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COUNTRY FOCUS AUTHOR – Adam Bernstein from $158 in 1960, to $1,720 in 1980, $12,300 in 2000, and $31,700 in 2020. Gross National Income has seen a similar rise (albeit with data only from 1990) from $358bn, to $866bn in 2000, $1.58tn in 2010 and $2.34tn in 2020. However, South Korea’s economy has suffered recently as China’s economy has slowed and both the US and China are involved in trade war uncertainties, specifically in terms of chip production and exports. South Korea reeled from inflation like other nations around the world, but not to the same extent that many western countries – especially the UK – have. In detail, inflation stood at 0.50 percent in 2020, 2.50 percent in 2021, 5.09 percent in 2022 and is likely to end up at 3.54 percent for 2023 before falling to 2.30 percent in 2024 (Statista). Unemployment is generally low, according to Macrotrends citing World Bank Data. For most of the 1990s it sat around two percent, spiked at nearly seven percent in 1998 before coming down to hover around 3.50 percent since 2002. KORE Business sectors Santander, using World Bank data, states that industry represented 32.4 percent of GDP and employed 25.0 percent of the workforce in 2022 with the main focus on textile, steel, car manufacturing, shipbuilding and electronics. Technology According to Asia Fund Managers, South Korea has transformed from an agricultural country to a highly industrialised one over some 60 years and is now recognised as the largest semiconductor producer in the world. Invest Korea, however, places the country first for memory semiconductor production and second for all semiconductors produced. More specifically, Korea accounted for 60.5 percent of the global memory semiconductor market, and they are ‘one of Korea’s principal export items, accounting for 18.9 percent of total exports as of 2022.’ Total exports in this sector were worth around $129.2bn in the year. As a result, South Korea is one of the world's most active investors in semiconductor facilities and has a vast semiconductor equipment and materials market. Beyond semiconductors is TV and display panel manufacturing which, Invest Korea states was worth 4.3 percent of GDP in 2021 (KRW 76.3 tn) and employed 2.1 percent of the workforce. The majority of exports are to Vietnam (58.0 percent) and China (34.0 percent) where display module factories and producers of TVs and mobile phones are located. The Korean Display Industry Association notes that manufacturing is based around two centres at Paju (LG) and Asan Tangjeong (Samsung). There’s also the growth of the South Korean battery industry which is now said to be the world’s second largest after China with around 20 percent of global output compared to nearly 70 percent from China. It’s interesting that Invest Korea records that ‘the Inflation Reduction Act introduced by the US Government also poses a good opportunity to raise the profile of Korean-made batteries.’ The Government wants Korea to be world leader of the secondary battery market by 2030. A total of KRW 20.5tn will be invested by 2030 in the sector – mostly from the private sector to be fair. At the time of writing, 25 October, $1 was worth KRW1351 and £1 bought KRW1638. Steel The World Steel Association maintains data on global steel production. Top of the table is China with, in 2022, some 1018m metric tons produced. In second place is India with 154.06m metric tons and the EU with 136.7m metric tons. But in 6th place is South Korea with a volume of 65.9m metric tons. South Korea’s production is expected to rise according to the Korea Economic Daily which talked of ‘steel output set to top 70m metric tons on supercycle’ in 2021. This follows on from major industries such as the automobile, shipbuilding and construction sectors reviving to ramp up steel demand. Statista reckons that demand now sits at around 77m metric tons. The so called Big Three of the South Korean steel industry are POSCO, Hyundai Steel, and Dongkuk Steel. Shipbuilding The Ministry of Trade, Industry and Energy detailed, in 2023, that the Korean shipbuilding sector is doing proportionately well compared to rivals. It said that the country won 70.0 percent of global orders for large LNG carriers (117 ships) and won 58.0 percent of global orders for high-value-added ships (167 vessels). From what has been written, the sector is fully working toward more environmentally sound ships which reduce carbon emissions. Shipbuilders are compliant with the Energy Efficiency Design Index, IMO 2020, the Existing Ship Energy Efficiency Index and Carbon Intensity Index.It helps that the Government has various strategies in place to boost the sector under the heading, ‘Strategy for Securing a Super Gap in the Shipbuilding Industry’. The sector benefits from financial assistance. Brave | Curious | Resilient / www.cicm.com / December 2023 / PAGE 36
