Unpacking South Korea’s engagement with Africa

Following the end of the Korean War in 1953, South Korea prioritised its alliance with the United States in pursuit of economic growth and military security. It took more than a decade since the end of the war until South Korea essentially inaugurated diplomatic relations with African states. The early years of its diplomacy in Africa focused on securing formal support from African nations for South Korea’s entry to the United Nations.

However, Korea’s interest in Africa remained low during the Cold War. North Korea was years ahead forging diplomatic links with Soviet-supported African countries when South Korea began to intensify its approach on the continent. South Korea had maintained a one-Korea policy, which prevented African countries from having simultaneous diplomatic relations with the two Koreas. In face of the limitations this policy imposed, South Korea abandoned the strategy in 1973.

A significant shift on how South Korea prioritised relations with Africa was only seen in the mid-2000s. The year of 2006 clearly marks this shift, when Seoul declared it to be the “year of friendship with Africa”. In that year, the then South Korea president, Roh Moo-hyun, set in motion several prominent Korea-Africa initiatives. In March 2006, he visited Egypt, Nigeria and Algeria. That was the first visit by a Korean president to Africa in 24 years.

South Korea’s ODA to Africa

The visit to Africa was also the debut of the Korean Initiative for the Development of Africa, which promoted a swift increase in South Korea’s official development assistance (ODA) to the continent. The initiative focused on the development of human capital, public health infrastructure, governance, information and communications systems, and agricultural communities.

South Korea itself was a recipient of ODA. After the Korean War, ODA was the only source of capital South Korea had access to. The country received a total of US$12bn in ODA during the decades it was still in need of it, using the money in military support, humanitarian relief and reconstruction. South Korea’s present development has much to thank to the continuous donations and assistance it received in the post-war years. The country pledged to give back to the world, which it has been doing since issuing its first ODA in 1977.

In 2006, South Korea’s ODA to Africa summed $39.5m. Ten years later, this figure grew more than eight-fold, reaching $336.3m in 2015. The share of South Korea’s ODA directed to Africa also increased from 10.5% of South Korea’s total ODA in 2006 to 22.9% in 2015 (Figure 1).

Figure 1 – South Korea’s official development assistance (ODA) to African countries

By August 2006, South Korea had already established diplomatic ties with then all fifty-three African countries. In November 2006, the first Korea-Africa Forum (KAF) was presented, which continues to take place either in Seoul or in Busan, South Korea, every three years. Concurrently, South Korea also launched the biennial Korea-Africa Economic Cooperation Conference (KOAFEC) and, in 2008, the Korea-Africa Industry Cooperation Forum.

Some of the themes discussed at KAF involve seeking economic cooperation between Asia and Africa, sharing Korea’s economic development experience with Africa and promoting cultural understanding between Korea and African countries. The KOAFEC has a more practical approach, discussing opportunities for Korea’s private sector to venture into Africa and ways of improving trade between the country and the African continent. An action plan is formulated at the end of the conference, including areas for cooperation in energy and infrastructure, information communication technology (ICT), human resources development, agricultural development and sustainable growth strategies. Finally, the latest Korea-Africa Industry Cooperation Forum had agriculture and renewables as main topics of discussion.

Trading between Africa and South Korea

Besides the significant increase in ODAs from the Asian country to Africa observed after 2006, trading between South Korea and African countries also grew since then. More specifically, imports from Africa grew by 50% in just the year of 2006, with South Korea importing $5.7bn in African goods that year, up from $3.5bn the year before (Figure 2). Despite growing in absolute terms, imports from Africa never accounted for more than 2.2% of South Korea’s total imports globally.

More than ten years later, imports of African goods by South Korea had not substantially increased from the 2006 level. After a peak in imports during 2014, when South Korea’s intake of Nigerian and Algerian oil reached a historical high, total imports decreased and, in 2017, it summed to $7.1bn. One third of this amounts to iron ore, coal briquettes, ferro alloys, copper and platinum from South Africa. Libya, Nigeria, Equatorial Guinea and Algeria mainly export crude oil and petroleum products to South Korea, while the Democratic Republic of Congo (DRC) exports copper to the Asian country.

