Government on Emergency Footing to Boost Slumping Economy

MKE Minister Lee unveils his ministry's policies designed to promote industries

Minister of Knowledge Economy Lee Youn-ho answered questions posed by NewsWorld. In his written response, he discussed his Ministry's response to the difficulties facing Korean industries and businesses as a result of the global economic downturn. Minister Lee touched on policies concerning trade promotion, the need to develop new and renewable energy technologies, and the pursuit of a low-carbon society based on "green growth." Following are excerpts of this written interview - Ed.
Question: The Ministry of Knowledge Economy (MKE) serves as a guardian of the real economy. Will you tell our readers the details of MKE's strategy to cope with the slumping real economy?
Answer: MKE has established a support corps which provides comprehensive support to small and midsize enterprises (SMEs) that may be suffering from slumping exports and lack of liquidity as a result of difficulties in the real economy.
This support corps, headed by the Vice Minister for Industry and Technology, has three teams: the general oversight team, the on-site inspection team and the crisis evaluation team. Its purpose is to monitor the real economy, explore issues, and draft appropriate countermeasures.
The corps will draft and implement effective measures based on consultations with regional offices of the Small and Medium Business Administration (SMBA), major industrial complexes, and regional consultative and economic organizations.
To start, it will carry out a field survey to determine which types of businesses, including industrial complexes, are most likely to bear the brunt of the slumping economy. This work began on Dec. 1 in cooperation with automotive parts manufacturers across the nation.
Q: What's your Ministry's forecast for exports and the trade balance?
A: As the global financial crisis escalated, the International Monetary Fund (IMF), in an unprecedented move, adjusted downward its economic prospects for advanced and developing countries. This decision came one month after an initial forecast in October. The IMF forecast that GDP would grow 0.3 percent for advanced countries and 5.9 percent for developing countries in the fourth quarter of 2008, in contrast with its earlier forecast of 0.7 percent and 6.1 percent, respectively. It also predicted that advanced and developing countries would post growth rates of 0.3 percent and 5.1 percent in 2009, respectively, down from its previous prediction of 0.5 percent for advanced economies and 6.1 percent for developing economies.
For Korea, the decline in exports to advanced countries is offset by a rise in overseas shipments to developing countries, including oil-exporting and resource-rich nations. However, Korea is expected to see flat exports to both advanced and developing countries during 2009. In the first 10 months of 2008, Korea's exports shot up 8.7 percent for advanced economies and 25.7 percent for developing economies. However, the export growth rate slowed from 27.7 percent in September to 8.5 percent in October. The growth rate in the first 25 days of November was 15.7 percent.
Accordingly, slowing overseas demand could have an adverse impact on Korea's exports. Civilian think tanks, including the Samsung Economic Research Institute, predicted that exports for 2009 would see their growth rate decline to the single-digit range, recording approximately $485 billion.
On the other hand, imports are forecast to plunge next year. In particular, an expected drop in crude oil and raw material imports, which account for more than 60 percent of the nation's annual total imports, raise the possibility that Korea will post a trade surplus for next year.
Q: So far this year, foreign direct investment (FDI) into Korea has surpassed the $10 billion barrier. Will you give us the 2009 FDI outlook and discuss steps MKE is taking to invigorate FDI?
A: MKE announced that FDI had surpassed the $10 billion barrier as of Nov. 11. This represents a 42 percent surge compared with the same period last year, when the corresponding figure was $7.06 billion.
Korea has gained significant ground in attracting FDI, which had shown signs of declining for the third straight year since 2004. Figures released by the government showed that FDI declined from $12.79 billion in 2004 to $11.57 billion in 2005, $11.24 billion in 2006 and $10.51 billion in 2007.
MKE has conducted multifaceted activities to promote FDI; for example, we have held IR sessions in the United States, Japan and the Middle East. Despite the slumping global economy, the Ministry is stepping up efforts to realize this year's goal of attracting $12 billion in FDI. In this regard, the Ministry organized sessions in Hong Kong on Nov. 25 and in Singapore on Nov. 27 to help promising Korean SMEs attract investment.
