Posts tagged ‘market entry’
The South Korean construction industry is a double edged sword. This week alone, Daewoo Engineering and Construction was chosen as the preferred bidder for a USD733.8 million contract to build a coal-fired power plant in Nigeria and Hyundai Engineering and Construction, along with Saudi Arabia’s Mohammad Al-Mojil Group, secured a USD52.5 million contract to construct an engine oil factory in Abu Dhabi.
In 2010, the Korean construction industry achieved a record USD71.6 billion in overseas contracts, with a total of 419 companies winning 588 orders in 91 countries. The Ministry of Land, Transport and Maritime Affairs (MLTMA) estimates that this will increase in 2011.
However, at home the industry has a less enviable reputation due to its centrality in repeated corruption cases. With prosecutors currently widening the investigation into the “hamba” or construction site cafeteria contract lobbying, the industry and those connected to it, are facing yet another scandal.
This will have only a minimal impact on securing overseas contracts. It will however, add fuel to the fire, if in the future, a South Korean construction company faces accusations of corrupt practices overseas.
On 8 January 2011, the Japanese Government announced that it would lead a consortium to extract seabed mineral resources. The Natural Resources and Energy Agency will commission Japan Oil, Gas and Metals National Corporation (JOGMEC) to develop the system along with two private companies.
The Japanese Government estimates the value of seabed mineral resources in its territorial waters at approximately USD2.3 trillion, which would make it one of the world’s largest mineral deposits. Importantly, the areas targeted for exploitation are believed to hold not just sizeable deposits of gold and silver, but also rare metals and rare earth minerals.
The announcement comes one week after China’s Ministry of Commerce announced that the 2011 first rare earth export quota would be 11.4 percent down on the previous year.
Japan currently relies on China for more than 90 percent of its rare earth mineral imports. Korea has the industrial, technological and maritime capacity to develop seabed mineral resources but has to date limited its efforts to exploratory and experimental work. Further development will require closer cooperation with Pacific Island states, where both China and Japan have already invested heavily.
On 5 January 2011, the Ministry of Strategy and Finance (MOSF) stated that food will be included in the price control measures to be announced on 13 January 2011.
In 2010, Korea’s average inflation rate remained within target levels at 2.9 percent, however, food prices reached 16-year highs in the second half of the year. The price rises in basic commodities in December 2010 and the ongoing impact of Foot and Mouth Disease (FMD), are now beginning to flow through to consumers, with substantial price rises expected as Lunar New Year approaches.
The rapid rise in food prices is not unique to Korea. The United Nations Food and Agriculture Organization (FAO) has stated that the global food price index for December 2010 was at its highest level since records began in 1990. Concerns regarding rapid food price rises have already prompted government action in China, India, Indonesia, Singapore and Taiwan. Measures have included direct control over prices, the release of government stockpiles and the encouragement of private production.
The Lee Myung-Bak administration has strongly promoted its efforts to fight inflation and the price control measures to be announced on 13 January 2011 have attracted substantial media interest. This presents a risk that the administration will be perceived as ineffective as prices continue to rise due to external conditions.
Several Arabic sources have reported this week on the supply of Israeli-manufactured satellite-guided ‘Spike’ missiles to Korea. The missiles, manufactured by Rafael Advanced Defense Systems Ltd, were supplied by Israel under a government-to-government agreement, in order to allow the systems to be deployed immediately to the West Sea islands near the Northern Limit Line (NLL).
Korea obtains the vast majority of its defence requirements from the United States, but does operate several Israeli manufactured systems, including the Harpy loitering anti-radar unmanned air vehicle (UAV) and the Green Pine phased-array long-range radar system, developed by Israel Aerospace Industries.
