Analysis of the Peruvian Health Insurance System

발간등록번호
2015 KSP Joint Consulting with IOs WB

11-1051000-000714-10
2015 KSP
Joint Consulting with
International Organizations
국제기구와의 공동컨설팅
Aug. 2016
World Bank
Ministry of Strategy and Finance, Republic of KOREA

Government Complex-Sejong, 477, Galmae-ro, SejongSpecial Self-Governing City, 30109, Korea
Tel. 82-44-215-2114 www.mosf.go.kr
The Export Import Bank of KOREA

38 Eunhaeng-ro, Yeongdeungpo-gu, Seoul, 07242, Korea
Tel. 80-2-3779-6114 www.koreaexim.go.kr
2015 KSP Joint Consulting with IOs:
World Bank
2015 KSP Joint Consulting with IOs: World Bank
Systematic Use of Jang-soo Jun, Korea Eximbank

Information to Improve Jae-uk Ryu, Korea Eximbank
Health Systems Kee-young Lee, Korea Eximbank
Governance (Phase II) Hee-kyung Ryoo, Korea Eximbank
Yeun-sook Rho, Health Insurance Review & Assessment Service
Hee-jeong Kang, Health Insurance Review & Assessment Service
Yong-myoung Jang, Health Insurance Review & Assessment Service
Bong-ju Kwag, Health Insurance Review & Assessment Service
Hyun-ki Min, Health Insurance Review & Assessment Service
Min-ji Ju, Health Insurance Review & Assessment Service
Su-jin Kim, Health Insurance Review & Assessment Service
Seung-mi Yoo, Health Insurance Review & Assessment Service
Hyoung-sun Jeong, Yonsei University
Soon-man Kwon, Seoul National University
Tae-hyun Kim, Yonsei University
Strengthening Civil Jang-soo Jun, Korea Eximbank

Registration and Vital Jae-uk Ryu, Korea Eximbank
Statistics (CRVS) Kee-young Lee, Korea Eximbank
Hee-kyung Ryoo, Korea Eximbank
Hee-joon Song, Ewha Womans Univ.
Minah Kang, Ewha Womans Univ.
Churin Kim, Ewha Womans Univ.
Yeonsoo Kim, Ewha Womans Univ.
Shin Kim, Korea Institute of Public Administration
Joon-young Hur, Korea Institute of Public Administration
Empowering Ethiopia’s Jang-soo Jun, Korea Eximbank
Textile Industry and Jae-uk Ryu, Korea Eximbank
Industrial Park Kee-young Lee, Korea Eximbank
So-min Oh, Korea Eximbank
Ye-lin Jung, Korea Eximbank
Jae-hoon Lee, Korea Institute for Development Strategy
Hee-chul Cha, Korea Institute of Industrial Technology
Bu-heung KIM, Korea Federation of Textile Industries
Eun-saem Lee, Korea Institute for Development Strategy
Hee-joon Kwon, Korea Institute for Development Strategy
Song-a Chae, Korea Institute for Development Strategy
Se-jin Park, Korea Institute for Development Strategy
Young-moo Kim, Korea Federation of Textile Industries
Sung-ho Joo, Federation of Textile Industries
Mun-kyum Kim, Soongsil University
2015 KSP Joint Consulting with IOs:
World Bank
Contents 2015 KSP Joint Consulting with IOs
2015 KSP-WB Joint Consulting

Part 1. Systematic Use of Information to Improve Health Systems Governance (Phase II)
Contents ···························································································································································· 6
List of Tables ····················································································································································· 7
List of Figures···················································································································································· 8
List of Abbreviation ······································································································································· 22
Executive Summary ········································································································································ 24
1. Korean Case Study and Proposal of Analysis Framework ······························································· 24
2. Analysis on the Health Insurance System and its Current Trend of Reform in Peru ···················· 26
3. Conclusion: Suggestions to Improve the Health Insurance System in Peru and Future Plans for
Cooperation ········································································································································ 28
I. Introduction ············································································································································· 31
1. Study Background and Objectives ····································································································· 31
2. Study Outline ······································································································································· 34
II. Characteristics of the Korean Healthcare System ················································································ 35

1. General Features·································································································································· 35
III. HIRA as the Healthcare Purchaser·········································································································· 43

1. The Evolution of Claims Review System and the Establishment of HIRA······································ 43
2. HIRA’s Roles and Functions: Strategic Healthcare Purchasing ························································ 55
3. Evolution of ICT in Korea’s Healthcare Sector ·················································································· 71
IV. Analysis of the Peruvian Health Insurance Programs ·········································································· 83

1. Introduction ········································································································································· 83
2. Socio-demographic Background········································································································ 93
3. Health Level·········································································································································· 99
4. Healthcare System ····························································································································· 106
5. Achieving UHC and Challenges Ahead ··························································································· 123
V. Conclusion: Proposal for the improvement of National Health Insurance System of Peru··········· 127
1. Setting priorities of benefit packages ····························································································· 127
2. Functional separation between purchaser and provider ······························································ 130
3. Establishment of modernized ICT system ······················································································· 136
4. Conclusion ·········································································································································· 139
References - Appendix································································································································· 140
6
World Bank
List of Tables
Table III-1 | Calculation of Medical Procedures ···················································································· 61

Table III-2 | Medical Resources Management······················································································· 62
Table III-3 | Steps of Electronic Review·································································································· 65
Table III-4 | Quality Assessment Items (2013) ······················································································· 66
Table III-5 | Contents of HIRA’s Information Release ··········································································· 69
Table III-6 | National Informatization Promotion Process ··································································· 75
Table III-7 | History of Technology Certifications of HIRA (HIRA, 2010). ··········································· 77
Table IV-1 | Income concentration by regional groups and advanced countries (1950~) ·············· 86
Table IV-2 | Development Stages of Health Insurance System in Latin America ····························· 87
Table IV-3 | The Outline of History of Health Insurance System in Peru ··········································· 92
Table IV-4 | Basic Information of Peru··································································································· 93
Table IV-5 | Classification of geographic areas in Peru ······································································· 95
Table IV-6 | Change in the extreme poverty rate by region (2009-2014)·········································· 97
Table IV-7 | Policyholders by region ······································································································ 98
Table IV-8 | Major health indicators (2013) ·························································································· 99
Table IV-9 | Comparison of infant mortality between urban and rural areas (/1,000 infants) ····· 100
Table IV-10 | Distribution of healthcare professional in Peru (2014) – By institution, occupation ····· 102
Table IV-11 | The number of beds per 10,000 people in Peru, 2012 (By region – geographical
group) ······························································································································ 103
Table IV-12 | The number of beds per 10,000 people in Peru, 2012 (By region – state) ··············· 104
Table IV-13 | Proportion of items for EsSalud funding resources (2012)········································· 110
Table IV-14 | Types of SIS beneficiaries································································································ 111
Table IV-15 | List of insurable conditions of PEAS and warranties··················································· 113
Table IV-16 | Warranties for SIS insured members by type ······························································· 113
Table IV-17 | Current status of medical facilities which provide services covered by EsSalud (2015)····· 116
Table IV-18 | Current status of equipment possession by network of EsSalud in Peru ················· 118
Table IV-19 | List of major ICT systems managed by Peruvian EsSalud············································ 119
Table V-1 | Format of questionnaire for cost calculation in the early stage (within department) ····· 131
Table V-2 | Format of questionnaire for cost calculation in the early stage (calculation of weights
between departments)······································································································ 131
Table V-3 | Organizations responsible for data provision for RBRVS revision ································ 132
Table V-4 | Costing Example for Uroflowmetry Test: Salary ····························································· 133
Table V-5 | Costing Example for Uroflowmetry Test: Medical Materials ········································ 134
Table V-6 | Costing Example for Uroflowmetry Test: Medical Device ············································· 134
7
List of Figures
Figure II-1 | Structure of National Health Insurance In Korea ···························································· 36

Figure II-2 | Payment System for Outpatients and Inpatients ···························································· 38
Figure II-3 | Healthcare Service Delivery System ·················································································· 39
Figure II-4 | Expansion History of NHI ··································································································· 40
Figure III-1 | Claims Review Process of Medical Insurance for Employees········································· 45
Figure III-2 | Claims Review Process of the Corporation ····································································· 46
Figure III-3 | History of Unifying Claims Review System in Korea ······················································ 47
Figure III-4 | Unified Claims Review Process of Medical Insurance for Employees··························· 48
Figure III-5 | Unifying Process of Claims Review System: 1979~1988················································· 50
Figure III-6 | Major Changes after Unifying Claims Review Process··················································· 50
Figure III-7 | Process of Claims, Review and Reimbursement of NFMI (after 1988) ························· 51
Figure III-8 | Process of Benefit Standards Determination·································································· 54
Figure III-9 | Health Systems to Improve Healthcare Performance ···················································· 56
Figure III-10 | Sustainability of Healthcare ··························································································· 56
Figure III-11 | Healthcare Financing in Korea ······················································································· 57
Figure III-12 | HIRA’s Functions of Healthcare Purchasing··································································· 58
Figure III-13 | HIRA’s Functions for Benefit Management··································································· 59
Figure III-14 | Process of Benefit Listing, Pricing, and Coding ···························································· 60
Figure III-15 | HIRA’s Claims Portal ········································································································· 64
Figure III-16 | Process of Claims Review ································································································ 65
Figure III-17 | Process of DUR ················································································································· 67
Figure III-18 | Process of On-Site Investigation····················································································· 68
Figure III-19 | Process of KPIS ················································································································· 70
Figure III-20 | Process of Healthcare Data Analysis ·············································································· 70
Figure III-21 | National Informatization Promotion Process (Revised from Table III-6)···················· 75
Figure III-22 | Realization of “e-HIRA” with the Development of Informatization························· 77
Figure III-23 | Claim Platform Change by Year ····················································································· 78
Figure III-24 | Information Flow of Claim Data Processing ································································· 82
Figure IV-1 | Outline for Peru’s Healthcare System·············································································· 83
Figure IV-2 | Demographic distribution in Peru by region (2015)······················································ 94
Figure IV-3 | Average monthly earned income by region (2014)······················································· 97
Figure IV-4 | Accessibility to basic services in Peru by region (2014)················································ 101
Figure IV-5 | The number of healthcare professional per 10,000 people in Peru – By state (2014) ····103
Figure IV-6 | Major 15 Causes of Dealth in Peru, 2011 ······································································ 105
Figure IV-7 | Governance of Health Insurance System in Peru ························································· 107
Figure IV-8 | Current Status of Health Insurance in Peru ·································································· 109
Figure IV-9 | Plans for introduction and expansion of PEAS ···························································· 112
Figure IV-10 | Payment System of the SIS ··························································································· 117
8
World Bank
Figure IV-11 | The organization chart of EsSalud ICT control station·············································· 118
Figure IV-12 | SGH program used in primary hospitals of EsSalud ·················································· 121
Figure IV-13 | Data collection system of EsSalud healthcare facilities ············································· 121
Figure IV-14 | Statistical analysis software adopted by EsSalud ······················································· 122
Figure V-1 | Benefit listing process of Korea’s National Health Insurance System························· 129
Figure V-2 | The revision process of RBRVS in Korea ········································································ 132
Figure V-3 | Analysis of RBRVS for physicians’ workload ·································································· 133
Figure V-4 | Construction range of HIRA EA system·········································································· 137
Figure V-5 | Application areas of HIRA Framework ·········································································· 138
9

Part 2. Strengthening Civil Registration and Vital Statistics (CRVS)
List of Abbreviation ····································································································································· 146

Summary ······················································································································································· 151
I. Project Overview ···································································································································· 153

1. Purpose of Study································································································································ 153
2. Scope of Study ··································································································································· 153
3. Expected Outcomes and Main Focus Areas ···················································································· 154
3.1. Expected Outcomes··················································································································· 154
3.2. Main Focus Areas······················································································································· 154
4. Project Implementation ···················································································································· 154
II. Case Study of Korea’s CRVS ·················································································································· 156

1. Introduction ······································································································································· 156
1.1. Background ································································································································ 156
1.2. Concept and Significance of CRVS··························································································· 157
1.3. Scope of the Report ·················································································································· 158
2. The Framework of CRVS ··················································································································· 158
2.1. Basic Structure ··························································································································· 158
2.2. Family Relationship Registration ····························································································· 160
2.3. Resident Registration ················································································································ 164
2.4. Vital Statistics ····························································································································· 173
2.5. National Health Insurance ········································································································ 178
3. CRVS Information System ················································································································· 182
3.1. Basic Structure ··························································································································· 182
3.2. Main Information Systems········································································································ 183
3.3. CRVS Operational Governance ································································································ 189
4. Statutes and Regulations ·················································································································· 193
4.1. Basic Structure ··························································································································· 193
4.2. Act on the Registration of Family Relationship ····································································· 193
4.3. Resident Registration Act ········································································································· 193
4.4. Statistics Act and Regulation for Population Change Survey··············································· 193
4.5. Framework Act on Social Security ··························································································· 194
4.6. National Health Insurance Act ································································································· 194
4.7. Electronic Government Act ······································································································ 194
4.8. Personal Information Protection Act and the Act on Promotion of Information and
Communications Network Utilization and Information Protection, Etc.···························· 195
4.9. Official Information Disclosure Act and Act on the Promotion of the Provision and Use of
Public Data ································································································································· 195
10
World Bank
5. Critical Success Factors······················································································································· 195

5.1. Strategy and Approach············································································································· 195
5.2. Political Will and Leadership ···································································································· 197
5.3. Strategic Planning: Comprehensive Plan ················································································ 198
5.4. Human Resources ······················································································································ 199
5.5. Financial Resource ····················································································································· 200
5.6. Cost-to-Benefit Analysis ············································································································ 201
5.7. Project Management ················································································································ 202
6. Challenges and Lessons ····················································································································· 204
6.1. Lack of Inter-government Information Sharing and Collaboration ···································· 204
6.2. Business Process Reengineering······························································································· 204
6.3. Personal Information Protection and Technological Measures············································ 205
6.4. Legal and Regulatory Reform ·································································································· 206
6.5. Incentive System ························································································································ 207
6.6. User Capacity and Digital Divide ····························································································· 208
7. Directions for Development ············································································································· 209
7.1. Birth and Death Report Processing in Hospitals ···································································· 209
7.2. Resident Registration System Improvement ·········································································· 209
7.3. Hyper-connected CRVS system ································································································· 210
7.4. Information Disclosure and Personal Information Protection ············································· 210
III. Current Status of Target Partner Countries: Analysis and Comparative Study ······························· 212
1. Current Status of Target Partner Countries: Analysis ···································································· 212
1.1. Current Status of CRVS in Laos································································································· 212
1.2. Current Status of CRVS in the Philippines··············································································· 225
1.3. Current Status of CRVS in Myanmar ······················································································· 242
2. Comparative Study on CRVS Systems in Partner Countries··························································· 255
2.1. Comparative Analysis Framework ··························································································· 255
2.2 Analysis Results ··························································································································· 258
IV. Conclusions and Recommendations ···································································································· 274

1.1. CRVS Promotion and Integration ···························································································· 275
1.2. Strategy Planning and Collaboration······················································································ 276
1.3. CRVS Governance and Management ······················································································ 277
1.4. Conclusion ·································································································································· 278
References····················································································································································· 280
11
List of Tables
Table II-1 | Major socio-economic indicators of Korea’s growth ······················································ 157

Table II-2 | Comparison between family relationship registration and resident registration ······· 159
Table II-3 | Assignment system of resident registration tasks···························································· 160
Table II-4 | Basic system of Family Relationship Registration ···························································· 161
Table II-5 | Information needed in declaration form ········································································· 162
Table II-6 | Purpose and benefits of RR System ·················································································· 164
Table II-7 | Development stages of the RR System ············································································· 165
Table II-8 | Entries of Resident Registration Record Cards ································································· 166
Table II-9 | Regulatory Structure of RIN Processing ············································································ 168
Table II-10 | Comparison of alternate methods of Personal Identification ····································· 169
Table II-11 | Application Form for RR Certificate Issuance and Informatin on the RR Certificate···· 171
Table II-12 | Considerations in the Case of Adopting Electronic Resident Registration Certificate ···· 172
Table II-13 | Basic structure of Population Change Survey ································································ 174
Table II-14 | Process of statistics for the cause of death ····································································· 174
Table II-15 | Vital Statistics data handling process ·············································································· 175
Table II-16 | Investigation of Demographic Trends ············································································ 175
Table II-17 | Population and Housing Census: Demographic Trends for Investigation ·················· 176
Table II-18 | Main festures of the 19th Population Census ································································· 177
Table II-19 | Medical Institutions linked to the Health Insurance Information System ·················· 180
Table II-20 | Components and unit system of the Health Insurance Information System ·············· 181
Table II-21 | Yearly usage of Minwon 24 Portal services (unit: thousands) ······································ 185
Table II-22 | Top 5 online requests for public services via Minwon 24 Portal ·································· 185
Table II-23 | Main menu contents of Minwon 24 Portal ··································································· 186
Table II-24 | Annual records of joint-use administrative information and institutions ················· 188
Table II-25 | Key and target functions of National Computing and Information Service ·············· 190
Table II-26 | Evolution of the National Computing and Information Service·································· 191
Table II-27 | Current status of public institutions supporting CRVS ·················································· 192
Table II-28 | Types of administrative information for shared use ····················································· 194
Table II-29 | Governance of CRVS development ················································································· 197
Table II-30 | Development stages of National Informatization Project (1970s to present) ············ 198
Table II-31 | Current civil servants in data processing network and statistics ·································· 199
Table II-32 | Comparison of traditional budget formulation and multi-year financial investment ···· 200
Table II-33 | History of resource procurement methods ···································································· 201
Table II-34 | Comparison of project management approaches ························································· 203
Table II-35 | Obstacles in sharing of administrative information ······················································ 204
Table II-36 | Rights and obligations of information owners (E-Government Act Article 42, 43)··· 206
Table II-37 | Penalty and fines for personal information violations (2009 – 2014) ························· 208
Table II-38 | Places of birth and death of population in 2013 (Unit: Thousand) ····························· 209
12
World Bank
Table III-1 | General Status of Lao PDR (Laos) ····················································································· 213

Table III-2 | Status of Children Registration in Lao PDR (2012)·························································· 215
Table III-3 | Budget for critical priority areas in CRVS development················································· 221
Table III-4 | General Status of Phillipines ····························································································· 226
Table III-5 | Governments organizations associated with CRVS cooperation ·································· 230
Table III-6 | CRVS-related Laws in the Philippines ··············································································· 232
Table III-7 | Rapid Assessment Scores in the Philippines····································································· 234
Table III-8 | CRVS-related Budget Operating Status of the Philippines’ National Statistics Office
(2014) (In Thousands of Pesos) ·························································································· 235
Table III-9 | Implementation Plan and Budget (2015-2019) ······························································· 237
Table III-10 | Results of Philippine CRVS-related SWOT Analysis ······················································ 238
Table III-11 | Bills on Biometric Information Technology in the Philippines ···································· 240
Table III-12 | General Status of Myanmar ···························································································· 243
Table III-13 | Registration Forms for Health Statistics ········································································· 246
Table III-14 | Roles of MOH as Implementing Body ············································································ 248
Table III-15 | Costs for Establishing CRVS in Myanmar (proposed by UNICEF, 2015) ······················ 249
Table III-16 | VSPI Scores (median score at 5-year intervals, 1980-2012) and Typology Results ····· 258
Table III-17 | Assessments by Item (Philippines, Laos) ········································································· 261
Table III-18 | CRVS Roadmap ················································································································· 265
13
List of Figures
Figure II-1 | Birth report process ··········································································································· 163

Figure II-2 | Death report process ········································································································· 163
Figure II-3 | Structure of the Resident Identification Number ·························································· 167
Figure II-4 | Purpose of Resident Identification Number data collection········································· 168
Figure II-5 | Resident Identification Number processing procedure by the public sector ·············· 169
Figure II-6 | Filing Eligibility Request for health insurance services ················································· 179
Figure II-7 | National Health Insurance work process········································································· 180
Figure II-8 | Structure of the National Health Insurance System databases ··································· 182
Figure II-9 | Basic structure of CRVS information system ··································································· 183
Figure II-10 | Structure of Resident Registration Information System ············································· 184
Figure II-11 | System structure of Minwon 24 Portal ·········································································· 186
Figure II-12 | Structure of Administrative Information Sharing System ··········································· 187
Figure II-13 | Basic principles of shared administrative information usage ····································· 187
Figure II-14 | Structure of CRVS Governance ······················································································· 189
Figure II-15 | Process of Institutionalization and Informatization of CRVS ····································· 196
Figure II-16 | Policy-related strategies and approach of governments ············································ 196
Figure II-17 | Governance of Resident Registration computer network project (1987-1991)········ 197
Figure II-18 | Technical and encryption solutions for RIN protection ·············································· 206
Figure III-1 | Operational Structures and Information Flows for CRVS············································· 218
Figure III-2 | Structure of Civil Registration and Vital Statistics System of the Philippines············· 229
Figure III-3 | Structure of CRVS System in the Philippines ·································································· 230
Figure III-4 | Rapid Assessment Scores for 49 countries in the Asia-Pacific Region ························· 234
Figure III-5 | Unified Multi-Purpose ID card of the Philippines ························································· 240
Figure III-6 | Voter’s ID Card of the Philippines ··················································································· 241
Figure III-7 | Process of CRVS system in Myanmar··············································································· 245
Figure III-8 | Promotional Material for Birth Registration Campaigns in 2014································ 251
Figure III-9 | Development of Biometric Technology through Fingerprint Recognition ················ 253
Figure III-10 | Typology of CRVS systems based on Vital Statistics Performance Index (VSPI) scores
for the best available year between 2005 and 2012 ·················································· 256
14
World Bank

Part 3. Empowering Ethiopia’s Textile Industry and Industrial Park
Contents ·························································································································································· 15
List of Tables ··················································································································································· 17
List of Figures·················································································································································· 18
List of Boxes ··················································································································································· 19
List of Abbreviations ···································································································································· 288
Summary ······················································································································································· 289
I. Project Overview ···································································································································· 294

1. Project Background and Objective ·································································································· 294
1.1. Background ································································································································ 294
1.2. Objective····································································································································· 299
2. Scope of Project and Expected Outcomes ····················································································· 299
2.1. Project Approach and Methodology ······················································································ 299
2.2. Scope of the KSP and the Organisation of the Report ························································· 300
2.3. Expected Outcome ···················································································································· 300
2.4. Limitations of the study ············································································································ 300
II. Diagnosis on Ethiopia’s Investment Climate ······················································································· 302

1. Recent Trend of FDI Flows to Ethiopia ···························································································· 302
2. Political and Macro-economic Environment in Ethiopia ······························································· 305
3. Infrastructural Environment in Ethiopia ························································································· 306
4. Institutional and Legal Framework to Facilitate FDIs in Ethiopia ················································ 309
4.1. Institutional Framework ··········································································································· 309
4.2. Legal and Regulatory Framework of Foreign Direct Investment in Ethiopia ···················· 311
4.3. Legal Framework on Industrial Parks ······················································································ 315
4.4. Opportunities and Challenges in Investing in Ethiopia ························································ 319
III. Experience of Korean Textile and Apparel Industry’s Overseas Investment ··································· 325
1. Overview of the Korean Textile and Apparel Industry·································································· 325
1.1. The Development Path of Korean Textile and Apparel Industry ········································· 325
1.2. Recent Textile and Apparel Industry in Korea ······································································· 330
1.3. Overseas Investment Trends of Korean Textile and Apparel Industry································· 332
2. Major Investment Destinations of Korean Textile Companies·····································································337
2.1. Vietnam ······································································································································ 337
2.2. Bangladesh································································································································· 345
2.3. Indonesia ···································································································································· 354
2.4. Lessons Learned from the Korean Investment Activities ······················································ 356
15
3. Firm-Level Determinants for the Locational Decisions ·································································· 359

3.1. FDI as a Strategy to Develop a Network between the Streams ··········································· 359
3.2 Motivations and Main Determinants for Locational Decisions ············································· 360
IV. Policy Recommendation ······················································································································· 369

1. Rationale of Policy Recommendations···························································································· 369
2. Policy and Strategy Recommendation ···························································································· 370
2.1. Infrastructure ····························································································································· 370
2.2. Legal Framework ······················································································································· 372
2.3. Encouragement of FDI ·············································································································· 373
V. Conclusion ·············································································································································· 375
References ···················································································································································· 379
16
World Bank
List of Tables
Table I-1 | IPs in Ethiopia······················································································································ 296

Table II-1 | Safety Index: Selected Countries······················································································ 305
Table II-2 | Ethiopia: Selected Indicators ···························································································· 306
Table II-3 | Distance and Time Taken between the Respective IPs and Djibouti ··························· 307
Table II-4 | Investment In-flows to the Textile and Apparel Sector in Ethiopia, 2010-2015 ········· 320
Table II-5 | Benefits and Challenges to Investing in Ethiopia ·························································· 324
Table III-1 | The Textile and Apparel Industry in the Manufacturing Sector in Korea, 2013········ 330
Table III-2 | Korea Textile and Apparel Industry Exports by Prouct Category, 2014······················ 331
Table III-3 | Share of the SPA and Outdoor Apparel Market in Korea ··········································· 332
Table III-4 | Labor Cost Increase in the Textile and Apparel Industry in Korea, 1985-1990 (%) ··· 333
Table III-5 | Hourly Labor Cost in the Textile and Apparel Industry: Selected Countries, 1996 and
1997 ···································································································································· 333
Table III-6 | FDI Out-flows Made by the Textile and Apparel Industry ··········································· 335
Table III-7 | Foreign Investment in the Textile and Apparel Industry by Destination Country ······ 335
Table III-8 | Major Korean Investors and Major Investment Destinations ······································ 336
Table III-9 | Korean Investment in Vietnam’s Textile and Apparel Industry ··································· 337
Table III-10 | Vietnam’s Textile Trade, 2000-2014 ·············································································· 339
Table III-11 | Destinations for Vietnam’s Textile and Apparel Export, 2013··································· 340
Table III-12 | Korea’s Textile and Apparel Trade with Vietnam ······················································· 341
Table III-13 | Investment Infrastructure Cost in Vietnam ································································· 344
Table III-14 | Korean Investment in the Bangladesh’s Textile and Apparel Industry····················· 345
Table III-15 | Global Market Share of Major Apparel Exporters······················································ 346
Table III-16 | Change in Export and Import of Bangladesh’s Textile and Apparel Industry ········· 347
Table III-17 | Status of Bangladesh’s Textile Trade with the World ················································· 348
Table III-18 | Korea’s Textile and Apparel Trade with Bangladesh ················································· 348
Table III-19 | Advantages and Disadvantages of Investment in Bangladesh ································· 353
Table III-20 | Korean Investment in the Indonesian Textile and Apparel Industry ························ 354
Table III-21 | Satisfaction and Dissatisfaction of the Korean Textile and Apparel Investments ··· 366
17
List of Figures
Figure I-1 | Ethiopia’s GDP Structure, 2014························································································ 295

Figure II-1 | FDI Inward Stock: Selected SSA Countries, 2014 ·························································· 302
Figure II-2 | Growth in GDP and FDI In-flows to Ethiopia································································ 303
Figure II-3 | FDI Stock in Ethiopia by Industrial Sector, 2014 ··························································· 304
Figure III-1 | Korea: Change in per capita GDP, 1960-2014 ······························································ 326
Figure III-2 | Major Events in the Growth Path and Exports of the Korean Textile Industry ······· 328
Figure III-3 | Number of Firms and Employment in the Textile and Apparel Industry by Year···· 330
Figure III-4 | Annual Changes in Foreign Investment Out-flows Made by Textile and Apparel
Industry ······························································································································ 334
Figure III-5 | Selected Investment Destinations of Korean Textile Companies ······························ 336
Figure III-6 | Supply Chain of the Textile and Apparel Industry in Vietnam ·································· 338
Figure III-7 | Global Value Chain of the Textile and Apparel Industry············································ 359
Figure III-8 | Sae-A’s Investment Locations ························································································· 360
Figure III-9 | Change of the Location for the Industry’s Global Production Network··················· 361
Figure III-10 | Motivation of the Korean Textile and Apparel Investment, 1990-2014················· 363
Figure III-11 | Motivation of the Korean Textile and Apparel Investment by Country················· 364
Figure III-12 | Factors Inducing Satisfaction ······················································································· 367
Figure III-13 | Factors Leading to Dissatisfaction················································································· 367
18
World Bank
List of Boxes
Box III-1: The Establishment of IPs and GRIs for the Textile and Apparel Industry in Korea ········· 329
Box III-2: Major Korean Investment Firms in the Textile and Apparel Sector in Vietnam ············· 342
Box III-3: Youngone Corporation ········································································································· 349
19
2015 KSP - WB Joint Consulting :
Systematic Use of Information to
Improve Health Systems Governance
Part 1
Jang-soo Jun, Korea Eximbank

Jae-uk Ryu, Korea Eximbank
Kee-young Lee, Korea Eximbank
Yeun-sook Rho, Health Insurance Review & Assessment Service
Hee-jeong Kang, Health Insurance Review & Assessment Service
Yong-myoung Jang, Health Insurance Review & Assessment Service
Bong-ju Kwag, Health Insurance Review & Assessment Service
Hyun-ki Min, Health Insurance Review & Assessment Service
Min-ji Ju, Health Insurance Review & Assessment Service
Su-jin Kim, Health Insurance Review & Assessment Service
Seung-mi Yoo, Health Insurance Review & Assessment Service
Hyoung-sun Jeong, Yonsei University
Soon-man Kwon, Seoul National University
Tae-hyun Kim, Yonsei University
2015 KSP-WB Joint Consulting : Systematic Use of Information to Improve Health Systems Governance
List of Abbreviation
Abbreviation Full Description
AUS Universal Health Coverage
CEABE Central de Abastecimiento de Bienes Estrategicos (Central Strategic Supply of Goods)
DUR Drug Utilization Review
DW Data Warehouse
EPS Entitdades Prestadoras de Salud (Health Service Providing Entities)
EsSalud Social Health Insurance
FFS Fee for Service
FISSAL Fondo Intangible Solidario de Salud (Intangible Solidarity Fund for Health)
Fondo NaciÓnal de Financiamento de la Actovidad Empresarial del Estado (National

FONAFE
Fund of State Activities)
HCQI Health Care Quality Indicators
HIRA Health Insurance Review & Assessment Service
IAFAS Fund Management Institutions to Ensure Health
ICT Information and Communications Technology
Instituto de EvaluaciÓn de Technologias en Salud e InvestigaciÓn (Institute for

IETSI
Health Technology Assessment and Research)
ILO International Labour Organization
INEI National Institute of Statistics and Information
IOM Institute of Medicine
toIPSS Healthcare Service Providers
JCI Joint Commission International
KOHI Korea Human Resource Development Institute for Health & Welfare
KOHIA Korea institute for Healthcare Accreditation
KPIS Korea Pharmaceutical Information Service
22
Part 1 _List of Abbreviation
KSP Knowledge Sharing Program
LPIS Prioritized List of Health Interventions
LSHTM London School of Hygiene and Tropical Medicine
MDGs Millenium Development Goals
MFDS Ministry of Food and Drug Safety
MINSA Ministry of Health
MOU Memorandum of Understanding
MRI Magnetic Resonance Imaging
OECD Organization for Economic Cooperation and Development
P4P Pay for Performance
PEAS Essential Health Insurance Plan
PNME National Essentioal Medicines List
PPS Purchaser-Provider Split
QA Quality Assurance
QI Quality Improvement
RESYST Resilience and Responsive Health Systems
RFID Radio Frequency IDentification
SDGs Sustainable Development Goals
SDS Service Delivery and Safety
SEG Insurance for Students
SIS Social Integral Health Insurance
SISFOH Household Targeting System
SMI Insurance for Maternity and Infant
SUSALUD National Health Insurance Superintendency
UHC Universal Health Coverage
UN United Nations
VBP Value-based Performance
WB World Bank
WHO World Health Organization
23
Executive Summary
This paper deepens the final report of 2014 KSP-WB Joint Consulting Program in order to deliver
the consulting outcome and propose improvement measures for Peruvian health insurance system
based on the analysis of Korean healthcare system and its purchasing function framework described
in the 2014 report.
1. Korean Case Study and Proposal of Analysis Framework

