September 21, 2018 Vol. 8 No.

24 ISSN -2233-9140

The Economic Development Component

of the Ethiopia-South Korea Relationship
Messay M. Tefera Associate Professor, Addis Ababa University (mesay.mulugeta1@aau.edu.et)

I. A Glance at Ethiopia/Africa- each other as viable diplomatic and economic

partners. The establishment of the Korea-
South Korea Relations Africa Economic Cooperation (KOAFEC)
In the early decades of post-colonial times, the initiative in 2006, as a major platform to drive
Korea’s development initiatives in Africa, is a
relationship between African states and South
vital indicator of this fact.
Korea was minimal as many African states at
that time honed relations primarily with the It is widely acclaimed that KOAFEC aims to
Soviet Union mainly because they were ro-
deliver tangible outcomes through six main
bustly supported by the then communist coun-
cooperation areas: (1) energy and infrastruc-
tries in the struggle against colonialism. As
ture, (2) information communications technol-
noted by Fedorenko (1964), it was the policy
ogy (ICT), (3) human resources development,
of the Soviet Union throughout the period of
(4) agricultural development, (5) support for
the emergence of independent states in Africa
climate change adaptation and/or mitigation
to support anti-colonial struggles and decolo-
endeavors, and (6) sharing of Korea’s devel-
nization proposals and resolutions. In fact,
opment experiences to African nations. The
immediately after the 1950-53’s devastative
most important building blocks of the
war between the Koreans, South Korea was
KOAFEC are the Ministerial Conference and
busy working in re-constructing the country in
the Public-Private Partnership Forum.
economic and military aspects, remaining
KOAFEC is principally understood as the two
largely unengaged in most parts of the world,
parties’ attempt to catalyze Africa-South Ko-
including Africa. Actually, the most notable
rea relationships in terms of trade, investment
development in 20th century Africa-South Ko-
and aid. Having held series of summits and
rea contact was the establishment of formal
conferences (most recently in May 2018 in
diplomatic ties.
Busan) KOAFEC has shown its outstanding
But things have changed as of recent. Particu- importance to help achieve the development
ambitions of African nations.
larly in the past two decade, South Korea and
Africa have been increasingly recognizing

Electronic copy available at: https://ssrn.com/abstract=3299394

 September 21, 2018

In fact, South Korea has been hugely contrib- an companies and commodities in Ethiopia is
uting to the development of Africa, through its pulsating with energy as of recent. Manufac-
Korea International Cooperation Agency turing and construction companies, among
(KOICA), established in 1991 as a govern- others, are actively entering the Ethiopian
mental organization for Official Development economy these days. The products of South
Assistance (ODA) to enhance the effective- Korean corporations such as Daewoo, Hyun-
ness of its grant aid programs. With KOICA, dai and Samsung are increasingly making a
South Korea is performing well in supporting presence in Ethiopian markets. In fact a few
the socioeconomic development of Africa. Ethiopian agricultural products, such as coffee,
Based on each Country’s Development Strate- are becoming popular in South Korean mar-
gy (CPS), designed for the priority partner kets too.
countries, KOICA focuses its development
strategies on public administration systems,
investment, industrial infrastructure, rural de- II. South Korean Economic
velopment, education, health, and climate Performances in Ethiopia
change. KOICA has formulated and put in
place CPSs with 7 priority partner countries in In addition to the fundamental roles the gov-
Africa such as Ethiopia, Ghana, Mozambique, ernment of South Korea is playing in Ethiopia
Uganda, Rwanda, Senegal and Tanzania. in aid/assistance aspects, currently South Ko-
rean investors are showing excellent perfor-
Specific to Ethiopia, data from the National mance in several sectors. South Korean inves-
Planning Commission (NPC) and Ministry of tors commenced a good number of investment
Finance and Economic Cooperation (MoFEC) projects in Ethiopia in the early 1990s (Figure
of Ethiopia show that the support of the gov- 1). According to the data obtained from EIC,
ernment of South Korea through its KOAFEC 56 projects are already operational, 14 are at
and KOICA is of the essence to Ethiopian implementation stage and the remaining six
economic transformation, particularly for the projects are at pre-implementation stage.
current transformative leadership under H.E.
PM Abiy Ahmed. Since he assumed power in
A glance at the trend of South Korean in-
April 2018, PM Abiy has instituted significant vestment (Figure 2) gives an impression of
reforms and promised much more. In political- rising over the years, particularly in the 2000s.
economy aspects, he planned to liberalize the In the recent past (2017) alone, five South Ko-
state control over the economy, released thou- rean investment projects entered into the Ethi-
sands of political prisoners, reconciled reli- opian investment milieu. The current very
gious institutions, united the Diaspora com- pleasant relationship between Ethiopia and
munity, made peace with Eritrea and strength- South Korea, as well as the undergoing pro-
ened diplomacy with other neighboring coun- gressive political transformation under the
tries. So at this time South Korea’s aid is leadership of H.E. PM Dr. Abiy Ahmed (for-
much needed for Ethiopia, particularly in re- giveness, unity among ethnic groups, rule of
gard to the Republic of Korea’s Country Part- law and anticorruption outlooks) in Ethiopia,
nership Strategy for Ethiopia. hints at further increase in the South Korean
investment trend during the times ahead,
In the same way, the presence of South Kore- which will make even greater contributions to
the Ethiopian economy in numerous aspects.

