POLITICAL RISK REPORT / Andrea Izco, Elena López-Doriga and Lucía Sáez

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May 2021

EXECUTIVE SUMMARY

The purpose of this political risk report is to analyze how stable the political, economic, and social conditions of South Korea are to determine the best approach to invest in this country. 

Firstly, regarding the Economic Outlook, the GDP is expected to increase 3.6% in 2021 and 2.8% in 2022 and the government has devoted to get out of the crisis through the Korean-New Deal. Concerning heavy industry, manufacturing, and AI and technology, South Korea is taking action to become a potential leader. In terms of energy, the country's high dependence on energy imports because of its scarcity of natural resources motivates them to move towards renewable energies as well as to maintain its energy security.

Secondly, in relation to South Korea's Social Outlook, the country has shown great social cohesion after the COVID-19 crisis with responsible action by the population. The birth rate is expected to remain very low, but still, the need for immigrants has not been an easy response as nationals feel a certain threat. Regarding religion, the notion of democracy is what brings South Korea closer to the Western World, not too much the notion of Christianity, but even having a democratic system, many Confucian values still remain. It is safe to say that even though Koreans are likely to become less institutionally committed, the decline on religion will be minimal and regarding social stability, there will not be social confrontations between the different groups.

Thirdly, in the Political Outlook we see how South Korea's democracy faces issues concerning the powerful executive connected to a crony capitalism system in which Chaebols have been related to political scandals in the last administrations. However, in the short-term, the government will focus on resolving partner-economic issues rather than taking system reforms, as a new form of populism is emerging claiming for solutions for inequalities and damage caused by modernity. Despite of the little economic progress carried out by the current administration under President Moon, it is likely that his party will win again the next presidential elections in 2022 thanks to the well management of the COVID-19 crisis.

Finally, the Inter-Korean question can be concluded by saying North Korea is not willing to open up and instead takes minimal reforms. Despite of the struggles caused by the crisis and the commitment to dialogue from South Korea under the so-called Sunshine Policy, little progress has been achieved.