The Korean case study section gives an overview of the characteristics and development history
of Korean National Health Insurance System with the perspective of a healthcare purchaser. At the
same time, by reviewing the adoption and utilization of Information & Communication Technology
(ICT) in relation to the development process of Korean national health insurance system, the report
proposes an analysis framework that will enable partner nations to benchmark the experience and
knowledge of Korea.
Major Characteristics of the Korean National Health Insurance

Korea’s National Health Insurance (NHI) system was first implemented in 1977 and was only
available at some workplaces with 500 and more employees. It expanded over the following 12
years and achieved universal health coverage (UHC) in 1989. The Korean government used a variety
of measures to encourage participation by employers, employees, and private healthcare institutions
to establish the national health insurance program. The Korean NHI system was established with the
following characteristics.
• Low contribution-low benefit-low payment system : To increase the participation rate, the
government lowered the contribution rate that led to low benefit coverage and low payment to
physicians.
• Fee-for-service as a major payment system : Fee-for-service, which is the most similar payment
system before introducing the KNHI, was implemented with a fee schedule
• Mandatory designation of healthcare institutions : Because there was a shortage of public

healthcare institutions, NHI mandated private healthcare providers to join the national health
insurance program in order to expand the program to all citizens
24
Part 1 _Executive Summary
Unification of Healthcare Financing and Medical Fee Review Systems

A multi-payer health insurance system was adopted during the early stage of implementation,
which led to several problems. There was lack of uniform coverage across the insurers. Each insurer
had different policies regarding available medical services and medical fee review processes that
created inequity and inefficiencies in the system. To remedy the situation, the Korean government
decided to implement a single-payer system by consolidating the funds that were going to different
health insurers. As a result, the National Health Insurance Service (NHIS), a sing payer, and Health
Insurance Review Assessment Service (HIRA), an independent agency that specialized in review and
assessment, were established. In terms of financial management under the NHI system in Korea,
NHIS took charge of resource generation and risk pooling while HIRA was responsible for healthcare
purchasing in order for efficient allocation of generated resources.
Changes in the Healthcare Environment

In the meantime, there were many changes within the Korea’s healthcare environment. Rising
income and higher education attainment led to a growing interest in maintaining population
health and public health. Issues regarding adoption of state-of-the-art medical technologies,
changed disease patterns, and increased participation of various stakeholders in decision-making all
contributed to the growing complex healthcare system. This prompted the NHI program to reflect
on the value of improving healthcare performance, in addition functioning in a management role.
Accordingly, HIRA’s role was expanded from reviewing claims for cost appropriateness to various
domains of quality, disclosure of information, equity, responsiveness, and efficiency. This was the
beginning of expanding HIRA’s role from merely being a passive healthcare purchaser to taking a
more active role to be strategic and proactive in the healthcare system in Korea.
HIRA’s Function and Roles: From A Purchaser’s Perspective

Healthcare purchasing consists of contracting, monitoring, information disclosure, and regulation.
While each of these can be linked to improvement in national healthcare performance, its form may
vary with a particular program and country. In the case of Korea, HIRA’s main function is healthcare
purchasing, and this can be largely categorized into benefit terms setting (contract), monitoring,
and healthcare infrastructure management as follows:
• Benefit terms setting is about determining purchasing what, from whom, at which costs and
under which conditions. Because all healthcare institutions are mandated to provide the insured
with healthcare services under Korea’s NHI system, all healthcare institutions are essentially
under the contract with the same benefit terms. In HIRA’s context, a contract refers to benefit
terms setting . More specifically, HIRA’s responsibilities include benefit package listing, pricing,
coding, developing benefit guidelines, healthcare resource management, etc.
• Monitoring is a process to check whether medical services are rendered in accordance with
benefit terms, which include claims review, quality assessment, Drug Utilization Review (DUR)
for safe drug use, on-site investigation, verification service of healthcare benefit coverage,
information disclosure, etc.
25
• While healthcare infrastructure management is not directly related to purchasing of healthcare

services, it lays the foundation for efficient operation of related services, which includes HIRA’s
advanced ICT system, healthcare resource management, healthcare data analysis system, Korea
Pharmaceutical Information Service (KPIS), etc.
2. Analysis on the Health Insurance System and its Current

Trend of Reform in Peru
2.1. Health Insurance System in Peru
The health insurance system in Peru can be characterized by horizontal fragmentation and
vertical integrity. Horizon fragmentation implies non-integrated subsystems that caters to different
segments of the population defined by social and economic class. Major health insurers have their
own network healthcare institution, so that healthcare services can be purchased and provided at
the same time. This type of system stems from social, economic, cultural and historical background
of the countries in South America, including Peru. An extreme inequality between different social
classes has been formed during the colonial period under Spanish ruling over the centuries, and
accordingly the system has been tailored to each class that still exists today. Therefore, healthcare
insurance at the national level has been passively implemented to mainly meet the needs of
the poor class. Together with the movement to empower workers from Europe and economic
development after 1930s, the government of Peru began to implement a health security sysem
which was fragmented; 1) programs to provide minimum medical services with government
subsidy targeting the poor, and 2) comprehensive social security services as well as health insurance
targeting employees in the formal sector. This approach decentralized health care system with
Ministerio de Salud (MINSA, Ministry of Health) where Seguro Integral de Salud (SIS, Social Integral
Health Insurnace) covers workers from the informal sector and Seguro Social de Salud (EsSalud,
Social Health Insurance) under the Ministry of Labor covers workers from the formal sector. This
has been a major barrier in achieving universal health coverage (UHC) at the national level and in
providing the healthcare services efficiently.
2.2. Current Trends in Health Insurance Reform in Peru

The Current Operation of Two Major Health Insurance System in Peru
More than two-thirds (69.5%) of the population in Peru is covered by a number of health
insurance systems including 36.3% of the population who work in the informal sectors covered by
SIS, 25.7% of the population who work in the formal sector covered by EsSalud, and the rest of 7.4%
in Armed Forces and private insurances. The total national medical spending in Peru is 5.4% of GDP,
which is lower than the OECD average of 8.9% and the average of neighboring countries, which is
approximately 7%.
26
When it comes to two major health insurance systems, namely SIS and EsSalud, SIS provides
insurance to workers from informal sectors and low-income class with resources funded by the
general revenue. Since the SIS, insurer (purchaser) is separated from public healthcare institutions
owned by MINSA, the primary care services are paid by capitation with performance-linked
incentives and secondary and tertiary care services are paid by fee-for-service. On the other hand,
EsSalud is operated by premiums provided by workers from the public sector (9% of income, all
covered by employers), and service is provided through 400 plus network of health insurances it
owns. Service budget is paid by historical budgeting, which is distributed based on price increase
proportion compared to the budget of year before rather than performance.
As briefly mentioned earlier, SIS and EsSalud have different operating system in terms of resource
procurement, insurance benefits, and separation of purchaser-provider governance. In particular,
Essalud does not impose any restrictions on healthcare benefit because healthcare service is
provided in line with comprehensive welfare programs, such as occupational accident insurance,
sickness allowance to improve overall welfare of workers in the formal sector. This results in
inefficient distribution of limited resources without setting priority in Peru. There is overuse of high-
cost procedures such as organ transplantation, treatment of rare and severe diseases including
cancer, and use of overseas healthcare institutions. This unproperly controlled access to any level
of healthcare services also leads to inefficient a delivery system, particulary weak primary care. This
serves as a factor to allow non-eligible patients seek for services mobilizing unjust measures, but no
mechanism exists to restrain such factors due to lack of efficient patient management system.
SIS also faces challenges in that while it seeks to extend its coverage after the implementation of
the Universal Health Insurance Law (AUS Law, la Ley Marco de Aseuramiento Universal en Salud, Ley
No. 29344) in 2009, it failed to procure enough financial resources and has led to relatively low level
of services provided. Therefore, second to the top tier class does not have reason to keep insurance
that does not provide them with satisfactory coverage. Many become uninsured which leads to a
vicious cycle of putting them in the blind zone uncovered by health insurance. To aid this segment
of the population, a legislation was passed to raise the subscription rate of the second to the top
tier class, and made it mandatory to provide services included in the Essential Health Insurance Plan
(PEAS, Plan Esencial de Aseguramiento en Salud) to SIS subscribers to reduce the benefit coverage
gap between SIS and Essalud, without any fruitful outcome so far.
The purpose of the AUS Law was to increase health insurance enrollment by guaranteeing
a certain level of services to the enrollees, but the systematic problems caused by fragmented
operation of SIS and EsSalud have made it difficult to implement the law as intended. This report
aims to analyse the challenges and suggess possible improvements for EsSalud.
27
Challenges to Improve the Health Insurance System, EsSalud

As briefly mentioned in the previous paragraph, the non-separation of purchaser and provider
of services in EsSalud and its inefficient healthcare expenditure without performance-based
provider payment systems can be referred to as the biggest obstacle in improving health systems
performance. Accordingly, EsSalud began to separate the functions of purchaser and provider in
2016, based on the ASU Law passed in 2009. It introduced a system where necessary services are
purchased through contracting with external institutions, rather than creating additional network of
medical institutions to meet the increasing demand for services. To achieve the purchaser-provider
split, it is necessary for EsSalud to analyze the actual cost for healthcare services as well as the
demand of services to efficiently allocate the limited healthcare resources. Unfortunately, there are
not enough evidence for setting the approprieate fee levels contractable with external institutions.
In fact, estimating actual cost (comes from comparing the actual utilization of healthcare services
with input of resources) is not necessary only for the contract with external institutions beyond
EsSalud network, but also the maintenance of financial sustainablilty within EsSalud after the full
adoption of the purchaser-provider split.
In regards to the ‘unlimited coverage for all kinds of diseases’ that are clearly set out by EsSalud, it
may be difficult to provide these set of benefits without having a clear plan to allocate the limited
resources. Even among OECD countries that have achieved UHC, there are no countries where public
financial resources pay for 100 percent of the national healthcare. Therefore, a discussion between
the Peruvian government including EsSalud and various stakeholder needs to set benefit terms and
agree on priorities.
Most importantly, EsSalud’s main problem is that efficient policy measure has not been established
based on the accurate information from medical institutions and users due to delays in data
processing. Although about 120 Information Technology (IT) experts in EsSalud are developing in-
house information systems for operation, there are problems with systems interoperability. The
compatiblility issue has prevented the use of timely data to establish relevant policy decisions
because additional manual work is required to collect and analyze medical data from relevant
institutions. However, current efforts by EsSalud, particularly the ICT modernization policy, should
help to speed up data processing and analysis.
3. Conclusion: Suggestions to Improve the Health Insurance

System in Peru and Future Plans for Cooperation
Health insurance reform based on the AUS (Universal Health Insurnace) Law in Peru must be
carried out in the national level with the plans for extending the scope of subscribers and seeking
diverse sources of financing. The present report prepared by HIRA together with the World Bank (WB)
focuses on improving systems of EsSalud. As mentioned, EsSalud is one of the major public health
insurance systems in Peru and its successful experience will positively affect to the other health
insurance systems improvement plans, as well.
28
The challenges to reform in accordance with the AUS law and ICT modernization plan can
be categorized into the following three points: First, set priority on the benefits package and
implement a mechanism to allocate limited resources so that necessary medical services are available
to users more efficiently. Second, separate purchaser-provider to increase financial sustainability and
effectively address the increasing number of EsSalud subscribers and their use of medical services.
Third, establish an ICT system for efficient collection, analysis and utilization healthcare utilization
data to improve efficiency and transparency.
These are particularly the major scope of work that HIRA can share with Peru based on HIRA’s
knowledge and experience gained from serving its role as a major purchaser within Korea’s national
health insurance system.
Prioritization of Benefits Package

Setting priorities by defining benefits package is crucial to financial sustainability of health
insurance and ensuring universal acces to proper healthcare. Because EsSalud does not explicitly
define the benefits package, it is difficult to plan and distribute medical resources in a reasonable
way by considering the medical needs from the total population and the goal to improve health
levels. Like in Peru, healthcare service provision without clear benefit list can result in indirect service
refusals or limited acces to timely care due to long wait times and frequent referrals of patients
to the other institutions. Korea’s experience with setting benefits list based on scientific evidence,
technical assessment, social consensus can assist EsSalud to set clear goals that improves people’s
health and to achieve them. In this regard, Korea can share its knowledge and provide information
about1) technical support for economic evaluation of drugs to develop a positive benefit list, 2)
decision making methods based on evidence using technical committees consisting of experts 3)
operation of discussion mechanism where various stakeholders can participate to discuss social
values and patient preferences.
Separation of Purchaser-Provider
The health insurance system in South America is characterized by the following. The insurer, the
purchaser of medical services, has its own network of medical institutions, so that purchaser and
provider are generally integrated. EsSalud also possesses its own network of about 400 medical
institutions. Healthcare budget is conservatively distributed to the newtwork institutions as the
purchaser is unable to obtain information on the actual cost for rendered services. And this blocks to
build an effective system for purchasing healthcare services strategic. Against this background, Korea
can provide technical support, such as sharing its experience of method development to investigate
actual costs to set medical fees based on resource-based relevant value scales (RBRVS). Having
information about the actual costs will aid to calculate accurate service fees that reflects the value of
invested resources. This will lead to improving efficiency and enable outcome-based distribution of
resources. This lays the foundation for insurers to purchase services from medical institutions more
proactively and strategically and will serve as a starting point for the purchaser-provider split in Peru.
Departments in charge of purchasing medical services can be created within EsSalud, so that benefit
29
terms can be set before medical services are provided and EsSalud can monitor whether the services
are provided accordingly.
Implementation of Modernized ICT system

For strategic purchase of healthcare services, it is necessary for infrastructure management of
healthcare systems that support setting benefit terms and monitoring functions in an efficient and
systematic manner. As explained earlier, about 120 IT experts are employed by EsSalud to implement
various IT systems, but there are insufficient links between medical institutions and insures and
within medical institutions to exchange information, leading to problems that restrict processing of
timely and accurate medical information. In particular, a single type of health information system (HIS)
is distributed regardless of the size and characteristics of medical institutions, and this ineffective
system leads to complexity, where employees in medical institutions have to enter the collected data
on their systems at each stage.
To improve the current conditions, first, technology transfer can be considered to develop diverse
HIS programs in accordance with the different level of medical insitutions in Peru. Second, HIRA can
share its expertise in building an ICT system that collects and analyzes healthcare utilization data
for evidence-based policy making. HIRA can provide technical support to devise a master plan to
implement a standard ICT system that is compatible with individual systems developed for different
purposes within the network of medical institutions owned by EsSalud.
Conclusion
Achieving UHC is an important value and most international community perceive this as the basic
right to improve the health and welfare of humankind. Post Korean war (1950-1953), Korea was
able to accomplish rapid economic development in a short time as a result of receiving economic aid
and sharing of knowledge and expertise from advanced nations. This also means that Korea holds
an obligation and responsibility to give back to the international community by sharing its unique
experience of economic and social development. This report is the analysis result of the current
status of healthcare and health insurance system and its challenges in Peru. The information was
gathered through two on-site visits and a capacity building workshop for the last several months. In
order to make recommendations for improvement that entail complex processes, it is crucial to have
an understanding of the country’s social, cultural, political background, and policy making process.
Therefore, the points of improvements suggested by this report advocates for strong foundation for
mid-and long term cooperation. And this report will be used as the baseline study to prepare further
technical reports on specific topics for the continuous cooperation with Peru.
30
Part 1Ⅰ_Introduction
Ⅰ Introduction
1. Study Background and Objectives

Global Efforts for Achieving Universal Health Coverage
Recently, there have been growing efforts to achieve Universal Health Coverage (UHC) by many
international communities in an effort to enhance the welfare of the humanity through health
security. The World Health Organization defines UHC as “ensuring that all people can use the
promotive, preventive, curative, rehabilitative and palliative health services they need, of sufficient
quality to be effective, while also ensuring that the use of these services does not expose the user
to financial hardship (WHO, 2010).” Many governments are working hard to expand population
coverage and benefit packages, and to relieve financial burden on households. Furthermore, major
international organizations are seeking to realize their goals, including human rights protection,
health promotion, economic development, and sustain social development through strengthening
the basic rights of UHC.
As the Millennium Development Goals (MDGs) of United Nations (UN) came to an end in
September 2015, a new set of common goals was selected under the title of the Sustainable
Development Goals (SDGs) for the sustainable social development, planned to be achieved by 20301).
The third SDGs, “Good Health and Wellbeing” includes a clause of the achievement of UHC. Such
efforts led by the UN are in line with those of the World Health Organization (WHO) and the World
Bank (WB), and are further promoted by bilateral and multilateral knowledge sharing activities
between countries and among international organizations.
The Importance of Financial Sustainability in Achieving UHC

As mentioned earlier, UHC is designed to provide basic health services at affordable costs
for everyone. Considering the changing healthcare environment, however, it is inevitable that
universal care involves substantial expenses. There are a number of reasons behind the high cost.
1) The UN Sustainable Development Summit, held on September 25, 2015, agreed on the 17 Sustainable Development
Goals (SDGs) which will follow the completion of the Millenium Development Goals (MDGs). The 17 goals include
poverty eradication, health and welfare, quality education, enhanced fairness, environment conservation. For more
details, visit www.undp.org/content/undp/en /home/mdgoverview/post-2015-development-agenda/.
31
One important factor that contributes to the increase in cost is the aging population and low
birth rates. In current society, it’s expected that health care cost will continue to increase as there
will be more chronic disease patients, increasing the demand for rapid inflow of high-price new
medical technology into the National Health Insurance (NHI) benefit package, and as the income
and education levels of the population increase, there will be greater public interests in health and
welfare. Along with all these environmental changes, many governments became concerned about
the fund sustainability. The access to care has significantly improved in middle and low income
countries for the past 10 years, leading to better quality services enjoyed by a greater number of
people. Therefore, efficient and strategic use of limited health resources is currently a critical issue
(Ministry of Strategy and Finance, 2015).
WHO also pointed out, in a report (2010), that while revenue collection and risk pooling are
important strategies to sustain funds, they are not enough and efficient use of finite resources is
essential2). This is called “purchasing” among the three functions of healthcare fund. The concept
of healthcare purchasing is changing from budget allocation and third party payment to a more
proactive and strategic “contract” mechanism of resource allocation for performance improvement.
(this paragraph seems out of place)
Achieving UHC and Strategic Healthcare Purchasing in Korea

National Health Insurance of Korea achieved universal population coverage in 1989 which was
within 12 years from its inception and it is often praised as the best practice for its efficient operation
(who praises it as best?). In the early phase of NHI introduction in 1977, it was applied only to large
enterprises with 500 or more employees. As the economy grew, the coverage expanded to include
self-employed and residents in farming and fishing areas. In the beginning, there were hundreds
of insurers and the operations were segmented with much inefficiency. In 2000, the insurers were
integrated under the single payer system, and an independent organization with specialized
function of cost and quality monitoring was established. The monitoring organization became an
integral part of NHI operation for efficient cost management in Korean healthcare environment.
In Korean system’s context, there are three main functions of healthcare purchasing. First, setting
benefit criteria before the services aredelivered. Second, post-factum monitoring whether the
health service was provided in accordance with the criteria. And third, healthcare infrastructure
management using ICT as support measures for efficient management of the aforementioned two.
More detailed description of each function will be discussed later, and will be used as the framework
for Peruvian system analysis to provide policy advice to Peru on healthcare purchasing.
2) For more information, please refer to footnotes on page 6 of the 1st research report of 2014
32
Part 1Ⅰ_Introduction
Purchaer-Provider Split and Strengthening Quality Monitoring for

Improving Healthcare Performance in Peru
Peru, like other Latin American countries, has a sepatate health insurance system for different
socioeconomic class of people. Peru adopted its first public health insurance plan in 1936 called
the National Social Security Workers, which was only available for some employees (Seinfeld et
al., 2013). Since then, the plan has developed and expandedto include official employees. During
the militant dictatorship between 1960 to 1980, the budget for public sector was significantly cut
and the socioeconomic gaps between citizens were widened.. Since the 1980s, as a result of the
liberalization efforts started by civil society, social security policies for the underprivileged were
implemented (Atun et al., 2015). The social trend led to the inclusion of lower income families, who
previously had very limited access to care, into the government subsidy programs.. As “Framework
Law on Universal Health Coverage (Ley 29344)3)” took effect in 2009 and continued to expand to the
point that as of 2014, , 62% of all Peruvians hold a health insurance plan. (reference needed).
Among the 62% with insurance, 25.7% hold EsSalud plan which is for the official employees, and
36.3% hold the membership of SIS (Comprehensive Health Insurance) which is the government-
aided integrated health insurance plan. The two plans have very different operation schemes in
terms of not only fund management like financing, risk pooling, and purchasing, but also resource
management and service delivery. The fragmented system operation is an obstacle for quality-based
cost-effective service delivery, and could become a challenge for the fund sustainability when the
program becomes universal and the total cost rises rapidly.
In particular, one of the major program, EsSalud, has had its own network of healthcare providers
to deliver health service to its subscribers. Due to the increase of subscribers, the program is trying
to work with non-member providers through “contracts“. So far, EsSalud was the purchaser that
allocated budgets to each provider by reflecting the number of patient visits and risk levels. The
current plan is that the purchaser (EsSalud) and providers will be separated and the non-member
providers will be included in the program on a contract basis and Fee-For-Service mechanism will be
introduced. . This separation of the purchaser to the provider means that there will be performance-
based healthcare resource allocation. Therefore, it will be important to have a quality assessment
mechanism to evaluate performances of each provider.
3) Ley Marco de Aseguramiento Universal en Salud (Ley 29344; Framework Law on Universal Health Coverage): explained
in more detail in the coming section of Peruvian health insurance system.
33
2. Study Outline
As part of coordinated international efforts for the achievement of UHC, the Ministry of Strategy
and Finance of Korea has participated in the Knowledge Sharing Program (KSP) in partnership
with the World Bank, which is a consulting program aimed to improve the health insurance system
in developing countries. This is the second consecutive year that the Export-Import Bank of Korea
(Korea Eximbank) selected HIRA as the consultant. As such, HIRA took on the research to assess
the healthcare performance improvement in Peru from a policy change to implement purchaser-
provider split, led by the EsSalud. The purpose of this study is to draw lessons from analysis of Korea’s
experience on the ICT utilization and efficient NHI operation, and to make use of the outcome for
the improvement of Peruvian system. The following paragraph introduces main research contents.
The research consists of two parts. One is “Redefining functions of health insurance system for
the improvement of healthcare performance”, and the other is “Building a health service quality
management governance for the improvement of healthcare performance.”
In the first chapter of “Redefining the functions of health insurance system for the improvement
of healthcare performance”, the analysis of Korean NHI and its characteristics will be discussed and
Korea’s experience of fund integration in 2000 and purchasing function split will be shared, in order
to propose lessons for Peruvian system improvement. In the second chapter, after summarizing
the country’s overview and introduction of Peru’s overall health system, Peru’s health purchasing
function will be analyzed based on the “Korean analysis framework for purchasing function”drawn
from the 1st year of research. In the following third chapter, insights for health insurance system
improvement will be introduced, including the purchaser-provider split of Peru. And the fourth
chapter will produce the conclusion of the first part of the research.
In the first chapter of the second part “Building a health service quality management governance
for the improvement of healthcare performance”, the case study of establishing quality
management governance of Korea is discussed. It includes the background of the case, legal and
institutional base, resource management, monitoring, quality improvement, performance and
challenges. In the second chapter, the analysis of Peruvian healthcare quality management will
be compared against that of Korea, leading to a comprehensive proposal on the establishment
of Peruvian quality management governance. Also, the process and results of preliminary quality
assessment, including simple indicator development, will be offered for the selected applicable
items. And the third chapter will conclude the second part of the research.
34
Part 1 Ⅱ_Characteristics of the Korean Healthcare System
Ⅱ Characteristics of the Korean

Healthcare System
1. General Features
Korea achieved universal health coverage (UHC) in only 12 years since its introduction of the
mandatory National Health Insurance (NHI) program for some employees in 1977. After twenty five
years from UHC adoption, Korea is showing positive trends such as higher life expectancy and lower
health expenditure as a percentage of GDP compared to OECD average. In this chapter, the current
status of Korea’s healthcare system and its own characteristics will be introduced.
1.1. Current Status of Korea’s Health Insurance System

1.1.1. Governance
The main players of Korea’s National Health Insurance are the general public (the insured),
healthcare service providers, the National Health Insurance Service (NHIS, the insurer), the Health
Insurance Review and Assessment Service (HIRA, the main healthcare purchaser with claims review
and assessment functions) and the Ministry of Health and Welfare (MoHW, the overall supervisor).
The roles and functions of each party are illustrated in [Figure II-1].
The MoHW oversees the operation of the NHI program in accordance with the National Health
Insurance Act. Under the Ministry, the National Health Insurance Policy Deliberation Committee4)
is set up as the highest decision making body that reviews benefit terms, premium rate, and other
major issues. NHIS is in charge of the insured’s eligibility management, premium imposition and
collection, reimbursement management, and disease prevention programs. NHIS also oversees the
Finance Operation Committee5) that reviews and determines finance related matters including
negotiation of unit price with the representatives of each group of healthcare providers. HIRA’s
responsibilities range from claims review and quality assessment to development of standards for
4) National Health Insurance Policy Deliberation Committee consists of 25 members. The chairperson is the Vice Minister
of Health and Welfare, and eight members are from the subscribers, eight from pharmaceutical community, and eight
from the delegation of public interests (MoHW, 2014).
5) Finance Operation Committee consists of 30 members- 20 from subscribers, 10 from the delegation of public interests
(Article 33 of National Health Insurance Act.)
35
review and assessment. The Health Insurance Review and Assessment Committee6) is the primary
decision making body within the organization.
Figure II-1 | Structure of National Health Insurance In Korea
1.1.2. Benefits
1) Benefit Package
Korea’s NHI provides both benefit-in-kind and benefit-in-cash as its benefits. The insured receive
benefit-in-kind when they’re using healthcare services7) and medical checkups. Cash benefits are
given for emergency cases when healthcare services are unavailable to patients, funeral service
expense, co-payment ceiling program, co-payment compensation program, and assisting device
purchase of the disabled. In the early days of NHI, the benefit package was designed to have many
limitations and resulted in low coverage rate and higher financial burden on patients in the form of
out-of-pocket payments. As the demand for coverage expansion grew, the government started to
prepare and implement plans to expand the benefit coverage. The efforts have focused on adding
previously uncovered services to, such as highly priced uncovered services (CT, PET, MRI, dentures,
ultrasound, etc.) and previously excluded expensive services for treatment of severe diseases (cancer,
cardiovascular diseases, cerebrovascular diseases, and rare diseases).
2) Co-Payment
Co-payment was adopted to raise patients’ awareness of medical service cost. There are two
types of co-payments under Korea’s NHI program. The first type is the patients’ share of the partial
payment for covered services, and the other is the full payment made by patients for uncovered
services. The co-payment ratio for covered services is determined by factoring in the type of
service (inpatient or outpatient) and the eligibility status of the patient (age, income level, clinical
condition, etc). The ratio is generally around 30% of the total payment for clinic outpatients and it
6) The Healthcare Review and Assessment Committee consists of 1,050 members, who are full-time members (50 or less)
and part-time members (1,000 or less). Establishment of subcommittee is allowed under each department. (“National
Health Insurance Act” Article 66).
7) The examples include consultation, test, drug, medical material, treatment, surgery, other treatment, prevention,
rehabilitation, admission, nursing, and transfer.
36
goes up the level of institution goes higher. For inpatients, it is set to be 20% of the total payment
regardless of the level of institution. The patient pays the co-payment to the provider at the point of
service delivery, and the NHI benefit (which is the rest of the bill) is provided by the insurer after the
benefit claim review is completed. When the accumulated co-payment of a patient in a year exceeds
certain amount (between KRW 1.2 million to 5 million depending on the patients’ income level),
NHIS refunds the excess amount in order to protect patients from excessive healthcare expenditure.
1.1.3. Finance
1) Resource Generation
NHI plans and operates its budget on a yearly basis. Therefore, the determination of premium rate
and yearly revenue of the next year is based on the expected benefit expense of the next year (Shin
et al., 2009). The main source of NHI funds comes from the premium paid by the insured and the
remaining funds are from governmentt aid8) and other funding sources (additional charge, other
collection, interest income, etc.). The formula for employees’ premium calculation is to multiply the
monthly salary by the premium rate (max. 8%). For the self-employed, conversion factor is multiplied
by a score9), which is determined by factoring in the insured’s income, property (including housing
status, car ownership, etc.), living standard, and economic activity. As of 2015, the premium rate of
employees was 6.07% and the conversion factor of self-employed was KRW 178.0 (NHIS website).
The major portion of NHIS expenditure is the benefit reimbursement to healthcare service providers.
The total healthcare expenditure is rising continuously with about 10% of annual growth rate.
2) Payment
The main payment system in Korea is fee-for-service (FFS). Diagnosis Related Groups (DRGs) and
Per Diem are being used partially for inpatient care. As previously mentioned, choosing FFS was part
of the effort to bring more providers into the NHI program, given that the majority of healthcare
service providers were private. In the past, each treatment had a set price (simpler version of RBRVS
without risk) and notified by the Ministry. With the introduction of Resource-based Relative Value
Scale (RBRVS) in 2001, the fee schedule is determined by annual negotiation of the unit price
(conversion factor) with medical societies. Exception is that medical materials and pharmaceuticals
are reimbursed based on actual transaction price10). RBRVS accounts for doctor’s workload, treatment
cost, and risk level. The calculation for doctor’s workload is reviewed and determined by the
medical society, and the treatment cost and risk level are calculated by HIRA. The final fee schedule
is determined by factoring in additional elements such as other institutional level charges such as
number of medical staff at the facility, additional charges for night and holiday duty, emergency
8) The government aid provides 20% annual fund. It was not part of the financial source when NHI was introduced
in 1977, but later implemented in 1988 when the program was expanded to cover residents in farming and fishing
regions.
9) The final decision on the amount of unit price is made by the National Health Insurance Policy Deliberation Committee
(NHIS, 2014).
10) When deciding on the first fee schedule in 1977, Korea heavily referenced Japan’s fee system. Based on the
separation of technology and material, separate fee schedules were prepared for treatment, and drugs and medical
materials (Park et al., 2003).
37
room fees, and additional charge for children and the disabled. Because volume control is difficult
under the FFS payment system, the government is reviewing and implementing diverse types of
payment system incrementally (Park et al., 2013). For example, DRG payment system was introduced
on a voluntary basis for 7 disease groups11) in 2002, and was eventually implemented in all hospitals
(except for general hospital) as of July 2012. Another example of different payment system is Per
Diem, which is used for inpatients at long-term care hospitals.
In 2015, 100% of outpatient case used FFS, while 80.2% of inpatient case used FFS, 12.9% DRGs12)
and 6.9% Per Diem (Health Insurance Review & Assessment, 2015c).
Figure II-2 | Payment System for Outpatients and Inpatients
1.1.4. Delivery System

Korea achieved universal healthcare coverage in 1989. In the initial phase of the Korea’s NHI,
the government organized the healthcare delivery system with different levels of care: primary,
secondary, and tertiary facilities. Primary institutions include clinics (medical, dental, and oriental)
and health centers. Secondary institutions include hospitals (medical, dental, and oriental) and
general hospitals. Lastly, tertiary institutions are government designated general hospitals (Kim,
2004; NFMI, 1997).
Considering the administrative district, the country was divided into 8 large healthcare zones and
142 middle zones by region. Patients were able to freely use primary and secondary institutions
within their zones, but a referral from either the primary or secondary institution was necessary
for a visit to a tertiary institution. There were exceptions where referrals were not required. The
exempted departments were family medicine, ophthalmology, dermatology, otolaryngology,
rehabilitation medicine and emergency room. To use a tertiary institution outside of the geographic
zone, an additional treatment statement from the National Federation of Medical Insurance
(hereinafter referred to as, NFMI) was necessary. Restrictions based on geographic boundaries
caused much inconvenience, especially when the patient’s residence on paper did not match the
11) Lenses procedure, appendectomy, inguinal and femoral hernia procedure, tonsil and adenoid procedure, anal
procedure, C-section, uterine and adnexa procedure for non-malignancy.
12) DRG for 7 disease groups
38
actual address, or when the patient wished to use hospitals that were located near family members.
When President Kim Dae-jung took power, he abolished the restriction policy based on regional
boundary, as adviced by the Regulation Reform Committee (Regulatory Reform Committee, 2003).
Since then, patients’ right to choose where to receive care was strengthened, except for tertiary
provider visits. However, it weakened primary care and without a gate-keeping system, it resulted in
inefficient use of healthcare resources.
Figure II-3 | Healthcare Service Delivery System
1.2. Major Characteristics of Korea’s NHI

