There are lessons for Egypt in South Korea’s economic boom. There are lessons for Egypt in South Korea’s economic boom. Egypt and South Korea: GDP PPP Per Capita, 1975-2005

By Tom Gara

Entrepreneurship and technology are two themes we’ll never get tired of here at Business Today Egypt. On their own, they represent two essential aspects of any nation’s economic progress. Combined, they are probably the most powerful force for wealth creation and socioeconomic progress available today. Think we might be overselling things just a little? Two words for you: South Korea.

In 1955, South Korea emerged from 40 years of occupation and bitterly fought civil war as one of the poorest countries in Asia. Its GDP purchasing power parity (PPP) per capita in 1963 was a little less than $100, putting it right alongside some of the world’s poorest countries. Its government followed fairly textbook practice for an emerging economy, focusing on the development of export-oriented light industry and manufacturing.

By 1975, its GDP PPP per capita had reached just under $3,700, approximately 2.5 times that of Egypt in the same year. As incomes rose, low-paying work in labor-intensive industries gradually moved abroad, often to neighboring countries in South-East Asia. Workers progressively became better trained, better paid and better educated.

Egypt’s difficult embrace of an Open- Door policy toward private investment during the same period made millionaires of some, but rarely did it create internationally competitive businesses. While South Korean economic planners emphasized labor productivity and managerial efficiency — creating what many analysts believed to be the most productive workforce in the world by the late-1970s — Egypt’s leaders remained moored in delivering the more mundane aspects of statist socialism: feeding and employing a booming, poor population.

The pattern has continued ever since. South Korean industry has continually evolved to embrace, and often invent, new technologies, manufacturing techniques and markets. The country’s rise as a modern industrial and post-industrial power has gone hand in hand with what economists consider to be one of the longest periods of continuous economic growth ever recorded.

As one can see from the graph on the following page, while South Korea has boomed, joining the exclusive OECD in 1996 and the even more exclusive “Trillion Dollar Club” in 2006, Egyptian incomes have largely stagnated. Although a myriad of complex factors are behind the comparative rise of South Korea in relation to a struggling Egypt, the role of entrepreneurs that embrace technology, and the government policy that supports them, cannot be overlooked.

Behind most of the diversified superstar companies of South Korea’s modern economy lie businesses that have continually evolved and diversified over time. Samsung, a $65-billion high tech powerhouse, began its operations in 1969 as a manufacturer of household appliances and is now the world’s largest manufacturer of RAM memory chips and the second-largest semiconductor manufacturer. Its mobile phone business is moving from strength to strength. LG, founded as the Lucky Goldstar group in 1947 and initially known for its household products, now enjoys strong positions in digital display technology, mobile communications and consumer electronics.

The role of government policy in South Korea’s rise cannot be understated. Like Egypt, South Korea has been governed for the last 50 years by a strong central government that focuses on internal stability and friendly international relations, particularly with trade superpowers. The big difference was in the emphasis of this heavily interventionist rule: Egypt’s government spent the 1970s and much of the 1980s grappling with the aftermath of war, the establishment of sustainable peace and the emergence of insurgency. This heavy focus on internal security and international diplomacy came at the cost of industrial advancement and the development of Egypt’s enormous human capital. The initial focus of South Korea’s postwar leadership, by contrast, was on the development of essential infrastructure and education systems, key enablers of modern industrialization.

With the development of the South Korean industrial sector came a government focus on encouraging both exports and foreign investment. Interventionist policies, including heavy import tariffs, export subsidies and the government backing of strategic, high potential industries, succeeded in building an internationally competitive export sector.

As the era of high technology approached, the government refocused its efforts on creating a workforce and industry ready to lead the world in new high-tech industries. The establishment in the mid-1980s of two highly advanced technical universities and research centers reflected government recognition of the importance of industry-focused technical education. Not only did these institutes help attract home top South Korean academics working abroad, it gave local students the opportunity to obtain a world-class technical education, and fueled the growth of the country’s high-tech industries.

