South Korea: Business environment at a glance

(EIU Viewswire Via Thomson Dialog NewsEdge) COUNTRY VIEW

FROM THE ECONOMIST INTELLIGENCE UNIT

Policy towards private enterprise and competition

2007-08: The ruling Uri Party pushes for chaebol (conglomerate) reform, but the weakness of its parliamentary position may make it difficult for the party to achieve radical change. The privatisation of banks is completed.

2009-11: Privatisation of utilities, now shelved, may resume.

Policy towards foreign investment

2007-08: A backlash against perceived foreign dominance in the financial sector may lead to non-Korean bidders being disadvantaged in future privatisations in this sector, at least temporarily.

2009-11: Foreign capital will increasingly be accepted as a normal part of economic life.

Foreign trade and exchange controls

2007-08: Free-trade agreement (FTA) negotiations with the US, but differences remain over agriculture in particular; FTA negotiations with Japan continue to struggle, and may even be shelved.

2009-11: Pressure from the US and the EU to remove lingering quasi-subsidies and non-tariff barriers will intensify. China will wield anti-dumping suits.

Taxes

2007-08: Tax breaks are used to assist small- and medium-sized enterprises (SMEs) and start-ups, in particular to encourage job creation. Social security contributions from employers may be raised to fund social welfare programmes.

2009-11: A rapidly ageing society will require increased contributions to the national pension system. Taxes may also have to be raised to fund the urgent upgrading of North Korea's infrastructure and capital stock.

Financing

2007-08: Lending to consumers recovers as the credit-card crunch eases and a wider range of products (such as mortgages) is introduced. SMEs continue to struggle to obtain loans. The chaebol increasingly raise funds overseas.

2009-11: Consolidation and mergers in both banking and non-bank areas will grow. Private-equity funds will emerge as sources of corporate finance. A more sophisticated range of savings vehicles, pensions and insurance will be offered.

The labour market

2007-08: Militant trade unions lose influence but retain their ability to disrupt. Greater protection is afforded to irregular workers, but elsewhere more flexibility in hiring is sought. The five-day working week spreads.

2009-11: A five-day week will become the norm. More women will join and remain in the workforce. Efforts will be made to tackle youth unemployment. The growing availability of North Korean labour will reduce costs for some SMEs.

Infrastructure

2007-08: If the nuclear issue is settled, South Korean firms will become involved in upgrading North Korean infrastructure to galvanise the North's economy and build a transport network for the North-east Asian economic region.

2009-11: Work may begin on the new administrative capital in South Chungcheong province.

Copyright 2006 Economist Intelligence Unit