1.2.1. National Health Insurance Covers the Entire Population
The beginning of the National Health Insurance in Korea started with the mandatory
implementation of the program for companies employing 500 or more workers. The mandatory
membership was then expanded to include government employees and private school personnel in
1979. Soon after, the mandate expanded to employers with 300 employees, thereby increasing the
number of overall subscribers. Within only 2 years, the coverage rate of NHI reached 21.2% of the
total population. In particular, medical insurance through employment expanded quickly, resulting
from the “10-year Health Security Plan” led by the Ministry of Health and Social Affairs (Hwang,
2011). By 1983, the number of employee threshold went down to 16.
As more people joined NHI, the price difference13) between NHI fee schedule and non-NHI fee
schedule became an issue (NFMI, 1997). The discussion about program expansion14) for non-members
was controversial. Expansion of health insurance was to enhance equity among different socio-
economic groups of the society and new pilot programs for self-employed and residents in farming
and fishing regions started in 1981. The implementation was difficult in the beginning because of
13) There was a price gap between the two sets of fee schedules because NHI fee schedule was determined around 55%
of existing one (Lee, 2000:62).
14) Technically the self-employed could join the program, but most of them failed to do so..
39
the low participation rate and the challenges of assessing actual income levels, but with the strong
commitment from the government towards UHC, it resulted in expanding coverage to farming and
fishing regions in 1988 and urban area in 1989.
Along the way, there were many obstacles such as resistance to premium collection, complaints
about fee schedule level from medical societies, and confrontation between doctors and pharmacists
over the policy to separate prescription and dispensing (NFMI, 1997). Despite all of the challenges,
Korea successfully achieved UHC in 1989, which was only 12 years after the introduction of health
insurance.
Figure II-4 | Expansion History of NHI
1.2.2. Private-Dominant Healthcare Service Provision

When Korea was liberated from the Japanese colonization in 1945, South and North Korea
established quite different healthcare systems, affected by the U.S. and the Soviet Union
respectively. The North focused on strengthening nationalization of providers, whereas the South
had its government managed the public health system while the private sector managed healthcare
service delivery, which was very similiar to the U.S. system. With the Korean War, a large segment of
the healthcare facilities in the South were destroyed and the government did not have resources to
support recovery efforts (Shin et al., 2002). The public hospital system became nonexistent while the
private practice physicians started to thrive and started leading Korea’s healthcare delivery system.
The healthcare consumption started to increase from the late 1960s with the fast economic
development, but there was lack of infrastructure and shortage of medical service facilities. Given
that the expansion of public facilities had been slow, the government encouraged the private sector
to build more hospitals (Nam, 2000). When we look at the actual figure, the conversion is visible. In
1960, the ratio of beds in the public sector15) was 64%, compared to 34% in the private sector, but
in 1979 the figures were reversed with 32% in the public and 68% in the private sector (Shin et al.,
2002). That trend continued and the ratios became 11.8% and 88.2% in 2010 (Lee, 2013).
15) It is difficult to separate public and private institutions under Korea’s healthcare system. The classification used here
was based on establishment type. Public facilities are established by national and public corporate body, and special
cooperate body. Private facilities are established by educational foundation, religious organizations, social welfare
foundation, corporation, foundation corporation, business corporation, medical corporation, and individual. Military
hospitals were excluded.
40
Heavy reliance on private sector for healthcare delivery could cause many difficulties in
government policy implementation. To compensate for this vulnerability, Korea has made it
mandatory for all providers to join NHI. This mandatory membership system requires all medical
institutions and pharmacies to treat NHI patients without additional contracts with the insurer. This
policy was designed to alleviate the serious provider shortage16) in the initial stage of NHI. Although
it is still somewhat controversial17), this policy enables the government to have a strong control over
the private-sector dominant healthcare service provision.
1.2.3. Single Payer System

The number of insurance companies (insurers) sharply increased along with the gradual expansion
of population coverage. As of 198018), there were 432 insurers19) mainly for employees, civil servants,
and private school personnel. In 1982, the authoritarian government carried out insignificant
merger of 40 small-sized insurers in order to share the financial risk on a larger scale. However, most
insurers survived and continued to operate unless there were unavoidable financial difficulties. In
1998, there were 144 insurers for employees, 227 insurers for the self-employed, and one insurer for
civil servant and school personnel (NFMI, 1997).
With more than 350 insurers operating their finances independently20), the financial status and
coverage rate varied greatly between insurers. In particular, the insurance companies that catered
to the self-employed group had difficulties assessing income levels and collecting the premiums
accordingly. In addition this group also included a higher proportion of the elderly population
and therefore higher service use volume (NFMI, 1997). These problems challenged the insurers’
financial stability, and the insurers accrued a deficit of 142 billion KRW during the fiscal year 1996.
The situation of the insurers for employees was not too different. In December 1997, the financial
crisis hit Korea and had a major impact on the insurance industry for employees because the soaring
unemployment rate and stagnmant or reduced salary led to decreased premium revenues. Also, as
the financial crisis worsened, unemployed individuals switched to the insurers for the self-employed,
increasing the burden on those insurers (NFMI, 1997).
To overcome the challenge of premium collection, the government searched for ways to improve
the financial sustainability by pooling insurers’ funds. At the end of 1997, The National Assembly
passed a bill to integrate management of insurers’ funds and the initiative was implemented in
1998, which subsequently led to the establishment of National Health Insurance Service (NHIS).
Since then, the National Health Insurance Act was passed which was designed to secure stability
16) Some insurers failed to sign a contract with any facility (NFMI, 1997)..
17) Mandatory designation of health care institutions is still a highly controversial in Korea. In 1999, the Constitutional
Court had a case claiming that the mandatory membership violates the constitution. The court ruled against the
claim, but there is another ongoing case filed in June 2014.
18) The target was companies with 300 employees or more, and government employees and school personnel
19) 423 insurers for employees and 1 insurer for government employees and school personnel, and 8 other insurers
(Statistics Korea, 2013).
20) Due to the financial independency, insurers in the red could not find ways to improve their financial situation. In the
case of the insurers in urban areas in 1990, the total balance was KRW 19.4 billion surplus with KRW 700.6 billion of
revenue and KRW 681.2 billion of spending. But 65 insurers were recording deficit for the same year (NFMI, 1997).
41
of funds and appropriate healthcare services. The Act integrated multiple insurers for employees
under a single payer system. In 2002, all insurers for employees as well as the self-employed were
fully integrated, and the single payer system for all was established (Sagong, 2007). The single payer
system improved equity and reduced administrative cost (Kwon, 2009). At the same time, it laid the
ground work for the robust healthcare purchasing power.
1.3. Summary
Korea has successfully achieved UHC in the short period of 12 years and its experience can serve
as a model for other countries that are trying the achieve the same. It was possible that Korea’s
success can be attributed to its strong leadership that focused on centralized policy implementation,
cooperation of the public and providers, and active utilization of ICT. The advanced ICT-based
system of today is a result of continued development and devotion. Korea’s NHI is also affected by
the choice of main payment system (FFS) that requires complicated checking processes for claims
review. The next chapters will introduce HIRA’s strategic purchasing activities for enhancing financial
sustainability and coverage expansion through efficient distribution of healthcare resources based
on unique ICT systems developed by HIRA.
42
Part 1 Ⅲ_HIRA as the Healthcare Purchaser
Ⅲ HIRA as the Healthcare Purchaser
1. The Evolution of Claims Review System and the

Establishment of HIRA
1.1. Claims Review System During the Early Stage of the National Health
Insurance
Fee-for-service (FFS), the main payment system in Korea, may encourage providers to over treat.
Korea started NHI in the 1970s when GDP per capita was low. Therefore, the framework of having
‘low premium – low coverage – low service fee’ was required to reduce the financial burden on
the government and public. In the early stage of NHI implementation, it was believed that private
providers were unlikely to voluntarily participate. To increase the NHI participation rate of providers,
fee-for-service payment model was chosen. This FFS model was similar to the usual, customary, and
reasonable charge system21) and was able to meet the target income of providers. It was unforeseen
that economic development and a rise in overall income levels would lead to skyrocketing utilization
rates of medical services. This increase in use in services was the impetus to develop a benefit review
system that would keep healthcare expenditure at an appropriate level. In the early stage of NHI, the
claims review process was only used to check claims from the third-party payment reimbursement
system and to reimburse medical fees to providers, but not for the purpose of achieving efficient
financial management. However, as claims became more complex with advancement in medical
technology, increase in cost, and questions about effectiveness of new treatment, claims review
process evolved to considering the allocation of healthcare resources. Instead of paying for services
retrospectively, the new system required comprehensive healthcare purchasing activities. HIRA, an
independent review organization under the National Health Insurance Act, began to expand its
roles in overall healthcare purchasing under the Korean healthcare system. This chapter will cover
the evolution of the claims review system, the establishment of HIRA, and its healthcare purchasing
activities.
21) Medical services were usually given by private providers. The service fee was set by the market and claimed to
patients. As health insurance service fee was introduced, the previous claim method was called ‘usual, customary,
reasonable charge system’.
43
1.1.1. The Establishment of Claims Review System

In 1976, the Medical Insurance Act was amended for the second time to expand mandatory
coverage to 1) low income (Medical Aid recipients) 2) employees and the self-employed and 3)
government employees and private school personnel. Since insurance premiums for low income
were paid for by the government, the insurance mandate addressed employees, the self-employed,
government employees and private school personnel. Because of limited governmental budget for
subsidies, the mandate began with enforcing large corporations and their employees, government
employees, and private school personnel to gain coverage before expanding to individuals who
were self-employed.
1) Claims Review by Insurer for Employees

In 1976, the Medical Insurance Act was amended for the third time to enforce the insurance
mandate of companies with 500 or more employees starting from July 1st, 1977. As a result, 486
insurers were established. In the early stages, the claims review process was done by medical officers
from each insurer or external medical specialists.
From the insurer’s perspective, the following were challenges during the initial implementation
stage: 1) lack of understanding and consistency for newly established service fee calculations and
benefit standards, which led to provider complaints; 2) insufficient number of medical specialists
to comprehensively review all medical services; 3) conflict of interest for medical officers who were
clinic/hospital owners and thus had self-interest to approve the claims, often refused to comply with
the claims review process; and 4) financial burden caused by external advisors. Hence, expertise and
objectivity were not maintained for the claims review process (HIRA, 2010; NFMI, 1997). Providers
had complaints about the complex reimbursement process and difficulties with understanding
service fee calculations. As shown in [Figure III-1], claims, review, and reimbursement process of
the early stage of medical insurance for employees were that after medical services are provided,
1) providers make claims for the service fees to the pertinent insurers and to the patients for co-
payments 2) advisors (external medical specialists or medical officers) then confirm reimbursement
amounts, and 3) the insurer reimburses rendered service fees. However, the process was considered
complex and inefficient.
One of the areas for improvement was to have adequate human resources (review staff and
medical specialists) to implement a reasonable and consistent application of the newly developed
service fee standards and benefit standards. Conflicts of interest of medical doctors who had to
review their peers’ claims needed to be resolved. Also, the claims and reimbursement process needed
to be streamlined. The issues addressed here served as an important opportunity for finding means
to fair and professional medical reviews. However, in the long term, this led to the establishment of
an independent and professional review organization with advanced ICT-based systems.
44
Figure III-1 | Claims Review Process of Medical Insurance for Employees
2) Claims Review by the Government Employees and Private School Personnel Corporation
In January 1979, the Medical Insurance Corporation for Government Employees and Private School
Personnel (hereinafter referred to as, the Corporation) was established, and insurance benefits
began to be offered to government employees and private school personnel. Approximately
630,000 government employees, 70,000 private school personnel, and 3 million dependents were
insured (a total of 3.7 million members). Unlike employment-based medical insurance, which had
variable number of insured, financial ability, and benefit coverage, the Corporation became the
largest single insurer offering benefits to military personnel dependents and administrative staff of
private school (as of December 1979).
Before the establishment of the Corporation, medical institutions (providers)22) used the usual,
customary, and reasonable charge system, but after the changes, they had to comply with service
fee standards and benefit standards determined by the government. This change led to provider
dissatisfaction and increase in complaints from the providers. To alleviate providers’ complaints, the
Corporation established a formal organization to have a committee for claims review to maintain
professionalism and efficiency (HIRA, 2010; NFMI, 1997). This was possible because the Corporation
operated as a single insurer at the national level.
22) Unlike medical insurance for employees, medical insurance for government employees and private school personnel
designated all private providers as ‘medical insurance providers’.
45
Figure III-2 | Claims Review Process of the Corporation
The ‘Claims Review Committee,’ is an advisory body, consisted of a total of 50 members who were
medical experts, including a commissioner with abundant health insurance knowledge. The review
committee was made up of fifty review staff members, made up of nurses with nursing degrees
who had a minimum of three years working experience at general hospitals, as well as pharmacists,
medical technologists, and radiation technicians. The committee was divided into subdivisions
according to medical discipline.
The staff reviewed claims based on service fee standards and benefit standards, as stipulated by
national law. The committee also provided advice on the final reimbursement amount (NFMI, 1997)
[Figure III-2]. To maintain professionalism and objectivity, review guidelines were developed based
on review cases for future claims review process. These efforts prepared a framework for a unified
review agency which was first introduced in 1988.
1.1.2. The Efforts for Unified Claims Review Process

1) Unified Claims Review Process of Each Insurer for Employees: Korean Medical Insurance
Council vs. the Corporation
Since medical insurance was first introduced in July 1977, the Korean government had continued
to put efforts into developing a centralized and efficient system for managing multiple insurers (KDI
School, 2012). In January 1977, to support the establishment of insurers for employees, the Korean
Medical Insurance Council was formed as a centralized management body. The name23) of the
organization has changed numerous times over the years, but its role of regulating the individual
insurance market has remained the same.
23) The name changed from Korean Medical Insurance Council to National Federation of Medical Insurance Societies to
National Federation of Medical Insurance.
46
Figure III-3 | History of Unifying Claims Review System in Korea
As shown in [Figure III-3], in the early years of the NHI, claim reviews were done by the individual
medical society but in July 1979, a unified claims review system was developed. In January 1988,
the National Federation of Medical Insurance (NFMI) was established and integrated the claims
review process for all insurers for employees and the Corporation for government employees and
private school personnel. In July 2000, NFMI became an independent review organization and
the name of the agency changed to Health Insurance Review & Assessment Service (HIRA). When
medical insurance for employees was first introduced, 486 insurers were established. Each insurer
had different levels of scope, premium collection, and benefit coverage, without an adequate risk
adjustment or accounting practices. These insurers also lacked resources to comply with claims
review protocols. There was a demand for a centralized review system and as a result, in July 1979,
the Korean government agreed that the National Federation of Medical Insurance Societies would
be an agency in charge of claims review of insurers for employees. Therefore, the claims review
function was given to the National Federation of Medical Insurance Societies (employees) and the
Corporation (government employees and private school personnel) [Figure III-3].
Under the unified claims review process for employment-based insurance, an advisory committee
and administrative body were formed within the Korean Medical Insurance Council (refered to
as the Council). The committee consisted of a commissioner and 83 members, including part-
time committee members appointed by various medical disciplines. Under the supervision of the
commissioner, the administrative body was formed with 120 staff members from two divisions
(Review and Management) and five departments (Review 1 & 2, Re-review, Management 1 & 2).
Unlike in the past, instead of submitting the claims to multiple insurers, providers submitted paper
claims to the Council. The submitted claims were reviewed by review staff and the reimbursement
amount was confirmed by the committee members. The Council paid the providers with funds that
were deposited in advance by the insurers for employees. [Figure III-3]. The unified claims review
system enhanced efficiency by streamlining the claims and reimbursement process. Providers no
longer submitted their claims to multiple insurers but submitted their claims to the Council. Also,
the reimbursement was directly transferred to the providers’ bank accounts. Therefore, a unified
review process created a professional, independent and efficient claims review system that was an
improvement from the previous complex review process.
47
Figure III-4 | Unified Claims Review Process of Medical Insurance for Employees
Although the benefit review of employment-based health insurance was unified in July 1979
under the Korean Medical Insurance Council as shown in [Figure III-4], the benefit review service
of the Government Employees and School Personnel Insurance Service was still separated. Up until
January 1988, when the Federation of Korean Medical Insurance Societies integrated all review
processes in Korea, there was a dual system with two review agencies: Korean Medical Insurance
Council for employment-based health insurance, and the Government Employees and School
Personnel Insurance Service for public officials and school personnel.
2) A Unified Agency for Claims Review: National Federation of Medical Insurance (NFMI)
The Korean government continued to establish a central management system for medical
insurance that addressed early operational issues. Also, changes in the political environment24) (late
1970s - early 1980s) accelerated this effort. First, in May 1981, financially vulnerable insurers were
merged into 186 insurers (from 603 insurers) that afffected 20,000 to 30,000 members. The need
to merge small insurers was discussed in the implementation stage of medical insurance for the
following reasons. First, insufficient human resources and the difficulties of operating independently
from the mother company posed operational challenges; second, a large financial and benefit
coverage gaps were created by a self-supporting accounting system; and third, there was a need to
adjust financial risks and reduce inequity in medical service utilization and co-payments between the
insured (NFMI, 1997; Kwon & Reich, 2005).
24) Consecutive military governments led to a strong presidential system of government in Korea with a highly centralized
policy making process.
48
It was not only the need for a unified claims review system but also the need for fiscal
consolidation that started the corporatism vs. integralism debate. Supporters of integralism (unifying
finance of insurers) supported the government’s effort to create a central management agency
of medical insurance for the following reasons that emphasized: 1) redistribution of income; 2)
pooling financial risks across the insurers; 3) reducing management cost; 4) preventing and reducing
complaints of providers and the insured caused by complex claim, review, and reimbursement
methods; 5) enhancing equity in medical service utilization among the insured; and 6) increasing
operational efficiency and promoting social integration by unifying the service fee and claims review
system (NFMI, 1997).
Supporters of corporatism were opposed to the establishment of a central management agency

due to the following reasons: 1) social consensus is reached for the multiple insurers system—
(corporatism); 2) the need to promote cooperative relations between labor and management,
and to enhance community spirit as well as to increase efficiency and financial feasibility; 3) the
need to remove a bureaucratic system with independent and efficient operations; 4) following the
international norm to have a separate management system for medical insurance of government
employees; 5) pooling finance without government subsidy may focus spending on medical
insurance of government employees, which has higher medical service utilization; 6) unifying the
claims review process must be considered as a separate subject from fiscal consolidation (NFMI,
1997). The efforts to convince the insurers to financially consolidate by the Ministry of Health and
Social Affairs based on ‘integralism’ was postponed by the Presidential Secretariat. The main reasons
for this postponement were related to the ability to reach a social consensus to change the policy
direction and lack of government’s financial ability to support the fiscal consolidation of the insurers.
In addition, due to possible income regression which may be caused by fiscal consolidation, not
much improvement was expected to be made (NFMI, 1997). The government continued their efforts
to consolidate multiple insurers by incrementally moving towards fiscal consolidation.
In January 1988, while the challenges of fiscally consolidating insurers remained, the unified
claims review system was introduced (this was a year before the introduction of the national
health insurance system). The unified claims review system was achieved in the following order.
First, the National Federation of Medical Insurance Societies became the Central Federation of
Medical Insurance (hereinafter referred to as, Central Federation), a special public corporation25)
managed and supervised by the Ministry of Health and Social Affairs. The government supervised
human resource affairs, a code of conduct, travel expenses, and financial accounting of the Central
Federation (NFMI, 1997). Also, claims review committees in the Nation Federation of Medical
Insurance Societies and the Corporation became a joint claims review committee and became a part
of the Central Federation [Figure III-5]. The joint committee elected full-time members including
the commissioner, and appointed 105 members including part-time members. Under the joint
committee, 20 sub-committees were formed by medical disciplines (HIRA, 2010). The joint committee
improved the claims review system by applying consistent standards (HIRA, 2010; NFMI, 1997).
25) It was established based on a special legal basis for public interests.
49
Figure III-5 | Unifying Process of Claims Review System: 1979~1988
In January 1988, the government introduced medical insurance for residents in agriculture and
fisheries communities, followed by urban regions (July 1989) in its effort to achieve universal
health coverage. During this time,, the NFMI had become a supervisory body for reviewing medical
insurance claims for government employees and private school personnel, as well as for employees.
This unification of claims review system took place a year preceding the establishment of national
health insurance.
Figure III-6 | Major Changes after Unifying Claims Review Process
As shown in [Figure III-6], NFMI, the first claims review agency, had the following characteristics:
1) Claims from hospitals or higher level institutions were reviewed by the NFMI headquarters
located in Seoul. For clinic or lower level institutions, claims were reviewed by the five branch offices
(located in Seoul, Busan, Daegu, Gwangju, Daejeon) to reduce the review process period; 2) The
role and structure of the claims review committee were changed. After NFMI was introduced, the
commissioner became a full-time employee, and additional part-time
50
Figure III-7 | Process of Claims, Review and Reimbursement of NFMI (after 1988)
were committee members26) were recruited to maintain objectivity and professionalism; and 3)
To prepare for the projected increased number of claims with the introduction of national health
insurance, various measures to enhance efficiency of the review process, such as ‘Trend Review
System,27) introduced. As shown in [Figure III-7], the claims and review process remarkably improved
and created a framework similar to that of the current system.
General and tertiary hospitals submitted their claims to the NFMI headquarters in Seoul and
clinics while lower level institutions submitted their claims to the five branch offices. When claims
were submitted, the review staff checked for errors using field check and review standards. After
the error check, the committee members checked validity of provided medical servicesusing their
medical expertise. [Figure III-7] shows a third ‘Review’ step, but not all claims went through the
‘Review’ process. For simple claims, staff review may have completed the process. For the claims that
were reviewed by committee members, the review staff re-checked the validity of provided medical
services and cost calculations to confirm the final reimbursement amount. The reimbursements were
then sent to providers by either the NFMI or the Corporation. The current claim and review process
is similar, but ICT has made the process much more efficient. The effects of ICT utilization will be
explained in detail in the next chapter.
26) Originally, 150-350 part-time members were hired at HQ, 30 or less part-time members at branches. This number
increased to 1,050 or less members (50 full-time and 1,000 part-time) at HIRA HQ and 100 members (2 full-time and
98 part-time) at HIRA branches in 2014.
27) The system exempts the review process if the provider’s claim amount (outpatient only) is less than the average of the
provider’s claims (excluding high cost medical service).
51
As mentioned earlier, while achieving universal health coverage, the government continued with
efforts to unify the review system, as well as fiscally consolidate the insurers. Hence, in January 1988,
althought a single review agency was established, it continued to have challenges in maintaining
fairness and objectivity for providers since NFMI (the insurer) was in charge of the review process
(HIRA, 2010; NFMI, 1997). The two most critical problems were as follows: 1) since the payment
was made based on fee-for-service, the claims were reviewed for financial aspects such as excessive
medical services or cost control; and 2) the medical service quality was not being considered by
the claims review process (HIRA, 2010). Therefore, the most important reform, fiscal consolidation
(unification) of medical insurance, was made in 2000. As a result, the National Health Insurance
Service, a single insurer, and Health Insurance Review & Assessment Service, which is in charge of
objective and fair medical fees review and medical service quality assessment, were established.
1.2. The Evolution of Medical Fees and Benefit Standards

In addition to increasing the efficiency of the review process, the integration of the benefit review
also resulted in better distribution of funds by improving the process for fee schedule determination
and setting benefit standards. With the accumulation of domestic healthcare data, Korea’s insurance
system developed to reflect its disease structure and healthcare service use. This chapter introduces
the history of the fee schedule and benefit standards in Korea, which are the basis for national
health insurance benefit review.
1.2.1. Medical Service Fees Based on the Medical Service Act

Until the late 1970s, licensed medical service providers claimed service fees from patients directly.
Starting from 1951, the Medical Service Act mandated providers to obtain permission from the
director of the local administration in matters concering collection of medical bills from patients.
However, this law was not very effective. In 1962, the Medical Service Act was amended and
mandated that providers must obtain permission from the Seoul Mayor or pertinent Governor to
claim medical bills from patients (HIRA, 2010). In the early 1960s, the Medical Insurance Act was
enacted and changed the medical bills to a service fee. Since then, only non-covered service fees was
reported to the administrative agency.
1.2.2. Covered and Non-Covered Medical Service Fees Based on the Medical
Insurance Act
Service fees were not based on a set formula and derived from an usual, customary and
reasonable charge system, while reporting and approval standards changed continuously. In 1965,
the Minister of Health and Social Affairs was in charge of granting permission for service fees but
in 1973, the granting agent changed to the Governor. As the medical insurance system became
systematic, the service fee establishment method also stabilized. At that time, services that were not
covered by health insurance (non-covered services) were reported to the administrative agency. Since
2000, non-covered services were reported to ‘Mayors and Governors’ or ‘Mayor, County Governor,
and Head of Borough’ depending on the size of provider. In 2009, non-covered services notification
52
became mandatory for patients and their families (HIRA, 2010). A service fee for benefits covered by
insurance (covered services) was set-up according to the Medical Insurance Act and a non-covered
service fee, which was claimed to patients directly, was reported to relevant administrative agency.
1.2.3. Resource-Based Relative Value Scale for Redesign Rationale Medical

Service Fee
In July 1977, when the medical insurance system was first introduced, the service fee system
was designed similar to the Japanese system. It was a point system wherepoints were given to
762 items of services. Ten KRW was multiplied to that number to calculate the final service fee.
Providers complained that new service fees were 60 percent lower than previous fees. However, the
government asserted that according to a comprehensive survey, new service fees covered 55 - 75%
of the previous service fees. The government also emphasized the fact that providers’ income would
not decrease because medical utilization by the insured population would increase (HIRA, 2010).
However, as medical utilization increased, the need for providers’ investment on facility and
equipment also increased. To compensate for the increase in cost, service fees were increased by
20.75% in December 1978 and continued to increase. In 1989, when universal coverage began,
service fees had increased 10 times. The problem was that the increase in the service fees was
not based on a standardized method of calculation that accounted for resource utilization.
Establishment of a new calculation method for fee schedule was needed. The new method would
also consider the changes in the healthcare environment, such as dealing with the costs associated
with development of new medical technology, changes in disease patterns, and overall increase in
medical service utilization (as more people gained insurance) (HIRA, 2010).
The government decided to implement a new service fee system and a research institution to
study policy changes. The Korean Classification of Procedures in Medicine (KCPM) was developed
to categorize the different type of services. Next, Resource-Based Relative Value Scales (hereinafter
referred to as, RBRVS) was developed for 8,430 medical service items and 1,135 dental service
items. Also, the conversion factor to calculate service fees for medical and dental service items was
developed (HIRA, 2010).
In this context, Ministry of Health and Welfare (MoHW) created a task force (TF) team within HIRA
(indepent review organization) to reform service fee structure from January 1998 to December 1999.
The team worked on calculating service fees applying RBRVS and the conversion factor. However,
various problems continued to be identified thereafter. Due to the limited number of providers
chosen for cost analysis, it was difficult to generalize RBRVS. Also, the imbalance between relative
points increased the need for additional research. As a result, MoHW commissioned a project which
established a ‘RBRVS Research Team’ within HIRA, and the team performed additional research
from March 2003 to December 2006. Later, it became an official department of HIRA. Since then,
continued efforts have been made to set-up service fees using the rationale method.
53
1.2.4. The Evolution of Benefit Standards

Benefit standards check whether the provided services are covered or non-covered according to
the National Health Insurance Act (HIRA, 2010). Benefit standards define the role of the providers
and guides HIRA’s review process. (HIRA, 2010). Benefit standards were established in 1977 when
service fees were determined. However, the initial benefit standards were focused on procedural
aspects such as “the regulation on providers’ medical care procedures, administrative obligation,
medical care guidelines, non-covered services, claims review and quality assessment” (HIRA, 2010).
Although initially, the Minister of Health and Social Affairs (MoHW) was in charge of setting the
benefit standards, currently HIRA’s working-level groups and Evaluation Committee members are in
charge of establishing the benefit standards through a strict review and evaluation process [Figure
III-8].
Figure III-8 | Process of Benefit Standards Determination
1.3. Summary
In 1977, the government implemented Korean health insurance system (which developed into
the national health insurance system) to strengthen welfare policy that secured the legitimacy of
the Administration. It took 12 years to achieve universal health coverage. During the early phase
of policy implementation, various insurers operated with an independent fiscal and review system.
The government had a strong centralization policy that eventually led to fiscal consolidation and
review system unification of insurers. To support these efforts, Information and Communication
Technology (ICT) was used for further improvement. However, because of financial and political
constraints, review system unification took place prior to fiscal consolidation. In 2000, a single
insurer (the government) was established which increased health insurance operational efficiency
by consolidating the fiscal system. The fiscal consolidation reduced financial risk and created a fair
healthcare environment. In addition, the introduction of an independent and specialized review and
assessment agency, HIRA, made healthcare purchasing cost-effective and strategic while adapting
54
to a rapidly changing healthcare environment. In addition to the claims review system, HIRA
also developed service fees and benefit standards. Since then, ICT was utilized for claims, review,
assessment and other systems. Through these efforts, HIRA’s comprehensive medical information
data are available to support policy-making processes, accessibility of public documents, and many
other functions.
2. HIRA’s Roles and Functions: Strategic Healthcare

Purchasing
2.1. The Establishment of HIRA and Changes in the

Healthcare Environment
2.1.1. The Need for an Independent Review and Assessment Organization
In the Korean national health insurance system, there is no direct transaction between providers
and patients for medical service fees. A third party agency is in charge of resource generation, risk
pooling and purchasing of insurance. To ensure that the providers accept the terms of review and
reimbursement levels, it is essential that there are reasonable service fees and benefit standards.
Since January 1988, when National Federation of Medical Insurance (NFMI) was established to
unify the nation’s entire review process, they have been criticized as primarily focusing on financial
protection, given that NFMI is a federated insurer representing multiple insurers (HIRA, 2010).
In July 2000, National Health Insurance Service (NHIS)28) was launched as a single insurer.
Healthcare providers were concerned about NHIS having too much power and authority compared
to NFMI. As a result, instead of giving the insurer the authority to review medical fees, in addition
to the overall financial management, the Health Insurance Review & Assessment Service was
established as an independent and specialized agency for review and assessment in accordance with
the National Health Insurance Act in July 2000.
2.1.2. Changes in Healthcare Environment and the Role of HIRA

1) Changes in Healthcare Environment
In addition to reviewing and processing claims, HIRA is in charge of quality assessment of medical
services. HIRA plays a bigger role as healthcare purchaser in that in the midst of dynamic healthcare
environment characterized by advancement in medical technology and development of new modes
of treatment, HIRA needs to make decisions that accounts for the needs of many stakeholders in
healthcare.
28) Medical Insurance was focused on treatment of disease. But after the fund integration in 2000, the name was
changed to ‘National Health Insurance’ to show that the new plan expanded its coverage to prevention of disease to
enhance public health.
55
2) Expansion of Universal Healthcare Coverage

