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Updated Jan 17, 2020

Drawing a comparative study between Zambia’s and South Korea’s historical development may seem a stretch considering their vast geographic distance. But a recent analysis suggests that geography may have played a significant role in why South Korea ended up as a major manufacturing hub while Zambia has struggled to build a similar manufacturing base despite its vast copper reserves. South Korea had the benefit of being in a region flanked by the massive market of China and the ballooning economy of Japan to its east. Having to compete with other East Asian economies, many of which were developing their own advanced consumer goods and high tech industries, could have restricted manufacturing growth for South Korea. Yet, South Korean government policy made a point of investing in selective sectors based on principles of comparative advantage, ensuring that South Korea could distinguish itself from other manufacturing economies. Zambia, by comparison embraced nationalization and had to compete with regional neighbors like the Democratic Republic of the Congo and Botswana in the mining sector, the main contributor to Zambia’s GDP. Zambia’s nationalization unfortunately failed to yield the desired results, instead producing inefficiencies and the accumulation of debt.

Market liberalization in the 1990s through the early 2000s saw most of these nationalized industries sold off to various private sector groups, a shock to the economy that South Korea never went through. The most significant factor in South Korea’s maintenance of its economic standing were its education programs, which were designed to train each successive generation to meet the evolving needs of the manufacturing sector. Zambia’s education programs, by comparison, were designed to create new cohorts of laborers to maintain the status quo, limiting the ability of these students to innovate and build upon the existing industry. Despite increasing foreign direct investment and steady growth, Zambia’s economy reflects a country whose industrialization was interrupted after the implementation of the Washington Consensus, which advocated for free markets and a reduction in state-led planned economies. For Zambia, the results have been less than satisfactory. Manufacturing as a percentage of value added to the country’s GDP fell from 21.6 percent between 1977 and 1993 to pre-1965 levels of just nine percent from 1994 to 2013 Unemployment has hovered around fifteen percent, with youth unemployment at a concerning twenty-six percent in a country with a fast-growing young population. Zambia’s lack of economic diversification further complicates the government's initiatives to promote the manufacturing and service sectors as potential employers.

This paper chooses South Korea as a model for Zambia, considering that sixty years ago both were equal in terms of development—indeed, Zambia actually had a higher GDP per capita at the time. Today, South Korea has managed to transition into an industrialized nation with a billion-dollar manufacturing industry while Zambia remains mired in inequality and extreme poverty. Before diving into the specific industrial histories of Zambia and South Korea, the authors lay out a set of three core principles to guide industrial policies and support dynamic growth. The first is “a state of mind rather than outlines of objectives,” which suggests coordination between the public and private sectors for policy formulation, thereby creating “social capital” to induce investment. Second, policies should “provide a combination of incentives and compulsion.” Potential investors must be subject to clearly defined rules of access and subject to penalties should they fail to reach stated objectives. Examples of such incentives include tax holidays, subsidies, and trade-based inducements. Third, industrial policies must outline and follow through on distributing newly generated wealth to the whole of society as opposed to a cadre of entrenched bureaucrats. Such policies must have transparency and accountability built into their implementation.

 

All three of these principles undergirded South Korea’s pro-growth policies, which tackled three key areas of the economy that needed to be rectified: youth unemployment, selective guidance, and the promotion of particular sectors of industry (such as modernizing agribusiness). After examining the various phases of Zambia’s and South Korea’s industrialization, the authors of the paper proffer suggestions based on South Korea’s relative success. In addressing youth unemployment, South Korea developed skills-training programs to ensure young laborers had reliable skills and to prevent skill mismatches. The government incentivized businesses to hire youth laborers by subsidizing those that hired them while also negotiating for lower wages for younger employees, which was tolerable given low cost of living at the time.

 

Formal training was linked to specific vocations and the education system was tailored to respective industrial needs, with the state also encouraging on-the-job training, upgrading workers’ skills, and sponsoring enterprise apprenticeships. Targeted sector growth was the next major set of policies that the authors advocate. The South Korean government determined which industrial sectors to support by considering the principle of comparative advantage, which concentrates resources in the few sectors with great growth potential as opposed to broad investment across the whole economy. The state incentivized firms within the selected sectors and established penalties for failing to meet set targets, thereby instilling discipline and deterring abuse. Ensuring that targets were met required effective monitoring and support, which South Korea developed with business councils that openly and transparently discussed support mechanisms. Extending lines of credit to small and medium-sized businesses was a significant boon for opening up new industrial sectors and supporting existing ones. South Korea facilitated credit-extension through technical assistance, subsidized loan application processes, and negotiating lower interest rates for borrowing from commercial banks. Investment in research and development was also essential. Rather than merely adapting or improving existing technologies, South Korea opted for developing new technology.

 

Finally, improving the agribusiness sector followed policy guidelines similar to what was used in the industrial sectors. The most pressing obstacles to agribusiness growth were lack of access to credit, lack of transportation, poor storage infrastructure, lack of human capital, an uncertain policy environment, insufficient mechanization, and weak coordination. At every roadblock, the South Korean state intervened with various subsidies and public-sector investment. The country had a unified political will to improve the agribusiness sector, which helped reduce concerns of corruption and waste. The authors conclude their paper by thinking through how Zambia’s and South Korea’s development paths wound up so distinct. They first looked at South Korea’s transition from producing initial capital goods (textiles and plywood) from the mid-1950s until the late 1960s when the country shifted to value-added goods such as steel, shipbuilding, and petrochemicals. This laid the groundwork for the shift to more advanced consumer goods in the 1980s, when South Korea produced consumer products such as color televisions, microwaves, video tape recorders, and digital watches. South Korea also followed what other researchers have termed the “flying geese” model. Instead of directly competing with its neighbors by manufacturing and selling the same products, South Korea focused on industries in which the country had a comparative advantage. Zambia, by comparison, moved very little along the value chain and competed with its neighbors to produce the same types of goods.

 

Geography also played a role in South Korea’s success, as it was in close proximity to the economic powerhouses of Russia and China. South Korea’s economic development was also concurrent with that of its neighbor Japan. Zambia had no similarly large economy nearby to bolster its industrial growth. Its position as a land-locked country reduced the total potential wealth it could generate due to transportation costs. Indeed, the country suffered sanctions for port usage throughout its history. Education is where South Korea and Zambia most markedly differ. While South Korea focused its educational policy on creating new generations of workers tailored to the needs of the present industry, Zambia’s education was less developed. Foreign direct investment in the latter was done with a mind towards external management, thereby leaving the indigenous workforce trained not at a level of competency but rather of rote functionality. The objective was to maintain rather than improve the skill sets of Zambian workers. Zambia’s nationalization of various industries during the 1960s and 1970s showed initial signs of success, but ultimately became major financial burdens and inefficient. In contrast, South Korea’s targeted support of specific industries meant that failure in one sector could be offset by success in another. The state also had more flexible financial and monetary means of protecting its industry, whereas Zambia could only rely on tariffs and subsidies, which in some cases would do more harm than good.

 

The inefficiencies of Zambia’s state-owned enterprise model eventually forced its hand to liberalize its economy and sell portions of its nationalized corporations to the private sector. This sudden liberalization, which South Korea never went through, created an unstable and uncertain business and political environment. It hamstrung the Zambian government by limiting its ability to protect its industries, while also making it easier for foreign investment to shape the Zambian economy towards an export-driven structure. Most of the wealth was captured by external entities, leaving little that could be reinvested into Zambian society.

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