Korea's Engagement Opportunities with the African Consumer Market Through Industrial Zones

Abstract

Unlike previous discussions on Africa that have focused on its commodities, recent focus has shifted to the potential of Africa's consumer market. Africa's remarkable economic growth and a population of 12 billion, which continues to expand in line with urbanization, has encouraged the development of the middle-income class. The increasing number of modern retail stores and supermarkets in the major cities illustrate the growth of Africa's consumer market. Yet, Africa's consumer market remains fragmented because of the poor logistical infrastructure, complex trade regulations, and political hostilities that limit trade between countries. As a result, inter-Africa trade remains at 12% of Africa's total trade while that of Western Europe and the Asia Pacific is at 61% and 39% respectively. Moreover, the majority of manufactured goods are imported because there is a lack of skills, equipment and knowledge as well and land ownership issues among other factors. The influx of cheap imported goods across a wide range of industries covering textiles, plastics, machinery, electronics, construction materials and others have also hindered the growth of the manufacturing sector in Africa because of its low cost competitiveness. Despite the merits of engaging with Africa, the trade volume between Korea and Africa has remained minuscule because of geographical and logistical barriers. Against this background, utilizing industrial zones in Africa would be an effective way for Korea to engage directly with the African consumer market. Eastern Africa, Ethiopia in particular, should be prioritized as an entry point because of its relative political stability, improving business environment and intensity of intra-regional trade. In terms of focus industries, although agriculture, textiles and minerals are the most consumed and exported items yet in Africa, Korea should prioritize production of machinery, petro-chemical products and non-mineral goods because better competitiveness in these areas. China has taken an aggressive stance by creating large-scale independently funded industrial zones exclusively for Chinese firms. However, Korea should take care in its approach to utilizing industrial zones. Operational and effective industrial zones are still limited to Morocco, Ethiopia and Mauritius because land regulations are unclear and the number of experts to plan and operate industrial zones are few. Corruption is another issue that needs to be addressed. Therefore, collaborating with local governments in planning and utilizing industrial zones would be necessary to minimize the dangers.