Many countries consider providing healthcare services that are deemed essential to their people
without financial barriers as an important national policy. This is likely the reason for countries to
aim to achieve universal healthcare coverage (UHC). WHO defines UHC as ensuring that all people
can use the promotive, preventive, curative, rehabilitative and palliative health services they need
without financial hardship (Yates & Humphreys, 2013). WHO suggested six building blocks as basic
elements of a healthcare system, which are: leadership/governance, healthcare financing, health
workforce, medical product & technologies, information & research, and health service delivery.
Through these efforts, nations can achieve improved health status, responsiveness, financial
sustainability, enhanced efficiency and more [Figure III-9].
Figure III-9 | Health Systems to Improve Healthcare Performance
Figure III-10 | Sustainability of Healthcare
Ensuring cost-effectiveness and financial sustainability are essential elements for UHC. In other
words, a sustainable health insurance system requires generation of financial resources and its
efficient distribution (Thomson et al., 2009) [Figure III-10]. Healthcare financing consists of resource
generation, risk pooling, and purchasing (Thomson et al., 2009; Figueras, 2005). The means of
56
resource generation for a country’s health system may vary from one another. Within the Korean
health insurance system, NHIS generates resources by collecting premiums from the insured and
pools the generated resources. HIRA is a healthcare purchaser which distributes the pooled resources
efficiently [Figure III-11]. As mentioned earlier, in the 1970s, the health insurance system was first
introduced in Korea. Individual insurers had a self-supporting accounting system which means
that resource generation was also done by individual insurers. However, since there was no risk
adjustment, the levels of benefit coverage and medical service utilization between insurers varied.
Also, purchasing activity was inadequate to fulfill public’s demands and expectations. To solve these
issues, fiscal consolidation, NHIS, a single insurer and HIRA (an independent healthcare purchaser),
were established in July 2000.
Figure III-11 | Healthcare Financing in Korea
3) Healthcare Purchasing Functions by HIRA

One of the major challenges faced by many countries’ healthcare systems is the need to increase
healthcare performance by efficient allocation of limited resources and fulfilling the needs of
the patients. Healthcare purchasing is a series of strategic activities for effectively allocating
pooled resources to increase healthcare systems performance (Thomson et al., 2009; Figueras et
al., 2005). Traditionally, most European healthcare systems did not separate service delivery from
healthcare finance and engaged only in passive purchasing activities, such as allocation of budget or
reimbursement of medical service fees (Figueras et al., 2005). However, recent reform of European
healthcare systems have a tendency towards strengthening purchasing responsibilities as separating
purchaser from providers (purchaser-provider split), allocation of resources based on need and risk
adjustment, encouraging competition among purchasers, and restructuring the payment system
(Thomson et al., 2009; Figueras et al., 2005). In the past, the Korean healthcare system had limited
purchasing activities such as medical fees review for maintaining appropriate levels of healthcare
expenditure. Recently, Korean’s purchasing activities have been more active and strategic, such as
making payment adjustments that were based on quality assessment results and using medical
history data to identify healthcare trends.
57
Healthcare purchasing is normally defined as ‘efficient spending or allocation of generated

resources.’ Until recently, there was no standardized purchasing model (Figueras et al., 2005),
although there were many elements to purchasing activities. These activities include contracts,
payment systems, monitoring, and regulation. The specific form may vary from one country to
another (Thomson et al., 2009; Figueras et al., 2005). In Korea, NHIS is a single insurer in charge of
resource generation and risk pooling. HIRA, a healthcare purchaser, is in charge of benefit terms
(contract or procurement), monitoring, and healthcare infrastructure management [Figure III-12].
Figure III-12 | HIRA’s Functions of Healthcare Purchasing
As shown in [Figure III-12], under the National Health Insurance System, HIRA has the following
functions as a strategic purchaser: 1) set terms for benefit (contract or procurement), 2) monitoring
and 3) healthcare infrastructure management. First, before medical service is provided, terms for
benefit confirms what (medical service) is purchased from whom (provider), at what price (service
fee), and under what condition (benefit standard). Since the Korean health insurance system has
only one insurer and a mandatory designation system of provider, the terms for benefit do not
address the part of ‘purchasing from whom (provider).’ However, ‘purchasing from whom’ is used in
a designation system that includes providers for tertiary and specialized hospitals.
Second, monitoring activity evaluates what medical services are provided and to confirm whether
or not they meet the terms of the benefits. Lastly, although healthcare infrastructure management
may not be considered as direct healthcare purchasing, it may enhance efficiency of purchasing
activities. The detailed information on HIRA’s purchasing activities will be provided in the next
section.
2.2. The Function and Role of HIRA: From A Purchaser’s Perspective

2.2.1. Set Out Terms for Benefit
HIRA sets the terms of the benefit before providers render medical services to patients. ‘Contract’
is one of the most important functions of a healthcare purchaser (Thomson et al., 2009; Figueras
58
et al., 2005). It gives authority to the purchaser to designate providers, but unlike the U.S. system,
where private insurers dominate the market, countries with universal health coverage do not
designate providers according to contract terms (Figueras et al., 2005). In Korea, medical services are
mainly provided by private providers but due to mandatory designation of healthcare providers,
providers are not designated according to their performance. One exception is for tertiary or
specialized hospitals that may be designated to provide specialized medical services.
Figure III-13 | HIRA’s Functions for Benefit Management
[Figure III-12] and [Figure III-13] show how terms for benefit are set out. Simply, it is a decision on
which medical services are purchased from whom, at what price, and what condition. HIRA created
a framework for cost-effective purchasing with listing, pricing, classification (coding), and benefit
standards. HIRA’s efforts also include payment system design, designation of tertiary/specialized
hospital, and management of medical resources are part of the efforts. The following are main
activities of HIRA in creating a framework for cost-effective purchasing.
1) Benefit Listing, Pricing, Coding, and Benefit Standard

Covered services can be divided into procedures, medical materials, and pharmaceuticals.
Depending on the benefit terms, covered services go through the process of listing, pricing, and
coding. All of the processes are connected to various functions using HIRA’s ICT programs [Figure III-
14].
59
Figure III-14 | Process of Benefit Listing, Pricing, and Coding
a) Procedures
In order to list a medical service on the benefits list, providers must submit an application to HIRA
after obtaining approval of its safety and efficacy29). The Medical Service Benefits Committee of
HIRA then notifies the provider of the result within 100 days after completing the evaluation of
cost-effectiveness and other criteria for insurance fundamentals. If the service is listed as a covered
service, there is a pricing process.Fee-for-service is the main payment system of the national health
insurance system in Korea. The pricing for fee-for-service payment system multiplies RBRVS with a
conversion factor and specified points given to institution type. Inpatient medical service price for
seven disease groups (DRGs) is calculated by adding the average service fees of both covered and
non-covered medical services of the fee-for-service system [Table III-1]. After pricing, HIRA assigns a
code30) to the medical service that may be used for the claims process. The classification system for
coding was established with the input from the providers. The 5-8 digit code is divided into medical,
dental, and oriental medicine. A 6-digit DRG code is based on the K-DRG system and it consists of
information on disease, disease group, age, complication, etc. Currently, as of December 2014, HIRA
manages 83,739 covered services (8-digit code) and 738 non-covered services.
29) The safety and efficacy of medical procedures are evaluated by Committee for New Health Technology Assessment of
National Evidence-based Healthcare Collaboration Agency (NECA).
30) Korean code system is developed for code system such as disease classification, service classification, from ICD to
KCD, from ICHI to KCHI, from ATC to KDC.
60
Table III-1 | Calculation of Medical Procedures
b) Pharmaceuticals
Producers and importers of drugs must submit an application to HIRA to list a new drug on the
benefits list, after they obtain approval of the safety and efficacy from the Ministry of Food and
Drug Safety (hereinafter referred to as, MFDS). The Pharmaceutical Benefits Committee of HIRA
then evaluates for the drug’s replaceability and cost-effectiveness. HIRA sets the upper limit price
for the drug, if it is listed on the benefits list. NHIS and the pharmaceutical company negotiate with
each other to determine the price of the new drug. The price of generic drugs has a fixed ratio
(53.3%) to new medicine. If necessary, drug prices may go down after examining the utilization
rate and drug price. If a certain drug is being listed on the benefits list and it is expected to be used
more in the future, the price will go down in advance. If a particular drug has a higher utilization
rate than expected, the price may go down through negotiations. HIRA labels a 13-digit code to all
distributed drugs which have obtained safety and efficacy approval. A total of 137,677 items are
being managed by HIRA. Among them, 16,932 items are covered drugs and 18,866 items are non-
covered drugs, as of December 2014.
c) Medical Materials
In order to list a medical material on the benefits list, providers, medical material producers or
importers must submit an application to HIRA after obtaining approval of the safety and efficacy
from MFDS. The Medical Material Benefits Committee of HIRA provides a notification of approval
within 100 days. HIRA prices the material according to the ‘calculation standard of medical material
upper limit price’. Covered and priced medical materials receive a 8-digit code which includes
information about use, function, type, material quality, etc. As of December 2014, 20,909 covered
items and 2,759 non-covered items are managed by HIRA.
2) Medical Resources Management

Medical resources managed by HIRA include staffing, facility and medical devices used by
providers. Sophisticated management of medical resources is essential to boost operational
efficiency of the healthcare system. Medical resource management is an important task of HIRA.
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During the claims review and quality assessment process, the result may be linked to providers’
resources information for further analysis. Also, information about particular provider’s staffing,
facility, and device is disclosed to the public to strengthen patients’ rights to choose. In other words,
provided information may affect patients’ decisions and create a bottom-up approach to reasonable
medical service utilization.
Specifically, providers must report openings, suspensions, and closures to the relevant local
government. In addition, providers must report medical resources information to HIRA. If there
are any changes to the medical resource status, it must be reported to HIRA within 15 days. Local
governments and HIRA exchange information on providers’ medical resources. HIRA manages the
following information: 1) the status of provider, 2) workforce, 3) facility, 4) device and 5) history of
providers [Table III-2].
Enhancing the accuracy of medical resource information is necessary for building a more useful
and effective system for medical resource management. An integrated management system links
medical resource information and claims review/quality assessment in real-time. Through these
efforts, limited resources are used efficiently.
Table III-2 | Medical Resources Management
3) Designation of Specialized Hospital

In an effort to achieve efficient management of medical resources, HIRA designates tertiary and
specialized hospitals. General hospitals that offer high-level medical service for severe diseases
are designated as tertiary hospitals and they are engaged in efforts to: 1) promote investment
for medical care level improvement; 2) fulfill the need of patients with severe disease by offering
incentive to providers; and 3) promote efficient use of medical resources by establishing order in the
healthcare delivery system.
The process of designating specialized hospitals is similar to that of tertiary hospitals, but the
process focuses on certifying expertise in specialized medical service. The designation of specialized
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hospitals may resolve financial problems of small and medium sized hospitals, increase healthcare
quality and change a skewed healthcare delivery system focused on large hospitals.
4) Sliding Fee Schedule According to Staffing Level

A sliding fee schedule according to staffing levels provides additional service fees to providers who
secure adequate number of nursing staff to provide quality inpatient care.. Nursing management
cost for general wards and ICUs are calculated based on different formulas. The sliding fee schedule
is based on the ratio of average number of patients to average number of nursing staff in a given
period. In addition, instead of a per-diem payment, a sliding fee schedule is applied to inpatients;
service fees of long-term care providers is based on the ratio of the number of patients to the
number of medical professionals (doctors or nurses). The fee schedule provides an incentive to
providers to maintain medical service quality and ultimately lead to efficient spending to achieve
higher healthcare performance (quality improvement).
2.2.2. Monitoring
Monitoring function checks and evaluates whether or not the medical service is performed in
accordance with benefit terms. The main monitoring activities of HIRA are claims review, quality
assessment, Drug Utilization Review (hereinafter referred to as, DUR), and on-site investigation.
Also, providing information to strengthen consumers’ healthcare rights may be considered as a
monitoring activity. All of the monitoring activities use reliable healthcare information accumulated
by an efficient claims system based on ICT.
1) Medical Claims Portal Service (MCPoS)

In 1994, a claims method using a diskette was first introduced and in 1996, an Electronic Data
Interchange (hereinafter referred to as, EDI) claims system was established. Since then, the claims
system went through a remarkable development process. In 2011, Medical Claims Portal Service
(hereinafter referred to as, MCPoS) was introduced. MCPoS allow providers to submit claims through
HIRA’s web portal and HIRA notifies them of the review results through the portal system. Almost
all, 99.9%, of the providers in Korea use EDI or web portal and 1.4 billion claims are submitted
annually using the system.
As shown in [Figure III-15], providers complete claims using claims software and identify
incomplete claims (preliminary check) using a program developed and distributed by HIRA. After
the preliminary check, providers compress/encrypt claims, provide electronic signature, and transmit
claims to HIRA. Then, HIRA checks for general information and electronic signature and sends
claims to the review system. After claims are reviewed, the result is sent to MCPoS which will be
compressed/encrypted and transmitted to providers. Providers will decompress/decrypt and check
the result on the portal.
The changes in the healthcare environment rapidly increased healthcare service utilization.
Countries like Korea which chose fee-for-service as a principal payment system need an accurate
and swift review process. In the past, providers submitted claims through paper or EDI which led
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to a longer claims review process. MCPoS reduced the time and cost for the claims review process
significantly. In addition, the information collected through the portal supported production of
valuable statistics and development of healthcare policy.
Figure III-15 | HIRA’s Claims Portal
2) Claims Review
According to the National Health Insurance Act, HIRA has the authority to review medical claims.
HIRA reviews claims to check whether or not the provided services are optimal and cost effective on
the basis of the review standards and guidelines of the Act (HIRA, 2013). The purpose of the claims
review is to identify risks in the fee-for-service system that may lead to unnecessary or inappropriate
medical services being claimed. By doing so, cost effective medical services are provided to the
public to improve health and maintain financial sustainability (Rho et al., 2014). The review process
takes up to 14 days and the results are transmitted to providers and saved in the Data Warehouse
(hereinafter referred to as, DW) for a certain time period. The data is used to identify medical
trends, produce statistics, and conduct relevant research.
Four steps are involved in of the review process: 1) claims submission to HIRA; 2) electronic review; 3)
close review; and 4) post management [Figure III-16]. First, providers submit claims through MCPoS.
The claims are then sent to the review system. Second, the electronic review system has seven steps
which are field check, error check, drug indication check, review standards, disease type, DUR system
and frequency estimation [Table III-3]. Third, a close review includes staff review, committee member
review, and committee review. Close review is applied only to claims demonstrating problematic
claim patterns. Review staff check claims submitted to see if they follow review standards.
Committee members review the medical adequacy or appropriateness of the services. The review
committee reviews cases which require new standards for a specialty area or agreements.
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Figure III-16 | Process of Claims Review
Table III-3 | Steps of Electronic Review
Lastly, during the post management process, review results are notified to providers. If providers
diagree with HIRA’s results, the provider can proceed with an appeal process. If the provider does
not accept the appeal results, he/she may request a trial with the Ministry of Health and Welfare.
Since the introduction of the health insurance system in Korea, the claims review process has
showed immense improvement and has contributed significantly to healthcare fiscal management.
Compared to the early stage, the claims process has become more convenient and reasonable, and
has led to the reduction of claims adjustment amounts. However, this does not mean the review
system is no longer needed. In Korea, where the fee-for-service system is used and private providers
dominate the healthcare environment, the claims review has a ‘police effect (deterrence effect).’
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3) Quality Assessment
Another important responsibility of HIRA is quality assessment. Healthcare service quality is one of
the most important domains in healthcare performance improvement with financial sustainability.
HIRA’s quality assessment evaluates clinical efficacy and cost-effectiveness of NHI-covered healthcare
services such as diagnosis, drug administration, and tests (HIRA, 2013). When FFS is used as the main
payment system, there is a high likelihood of service overuse or underuse due to an aggressive
pursuit for profit, and wide quality gap between providers. Therefore, HIRA’s quality assessment
aims to minimize the quality gap and improve overall service quality.
Table III-4 | Quality Assessment Items (2013)
Quality assessment was introduced in the year 2000 and the coverage has been expanded since
then. As of 2013, there are 30 assessment items of services that take up 43.5% of total healthcare
expenditure [Table III-4]. Assessment result inform whether incentives or disincentives should
be emphasized for the providers. The results are also made available to the general public to
strengthen their right to choose.
Quality assessment results are utilized in various ways. 1) NHIS, the insurer, provides incentive
or disincentive to medical institutions based on the assessment results; 2) the government uses
results as basic data for healthcare policy decisions; 3) service providers can find out where they
stand in terms of quality and receive feedback; and 4) patients can learn about the service quality
of different providers. In the perspective of a healthcare purchaser, national healthcare resources
can be delegated to cost-effective and high quality healthcare services on the basis of results from
quality assessment activities.
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4) Drug Utilization Review

Drug Utilization Review provides real-time information on drug safety to doctors and pharmacists
whose computers are linked to the HIRA’s system, at the point of prescribing and dispensing. Some
3,400 products, including both NHI-covered and uncovered drugs, are registered to the DUR system.
As of 2013, the DUR program reviewed 4.2 billion drugs in 1.1 billion prescriptions.
Because computer servers of providers and HIRA are connected, HIRA is able to receive
prescription details about prescribing and dispensing from the providers who use the “DUR DB
(database)” in real time. HIRA cross checks the providers’ data against the “patient drug record DB”
and “prescription check DB”, and sends a warning message in a pop-up window to the provider if
any unsafe use of a drug is detected. If the provider chooses to make changes to the prescription,
the review process is rerun. If the provider chooses not to make any changes, a note with an
explanation is written and sent to HIRA [Figure III-17].
Every year, the DUR prevents 5.4 million cases of inappropriate prescribing and dispensing, which
also prevents the financial consequences related to drug misuse and abuse. As such, the DUR service
strengthens safe use of drugs and greatly contributes to public health.
Figure III-17 | Process of DUR
5) On-Site Investigation
On-site investigation is an administrative investigation in which a site visit to a targetted provider
occurs to verify the lawfulness of its benefit claims. Depending on the outcome of the investigation,
measures can be taken against the provider to retrieve unlawfully charged medical fees, and
punitive administrative measures may be imposed. MoHW holds this authority, and HIRA and NHIS
provide human resource support for the investigation.
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Figure III-18 | Process of On-Site Investigation
Suspicion of an unlawful claim triggers an on-site investigation. After the completion of an

investigation, theirs is post management. Approximately, 800 to 900 providers are selected as target
institutions every year [Figure III-18]. Target selection can be based on abnormal trends in claims
data, results of a patient medical care utilization survey by NHIS, quality assessment results and civil
complaints. According to fraudulent claim detection indicators31), providers with high adjustment
rates and low quality performance have a higher likelihood of fraudulent claims, Complaints from
outsiders or patients are also likely to be included. After target selection, an investigation team
that consists of HIRA staff and additional staff from NHIS and MoHW visit the provider to examine
the records from the most recent six months. When fraudulent claims are found, the accurate
amount is calculated and retrieved after considering provider’s explanation for the discrepancies.
Post management refers to checking for the enforcement of administrative measures and publicly
releasing the provider’s information (name of the provider, address, name of the owner, details of
wrongdoing and punishment, etc).
On-site investigation encourages appropriate healthcare service and prevents the fraudulent use
of insurance funds. Conducting scientific monitoring contributes to the sustainability of NHI.
6) Patient-Centered Monitoring
Other important tasks of HIRA include verification of medical service fees and information release
to help strengthen patients’ rights and improve the responsiveness of the NHI program.
The verification of medical service fees was designed to confirm whether payment made for
uncovered services are actually to covered services. If providers were found to have imposed an
uncovered service fee for a covered service, the price difference is refunded to the patient. The
procedure for this service: 1) the patient makes a request for verification to HIRA by submitting the
fee statement and receipt; 2) HIRA staff investigates the case; 3) the result is sent to the applicant
and the provider; and 4) there is an appeal procedure if the provider does not agree with the result.
Information release means that HIRA provides valuable information and data analysis to the
31) The indicators include costliness index (CI) and case-mix index (CMI). CI expects charges per case (per patient) when
the patient composition of a given healthcare institution is taken into consideration (including prescription drug bills
for outpatients). CMI is for monitoring the patient composition of a given healthcare institution.
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general public that meet their needs. The nation-wide benefit claims data of all patients in Korea
is stored in the Data Warehouse (DW) of HIRA, where it is analyzed and processed. The produced
information include 1) information released to the public through HIRA website (QA results, hospital
search, medical fee information, etc.); 2) administrative information processed and customized from
HIRA data to meet different needs; 3) information for research purpose (service and patient sample
data) provided to visitors of the data process room within HIRA; and 4) drug distribution data [Table
III-5]. HIRA produces reliable data and statistics based on nation-wide claims data. Therefore, making
this data available is beneficial to all parties. When HIRA’s quality information is utilized, it satisfies
the patients’ rights to know, allows the researchers to produce constructive opinions for future
policy, and aids to allocate healthcare resources more reasonably.
Table III-5 | Contents of HIRA’s Information Release
2.2.3. Healthcare Infrastructure Management

Infrastructure management is also very important for efficient operation of the agency, although
it is not directly related to healthcare purchasing activities. Aforementioned benefit terms (condition)
setup and monitoring functions are operated based on the ICT system. In particular, the electronic
claims review and quality assessment, as well as the institutional experience has become an
underlying infrastructure of the healthcare sector, and the infrastructure is serving other purchasing
activities, creating a virtuous cycle. This is why managing infrastructure should be treated as an
important function of HIRA.
1) Korea Pharmaceutical Information System

Korea Pharmaceutical Information System (hereinafter referred to as, KPIS) is designed to assign
standardized codes to all finished drugs, to collect and manage the distribution information of
drug transactions (production, import, and supply), and to produce a wide range of statistics.
KPIS aims to form an environment for drug safety by managing distribution records, supporting
policy implementation with national statistics, and contributing to stable NHI funds by preventing
unlawful transaction costs. KPIS is established and operated within HIRA, but originally it is the
function of the Ministry of Health and Welfare. For distribution information management, KPIS 1)
assigns 13-digit standardized codes (KDC)32) to all drugs in the Korean pharmaceutical market; 2)
receives regular transaction records from manufacturers, importers, and wholesalers; 3) produces
32) Korea Drug Code (13-digits) consists of country code (3-digits), company code (4-digits), product code (5- digits) and
verification code (1-digit).
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statistics based on the submitted data; and 4) provides drug distribution information as requested
and charges the users. [Figure III-19].
Figure III-19 | Process of KPIS
2) Data Warehouse
Data Warehouse (DW) is a mass storage of claims data, benefit standards information, and
healthcare resource information. The system was built in order to produce essential statistics for
healthcare policy planning and NHI operations. In HIRA, the DW holds 520 terabytes (80 billion
cases) of data which is considerable in its size, and the system also enables HIRA staff to utilize
the Online Analytical Processing (OLAP) tool to produce statistics, produce review and assessment
indicator results, and perform time-series analysis [Figure III-20].
Figure III-20 | Process of Healthcare Data Analysis
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2.3. Summary
Healthcare purchasing is a strategic effort on a national level to make spending more efficient
with limited healthcare resources.
Korea’s healthcare environment is led by the private sector with FFS being used as the main
payment system. Healthcare expenditure growth has become inevitable as a result of these
characteristics. These costs have been contained by claims review, but as the healthcare environment
evolved, the social expectations no longer remained at simple cost containment. It had expanded
to include many other elements, such as quality of service, cost-effectiveness, efficiency, equity,
and patient-centeredness, to reflect changing values and achievements. The roles of HIRA also
had to change, and now the agency is facing a new challenge to upgrade itself and contribute to
enhancing public health through quality improvement and appropriate cost management.
Advanced ICT systems plays a pivotal role in performing purchasing activities efficiently. From the
next chapter, the adoption background and development history of ICT in NHI will be introduced
within the context of healthcare purchasing.
3. Evolution of ICT in Korea’s Healthcare Sector

3.1. Historical Background
Korea is often praised for its fast and effective achievement of UHC. It was made possible largely
as a result of government’s continued investment, interest, and efforts in developing an advanced
Information and Communication Technology. This chapter will explain the ICT’s background, which
was first introduced in the 1960s and evolved with its application to the healthcare sector. This
chapter will also focus on the main institutions and systems that contributed to the achievement of
UHC.
3.1.1. The Introduction and Development of ICT in Korea: from the Early 1960s
to 1980s
1) History of ICT Introduction in Korea
The advancement of Korea’s ICT industry is a representative case of successful government-
led efforts. The government reorganized the system and encouraged businesses to develop new
technologies (Ministry of Science, ICT and Future Planning, 2014). Significant contributions came
from the establishment of an ICT research development system and continued implementation of
research development policies. In the 1960s, the Park Chung-hee administration showed a special
interest in export expansion and technology development capacity, and started investing heavily
in the establishment of research organizations specializing in science and technology. The Korea
Institute of Science and Technology (hereinafter referred to as,, KIST) was established with the
help of overseas development aid, as the first comprehensive research institute. It established the
foundation for domestic science and technology development. Up until the 1970s, it was a period of
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learning from foreign technological advancements and adopting them domestically. It was crucial
to have the cooperation from multinational companies in developing communication technology
in Korea. The establishment of key research organizations, including KIST and the Electronics and
Telecommunications Research Institute (hereinafter referred to as,, ETRI), was the starting point of
technology learning and development.
2) ICT Introduction into the Healthcare Sector in Korea

Since the enactment of the Medical Insurance Act in December 16th, 1963, the government-led
ICT adoption efforts had a significant influence over the history of health insurance development.
When Employee Health Insurance was introduced in 1977, the most urgent challenge was building
the capacity of the medical benefit claims review (HIRA, 2010). In October 1978, the Medical
Insurance Corporation for Government Employees and Private School Personnel (inereinafter,
MICGS) requested KIST to carry out a feasibility study on the development of a computerized system
for the insurance program. KIST successfully developed the work protocol, required formats, and the
first computerized medical insurance system.
On May 19th, 1979, the Korean Medical Insurance Council submitted a recommendation to
the Ministry of Health and Social Affairs, arguing for “the integration of claims review and
reimbursement.” The Council formed three teams in charge of reimbursement, review, and IT
respectively, and set regulations for benefit review committee operations, review fee collection,
and benefit deposit and reimbursement. The establishment and operation of the Medical Fee
Review Committee unified the review and reimbursement process, which were previously handled
separately. The Council contracted with KIST to handle computerization to efficiently manage large
amounts of data transferred from across the nation. The computerization process started from an
electronic system adoption in August 1979, and the implementation of an independent electronic
system operation33) in September 1982 (HIRA, 2010).
3.1.2. Development of ICT and Building of Integrated Computer Network for

Medical Insurance for all Koreans: In the mid-1980s ~ Health Insurance
Fund Integration
1) International Trend of ICT Development and Korea’s Leaps in Technology
The world’s attention to the development of ICT was triggered by the environmental changes
on the international forefront, which included the oil shock in the 1970s and the forecast of
informatization (Ministry of Science, ICT and Future Planning, 2014). Korea heightened its will to
pursue and recognize the investment value of the ICT system and designated 1983 as the “Year of
Information Industry” to open a new era of the computer industry (Ministry of Science, ICT and
Future Planning, 2014). The government’s approach was top-down centralized governance. While
Korea focused on learning from overseas technology and research investment in the 1960s and
1970s, the focal point shifted to deregulation and nurturing of the computer industry in the 1980s
(Ministry of Science, ICT and Future Planning, 2014).
33) Korean Medical Insurance Union Alliance adopted an independent computerized operation system (IBM 4341-L01) in
1982, and started computerizing for the Employee Insurance System. (NFMI, 1997).
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2) Comprehensive Computer Network for Medical Fee Review Integration

In November 1987, the Ministry of Health and Social Affairs sent out an integrated instruction
to the Federation of Korean Medical Insurance Societies (hereinafter referred to as, FKMIS)
MICGS, which consisted of two main points. The first was that the review service for MICGS will be
delegated to FKMIS as of January 1st, 1988. The second was to build a data linkage system between
the headquarters and branches for a systematic data management review and reimbursement.
Newly built branch offices implemented an independent computer system (IBM 9375), along with
an on-line network for data transmission with the headquarters (HIRA, 2010).
Although the health insurance program became universal for all Koreans in July 1989, there were
still remaining issues around inefficiency. As the overall income level rose quickly, the public demand
for high quality comprehensive administration of the medical insurance system also grew. In light of
informatization, there was also a consensus for the need of a comprehensive computer network for
health insurance. In response, the Ministry of Health and Social Affairs started to build a nation-wide
health insurance network in July 1991 for healthcare data sharing between payers. Under the title
of “Computerized operation improvement measure for self-employed insurance program in major
cities” its purpose was to enhance operation efficiency, health insurance services, and to streamline
the review and reimbursement process. Since then, the NFMI supported capacity expansion
of computation equipment and development of a computerized system and its operation. In
November 1991, HIRA introduced an integrated database to unify the review process by introducing
the Relational Database Management System (hereinafter, RDBMS34)).
In 1993, NFMI started to build a comprehensive network for medical insurance as a measure
to improve electronic system operations in cities. The project was almost at completion, with the
second phase scheduled to end in May 1995. The Ministry of Health and Social Affairs provided
support by forming the “planning group for medical insurance computerization.” This support
became the stepping stone for building the efficient information system that is HIRA today.
In the 1990s, the Korean government enacted the Framework Act on Informatization Promotion
under the slogan of “Although we were a latecomer of industrialization, let’s be the leader of
informatization” and earmarked an ICT promotion fund. As a result of such national efforts, Korea
became the powerhouse of ICT in name and in substance (Ministry of Science, ICT and Future
Planning, 2014). In summary, important factors that contributed to the adoption and development
of ICT in HIRA were the demand of the time, the government’s strong will, and the well-organized
cooperation governance between the government and the health insurance agency.
34) RDBMS is an improved data model which enables faster and random access by maintaining relations between tables.
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3.1.3. Utilization of ICT and Building of Health Insurance Information System in

HIRA: in the 2000s ~ Present
1) Central Government’s Effort Toward Informatization of the Nation: Establishment of the
Ministry of Information and Communication, Basic Plan for Informatization Promotion
and E-Government System
From 1987 to 2003, just before implementing the IT 83935) policy in 2004, Korea concentrted on
efforts to transform itself into an IT powerhouse through informatization. The nation started to
catch-up with the advanced countries, and built the best quality IT infrastructure. The Ministry
of Information and Communication was at the center of policy implementation (Ministry of
Science, ICT and Future Planning, 2014). The Ministry integrated and nurtured the information and
communication industry based on accurate analysis of the current informatization status and the
industry, making the country capable of handling domestic and international environmental change
(Ministry of Science, ICT and Future Planning, 2014). The basic plan for national informatization
(introduction, expansion, and maturing phase) was developed in 1987. [Table III-6][FigureIII-21]
(Ministry of Science, ICT and Future Planning, 2013).
From the early years of 2000, the Kim Dae-jung and Roh Moo-hyun administration emphasized
the importance of efficient information management and showed a strong will for informatization.
In particular, the Roh administration chose ‘e-government’ as the tool for government
innovation. The administration established the “e-government specialized committee” under the
presidential advisory body “government innovation decentralization committee,” and promoted
the “e-government roadmap” (Oh, 2006). Although in the past, the paradigm of national
informatization was focused on ICT growth and expansion, today , the focus has shifted to the
utilization and application of ICT in all areas (Ministry of Science, ICT and Future Planning, 2013).
HIRA, which was established in 2000, aimed its strategy at the realization of “e-HIRA” in light of the
government’s effort (HIRA, 2010).
35) At that time, there were growing risks from home and abroad as many countries strengthened their competitiveness
of ICT under the new paradigm of ubiquitous. In response, the Ministry of Information and Communication launched
“IT 839” in February 2004 to strengthen IT competitiveness and to gain the lead in the international IT industry. “IT
839” refers to 8 new services in each sector, 3 infrastructures, and 9 new growth engines (Jeong, 2004).
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Table III-6 | National Informatization Promotion Process
Source: Ministry of Science, ICT and Future Planning (2013)
Figure III-21 | National Informatization Promotion Process (Revised from Table III-6)
2) Acceleration of ICT Utilization and Overseas Expansion of HIRA