With the internet-based knowledge economy approaching, in the late 1990s the South Korean government placed a new emphasis on seeing their country lead the world in internet connectivity. And voila! As of 2006, South Korea enjoys the world’s highest broadband internet penetration rate, with over 80% of households having a DSL connection — more than double the rate of either the United States or United Kingdom.

The latest move? In early August, the government announced that it plans to see a robot in every home by 2020. Given their track record of delivering on such statements, the next installment of the Terminator series is likely to be set in Seoul.

The average South Korean now earns in a year what a skilled Egyptian worker might earn in a decade. The combination of world-beating post-industrial businesses, smart government policy and an educated, entrepreneurial workforce is now in effect a self-fulfilling prophecy, as more and more money becomes available to pour into research and development, venture funding and higher education.

South Korea certainly enjoyed a considerable head start over Egypt in the race toward high-technology leadership. While they were establishing world-class research centers and developing advanced industrial businesses such as chemicals and shipbuilding, Egypt was mulling over the prospect of simply privatizing the legions of once-great businesses nationalized over 30 years previously.

None of this means that Egypt must permanently remain stuck 20-30 years behind the leaders. Our country now has an opportunity to enjoy the bounties of South Korean-style economic development, and thanks to changes in both technology and world trade, the 50 years of industrialization and evolution toward a world-class technology sector may no longer be a necessity. As New York Times columnist and best selling author Thomas Friedman has described extensively in his books The Lexus and the Olive Tree and The World is Flat, the combination of globalization and new technology has leveled the playing field for aspiring entrepreneurs.

Knowledge, innovation and entrepreneurship are now globally valued commodities, and can be capitalized on anywhere. From Karachi to Mansoura — a town you will be hearing plenty more about in the coming pages — smart people with good ideas and an inextinguishable will to succeed can now serve global markets, almost entirely regardless of their geographical location, nationality or funding.

Luckily, it seems the Egyptian government has at least partially clocked onto this change in the rules of the game. Since the turn of the century, and particularly since the ascent of the technocrat-dominated Nazif cabinet, (headed by a former Minister of Communications and Information Technology), policies that promote the development of an information economy have come hand in hand with the generally pro-growth, neoliberal modernization of the economy that will most likely be the historical legacy of the current economic team.

The country still has a long way to go, both in terms of government policy and private sector innovation. On the government side, recognition of the central importance of technical education and research — a key not only to the rise of South Korea, but to all post-industrial nations — remains little more than a talking point. The private sector must shift focus from the current trend of acting as mere distributors or middlemen for global companies, and begin creating its own intellectual property. As long as the role models for young entrepreneurs remain those who secured distribution or franchise rights for foreign brands, it is unlikely that Egyptian industry will create much knowledge of global value.

Role models for a new type of entrepreneur — one who creates, rather than acquires, valuable knowledge and technology — do exist here. To shine some light on Egypt’s rising breed of rising technopreneurs, bt spoke with the founders of two exciting local companies. Both businesses have succeeded in tapping into the global market for information technology, and both have done so largely based on bright minds, big ambitions and hard work, three things Egypt has no shortage of.

Both share a common view of the potential for technology startups to operate out of Egypt, and both envision the day when their companies are part of a much larger ecosystem of Egyptian technology businesses. Both also believe that serious work needs to be done in a number of key areas before such an ecosystem can develop — specifically with regards to improvements in the country’s struggling education system.

The following pieces offer a glimpse into what we at bt hope to be the future of the Egyptian technology sector. It’s a story we will keep on covering well into the future, and one we hope becomes a part of Egypt’s emergence in the twenty-first century.

Click here to read our profile on Sysdsoft, a Cairo based exporter of wireless communications technology. Click here for our profile on EgyptNetwork, a Mansoura-based provider of web-based SMS services.  bt