Keywords

Introduction

Participation of private companies in South Korea’s international development cooperation has increased. There are three main reasons behind this trend, from both a normative and realist perspective. From the normative perspective, as the total amount of official development assistance (ODA) has increased since joining OECD/DAC in 2010, there are growing concerns that efforts should be made to improve the quality of aid projects. To improve the quality of aid projects, an increasing number of people recognize that it is necessary to incorporate innovative problem-solving methods through the participation of private entrepreneurs. Second, during COVID-19, private companies began to take an interest in environmental, social and governance (ESG) management, which involves taking a sustainable approach in addition to making profits. This led to more attention on improving the environmental and social problems of developing countries responsible for raw material production and primary processing within the global supply chain. On the other hand, from a realistic perspective, government ministries have emphasized to Korean companies, the benefits they can gain in terms of share of the domestic market by engaging in development cooperation. As part of an export-oriented economy, Korean companies are also willing to become involved in development cooperation as an opportunity to expand their export markets.

It is important, however, for private actors to be a development “agent” rather than simply using development cooperation as a means to achieving their own business objectives. To be a development agent, private companies need to define the purpose, activities and operating principles of the company by aligning it with development goals in partner countries (Blowfield & Dolan, 2014). This will ensure that the expertise and innovative knowledge and skills of private companies contribute to the development of the private sector in developing countries.

Against this background, this study will examine Korea’s private sector engagement policies and major programmes by analysing its problems, and will then suggest implications for further improvement. In particular, it will refer to the case of Germany, as an example of relatively strong private sector engagement (OECD, 2016).

Private Sector Engagement Policies and Programmes in Korea

The participation of private companies in Korea’s international development cooperation began around 2010. Before that, private companies participated in ODA projects, but they remained in the role of the implementers of those projects. Most of Korean companies’ participation came about through the ODA procurement market and a bidding process. However, recently, the role of private companies in Korean development cooperation has changed, with a new strategy and programmes.

First, the South Korean government announced the private sector engagement strategy in November 2022, which tries to facilitate private investment through ODA and to strengthen various support for private companies. The government announced that it will expand private investment and financial support, and to this end, it plans to introduce blended finance and impact investment. In order to facilitate the participation of private companies, the Korean government plans to expand the innovative programmes of KOICA (Korea International Cooperation Agency) and strengthen the link between companies’ ESG activities and ODA. In addition, it decided to strengthen consultation channels between the government and businesses for networking and sharing information (Government of Korea, 2022).

Second, KOICA, as the leading development agency, has tried to expand its partnership with private sectors. In 2010, KOICA introduced the “Global CSR Program” as a public–private partnership programme. However, in the early stages, most of the projects were carried out as corporate social responsibility (CSR). There was a tendency for private companies to conduct development cooperation projects only to increase the company’s brand value in society (Sohn et al., 2014, p. 133). Later, a new model emerged in the context of creating shared value by linking development cooperation projects with the company’s core values and main business model. For example, Samsung Electronics conducted a vocational training project for women in the electronics field in Ghana together with GIZ, the German development agency. As a vocational training project to foster workers in electronics production factories in Ghana, it was recognized as a new way for companies to participate in international development cooperation (KOICA, 2015).

Around 2015, KOICA launched a new programme to expand participation of private companies by recognizing them as major actors in development. It launched the Creative Technology Solution (CTS) programme to support startup companies with innovative technologies to solve development problems in developing countries. Since 2015, 108 projects have been implemented in 22 countries by developing 68 innovative solutions (KOICA [Korea International Cooperation Agency], n.d. a). For example, Dot developed a Braille clock using appropriate technology and distributed it to developing countries at a reasonable price. Enuma has distributed programmes for learning English and basic mathematics using tablets in East Africa, South Asia and Southeast Asia (KOICA, n.d. a). It provided valuable opportunities to the students who are out of school due to COVID-19. The Inclusive Business Solution (IBS) is a programme that enables companies to carry out business activities targeting the “bottom of the pyramid” market by providing solutions in developing countries. During 2010 to 2021, 130 companies implemented a total of 165 projects in 30 countries. As of 2022, 47 projects were in progress (KOICA, n.d. b). For example, there was a project that contributed to the development of Vietnam’s handicraft industry and an increase in workers’ income by strengthening the design and quality of Vietnamese handicrafts and providing new distribution channels by establishing a global online commerce platform (KOICA, 2023).

Since 2022, not only small and medium-sized enterprises (SMEs) but also large companies have been able to participate in development cooperation. In Korea, there were legal restrictions on the participation of large corporations in government procurement as a protective measure for SMEs. Because of this, global companies and large corporations could not participate in KOICA projects. However, by introducing the KOICA ESG Initiative project, KOICA and the large corporations have jointly discovered a model that can contribute to achieving the SDGs while complying with the ESG goals of the large corporations. For example, in 2022–2023, Samsung Electronics newly launched a project in Uganda to prevent electronic waste through smartphone upcycling, and SK Forestry started a project to prevent forest devastation in northern Vietnam and contribute to reducing greenhouse gases (KOICA, n.d. c).