Q: After a number of discussions and consultations, the New Growth Engine Planning Corps, which was established this past March, has made recommendations to the government focusing on 22 themes in six major industrial fields. Will you provide the details of these recommendations?
A: The corps, headed by KAIST President Suh Nam-pyo, consists of independent experts. Following a six-month-long process, this body explored 22 new growth engines in six areas and established an action plan to promote them. During a presentation session at the Electronics and Telecommunications Research Institute (ETRI) on Sept. 22, the corps proposed a New Growth Engine Vision and Development Strategy.
The six industrial fields include energy and environmental technologies and biotechnology -- sectors that are forecast to post high growth in consideration of such pending issues as climate change and an aging society. There will be a need for new transportation systems, new areas within the field of information technology, and new convergence industries. The corps considered such factors as the size of the global market, Korea's market share and technological capabilities, and the potential for job creation in the knowledge service industry and consequent spillover effect on other industries.
Following is a breakdown of the new growth engines according to industrial field. Within the energy/environment field, we have nuclear power plants and clean energy generation technologies involving coal, maritime biofuels, solar cells, carbon dioxide capture and utilization, and fuel cells. In the transportation sector, there are green cars, ships and marine systems. In the new IT field, we are fostering semiconductors, displays, next-generation wireless telecommunications, light-emitting diode (LED) lighting and radio frequency identification/ubiquitous sensor networks (RFID/USN). In the new convergence industry sector, we are fostering robots, new materials, and convergence industries involving nanotechnology, IT and broadcasting/telecommunications media. And in the knowledge service sector we have software, design, healthcare and cultural content.
Q: What steps are in place to beef up the competitiveness of the parts and materials industries?
A: The parts and materials sector, which accounts for more than 40 percent of the manufacturing sector in terms of production, employment and exports, has posted solid export growth rates. The parts sector raked in $128.8 billion worth of exports in the first eight months of this year, a 17.7 percent surge over the same period last year, while the materials sector posted a $34.7 billion trade surplus during the January-August period, representing a 9.15 percent increase.
The government is seeking to address such matters as the need for increased technological development and improved reliability in order to reduce Korea's trade deficit and dependence on Japan for core parts and materials.
We are focusing on making massive investments into the development of parts and materials technologies that can be commercialized at an early date.
We have established a plan to develop original technologies of the top 30 materials.
MKE is striving to facilitate collaboration between parts and materials manufacturers and client companies by providing support for better reliability.
We endeavor to expand joint international research with countries with the core technologies to produce better parts and materials.
We strive to encourage parts and materials manufacturers to specialize and grow through M&As, while at the same time providing support for the expansion of exports.
Q: Can you tell us about steps to strengthen the competitiveness of major industries?
A: The government seeks to shift Korea's mainstay industries, which are at world-class levels, to conform to the changing needs of the global market while making active efforts to enter overseas markets.
We are working hard to create the new industries of the future by laying a foundation for the commercialization of biotechnology areas with the potential to solve thorny issues concerning health and the environment, as well as for tech convergence in industries.
In the automobile industry, the government is putting more energy into the development and proliferation of environmentally friendly and highly efficient green cars, such as hybrid vehicles.
In the shipbuilding industry, we are striving to secure core and original technologies for value-added ships and maritime systems.
We're making all-out efforts to foster the textile industry as a high-tech material industry by integrating information technology, biotechnology and nanotechnology.
In the machinery industry, the government is pushing ahead with projects to develop original technologies for highly efficient and environmentally friendly high-tech production equipment.
We aim to transform the aviation industry into a new growth engine industry by expanding a self-sufficient foundation.
We're also trying to sharpen the Korean petrochemical industry's competitive edge.
The government is putting its heart and soul into securing a supply foundation by expanding its steel production capacity while bracing for the its entry to the future new materials market.
We're striving to create markets in order to industrialize the biotechnology sector.
Furthermore, the government is endeavoring to build up a foundation for nano-convergence in order to transform the nanotechnology industry into a new industry for the future.
Q: Of late, there were changes in government policies regarding the Seoul metropolitan area. Will you tell us about the future direction of deregulation efforts there?