Figure 2 – South Korea imports from Africa

The vision South Korea had in the early 2000s for the future of its trading relations with Africa was one of mutual cooperation, where the continent would provide an abundant source of minerals and energy used in South Korea’s tech and naval industries. Finally, the beneficiated final products would then be traded back to Africa. South Korea’s saturated domestic market means that the country’s manufacturing has become increasingly export-oriented. The heavy industrial sector is pivotal to the growth of the economy, with the top 30 South Korean business conglomerates (chaebol), such as LG, Hyundai, SK, Lotte and Samsung, accounting for 82% of the country’s exports. Africa is perceived as a frontier market for South Korean exports because of the region’s pressing need for major infrastructural development and its growing, albeit nascent, middle class. Yet, trade between South Korea and Africa do not necessarily benefit African partners since Korea-Africa trade weighs heavily in favour of Korean exporters.

South Korea currently relies on imports to meet about 98% of its fossil fuel consumption as a result of insufficient domestic resources. The country is one of the world’s leading energy importers. Expanding its options of where to source oil and gas is also a goal for South Korea’s intensified engagement with Africa after the mid-2000s. However, to this day the country remains very reliant on Middle Eastern oil. The region accounted for more than 82% of South Korea’s crude oil imports in 2017. South Korea also has an immense deficit in agriculture and food production, having imported $25bn worth of food in 2017.

South Korea exports to Africa significantly rose since the beginning of this century, increasing from $3.6bn in 2000 to $10.7bn in 2017 (Figure 3), 20% of which went to Nigeria in a range of products: plastics and rubber, minerals, chemical products, machines, textiles, cars and food products. Liberia, Algeria and Egypt mainly import machines, ships and vehicles from South Korea. South Korea is a global reference in the ship building industry.

Despite the three-fold increase in the dollar amount of South Korean exports to Africa observed since 2000, Africa’s share of South Korean exports did not rise from its unexceptional level at 1.9% of all South Korean exports globally. The fact that imports and exports between Africa and Korea did not change in percentage terms, remaining at low single-digits since the beginning of the century, show that South Korea still prioritises other regions over Africa when it comes to trade.

Figure 3 – South Korea exports to Africa

South Korean private investment in Africa

Since the 2006 year-mark of Korea-Africa relations, there has been a continuous increase in the number of Korean multinational corporations investing in Africa. Hyundai Motors, LG Electronics, Samsung and Posco Steel are only a few examples of South Korean chaebol expanding in the African market. Chaebols are large family-owned business conglomerates. With their gigantic size and large expanse across different businesses and industries, chaebols in South Korea account for a sizeable 67.8% of the country’s GDP. Samsung is among the largest of these behemoths and has established itself in Africa since the early 2000s.

An important milestone for Samsung’s expansion plans in South Africa was the construction of an assembly plant in Durban, one of the main ports in Southern Africa. Since 2014, the plant assembles 5,000 Samsung TVs a day, which are sold across Sub-Saharan Africa. The factory employs 200 people, of which only 4% had previous experience working in factories. Samsung provided training to the new employees, contributing to skills development and sharing.

Samsung’s successful market penetration in Africa allowed the company to shop for the best locations to build factories on the continent. Its bargaining power seems to be such that Samsung is demanding tax concessions to cover for unfair competition from counterfeit imports in order to build an assembly plant in Kenya. On the face of it, the demand may even look reasonable within the pretext of fighting the marketing of fake goods. However, any tax waiver given to Samsung would put the company in unfair advantageous position against legitimate competitors such as Apple and Chinese companies Huawei Technologies and Xiaomi, for example.

Samsung’s plan to build a plant in Kenya sheds light on its strategy to increase and consolidate its market share in East Africa and curb competitors in the region. The company currently reaches the East African market through directly importing its laptops, refrigerators, television sets and printers from abroad as finished goods from other regional plants such as that in Durban. A plant in Kenya would save logistics costs, as well as labour costs.

Samsung’s rise to regional stardom in the African electronics market was crowned in 2016 when it was named the most admired brand by the annual Brand Africa 100 survey. The company occupies the forefront of the $15.5bn smartphone market in Africa, with 42% of this segment’s share in 2016. Africa really caught Samsung’s attention and to state the commitment with the continent, early this year Samsung announced its plan to double the annual revenue contribution from its African markets to 20% of the firm’s global total in the next five years. Samsung also has manufacturing plants in Egypt, Sudan, Senegal and Ethiopia, besides sales and support offices in most of the large urban centres in Africa.

Besides Samsung, the African market for smartphones and white goods is the battleground for another Korean chaebol. LG, which directly competes with Samsung in various market segments, has built a television assembly plant in South Africa and is prospecting Tanzania for another plant, which would mainly supply the East African market.

The largest Korean telecom company, KT Corp, embarked on the ambitious project to bring internet access to Rwanda. In 2013, Rwanda’s government signed a $140m deal with the Asian company to build the country’s 4G Long Term Evolution (LTE) broadband network. At that time, less than a million Rwandans had access to the internet.

