Chemical sector continues be backbone economic growth

Chemical sector continues to be backbone of economic growth

6:20 AM, 13th December 2017
Chemical sector continues to be backbone of economic growth
South Korea continues to adopt enhanced technology from various developed countries to compete as a global and regional chemical hub. (File photo)

By Sonal Srivastava

Despite a series of political turmoil and wars in 1953, Korea has continued to witness prolonged economic growth over the years. Its economy has travelled a path of revival with the constant and robust development in the manufacturing industry. The economy of Korea mainly thrives on the development of the manufacturing industry. In the aftermath of the devastating war, chemical industry has contributed majorly towards rebuilding the economic structure of Korea. On the back of strong manufacturing and technology sector, Korea has been able to maintain a strong position in the global economic order.

A recently published Future Market Insights news report states that the global demand for goods produced in South Korea has improved, which has continued to support growth in the second half of 2017. According to the government of Korea, the economy is expected to expand at 3 percent in 2017. The news report further mentioned that this has been the fastest growth witnessed since 3.3 percent in 2014. In line with the expanding national economy, the chemical sector ranks as the third largest industry in Korea, and fifth in terms of production globally.  

Emergence of Economy through Shambles

Following the devastating war, the economic structure of Korea was left under the shambles of untamable inflation rates and disruptive production activities. Marked by the advancing technology, globalization and rapid industrialization, the economy of Korea has continued to travel on a promising path. The chemical industry has significantly contributed towards the economic development of South Korea. To recover from the economic turmoil, the government authorities initiated the Soviet-esque Heavy and Chemical Industrialization Five-year Plan in order to boost competition globally in terms of machinery, chemicals and electronics. Initiation of the industrial drive led to an increase in the per capita income by over five times between 1972 and 1979.

With the launch of this program, the government authorities were mainly aiming to level up Korea as a leading producer of the petrochemical products globally. In an attempt to establish itself as a leading petrochemical producer, the government authorities in South Korea established two complexes of petrochemical - Yeosu and Ulsan. Establishment of the two petrochemical industries launched the nascent industry onto the global platform.

Besides the economic turmoil, the financial crisis in Asia during 1997 and 1998 exposed the development model of South Korea to a long-standing weakness that leads to increase in foreign borrowings due to high debt ratios. However, increasing reforms unfurled lucrative opportunities for the manufacturing industry in the country. In an attempt to strike a balance between imports and exports of the country, the ruling authorities encouraged exports through investment in manufacturing industry. Attributed to these factors, demand for the Korean chemical and petrochemical products continued to increase over the years. Bound to increasing contribution of the chemical industry, the economy of Korea has revived from the turmoil significantly.

Competing to Become the Global and Regional Hub for Chemical Manufacturing

The chemical sector in Korea has addressed various domestic and global challenges. Heavy reliance on exports, inflexible labour market, dominance of major corporations and aging population posed significant challenges to the ruling authorities. In order to reduce increasing reliance on the exports, the government mainly focused on the development of domestic-oriented sectors. These high-demand industries include automobiles, electronics, healthcare, aviation and machinery. Increasing demand for products from these industries continue to drive growth of the chemical industry in Korea. The chemical industry in Korea has been witnessed to replace the increasing reliance on imports with the domestic production of paints, pharmaceuticals, and paints. Surge in the domestic productions further helped the country in striking a balance between the imports and exports ratio.

Further, South Korea continues to adopt enhanced technology from various developed countries to compete as a global and regional chemical hub. The chemical industry of the country is expected to witness a significant transformation from a large-scale commodity industry to an industry that is subject to emerging opportunities and challenges. These factors are expected to contribute towards growth of the chemical industry of Korea significantly in the upcoming years.

Government Initiatives to Propel Growth

The government is increasingly focusing on investments in environment friendly technologies along with research and development in pharmaceuticals and biotechnology and electronic chemicals and nanotechnology. Investment in these industries remains important for South Korea in order to establish itself as a leading chemical hub globally and regionally. Investment plans such as “Material and Components Technology 2012” by the ruling authorities in Korea has encouraged companies to make investments in emerging technologies to enhance the clean energy and green chemistry. The clean energy and green chemistry continues to witness considerable demand in areas such as light-emitting diodes, solar energy and renewable energy. These factors continue to impact growth of the chemical sector in Korea significantly.

In addition, more than 400 chemical engineering companies based in Korea continue to attract foreign investment and propel growth of the chemical sector of the country. Moreover, various companies based in South Korea including Samsung SDI, Hanwha Chemicals and LG Chem (Lucky Goldstar Chemical) continue to contribute toward the research and development activities led by the government. Increasing demand for enhanced production in various industries and increasing investment in research and development will remain the major factors propelling growth of the chemical sector in Korea.

Growth Prospects of Chemical Sector

The growth of the chemical sector in Korea is mainly bound to consolidation and restructuring of the industry. As the leading companies based in Korea are mainly focusing on expanding their services towards speciality chemical sector, the chemical industry is likely to underscore new and lucrative growth opportunities. Collaborations with the multinational companies will also enable the companies based in Korea to reduce the cost of production. As various companies focus on entering into joint ventures with companies that provide with proprietary technology in growing sectors such as the electronic and semiconductor industry, demand for the chemical products will continue to rev up within and outside the country.

Significant demand from China will offer even the inefficient producers an easy access to benefits of profitability and growth. Increasing domestic demand and robust manufacturing industry will continue to impact growth prospects of the chemical industry in Korea positively. Attributed to these factors, chemical sector in Korea is expected to witness impressive growth in the upcoming years. Moreover, high technological base is expected to benefit the major companies in the chemical industry. State sponsored nurturing of chemical sector in South Korea will further fuel growth in the manufacturing industry.  Progress in the chemical and manufacturing industry is expected to boost the export of the country. Robust manufacturing sector the chemical sector will continue to cater to the increasing demands within the region. Boost in exports is expected to impact the economic growth of the country positively. Bound to these factors, the chemical sector in Korea will continue to witness promising growth over the coming years.

Author: Sonal Srivastava is Features Writer at Future Market Insights

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