To keep up with the government’s national effort, HIRA prepared itself for the era of “e-HIRA” by
carrying out the first stage of this program (2000-2003), which included EDI (write out), expansion
of electronic review, and building of a control center for 24/7 uninterrupted service. In the second
stage (2004-2010), the claim statement was simplified, DW(write out) system was improved, and the
service quality was upgraded. In the third stage (2011-present), a new generation review system is
being built, along with state-of-the-art technologies under the goal of achieving “smart HIRA” in 10
years (HIRA, 2010) [Figure III-22].
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As a result of the aforementioned efforts, HIRA’s EDI system earned the ISO900136) certificate
in June 2005 from the Korean Standards Association. It was the third time for Korea to win an
international certificate, following the Korean Intellectual Property Office and the ETRI (HIRA,
2010). The ISO9001 certificate expanded to DW and data mining in November 2006 and the overall
information communication system (including web portal service) in December 2007. This was
referred to as the “Design, development, and operation of information communication system”
ISO9001 certified system (HIRA, 2010). [Table III-7] explains the history of technology certifications of
HIRA.
Meanwhile, HIRA started to work on exporting the electronic claim review system under a strategy
titled “Road map to overseas expansion of e-government” by the Roh government. With support
from the government, HIRA researched international expansion examples of 19 governmental
organizations from October to December 2005. HIRA gave the first consulting service to the Dentist
Association of Aichi prefecture (Japan) on the EDI healthcare data network technology between
March 2006 to August 2007 (HIRA, 2010). This was the first e-government overseas expansion
project. The success of this project led to the world’s recognition of the excellence of Korea’s e-claim
and review system. Also, having the source technology became a foundation for creating networks
in other countries to promote national interests (HIRA, 2010).
In 2010, HIRA adopted “eGovFrame37)” and developed the “HIRA standard framework38), which
was an optimized and standardized procedure model for development and operation for its own
environment. The expected outcome of the system was to improve the efficiency of portal operations
(previously, the portal service for the public and providers were on the same page), and establish new
services such as the DUR and claims portal. As a result, there was a 200% growth in development
productivity, and a cost reduction in system building and maintenance by KRW seven billion.
The Ministry of Security and Public Administration selected the HIRA system as the best practice
information system standard framework in May 2011 (Article of IT Today, August 28th, 2011).
36) ISO9001 is an international standard set by ISO on quality management. It is an innovative tool for running business
and necessity in e-commerse (HIRA, 2010).
37) ‘eGovFrame’ is an open source based software framework standard, which was developed for service quality
improvement, informatization investment efficiency, and a fair competition. (www.egovframe.go.kr)
38) HIRA standard framework developed the functions and architecture independently based on e-government
technology framework. The system is easy to maintain because it does not belong to a specific vendor. It can flexibly
respond to changes of system and service, by modulizung each service.
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Figure III-22 | Realization of “e-HIRA” with the Development of Informatization
In summary, the government believed that investment in technology would be far more cost-
effective than investment in other sectors, which justified their focus on investment in the IT sector.
This decision making was possible due to the strong leadership of the government and the officials
of the Ministry of Health and Welfare. Based on this firm support, Korea was able to aggressively
carry out informatization. This advancement was a measure of national development and
competitive growth, and no longer just catching up with the pace of the international community
(Oh, 2006). In the mean time, national efforts for the development of ICT and investment also had
a significant impact on the business efficiency of healthcare sector. For HIRA, the advancement
in computing capacity made it possible to handle vast amounts of claims data, moving through a
groundbreaking change from paper based claims to digital files in the form of diskette, EDI, and
then web data transfer.
Table III-7 | History of Technology Certifications of HIRA (HIRA, 2010).
Source: HIRA (2010), pp. 381~383
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At this point, the history of HIRA’s main responsibility with the system change, and the
development of HIRA’s role as the healthcare purchaser will be discussed.
3.2. HIRA’s Healthcare Purchasing Using ICT: Focusing on the Development

of Claim Submission Platform
Korea achieved informatization in society at a fast pace because of government-led efforts for ICT
development. This environment later supported the efficiency and effectiveness of NHI operations.
Unlike other countries, the hospital information system in Korea was expanded to local areas
through top-down methods led by the government. This centralized approach made it easier to
utilize existing infrastructure and combine ICT with industries.39)
In particular, HIRA saw an incredible synergy effect from ICT adoption into the healthcare sector.
HIRA’s work boundary expanded from reviews to assessment, post management and monitoring,
and the level of indicator development became much higher.
HIRA’s operation efficiency and quality improved as it adopted an optimized ICT system. Therefore,
there is a thread of connections between the claim platform change of HIRA and IT development
[Figure III-23]. Along with this platform change from paper, diskette, EDI and then to web service,
HIRA’s role as the healthcare purchaser also developed in various ways.
Figure III-23 | Claim Platform Change by Year
3.2.1. Paper And Soft Copy (Diskette) Platform

From the start of the Employee Insurance plan in 1977 and up until the 1980s, paper claims
and manual review were the norm. Eligibility and treatment record management were also done
manually, until MICGS adopted an electronic management system in 1990 (HIRA, 2010). During this
period, everything was done manually from adjustment, input, correction, output, and the result
notices were sent through mail services. The cost of this process was enormous both in terms of
39) From an interview with Director Jang Yong-myeong of Global Health Team of HIRA.
78
manpower and time, and high potential for frequent human errors. In response, the introduction of
the diskette started in 1991, and the first pilot run was implemented in 1994.
The diskette submission method was developed by HIRA in order to save on data input costs and
to improve data accuracy, which were the main issues in the paper claim era. At that time, other
services came into the system, namely automatic check, field check, and screen review. The limitation
at this stage was that newly introduced services failed to spread to all providers. Although there
was low improvement in efficiency, it was still a meaningful stage because code standardization and
master file production became the basis for the overall computerization.
3.2.2. EDI Platform (1996-)

1) EDI Adoption and Utilization
In 1990 - 1995, EDI was already in use in industries such as trading communications and the
steel industry (Pohang Steel). Korea Telecom (hereinafter referred to as, KT), the state-owned
telecommunication company that was providing the EDI service, proposed that EDI technology
could be applied to benefit claim submission. KT intended to develop the software and charge for
the network use. Some groups were opposed to the idea due to uncertainty and specifically, the
providers were worried that using EDI would increase costs. But at the time, using diskettes (soft
copy) costed KRW four billion a year, and EDI was a proven technology with a successful introduction
in other industries.
EDI was adopted on a pilot basis in 1996, and widely expanded after the separation of prescription
and dispensing. The system building was done by KT (Korea Telecom), SDS40) and a few other
companies. KT invested in the technical side such as capital and manpower, whereas HIRA provided
expert knowledge. KT gained profit and HIRA gained operation efficiency. To promote the system
and encourage participation, HIRA visited the providers and focused on working with their medical
society, FKMIS. Providers received incentives for adopting EDI, which included delayed application of
the Voluntary Correction System41) for six months (article of Yakup News, March 23rd, 2000). From all
these efforts, providers’ participation exponentially increased every year.
2) EDI Adoption in Claim Submission

a) Benefit Claim and Review
In the middle of 1990s, both EDI and diskette review were in use. Examples of major changes in
claim submission and review at this stage were “Screen review” and “Expert review” system. The
existing diskette review was still using a printed claim statement, not using the computer screen or
digital file, whereas EDI had a separate system. However, there were inconveniences from having
two different systems in operation for the same service. For example, if there was an improvement
on one item, both systems needed to be updated separately. This problem was resolved with system
integration and updated synchronization.
40) SDS (Sansumg Data System) is an IT affiliate of Samsung Group. It’s main area is system software development and
supply.
41) Voluntary Correction system was implemented in 1986. Providers with unusual indicator results are encouraged to
correct their behaviour before being subject to on-site investigation. (Article of Medical Observer, April 25th, 2005).
79
The “Screen review” system was an important progress point as it displayed the claim statement
on the computer screen for electronic adjustment and closing. It was beneficial because it spared
manual labor and saved time and cost (HIRA, 2010). At the same time, the development of the
“diskette expert review system” was completed. As a result, 12,419 medical and dental clinics were
recognized as a diskette claim using institution in 1999.
In 2003, the “AI review42)” was introduced, which utilized artificial intelligence based on staff
experiences with the review process. At the claim statement reception stage, an automatic check-
up program was run on the claims to see whether there were simple errors that could result in
adjustment or return. Those cases were sent back to the providers, and re-submitted to HIRA after a
correction or revision. An automatic check was done again on the re-submitted claims (HIRA, 2010).
The system was introduced in response to the rapid increase in the number of claims submitted
to HIRA. AI review was implemented on a pilot program basis for cases involving acute upper
respiratory infections from 2003 to 2004, and has continuously expanded since then.
b) Expansion of Work Area by EDI Adoption: Knowledge Expansion through Informatization of Data
(i) Data Production and Utilization
HIRA stores its processed claim data in a Data Warehouse (hereinafter referred to as, DW), which
was built in 2002. This data includes information of medical fees, claim review and assessment, drug
distribution, benefit standards, and resources of all providers (workforce, facility, and device). The
HIRA DW is the largest healthcare data warehouse in the world (with 6.1 billion items of review and
assessment data) and is capable of holding 250 terabytes (Kim, 2013). The DW system can produce
230 types of structured reports based on AI and an unlimited amount of unstructured reports. These
reports are used for setting benefit standards, drug assessment, policy support, research, and public
reporting (Kim, 2013).
(ii) Quality Assessment
Quality assessment became one of the most important responsibilities of HIRA when the agency
was established as an independent body under the National Health Insurance Act. In the beginning
phase of the National Health Insurance Program, more focus was given to the cost monitoring of
given services. As medical technology developed and became more complex, the public demanded
for more emphasis on quality monitoring. HIRA’s quality assessment is comprised of a database
with claims and review results, supplementd by medical records and death data from the Ministry
of Security and Public Administration. The database uses resident registration number to produce
indicator results for quality assessment by provider. Assessment results are utilized in various ways,
including incentive programs, policy development, and public reporting.
(iii) Drug Safety and Management
In the past, Korea’s drug distribution was inefficient and unhealthy due to excessive competition
and abnormal prices. The Ministry of Health and Welfare established standardized drug codes in
2008, and transferred the bar code management task from the Korea Health Industry Development
42) AI (Artificial Intelligence) takes human intelligence and experience and program it into logic, so the computer program
can review the claims like review staff (HIRA, 2010).
80
Institute to KPIS under HIRA (HIRA, 2010). KPIS managed pharmaceutical products with RFID (radio
frequency identification). Use of RFID had a significant positive impact on Korea’s pharmaceutical
market, including accurate pharmaceutical information collection, improved drug distribution
structure, and reduction of excessive logistical costs.
In 2010, the DUR was launched to prevent drug misuse and abuse by providing a real-time drug
information check-up service at the point of prescribing and dispensing (HIRA, 2010). Doctors
and pharmacists have their computer connected to the HIRA server, so HIRA can warn them on
contraindications and unsafe use of drugs, which ultimately promotes public health (Kim, 2013).
The introduction of EDI did more than simply contribute to the efficiency of HIRA’s operations. It
enabled HIRA to collect and utilize an exhaustive amount of nation-wide healthcare data, and to
provide timely information for the development of the system.
3.2.3. Web Claim Submission Platform (2009-)

As Korea became equipped with the ICT infrastructure of nation-wide broadband, HIRA was given
the opportunity to switch to a web-based claim submission system [Table III-6] [Table III-24]. A web-
based system had several benefits when compared to EDI. First, the size of an attachment file was
far larger. Second, web submission file reception was instantaneous, whereas EDI submission took
a day due to the use of the KT network. Third, a Web system did not cost a fee. Fourth, the system
was more efficient in terms of time, cost, and convenience, due to the self-error check feature prior
to submission that was built into the web portal by HIRA (Kim, 2013).
While using the web-based claim submission system, a new generation of review and assessment
systems were separately built and operated. This converted the information-centered C/S (client
server) system to the Web (world wide web) system to process 1.4 billion cases received from
over 80,000 providers in 2013 alone (Kim, 2013). A web-based service also made it easier to link
decentralized data at different organizations, such as the Ministry of Food and Drug Safety and
healthcare providers, so that the interaction between HIRA and providers became much more
efficient.
In conclusion, ICT is an integral part of Korea’s healthcare sector and consequently the health
insurance system that requires the ability to collect, process, and analyze a vast amount of data
from the whole nation. However, such technology development could not have happened in
isolation. In other words, the change behind benefit claim submissions from paper to a web-based
system was more than just a submission method change. Rather, it was the “evolution of platform”
which happened in concert with ICT development designed and led by the government for
informatization of the country [Figure III-23]. It was one of the most important factors which made
today’s achievement possible, along with NHI fund integration and the review process unification.
81
Figure III-24 | Information Flow of Claim Data Processing43)
43) Park et al (2012)
82
Part 1 Ⅳ_Analysis of the Peruvian Health Insurance Programs
Ⅳ Analysis of the Peruvian Health

Insurance Programs
1. Introduction
1.1. Overview of the System
In understanding the health insurance system in Peru, the most essential characteristics are
horizontal segregation and vertical integration. Vertical integration means that the principal agents
that provide health insurance are divided into public and private sectors. The public sector is further
segmented into the Ministry of Health (Ministerio de Salud), the social insurance agency, Ministry
of National Defense, and Ministry of Home Affairs (according to income brackets and the job
categories) as shown in [Figure IV-1]. Horizontal segregation means that each entity directly provides
users with medical services through its own medical facilities.
Figure IV-1 | Outline for Peru’s Healthcare System
Source: Alcalde-Rabanal et al. (2011)
83
For example, Ministry of Health (Ministerio de Salud, MINSA) and local health department
(Direcciones Regionales de Salud, DIRESA) that are under local governments provide medical
services gratuitously to the poor through their own medical facilities and SIS (Comprehensive Health
Insurance). SIS is an insurance organization44) that is funded by tax revenues and social insurance
agency (Seguro Social de Salud, EsSalud) offers exclusive services to its subscribers through its own
medical facilities using the insurance premiums collected from the workers in the public domain.
Military and police forces cover medical services for its employees and their families while private
insurance companies and private medical institutions offer health care services to people in social
strata who can afford higher health care costs.
There are largely two reasons why the understanding of horizontal segregation and vertical
integration is crucial in analyzing Peruvian healthcare system: One is in the context of health equity
and the other is about transparency and efficiency. First, regarding health inequity, it is important
to note that the establishment of the segmented system highlights the income inequality that
has existed throughout the history. The segmented health insurance system that was built upon
this foundation has led to health inequality along with income inequality. Therefore, the path to
providing universal health coverage (UHC) requires that Peru commits to offering “undiscriminating
health care to all45)”, to overcome this institutional segmentation and solve the health inequality
issue between the social classes. Second important issue to consider has to do with enhancing
the performance of health care through transparency and efficiency. Currently, Peru is facing an
increasing demand on medical services. There are changes in the health care environment caused by
consistent economic growth, aging and changing disease patterns with chronic diseases, and non-
infectious diseases emerging as major health problems. In this backdrop, providing services from
a segmented system where facilities are owned by each insurance will not adequately address the
population’s growing medical needs. In particular, in the case of EsSalud, which is a pillar of Peru’s
public health insurance system, the service performance is not being conducted as the insurer and
the service provider are not separated46). As a result of these failures, EsSalud is suffering from
inefficiency and lack of transparency in its financial management.
This report will begin with an explanation of how segmentation of the health insurance system
was formed and solidified. It will be followed by a review of the present Peruvian healthcare system,
and finally an examination of ongoing policy efforts intended to overcome the health inequality
issue to achieve UHC and respond to the growing medical service needs, along with the prerequisite
tasks to be done in the process.
44) Countries in the Latin American and the Caribbean region including Peru, do not distinguish social insurance which
is based on the workers’ insurance premiums and a form of social assistance, in which MINSA provides free medical
services to the poor. All kinds of services providing health care are collectively called as “seguro”, which means
insurance in Spanish. Thus, this report has also adopted the same terminology.
45) Basic Act on Universal Health Coverage (Peruvian Law No. 39334) Section 5 Provisions on Universality
46) EsSalud is currently working on separating functions according to the Basic Act on Universal Health Coverage,
however, it is facing difficulties due to technical issues surrounding cost calculation and performance management
84
1.2. Development of the Health Insurance System

1.2.1. Background
The segmentation of health insurance system in Peru originated from the socioeconomic
inequality that existed between the solid stratas at the time the system was established. Inequality at
the time was the legacy from European colonialism dating back to the 16th century and a common
characteristic found among countries in Latin America sharing similar historical experiences. For
this reason, countries in the Latin American region have developed a segmented health insurance
system almost without exception. Thus, to fully understand the segmented quality of the Peruvian
health insurance system that remains today,, it is necessary to have a comprehensive understanding
of its development in history and the social context of the health insurance system in the overall
Latin America region, rather than confining the study to a specific national characteristic of Peru.
The long history of inequality in Latin American region goes in tandem with the history of
European colonization. Early inequality was advanced by the systematic institutional inequity
that allowed for the exploitation of labor against natives, in addition to the concentration of
property ownership and unequal distribution of resources by the Europeans. Even after gaining
independence, the institutions of elites in society have further reinforced the inequalities. In [Table
IV-1] the Gini coefficient of the Latin American region in 1950 was 51.9, higher than that of Asia and
Africa by 10.1 and 5.4 respectively. Moreover, the top 20% income bracket of Latin America in the
same period accounts for 59.2% of the total income while bottom 20% income group takes up only
4.3%, representing a far bigger difference between the top 20% income bracket and bottom 20%
income bracket compared to other regions. These indices demonstrate a particularly high income
concentration in the mid 20th century in the Latin American region. As shown in the table, income
inequality in Latin America has consistently remained high since the 1950s when the income data
first became available. Even though the health insurance system in the Latin American region existed
before 1950 when statistics on income distribution was not available, there is no strong evidence to
support that perhaps the inequality before 1950 could be estimated to be much lower than after
1950 (as cited in Ferranti et al, 2004). Thus, this chapter will make the assumption that the presence
of a high income inequality in LAC (Latin American Countries) region is a pervasive characteristic in
the region when discussing the segmentation of the Peruvian health insurance system that countries
in LAC regions shares. In addition, please note that the four steps in [Table IV-2] suggested by D.
Cotlear et al. (2005) for analyzing establishment and development of segmented health insurance
systems in Latin America were used to study the changes in the Peruvian health insurance system.
85
Table IV-1 | Income concentration by regional groups and advanced countries (1950~)
Non-weighted Statistics Population-weighted Statistics
1950 1960 1970 1980 1992 1950 1960 1970 1980 1992
Bottom 20% income bracket
Africa 5.4 5.4 5.3 5.3 5.1 6.8 6.8 6.6 6.6 6.5
Asia 6.0 6.1 6.1 6.0 6.1 6.3 6.5 6.4 6.3 6.2
Latin America 4.3 4.2 4.2 4.0 4.0 4.2 4.1 4.1 4.0 4.0
Eastern Europe 6.8 6.8 6.8 6.8 6.8 7.0 6.9 6.9 6.8 6.7
Advanced
5.0 5.0 5.2 5.3 5.4 4.7 4.7 4.8 4.9 4.8
Countries
Top 20% income bracket
Africa 54.2 54.2 55.0 55.3 55.5 49.1 49.2 50.1 50.5 50.7
Asia 50.0 48.8 49.0 49.7 49.8 48.7 48.0 48.1 50.5 51.0
Latin America 59.2 59.6 61.2 62.0 62.0 59.7 60.1 62.1 62.6 62.6
Eastern Europe 45.7 45.7 45.7 45.7 45.7 44.4 44.6 44.7 44.9 45.2
Advanced
45.9 45.7 44.6 44.3 44.5 45.8 45.8 44.8 44.5 45.4
Countries
Gini coefficient
Africa 46.5 46.5 47.3 47.6 48.0 40.8 41.0 41.8 42.2 42.5
Asia 41.7 40.7 40.9 41.5 41.6 40.3 39.5 39.7 41.7 42.3
Latin America 51.9 52.3 53.4 54.2 54.2 52.4 52.8 54.2 54.7 54.8
Eastern Europe 37.2 37.2 37.2 37.2 37.2 35.8 36.1 36.3 36.5 36.9
Advanced
39.5 39.3 38.2 37.8 37.8 39.8 39.8 38.9 38.6 39.2
Countries
Source: D. Ferranti et al. (2004)
86
Table IV-2 | Development Stages of Health Insurance System in Latin America
Step 1 Step 2 Step 3 Step 4
Emphasis on primary
Initial stages of Establishment of
Main health care and Efforts to reduce
institutionalization ministry exclusively in
characteristics consolidation of social segmentation
after independence charge of public health
insurance schemes
• It was viewed that • Public health care • Two perspectives on • With the
the government was viewed as public health care development of
had only a limited the government and primary health democracy, health
responsibility for responsibility. care: Inclusive (as care began to be
public health: for • Private health care social right)/selective recognized as a
purposes of trade was viewed as (management of social right.
and economic gain the right for the specific diseases or • Changes in disease
• Private health care insurance premiums health issues) patterns lead to
was in the domain paid or the right • Private health more improved
Awareness/
of charities or good of an employee in care services are health care policies
perspective of
deeds of the religious public sector recognized as than previous vertical
Health care
people • Public assistance for being limited to the programs.
the poor workers in public • Awareness that
sector. economic growth
does not necessarily
expand public sector
• Economic growth
enables expansion
of public spending in
health care sector
• Public health • Public health care • Expansion of primary • The government

and sanitation became the major care coupled with began to intervene
management at responsibility of the the management of in the specific
the time was for ministry in charge maternal and child behavioral risk
enhancement • Includes responsibility health care, public factors in population
of trade and over drinking water health related to (social factors related
productivity quality and basic population control to health such as
=>focused on ports sanitation • Coexistence of smoking, obesity or
Public • Establishment of • Implementation of vertical programs on violence)
Health public health and vertical programs inclusive health care • Strengthened
sanitation entity focusing on specific and specific diseases epidemiologic
within existing contagious diseases to improve the surveillance
government ministry such as malaria, standard of living of
yellow fever, the poor
smallpox. • Rapid improvement
in drinking water
quality and sanitation
level
87
Step 1 Step 2 Step 3 Step 4
• Charity hospitals • Established a ministry • The Ministry of • A stage aiming at

were established in exclusively in charge Public Health and equity. In order to
the 19th century of public health Public Assistance reform the inequality
• Major step forward • The ministry in was renamed as in accessing health
at the international charge conducted Ministry of Health care services and in
level in the 20th nation-wide and implemented financial protection,
century campaign on all sorts programs focused each country
• Eq. proclamation of infection diseases. on maternal and implemented
that health care • The relevant ministry child health care in following policies.
is the national provided medical the population/areas ① Integration into a
responsibility services directly where services were single payers system
• Private health to the poor in the insufficient. ② Provision of options
care was family aspect of public • Decentralization of to subscribers to
responsibility and assistance. health care according choose insurer of
Establishment
main resort was • Charity hospitals to policy change. their choice
of system
traditional medicine became state- • Integration of ③ While maintaining
(folk remedies) owned (along with social security existing segmented
the establishment organizations system, applied
of medical schools) • Market-based reform explicit list of
and medical staff • Development of essential benefits
were hired as public private insurance and and exerted efforts
officials. hospitals to expand public
• Apart from this, with spending per capita
the establishment of
the social insurance
agency as insurer,
services were offered
directly by the
agency
Source: D. Cotlear et al (2015)
1.2.2. The origin of segmented system

The first stage of development is from the independence in the early 19th century to the
establishment of a government ministry to take charge of public health in the early 20th century.
Public health in this period was mainly focused on the prevention and sanitation control of specific
contagious diseases such as cholera and smallpox. The control primarily concentrated to harbors
and national borders for the purpose of trade management. With the creation of an governmental
office in charge of health and hygiene, institutional foundation for the public health system was
established. Since its independence in 1921, Peruvian government renamed the institution that
used to conduct research on medical care, local environment, natural history and vegetation in
the colonial era, but maintained some of its functions. In 1892 Peruvian government delegated
environmental health and sanitation to the local government followed by vaccination in the
hands of the local government from 1898. The outbreak of the bubonic plague in 1903 led to
the establishment of the Department of Public Health (Dirección de Salubridad Pública) and the
department was assigned to the now abolished Ministry of Development (Ministerio de Fomento).
88
Meanwhile, private health care remained in the hands of the family until early 1900s. Medical
facilities that existed at the time were affiliated with religious relief facilities for the poor, rather
than resembling the present day hospitals, and medical treatments were mostly provided as charity
work by religious doctors.
Around the 1930s and 1940s, Latin American countries began to establish ministries that were
exclusively in charge of public health, which is the origin of the present ministry of health. This
period is recognized as the second stage of development, which laid the foundation for the existing
system. In 1935, Peru also established the Ministry of Public Health, Labor, and Social Welfare
(Ministerio de Salud Pública, Trabajo y Previsión Social), after separating public health service, labor,
and social welfare services from the Ministry of Development. The newly established ministries
focused on the nationwide public health programs for specific infectious diseases such as smallpox,
tuberculosis, and polio. Over time, the Ministry began to expand its services to private health
care. Althought in the beginning, its role was mainly to perform oversight activities of the charity
hospitals, its role expanded to providing medical services to the poor. The service to the poor was
perceived as a form of social assistance and the change in name to the Ministry of Public Health,
Labor and Social Welfare into the Ministry of Public Health and Social Assistance reflects that
perspective. During this period, public hospitals were founded through public funds and the scale
of the existing charitable hospitals was expanded. These public hospitals employed medical staff as
public servants, which was the beginning of the vertical integration of services and finances.
Also during this period, the employment in the mining and manufacturing industries was on the
rise in Latin America. Adding to this, the political and union movement of workers were influenced
by their social security needs (the idea originating from Europe after the Great Depression) and the
needs of the employers to have healthy workers, increased the demand for a social security system.
In response to this demand, Peruvian government laid down provisions in Article 48 of the Peruvian
Constitution of 1933 that the government should develop policies to address unemployment, illness,
disability, aging, and death. And the government regulated that an institution for social solidarity
and an organization for savings and insurance should be established and promulgated legislation
of 1936 (Ley No. 24786) and introduced the Worker Social Insurance (compulsory membership) and
Social Insurance Fund. The Social Insurance Fund introduced at the time required workers to pay a
certain percentage of salary as insurance premium. As it focused on workers’ rights, it defined when
workers were not able to work due to accidents that occurred while on duty or for treatment of
a disease, illness or disability. It also provided financial compensation, combining the accident and
sickness benefits to make up for earning loss along with retirement plans. Medical services were
exclusively offered to the subscribers who paid insurance premiums through the facilities of the
ministry. In addition, a separate social insurance agency was created for each occupational cluster
such as manual laborers, office workers, soldiers, police officers or public officials. These service
sectors had been introduced through the demand of union movements. Thus, workers in the public
sector were able to use the social insurance service according to their own occupation while informal
sector workers were excluded from social insurance coverage and had to use the free services that
were provided by the Ministry of Health. In other words, segmented health insurance system began
with different type of insurance applied according to income brackets and occupations.
89
1.2.3. Strengthened segmentation

In the third stage of development, segmentation in the health insurance system occurred and
there were efforts to strengthened the primary health care system and consolidate social insurance
schemes. Depending on the country, this period can span from the 1960s and 1970s to the 1990s,
but one thing all of the countries have in common is that the mid- to long-term policies were
greatly influenced by Alma-ata Declaration in 1978. The adopted declaration promulgated that
health is a basic human right and it should be applied both in advanced countries and in developing
countries. It also emphasized the importance of community participation and primary health care.
Each country expanded primary health care services that focused on providing medical services
for the poor and making a priority of improving maternal and child health care, in addition to the
preventing and treating infectious diseases. The Peruvian government made investments in public
health and medical sector from the 1960s until the financial crisis in 1975.,. During the 1960’s,
Public Health and Social Assistance (Ministerio de Salud Pública y Asistencia Social) was renamed
as the Ministry of Health (Ministerio de Salud) and there was expansion of health care facilities, as
well as implementation of free maternity care. In the meantime, integration between insurers was
noticeable in the social insurance field in Peru, with the introduction of the Peruvian Social Insurance
(Seguro Social del Perú) in 1973; Social Insurance of Labourer (Seguro Social Obrero) and Worker
Social Insurance (Seguro Social del Empleado) were integrated into one administrative system
(Peruvian Social Insurance was renamed as Peruvian Social Insurance Institute [Instituto Peruano
de Seguridad Social, IPSS] in 1980)47). This way, in Peru all workers in the public sector were able to
receive the same insurance coverage under a single health insurance organization except for the
insurance for military and police which uses medical facilities of its own.
After the financial crisis, however, Peru entered 1980s, which would later be remembered as
“Ten Lost Years.” In a record-breaking hyperinflation and extreme instability, the health sector also
suffered from financial meltdown along with other sectors. Any expansion of investments to the
infrastructure and insurance coverage was virtually impossible and many health care facilities went
bankrupt (R. Gonzales et al., 2000). It was not until the financial crisis and social unrest was resolved,
to a certain degree, by the Fujimori government in the 1990s that the reorganization and reform on
the health care system took place. During this process, existing framework emphasizing maternity
health and basic medical services were maintained in the coverage provided by the Ministry of
Health. Such viewpoint is reflected in the free insurance for public school students (SEG) for 3 to
17 year olds (adopted in 1997) and mother-child insurance (SMI) for pregnant women and infants
under four years old (adopted in 1998). These two insurance programs were integrated in 2002
when the Ministry of Health established Comprehensive Health Insurance (SIS), which is an operating
agency that provides free health care coverage to the poor.
Some major reforms were conducted in social insurance, but the most important reform was the
adoption of the neo-liberal policies that prevailed in LAC after the financial crisis in the 1980s. This
47) Establishment of IPSS was first proclaimed through the Act of 1980 (Decreto Ley No. 23161) but it was merely an
announcement. It was through the promulgation of General Act on the IPSS (Ley No. 24786) in December 29, 1987
that the organization and functions of the IPSS were stipulated and IPSS actually went into operation.
90
led to the expansion of activities in the private sector in Peruvian social insurance. For instance,
the Act No. 25897 (Ley No. 25897) in 1992 opened the way for private pension fund management
companies (AFP) to participate in the private pension system and through the Social Security
Modernization Act No. 26790 (Ley No. 26790) in 1997, private health insurance companies (EPS)
could participate in the social health insurance area. In 1999, two years after the enactment of the
Social Security Modernization Act, the Fujimori government adopted the EsSalud system known
as the Establishment of Social Health Insurance (EsSalud) (Ley No. 27056). This completed the
framework for Peru’s health insurance to fit within their social insurance system.
In short, the period from the 1960s to the 1998s was when the MINSA and the social insurance
agency were heading in different directions in laying the policy foundations. At the same time, it
was a period when the segmentation were reinforced. In other words, the MINSA concentrated
on expanding basic medical services for the poor while social insurance schemes were integrating
the insurers that were separated according to occupational clusters in the public sector. With the
consequent expansion of the financial base, it began to provide extensive health insurance services
exclusively to the subscribers and their families. Another notable point in this period is that some
activities within the private sector were broadened, as they went through the financial crises in the
1980s and the experienced an upsurge in popularity for neoliberal ideas in the 1990s. With health
insurance, private insurance schemes were firmly established with the introduction of market based
concept. Thus, a large number of people were able to use health insurance in the public sector while
some affluent individuals could buy private insurance policies. Also, public sector workers within the
public sector could turn to social insurance agency while informal sector workers and the poor could
use the health care services provided by the MINSA.
1.2.4. Efforts to overcome health inequality

The problem lies not in the segmentation of the health insurance system itself, but in that it leads
to a variation in service quality. Due to varying final resources for services, the range of available
benefits will be different,and in turn can negatively affect access to services and the health outcome
between classes.
As democracy took root in the Latin American region in the late 20th century, economic stability
and the concept of human rights as universal value prevailed in the society at large. The population
has strongly demanded a reform to address inequality and called for the protection of basic rights.
In response, each country is making policy efforts to fix the segmented system. Peru has started to
make reforms by adopting the Basic Act on Universal Health Care (la Ley Marco de Aseguramiento
Universal en Salud, Ley No. 29344, UHC Act). The section 3 of the UHC Act declares that insurance
benefits should be implemented for adequate prevention, promotion, treatment and rehabilitation,
following the terms of fairness, quality, dignity and timeliness that are based on essential insurance
benefits (PEAS).
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However, despite various policy efforts of countries in the LAC region including Peru, the
segmentation issue cannot be resolved at once only with legal/institutional proclamation because
there are limited resources and complex interlinked political and economical interests that has been
maintained for a long time. Although many countries in the Latin American region are working
hard to address segmentation in the health insurance system and the consequent inequality in
health care, they have not yet found an optimum solution.
More details on the efforts to improve disparities in the health care system of Latin American
countries, as well as the status of current policy implementation will follow in the chapter on
UHC and immediate challenges. This chapter will end with a [Table IV-3] which summarizes the
aforementioned development history of health insurance system in Peru.
Table IV-3 | The Outline of History of Health Insurance System in Peru
Year Events
Establised the Ministry of Health, Labor, and Social Welfare (Ministerio de Salud Pública, Trabajo y
1935
Previsión Social), the origin of the current Ministry of Public Health (Ministerio de Salud)
1936 Introduced the Worker Social Insurance (Seguro Social Obrero), the first social health insurance in Peru
1948 Introduced the Worker Mandatory Social Insurance (Seguro Social del Empleado)
Integrated the Worker Social Insurance and the Worker Mandatory Social Insurance and established the
1973
Peru Social Insurance (Seguro Social del Perú)
1980 Declared the establishment of Peru’s social security agency (Instituto Peruano de Seguridad Social, IPSS)
• Promulgated the Social Security Modernization Act (la Ley de Modernización de la Seguridad
Social) => opening the way for private insurers (EPS) to participate in the social security system
1997
• Promulgated the Act of Public Health (Ley General de Salud)
• Introduced free insurance for public school students (SEC) for 3 to 17 year olds: MINSA
• Introduced the mother-child insurance (Seguro Materno Infantil) for pregnant women and infants
1998
under four year old: MINSA
1999 • Introduced EsSalud (Ley 27056 “EsSalud Establishment Law”)
• Integrated free insurance for public school students (Seguro Escolar Gratuito) and the mother-child
2001-2002
insurance (Seguro Materno Infantil and introduced the SIS (Seguro Integral de Salud)
The Ministry of Public Health laid out the Universal Health Coverage as a top priority policy in the
2007
National Health Coverage Plan (Plan Nacional Concertado de Salud)
• Promulgated the Basic Act on Universal Health Coverage