Third, the Export-Import Bank, responsible for managing the Economic Development Cooperation Fund (EDCF) which provides loans to developing countries, has implemented public-private partnership projects to promote private sector participation. For example, it has tried to apply the principle to large-scale infrastructure development in developing countries by utilizing the financial resources, technology and expertise of private companies. So far, EDCF has provided USD 310 million in support of a total of four projects (total project cost of USD 1.67 billion) (Government of Korea, 2022). There are also projects that use blended financing by linking ODA loans and other export finance. For example, the Karian Dam construction in Indonesia is a large-scale infrastructure project in which the dam was constructed through EDCF loans, a head race was constructed through another economic cooperation fund, and the construction of a water purification plant was supported through another export financing (Government of Korea, 2022).

Fourth, public institutions under the Ministry of Commerce, Industry and Energy also began to participate in ODA. Korea Trade-Investment Promotion Agency (KOTRA) also began encouraging private companies to become involved in ODA with a new programme to support Korean private companies’ activities in overseas markets. They mainly operate CSR programmes that allow Korean companies to enter the global market by donating products and services. For example, during the COVID-19 pandemic, there were cases of COVID-19 analysis equipment and diagnostic kits being donated to Kenya and Bosnia with the help of KOTRA, which later led to the export of diagnostic kits to these markets (Government of Korea, 2022).

Challenges: Commercial Motivation, Fragmentation and Mutual Non-Interference

Although private sector engagement strategies and programmes are being introduced, there are challenges as might be expected with the emergence of new actors.

First, although, at the policy level, government claimed normative legitimacy such as partnership and financing for development in partner countries, private companies actually get involved in ODA for commercial reasons. In the past, private companies were viewed simply as implementing bodies carrying out ODA through the procurement market, but recently there has been a change in the perception of them as partners promoting development cooperation. However, Korean companies are actually participating in development cooperation to utilize the government’s ODA budget resources as a means to enter overseas markets (Kalinowski & Park, 2016). According to a survey of private companies that had participated in ODA, half of the respondents (50%) said that the motivation is “to explore overseas business opportunities” followed by 23% “to receive financial/budgetary support from the government” (Yi et al., 2023, p. 29). While government emphasized that the participation of private companies for private sector development in developing countries, Korean companies have strong commercial motivations which need careful consideration about this gap. Government ministries are also promoting the idea that ODA will help Korean companies expand overseas to persuade the Korean people. In this line, private companies should make efforts to become development agents by aligning the purpose and activities with development goals in partner countries.

Second, as the participation of private companies increases, Korea’s aid governance has tended to become more fragmented. As a result, problems of duplication and inefficiency among implementing agencies are occurring even in the participation of private companies. In the past, governance was divided between the Ministry of Foreign Affairs and KOICA in charge of grants, and the Ministry of Strategy and Finance and the Export–Import Bank in charge of loans. However, recently, new organizations such as the Ministry of Trade, Industry and Energy, the Korea Trade-Investment Promotion Agency (KOTRA), the Ministry of Land, Infrastructure and Transport, and the Korea Overseas Infrastructure & Urban Development Corporation (KIND) have become involved in the administration of ODA. These government ministries and public institutions have close relations with private companies, while promoting their main function regarding industrial policy and infrastructure policy in Korea. The participation of such institutions that encourage companies to advance overseas is welcome in the sense of expanding the actors in the field of ODA, but there are growing concerns that they only serve to pursue domestic economic benefits rather than the mission of Korea’s ODA policy for partner countries.

There has also been no significant progress in discussions related to the establishment of development finance institutions. Because developing countries have the greatest interest in foreign direct investment, ODA funds serve as a catalyst for other financing resources, such as export finance, guarantees and bonds. However, there are still discussions on the development finance institutions that will take charge of blended finance. While other countries are integrating aid agencies and development finance institutions, Korea is lagging significantly in establishing responsible organizations, which require urgent action.

Third, there are concerns that coordination and coherence will decrease as mutual non-interference becomes more prominent among private companies. Unlike in Germany, aid policies do not receive much attention from the public in South Korea. There is a tendency in Korea for the public to support ODA without sufficient understanding; this can lead to a quick erosion of support in the face of negative news (Kim & Kalinowski, 2020). Many private companies are participating in Korea’s ODA with the aim of receiving government financial support, as was found in a survey (Yi et al., 2023, p. 29). Once they secure their own financial resources, there is little interest in what projects other actors are doing and whether development goals have been achieved. In policy studies, this kind of political dynamics can be described as “mutual non-interference”, as one of the main characteristics of distribution policy (Lowi, 1972). When various actors participate, it is necessary to lessen inefficiencies by adjusting overlaps among them and creating synergy through mutual collaboration. However, it becomes increasingly difficult to pursue coordination and coherence if private companies do not work based on the agreed policy direction of ODA. In addition, although it has been revealed that many private companies in Korea are participating, not enough information is shared about specific projects being carried out. Therefore, additional efforts should be considered to strengthen cooperation through networks and information sharing among private companies.

