COUNTRY PAPER ANALYSIS

SOUTH KOREA
 DEMOGRAPHIC PROFILE
Population 50,924,172 (July 2016 est.)
Age structure 0-14 years: 13.45% (male 3,535,137/female 3,315,510)
15-24 years: 13.08% (male 3,515,779/female 3,146,084)
25-54 years: 45.93% (male 12,008,399/female 11,379,261)
55-64 years: 14.01% (male 3,521,569/female 3,611,481)
65 years and over: 13.53% (male 2,918,156/female
3,972,796) (2016 est.)
Dependency ratios total dependency ratio: 37.2%
youth dependency ratio: 19.2%
elderly dependency ratio: 18%
potential support ratio: 5.6% (2015 est.)
Median age total: 41.2 years
male: 39.7 years
female: 42.8 years (2016 est.)
Population growth rate 0.53% (2016 est.)
Birth rate 8.4 births/1,000 population (2016 est.)
Death rate 5.8 deaths/1,000 population (2016 est.)
Net migration rate 2.6 migrant(s)/1,000 population (2016 est.)
Urbaniz ation urban population: 82.5% of total population (2015)
rate of urbaniz ation: 0.66% annual rate of change (2010-
15 est.)
Major cities - population SEOUL (capital) 9.774 million; Busan (Pusan) 3.216 million;
Incheon (Inch'on) 2.685 million; Daegu (Taegu) 2.244
million; Daejon (Taejon) 1.564 million; Gwangju (Kwangju)
1.536 million (2015)
Sex ratio at birth: 1.07 male(s)/female
0-14 years: 1.07 male(s)/female
15-24 years: 1.12 male(s)/female
25-54 years: 1.06 male(s)/female
55-64 years: 0.98 male(s)/female
65 years and over: 0.71 male(s)/female
total population: 0.73 male(s)/female (2016 est.)
Mother's mean age at 31 (2014 est.)
first birth
Infant mortality rate total: 3 deaths/1,000 live births
male: 3.2 deaths/1,000 live births
female: 2.8 deaths/1,000 live births (2016 est.)
Life expectancy at birth total population: 82.4 years
male: 79.3 years
female: 85.8 years (2016 est.)
Total fertility rate 1.25 children born/woman (2016 est.)
Contraceptive 80%
prevalence rate note: percent of women aged 15-44 (2009)
HIV/AIDS - adult NA
prevalence rate
Population 50,924,172 (July 2016 est.)
Age structure 0-14 years: 13.45% (male 3,535,137/female 3,315,510)
15-24 years: 13.08% (male 3,515,779/female 3,146,084)
25-54 years: 45.93% (male 12,008,399/female 11,379,261)
55-64 years: 14.01% (male 3,521,569/female 3,611,481)
65 years and over: 13.53% (male 2,918,156/female
3,972,796) (2016 est.)
Dependency ratios total dependency ratio: 37.2%
youth dependency ratio: 19.2%
elderly dependency ratio: 18%
potential support ratio: 5.6% (2015 est.)
Median age total: 41.2 years
male: 39.7 years
female: 42.8 years (2016 est.)
Population growth rate 0.53% (2016 est.)
Birth rate 8.4 births/1,000 population (2016 est.)
Death rate 5.8 deaths/1,000 population (2016 est.)
Net migration rate 2.6 migrant(s)/1,000 population (2016 est.)
Urbaniz ation urban population: 82.5% of total population (2015)
rate of urbaniz ation: 0.66% annual rate of change (2010-
15 est.)
Major cities - population SEOUL (capital) 9.774 million; Busan (Pusan) 3.216 million;
Incheon (Inch'on) 2.685 million; Daegu (Taegu) 2.244
million; Daejon (Taejon) 1.564 million; Gwangju (Kwangju)
1.536 million (2015)
Sex ratio at birth: 1.07 male(s)/female
0-14 years: 1.07 male(s)/female
15-24 years: 1.12 male(s)/female
25-54 years: 1.06 male(s)/female
55-64 years: 0.98 male(s)/female
65 years and over: 0.71 male(s)/female
total population: 0.73 male(s)/female (2016 est.)
Mother's mean age at 31 (2014 est.)
first birth
Infant mortality rate total: 3 deaths/1,000 live births
male: 3.2 deaths/1,000 live births
female: 2.8 deaths/1,000 live births (2016 est.)
Life expectancy at birth total population: 82.4 years
male: 79.3 years
female: 85.8 years (2016 est.)
Total fertility rate 1.25 children born/woman (2016 est.)
Contraceptive 80%
prevalence rate note: percent of women aged 15-44 (2009)
HIV/AIDS - adult NA
prevalence rate
 GEOGRAPHIC PROFILE