2009
• Introduced essential insurance benefits (PEAS)
Source: EsSalud(2012), MINSA-SIS(2015)
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2. Socio-demographic Background
This section addresses the socio-demographic background in relation to the institutional
segregation that was mentioned in the previous section. First, this section gives an overview of
Peru’s basic information in [Table IV-4], and discusses the socio-demographic characteristics that
interact with the health insurance system.
Table IV-4 | Basic Information of Peru
Official name Republic of Peru (República del Perú)
Location On the western coast of South America facing the Pacific Ocean
Countries that shares

Bolivia, Brazil (east), Pacific Ocean (west), Chile (south), Ecuador, Colombia (north)
borders
1,285,215.6 km2 31,151,643

Area Population
(12 times the area of Korea) (2015 estimates)
Major regions (order

Lima (capital), La Libertad, Piura, Cajamarca, Puno, Junin
of population)
Language Spanish - official language 83.9%, Quechua 13.2%, Aymara 1.8%, others 1%
Religion Catholic 81.3%, protestant 12.5%, others 3.3%, no religion 2.9% (Census 2007)
Presidential system (no consecutive

Political system Congress Unicameral system
terms, reelection possible)
GNI per USD 6,390 - upper-middle-income

GDP per capita USD 6,625 (2014)
capita nation
Industrial structure Primary 6%, secondary 38%, tertiary 56% (2013)
Major exports Copper, gold, lead, zinc, tin (2013)
Major imports Crude oil and petroleum products, chemical products, plastic, machinery (2013)
Average life
Birth rate 2.4 (2013) 74.8 (2013)
expectancy
Poverty/extreme
22.7%/4.3% (2014) Illiteracy rate 6.3 (2014)
poverty rate
Source: INEI, World Bank, Korea Export-Import Bank
2.1. Demographic distribution

Peru is located on the western coast of South America facing the Pacific Ocean, and is bordered
in the east by Bolivia and Brazil, in the south by Chile, and in the north by Colombia and Ecuador. It
has an area of 1.285 million square kilometers, 12 times the size of South Korea, and is the world’s
20th largest country (CIA World Factbook). The Peruvian statistics bureau (INEI) estimates that the
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country’s population is 31,151,643 in 2015, the sixth largest population in Latin America and the
Caribbean, following by Brazil, Mexico, Columbia, Argentina and Venezuela.
What matters most in examining the demographic distribution in Peru and figuring out its social
meaning is to understand the country’s high urbanization rate, in particular the reasons behind the
population concentration in the western coastal region and the capital of Lima. CIA World Factbook
reported that as of 2015, the country’s urbanization rate is as much as 78.6 percent. According
to the population by region released by the INEI, about 60 percent of the entire population lives
in six major regions (Lima, La Libertad, Piura, Cajamarca, Puno, Junin, in the order of the size of
population), including the capital city of Lima. Among them, in particular, the Lima metropolitan
area including the port city of Callao serves as a home to 10.85 million people or 35 percent of the
entire population, boasting its status as a powerful primate city ([Figure IV-2]).
It is interesting that the demographic distribution in Peru shows a big difference by classification
of geographic areas. Geographically, Peru may be divided largely into the western coastal area, the
central mountain area, and the eastern Amazon area. Within these areas, there are ten, nine and
five regions, respectively. Accordingly, the country can be divided into 24 regions as seen in [Table IV-
5]. It shows that 63.2 percent of the entire population is focused on the westerncoastal area, which
accounts for only 12 percent of the nation’s area, while just 9.4 percent of the population resides in
the eastern Amazon area, which covers as much as 60 percent of the entire area.
Figure IV-2 | Demographic distribution in Peru by region (2015)
Source: INEI
94
Table IV-5 | Classification of geographic areas in Peru
Western coastal area Central mountain area Eastern Amazon area

Classification
(10 regions) (9 regions) (5 regions)
Ancash Arequipa Apurímac Ayacucho Amazonas
Ica La Libertad Cajamarca Cusco Loreto
Lima
Region Lambayeque Huancavelica Huánuco Madre de Dios
(+Callao)
Moqugua Piura Junín Pasco San Martín
Tacna Tumbes Puno Ucayali
Proportion
63.2% 27.4% 9.4%
of population
Proportion
12% 28% 60%
of area
Source: INEI
The demographic distribution of the population shows a concentration in the western coastal
area, particularly Lima, which is highly populated. This population distribution is closely related to
the history of urbanization. Althought the rural-to-urban migration played an important role in
surging of the urban population, along with general urbanization, , it was the influence of Spain’s
centralized colony-governing policy that led to the special form of regional development, which has
progressed around the capital of Lima as a powerful primate city. Therefore, like the emergence of
the institutional segregation, an approach to Peru’s demographic distribution should be taken in the
historical context that countries in Latin America commonly share.
During the Spain’s colonial rule, there were two viceroyalties—Viceroyalty of New Spain (Nueva
España) and Viceroyalty of Peru. Lima served as the capital of the latter and the center of Spanish
colonial rule. Spain implemented the viceroyalty system in the mid-16th century and concentrated
administrative power and authority on viceroyalties and major cities (Kim Hui-sun (2014). This
weakened the ruling power the conquerors had in America that established a centralized governing
system with the king of Spain as the center. Under a centralized system, the principle of the Spanish
monarchy, that any exchanges among its colonies should be carried out only through Spain, made
colonies’ direct interaction with Spain a key factor to the formation and development of cities (Kim
Hui-sun, 2010). It hampered the systematic development of cities based on mutual interchange
among major cities or between cities and neighboring areas within the colonies. Accordingly,
the features of the entire society such as military, administration, economy and education were
concentrated only in major cities directly connected to Spain. Therefore, formation and development
of other cities were delayed (Kim Hui-sun, 2010). Against such backdrop, Lima grew into one of the
biggest cities of the colony on which every function for governance was concentrated. As a result,
its social and economic infrastructure were unequaled compared to other areas within the current
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borders of Peru and helped Lima become the center of Peru’s development after its independence
from Spain.
As mentioned above, in addition to Lima’s growth that took place during the colonial rule, the
demographic shift from rural to urban areas within Peru helped increase the population in Lima and
coastal areas exponentially after the 1930s (a period of industrialization). Though specific policies for
industrialization changed depending on economic conditions at home and abroad, attempts were
continuously made for industrialization around Lima which was equipped with basic infrastructure.
There was a subsequent expansion to the neighboring areas through the trickle-down effect. In
other words, industrialization continued around Lima and its neighboring port city of Callao. Amid
the sluggish development of other small cities, most of the population migrating from the rural
to the urban area headed to Lima. As a result, during the urbanization, the population of Lima
exponentially increased and cities expanded along with the neighboring western coastal area. This
led to the current demographic distribution that is concentrated in the western coastal area around
the primate city of Lima.
2.2. Income distribution

Considering the industrialization and urbanization that intensively took place in certain areas,
it may be assumed that good quality jobs were concentrated in some areas, and accordingly the
income gap rose in these regions. [Figure IV-3] shows a bar graph of monthly average earned
income by region in 2014, expressed in Peruvian currency of nuevo sol48). [Figure IV-3] shows that
rural area’s average monthly earned income was less than half of the urban area, and the earned
income gap difference between the Lima metropolitan area and the rural area was as much as 2.6
times.
48) The average currency rate of 2014: USD 1 = PEN 2.84 (Central Reserve Bank of Peru, or BCRP)
96
Figure IV-3 | Average monthly earned income by region (2014)
Source: INEI
Table IV-6 | Change in the extreme poverty rate by region (2009-2014)
Region 2009 2010 2011 2012 2013 2014
Nationwide 9.5 7.6 6.3 6.0 4.7 4.3
Urban region 2.0 1.9 1.4 1.4 1.0 1.0
Rural region 29.8 23.8 20.5 19.7 16.0 14.6
Western coastal region 1.5 1.5 1.2 1.1 0.8 0.9
Central mountain region 20.1 15.8 13.8 13.3 10.5 9.2
Eastern rainforest region 15.8 12.5 9.0 8.2 6.9 6.1
Urban costal region 1.6 1.7 1.2 1.1 1.1 1.0
Rural coastal region 7.8 6.7 8.3 4.9 5.9 9.0
Urban mountain region 3.8 2.5 2.0 1.9 1.7 1.6
Rural mountain region 34.0 27.6 24.6 24.0 19.0 17.0
Urban Amazon region 5.2 5.3 4.5 3.8 3.1 3.0
Rural Amazon region 28.6 21.4 14.7 14.2 12.1 10.5
Lima Metropolitan region 0.7 0.8 0.5 0.7 0.2 0.2
Source: INEI-Encuesta Nacional de Hogares (ENAHO): 2009-2014
Meanwhile, [Table IV-6] shows the gaps in extreme poverty rates classified by region. In short, the
rural area has about 15 times higher extreme poverty rate than the urban area while the central
mountain and eastern Amazon areas have about 10 and 7 times higher rate than the western
coastal area.
97
From the perspective of the Peruvian health insurance, the difference in poverty rates among
the regions has considerable significance because the health insurance institution (SIS) of the
health ministry aims to provide free insurance coverage to the poor. In other words, the poverty
rate determines the proportion of SIS policyholders in each region. Therefore, based on the
interpretation of the table above, it can be assumed that more people buy policies provided by SIS
in the rural area while more people buy policies of EsSalud in the urban area. [Table IV-7] shows
that out of the 77.5 percent policyholder rate, the SIS (no-cost health insurance provided by the
government) has an overwhelmingly highest policyholder rate of 70.7 percent (SIS: 70.7 percent,
EsSalud: 6.3 percent, and others 0.5 percent). The urban area, however, has relatively lower rates
of overall health policyholders, but relatively higher proportion of EsSalud and other insurance
policyholders, due to jobs in the official section and high income level (SIS: 24.6 percent, EsSalud 32.4
percent, and others 9.8 percent).
Table IV-7 | Policyholders by region
1st quarter 1st quarter

Classification Variation (%p)
of 2013 of 2014
(Nationwide) Total 66.3 69.5 3.2
EsSalud 24.8 25.7 0.9
SIS 34 36.3 2.3
Others 7.5 7.4 -0.1
(Urban) Total 63.2 66.8 3.6
EsSalud 31.7 32.4 0.7
SIS 21.5 24.6 3.1
Others 10.1 9.8 -0.3
(Rural) Total 74.8 77.5 2.7
EsSalud 5.4 6.3 0.9
SIS 68.9 70.7 1.8
Others 0.5 0.5 0
Source: INEI (2014)
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3. Health Level
Given the regional difference, it would be meaningful to examine the health levels in Peru
by region, in addition to the average health levels in all regions. This section will explore basic
indicators such as life expectancy, infant mortality and maternal mortality, and identifies the
differences of those indicators among regions. In addition, this section will examine the factors that
may affect those indicators, including accessibility to basic services such as water supply, electricity
and sanitation facilities and the distribution state of medical personnel and facilities. Finally, this
section identifies the changing trend of the disease structure by comparing Peru’s current one with
that of the past.
3.1. Basic indicators

As of 2013, Peru’s major health indicators are similar to the average of other developing countries
in Latin America and slightly lower than the average of OECD countries, as presented in [Table IV-
8]. For example, the life expectancy in birth in Peru was 74.8 which is almost equalt to the average
of Latin American countries (74.4). It was 5.7 lower than the OECD average of 80.5. In addition,
Infant and maternal mortality is 12.9 per 1,000 people and 89 per 100,000 births, respectively, whis
are close to 15.5 and 87 of the Latin American average, but much higher than 4.1 and 8.6 of the
OECD average. Compared to 1970, however, the life expectancy has increased by more than 20 , and
infant mortality has shown significant improvement with rates dropping from 103 to 12.3, showing
significant improvement. In addition, the gap of life expectancy and infant mortality between Peru
and the OECD average has remarkably dropped from 17 and 79 in 1970 to 5.7 and 9.1 in 2013,
respectively.
Table IV-8 | Major health indicators (2013)
Average of developing Average of

Year Indicator Peru countries in Latin America OECD member Korea
and Caribbean countries
Life expectance in birth 53 60 70 62

1970
Infant mortality (/1,000) 103 88 24.4 41
Life expectance in birth 74.8 74.4 80.5 81.8
Infant mortality (/1,000) 12.9 15.5 3.8 2.9

2013
Maternal mortality
89 87 8.6 11.5
(/100,000 childbirths)
Source: World Bank, OECD
The indicators above demonstrates that although Peru has a long way to go, compared to OECD
countries, the country has made significant progress in health indicators to the past. The regional
survey conducted by the Peruvian statistics bureau indicates that behind the average improvement,
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there is a considerable difference among regions. Estimated average life expectancy by region shows
that the coastal area with higher income has four years higher life expectancy than the mountain
and jungle areas, and in particular, the life expectancy in Lima is 78, seven years higher than 71 of
the jungle area (INEI 2009). In addition, the result of the demographic and medical survey (ENDES
2014) summarized in [Table IV-9] demonstrates that in terms of infant mortality from 1989 to the
most recent year, despite the continuous improvement of absolute figures, the infant mortality
in the rural area is still about twice higher than that of the urban area. As for maternal mortality,
there is no accurate data by region, but considering the gap between the jungle area (73.6 percent)
and the Lima metropolitan area (99 percent), which has the highest rate of childbirths helped by
specialized medical personnel, it could be assumed that there is a wide gap of among these regions.
Table IV-9 | Comparison of infant mortality between urban and rural areas
(/1,000 infants)
Area August 1989 May 1994 April 1998 February 2007 January 2012
Urban area 40 30 24 17 13
Rural area 78 62 45 27 24
Total 55 43 33 20 17
Source: Requotation of ENDES 2014
3.2. Accessibility to basic services

According to 2014’s ENDES, a demographic and medical survey conducted by the Peruvian
statistics bureau, 81.7 percent of the entire households in Peru responded that they can use public
water system while 66.1 percent said that they use bathrooms with a septic tank. About 91.4 percent
of the households use electricity, demonstrating that among the basic services, electricity is the most
commonly used service. The figures show that the accessibility to basic services has improved on
average and went up by 4.5 percentage point for public water system, 10.5 percentage point for
septic tank, and 9 percentages point for electricity.
The regional survey indicated, however, that there is a wide gap in accessibility between urban
and rural areas. The accessibility to the water system for urban and rural areas was 86.5 percent
and 69 percent respectively, which means there is a 17.5 percent gap. The accessibility to electricity
was 98.1 percent and 74.2 percent, respectively, which is a 23.9 percent difference [Figure IV-4]. In
particular, there was a stark difference in the use of flushable toilets, recording 84.8 percent and
17.7 percent for urban and rural areas respectively, indicating as much as a 67.1 percent gap. As seen
here, the average enhancement of accessibility to basic services may be regarded as a positive factor,
but there is a striking difference among regions which could lead to the difference in the level of
public health between urban and rural areas. In particular, accessibility to basic services may have
greater impact on the health of young children (ILO, 2013).
100
Figure IV-4 | Accessibility to basic services in Peru by region (2014)
Source: INEI-ENDES (2014)
3.3. Medical personnel and facilities49)

3.3.1. Human resources
According to the general department of human resources development and management at
the Peruvian health ministry (irección General de Gestión del Desarrollo de Recursos Humanos,
DGGDRH), as of 2014, the number of doctors, nurses, and midwives in Peru stands at 36,594, 39,210,
and 4,452, respectively. This is the equivalent of 11.88, 12.72, and 4.69 per every 10,000 people based
on 2014’s population of 30,814,175 ([Table IV-10]). This is slightly higher than 10 doctors per 10,000
people, which is the minimum standard considered to be necessary for providing adequate medical
care by the World Health Organization, but it is lower than the average of 33 per 10,000 among
OECD countries and a regional average of 20 in Latin America.. The 2009-2011 statistics also showed
that as for the number of doctors and nurses combined per 10,000 people, Peru ranked 24th among
34 Latin American and Caribbean countries.
To fulfil Peruvian’s demand for healthcare, it necessary to increase the absolute number of
healthcare personnel, as well as, reduce regional disparities. The numbers in [Figure IV-5] may be
underestimating the need given that although the number of doctor per 10,000 people in Peru
is 11.9, among the 26 states, there are only 10 states with 10 or more doctors. This highlights the
significant regional disparities in the number of doctors. For example, Callao which is an urban area
of Lima has 27.2 doctors per 10,000 people, but a rural area such as Loreto has only 5.2 doctors per
10,000 people, which is 5 times less than that of Callao.
49) This section discusses the statistics and regional distribution of personnel and facilities in the overall Peruvian public
health system. Therefore, while the current situation of personnel and facilities by service provider is presented in
a form of a table, and detailed explanation will be given in the “Major insurers and service providers” along with
relevant information.
101
Table IV-10 | Distribution of healthcare professional in Peru (2014) – By institution,

occupation
Total Share (per 10,000 people)

Institution Doctor Nurse Midwife population in
2014 Doctor Nurse Midwife
MINSA/
20,499 25,803 12,804
municipalities
EsSalud 10,101 10,391 1,314
Police hospital 766 724 124

30,814,175 11.88 12.72 4.69
Military hospital 1,043 1,399 77
SISOL 749 206 59
Private hospital 3,436 687 74
Total 36,594 39,210 4,452
Reference: MINSA-DGGDRH(2015)
Simply increasing the number of healthcare professionals will not solve the disparities issues that
include insufficient number of healthcare professional and significant regional disparities. In the case
of Peru, many domestically educated healthcare professionals such as doctors and nurses choose to
go to the United States, Spain, Chile, and other countries. According to DGGDRH of MINSA (MINSA,
2011) from 2004 to 2008, the number of the healthcare human resource outflow has increased
annually. As of 2008, the outflow number went up to 1,753 doctors, 2,770 nurses, 529 dentists, and
380 midwives. For dentists, in 2008, the share of human resource outflow was 35% of total number
of dentists in Peru. The reasons for the outflow may vary by each individual but the fundamental
reasons are relatively low salary levels and poor employment quality. The Peruvian government
should devise a plan to reduce the high number healthcare professional leaving the county. There
has been effort to reduce the regional disparities by incentivizing healthcare professions. In 1981,
the government implemented SERUMS (Servicio Rural y Urbano Marginal en Salud/Health Service for
Rural and Marginal Urban Area) which was a program that allowed students, who were planning
to become healthcare professionals, to receive a subsidy or scholarship from the government,and
SERUMS allows MINSA to designate students’ workplace in rural area after he/she graduates.
Recently, there have been efforts to expand and improve SERUMS incentive structure. However,
without an increase in the overall number of human resources and effective incentive program,
SERUMS remains only as a temporary solution.
102
Figure IV-5 | The number of healthcare professional per 10,000 people in Peru – By
state (2014)
Reference: MINSA-DGGDRH (2015)
3.3.2. Facility
As of 2012, the number of beds per 10,000 people is 15.2, and this number remained the same
around 15 to 16 for more than10 years. The OECD average is 48 and the average for Latin America
is 20. Based on the data of INEI (Table IV-12])which shows the number of beds by state, [Table IV-
11] depicts the number of beds by geographic group. As shown in the Table, there is stark contrast
between the number of beds by geographical group, where the number is at its highest in western
coast region with relatively high income level.
Table IV-11 | The number of beds per 10,000 people in Peru, 2012 (By region –
geographical group)
The number of beds

Region The number of beds Population
per 10,000 people
Western Coast 3,2274 19,055,046 16.9
Central Mountainous Area 10104 8244661 12.3
Eastern Rain Forest 3,544 2,836,168 12.5
National 45,922 30,135,875 15.2
Reference: INEI
103
Table IV-12 | The number of beds per 10,000 people in Peru, 2012 (By region – state)
The number of beds

Region The number of beds Population
per 10,000 people
National 45,922 30,135,875 15.2
Amazonas 645 417,508 15.4
Ancash 1,579 1,129,391 14.0
Apurímac 677 451,881 15.0
Arequipa 2,148 1,245,251 17.2
Ayacucho 1,109 666,029 16.7
Cajamarca 1,501 1,513,892 9.9
Cusco 1,720 1,292,175 13.3
Huancavelica 380 483,580 7.9
Huánuco 919 840,984 10.9
Ica 1,421 763,558 18.6
Junín 1,799 1,321,407 13.6
La Libertad 2,476 1,791,659 13.8
Lambayeque 1,526 1,229,260 12.4
Lima+Callao 19,805 10,364,319 19.1
Loreto 1,079 1,006,953 10.7
Madre de Dios 227 127,639 17.8
Moqugua 368 174,859 21.0
Pasco 627 297,591 21.1
Piura 2,041 1,799,607 11.3
Puno 1,372 1,377,122 10.0
San Martín 911 806,452 11.3
Tacna 559 328,915 17.0
Tumbes 351 228,227 15.4
Ucayali 682 477,616 14.3
Reference: INEI(2013).
104
3.4. Disease Pattern

According to MINSA, the main causes of death in 2011 are: communicable and parasitic disease
(19.5%), cancer (19.2%), circulatory disease (18.2%), injury (10.8%), respiratory disease (7.7%),
digestive disease (7.4%), metabolic and nutritional disease (5.5%), pre- and post-natal disease
(2.8%), psychoneurotic disease (2.4%), and others (6.3%). In the detailed classification as shown in
[Figure IV-6], the leading cause of death was acute respiratory infectious disease (12.1%), followed
by cerebrovascular disease, ischaemic heart disease, hypertension disease and etc. Among the top 15
leading causes of death, if acute respiratory infectious diseases are excluded, most of them are non-
communicable and/or chronic diseases such as metabolic disorder and cancer.
Figure IV-6 | Major 15 Causes of Dealth in Peru, 2011
Reference: MINSA-DGE (2013)
According to the Health, Nutrition and Population Data of World Bank, 66.3% of causes of death
were non-communicable diseases and its share has increased by 10%p compared to that of 56.1%
in 2000. The increase demonstrates the change of disease patterns in Peru. In the past, Peru had
disease patterns of communicable and acute diseases but now, there are more chronic and non-
communicable diseases. The changes in pattern will accelerate as Peru faces problems related to the
aging population.
105
4. Healthcare System
Based on the understanding of how health insurance system in Peru developed and social
characteristics and levels of health of the population, this chapter will analyse the health insurance
system in Peru. First, it will take a look at the entities that make up the health care system’s
framework and how they are managed. Then, this section will describe the insurers and service
providers who are the major subjects of interest. Lastly, it will examine the ICT system within the
4.1. Governance
Governance refers to how the health insurance system is managed and operated from the systems
perspective. This section will examine the role of each sector within the system, and the relationship
between the different actors within the health insurance system’s framework of health.
Achieving universal health coverage (UHC) is Peru’s health policy goal. To this end, the Peruvian
government pronounced ‘the Basic Law regarding UHC’ in 2009 to lay the institutional foundation
to achieve UHC and to realign the governance of overall healthcare system. In accordance with
regulations stipulated in Articles 6-9 of the law, actors of health insurance system in Peru can largely
be divided into four components with the insurance beneficiaries at the center, as shown in the
[Figure IV-7] as below.
The first actor is the lead agency, the Ministry of Health or MINSA. Base on Article 6 of the Law,
it is responsible for ‘the decentralized, participatory adoption of regulations and policies governing
the promotion, implementation, and strengthening of national health insurance,’ for the overall
management and setting the healthcare policy direction.
What is noteworthy is a ‘decentralized adoption’ in the abovementioned regulation. This can be

seen as a way to promote efficiency and responsiveness of healthcare services, but it goes together
with the government’s decentralization policy which began in 2002 under the Regulation No. 27783,
(Framework Law on Decentralization, hereinafter Decentralization Law). In complying with such
regulation to gradually decentralize the healthcare sector, the Ministry of Health began the process
of transference by reallocating regional medical institutions, except for the Lima region, and part
of its authorities on healthcare policies to regional governments and local institutions. The local
governments, therefore, operate and manage it with DIRESA. However, given the extremely wide
income gap between the different regions in Peru, local government largely depends on central
government for the financing of health services. Therefore, it is difficult to say that decentralization
is fully functioning in terms of responsibility and autonomy and only some functions are delegated
to local government to meet regional demands.
106
Figure IV-7 | Governance of Health Insurance System in Peru
Source: Presentation data on SIS (Avance en Nuevos Mecanismos de Financiamiento de Prestaciones)
The second actor is the insurer and it operates the health insurance funds. It is stipulated in Article
7 of UHC Law that insurer is defined as an institution in which ‘public, private or combined form
of agency…operating fund’ for the purpose of providing healthcare services for providers and for
guaranteeing health risks, and it is referred to as IAFAS, a Spanish acronym meaning ‘fund operator
for health insurance.’ Currently, there exist a number of insurers, namely SIS under MINSA for the
poor, EsSalud or social insurance, medical service provider for armed forces and national police, EPS,
a private insurance company for social insurance, private company for insurance market, and private
medical institutions for providing their own services.
Third actor is IPRESS, which is a legal term used for ‘institutions that provide medical services’50).
Earlier in this report it was mentioned that health insurance system in Peru is characterized by
segmentation between insurers and vertical integration of insurer and medical service providers.
Under the system, medical institutions that belong to the insurers were deemed as a subsidiary
department of insurer rather than independent institutions. However, Article 7 and 8 of the
UHC Law stipulates insurer and provider as separate entities, namely IAFAS and IPRESS. Beyond
conceptual classification, Article 21 of the UHC Law stipulates that administrative role of IAFAS must
separate its function as insurer and provider of medical services51). Likewise, MINSA fulfilled its role
as a supervising body by establishing SIS, a separate insurance fund management body within the
Ministry in 2002, as MINSA and local government directly manages its own medical institutions but
administratively has separate function from SIS.
50) Depending on the context, it may be used as term that refers to external institutions rather than the network of
institutions the insurer owns, but generally it is used as a legal term that refers to ‘providers of medical services.’
51) Here, decentralization’ refers to separation of administrative and accounting role. Article 21 of the UHC Law stipulates
that ‘IAFAS may provide services through IPRESS’ and then ‘activities of IAFAS as an insurer and provider must be
‘separated with administrative and accounting role.’
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In case of EsSalud, however, it functions both as an insurer and medical service provider, while
the administration and accounting of medical institutions were considered to be a subsidiary of
insurer. Thus, in order to separate the functions of financing and service provider in accordance
with the regulations set forth in the Law, overall execution and management of the system should
be revamped in EsSalud. To achieve this end, EsSalud set separating these functions as its priority
and will begin the process from 2016. However, unlike relatively specific plans set forth within the
systemic framework, there have been difficulties in pushing the plan forward due to the lack of
available technical solutions. This will be explained further in the later chapters on achieving UHC
and challenges ahead.
The last major actor of that health insurance system as stated in the UHC Law is National
Superintendence of Health Assurance, i.e. SUSALUD. SUSALUD belongs to MINSA, but it is
responsible for supervision of insurers and service providers with the autonomy over financing
and administration. In accordance with Article 9 of UHC law, SUSALUD ‘was established based
on Superintendence of Health Service Providers, and does functions of ‘registration, approval,
supervision and regulation of IAFAS and supervision of IPRESS.’ In other words, IAFAS and IPRESS
should be registered at SUSALUD, which can supervise the financial soundness of IAFAS and
appropriateness of services on IPRESS. Beneficiaries can report their complaints to SUSALUD if they
are not satisfied with services provided either by IAFAS and IPRESS.
In summary, the UHC Law establishes roles and functions of actors such as MINSA, IAFAS, IPRESS
and SUSALUD. The largest impact from the introduction of the UHC Law in terms of healthcare
governance is that it separated the functions of IAFAS and IPRESS which were previously vertically
integrated. Such requirement for separating the functions of the agencies imposes a big challenge
to EsSalud, whose system was operating within an integrated system with the second largest
number of medical institutions. In addition, this shall have a significant ripple effect on the overall
healthcare system in that it will significantly reduce vertical integration within the healthcare system
which has been the major characteristic of the Peruvian health insurance system.
The sections below will focus on the current status of the major insurers and providers in Peru,
including EsSalud and SIS.
4.2. Major Insurer and Service Provider in Peru

4.2.1. Current Status of Insurance in Peru
According to a Peruvian household survey (ENAHO) by INEI, 69.5% of the Peruvian population
had health insurance in the first quarter of 2014, and in terms of type of insurers, SIS, EsSalud, and
other insurance providers52) covered health insurance services for 36.3%, 25.7% and 7.4% of the
population, respectively. [Figure IV-8] shows that SIS and EsSalud are the major insurers in all of the
regions. Therefore, it’s important to examine the two insurers and compare them to understand
the current health insurance system and direction for future change. In introducing major insurers
52) Insurance for Armed Forces and Police and private insurance belong to this category.
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in Peru in this chapter, it will focus on SIS and EsSalud, and if necessary, information about other
insurers will also be discussed.
Figure IV-8 | Current Status of Health Insurance in Peru
Source: website from Statistic Peru (INEI)
4.2.2. SIS and EsSalud

1) Basic Information
As mentioned in the section on evolution of health insurance system in Peru, SIS and EsSalud
are insurance providers. SIS is administered by the Ministry of Health while Ministry of Labor has
authority over EsSalud.
2) Financing
According to Article 19 of the UHC Law, health insurance system in Peru is financed by the
following by: contributory, subsidized, and semi-contributory funds. EsSalud is funded by members’
contributions, an exemplary case of contributory system. As shown in [Table IV-13], most of the total
fund (98%) of EsSalud is funded by mandatory contributions made by the insured population, and
among them, the contributions of regular insurance population accounts for 95% of the total fund.
EsSalud’s health insurance system can largely be divided into regular insurance, insurance
targeting agricultural workers, and temporary insurance. Among them, regular insurance accounts
for the largest proportion of the fund, which targets workers from public sector, harbor laborers,
contract workers from public sector (CAS)53) and pensioners. These workers generally contribute
9% of their monthly income. Contract workers from public sector likewise contrbute 9% of their
income, but general workers have lower limit for tax standard while upper limit is set for the CAS.
If employees want to use private medical services through insurance, 6.75% of 9% of premiums can
belong to EsSalud while the remaining 2.25% can be financed by a private insurance provider,or
53) Apart from job group mentioned within regular insurance, there is a separate category for workers from fishery
sector, but since its accounts for a small proportion, and has a similar calculation method for general workers, more
elaboration on the subject is omitted.
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EPS. There are regular insured pensioners, who contribute 4 percent of their pensions to healthcare.
Meanwhile, insurance targeting workers from agricultural sector are set to contribute 4% of their
monthly income if they are hired in agricultural sector, and 4% of the minimum life-sustaining
wage if independently running farms. What is noteworthy in financing system of EsSalud is that
the employer takes charge of all 9%. SUNAT (a governmental institution that collects national tax
and tariffs) collects the premiums and EsSalud pays commissions for delivering the funds. This is
comparable to Korea’s insurance system where employer and employee each pay for half of the
health insurance premiums54).
Table IV-13 | Proportion of items for EsSalud funding resources (2012)
Items Proportion
Premiums 98%
Regular Insurance (Workers+Pensioners) 94.90%
Temporary Insurance 0.30%
Insurance for high risk job workers 0.90%
Insurance for workers from agricultural sector 1.40%
Others 0.60%
Other incomes 2%
Incomes from providing services for non-insured 0.20%
Financial income 1.20%
Others 0.60%
Source: MINSA(2015)
[Reference] EPS
After the enactment of La Ley de Modernizcion de la Seguridad Social en Salud in 1997, private health
insurance companies are allowed to be involved in insurance in the social security sector. The system has
four private companies and they are referred to as Entities Providers of Health Services or EPS. They provide
private medical services to insurers by having health plan agreements with a number of private health
facilities. However, coverage is limited to out-patient treatment. Additionally, companies whose workers
perform high risk activities are additionally required to hire a Supplemental Risk Work Insurance (SCTR)
through EPS. More than half of EPS beneficiaries are also insured members of SCTR.
With regard to SIS, most of the insurers are financed by tax, since it falls under the subsidized
regime. SIS beneficiaries do pay premiums that partially fund it, and although these beneficiaries are
not the poorest group, they do belong to low-income families, individuals and employees of small
54) As of 2016, standard health insurance rate is 6.12% and an employer and an employee pay 3.06% for each.
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companies This issue will be revisited in the later chapters when discussing the terms for benefits.
Those receiving insurance coverage by paying premiums is smaller than coverage of the poor class
who receive free insurance benefits. There are disincentives for insurance subscription and therefore
it accounts for a tiny portion of SIS.
Table IV-14 | Types of SIS beneficiaries
semi-contributory
Subsidized
self-employed(no affiliate) insurance for small businesses
Individual/family with low leader of small businesses, employees