The Economic Development Component of the Ethiopia-South Korea Relationship

Electronic copy available at: https://ssrn.com/abstract=3299394

 September 21, 2018

Figure 1. Trend of Korean investment According to the Exim Bank of Korea, the
companies in Ethiopia from 1991 to 2017
South Korean companies are engaged in or
80
about to engage in 187 projects in Ethiopia.
Number of investment companies

70
60
The transfer and investment values of these
50 projects totals around 46.5 million and over
40 28.6 million US dollars, respectively.
30

20 A case in point is EKOS Steel Mill Plc, one

10

0
of the major wholly South Korean heavy in-
1990 1995 2000 2005 2010 2015 2020 dustries in Ethiopia. It was licensed in 2014 to
Year
construct a heavy steel complex in Dukem
Source: Computed based on data obtained from EIC town (about 20 km east of the capital city of
The data obtained from the Ethiopian Invest- the Oromia region) on 12 hectares of land,
ment Commission (EIC) and Export-Import with a startup capital of about 24 million US
(Exim) Bank of Korea indicates that South dollars at the current exchange rate. It targeted
Korean investors in Ethiopia are mostly en- to produce annually 300,000 metric ton of re-
gaged in construction, manufacturing, busi- inforcement bars, wire rods, and rebars to
ness facility management, business support meet domestic demands and substitute imports.
services, rental, education sector, finance and It has already created over 120 job opportuni-
insurance, healthcare and social welfare ser- ties at its current implementation stage (ma-
vices, professional/scientific and technical chinery importation) and is expected to create
services, and wholesale business, agriculture more opportunities when it reaches the full
and communication technologies. There are capacity of its operational stage.
about such 76 licensed investment companies,
of which 61 are wholly South Korean and 15
According to NPC (Ethiopia), in addition to
its current huge contribution in various aspects,
are Ethiopian-Korean joint projects. The EIC
the presence of South Korea in Ethiopia per-
data indicates that the majority of the compa-
forms an enormous role in promoting Ethiopia
nies are involved in manufacturing, real estate
as one of the favorable investment destination
and related, education, healthcare & related
countries in the world. This, no doubt, will
sectors and construction.
help Ethiopia in achieving its long-term vision
Figure 2. South Korean investment in the economic sector i.e “to build an econo-
companies by sector in Ethiopia (1992 – my which has a modern and productive agri-
2017) cultural sector with enhanced technology and
80
an industrial sector that plays a leading role in
70
the economy; to sustain economic develop-
Number of projects

60
50
40 ment and secure social justice; and, increase
30
20 per capita income of citizens so that it reaches
10
0 at the level of those in middle-income coun-
tries” (MoFED, 2010).

Investment sectors
III. Capital Inflow from South
Korea to Ethiopia
Source: Computed based on data from EIC

