle East.

“In addition, growing domestic concerns regarding the reliability of nuclear power generation, exacerbated by regulatory scandals in the domestic nuclear sector, as well as the 2011 Fukushima disaster in Japan, are driving the renewed focus on sub-Sahara Africa’s extensive oil and gas reserves,” the researchers said.

South Korea’s saturated domestic market has meant that the country’s manufacturing sector has become increasingly export-oriented. The heavy industry sector is pivotal to the growth of the economy, with the top 30 South Korean business conglomerates accounting for 82 per cent of the country’s exports.

Post harvest management

“Korea can support Africa in the development of special economic zones and industrial parks, especially for light manufacturing, through public-private partnerships. Its successful experience in agricultural transformation puts it in a competitive position to support Africa’s push for agro-allied industrial development,” said Akinwumi Adesina, president of the AfDB at the fifth Korea-Africa Economic Co-operation conference. He pushed for investments in rural infrastructure, agro-industrial complexes, postharvest management and processing and fertiliser manufacturing.

Mr Adesina said the AfDB and Korea Exim Bank’s co-financing facility of $600 million would support Korean firms investing in Africa.

“The AfDB and Korea Exim Bank can support partial risk and credit guarantees to reduce investment risks for Korean businesses investing in Africa to promote greater volumes of trade between Africa and Korea,” said Mr Adesina.

Seoul’s exports to Africa have increased from $892 million in 1990 to $9.9 billion in 2014, according to the AfDB. Korea’s imports from Africa also increased from $383 million in 1990 to $8 billion in 2014.

“The bulk of imports from Africa are raw materials such as petroleum oils, natural gas and copper. There is a need for more value-added exports from Africa to Korea,” said Mr Adesina.

But, many observers see in South Korea’s moves its aspirations to be recognised as a global power.

South Korean policy-makers have pointed to the necessity of gaining a firm foothold before other global competitors take everything, in what they see as a new “Scramble for Africa,” researchers at Chatham House pointed out.