Bangladesh-South Korea: Enduring friendship
South Korea has been a good friend and development partner of Bangladesh for long. This year, they are celebrating the anniversary of their diplomatic relations of four decades. South Korea has extended significant cooperation and support to Bangladesh since early 1970s. A strong development partner of Bangladesh, South Korea opened its embassy in Dhaka in early 1975, more than a year after the establishment of diplomatic relations in 1973. Bilateral relations cover a wide range of areas that includes trade, investment, infrastructure development, human resource development, and science and technology.
From almost similar socio-economic performance back in early 1960s, South Korea emerged to be an 'Asian Tiger' in early 1990s. It speaks volumes about the country's developmental ambition to become an East Asian economic powerhouse. Its GDP crossed $1 trillion in 2011 with a per capita GDP of $22,424. It entered the elite club, the Organisation for Economic Co-operation and Development (OECD), in 1996. It is amongst the countries highly integrated with the world economy.
It has emerged to be an important potential destination of manpower export of Bangladesh. Bangladesh-South Korea bilateral trade reached $1.76 billion in 2011-12. From a meagre $22.86 million in 2005, exports to South Korea were worth $209.7 million in 2011-12 and $226.9 million in July 2012 to May 2013, which implies 123% growth per year.
In terms of volume, imports also increased considerably by the same period, from $446 million to as high as $1,551 million, with annual average growth rate of 41%. South Korea occupied the 3rd position as import source of Bangladesh surpassing Japan, Singapore and Hong Kong. The bilateral trade as the share of total trade with the world shows a growing trend, from 6.82% in 2000 to 9.44% in 2011-12. Thus, Bangladesh economy is becoming gradually more integrated with South Korea's, and increasingly opting for South Korea as its major import source.
Bangladesh maintains a small basket of exports to South Korea. 35.07% of export receipts come from raw hides and skins (other than fur skins) and leather (HS code 41), followed by woven garments (29.22%). These two contribute nearly two-thirds of the country's export basket to South Korea. Knitwear is also in the list of top three, but its export share is considerably low -- only about 9% of total exports. Only ten commodities at HS-2 code contribute more than 97% to the total export basket, ranging from minerals, food items, footwear, tobacco, toys, and raw leather. Tanned or crust hides and skins of bovine (HS 41044900) earns about 34% of the total exports, followed by woven garments (men's or boys' jackets and blazers) and copper waste and scrap, which are together worth more than half of the total export receipts.
Import items are more diversified as top ten items (HS-2 level) contribute about 76%. They include iron and steel (25.1%), followed by ships, boats and floating structures (14.7%), paper and plastic items (13.7%), boilers and machinery (5.7%), and minerals. These items play a crucial role in Bangladesh's manufacturing sector, domestic value addition, and export to the critical export destinations.
Bangladesh also witnessed significant flow of FDI, both 100% and joint venture, which are highly employment intensive in nature. It is also becoming an important source of remittance, albeit of small annual manpower export. Moreover, South Korea provides considerable foreign assistance, which is mostly in terms of loan.
The stock of FDI from South Korea has been increasing steadily. From $162.23 million in end-2000, it increased to $ 436.5 million in June 2012. Thus, it grew at around 169%, and annually on average by 14.7%. At end-June 2012, FDI inflow from South Korea was $46.34 million, which was the 2nd among the top investing countries. Majority of FDI in January-June 2012 came to textiles and apparel (about 91%).
South Korea has already invested considerably in the Export Processing Zones (EPZ), energy, RMG industry and infrastructure development sectors in Bangladesh. Now it is interested to increase its volume of investment in infrastructure, energy, RMG, textile and ICT. The new areas of investment include jute and leather. Recently, Samsung group expressed high interest to invest in Bangladesh for manufacturing Smart Phone, which would generate employment for 50,000 people.
South Korean Trade-Investment Promotion Agency (KOTRA) opened its office in Dhaka in 1978. South Korean entrepreneurs came to the country to set up garment factories in the late-1970s in accordance with Multi-Fibre Agreement (MFA), which provided unique opportunity to Bangladesh to establish RMG industry. The boom in Bangladesh's RMG industry, which mostly drives its economy, is due to initial training from Korean Daewoo Corporation back in 1979.
Bangladesh is Korea's priority partner country when it comes to development cooperation as it is the fourth largest recipient of Economic Development Cooperation Fund (EDCF) loan from Korea. Karnaphuli EPZ in Chittagong, the first private EPZ in Bangladesh, expects to attract investment of $1.3 billion from South Korea when it is fully operational.
There is a growing trend of manpower export to South Korea. Since Bangladesh already has government to government (G-2-G) agreement with the South Korean government, workers can be exported with low migration cost. Between 1994 and 2012, the total manpower export to South Korea was 27,581, which was 0.35% of total export.
Under Korean International Cooperation Agency (KOICA), bilateral MoU was signed on June 16, 1993. Under this MoU, $31.44 million was granted for 16 projects up to June 30, 2012. Ten projects worth $17.14 million have already been completed. South Korea has also been offering generous support to Bangladesh in voluntary service and training for long. Korean volunteers and physicians come and stay for around two years under World Friends Korea. It covers health, rural development, ICT development and teaching of Korean language.
It is believed that Bangladesh has huge untapped export potential to South Korea, which should be realised through removing behind and beyond the border constraints. As Kabir (2013) shows, the long-term untapped export potential is as high as 46%. It means that Bangladesh can increase export to South Korea significantly by removing behind the border constraints such as infrastructural and institutional barriers.
Trade and investment would be the most important areas that should be harnessed in the near future to build on successes so far in the four decades of economic partnership. There should be reforms in the trade regimes so that tariff barriers are minimised to enhance consumer welfare of both the countries. In doing so, there is a need for preferential market access of Bangladeshi products to South Korea through further liberalisation, which would help in reducing the mounting trade deficit disfavouring Bangladesh. The other key recommendations for further strengthening bilateral relations and building on past successes would be as follows:
· Increasing KOICA's grant;
· Attracting investment in research and development (R&D);
· Utilising opportunities in Korea in education and HRD. Further training facilities should be explored in agricultural R&D, bio-technology, ICT, light and heavy manufacturing, and extraction sectors;
· Strengthening cooperation in science and technology;
· Establishing heavy manufacturing plants with support from Korean technology and big manufacturing industries;
· Addressing institutional problems, like entry and institutional barriers;
· Strengthening G-2-G cooperation in manpower export for exploring further opportunities;
· Reducing risks and uncertainties as well as confrontations to reap maximum benefit to facilitate attainment of double-digit growth and developmental targets.
The writer is an economist and Senior Research Fellow, BIISS.
E-mail: [email protected].
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