Invigorating the economy: Interview Mr. Choi Kyung-hwan, Minister of Knowledge Economy

Elected with a national mandate to invigorate the Korean economy, President Lee Myung-bak merged the Ministry of Commerce Industries and Energy (MOCIE) with parts of the Ministry of Information and Communications the Ministry of Science and Technology, and the Ministry of Finance and Economy to create the current Ministry of Knowledge Economy.
Today the Ministry has considerable jurisdiction in creating a more business-friendly environment. It pushes for development of new growth engines by supporting Information and Communications Technologies (ICT) and high-end manufacturing.
It also promotes foreign trade, pursues Foreign Direct Investment (FDI), and champions efficient markets. Furthermore, the Ministry is mandated to engage in energy cooperation projects, expand renewable resources and distribution networks, and craft environmentally-friendly economic policies.
I interviewed Mr. Choi Kyung-hwan, Minister of Knowledge Economy, wherein he outlined his priorities.

-The amount of foreign direct investment in Korea that was reported to the government in the first quarter of 2010 declined 8.2 percent to $1.54 billion; the corresponding figure for 2009 was $1.67 billion. Investment from European countries increased 34 percent, whereas investment from the United States decreased 81 percent and investment from Japan decreased 62 percent. This decline can be attributed mainly to a continued trend toward lower FDI worldwide, the appreciation of Korea currency, and other factors accompanying an overall slowdown in the global economic recovery.

However, positive changes are also taking place. Countries investing in Korea are diversifying, and investment in the service industry has increased 8.6 percent. This will no doubt create jobs. Given the recent acceleration of the global economic recovery and improvements in the domestic investment environment, FDI inflows are expected to pick up after the second quarter.

In addition, the Korean government plans to concentrate its efforts on realizing its FDI target of $13 billion this year. In the short run the government will hold customized national investor relations sessions, taking into account the different needs of advanced and emerging economies. We also intend to resolve difficulties that some foreign-invested companies have experienced by launching a new and more effective system to handle complaints.

In the longer term, the government intends to attract investment by improving its investment environment. We will expand the incentives we offer for investment in industries that can promote sustainable growth. These include green new growth engines such as renewable energy, materials and components, and others. We will also make a concerted effort to attract investment in the service sector, an area with enormous potential for job creation.

-The objective of Korea green growth policy is twofold: to preserve the natural environment and to promote sustainable growth. As of 2007, Korea ranked 38 in the world in terms of GDP per capita. As Korea is a nation with immense growth potential, we must encourage sustainable economic and employment growth by stepping up our efforts to address climate change. This means improving energy efficiency, utilizing clean energy sources, and strengthening industrial competitiveness through industry convergence and R&D innovation.

The Framework Act on Low-Carbon, Green Growth, enacted on April 14, 2010, includes provisions that will allow Korea to set appropriate targets for energy conservation and the reduction of emission levels and to promote green investment through a green certification system. The system and targets will be in place by the end of the year.

The government is working hard to implement proactive policies on renewable energy and energy conservation, and to strengthen the institutional framework for greater utilization of renewable energy. Before the end of May, we intend to finalize our strategy to enter the overseas renewable energy market with the goal of creating an export industry. Before we can adopt the Renewable Portfolio Standard as planned in 2012, the Enforcement Decree will need to be revised; a detailed action plan will be established by the end of June.

The Ministry of Knowledge Economy is working to facilitate green growth and achieve its emissions reduction target by means of various direct and indirect support policies. Going forward, we will continue to provide support for low-carbon, green growth in the form of tax credits and loan programs.

As part of these efforts, we have a program under which companies can borrow as much as 80 percent of the amount they need to invest in energy-saving facilities. Small and midsize companies are eligible to borrow up to 100 percent. In February 2010, the government raised the cash grant ceiling for certain products with the potential to attract foreign direct investment's in the new growth engine and green growth industries.

Indirect support includes tax credits. With the launch of the Green Certification System on April 14, it is now clear to investors which projects fall into the category of green technology projects and which companies are recognized as specialists in the green industry. Once the program is fully operational, relevant government offices will be able to consult with one another on ways to expand tax credits and other support.

-Korea depends on imports for 96.2 percent of its energy needs (2009 figure). According to the International Energy Agency, Korea is the worlds No. 10 consumer of energy and its No. 9 consumer of petroleum (2007 figure). There is a compelling need to enhance energy independence, because fluctuations in international energy prices can have profound effects on key economic indicators such as the current account balance.

By improving energy efficiency and expanding the use of clean energy sources, Korea intends to make a concerted effort to reduce its dependency on fossil fuels to about 60 percent by 2030. We intend to manage demand in various sectors (industry, transport, household, commerce) so as to improve energy efficiency at an annual rate of 2.6 percent between now and then. During the same time frame, we will adjust the nations energy mix so that renewable energy accounts for 11.5 percent and nuclear energy accounts for 27.8 percent. We will also develop the green industry in an effort to transform Korea's industrial structure into one that consumes less energy.

-Given the vulnerable position of small and midsize enterprises (SMEs), most countries are pursuing SME support measures. Korea is no exception and our support measures include tax incentives, general support for businesses, technology development support, and efforts by public bodies to procure the products of SMEs.

Because SMEs were less competitive than large companies, they were hit especially hard when the global financial crisis struck in September 2008. Accordingly, the Korean government took prompt measures to overcome the crisis. We provided a massive injection of liquidity for SMEs we extended the maturity date on 160 trillion won worth of loans to SMEs, expanded loan guarantees by 37 trillion won, and increased the guarantee rate as much as 100 percent in some cases.

The government now plans to revise its SME support policies to ensure that they reflect the interests of the self-employed, small traders and small enterprises. Our goal is to promote the development of SMEs and help them grow stronger. At the same time, the government will adhere to the principle of fair competition. By nurturing and supporting SMEs, we will encourage those with potential to pursue development step by step into larger companies.