The first stage of the high-speed network infrastructure was completed in November 2014 and, one year later, KT Corp won the Global Telecom Business Innovation Award for its pioneering business model and market structure on the project. Rwanda also launched free wi-fi services in various areas of Kigali, including in the bus public transportation system in 2016.

Between the start of the project, in 2013, and 2016, more than 1.4 million Rwandans finally gained access to the internet. The World Bank reports that in 2016, 20% of the population of Rwanda were able to connect to the world wide web. The final goal for KT Corp’s project in Rwanda is to reach 95% of the population being able to access the network, which should happen in the next five years. In the meantime, KT Corp announced during the 2018 KOAFEC that it will expand cooperation with African countries in information and communications technology, based on the successful experience in Rwanda.

Lotte, the South Korea’s leading snack maker, set up office in Nairobi, Kenya, in June 2016. The snack producer is poised to take a large share of the $10.2bn snack market in Africa. To grasp the idea of the size of this snack chaebol in Korea, Lotte’s shares make up for 2% of the country’s benchmark Korea Composite Stock Price Index (KOSPI). In fact, the five largest Korean chaebols (i.e. Samsung, Hyundai, SK, LG and Lotte) account for more than half of the KOSPI. Samsung alone accounts for more than one fourth of the index.

Set-backs in Korea-Africa relations

There are several other emerging examples of Korea’s successful private investments in different African states. However, there have been a few setbacks despite a number of these successes. South Korea’s reported involvement in illegal and unregulated fishing and the land-lease in Madagascar have been some of these hindrances.

Between 2013 and 2015, the European Union (EU) added South Korea to its preliminary list of countries that engaged in illegal, unreported, and unregulated fishing (IUUF) due to the constant involvement of fishing vessels flying the South Korean flag in such activities. To correct this, South Korea increased fines for national ships found to be engaged in the illegal activity and installed GPS tracking devices in all ships with the South Korean flag. Finally, South Korea avoided having its fish exports banned and had its name “cleared” in 2015.

The other international setback in Africa that makes South Korean representatives cringe, relates to the Asian country’s attempt to buy an enormous amount of land for agriculture in Madagascar, in 2009. Madagascar was poised to sign a 99-year agreement to rent 1.3 million hectares of land – or equivalent to 3.1% of all Madagascar’s agricultural land area – to South Korea’s Daewoo Logistics Corporation to plant maize and palm oil for export. The deal was pulled out amid accusations of neo-colonialism. Although unsuccessful at its objective, the idea of this agreement was the last straw in the Malagasy people’s dissatisfaction with the government over a range of issues: poor economic conditions, allegations of government corruption and accusations of state restrictions on freedom of expression, among others. The scandal gave more fuel to anti-government protests in Madagascar, which turned into strikes and violence, riots, looting, arson and over 100 deaths across the capital.

The president was deposed, and the post was assumed by the opposition leader. Constitutional governance was only restored in January 2014, when Hery Rajaonarimampianina was named president following a 2013 election deemed fair and transparent by the international community. South Korea was not the sole entity responsible for the cascade of events that unfolded in Madagascar, but it may have been the final straw that caused the eruption of the crisis in that country. This position has undeniably put South Korean companies on their toes for their ensuing businesses deals in Africa. However, it did not deter Daewoo from other business ventures there for long.

Ascertaining its position in Africa, Daewoo, through its subsidiaries, engaged in a multitude of projects across different sectors. In 2012, it signed a deal to build a $1.3bn power station in Kenya. In 2015, it agreed to build a $82m highway in Ethiopia. It sold two drilling ships to Angola’s oil and gas state company, Sonangol, which will be ready and operating by 2019. By October 2019, Daewoo is expected to complete the construction of the Kazungula bridge, connecting landlocked Zambia and Botswana. The company is also building a $1.8bn coal-fired power plant in Morocco and has won projects in Nigeria, Libya, and Algeria.

In the years since the failed and controversial land deal in Madagascar, South Korea has worked hard to rebuild and improve diplomatic relations with many African countries. Although that episode probably made other countries in Africa rethink and analyse South Korea’s business interests on the continent, it certainly did not stop the Asian nation from significantly expanding the range and scope of projects in Africa through Korean private companies or ODAs from the Korean government.

The author, Otavio Veras, is a research associate of the NTU-SBF Centre for African Studies, a trilateral platform for government, business and academia to promote knowledge and expertise on Africa, established by Nanyang Technological University and the Singapore Business Federation. Otavio can be reached at [email protected]