Korea, South

According to the data from SIPRI (Stockholm International Peace Research Institute) the RoK had the world’s 10th largest defence budget in 2018, just behind Japan. The National Assembly of the RoK approved for the fiscal year of 2020 the proposed by the government defence budget of 50.152 Trillion Won, which later was revised to 49.25 Trillion Won (US$40.34 Billion) due to the consequences of the COVID-19 Pandemic.

For 2021, the Ministry of Defence asked from the South Korean Government 52.92 Trillion Won (US$44.73 Billion) for its annual budget.  This would be the first time that the defence budget of the RoK surpassed the 50 Trillion Won threshold and according to President’s Moon Jae-in “Defence Reform 2.0” program the defence budget of the country will be increasing every year until 2023 by 7.5%.

During 2020, the Ministry of Defence was planning to spend, US$14.87 Billion (16.68 Trillion Won) on arms procurements and US$29.85 Billion (33.47 Trillion Won) for managing military assets and forces, but as it was mentioned the Defense Budget eventually was reduced due to COVID-19.. It is important to mention that the government of the RoK had earmarked for 2020, US$5.54 Billion (6.22 Trillion Won) for projects to counter threats from nuclear and other weapons of mass destruction.

Furthermore, US$1.75 Billion (1.97 Trillion Won) had been earmarked for the implementation of projects such as securing military communication and counter-artillery assets, while US$5.34 Billion (5.99 Trillion Won) had been allocated in order to maximize the latest technologies for the defence industries and the restructuring of its organization.

Economy

The economy of South Korea a mixed economy dominated by family-owned conglomerates in 2018 was the 4th largest in Asia and the 12th largest in the world. Although the after the end of the civil war and for almost a decade the economy of the country was mainly agrarian and the population very poor, the ambitious industrialization program of the President Park Chung-hee started to produce results in the 1960’s.

President’s Park Chung-hee economic plan included at the beginning the development of specific industries such as textiles and light manufacturing. The second phase of the plan implemented in the 1970’s, included the development of iron and steel industry as well as chemicals. Later the focus of the economic policy shifted to the development of high-technology industries such as automobiles, electronics and information technologies.

The core of the economic policies of the South Korean Governments since 1960’s has been the strong control on the industrial development providing most support to the large-scale projects of the emerging giant family-owned conglomerates called Chaebol, with most of the medium small companies becoming subcontractors of the conglomerates.

The economic development of the country with few exceptions was impressive and the income of the population was dramatically increased compared to the first decade after the end of the civil war. South Korea is the typical example of a poor country that relied on foreign economic assistance and managed to build within two decades a strong and competitive economy, although the country was located on the hottest frontier of the Cold War and till today faces a real military threat from DPRNK.

According to the “World Bank” the RoK real gross domestic product (GDP) achieved average real growth of 7.3% annually between 1960-2019. The performance was fueled by annual export growth of 16.2% on average from 1961-2018 while the saving and investments both rose to above 30% of the GDP. The GDP of the country was increased from US$2.7 Billion in 1962 to US$230 Billion in 1989.

In 1990 in current US$ prices the GDP of South Korea reached US$283.37 Billion (in constant 2010 prices the GDP was US$364.199 Billion). In 2000 in current US$ prices the GDP reached US$576.18 Billion (in constant 2010 prices the GDP was US$724.597 Billion), in 2005 in current US$ prices the GDP reached US$935 Billion (in constant 2010 prices the GDP was US$926.349 Billion).

In 2010 in current US$ prices the GDP of South Korea reached US$1,144.07 Billion (in constant 2010 prices the GDP was US$1.144 Trillion), in 2018 it reached US$1,720.58 Billion (in current US$ prices the GDP was US$1.45 Trillion) and in 2019 it was reduced to US$1.642 Trillion (in current US$ prices the GDP was US$1.479 Trillion) due to the Corona Virus Pandemic.

For many years, the rate of the increase of the GDP of the country was impressive. The RoK achieved an average of 9.2% real growth between 1982-1987 and 12.5% between 1986 - 1988. In 1990 the GDP was increased by 9.5%, in 2000 by 9.1%, in 2005 by 4.3%, in 2008 it was increased by 3%, but in 2009 it was reduced dramatically to 0.8% due to the Global Financial Crisis.

In 2010 almost a year after the end of the of the financial crisis, the GDP of the country was increased by 6.8%. In 2015 it was increased by 2.8% and in 2018 it was increased by 2.7% in a much slower pace compare to the previous years. It is interesting to mention that the last time the RoK had an impressive rate of increase of its GDP was in 2002 when it reached 7.7%.