Israel is also starting to look to Korea’s defence industry development, currently considering the Korea Aerospace Industries T-50 Golden Eagle Jet Trainer as its primary training aircraft. Korea-Israel defence cooperation will increase as Seoul seeks to broaden its defence export sector. Both sides view the other as a secure and complementary partner for defence industry development and share development targets in the UAV, unmanned ground vehicles (UGV) and remote robotic weapons systems.
However, the reports this week on the supply of Israeli-manufactured missile systems under a government-to-government agreement places greater pressure on Korea’s traditional position as an apolitical actor in Middle-East North Africa (MENA).
On 27 December 2010, the Korean Ambassador to Indonesia signed a USD600 million bilateral framework agreement between the two countries, which will provide loans to Indonesia to aid in the financing of information and communication technology (ICT), infrastructure ‘green’ projects between 2011 and 2013.
The amount provided is a significant increase from the USD149.9 million development funding provided between 2007 and 2009. South Korea–Indonesia ties have been developing rapidly in recent years. Indonesia has become a key target for South Korea due to its economic growth; labour, natural, food and energy resources; and its investment climate, which has proven to ideally suited to Korean business.
However, the substantial growth in strategic and defence ties has drawn increased regional concern with the two countries now closely cooperating in the production and supply of fighter jets, training aircraft, submarines, armoured personnel carriers and strategic infrastructure.
Korean government and central bank officials have several times noted that China’s inflation policy is now a distinct variable in the Korean economy.
Reflecting this, the interview released over the weekend, which indicates China may raise interest rates four to five times in 2011, has raised substantial interest.
The interview has been accorded weight both due to interviewee and the instrument of publication. The interviewee, Zhang Chenghui, is Deputy of the State Council’s Research Institute for Development and Finance, and is a key advisor to the State Council. His statement that China should raise interest rates four to five times in 2011 was published in Financial News, a People’s Bank of China (PBOC) backed publication and internet news portal. Inflation is a major concern in China due to both the historical correlation between inflation and civic unrest, and the already significant impact of food price rises during 2010.
Inflation in China puts upward pressure on Korean consumer prices, with inflation rates in the two countries having demonstrated similar patterns since February 2010. Efforts to control inflation in China are likely to have a commensurate effect on Korean financial and foreign exchange markets, as well as on the real economy.
On Friday 31 December 2010, the Korea Communications Commission (KCC) announced the winners of new general programming and all-news cable television licenses. The Chosun Ilbo, JoongAng Ilbo, Dong-A Ilbo and the Maeil Economic Daily, the nation’s four major daily newspapers, are now allowed to operate general programming cable TV channels. Yonhap, the state-run news agency, is now allowed to operate a news-only cable TV channel.
Reform in the media sector continues to be a highly contested political debate. Dissatisfaction with the current process is clearly evident both from entities that failed to achieve licenses, as well as those concerned with the increased degree of media coverage accorded to a state-run agency and the three largest conservative dailies.
Media reform in Korea is shaped more by political debate between progressive and conservative forces than by economic, technological and regulatory trends. The current situation is far from settled and will come under increased focus as the successful licensees seek to raise capital, operate and demonstrate returns under regulations dating from the 1980s, which continue to allow government control of advertising rates and sales.
A group of twelve lawmakers from the ruling and opposition parties have introduced a bill into the National Assembly to allow for the establishment of a ‘unification tax’.
The bill calls for individuals and companies to pay 2 percent of their income tax towards the cost of unification; businesses to pay 0.5 percent of corporate tax as unification tax; and individuals to pay 5 percent of inheritance or gift taxes as unification tax.
The bill initiates legislative debate on practical measures to prepare for unification, as proposed by President Lee Myung-Bak in his Liberation Day speech, 15 August 2010. The proposal for a unification tax was not warmly welcomed at the time.
Lee has since reiterated concerns regarding the immanency of unification, which combined with North Korean behavior, have led to the tax proposal gaining wider acceptance. Practical measures to prepare for unification are becoming an increasingly frequent aspect of political debate, as concern regarding imminent and abrupt unification increases.