Target population Poor and the poorest
payment capability and dependents
Assessment on income Assessment on income Small businesses (employee) and

Eligibility through SISFOH through SISFOH companies registered at Ministry of
Not have any other insurance Not have any other insurance Labor
individual: 15/month
Premiums No payment family : 14 per month per 15/ month
person
Source: ILO(2013). Own elaboration
4.2.3. Benefit Coverage

Article 13 of the UHC Law introduced PEAS (Essential Health Insurance Plan) as ‘the minimum basic
plan requirement’ that was to be offered by all insurers. It includes explicit coverage based on health
insurance system priorities in Peru and Article 14 of the same Law adds that PEAS is ‘required to be
provided by all insurers,’ obligating all IAFAS to adopt PEAS.
However, adoption of PEAS did not have any impact on EsSalud. This is because original concept
of EsSalud was to provide services to the members more comprehensively than the PEAS. Also, the
Article 18 of the same law stipulates that introducing PEAS cannot reduce the original insurance
coverage, therefore, PEAS does not have any implications for EsSalud. However, given that there are
limited resources, no country can provide unlimited benefits and coverage and EsSalud’s priorities
need to be re-assessed. More detailed discussion on this point will be done in a later section, ‘UHC
and Challenges Ahead’. The next few pages will examine the basic plan requirement for PEAS that
was introduced by the Peruvian Congress and its application in SIS.
PEAS set the standard for the minimum level of benefits to be provided to all people, as part of
the enactment of UHC law in 2009. The Peruvian government gradually established plans to expand
its coverage and the regions covered by it. [Figure IV-9]. As shown in the Figure, the original plan
was to start from covering 65% of all diseases then expand it into 185 terms and cover 85% of all
diseases by 2016. However, there has been a delay because expansion of funding was not achieved.
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Figure IV-9 | Plans for introduction and expansion of PEAS
Source: MINSA
The insurable benefits list of PEAS includes specific benefit coverage such as 1) types of medical
activity (prevention, diagnosis, treatment and monitoring, 2) level of treatment (I, II, III), 3) frequency
of covered services. List of insurable conditions are classified into 6 groups: 1) prevention and
promotion services, 2) ob/gyn, 3) paediatrics, 4) Neoplasmic conditions, 5) communicable conditions,
6) non-communicable conditions. A total of 140 health conditions are included and each disease
entails ICD-10 code and clinical guideline. Of the aforementioned 140 conditions, 56 of them are
obstetrics, genecology and pediatrics, which indicates an emphasis in mother and infant services.
To summarize, in the case of EsSalud, the scope of benefit coverage plan is more expansive
than what PEAS proposed to offer, so the introduction of PEAS almost has no impact on EsSalud.
However, SIS was created with a different health plan, before PEAS was defined. Therefore,
Prioritized List of Health Interventions (LPIS) was started to be replaced by PEAS. As such SIS’s
benefits to be insured look like the following [Table IV-16].
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Table IV-15 | List of insurable conditions of PEAS and warranties
Insurable terms Explicit guarantees

Classification
Opportunity Quality
1. Healthy people 5 5 2
2. Obstetrics and Gynecology related Conditions 33
Obstetric Conditions 28 12 6
Gynecological Conditions 5
3. Pediatric conditions 23
Conditions affecting the new born 12 1 1
Conditions affecting children under 10 years 11 4 3
4. Neoplastic conditions 7
Female genital tract tumors 3
Other tumors 4
5. Communicable conditions 31
Respiratory tract infections 5
Genitourinary tract infections and sexually

5
transmitted diseases
Other conditions 21
6. Non-communicable conditions 41
Mental conditions 4
Chronic and degenerative conditions 15
Acute conditions 22
Total 140 22 12
Source: MINSA(2009)
Table IV-16 | Warranties for SIS insured members by type
Subsidized Semi-contributory
PEAS Insured Insured
Supplementary Insurable Conditions

Insured Separate contract
(RJ 133-2010/SIS)
Special Supplementary Insuruable Conditions

Insured Separate contract
(RJ 134-2010/SIS 및 093-2011/SIS)
Source: reorganized from ILO(2013)
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Additionally, affiliates to subsidize SIS access an extraordinary plan – a more complete list of
benefits to be covered in case of catastrophic illnesses. In fact, the high-cost treatments not included
in the PEAS are funded through the Health Solidarity Intangible Fund (FISSAL) for the SIS members
for the treatment of diseases like cancer, chronic kidney failure, and other rare diseases. On the
other hand, EsSalud does not have a separate funding body to cover high-cost disease treatment,
since they are already included in EsSalud’s basic coverage. However, such unlimited coverage of
EsSalud may work as a factor to decrease the credibility and satisfaction of the insured members due
to long wait times, referrals to other hospitals, and implicit refusal to provide services.
[Reference] FISSAL
FISSAL is a special fund operating body of SIS for funding the insured population for the treatment
of diseases like cancer, chronic kidney failure, and other rare diseases, established based on Ley de
Financiamiento Publico de los Regimenes Subsidiado y Semicontributivo del Aseguramiento Universal de
Salud, Law No. 29698. FISSAL has a legal status equivalent that of IAFAS.
Since it belongs to SIS, budget allocated to FISSAL among the yearly budget allocated to SIS is determined
for funding, and FISSAL also makes use of revenues coming from high-risk insurance plan revenue sold
by IAFAS, MINSA and afflitates, budget transferred within local government, contributions from private,
public, locals and foreigners, individuals, and legal entities.
In principle, FISSAL insures treatment of high-cost rare diseases, but focuses on people with cancers in
alignment with Plan Esperanza55), the government’s integral cancer management policy. It is stipulated that
FISSAL insures cost for blood dialysis, peritoneal dialysis, and kidney transplant for chronic kidney failure,
and other rare diseases.
4.2.4. Service Provision

As mentioned earlier in explaining the governance, SIS is a separate institution that has different
functions from the service providers or medical institutions. However, in practice, it is not free from
vertically integrating its role as insurer and service provider. The separate function stipulated in
the UHC Law is the separation of administrative and accounting role, rather than the separation
of entity ownership. Even if this group of insured members is attended to in the public network
of services owned by SIS, health insurance benefits are offered through medical facilities of local
government or MINSA. As a result, despite the separation of functions between the two entities,
there still remains limitation of quantity and quality of available medical facilities. In particular,
based on the evolution of healthcare policy in Peru, medical facilities managed by MINSA mainly
focused on primary care services that resulted in difficulties in providing high-level medical
services. Such limitation of service expansion is also visible in EsSalud which has its own medical
establishments. However, in terms of fields that need service expansion shows a little bit different
aspects. In case of EsSalud, it focused on injury and disease treatment in cities where there were
many workers in the public sector and put in efforts to secure high-level medical facilities to cover
55) Policy implemented by the Peruvian government with the goal of overall management of cancer and improved access
to diagnosis and treatment of neoplasm. FISSAL takes the central role by making agreements with national hospitals.
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secondary and tertiary care. By mainly focusing on cities, however, it has resulted in low coverage
for the regions outside of cities and lack of medical facilities even for primary care.
To address the problem of low coverage regions, Article 20 of the UHC Law allows the insurer
to make agreements with eligible external facilities that are not part of their network of medical
facilities to provide services. The case in point is the mutual agreement between SIS and EsSalud to
share medical services. In May 5, 2011, under the UHC framework, MINSA, SIS, and EsSalud signed a
special agreement ‘Convention de Cooperacion Interinstitucional MINSA-EsSalud con participacion
de SIS.’ Such agreement mutually benefited both sides, since medical services of MINSA and local
governments are focused on primary and secondary care, while EsSalud’s medical services were
provided for total, and high-level medical treatment. Later, 12 more agreements were signed,
which are estimated to cover 8 million beneficiaries insured by SIS and EsSalud. However, due to
the long history of segmentation between the two insurers, they need to overcome challenges to
successfully exchange actual services. There is a need for technical coordination. For example, there
is a need for technical coordination. The classification code for services and drugs provided by SIS
and EsSalud should be standardized, payment system must be implemented by determining the
price for each service., and system compatibility is necessary for putting in medical records,Thus,
many more challenges lie ahead. Moreover, since separation of provider-insurer function has not
been completed in EsSalud, it will take considerable amount of time to standardize the system and
coordinate technical support and actual exchange of services.
Despite the size of the exchanges between SIS and EsSalud, the two major insurers have not fully
complemented each other. They are gradually entering into agreements or contracts with other
external medical facilities based on the perception that service expansion is necessary. The following
[Table IV-17] shows the current status of all of the medical facilities owned by EsSalud.
According to the Table, EsSalud is providing services through 422 facilities (internal institutions
379 + 43 external institutions) and private institutions account for more than 90%, which is 39
external institutions. Compared to the statistical analysis done with the same data source last year,
the number of private institutions increased by 25. As such, it is estimated that private and external
public medical facilities service exchange will be on the rise rather than expansion of necessary
network of medical services by putting in huge budget.
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Table IV-17 | Current status of medical facilities which provide services covered by
EsSalud (2015)
External facilities
Classification
Internal facilities Total
(Hospital Level)
private facilities private-public facilities
Primary 13 2 287 302
Secondary 26 2 81 109
Tertiary - - 11 11
Total 39 4 379 422
Source: Presentation Data on EsSalud(Gerencia Central de Operación)
4.2.5. Payment Scheme

EsSalud’s payment system relies on a budget that is generally derived from historical data rather
than in accordance with the value of a premium. In fact, it may be more correct to say that there
is an ‘assigned budget’, rather than a ‘payment system’. In the case of EsSalud, because it owned
its network of medical service providers, it did not ‘purchase’ and ‘pay’ for the services, but rather
‘assigned’ the budget and ‘operated’ it. In other words, its systemic structure makes it difficult to
think of it in the framework of healthcare purchaser and healthcare insurer. However, with the
growing demand for medical services, it’s been necessary to contract with external institutions.
Because UHC Law states that there is a separation of financing and provision functions, a simple
assignment of budget is not adequate for the current system and a new payment system must be
determined.
On the other hand, SIS is the only public insurer with the ‘purchaser’ function based on payment
system. Therefore, for the successful direction setting for the EsSalud’s separation of financing-
provision functions, it will be meaningful to take a closer look at the current payment system of
SIS. As shown in [Figure IV-10], SIS payment system is designed for attending to primary care and
secondary and tertiary care.
For primary care, 80 percent of the budget is by capitation and the other 20 percent of the budget
is incentive-based, according to the outcome index assessment from previous year.
For secondary and tertiary care, FFS is the main payment scheme, which is based on
predetermined fee for services. Some fees are transferred early to the institutions that already have
‘service quality insurance agreement’ for the improvement of service quality and stable service
provision. This can be seen as a mixture of FFS and some kind of budget system.
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Figure IV-10 | Payment System of the SIS
Source: MINSA-SIS (2014)
4.3. ICT utilization status in healthcare

This chapter will examine the Information and Communications Technology (ICT) system status in
the health care sector along with a focus on pending issues confronting the two largest health care
institutions, EsSalud and SIS.
4.3.1. EsSalud
The department in charge of ICT in EsSalud can be largely divided into system management and
technology infrastructure provision. There are 120 employees including 48 developers involved in
ICT at EsSalud [Figure IV-11] (Data released by EsSalud ICT control station) and EsSalud manages all
systems and equipment of its affiliated medical institutions, as well as central/local offices. According
to the current status of equipment possession, the total number of servers EsSalud controls is 569,
and 126 of the servers are located in the central office. There are a total of 24,524 PCs (including
the ones in medical institutions), of which 2,516 PCs are in the central office [Table IV-18]. The PC
operating system mainly in use is Windows or Linux and there is no system for mobile devices.
In case of the network environments, the connection speed is 256Kbps or more (some institutions
use 30Mbps of optical fiber cable) for 94.3% of the medical institutions (398 out of 422 institutions).
In areas where it is difficult to install fiber optic cables for topographical reasons, connection is being
made through private communications satellites (165). The network connections have not been set
up for newly established institutions or private institutions that provide services based on contract.
VPN (Virtual private network) technology is applied in making connections between central and
local offices.
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In terms of overall ICT infrastructure, the network between central, local offices, and affiliated
medical institutions of EsSalud are relatively well set up. However, some medical institutions were
experiencing shortage in computing devices such as PCs, printers, and other related equipments.
Figure IV-11 | The organization chart of EsSalud ICT control station
Source: Presentation Data on EsSalud
Table IV-18 | Current status of equipment possession by network of EsSalud in Peru
Classification Server PC Printer
126
Central office
(5 Storage, 97 Physical, 2,516 473
(headquarters)
24 Virtual server)
Medical institutions, etc 443 22,008 9,705
Total 569 24,524 10,178
Source: Data released by infrastructure provision department of EsSalud
Based on these infrastructures, EsSalud has a very large system for managing subscribers, insurance
financing, and medical institutions. As many as 120 systems are being developed and managed
mainly by personnel within EsSalud [Table IV-19].
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Table IV-19 | List of major ICT systems managed by Peruvian EsSalud
System name Functions and features
A subscriber information collection system (Power Builder, Oracle DB base). Receives a text file on
insurance premium payments of subscribers each month from SUNAT and convert it upon verification
SIA (3 to 8 days) Used for subscriber identification in medical care facilities. To be replaced with Java-based
SAS program that links SUNAT database without going through conversion through NETI project (To
be applied from December 2015)
A program that enables identification of subscriber information using internet and intranet (with
ACREDITA
resident registration no.)
PAGOS SUNAT A system which enables EsSalud staff to check the amount of premiums that subscribers have paid
All information on insurance subscriber (subscriber information, medical history, etc) is transmitted on
SUSALUD
15th of each month to SUSALUD, a superintendency on health care insurance,
A hospital information system (HIS) that covers up to quarternary hospitals. Manages all services
(appointment scheduling, outpatient treatment, surgery, emergency treatment, medicine, radiology,
SGH
laboratory, anatomy, etc) provided by hospitals. Host-based program which had been developed as
FoxPro 17 years ago.
A hospital information system (HIS) that covers up to tertiary hospitals and designed with a
SGSS development tool called GeneXus56) SGSS was developed to replace SGH but its utilization rate stays
low yet.
Collects information in the center (EsSalud headquarters) stored in HIS server within each hospital at
SICG a specific time each day. After conversion of dbf file format (dBase), the information is uploaded to
Oracle database of SICG. Data generated in SGSS do not require this conversion.
A simplified version of SES, a statistical program and enables each medical care institution to generate
statistical data without web access. Developed as FoxPro, this program sends statistical data produced
NSIG
to the person in charge of network in medical facilities via email There is an ongoing discussion to find
a way to enable medical care facilities to directly input into the SES program.
A web-based statistical program that calculates statistics based on the data directly input or that
SES
uploads files generated from NSIG
Cost management system used to calculate average cost related to treatment in the medical facilities.
SISCOST Expenditure items to input are medical/administrative personnel, medical service, materials for medical
treatment, medicine, water, electricity, etc.
A medical appointment scheduling system linked with SGH. Appointment information is put in the
Sistema Citas
central system and then distributed to avoid duplicate appointments. Mobile app will also be available
Web
soon.
SIGI A system that issues CITT of EsSalud in case of paid sick leave
56) GeneXus is a development tool developed by an Uruguayan IT company GeneXus International (founded in 1988)
and enables users to easily create cross-platform applications (GeneXus Homepage: http://www.genexus.com).
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System name Functions and features
An intermediary system which transmits information from SGH to SAP on expense details on such as
SAPCESAL
medicine or medical appliances.
SAP 4.0 is currently in use but will be replaced by version 6.0 (scheduled to be released in June
ERP 2016) As a result, extensive changes are expected such as replacement of database (Oracle HANA),
hardware and operation system.
Source: Published materials and interviews of EsSalud
Programs for hospital information system (HIS) [Figure IV-12] are hospital management system
(Sistema de Gestión Hospitalaria, SGH) and medical service management system (Sistema de Gestión
de Servicio de Salud, SGSS). Approximately 350 medical facilities (80%) are using SGH, which was
developed a long time ago and is going to be replaced with a recently developed SGSS. However,
because the functional range of SGSS cannot be matched to SGH and causes errors,, SGSS is facing
challenges in its proliferation and use. The problem is that it is mandatory for contracted medical
facilities outside of EsSalud network to use SGSS). Up to two names of the diagnosis can be entered
in SGH and the information identifiable through linking the referral system is limited to general
subscriber information and the names of diagnosis. Thus, there are needs for improvements as
medical staff have to write down medical records by hand and use SGH at the same time.
To collect information from health care facilities, the accounting system for public institutions
(Sistema de Contabilidad Gubernamental, SICG) and health statistics system (Sistema de Estidística
de Salud, SES) are used [Figure IV-13]. SICG automatically gathers medical record information that is
collected through SGH of each hospital, but a separate conversion process is required to upload the
information into the SICG database. NSIG and SES are systems used to gather statistical data from
individual medical care providers and the systems analyse the information on 420 items monthly
(these are mainly quantitative indicators related to medical examination and treatment – the
number of patient visits, number of medical checkups/treatments, number of surgeries performed,
etc). Data gathered can be viewed through statistical analysis software (Clip Soft) [Figure IV-14] and
these data are used to measure the quality of medical service for each health care facility, provide
feedback, and create financial projections. But because SGH and NSIG are not fully connected,
individuals in charge of each medical care facility or hospital network need to entered the data
manually. Moreover, the linkage between data collected through SES and statistical analysis
software are done manually using Microsoft Excel file.
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Figure IV-12 | SGH program used in primary hospitals of EsSalud
For the ERP (Enterprise Resource Planning) system, SAP 4.0 is used to manage accounting and
institutional resources. Apart from this, SISCOST system is used to calculate the average medical costs
per health care facility. To input the data in SISCOST, data should be retrieved from SAP and Sistema
de Plas. This process is also not automated and requires manual input.
In addition, EsSalud also retains information on human resources, facilities, and other factors that
is required for managing the resources of health care facilities. However there is no database to
manage the resources and the information is not connected to other systems.
Figure IV-13 | Data collection system of EsSalud healthcare facilities
Much of the work in EsSalud is done informally and various systems have been put in place. Most
of the systems were developed by EsSalud employees which may suggest that EsSalud developers
have great technical skills, there is no system in place to rapidly adapt in accordance with the
technology change. Furthermore, the connection methods among systems are all different and
much manual work is required, which demonstrates EsSalud is not making the best use of ICT.
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Figure IV-14 | Statistical analysis software adopted by EsSalud
In addition, EsSalud should adapt the standards proposed by the government in system
development and management. Some of the standards to comply with are NTP 27001:2008 Privacy
Protection Act (all Peruvian public institutions are supposed to abide by the ISO standards specified
in this act.), the standards proposed by National Office for e-government (Oficina Nacional de
Gobierno Electonicoe Informatica, ONGEI) and National Standardization Agency (INDECOPI). EsSalud
is also making efforts to strengthen the security of the systems by installing server/regional firewalls,
firewalls for web applications, DDos prevention appliances, and softwares to prevent malwares.
In an effort to standardize, Digital Imaging and Communitication in Medicine (DICOM) and ICD-10
is currently being applied to Health Information System (HIS) and a committee was formed to discuss
the possibility of applying CEN/ISO1360657) to set standards for exchanging medical records between
health care facilities. This is an important endeavor dedicated to improving the current system into
the Electronic Health Record (EHR) system that enables exchanges of medical records between
health care facilities.
4.3.2. SIS
Unlike EsSalud, SIS does not its own network of healthcare facilities, but pays for the medical
service expenses provided to SIS subscribers when MINSA-affiliated health care facilities send
requests for payment. To facilitate payment requests, internet connection should be set up so that
system access could be obtained with a SIS provided authorization code. MINSA-affiliated health
care facilities are using an HIS program developed within SIS. In approximately 100 out of around
600 secondary and tertiary medical facilities and around 380 out of 700 plus primary medical
facilities, expense claims and reports can be managed through the HIS program within the health
care facilities. The rest of the health care facilities are making claims through an institution where
claiming of expenses are available. Data such as patient names and personal information are being
transmitted, as well as medical treatment details. SIS is using fee-for-service reimbursement system (in
case of secondary and tertiary hospitals) to reimburse MINSA-affiliated medical facilities.
57) CEN/ISO13606 is an international ISO standard for medical records exchange which was approved by European
Committee for Standardization (CEN) (homepage: http://www.en13606.org/the-ceniso-en13606-standard)
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5. Achieving UHC and Challenges Ahead

The government of Peru passed the Law (Ley Marco de Aseguramiento Universal en Salud, Law
No. 29334) in April 2009 to guarantee the right to health security to all and indicated that the
government’s will to support the UHC policies and to lay the institutional foundation. This chapter
will examine the challenges the Peruvian government is facing in the health insurance system on its
way to reaching UHC.
5.1. Overcoming Non-integration of Health Insurance System

The segmented health insurance system in Peru is related to the issue of healthcare service
inequality, which is shared by other Latin American countries. This issue was already examined in
the earlier sections that discussed the similarity between the establishment and development of
the health care system within the region. Latin American countries including Peru have placed
the health insurance system integration as a common policy goal to achieve and have been
implementing various efforts to achieve the goal. Such efforts by Latin American countries and Peru
will be examined in the following sections.
Cotlear et al. (2015) conducted a study to classify the Latin American countries’ efforts to
overcome fragmented health sector into 3 categories. It may be divided into pre-1990s, 1990s, and
post-1990s. Among them, the first attempt was to integrate social insurance and Ministry of Health
to make it into a single public payer system. In this case, insurers and providers may have a separate
or a united role. Mostly, the integration of single public payer was attempted before the 1990s, in
which Cuba, Costa Rica, and Chile are deemed to be successful cases. However, most of the countries
including Mexico, Peru, Dominican Republic, Equador failed to integrate health insurance and social
programs. This single public payer model is the polar opposite of the current segmented system. An
integrated system could be effective in eliminating social inequality that results from a segmented
system, but inefficiencies stemming from monopoly can also exists, and above all, there are big
challenges to pursuing policies that lead to integration, as demonstrated in the failed cases.
Second attempt was made in the 1990s where neo-liberalism was in full bloom in the public
administration sector to give individuals a right to select an insurer. In other words, there was a
belief that insured members have a right to choose the insurer on their own. However, in actual
practice, it could lead to a situation where only the middle-income class are given choices with
almost no advantage to low-income families. The current health insurance system in Peru allows
people to choose between private and public insurer, but in fact, this only applies to workers from
the public sector and high-income self-employed who are covered by EsSalud. The choice does not
apply to the poor and workers from the non-public sector.
Lastly, post 1990’s era focused on the expansion of basic coverage which was introduced in the
early 2000s. This attempt was to accept the segmentation that existed between the insurers, while
requiring the insurers to have minimum levels of benefits and gradually expand the coverage to
overcome the segmentation. Peru introduced a requirement for minimum benefit coverage and
have plans to expand them over time. In other words, Peru is trying to bridge the gap between
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SIS and EsSalud by expanding the insurance coverage with SIS and introducing PEAS that provides
minimum coverage with plans for gradual expansion. This may be effective in expanding health
insurance to the poor class, but there is criticism that if the Ministry of Health insurance and social
insurance provide the same coverage, it may create a disincentive for the poor to work and make
public sector workers deviate from social security. In addition, expansion of free insurance coverage
requires an increase in financial support, but financial expansion has not been adequately achieved
in Peru, so the implementation of the PEAS has not been easy.
5.2. Setting out Terms for Benefits

Rising income, growing number of aged population, increase in chronic diseases, and
advancement of technology have resulted in continual increasing demand for health services.
However due to limited resources, it is not possible to provide all needed services in any country.
Although EsSalud is supposed to provide unlimited insurance coverage, there is an implicit restraint
on its supply and there are barriers to services, including long waiting lines, delayed appointments,
and frequent transference of hospital. The failure to meet the needs of the insured leads to
dissatisfaction and complaints about the quality of treatment and increase in public distrust. This can
undermines the effectiveness of the system and its financial sustainability. Thus, there is almost no
case that unlimited insurance benefits are provided to social security operated with premiums (IDB,
2014 recitation).
Currently in Peru, with the enactment of the AUS Law, PEAS was introduced as the set of required
benefits, but this only sets the minimum conditions for coverage and does not meet the benefit
terms for EsSalud, which covers services for all kinds of diseases. In particular, Article 18 of the Law
stipulates that there is no need to reduce the scope of service coverage after the introduction of
PEAS. However, insured members of EsSalud perceive unlimited coverage as their right and PEAS
coverage would fail to meet their expectations. Implementing PEAS would mean a sudden reduction
of benefits and current EsSalud beneficiaries will object to its implementation.
It is essential prioritize the services that must be provided and set the foundation for payment
system of existing services, as well as for newly evolving medical technologies. Having the state of
the art medical technology is essential to service quality, but its increasing role in terms of a growing
budget can threaten the sustanability of the healthcare system (IDB, 2014, recitation). In addition,
it’s important to consider that new technologies do not necessarily have advantages over existing
treatments. A standard criteria should be in place to determine the type of technologies to adopt
and covered with insurance.
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5.3. Separation of Financing-Provision Functions

Article 21 of the AUS Law (DS N 008-2010-SA) that was implemented in 2010 states that ‘IAFAS
may provide medical services through IPRESS it owns.’ At that time, operation of insurance financing
and provision of services had to be separated in terms of finance and accounting. This mandated the
separation of financing-provision functions and required a greater change for EsSalud, compared to
SIS, because its insurer and fund provider’s function were operating with vertical integration.
The key factor to consider in separating provider and financing functions is to examine how the
services are ‘purchased’ from the service providers that belong to insurer. With regard to EsSalud,
it had a network of medical facilities and operated them as their affiliates and there was no need
to purchase service provisions. EsSalud allocated a budget that reflected price and other factors to
pay for the services.. Based on the fundamental change of separating the provider and financing
function, a reform of the entire system was necessary.
In compliance with the regulations stipulated in the UHC Law, EsSalud has formed a special
committee to help with the process of separating the provision and financing functions. There is
a plan58) to separate IAFAS as an independent system from IPRESS, so that IAFAS can collect and
manage the insured members while IPRESS, who ‘purchases’ (compra) the services and Genencia
Central de Operacion will be responsible for the exchange of services between the two entities. Such
plan for systemic change has introduced the concept of purchase and created a department to play
the relevant role. The problem is that it is difficult to translate the concept to practice within a short
period of time because there is no specific consensus or technical support to guide what kind of
services should be purchased, how to set the price, and how to pay for them.59)
5.4. Improvement of ICT system

The most challenging issue regarding the ICT systems in health care, which are currently managed
by the Peruvian government, is the lack of infrastructure. Internet or network connections are
not available for a large number of MINSA-affiliated medical facilities, making it essential for the
government to aggressively invest in ICT infrastructure.60)
In the case of EsSalud, key stakeholders, including in-network health care facilities, were found
to be aware of the equipment shortage and antiquated systems that are currently in use.. Most
of all, SGH used in most EsSalud network hospitals is a host-based (accessing servers through
Telnet from each terminal) that HIS developed 17 years ago as FoxPro. When it comes to functions
related to recording medical data, SGH is closer to order communication system (OCS) rather than
an electronic medical record (EMR) system, and it turned out that active connection cannot be
58) This was based on the announcement by the special committed during its second briefing on the second local survey.
59) According to the interview on the personnel from the special committee, separation of provider-financing functions
will begin on some selected regions from 2016 and will be expanded from there.
60) With regard to this, Peru has established Peruvian Digital Agenda since 2006 led by Prime Minister’s Office, as
part of a national ICD development plan and set out to build ICT infrastructure (Ministry of Security and Public
Administration, 2014)
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made with the other components of HIS61). To remedy these shortcomings, enhancement of SGH
to newly developed SGSS is being carried out, but complete replacement has not yet been made in
most institutions. In addition, there is a limited ability in each medical institution to respond to the
information technology needs and make the system interoperable among various tiers of health
care system. In order to make the best use of health care information and to enhance performance,
gather of accurate information gathering is important. The essential first stage should be to collect
medical records consistently across all facilities. Moreover, system development is mainly led by
a limited number of workforce within EsSalud and has resulted in delays in system advancement
because there is a high degree of technological dependence on the work of few specific individuals.
This is also one of the reasons why the current status of inefficient connection among many of
EsSalud’s systems is not improving quickly. If it is possible, a change in operation method such as
cooperating with external firms equipped with relevant technology or establishing and following a
master plan for informatization of institutions would be helpful.
Finally, EsSalud has some big changes ahead including separation of insurer and health care
service provider as well as an upgrade in the SAP system. Consequent changes to the ICT system and
information connection should be implemented considering not only the current system but also
with a vision for constructing a system for the future..
61) The person in charge of Rebagliati, a hospital in network with EsSalud, pointed out that the 14 subsystems required
for running SGH and other hospital management are not computerized and 70% of medical records are being
handwritten.
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Part 1 Ⅴ_Conclusion: Proposal for the improvement of National Health Insurance System of Peru
Conclusion: Proposal for the

Ⅴ improvement of National Health
Insurance System of Peru
The current healthcare reform in Peru based on the Universal Health Insurance Law (AUS Law)
requires that there’s subscriber expansion and financing under the national plan and involves a
macroscopic decision-making process. To address the needed changes th at are required to achieve
healthcare reform goals, it is also important to take advantage of the effective operating system
of EsSalud, despite the current challenges. If one considers the importance of EsSalud as a social
insurance system, which is operated by the premium of formal sector workers without government
assistance, it may still have a positive impact on the overall health insurance system in Peru.
The reform of EsSalud that is based on AUS Law and ICT modernization program may be divided
into three areas. First, setting priorities for benefit packages will be important and developing a
mechanism to distribute the limited healthcare resources more efficiently will ensure basic services
for subscribers. Second, separating the provider from the purchaser will improve the healthcare
financing system and make it easier to effectively respond to the increasing demand for healthcare
and the number of subscribers. Third, efficiency and transparency could be achieved by building an
ICT system that effectively collects and analyzes healthcare data. Because these three tasks are major
pillars of HIRA’s function in the Korea’s National Health Insurance System, HIRA can provide helpful
information to Peru about the institution’s role as a healthcare purchaser.
1. Setting priorities of benefit packages

Setting benefit package priorities means determining what healthcare services to cover. It is an
important process that affects the financial sustainability of the health insurance system and the
financial burden on households. As stated previously, because EsSalud do not explicitly limit benefit
services for subscribers, it is difficult for EsSalud to perform efficient resource allocation that accounts
for the healthcare needs of subscribers and the goals of health status improvement. EsSalud’s role in
the healthcare system was focused on a small segment of the population and controlling healthcare
utiltization or maintaining financial sustainability were not major concerns. However, with the
expansion of EsSalud’s role in insuring the population, the lack of oversight on resource allocation
resulted in inefficiencies with long wait times and limitation of benefit services such as refusal of
service provision and/or referrals. Therefore, it is now necessary for EsSalud to set clear goals to
improve the health outcomes for its beneficiaries and determine benefit coverage standards based
on scientific evidence, technical assessment, and social consensus.
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1.1. Korea’s case of benefit package priority setting and listing

Publicly funded health insurance must have covered benefit services that have been proven to
be safe and effective. Covered services may be set based on technical assessment and social value.
In Korea, covered services are determined based on scientific evidence collected from home and
abroad. The Ministry of Food and Drug Safety (MFDS) and National Evidence-based Healthcare
Collaborating Agency (NECA)62) receives application for the inclusion of medical services, drugs, and
treatment materials that have been proven to be safe and effective. Next, the benefit services list is
determined through an in-depth review process. Once the application for benefit listing is received,
HIRA’s staff performs technical reviews such as clinical efficacy and cost-effectiveness evaluation.
Based on the review results, HIRA’s expert committee determines the final list of services. Korea’s
insurance benefit principles63) and social values are reflected in the process [Figure V-1]. Compared
to other developed nations that have achieved UHC, Korea has a high co-payment rate. Currently,
there is an effort to expand benefit services for essential care for severe illness and high-cost care.
At the time of health insurance system implementation in Korea, determining what services would
be covered was a simple process. The services that were provided by existing private providers were
reviewed to determine whether they were included in the new health insurance system. New items
were added to the benefit list using the negative list method. However, with a rapid advancement
of medical technology that led to the development of multiple medical services and drugs for same
disease, listing conditions and process became more complicated. With the availability of various
treatment options, there was a need for a democratic and transparent system that was based on
evidence-based decision making and consens stakeholders on technical evaluation. Therefore, over
time, the approval process for benefit inclusion has evolved and recent benefit listing requires
various participation mechanisms such as economic evaluation (cost-effectiveness analysis, cost
benefit analysis and etc) and citizen participation.
62) NECA evaluates the effectiveness of medical services.