Republic of Korea commonly known as South Korea:

its geographic location,history,government, climate,
security, tourism and international community.
South Korea densely populated severeign
presidential republic located on the southern half of
the Korean Peninsula in east Asia. Also known as the
land of the morning calm. It is neighbored by china to
the west, Japan to the east and North Korea to the
north. South Korea'a capital and largest city is Seoul.
The world's second largest metropolitan city.
 GEOGRAPHIC PROFILE
Location Eastern Asia, southern half of the Korean Peninsula
bordering the Sea of Japan and the Yellow Sea
Geographic 37 00 N, 127 30 E
coordinates
Map references Asia
Area total: 99,720 sq km
land: 96,920 sq km
water: 2,800 sq km
Area - comparative slightly smaller than Pennsylvania; slightly larger than Indiana
Land boundaries total: 237 km
border countries (1): North Korea 237 km
Coastline 2,413 km
Maritime claims territorial sea: 12 nm; between 3 nm and 12 nm in the Korea
Strait
contiguous z one: 24 nm
exclusive economic z one: 200 nm
continental shelf: not specified
Climate temperate, with rainfall heavier in summer than winter; cold
winters
Terrain mostly hills and mountains; wide coastal plains in west and
south
Elevation extremes mean elevation: 282 m
elevation extremes: lowest point: Sea of Japan 0 m
highest point: Halla-san 1,950 m
Natural resources coal, tungsten, graphite, molybdenum, lead, hydropower
potential
Land use agricultural land: 18.1%
arable land 15.3%; permanent crops 2.2%; permanent pasture
0.6%
forest: 63.9%
other: 18% (2011 est.)
Irrigated land 7,780 sq km (2012)
Total renewable 69.7 cu km (2011)
water resources
Freshwater total: 25.47 cu km/yr (26%/12%/62%)
withdrawal per capita: 548.7 cu m/yr (2003)
(domestic/industrial
/agricultural)
Natural haz ards occasional typhoons bring high winds and floods; low-level
seismic activity common in southwest
volcanism: Halla (elev. 1,950 m) is considered historically
active although it has not erupted in many centuries
Environment - air pollution in large cities; acid rain; water pollution from the
current issues discharge of sewage and industrial effluents; drift net fishing
Environment - party to: Antarctic-Environmental Protocol, Antarctic-Marine
Location Eastern Asia, southern half of the Korean Peninsula
bordering the Sea of Japan and the Yellow Sea
Geographic 37 00 N, 127 30 E
coordinates
Map references Asia
Area total: 99,720 sq km
land: 96,920 sq km
water: 2,800 sq km
Area - comparative slightly smaller than Pennsylvania; slightly larger than Indiana
Land boundaries total: 237 km
border countries (1): North Korea 237 km
Coastline 2,413 km
Maritime claims territorial sea: 12 nm; between 3 nm and 12 nm in the Korea
Strait
contiguous z one: 24 nm
exclusive economic z one: 200 nm
continental shelf: not specified
Climate temperate, with rainfall heavier in summer than winter; cold
winters
Terrain mostly hills and mountains; wide coastal plains in west and
south
Elevation extremes mean elevation: 282 m
elevation extremes: lowest point: Sea of Japan 0 m
highest point: Halla-san 1,950 m
Natural resources coal, tungsten, graphite, molybdenum, lead, hydropower
potential
Land use agricultural land: 18.1%
arable land 15.3%; permanent crops 2.2%; permanent pasture
0.6%
forest: 63.9%
other: 18% (2011 est.)
Irrigated land 7,780 sq km (2012)
Total renewable 69.7 cu km (2011)
water resources
Freshwater total: 25.47 cu km/yr (26%/12%/62%)
withdrawal per capita: 548.7 cu m/yr (2003)
(domestic/industrial
/agricultural)
Natural haz ards occasional typhoons bring high winds and floods; low-level
seismic activity common in southwest
volcanism: Halla (elev. 1,950 m) is considered historically
active although it has not erupted in many centuries
Environment - air pollution in large cities; acid rain; water pollution from the
current issues discharge of sewage and industrial effluents; drift net fishing
Environment - party to: Antarctic-Environmental Protocol, Antarctic-Marine
 ECONOMIC PROFILE
 - 4th largest economy in Asia and 11th largest in the world.
 - It is a mixed economy dominated by family-owned
conglomerates called Chaebols.
 - South Korea is famous for its spectacular rise from one of
the poorest countries in the world to a developed, high-
income country in just one generation. (Miracle on the Han
River)
 - The economy of South Korea is the global leader of
consumer electronics, mobile broadband and smartphones.
 - The economy of South Korea ranks no. 1 in the world in
ICT Development Index 2015 and 2015 Bloomberg
Innovation Index.
 Economic Growth
 Economic growth continued at a moderate pace
in 2016, supported by a supplementary budget
and record low interest rates. Growth is
projected to edge up from 2¾ per cent in 2016-
17 to 3% in 2018. Inflation is projected to
converge to the central bank's 2% target by
2018, and the current account surplus to remain
large at 6½ per cent of GDP. The Bank of Korea
reduced its policy rate to an all-time low of 1¼
per cent in mid-2016.
Interest Rates
 Interest Rates