According to the Bank of the RoK, the GDP of the country in 2018 by kind of economic activity was as follows:

  • Agriculture: 1.82%
  • Mining and Quarrying: 0.11%
  • Manufacturing: 26.64%
  • Electricity: 1.94%
  • Construction: 5.4%
  • Wholesale and retail trade accommodation and food services: 9.54%
  • Transportation and storage: 3.01%
  • Financial and insurance activities: 5.51%
  • Real Estate: 7.17%
  • Information and Communication: 4.18%
  • Business activities: 8.54%
  • Public administration defence and social security: 6.07%
  • Education: 4.8%
  • Human health and social work: 4.27%
  • Cultural and other services: 2.31%
  • Taxes less subsides on products: 8.61%

Economic, Financial and Pandemic Crisis

Since the end of the civil war the economy of the RoK experienced two serious “setbacks’, the Asian Financial Crisis in 1997 and ten years later in 2007 Global Financial crisis. During the first crisis the then Government was forced to ask for a bail out of tens of Billions of US Dollars from the IMF (the bailout plan included a package of US$58.4 Billion). The crisis ended two years later, in December 1999, with the official announcement of the President of the country Kim Dae-jung.

During the second crisis, the Global Financial Crisis of 2007-2009, the South Korean economy experienced significant reduction of its exports. The exports of semiconductors and cars was reduced by 55.9% and 46.9% respectively, the manufacturing dropped by -25.6% as of January 2009. Under these circumstances the GDP in 2008 was increased by 3% and the next year in 2009 at the peak of the crisis by 0.7%. The second crisis of the South Korean economy ended in 2010, three years after it started, when the economy managed to develop with 6.8%.

As an export-oriented economy of the RoK (according to the “World Bank” the exports of goods and services account for 42% of the GDP of the country in 2018) was dramatically affected by the consequences of the two global economic and financial crisis, but in both cases the country manage to overcome the difficulties within a relatively short period of time.

The most recent crisis that affected the South Korean economy was the Pandemic of the Corona Virus (COVID-19). The economy of South Korea has been battered by the slowdown of the Chinese economy and the uncertainties over the trade war between China and USA. According to estimations the GDP of the country for the year 2019 has been increased by 2% against 2.7% in 2018. According to the IMF forecasts from 14th April 2020, the GDP of South Korea is expected to fall -1.2% in 2020 due to the outbreak of COVID-19 and pick up to 3.4% in 2021 subject to the post-pandemic global economy recovery.

According to the Société General “Country Risk Report” for the RoK, the budget surplus decreased to 0.7% of the GDP in 2019 and IMF expects that the fiscal deficit will reach 0.7% in 2020 and 1.7% in 2021. According to the IMF, public debt grew to an estimated 40.1% of GDP in 2019 and is expected to rise in the coming years to 43.4% in 2020 and to 46.4% in 2021. Corporate debt represented 101.7% of the GDP in 2019 according to the Korean Institute of Public Finance and the high level of household debts poses a risk to the banking sector.

The Government has been trying to help the recovery of the economy with stimulus packages, but the government revenues are estimated to increase in 2020 by 1.2% compared to 2019 growing slowly due to the weak semiconductor industry and fiscal decentralization. Furthermore, the South Korean Government and the local industry completed the framework measures for industrial innovation.

These measures cover plans to restructure manufacturing and services develop the new core industries data, networks and AI, and promote the three new promising industries of a system on a chip biohealth and future cars.Finally, the South Korean Government worked for a second venture boom strong employment support and social safety nets. The modern South Korean economy has dramatically transformed the last three decades. The textiles and other labor-intensive industries have declined from their former preeminence although they remain important.

Nowadays, heavy industries that are more capital and technology intensive including chemicals, machinery, petroleum refining, shipbuilding, manufacturing of motor vehicles and electronic equipment, grew to importance in the late 20th century.

South Korea an Exports oriented economy

The majority if not all of the products that the South Korean industry produces are exported all over the world, helping the country to maintain generally a positive balance in its annual trade. According to the “World Bank”, trade represented almost 83% of the GDP of the RoK in 2018. The most important products that South Korea exports are: semiconductors, petrochemicals, automobiles, auto parts, ships, wireless communication equipment, flat displays, steel, electronics, plastics computers and weapon systems.

According to the Bank of the RoK, since 2011 the value of the exports of the RoK have broken the US$500 Billion mark. According to the export data published by the Bank of the RoK, the country exported in 2011 goods of total value of US$587.21 Billion.

In 2012 the exports of the country were US$603.66 Billion, in 2013 were US$618.39 Billion, in 2014 were US$613.39 Billion and in 2015 the exports of goods were US$543.08 Billion. Finally, in 2016 the exports of goods were US$511.92 Billion, in 2017 were US$580.31 Billion and in 2018 were US$625.43 Billion, although according to the data from the South Korea Customs Service the exports in 2018 reached US$604.86 billion and in 2019 dropped to US$542.3 Billion (-10.4% year over year drop since 2018).