The Economic Development Component of the Ethiopia-South Korea Relationship

Electronic copy available at: https://ssrn.com/abstract=3299394

 September 21, 2018

According to the study report to European The data obtained from the Ministry of Trade
Central Bank by Mileva (2008), foreign direct of Ethiopia shows that the average Ethiopia-
investment (FDI) constitutes the largest por- South Korea import-export CIF and FOB val-
tion of capital inflows in most developing ues over the last 10 years (2008-2017) are
countries in the world. Its contribution in some 162.5 million and 26.7 million US dollars,
countries is found to be around half of the total respectively. In fact, it shows a huge negative
national capital inflows. Mileva (2008) states balance towards Ethiopia. Ethiopia’s import
“…beyond adding to existing national capital from South Korea is tremendously huge and
stock, FDI stimulates investments in other sec- increasing as well.
tors of the host economy through ‘crowding
in’ or ‘spillover effects’.”
As a key component of the Ethiopia-South
Korea economic relationship, the import-
In view of the above supporting fact, Ethiopia export trade between the two countries plays a
is gaining a large amount of FDI as a result of vital role for economic transformation in Ethi-
its economic ties with South Korea. As indict- opia in that it enhances competitiveness of
ed in Table 1, FDI inflows from wholly South Ethiopian commodities by reducing the cost of
Korean and Ethiopia-South Korean joint ven- inputs and increasing the value adding tech-
tures between 1992 and 2017 in Ethiopia nologies to move up the global value chain. In
amounted to about 112,879,130 USD. this regard, UNCTAD (2014) clearly indicates
that “…in the post-2015 development agenda,
international trade should be seen as an ena-
Table 1. South Korea-origin FDI inflows to
Ethiopia (1992 – 2017) bler for achieving a broad range of develop-
ment goals through promoting inclusive and
(a) (b) (c) Total
Type sustainable economic growth.” Particularly, if
Capital in thousand US dollars
South properly harnessed, the opportunities brought
Korean- by international trade can be vital for invest-
364.6 10,520.9 2,231.9 13,117.3
Ethiopian ment stimulation, job creation, efficient re-
joint
source utilization, technology transfer, innova-
Wholly
South 20,265.5 22,412.0 57,084.4 99,761.9 tion, production efficiency and ultimately live-
Korean lihoods enhancement in developing countries
Total 20,630.0 32,932.9 59,316.3 112,879.1 such as Ethiopia.
Source: Computed based on data from EIC (Note: a: im
plementation, b: operational, & c: pre-implementation)
In view of these realities, the rising import-
export trade between Ethiopia and South Ko-
IV. Ethiopia-South Korea Im- rea certainly contributes tremendously to the
port-Export Trade Ethiopian economy and to South Korea as
well. It enables both countries access new
Looking at the spatiotemporal circumstances markets for their raw materials and/or fin-
of the Ethiopia’s international trade, most ex- ished/semi-finished goods and may open up
port destinations are European markets, while new production possibilities and technologies
imports origin mostly from China, Saudi Ara- for both countries. It certainly encourages ex-
bia and the United Arab Emirates (Yeshineh, port diversification for Ethiopia which, in turn,
2016). The Ethiopia-South Korea import- contributes greatly to job creation and balance
export trade started shooting up in the 1990s. of payment for the Ethiopian economy. In the
4

The Economic Development Component of the Ethiopia-South Korea Relationship

Electronic copy available at: https://ssrn.com/abstract=3299394

 September 21, 2018

same way, it has an immense role in enhanc- related

Transport,
ing the financial capacity of the local enter-
communication 0 24 0 24
prises and producers in Ethiopia and again and related
enables the Ethiopian people to consume Equipment
cheaper South Korean products compared to maintenance & 0 100 0 100
the costly European and North American related
Grand Total 5,440 11,220 1,296 17,956
items. Source: Computed based on data from EIC
(Note: a: implementation, b: operational & c: pre-implem
entation)
V. Technology Transfer and
Jobs Created by South Korean In view of the aforementioned realities, Ethio-
Investments in Ethiopia pia is currently benefiting from the technolo-
gies and skills it is transferring and adapting
As defined by Glass and Saggi (2008) from South Korea. Just to mention some, the
“…international technology transfer refers to Korean manufacturing and construction pro-
any process by which a party in one country jects in Ethiopia are introducing new ap-
gains access to technical information of a for- proaches of meeting the targets within a short
eign party and successfully absorbs it into its time while expending less energy, but at a su-
production process.” Concerning the im- perior quality. South Korean ways of business
portance of FDI in technology transfer, management strategy (business process re-
UNCTAD (2011) also lays emphasis on over- engineering) are also worthy of mention as
seas investment projects having a great poten- they have been adapted to the Ethiopian civil
tial to play key roles in narrowing the technol- service sector for over a decade.
ogy gap between the developed and develop-
ing countries. They are very important sources
The South Korean investment projects at all
in providing high-technology activities and the stages have created job opportunities for about
entire package of knowledge to the developing 17,956 Ethiopians of which about 16,660
world. They can transfer and diffuse various (92.7% of the total) are already employed in
forms of foreign operations to individual projects at the implementation and operational
member of staff and/or local firms in develop- stages. This will likely increase job opportu-
ing countries. nities and relative wages for workers, if
properly harnessed. In addition to job creation,
the projects have created opportunities for the
Table 2. Jobs created by South Korean in-
vestments in Ethiopia (1992 – 2017) employees to have access to Korean technolo-
gies and skills in various aspects related to the
Project status
Sector peculiarities of the projects. It is possible that
(a) (b) (c) Total
Agriculture 57 0 0 57
thousands of Ethiopians have gained advanced
Manufacturing 3,653 9,421 946 14,020 knowledge of electric installation, metallurgy,
Education 157 36 0 193 construction, textile and garment processing,
Health 1,345 762 50 2,157 and information and communication technolo-
Construction and
0 435 300 735 gies (ICT).
related
Hotels and
related
0 30 0 30 To wrap up the technology transfer and job
Real estate and 228 412 0 640 creation roles of the Korean investment com-