COUNTRY FOCUS A As Lloyd’s List wrote in September 2021, ‘South Korea aims to dominate shipbuilding within a decade…The Government has set a target for the country's shipbuilders to take 75 percent and 55 percent of market share in ecofriendly vessels and autonomous ships, respectively, by 2030.’ Car manufacturing Data from the International Organization of Motor Vehicle Manufacturers shows that in 2022, South Korea was the world’s fifth largest producer of cars having made nearly 3.8m vehicles. In comparison, India made 5.5m cars, Japan 7.8m, the US 10m and China 27m. What once started as an assemblybased sector has transformed into one using advanced production techniques. Key producers are Hyundai, Kia, General Motors Korea, KG Mobility, Renault Korea Motors, Tata Daewoo, Edison Motors, Asia Motors and Proto Motors. But it’s not all sun and roses: Nikkei Asia wrote in May 2022 that ‘automobile production in South Korea has retreated to the lowest in nearly two decades, on the struggles of smaller carmakers and the offshoring of capacity by the dominant Hyundai Motor group.’ It added, though, that ‘hopes for reversing this decline are blooming.’ Part of the problem was a function of COVID-related semiconductor shortages. But beyond car manufacturing, Invest r AUTHOR – Adam Bernstein Korea points to 10 Korean car parts companies being listed on the world's top 100 automotive parts producers in 2021 (by sales). These firms achieved sales of $65.1bn and accounted for 8.2 percent of the sales of top 100 parts producers. Textiles Textile manufacturing is another large part of the South Korean economy which, says fibre2fashion.com, was worth, in terms of exports, $13.30bn in 2016 and $13.70bn in 2018. Statista reported, at the start of 2023, that in 2020, the textile production amounted to about KRW 37.83tn. It’s relevant that production value was highest in 2012 at more than KRW 45tn but has been falling continuously since then. Globaldata considers that the overall apparel market in South Korea will reach KRW 111.4tn by 2027. Tourism Tourism is a sector that appears to be growing in South Korea and it’s one that the World Travel & Tourism Council (WTTC) reckoned, in July 2022, will create nearly half a million jobs over the next decade. It said that the forecast from WTTC’s latest Economic Impact Report, which shows an average of nearly 49,000 new jobs every year, to reach nearly 1.8m by 2032, also reveals the sector will outpace the overall economy for the next 10 years. According to the report, travel and tourism’s contribution to GDP is forecasted to grow at an average rate of 4.8 percent annually between 2022-2032, significantly outstripping the 1.8 percent growth rate of the national overall economy. And this could be worth KRW 116.9tn – about 4.6 percent of the total economy. It should be noted, though, that in terms of the numbers of tourists and value in revenue, COVID has a serious impact on the sector. Invest Korea wrote that in 2018 there were 15.3m arrivals and 17.5m the year after. But with COVID that number fell to 2.5m in 2020, 967,000 in 2021, but rose to 3.2m in 2022. There’s still quite a way to get back to pre-COVID levels. And as to origination of the traveller, where once 6m Chinese and 3.2m Japanese visited South Korea (in 2019), over the first eight months of 2022, 281,000 Americans made up the largest contingent followed by just 123,000 Chinese visitors. Personal income tax South Korea considers as an individual resident taxpayer any individual having a domicile in Korea or having a residence within Korea for 183 days or more. There are eight bands that range from six percent on income up to KRW 14m, to 15.0 percent (KRW 14m to KRW 50m), 24.0 percent (KRW 50m to KRW 88m), 35.0 percent (KRW 88m to KRW 150m), 38.0 percent (KRW 150m to KRW 300m), 40.0 percent (KRW 300m to KRW 500m), 42.0 percent (KRW 500m to KRW 1bn) and 45.0 percent on income of over KRW 1bn. Beyond that is a local income tax surcharge that uses the same bandings but at rates of 0.6 percent, 1.5 percent, 2.4 percent, 3.5 percent, 3.8 percent, 4 percent, 4.2 percent and 4.5 percent. And there is a minimum income tax of the greater of 45.0 percent of income tax liability (with 35.0 percent applied to income tax liabilities of up to KRW 30m) before exemptions or the actual tax after exemptions. Summary It’s abundantly clear that in sixty plus years that South Korea has moved on from its agrarian background to one that is firmly in bed with technology and manufacturing. However, there are challenges to overcome such as unique industry standards, less than transparent regulations, resistance to foreign business models, and competition and price pressures from domestic manufacturers. And beyond that is the latent problem of South Korea’s proximity to sabre rattling nations – namely North Korea and China. But we need to live for the moment and to any valiant globetrotter, South Korea is a destination worthy of any corporate agenda. Adam Bernstein is a freelance finance writer for CM magazine. Brave | Curious | Resilient / www.cicm.com / December 2023 / PAGE 37
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