South Korea’s development strategy: Lessons for Zim

DURING the war that ravaged South Korea, its productive capacity and social infrastructure was destroyed. It also led to the loss of millions of lives.

After the war, South Korea had no capital, abundant labour, poor natural resources, a small private sector, weak technology base and low per capital income ($69-70).

The government then developed an economic development plan covering the period 1962 to 1996.

Economic Reconstruction and Import Substitution Policy (1953-1960)

The government created import substitution policy on trade, capital and foreign aid. Protective measures for domestic industries were high tariffs, quota restriction and prior import approval, initial import substitution for non-durable consumer goods and their materials (flour, sugar, and textile).

However, the import substitution policy failed to establish the manufacturing sector and the small domestic market was saturated.

Policy Reform and Exported-led Industrialisation Policy (1961-1965)

The Park’s government set up the first 5-year economic development plan beginning 1962, and has achieved remarkable performance since then.

They adopted an export-led industrialisation policy and utilised abundant-labour.

The country exported labour-intensive manufactured goods promoted by government policy. The government switched to single floating exchange rate system from multiple exchange rate system.

However, it continued to adopt various incentive schemes for export promotion, that is income tax reduction, the rationing of medium and long-term loans, wastage allowance, import-export links, tariff exemptions on imports of capital goods and others. The government tactfully adopted high interest rate policy to mobilise domestic savings.

Heavy and Petro-chemical Industrialisation Policy (1966-1979)

The strategic industries were shipbuilding, automobiles, steel products, machinery, metals and petro-chemicals. It shifted to capital-intensive industries from labour-intensive industries.

However, this required a huge amount of capital with long gestation period of investment and risk. As a result, the excessive investments in this project caused severe distortion in resources allocation at the expense of the labour-intensive industries. The share of output in heavy and petro-chemical industry increased to 50 percent in 1980 from 33 percent in 1970 and began to appear as one of important export items.

Industrial restructuring and the shift to open system (1980-1996)

The petro-chemical industry was severely hit by the second oil shock and socio-political situation was in turmoil due to military coup.

The new government adopted economic stabilised programme and also undertook industrial restructuring of the existing projects based on market function.

They reduced government intervention and encouraged private sector incentives. Since the mid-1980s, Korea opened up her market to resolve bilateral restrictions with the US and other Western countries due to their chronic trade deficits since the 1970s. Korea’s labour market became tight, resulting in higher real wage and labour-intensive industries moving to South-east Asia. Korea’s industries shifted to high tech industries such as micro-electronics, bio-tech, new metals, and information industries.

Summary of economic performance

The economy shifted from agriculture to manufacturing. Exports rose from US$ 100 million in 1964 to exceed US$1 billion in 1971. Exports exceeded US$10 Billion by 1977. Between 1960 and 2008, exports increased by 14 000 times while foreign reserves shot up by 1300 times.

Globally, South Korea comes first in ship building with 35,2 percent of world production followed by Japan at 29 percent.

It is again first in DRAM making with 48,5 percent of world production. She is fifth in automobile production with 5,5 percent of the world output. In iron and steel production, she is also fifth with 4.3 percent of world output.

World rankings reveal that South Korea is third in domestic films with a staggering 59 percent of world market, nineth in research and development investments, sixth in patent rights and fifth in foreign reserves

In addition, South Korea boasts of successful international brands such as Samsung, KIA Motors, Hyundai Motors and Sony, to mention but a few.

The Korean development experience may provide diverse lessons for developing countries like Zimbabwe.

What is clear from this case study is that economic development is not only dependent on economic factors. It also depends on non-economic factors such as political stability, strong willingness, good governance and the commitment to development by both the people and their government. ◆ Dr Mugano is an expert in trade and international finance. He is a Research Associate at Nelson Mandela University, Registrar at Zimbabwe Ezekiel Guti University and Director at Africa Economic Development Strategies. Feedback: Cell: +263 772 541 209. Email: gmugano@gmail.com