South Korean Monetary Policy Committee left its

base rate steady for the eighth straight month at
record low of 1.25 percent at its February
meeting, as expected. While highlighting the
inflationary pressures on the demand side are not
expected to be high given the moderate pace of
domestic economic growth, policymakers said
they will closely monitor the uncertainties in
domestic and external conditions.
 Exchange Rate
South Korean Won 1.00 KRW
US Dollar 0.000868
Euro 0.000821
British Pound 0.000709
Indian Rupee 0.057942
Australian Dollar 0.001145
Canadian Dollar 0.001162
Singapore Dollar 0.001225
Swiss Franc 0.000876
Malaysian Ringgit 0.003865
Japanese Yen 0.099165
 Inflation

Consumer prices in South Korea increased 2

percent year-on-year in January of 2017,
following a 1.3 percent rise in the previous
three months and beating market expectations
of 1.5 percent.
Inflation
 Industry Growth
Major industries

A range of major export industries drives the South Korean economy.

- Electronics – South Korea is a global leader in electronics manufacturing,
including semiconductors and televisions. South Korean company,
Samsung, is a global leader in smartphone sales.
- Shipbuilding – The world’s three top shipbuilding companies are all from
South Korea: Hyundai Heavy Industries (HHI), Samsung Heavy, and
Daewoo Shipbuilding and Marine Engineering (DSME).
- Automotive – South Korea is the home of the Hyundai Motor Company –
the world’s fastest growing automaker by brand. Global car demand is
expected to continue rising.
- Petrochemicals – South Korea’s Ministry of Trade, Industry and Energy
(MOTIE) is forecasting strong growth for the South Korean petrochemicals
industry due to increased demand from key markets, in particular China.
 Industry Growth
Emerging industries

- Biotechnology – The South Korean Government funds the Korea Institute of Bioscience
and Biotechnology (KRIBB) that’s exploring potential solutions to problems facing
humanity. Areas of research that may lead to commercialization include medical
treatment, food, energy, and the environment. Privately owned South Korean companies
are making inroads in the biopharmaceutical field.
- Internet software and services – Koreans are avid consumers of digital media and apply
the lion’s share of their bandwidth resources to online gaming. Google has taken an active
role in nurturing South Korean Internet software and services companies, introducing
their favourites to the US to help them build a global profile. Science, ICT and Future
Planning.
- High-tech communication – South Korea has transformed into a high-tech economic
heavyweight, having applied substantial resources to research and development. As a
result, the country is now the world leader in patent activity, along with information and
communication technology.
- Tourism – The contribution of the tourism industry to the South Korean economy is
expected to grow more than double the average.
 Industry Competition
 Intensifying competition with China is a major factor in the
recent export slump for South Korea’s leading industries, an
analysis shows. With South Korea in close competition with
China in 10 out of 12 major industry categories, the results
highlight an urgent need to develop new high value-added
products and major industries.
 A report on factors behind the leading industry export slump and
the direction of restructuring published on June 29 by the Korea
Institute for Industrial Economics & Trade (KIET) showed South
Korea’s leading industries to be ahead of China in technology
and quality, but lagging in price competitiveness. An assessment
by KIET exports found South Korea topping China in technology
and quality for the major industry areas of automobiles,
shipbuilding, general machinery, and oil refining.
 Industry Leader

 The automotive industry in South Korea is the

fifth-largest in the world measured by automobile unit producti
on
and the fifth-largest by automobile export volume. While its
initial operations were merely the assembling of parts imported
from foreign companies, South Korea is today among the most
advanced automobile-producing countries in the world. Annual
domestic output first exceeded one million units in 1988. In the
1990s, the industry manufactured numerous in-house models,
demonstrating not only its capabilities in terms of design,
performance, and technology, but also signaling its coming of
age.
 POLITICAL CHARACTERISTICS
Attitude of Consumer in the Host Country