Lessons from Private Sector Engagement in Germany

According to the OECD/DAC evaluation, Germany’s private sector engagement strategies and programmes are recognized as being relatively better compared to other European donors (OECD, 2016). Also, Korea’s international development cooperation can learn valuable lessons from the case of Germany, which has a similar aid governance system, divided into grants and loans. Therefore, this study proposes further improvement of Korea’s policies on private sector involvement, drawing on lessons from German private sector engagement programmes.

First, Korea needs to make efforts to harmonize commercial interests with the purpose of development cooperation. Germany itself tried to enlarge private markets in developing countries for a long time with a strategy on private sector development, which was seen as an essential precondition for economic development (BMZ, 2013). In addition, it emphasized the engagement of SMEs by providing technologies and products from German SMEs to developing countries. Germany, which has strength in the field of vocational training, has also tried to enhance the capacity of workers in developing countries with an apprenticeship model to provide necessary labour force (OECD, 2016). There are lessons for Korea from Germany’s case that the balance between private sector development in developing countries and commercial interests of private companies from the donor countries.

Second, it is important to continuously coordinate between a variety of agencies and actors. Aid governance in Germany is also fragmented, with the Federal Ministry for Economic Cooperation and Development (BMZ) leading the policy direction, which involves different ministries, while GIZ and KfW are responsible for technical and financial cooperation. Private consulting agencies are also participating because it is necessary to elicit cooperation from private companies.

Various support programmes and financial resources are available from government ministries, but it is difficult for companies to know which programme is right for their company. To overcome this, the Agency for Business & Economic Development (AWE) was established, the aim of which is to identify and provide appropriate information to private companies (Kim & Lee, 2022, p. 14). This organization will operate programmes under a new brand of “Partners in Transformation” from 2024, which emphasizes partnership for achieving social and environmental transformation (AWE [Agency for Business & Economic Development], no date).

Korea needs to learn from the German example how to coordinate with private entities by establishing new organizations and relevant partnership initiatives. Fortunately, KOICA, which is dedicated to grant aid, established a department responsible for corporate cooperation in 2022. However, the Korean government needs to respond more actively by establishing development finance institutions and make efforts to encourage more companies to participate by launching a new initiative for business partnership.

Third, it is important to cooperate with business associations, by providing information about business opportunities to solve development problems in developing countries. Based on the tradition of corporatism and the guild of merchants, industrial and business associations play a central role in each sector in Germany. There are business associations that support German companies in many developing countries as well as regional chambers of commerce in Germany. BMZ has a programme called “Business Scouts for Development” that sends experts with knowledge and expertise on developing countries to provide information to chambers of commerce (BMZ website, no date). They have become a link between the business industry and the development cooperation field. In Korea, a similar policy could be adopted, with experts on development cooperation providing advice to chambers of commerce or business associations (Kim & Lee, 2022, p. 14).

It is also necessary for private companies to share information with each other to raise awareness of development cooperation. The website of the Agency for Business & Economic Development (AWE) describes the social problems facing developing countries in the hope that private companies will come up with innovative solutions (AWE, no date). This can be an opportunity for development cooperation and business to sharing examples of other companies addressing development issues and simultaneously creating business opportunities. In this way, information sharing between private companies can also be an initial step for cooperation among the private companies (Kim & Lee, 2022, p. 15).

Conclusion

In Korea, participation of private companies has recently been emphasized in development cooperation. Although new policies are being introduced, more efforts are still needed to enable private companies to become development agents that align their business purposes and activities with the developmental goals. Against this background, this study analyses Korea’s approach to identify current challenges and suggest policy implications based on the German practice.

As the participation of private companies increases in Korea, there is a conflict between normative legitimacy and commercial interests. To solve this problem, we can learn from cases where German SMEs contributed to the growth of private markets and workforce improvement in developing countries, with the priority on the development of private markets in developing countries.

There is also a problem of fragmentation becoming more severe as multiple actors participate in Korea. This study proposes to establish a new financial development institution or business partnership by taking on board lessons from the case of Germany, which established a separate supporting organization and business partnership to engage private companies.

Lastly, private companies can become a “development agent” that contributes to development cooperation in the long-term when they conduct business with a sufficient understanding of development cooperation. Therefore, there is a need for additional efforts to link business associations and development in Korea so that private companies can become more aware of development issues and find innovative solutions. Drawing lessons from Germany, it is also necessary to raise awareness that business and development can be linked by sharing information on successful cases—those that pursue development goals and business opportunities together.