The Economic Development Component of the Ethiopia-South Korea Relationship

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 September 21, 2018

panies in a few words, the companies have of the people.

been creating a huge number of job positions
and opportunities for technology transfer Above all, if properly harnessed, the opportu-
throughout their investment projects in Ethio- nities brought by these activities can be a
pia. Quite a large number of Ethiopians have powerful force and has a great role to play in
been benefiting from the job positions created promoting inclusive and sustainable economic
and the technology/skill that have come in to- growth in Ethiopia.
gether with the occurrence of the projects.
This can be a decisive moment for Ethiopia to However, the Ethiopia-South Korea econom-
properly adapt the technologies so as to serve ic relationship must come to terms with vari-
the required national objectives. Particularly, ous challenges in order to make the best out of
the cutting-edge technologies and the export- the relationship. One of the key issues to be
led strategy growth trajectory approach of addressed in Ethiopia is establishing compe-
South Korea (Jones, 2012) will greatly benefit tent, proficient, accountable and transforma-
Ethiopia to adapt the strategy based on its do- tive leadership, who can foresee the economic
mestic priorities and targets. What very much and technological development situation in
matters from the Ethiopian side is to trying to South Korea and gear up the society to select,
establish responsive, accountable, capable and adapt and make the best out of it. The leader-
transformative leadership that can understand ship in Ethiopia should be able to align the
in-depth and adapt the development scenarios development policies/strategies so as to cata-
in South Korea these days. lyze the positive effects of the South Korean
investment in Ethiopia. It may be important to
focus on identifying the types of national poli-
VI. Conclusion and Policy cies/strategies and institutions that would har-
Recommendations ness the enabling power of Korean investment
projects in Ethiopia, and against that back-
As clearly indicated in the UNCTAD (2014) ground, design a coherent framework in which
publication, in the development context of the the development goals are sustained with re-
post-2015 development agenda, international spect to the policy mix and conditions required
economic cooperation and assistances are very to bring about the desired goals.
important enablers for achieving a broad range
of development goals in the world. Particular- Another key challenge in Ethiopia relates to
ly, FDI and trade are integral parts of the in- land tenure and human displacement. It is in-
ternational economic system and major cata- evitable that investment projects require a
lysts to local development, and carry particular piece of land to operate on. Land acquisition,
importance to developing countries such as in turn, displaces local people in most cases. In
Ethiopia. In view of this reality, the economic Ethiopia, investment projects have resulted in
cooperation between Ethiopia and South Ko- various social disarticulations, livelihoods dis-
rea is found to be fundamental for both coun- ruption, family breakages, public violence and
tries in various aspects. It creates a better in- even deaths in many parts of the country. It is
vestment environment for Korean investors the fundamental cause for the change of gov-
while benefiting Ethiopia in terms of job crea- ernment leaders, including the prime minister.
tion, entrepreneurship, technology/skill trans- Therefore, investment projects that inevitably
fer and in due course improves the livelihoods displace local residents are strongly recom-