The most important trade partners of South Korea are: China, U.S.A, Vietnam, Hong Kong, Japan, Taiwan, India, Philippines, Mexico, Germany, Australia, Singapore, Qatar, Saudi Arabia and Russia.

Based on the data from the South Korean Customs Service, the top 10 export partners of South Korea for 2018 are: China (26.8%), U.S.A (12%), Vietnam (8%), Hong Kong (7.6%), Japan (5.1%), Taiwan (3.4%), India (2.6%), Philippines (2%), Singapore (2%), Mexico (1.9%) and other countries (28.6%).

According to the World Top Exports South Korea’s top 10 export products in 2019 accounting for 84% of the overall value of its shipments and are the following:

  • Electrical machinery, equipment: US$153.6 billion (28.3% of total exports)
  • Machinery including computers: $70.9 billion (13.1% of total exports)
  • Vehicles: $62.9 billion (11.6% of total exports)
  • Mineral fuels including oil: $42.1 billion (7.8% of total exports)
  • Plastics, plastic articles: $32.6 billion (6% of total exports)
  • Iron, steel: $23.1 billion (4.3% of total exports)
  • Optical, technical, medical apparatus: $21 billion (3.9% of total exports)
  • Organic chemicals: $21 billion (3.9% of total exports)
  • Ships, boats: $18.9 billion (3.5% of total exports)
  • Articles of iron or steel: $9.2 billion (1.7% of total exports)

During this year (2019), 64.5% of South Korea’s exports were delivered to Asian countries, 16.6% to North American countries, 11.8% to European countries, 2.7% to Latin American countries, 2.5% to Oceania and only 1.8% to African countries.

Regarding the South Korean imports of goods, the country imports the following products: crude oil, petroleum products, semiconductors, natural gas, coal, steel, computers, wireless communication equipment, automobiles, fine chemicals, textiles, weapon systems, machinery and manufactured goods. According to the import data published by the Bank of the RoK the country imported in 2011 goods with total value of US$559.19 Billion.

In 2012 the imports of the country were US$555.07 Billion, in 2013 were US$538.13 Billion, in 2014 were US$527.25 Billion and in 2015 the imports of goods were US$442.8 Billion. In 2016 the South Korean imports of goods were US$395.46 Billion, in 2017 were US$466.71 Billion and in 2018 the imports of goods were US$513.57 Billion, although according to the data compiled by the South Korean Customs Service the imports in 2018 reached US$535.2 billion and in 2019 dropped to US$503.3 Billion, declined by -6% from 2018 to 2019.

According to the World Top Exports South Korea’s top 10 import products in 2019 accounting for 72.9% of the overall value of its imports are the following:

  • Mineral fuels including oil: US$127.3 billion (25.3% of total imports)
  • Electrical machinery, equipment: $89.7 billion (17.8% of total imports)
  • Machinery including computers: $51.6 billion (10.3% of total imports)
  • Optical, technical, medical apparatus: $18.5 billion (3.7% of total imports)
  • Vehicles: $16.7 billion (3.3% of total imports)
  • Iron, steel: $15.7 billion (3.1% of total imports)
  • Ores, slag, ash: $15.1 billion (3% of total imports)
  • Organic chemicals: $12.7 billion (2.5% of total imports)
  • Plastics, plastic articles: $11.5 billion (2.3% of total imports)
  • Other chemical goods: $8.2 billion (1.6% of total imports)

It is important to mention that 61% of South Korea’s total imports by value in 2019, were purchased from Asian countries.

European countries trade partners supplied 15% of the South Korean imports, while 14.7% originated from North America, 2.8% came from Latin America excluding Mexico and 1.5% from Africa.

Based on the data from the South Korean Customs Service, the top 10 import partners of South Korea for 2018 are: China (19.9%), U.S.S (11%), Japan (10.2%), Saudi Arabia (4.9%), Germany (3.9%), Australia (3.9%), Vietnam (3.7%), Russia (3.3%), Taiwan (3.1%), Qatar (3%) and other countries (33.1%). One of the factors that indicate the dynamic development of the South Korean economy is the Trade Balance of the country. Since 1998 South Korea has been recording a positive Trade Balance of several tens of billions of U.S Dollars.

The best year for the South Korean exports was 2015, when the Trade Balance of the economy of the country had surplus of US$120.27 Billion, while the following years the surplus was US$116.46 Billion in 2016, US$113.59 Billion in 2017 and US$111.86 Billion in 2018. On the other hand, although the Trade Balance of South Korea has been in high surplus and is expected to remain so in the coming year the Services Balance has not been in favor of South Korea.

According to the data from the Bank of the RoK, the Services Balance was negative by US$29.73 Billion in 2018 and by US$36.73 Billion in 2017. Actually, the Services Balance has been continuously negative for South Korea since 2000, but the enormous trade surplus always produced a positive Current Account record for South Korea.