The Korean government opened its retailing market to

international retailers without limitations on the number or size of
foreign retail outlets, Korean retailers had to compete with
experienced international retailers such as Wal-Mart and Carrefour.
Further, new types of retailers (on-line retailing, specialty store,
discounters or category killers) emerged as new types of
competitors. Thus, a new competitive retail environment was born.
These market situations make the Korean marketplace a battlefield
of Korean domestic, foreign, uni-national, bi-national and hybrid
products. Korean consumers are charmed with a host of imported as
well as domestic goods.
 Action of Host Government

South Korean outward foreign direct

investment (FDI) and the extent to which
location decisions in a single country need to be
nested within the general theory of the
multinational firm
 Currency Inconvertibility

Freely convertible currencies have immediate

value on the foreign exchange market, and few
restrictions on the manner and amount that
can be traded for another currency. Free
convertibility is a major feature of a 
hard currency
 War

The Korean War is began when North Korea

 invaded South Korea. The United Nations, with
the United States as the principal force, came
to the aid of South Korea. China came to the
aid of North Korea, and the Soviet Union gave
some assistance.
 Inefficient Bureaucracy

South Korea’s growing MERS outbreak has laid bare

the country’s poor handling of disasters despite
President Park Geun-hye’s pledge to overhaul public
safety measures following last year’s ferry disaster,
experts say.

Since the first case was diagnosed on May 20, Middle

East respiratory syndrome has spread at an alarmingly
rapid pace in Asia’s fourth-largest economy, infecting
169 people and killing 25 of them in less than a month
 Corruption
 According to the 2014 Corruption Perceptions Index, which annually ranks
countries "by their perceived levels of corruption, as determined by expert
assessments and opinion surveys," South Korea was ranked 43rd. This was
the third highest rank in East Asia, behind Japan (15th) and Taiwan (35th).
 More recently, in 2015, Lee Wan-koo, former prime minister of South
Korea, resigned after being embroiled in a corruption scandal, which has
also damaged the reputation of the president, Park Geun-hye. Lee Wan-
koo had become prime minister in February 2015.
 As a result of such scandals, coupled with other incidents, such as the
Sewol disaster, a 2015 report released by the Organization for Economic
Cooperation and Development (OECD) showed that "[a]lmost 70 percent
of South Koreans distrust their government, while less than 30 percent of
them are confident in the nation's judicial system."
  
Government Policies and Regulation

 Temporary Regulatory Relief and Regulatory

Reform for New Growth Engine Industries
 Regulatory Information System (RIS)
 Expansion of Sunset Clause Legislation
FINANCIAL RISK CHARACTERISTICS

 INTEREST RATES
 INTEREST RATE
 At its first monetary policy meeting of 2017 on 13 January, the Bank of
Korea (BoK) announced its decision to maintain the base rate
unchanged at 1.25%, a decision in line with market expectations. The
BoK had lowered interest rates by 25 basis points in June 2016 in what it
had described as a preemptive move and has since refrained from
making any further changes to the rate.
 Against a backdrop of global uncertainties and concerns about the
domestic political turmoil, some of our analysts still have expectations
for further BOK easing toward the end of this year. Some panelists
project that the policy rate will be cut further to 1.00% at the last
meeting of the year. On average, FocusEconomics Consensus Forecast
panelists expect the base rate to end 2017 at 1.05%. In 2018, analysts
see the Bank maintaining its monetary stance and expect the base rate
to end the year at 1.03%.
INVESTMENTS
 INVESTMENTS

 Foreign Direct Investment in South Korea

increased by 6249699 USD Thousand in the
fourth quarter of 2016. Foreign Direct
Investment in South Korea averaged
1286089.07 USD Thousand from 1962 until
2016, reaching an all-time high of 7638784
USD Thousand in the fourth quarter of 2015
and a record low of 114 USD Thousand in the
first quarter of 1963.
INVESTMENTS
FINANCING
 TRANSPARENCY

