South Korean Government to Increase Its Budget for R&D Over Next Few Years

Aug 30, 2019

Next year’s national budget for R&D will be set at $19.9 billion (24.0874 trillion KRW), which is about 17% increase from this year’s budget. While next year’s budget will focus on materials, parts, and equipment that are or may be subjected to Japanese Government’s regulation, it will also focus on innovative growth. It is likely that how budget for R&D will be used in 2020 will continue on for the following years. Although Ministry of Economy and Finance (MOEF) placed R&D at the back of its list for national budget, it is planning to increase the amount of budget for R&D by at least 10% every year starting from the next year. In 2023, South Korean Government is planning to invest $24.8 billion (30 trillion KRW) into R&D.
As South Korean Government is placing R&D at the front of its list for national budget, positive results from R&D and effective investment have become important as well. While securing industrial technologies that must be independent from foreign companies, it also needs to gain competitive edge for future driving forces through long-term plans.
◊South Korean Government planning to invest 30 trillion KRW into R&D in 2023
South Korean Government is starting to increase the amount of its national budget for R&D. This is the first time increased rate jumped double-digit since 2010. South Korean Government is planning to fill the gaps of South Korean industries that have been exposed through Japanese Government’s regulation through R&D investment.
According to South Korean Government’s plan on how it is going to distribute financial resources between 2019 and 2023, the amount of national budget for R&D will increase to $25.5 billion (30.9 trillion KRW) in 2023. This year’s the first year when national budget for R&D will surpass $16.5 billion (20 trillion KRW). Annual increase rate of national budget for R&D is 10.8% and it is the second highest out of 12 areas followed by industry, small and medium companies, and energy (12.4%). Although increase rate may change, it is almost certain that South Korean Government is planning to increase its national budget for R&D.
This recent plan contrasts with South Korean Government’s past plans on its national budget for R&D. According to national financial resource operation plan announced by MOEF last year, national budget for R&D in 2020 and 2022 was expected to be $17.7 billion (21.4 trillion KRW) and $19.8 billion (24 trillion KRW) respectively. Average annual increase rate is 5.2%.
Although the total amount of this year’s budget increased by 9.5% compared to the last year’s budget, increase rate for R&D budget is not even half of 9.5%. Increase rate for R&D budget is 4.4% and it is ranked 9th out of 12 areas. Although the increase rate is higher than that of SOC (Social Overhead Capital, 4.0%) or agriculture, fishery, and food (1.5%), it is far lower than that of industry, small and medium companies, and energy (15.1%), culture, sports, and tourism (12.2%), health, welfare, and labor (11.3%), and education (10.1%).
Looking back at ten years, budget for R&D was on the back of the list of South Korean Government’s budget. While the increase rate for R&D budget had remained at about 10% starting from 2000, it recorded 13.7% in 2010 and fell below 10% in 2011. It had remained between 5 and 8% until 2015 and it had remained at about 1% for three years starting from 2016 due to South Korean Government’s effort to spend its financial resources more effectively.

South Korean Government to Increase Its Budget for R&D Over Next Few Years

◊South Korean Government actively making investment into R&D
Increased budget for R&D is related to foreign conditions. Initially, next year’s budget for R&D was set at $17.4 billion (21.1 trillion KRW), which is only 2.9% increase from this year’s budget. However, everything changed when Japanese Government started to regulate exportation of semiconductor materials to South Korea.
South Korean Government found out that technologies that are highly dependent on foreign countries can act as a ‘mine’ towards the growth of its economy. They realized that major industries in South Korea can be stayed by foreign variables continuously if South Korean companies cannot internalize key technologies related to materials, parts, and equipment.
South Korea lacks competitive edge in certain materials, parts, and equipment as they are highly dependent on certain countries such as Japan especially. According to MOEF, materials and parts make up 68% of all goods imported from Japan. Percentages for the U.S. and Europe are 41% and 47% respectively.
Depending on foreign countries for key materials can lower production capacity and operation rate of South Korea’s major manufacturing companies. Moreover, sense of crisis towards a possible drop in competitive edge of the manufacturing industry is surging. Deloitte and an American committee on competitive edge are predicting that South Korea’s competitive edge index in manufacturing industry will fall from 5th place to 6th place in 2020.
South Korean Government is focusing on improving competitive edge of South Korean industries as part of its strategy to overcome current crisis. It believes that it needs to first secure competitive edge in relevant technologies through R&D.
Its strategy is to secure foundation in new industries such as data, 5G, AI, system semiconductor, bio-health, and future car and slowly secure other fundamental technologies to become a leader in these markets in the future.
Current status of major countries is also affecting South Korean Government. The U.S. Government’s budget for R&D in 2018 was set at $149.4 billion that is 4.6% reduction compared to the budget from the previous year. However, the Senate and the House of Representatives put on the brakes to such decision. As a result, last year’s budget for R&D was ultimately set at $176.8 billion. The Senate and the House of Representatives acknowledged that there was a need for strategic investment to prepare for fierce competitions with other countries. Chinese Government is also maintaining its policy to develop scientific technologies led through innovation and is increasing related investments.
“It is true that there has not been a clear change to South Korean Government’s budget for R&D even though it has been chanting about innovative growth.” said a representative for the scientific technology industry. “Although we were late on making adjustments, we need to strengthen our strategic investments and maximize efficiency by setting up long-term and short-term plans for R&D.”
Staff Reporter Choi, Ho | snoop@etnews.com

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