Africa learns lessons from Korea

By Wilfred Nyangena,

There are lessons Kenya and even the entire sub Saharan Africa can learn from Korea. Obviously, all lessons taught concerning the growth and prosperity of Korea are not relevant for Kenya.

After gaining independence in 1963, Kenya was ahead of Korea in per capita GDP. They were almost at par in 1976. However, since then Korea leapt ahead and has enjoyed rapid economic growth.

The dramatic history of living standards on the peninsula showed that institutions - particularly the government - matter for economic growth.

The important lesson is that the government has to take the leading role in developing and continuously revise the policies and legislation.

Relevant lessons from Korea to Kenya could possibly focus on building institutions and capacity within areas such as education and training in all spheres, encouraging links between ``sister organizations" ― universities, research institutes, cultural troupes, identifying opportunities for collaboration that will lead to the transfer of relevant lessons from Korea to Kenya.

Bringing Korea from a very poor rural society to the affluent ``post- industrial" society of today has been a long process involving complex interactions between dominant societal, economic and political trends of the last 50 years ― industrialization, urbanization, democratization and political empowerment, capitalism, trade and redistribution of incomes.

The shift into a major industrial giant has obviously been closely intertwined with and affected by these processes, but also, in a not insignificant way contributed to the speed, character and success of some of them. Some key issues help explain the evolution of the Korean economy and society.

Korea has a long history of relatively consistent and stable macroeconomic policies. The Kenyan government needs to consolidate efforts made so far toward attaining macroeconomic stability. There is an urgent need to maintain low inflation, manageable budget deficits, maintaining appropriate and stable real exchange rates and interest rates so as to spur confidence among investors.

Another key factor of success was an investment in human capital (education). Korea spent over 15 percent of its total budget on education (highest level among all the developing countries) at the time. A competitive education system and a highly skilled and motivated workforce drove this knowledge economy.

Kenya has increased its investment in education, although the allocation still stands at about 1 percent of the budget on education. Human capital investment should emphasize more on knowledge and skill intensive activities, and the ability to commercialize new ideas and knowledge for societal gain.

Through export-first strategy, Korea maintained high rates of investment. There is thus need for Kenya to liberalize its trade regimes by pursuing well-thought out export liberalization and promotion policies, as well as import liberalization in the long term. Liberalization should recognize the competitiveness of the domestic enterprises.

Both economies in the 1960s were more or less agriculture-based. The growth-first development policy in Korea reduced weight on agriculture and more focus on manufacturing and service sectors. Korea's gross domestic product amounted to $929 billion in 2009. Kenya's agriculture contributes a huge share to the GDP (it's wrong to shift from this) but, the government should undertake simultaneous improvements in both agriculture and manufacturing sectors since the bulk of industries is agro-based.

Korea increased industrial capacity through existing companies rather than through startups. Concentration on large firms causing a huge gap between large and small firms should be discouraged. Kenya has embraced industrialization as a way to transform its economy. Emphasis should be on industries for promoting exports.

In Korea, domestic investment exceeded domestic savings. It borrowed heavily to finance this investment resulting in high foreign debt. The Kenyan government has started initiatives to increase domestic investment. Massive borrowing from external sources may not be justifiable in Kenya's case.

The writer is a researcher at University of Nairobi. This article is the gist of his paper written in association with the Academy of Korean Studies. He can be reached at Nyangena_wilfred@mail.uonbi.ac.ke.