Korea rushes for resources, infrastructure in Africa

05-Nov-2011 Intellasia | Korea Herald | 7:01 AM Print This Post

After a decade of ceaseless pushing for growth, the BRICs appear to have begun slowing down.

Now Asia, which steered a global shift in economic gravity, faces spillover threats from teetering rich countries. Regardless, the success story continues ? in Africa, the last frontier.

Powered by surging foreign investment and exports of natural resources, six of the world’s 10 fastest-expanding economies over the last decade were African ? Angola, Nigeria, Ethiopia, Chad, Mozambique and Rwanda. The World Bank forecasts 5.3 percent growth for sub-Saharan Africa this year.

A multitude of Korean firms are accelerating their move to grab a share in the burgeoning market. After starting off in mining, they have now branched out into electronics, power generation, telecommunications and other infrastructure.

Despite persistent inflation pressures fueled by spiking food and fuel prices, the outlook remains upbeat largely owing to rising domestic demand and government spending on infrastructure, economists say.

“African countries are now receiving attention as potential consumption markets and production bases, as well as sources of natural resources,” said Kim Hwa-nyeon, a researcher at Samsung Economic Research Institute.

The region’s vast mineral deposits have served as the foremost force behind the massive inflow of foreign capital. As of 2010, Africa accounts for about 12.3 percent of global oil production and 6.5 percent of gas output. It holds major reserves of platinum, diamond, cobalt, chrome, manganese and other metals.

So for Korean firms such as POSCO, SK Innovation, Daewoo International and STX, the region proved a fresh source for revenue and steady supplies amid surging commodity prices.

POSCO is developing an iron ore mine in Cameroon, a copper field in the Democratic Republic of Congo and a coal reserve in Mozambique. In Zimbabwe, it agreed with local firm Anchor Holdings to launch a mining venture.

The state-run Korea Gas Corp. made a breakthrough last month when it discovered 15 trillion-cubic-feet of natural gas reserves off the coast of Mozambique, 10 percent of which belongs to Korea, sufficient for the country’s needs for a year.

The Ministry of Knowledge Economy projects around 25 local firms will more than triple their investment to $7 billion in developing overseas resources this year, versus about $2.2 billion a year ago.

Other explorers include SK Innovation, which has stakes in eight oil fields in six African countries including Algeria, Equatorial Guinea and Cte d’Ivoire. The Korea Resources Corp, a state-run miner, is striving to gain footing in the region to develop soft coal, uranium and copper.

Africa is also drawing attention as a future hotspot for the global telecom and personal device industry, for which local electronics giants Samsung and LG lead the pack.

Samsung said last May it aims to gain $10 billion in revenue by 2015 in sub-Saharan Africa with its consumer electronics and mobile gadgets.

To that aim, the world’s largest maker of panels and smartphones regionally crafted air conditioners and flat-screen TVs with a safeguard against sudden power cuts and humidity, and used solar rechargeable batteries for laptops. It set up a local unit in South Africa in 2009.

LG, the second-largest TV maker, teamed up with Emirates Telecommunications Corp., known as Etisalat, in June to enter the Middle Eastern and African markets.

Under the deal, LG will supply its TV content to Etisalat, which boasts more than 200 million subscribers of fixed-line and mobile phone and Internet Protocol TV services in 18 countries in the two regions. It targets a 40 percent market share of the 3-D segment there.

“Much of the growth in Sub-Saharan Africa came from improved domestic demand, which contributed 5.4 percentage points to the GDP increase last year,” the World Bank said in a report.

“The strength of domestic demand is observed in a number of sectors, for instance telecom services.”

In infrastructure deals, STX embarked on its $10 billion programme with Ghana early this year to install residential complexes and urban facilities in 10 cities including Accra, the capital, over the next five years.

In 2009, Hyundai Heavy Industries, the world’s largest shipyard, won an order from the South African government to provide high voltage transformers worth $250 million.

“In spite of low income levels, cities like Nigeria’s Lagos and the Congo’s Kinshasa are expected to continue growing based on cheap labour and the concentration of population powered by their rapid urbanisation,” Lee Won-hee, another researcher at SERI, said in a report.

Underpinning the brisk expansion by industry frontrunners is the government, which provides its know-how of national and rural development and funds for infrastructure projects and poverty reduction.

Last year, the Korea Communications Commission and the South African government forged a partnership for wireless broadband and mobile and Web-powered TV services in the African country.

President Lee Myung-bak called Africa the “hope for the future of this planet,” vowing to help with the region’s prosperity during his visit to Ethiopia in July.

“African economic development driven by its billion people will create new demand, greatly contributing to the constant growth of the global economy in the 21st century,” Lee said at Addis Ababa University.

Such strategies would help Korea gain a competitive edge against mighty competitors such as China and other western leaders, said Kim of SERI.

The race is heating up. Japan has powerful trading firms. Mining giants from the US and Europe are raising their bets. Backed by its super-government, China has been pumping multiple billions into the region despite concerns that its enormous push could be disturbing efforts to revamp Africa as a more mature and transparent economy.

“The first tasks for Korea would be to establish mid- to long-term partnerships to understand the market, culture and society, as well as an effective network, considering that information on development and investment in Africa is usually closed and unsystematic,” he said, adding that firms should focus on sectors like construction and information technology given their global competitiveness. -By Shin Hyon-hee

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