The Economic Development Component of the Ethiopia-South Korea Relationship

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 September 21, 2018

mended to adequately compensate the dis- rea in this case) to establish strong and peace-
placees so as to sustain their livelihoods in a ful investors-farmers relationship.
more sustainable way than their pre-
displacement status. In fact, the displacees More to the point of environment vs invest-
must be compensated not only for the re- ment, currently South Korea has outstanding
sources and land use rights they are losing, but experiences in establishing eco-friendly in-
also for their psychosocial damages, as dis- vestment projects and nature-friendly cities
placement by its very nature results in psycho- such as Sejong (a pleasant city in which the
logical disturbances and social disruptions. city and nature are in harmony) that can be
The panacea for land related wide-ranging adapted to the Ethiopian situations. In this re-
problems in Ethiopia seems to be a drastic gard, Ethiopia is expected to fill in the gaps in
change in the current land policy in the coun- its policy frameworks to allow only nature-
try; straightforwardly “privatization of land.” friendly projects of this kind for sustainability
As recommended by Platteau (1996), such and efficiency of the projects which ultimately
policies help to ease land-induced conflicts, exceedingly benefits both countries at large.
enhance the efficiency of the land markets,
guarantee tenure security, and assure access to On the subject of the existing huge trade im-
loans. In fact, in the Ethiopian context some balance, one feasible option seems to be the
public lands must be kept under public owner- creation of favorable conditions (such as tariff
ship for vital government and public develop- relaxation) for Ethiopian export items (agricul-
ment schemes. tural and semi-processed outputs, to be precise
hides, skins, coffee, tea, oil seeds, and etc.)
In the same way, the government of Ethiopia from South Korean side. This helps the Ethio-
is recommended to be proactive to environ- pian emerging economy greatly in narrowing
mentally and socially sensitive investment sec- down its huge trade deficit at present and wid-
tors such as large-scale agriculture. This is ens the current limited Ethiopia’s export trade
because some forms of large-scale agriculture destination areas. It may also create wider op-
carry risks both for the hosting and investing portunities for South Korean enterprises to
countries. This may contribute to environmen- access Ethiopian raw materials and semi-
tal pollutions and human displacement, which processed items for their industries. Hence, it
are likely to generate harsh local public oppo- is recommended for Ethiopia to aggressively
sitions and damages to the investment projects. engage in negotiations for a bilateral trade
In Ethiopian culture, land is a very sensitive agreement with South Korea. In fact, it is also
resource and prone to provoke conflict that vital to encourage the Ethiopian private sector
may damage the reputation of the owners. In to develop market innovations with South Ko-
this regard, the government of Ethiopia is re- rea through incentive packages.
quired to have a comprehensive business
model as to how investments involve local By and large, Ethiopia needs not only to ob-
farmers as business partners, giving them an tain the technology, but to learn how to use it
active role and leaving them in control of their to its fullest potential, from the South Korean
land so as to have the most positive and sus- investment projects. In this context, to effec-
tainable effects on local economies and social tively leverage FDI, trade and government
development. In fact, this needs also strong assistance as a means to achieve technology
support from the investing country (South Ko- transfer and diffusion, Ethiopia needs to estab-

The Economic Development Component of the Ethiopia-South Korea Relationship

Electronic copy available at: https://ssrn.com/abstract=3299394

 September 21, 2018

lish an effective national innovation system Ministry of Finance and Economic Develop-
which provides an interface for technology- ment (MoFED) 2010. Growth and Transfor-
related activity, supports the development of mation Plan 2010/11-2014/15. Addis Ababa.
the absorptive capacities of domestic enter-
prises and their linkages with the projects. Ministry of Patriots and Veterans Affairs
There must be intelligibility between FDI pol- (MoPVA). 2012. The Eternal Partnership:
icy and other relevant policies such as educa- Ethiopia and Korea: A History of the Partici-
tion policy, international trade and/or export- pation of Ethiopian Forces in the Korean War.
import policy, agricultural development policy, Republic of Korea.
industry policy, technical and vocational edu- National Planning Commission (NPC). 2016.
cation strategy, innovation and technology Federal Democratic Republic of Ethiopia
policy, for proper integration. Most important- Growth and Transformation Plan II (GTP II)
ly, Ethiopia is required to enhance its policies (2015/16-2019/20) Volume I, Addis Ababa.
and leadership so as to cope with high-tech
development milieu in South Korea. It is im- Organization for Economic Co-operation and
perative to put it forward in plain words that Development (OECD). 2002. Foreign Direct
only transformative, accountable, capable and Investment for Development: Maximizing the
dedicated leadership will be able to sustaina- Benefits, Minimizing Costs, Overview, OECD
bly benefit the country. The commitment of Publications Service, Paris.
both countries to social, environmental and
transparency standards is also of the essence. Platteau, J. P. 1996. The Evolutionary Theory
of land Rights as Applied to Sub-Saharan Af-
rica: A Critical Assessment. In Development
and Change, Vol. 27, pp. 29-86.
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Acknowledgement
on Domestic Investment in Transition Econo-
mies, Working Paper Series No. 871, Europe- I am very grateful to the Korea Institute of
an Central Bank. International Economic Policy (KIEP) for

The Economic Development Component of the Ethiopia-South Korea Relationship

Electronic copy available at: https://ssrn.com/abstract=3299394

 September 21, 2018

granting me a Visiting Scholarship in August

2018.

The Economic Development Component of the Ethiopia-South Korea Relationship

Electronic copy available at: https://ssrn.com/abstract=3299394