Three (3) Elements of Transparency

 Freedom of Speech
 Freedom of Information Law
 Government 2.0
 COUNTRY RISK ANALYSIS
 Micro-assessment of country risk involves the assessment of a
country as it relates to the MNC’s type of business. It is used to
determine how the country as it relates to the specific MNC. The
specific impact of a particular form of country risk can affect MNC’s
in different ways, which is why a micro-assessment of country risk
is needed.
 Country Risk Rating was used as input to the UTASTAR method in
order to develop the country risk model to rank the countries
according to their creditworthiness. It is worth noting that the
ranking provided by Euromoney depicts some differences
compared with the grouping provided by World Bank. It is
considered as a reliable estimation, which has already been used in
many previous studies of country risk assessment.
Incorporate Risk in Financial Budgeting
 Risk Premium
The risk-free rate is the rate of return of low-risk investments such as
government-backed securities. The investments are then appraised using the
resulting discount rate. Investments that offer better returns are chosen.
 Payback Period
The time it takes for a project to pay back the amount of money invested is a
matter of concern to the investor.
 Certainty Equivalent
While appraising projects, future cash flows are estimated using probability
measures like forecasting techniques. These measures do not give a true picture
of future events.
 Sensitivity Analysis
The sensitivity analysis process involves identifying the factors that influence
the project's cash flows, establishing a mathematical relationship between these
factors and analyzing how a change in each of these factors affect the project's
cash flows. If a project's cash flows are sensitive to changes in any of the above-
listed factors, it is considered risky and hence avoided.
  
Impact of Selected Company

 South Korean government has proven unable to read the market by

constantlychanging stances in its economic outlook, exposing its
inefficacy in acting decisively against the market volatility. Investors
should be wary of the government’s lack of confidence.

 South Korea’s development over the last half century has been nothing
short of spectacular. Fifty years ago, the country was poorer than Bolivia
and Mozambique; today, it is richer than New Zealand and Spain, with a
per capita income of almost $23,000. For 50 years, South Korea’s
economy has grown by an average of seven percent annually,
contracting in only two of those years. In 1996, South Korea joined the
Organization for Economic Cooperation and Development, the club of
rich industrialized countries, and in 2010, it became the first Asian
country and the first non-G-7 member to host a G-20 summit.
 Impact on a Country

 South Korea’s performance as a ‘tiger’ economy

during the 70s, 80s and early 90’s obscured
fundamental structural imbalances arising from
the special treatment and resultant dominant role
of chaebol in the domestic economy. The effect of
this corporatist culture was to divert resources,
particularly financial, to these favoured
companies starving other sectors of the necessary
funds and skills to emerge in their own right.
 Impact on Exchange Rates,
Investments and Economic
 Four government entities are in charge of foreign exchange activities in
South Korea: the Ministry of Finance and Economy (MOFE), the Bank of
Korea (BOK), the Financial Supervisory Service (FSS), and the Korea
Customs Service (KSS). The ministry sets the overall foreign exchange
policy, and the Bank of Korea holds and manages the foreign reserves,
while managing all transactions pertaining to foreign trade and capital
movements. It also supervises money-changers and foreign-exchange
brokers, and provides foreign-exchange banks with foreign currency
loans. The FSS supervises financial institutions that are involved in
foreign-exchange activities. The KSS has some foreign-exchange
regulatory responsibilities towards international trade. Apart from these
government regulatory and supervisory institutions, banks involved in
foreign exchange have the authority to engage in such financial
transactions, including international banking.
 Country Risk Rating
 A3
Changes in generally good but somewhat volatile political and
economic environment can affect corporate payment behavior. A
basically secure business environment can nonetheless give rise to
occasional difficulties for companies. Corporate default probability
is quite acceptable on average.

 Business Climate Rating

The business environment is good. When available, corporate
financial information is reliable. Debt collection is reasonably
efficient. Institutions generally perform efficiently. Intercompany
transactions usually run smoothly in the relatively stable
environment rated A2.
 Country Risk Rating
STRENGTHS
 Diversified industrial base
 Leader in high-quality electronics
 Excellent education system
 High level of public R&D spending
 Growing Korean investment in China, Vietnam and India
 Health public finances

WEAKNESSES
 Steel, textile and naval industry affected by Chinese competition
 High volume of commodities imports
 High household and small business debt levels
 Ageing population
 Unpredictability of North Korean regime
 BUSINESS OUTLOOK

 Output growth remains below potential

More expansionary
macroeconomic
policies and
progress in
structural reform
are necessary
Output growth is projected to edge up to 3% in 2018

 Output growth will be supported by the projected pick-

up in world trade. This will also boost business
investment, offsetting a gradual decline in residential
investment following the tightening of regulations on
mortgage lending. Private consumption is likely to gain
traction as the household saving rate, which has risen
from 4% in 2012 to nearly 9%, is expected to stabilise.
With oil prices assumed to stay around recent levels,
headline consumer price inflation is projected to rise to
close to 2% in 2018, while the current account surplus
falls to 6½ per cent of GDP.