A: The deregulation measure for the Seoul metropolitan area, announced on Oct. 30, will give companies more leeway in setting up and expanding plants within industrial complexes. Of the existing factories in the area, those in high-tech industries will be given priority when they apply for permission to expand.
The latest step is designed to eliminate undue restrictions that would excessively hinder corporate activities in the Seoul metropolitan area, while retaining the essence of the current regulations. The goal is to transform the area into a high-tech manufacturing center through a process that is effectively planned and managed.
This deregulation measure is consistent with the government policy of giving priority to the development of other regions before relaxing restrictions in the Seoul metropolitan area. In this regard, the government plans to put into high gear a plan to invigorate corporate investment and start-ups in other regions, and another plan to develop regions surrounding metropolitan districts. These plans were announced on July 21 and Sept. 10, respectively.
Q: The latest drop in crude oil prices appears to have somewhat eased the private sector's drive to explore overseas natural resources. Will you touch on the government's policies on the development of natural resources?
A: It is true that the latest plunge in crude oil prices and uncertainties about financial markets have worsened corporate investment conditions. However, Korean companies show a positive willingness to explore overseas natural resources, judging that the current crisis may present a good opportunity to secure promising projects.
As a result, there is no change in the government's policy goal of securing a stable supply of energy through the aggressive exploration of overseas resources.
So far this year, the government has procured a large number of projects, including the exploration of a natural gas field in Surgil, Uzbekistan, and the importation of pressurized natural gas (PNG) from Russia, thanks to its aggressive energy cooperation efforts via summit talks. The government has been ramping up efforts to build up a foundation for overseas natural resources exploration projects. We have established and implemented plans to expand the Korea National Oil Corp. (KNOC), offer greater financial support and designate a college specializing in natural resources exploration.
In the next year, the government plans to move forward with its positive approach to cooperation in the natural energy sector via summit talks, as well as its plan to make the KNOC a major global oil company. We will also provide support for expert manpower and core technology development.
To help companies which are experiencing difficulty in raising investment money due to the tumult in financial markets, the government plans to redouble its efforts to secure investment funds by granting more loans which are repayable upon success, by increasing financial support to companies, and by creating natural resources development funds.
Q: Will you tell us the plan for future new and renewable energy policies?
A: New and renewable energy development is a long-term project, looking ahead 10 to 15 years. Crude oil prices are forecast to hover over $100 per barrel in 2010 and thereafter and spiral in 2015 and thereafter.
The World Energy Outlook 2008, produced by the International Energy Agency, shows that crude oil prices, which rose from $33 per barrel in 2000 to $69 in 2007, will soar to $100 from 2015 through 2020 before spiraling to $110 in 2025.
Under a scenario in which crude oil prices are expected to hover over $100 per barrel, new and renewable energy sources, with the exception of photovoltaic energy and fuel cells, are considered economical. Thanks to technological development, photovoltaic energy and fuel cells will eventually be more economical than the conventional energy sources. Wind-power plants may prove to be more competitive than fossil fuels in the event that crude oil prices reach $50 per barrel.
This past September, the government announced a strategy to develop the green energy industries, including new and renewable energy sources, with the goal of realizing low-carbon, green growth. We are now striving to implement this strategy seamlessly.
Initially, the government is striving to foster the new and renewable energy industries as new growth engines through the creation of new technologies and new markets. This goes beyond our traditional role of simply securing a stable supply of energy.
Between 2008 and 2012 we will earmark 5.7 trillion won to provide financial support for such technologies at all stages: from R&D to testing, stimulation of demand and ensuring an abundant supply. We will also introduce such institutional changes as Renewable Portfolio Standards (RPS), a system requiring electricity companies to generate a certain amount of electricity from renewable energy sources.
If these steps proceed as planned, Korea will see new and renewable energy sources rising from just 2.4 percent of the total energy mix in 2007 to 4 percent by 2012 and 11 percent by 2030. The green energy industries will see production and employment soaring from $1.8 billion and 9,000 jobs in 2007 to $17 billion and 100,000 jobs by 2012 and $300 billion and 1.54 million jobs by 2030. nw

Minister of Knowledge Economy Lee Youn-ho