63) The insurance principle based on National Health Insurance Act includes the following. 1) Benefit services for disease,
injury, and essential function improvement for daily lives. 2) Benefit services without alternative options. 3) For benefit
services with alternative options, the services with minimum financial impact.
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Figure V-1 | Benefit listing process of Korea’s National Health Insurance System
[Medical services and treatment materials]
[Drugs]
1.2. Current status in Peru and future cooperation

For EsSalud, the demand for new medical technologies in large national hospitals is increasing.
This change led to the establishment of IETSI (Instituto de Evaluación de Technologias en
Salud e Investigación), the new medical technology assessment agency, and CEABE (Central de
Abastecimiento de Bienes Estrategicos), the new medical technology purchasing agency. However,
the process of defining the type of work and responsibilities for each agency is still underway.
Although EsSalud recognize the importance of having an agency dedicated to managing new
medical technology, EsSalud still lacks the expertise to properly assess the system based on scientific
evidence. Also, given that the principle of benefit provision is for all diseases without restrictions,
first, an extensive research is needed to set some priorities. A consensus is required on what services
should be a priority and how related decision-making process should occur.
Korea’s expertise can be share with EsSalud of Peru in the following areas: 1) technical support
required for conducting economic evaluation of drugs (such as cost-effectiveness analysis, cost-
benefit analysis and other types of cost analyses) for positive listing (to determine drug formularies),
2) methodology for evidence-based decision making and technical committee composed of experts,
and 3) creating discussion structure with various stakeholders that reflect social values and patients’
preferences.
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2. Functional separation between purchaser and provider

Latin America’s National Health Insurance system usually has an insurer that also plays a role of
a purchaser. The insurer owns their own healthcare service providers and makes it impossible to
separate the function of the purchaser and the provider. EsSalud also owns its medical networks
including 400 or more providers. However, medical service fees are based on historical budget and
is distributed passively. This caused a structural problem of providers unable to pay performance-
based. Peru is currently seeking to separate the function of provider and purchaser. To successfully
implement the reform, the following is required: 1) Cost analysis of rendered services will allow
collection of accurate information on service cost. It can also lead to a strategy for efficient resource
distribution. 2) Based on cost and quality monitoring results, reimbursement system may be
improved, such as incentive provision. These efforts will lead to improvement of the overall national
2.1. Costing of healthcare service and cost & quality monitoring

2.1.1. Costing of healthcare service
1) Costing process at the initial stage of Korea’s National Health Insurance System
Before National Health Insurance (NHI) System was introduced in Korea, the services rendered by
private providers were paid by patients in accordance with the service fee guidelines from the district
administrative body. In 1977, the National Health Insurance System was introduced in Korea and the
existing services were listed in the benefit list (customary charge) according to the National Health
Insurance Act. The premium collected from the subscribers was used to pay for the services listed in
the benefit list64). At the initial stage of developing the benefit list, Korea referenced Japan’s benefit
system, as well as conducting surveys among 11 providers65), which were typical types of providers
in Korea, to understand the costing process, such as identifying the factors that were considered in
the calculation. The calculation included the following: 1) the level of difficulty of service, 2) time
required, and 3) the frequency of service. To calculate the level of difficulty, 1,000 points were given
to the most difficult service among same medical department. Other services among the department
were compared to the most difficult service and relative points were assigned [Table V-1].
64) Reference page 35 of the report

65) 9 providers responded out of 11 target providers.
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Table V-1 | Format of questionnaire for cost calculation in the early stage (within
department)
Table V-2 | Format of questionnaire for cost calculation in the early stage (calculation
of weights between departments)
In addition to considering the level of difficulty to calculate cost [Table V-1], further work was
done to compare across different departments [Table V-2]. The points calculated using the table and
the total cost of the services (the frequency of service was excluded) were added to calculate cost
per point. The cost per point was used to calculate the weighted value of services by departments
[Table V-2]. The fee schedule under the fee-for-service (FFS) system was calculated by multiplying
the weighted score and the unit price. Also, in order to keep up with the income earned by private
providers prior to the introduction of NHI system, the new FFS reflected 1) the profit margins of
drug as basic consultation fees or hospital room fees, 2) providers’ infrastructure investment as the
incentive payment scheme by the type of provider, and 3) the providers’ experience years as up-
charge service fee.
2) Costing based on Resource-Based Relative Value Scale (RBRVS)

After the initial determination of the medical fee schedule for the NHI System in Korea, the fees
were constantly adjusted according to the changes in healthcare environment such as inflation
and medical technology advancement. Prior to 2001, the medical fee schedule was unilaterally
determined and notified by the Korean government. In 2001, the government adopted using
Resource-Based Relative Value Scale (RBRVS) to calculate medical fees. RBRVS assigns the relative
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value to the work performed and other related practice expenses using conversion factors. Once the
government sets the guidelines for the RBRVS, the insurer and providers can negtotiate to decide
the conversion factor (unit price) through a ‘contract.’ The fee schedule is determined by multiplying
conversion factor in terms of RBRVS. Currently, the Ministry of Health and Welfare commissions the
Health Insurance Review and Assessment Service (HIRA) develop the RBRVS. The insurer, National
Health Insurance Service (hereinafter NHIS), then negotiates an agreement with six provider
organizations66) to determine the conversion factor for reimbursement.
The U.S. relative-value system was referenced when developing Korea’s current RBRVS. The main
factors include physician’s workload, resources (manpower, treatment material, equipment, etc.),
and risk67). The RBRVS is revised every five years to adjust for changes in values and services. The data
for revision is provided by the following organizations in [Table V-3].
Table V-3 | Organizations responsible for data provision for RBRVS revision
Figure V-2 | The revision process of RBRVS in Korea
66) The six provider organizations include Korean Hospital Association, Korean Medical Association, Korean Dental
Association, The Association of Korean Medicine, Korean Pharmaceutical Association and Korean Nurses Association
67) Reference page 36 of the report
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[Figure V-2] describes the process of RBRVS revision. [Figure V-3] describes the RBRVS of physician
workload, [Table V-4] through [Table V-6] show the RBRVS of resources committed, and [Figure
V-4] describes the RBRVS of risk. In order to collect evidence-based data that reflect reality, it’s
important to consider the role of providers and Clinical Practice Expert Panel (hereinafter CPEP).
The CPEP consists of more than 230 clinical professionals in different specialties and has been in
operation since 2004. The CPEP collects direct cost of medical service and adjusts the cost value by
medical department. For the continual effort of HIRA to verify data and to develop reasonable
and acceptable RBRVS, the collaboration with healthcare professionals and therefore, the active
participation of the CPEP, is essential.
Figure V-3 | Analysis of RBRVS for physicians’ workload
Table V-4 | Costing Example for Uroflowmetry Test: Salary
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Table V-5 | Costing Example for Uroflowmetry Test: Medical Materials
Table V-6 | Costing Example for Uroflowmetry Test: Medical Device
Currently, in Korea’s NHI system, RBRVS is applied to 5,250 items that include 4,888 items for
medical service, 255 items for dental service, 74 items for oriental medicine service, and 35 items for
pharmacy service. The share of each factor for the RBRVS includes 32% for physicians’ workload,
68% for committed resources, and 1% for risk. As of 2015, the total share of the RBRVS factors
accounted for 30% of the total spending of the National Health Insurance which is 18 trillion won.
2.1.2. Cost and quality monitoring

The main payment system for the NHI in Korea is fee-for-service system. The cost of each service is
clearly defined and the classification system is very detailed. Specified services claimed by providers
go through HIRA’s thorough claims review process for reimbursement. The standardized service code
for claims review is a very useful tool for cost and quality monitoring. Current status of Korea’s cost
and quality monitoring within the NHI system is described in the section of the report on purchasing
function of Korea’s case analysis68).
In the case of EsSalud of Peru, independent operation plan for about 300 healthcare activities is
utilized for supervision and management. Among them, 17 activities are being reported to FONAFE
(Fondo Nacional de Financiamiento de la Actividad Empresarial del Estado), the budget allocation
agency under the Ministry of Economics. In terms of cost, there is a reporting process for executing
the overall budget, but healthcare cost monitoring is not being performed. Among the 17 indicators
reported to FONAFE, 8 indicators are related to quality monitoring. In addition to the 8 indicators,
EsSalud independently monitors 26 quality indictors. Therefore, a total of 34 quality indicators can
be found in Peru. More information about the quality indicators can be found in the Appendix
section of this report. There are detailed information about Korea’s quality governance and the
status of Peru’s quality system.
68) Reference pages 43-48 of the report
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The quality indicators of EsSalud mainly focus on service structure, service utilization, and patient
satisfaction, but there is no indicator related to service procedure. Korea’s experience on healthcare
quality governance building can help Peru to began monitoring quality more effectively. Korea can
explain the methodologies used for indicator development, including the priority setting process
and the severity adjustment69). Detailed cooperation plan for costing and quality monitoring are
described in the following sections.
2.2. Current status of Peru and Future cooperation plan

The existing system in Peru is unable to calculate specific cost of services. The currenct method for
setting the budget is not optimal because each year’s budget is based on previous year’s inflation
level and elements (the number of patients’ visit, cost, etc.) of each provider within its own network.
here is no separation of the payer to the provider, because EsSalud (the payer) sets an annual
budget and the providers (whose networks are owned by EsSalud) just spend it. Furthermore, the
budget distributed by EsSalud is managed uniformly by the providers’ accounting system, which has
no oversight regarding spending. Peru’s current system did not require a monitoring mechanism
that compared the cost of services to the level of services rendered.
There are several possible areas of cooperation based on Korea’s experience with the introduction
of it’s own NHI sytem. Most importantly, Peru must survey its system to analyse the cost distribution
and develop an appropriate payment system. The regional characteristics of EsSalud’s network
of providers must be taken into account when selecting a provider sample for data collection to
conduct analysis. In the case of EsSalud, since it owns its provider networks, it may be easier to
collect detailed data compared to Korea. However, the degree of provider cooperation may depend
on how the reform plan affects the physicians. Therefore, as a priority, physicians must be persuaded
by EsSalud to work with them. In Korea, private hospitals have an incentive to actively cooperate in
the policy process because all providers are mandated to be part of the NHI system and the survey
results was directly reflected in the fee schedules. The providers, however, are reluctant to disclose
detailed information on management. Therefore, solving conflicting interests between the payer
and the providers is critical to have the best outcome. The providers of Peru are not satisfied with
the current payment system (paid by salary without proper performance-appraisal system) due to
low level of wages. But EsSalud must understand that the providers may be reluctant to support
mechanisms that cleary evaluate the performance of providers. Thereofore, it is important to
recognize that a valid costing system not only enhances efficiency in terms of cost, but it can also
provide the base data necessary for quality and cost assessment. HIRA can share its experience of
RBRVS development and other technical methodologies that have helped to implement an efficient
payment system.
Having accurate information about services and cost can result in improved efficiency. Focusing
on efficiency can lead to resource distribution based on quality assessment results. EsSalud should
start by creating a department dedicated to healthcare purchasing. The role of the purchaser will be
69) Reference Appendix, ‘Quality Control Governance of Korea and Peru’
135
to identify terms of benefits and help to monitor system performance. Understanding the strategic
purchasing activities of the insurer will also help the providers to have better information to plan for
the future and understand opportunities to expand.
3. Establishment of modernized ICT system

It is common knowledge that the utilization of ICT in the healthcare sector has a significant impact
on the improvement of service quality and performances.70) From the 1980s, Korea has continually
improves its ICT system, and now is considered to have implemented a best practice in building an
efficient healthcare system. Peruvian EsSalud has also built a variety of ICT systems and will continue
to work to build interoperable systems that will enhance the quality of care. The ICT system will play
a pivotal role to strengthen the purchasing activities of EsSalud and the Korea’s cooperation will
provide valuable assistance.
Korean experience can be used as a reference in improving the hospital information system (HIS),
such as SGH and SGSS in Peru, and primary healthcare data collection. Around 93.5% of providers in
Korea are private, and there are 105 HIS vendors and 473 types of systems in the highly competitive
market. HIS vendors have developed and provided customized HIS for each provider, but the
recent trend is to develop a modularized and standardized HIS in order to enhance management
and maintenance efficiency. In EsSalud’s plan, there are vendors that offer not only EHR with
standardized healthcare data exchange technology but also EHR platforms meeting HL771) and/or
ISO13606 standards.
Strengthening the monitoring system is a must for EsSalud to successfully separate the functions
of purchaser and provider. If Peru considers introducing Diagnosis Related Groups (DRGs) or similar
payment systems, HIRA’s data collection process (coding system of treatment procedure, drugs,
medical materials) and review and assessment system would provide a good model to follow. Even if
there is no change in the payment system, HIRA system still can offer assistance by sharing detailed
healthcare data collection format and monitoring systems that connect healthcare treatment
information to healthcare resources database.
Lastly, Peru needs to prepare measures to prevent overlapping investment in informatization,

reduce dependency on specific talents and technology, and improve efficiency in management
systems. To that end, building and promoting a long-term ICT strategy that fits the objectives of the
institution is important. HIRA’s EA (Enterprise Architecture) system and HIRA Framework can share
their best practices. HIRA established the EA system in 2010, which is an integrated informatization
blueprint that defines and standardizes the interrelation of business, applications, data, and
information technologies. HIRA’s EA system defines the functions, relations and flow of business
area (BA), application architecture (AA), data architecture (DA), and technical architecture (TA) from
the planner to builder [Figure V-4].
70) “Information technology must play a central role in the redesign of the health care system if a substantial
improvement in quality is to be achieved over the coming decade.” (IOM, 2001, p.16).
71) HL7 is the standard framework of the ANSI accreditation development organization HL7 (Health Level Seven
International) on e-health data exchange, integration, sharing, and search. (http://www.hl7.org/implement/standards)
136
• BA: Business process, organization chart and task manual for builders
• DA: Data architecture, data flow, lists of tables and columns of the data
• AA: Application architecture, user and operator manual
• TA: Infrastructure including hardware, software, network
With this EA system, HIRA could enhance the level of understanding on the current tasks and
technology. HIRA developed and implemented informatization projects based on the EA system,
and reflected the outcomes back into the EA system in order to achieve efficiency and prevent
overlapping development.72)
Figure V-4 | Construction range of HIRA EA system
Along with EA system, HIRA’s Framework is developed based on e-Government Framework73).

HIRA Framework defines the standards for the development of java-based web application program
which are based on open source technology in wide use. As shown in [Figure V-5], the application
areas of HIRA Framework are as follows.
• Guide: Provide standard guide for web-service creation and operation
• Template: Provide basic template for each screen function and type
• Common tasks: Manage common functions (privilege, code, menu, etc.)
• Development environment: Manage integrated development tool, source version, and library
for efficient S/W development, including functions of build, batch automation, etc.
• Architecture: Applicable to general on-line environment in the form of website, batch processing
environment, and mobile environment.
72) HIRA was selected as EA best practice of the public sector in 2001 and 2013 by the Ministry of Government
Administration and Home Affairs. In 2010, HIRA saved KRW 210 million in informatization by preventing overlapping
development.
73) Reference the objectives and characteristics of Korean e-Government Framework ( http://www.egovframe.go.kr/
EgovAdtView_Eng.jsp)
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As most HIRA systems follow this Framework, improvements were shown in the areas of
interoperability, development efficiency, dependency reduction on specific vendor or talents.
Figure V-5 | Application areas of HIRA Framework
In conclusion, Korea has successfully implemented a strong monitoring system based on ICT
system. The system works to prevent unnecessary healthcare costs caused by FFS and improves
service quality, despite the high ratio of private providers (over 93.5%) and limited data collection
(national health insurance benefit related data and the data mandated in relevant laws only).
EsSalud is poised to achieve great successes through ICT adoption when it takes advantage of
the vertical integration of Peruvian health system. Also, a strong monitoring system should come
first to to strengthen the function of the healthcare purchaser and to separate the purchaser and
provider functions. Against this backdrop, it is expected that Korea’s monitoring system model and
operational knowledge will be able to bring a positive impact on the overall Peruvian healthcare
system.
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4. Conclusion
Recently, achieving UHC became the most important value in the international community. UHC
is understood as a fundamental right for the health promotion of humankind and basic right to
welfare. Korea achieved rapid economic growth after the Japanese occupation and Korean War. This
was possible due to economic assistance, knowledge and experience transfer of other developed
nations. Korea has a duty and ability to give back the support it received from the international
community during its own development experience.
This report is the result of collecting comprehensive information and completing an analysis about
the current status and challenges that Peru faces. Through the capacity building workshop and two
on-site investigation, useful results are provided to Peru. To understand and analyze the system of
a country requires learning about the country’s history, society, culture, political context, and policy-
making process. Therefore, the suggestion of this report provides a foundation for a long-term
cooperation plan. This report will be used as evidence to develop a detailed technical report for the
continued future cooperation between Korea and Peru.
139
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Kim, K. (2013). Improvement Plans for Healthcare Quality Assessment in National Health Insurance.
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Monthly Trend Report on Consumer Policy, 10, 46-57.
Kim. C. (2009). Theories of Health Security. Seoul: Hanwool.
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the Korean Medical Association, 55(10), 940-949.
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Association, 31(1), 16-29.
Park, E. (2015). Issues and Direction of HIRA’s Healthcare Qaulity Assessment. Journal of the
Korean Medical Association, 58(3), 176-178.
Park, J. (2012). Analysis of Legal Basis Regarding Patient Privacy and Protection of Information.
Korean journal of medicine and law, 20(2), 63-190.
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Sea-jong: The Ministry of Health and Welfare.
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26906&cmd=v(searched on October 1st, 2015).
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Health Insurance. Seoul: Korea Institute for Health & Social Affairs.
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National Federation of Medical Insurance.
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Forum, 9, 110-119.
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Health Administration Press.
Eijkenaar, F., Emmert, M., Scheppach, M., & Schoffski, O. (2013). Effects of pay for performance in
health care: a systematic review of systematic reviews. Health policy, 110(2), 115-130.
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physicians in the Unite States. JAMA, 273, 214-219.
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Evidence and Information for Policy. Geneva: World Health Organization.
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for Economic Co-operation and Development.
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http://dx.doi.org/10.1787/health_glance-2013-en
OECD (2014a), OECD Factbook 2014: Economic, Environmental and Social Statistics, OECD
Publishing. Retrieved from http://dx.doi.org/10.1787/factbook-2014-en
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systems/Table–of–Content-etadata- OECD-Health-Statistics-2014.pdf
Petersen, L.A., Woodard, L.D., Urech, T., Daw, C., & Sookanan, S. (2006). Does pay-for performance
improve the quality of health care? Annals of Internal Medicine. 145(4), 265-272.
Town, R., Kane, R., Johnson, P., Butler, M., (2005). Economic incentives and physicians’ delivery of
preventive care ? a systematic review. American Journal of Preventive Medicine 28(2), 234-240.
Vuori, H. (1982). Quality Assurance of Health Services: Concepts and Methodology. Copenhagen:
World Health Organization Regional Office for Europe.
WHO (2006). Quality of care: A process for making strategic choices in health systems. Geneva:
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Organization.
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from http://www.kisiizihospital.org.ug/wp-content/uploadedfiles/2013/10/UHC-PSQ- Learning -Lab-
Doc_Final-Issued.pdf
[Web]
Health Insurance Review & Assessment Service. http://www.hira.or.kr/
Korea Human Resource Development Institute for Health & Welfare. http://www.kohi.or.kr/
Korea Health Personnel Licensing Examination Institute. http://www.kuksiwon.or.kr/
Korean Society for Quality in Health Care. http://www.kosqua.net/
Ministry of Food and Drug Safety. http://www.mfds.go.kr/
Ministry of Health and Welfare. http://www.mohw.go.kr/
142
Part 1 _References - Appendix
National Health Insurance Service. http://nhis.or.kr
UN Sustainable Development Knowledge Platform Website. http://sustainabledevelopment.

un.org/topics/
[Newspaper Articles]
Ko, sujin. (2016.1.19.) Medical device companies ‘Concerned’ on introducing GMP before
medical device approvals. Doctors News. Article: http://www.doctorsnews.co.kr/news/ articleView.
html?idxno=108219 (searched on January 22th, 2016)
Park, Hyunjun. (2012.6.2.) Increasing interests on healthcare service quality, Quality Assessment
Society ‘Korea Society for Quality in Health Care’: ‘Healthcare quality control should do for
themselves’ … ‘basic knowledge management is needed for a qualified hospital director’.
Newspaper Bosa. Article: http://www.bosa.co.kr/umap/sub.asp?news_pk=184884 (searched on
December 15th, 2015)
Shin, Eunjin. (2014.12.22.) 43 tertiary hospitals of 2015~2017 are selected– mandatory allocation of
healthcare professionals in intensive care unit etc. Yakup Newspaper. Article: http://yakup.com/news/
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[Act]
National Health Insurance Act. No.12615.2014.05.20.(partial amendments)
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National Health Insurance Act, Enforcement Regulation. Ministry of Health and Welfare Decree
No. 349. 2015.09.01(partial amendments)
143
Strengthening Civil Registration and
Vital Statistics (CRVS)
Part 2

Hee-joon Song, Ewha Womans Univ.
Minah Kang, Ewha Womans Univ.
Churin Kim, Ewha Womans Univ.
Yeonsoo Kim, Ewha Womans Univ.
Shin Kim, Korea Institute of Public Administration
Joon-young Hur, Korea Institute of Public Administration
2015 KSP-WB Joint Consulting : Strengthening Civil Registration and Vital Statistics (CRVS)
List of Abbreviation
AISS Administrative Information Sharing System
ANACoD Analyzing mortality level and cause of death data
ASEAN Association of Southeast Asian Nations
BAS Bureau of Agricultural Statistics
BOO Build-Own-Operate
BOT Build-Own Operate-Transfer
BPR Business Process Reengineering
BSP Banko Sentral ng Pilipinas
CAF Country Accountability Framework
CMCC Citizen Management Inter-Ministerial Coordinate Committee
CNDR Center for National Documents and Records
CR Civil Registration
CRG Civil Registrar General
CRVS Civil Registration and Vital Statistics
CSO Central Statistical Organization
CTC Certified True Copy
DDoS Distributed Denial of Service
DHIS District Health Information Software
DMZ Demilitarized Zone
DOP Ministry of Immigration & Population
146
DoPH Department of Public Health
FRR Family Relationship Registration
G4C Government for Citizens
GAD General Administration Department
GSIS Government Service Insurance System
HDSS Health Data Standards and System
HIRA Health Insurance Review & Assessment Service
HMIS Health Management Information System
HW Hardware
IaaS Infrastructure as a Service
IAWG-BR Interagency working group on birth registration
IC chip Integrated Circuit Chip
ICD-10 International Classification of Diseases (10th revision)
ICR Intelligent Character Recognition
ICT Information and Communications Technologies
ID4D Identification for Development
IDM Identity Management
IDMS Invasion Detecting System
IoT Internet of Things
I-PIN Internet Personal Identification Number
ISP Information Strategic Planning
KCC Korea Communications Commission
KISA Korea Internet and Security Agency
KOMSCO Korea Minting and Security Printing Corporation
KRW Korean Won
LCRO Local Civil Registrar Offices
LGUs Local Government Units
LSIS Lao Social Indicator Survey
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LSS Labor Statistics Service
MCCD Medical Certification of Cause of Death
MDGs Millenium Development Goals
MDSS Micro Data Service System
MIC Ministry of Information and Communication
MMCWA Maternal and Child Welfare Association
MND Mnistry of National Defense
MNDRS The Maternal Neonatal Deaths Reporting System
MOFA Ministry of Foreign Affairs
MOHA Ministry of Home Affairs
MOI Ministry of the Interior
MOJ Ministry of Justice
MPS Ministry of Public Security
MRTV Myanmar Radio and Television
MSIP Ministry of Science, ICT and Future Planning
NBI National Bureau of Investigation
NBIS National Basic Information System
NCIS National Computing and Information Service
NEDA The National Economic and Development Authority
NEIS National Education Information System
NHI National Health Insurance
NHIS National Health Insurance Service
NIA National Information Society Agency
NRC National Registration Card
NSO National Statistics Office
Act on Promotion of Information and Communications Network Utilization and

NUIPA
Information Protection
OECD Organization for Economic Cooperation and Development
PaaS Platform as a Service
148
PAG-IBIG PAG-IBIG Home Development Mutual Fund
PCS Population Change Survey
PHC Population and Housing Census
PHIN Philippine Health Information Network
PIA Personal Information and Privacy Assessment
PIPA Personal Information Protection Act
PPP Public-Private Partnership
PSA Philippines Statistics Agency
RENIEC Registro Nacional de Identificacion de Peru
RIN Resident Identification Number
RR Certificate Resident Registration Certificate
RR databse Resident Registration database
RR Information System Resident Registration Information System
RR record card Resident Registration record card
RR Register Resident Registration Register
RR system Resident Registration System
RR Resident Registration
SaaS Software as a Service
SDGs Sustainable Development Goals
SK Statistics Korea
SI System Integration
SLA Service Level Agreement
SSN Social Security Number
SSS Social Security System
SW Software
UAGO Union Attorney Generals’ Office
UMID Unified Multi-Purpose ID
UN United Nations
149
UNESCAP United Nations Economic and Social Commission for Asia and the Pacific
UNICEF United Nations Children’s Fund
UNSESA UN Economic and Social development
VRM Voter's Registration Machine
VS Vital Statistics
VSPI Vital Statistics Performance Index
WB World Bank
WEF World Economic Forum
WHO World Health Organization
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Part 2 _Summary
Summary
Civil Registration and Vital Statistics (CRVS) is a fundamental and important area in socioeconomic
development because it encompasses a credible record of information on social events such as birth,
death, marriage, divorce, and social mobility. Many international organizations, for example, UN,
WHO, UNICEF and UNESCAP, as well as non-profit organizations have increasingly placed great
emphasis on projects that focus on establishing CRVS systems since these systems provide lawmakers
with baseline data for shaping and implementing socioeconomic policies that largely affect the
quality of individuals’ lives and their social rights.
Korea is a nation positioned as one of the world’s leading e-government nations based on
its efforts to build an advanced CRVS system supported by an advanced information-based
environment. There have been significant developments in CRVS since the implementation of its
Civil Registration Act in 1962. It is believed that analyzing how Korea has made use and will continue
to make use of its CRVS system will contribute to the development of useful strategies that could
be benchmarked for other countries whose CRVS systems are institutionally inadequate or lacking.
Korea, as a co-consultant with WB in this project, will provide partner countries with a critical
analysis of its CRVS development as well as explore suitable strategies for future mid- and long-term
projects based on the global sharing of experiences and developments in this area.
The need to have comprehensive and established CRVS is very high, particularly for partner
countries that comprise Lao People’s Democratic Republic (Lao PDR), the Philippines and Myanmar.
All governments like to have sound socioeconomic policymaking based on reliable and valid civil
registration, information gathering and sound management of these systems. It is believed the
three partner countries have sufficient potential to transform into nations with well-functioning
CRVS systems if they have access to and will take advantage of successful cases or good practices
of countries that have adopted and implemented efficient CRVS systems, like Korea. However, as
different political and economic structures ultimately give rise to varying outcomes when a new
system is applied into establishments, each measure or intervention should be carefully considered
to assess whether this suits or can be applied to the context of individual countries. For this reason,
an analysis of current status and research into each country’s needs should be carried out.
Overall, objectives of this project are threefold: to describe and explore CRVS cases implemented
in Korea; to examine the present civil registration status of three partner countries; and to present
151
critical strategies for CRVS development through comparative research. Based on information
gathered, workshops aimed at strengthening the capacity of policy makers in partner countries will
be organized to give them an opportunity to access data or provide feedback about this project.
This Knowledge Sharing Project (KSP) proposal is essentially divided into three parts, as presented
below.
Part 1: Case Study of Korea’s CRVS

A literature review provides an analysis of Korea’s CRVS system that serves as a reference for
researchers to be informed on critical issues, strengths and weaknesses of the CRVS system.
Interviews with relevant staff from CRVS agencies will provide details of the system in the field,
which ultimately will be helpful for researchers who need to conduct in-depth field studies.
A case analysis of Korea’s CRVS reveals risk factors and other significant variables of the system,
which will allow the country to improve its current CRVS policy and implementation. Identifying
major success and risk factors of Korea’s CRVS system based on a benefit-cost analysis leads to an
understanding of how this system is capable of functioning well in the three partner countries.
The ultimate project goal is to establish a strategic plan for CRVS implementation that leads to
meaningful collaboration and experience sharing among partner countries.
Part 2: Analysis of partner countries’ CRVS and comparative research

This project aims to develop different analysis models applicable to each partner country by
comparing WB’s analysis model on Identity Systems Analysis (ISA) with the WHO’s Complete
Assessment Framework (CAF). The research team will first identify appropriate focus areas to be
researched into. They will do a literature review to ascertain institutional, internal and external
differences among three partner countries and then analyze the current CRVS status of the
countries using methods such as field study and on-site investigation. A critical step is to determine
major success factors by analyzing similarities and differences between Korea and three partner
countries. Another critical step is to propose CRVS establishment strategies and policy agenda that
are pertinent to partner countries based on this newly developed CRVS analysis model.
Part 3: Knowledge Sharing Forum (dissemination and sharing of results include)

Knowledge Sharing Forum held to share the results of our research and analysis of each country’s
current CRVS which eventually draws the conclusion for practical policy proposals. Then a discussion
on research, workshop outcomes and initiatives for follow-up research will be raised in the final
briefing session. Emphasis is placed on setting up a methodical and efficient management structure
to keep track of research outcomes, to sustain efficiency and to design effective follow-up projects.
To sum up, the project’s overall goal is to enhance cooperation with international organizations
such as UN, WB and ADB in efforts that lead to institutional innovation in CRVS policymaking
and establishment of a global network for this development. Researchers from partner countries
participating in this project are expected to share experiences and knowledge gained with partner
countries as well as explore opportunities for facilitating CRVS related projects in developing
countries.
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Part 2 Ⅰ_Project Overview
Ⅰ Project Overview
1. Purpose of Study
The purpose of this study is to analyze Civil Registration and Vital Statistics1) (CRVS) in Korea and
review in depth the CRVS system in Korea that uses both National Identification Management
(IDM) and Health Management Information Systems (HMIS). In addition, the study highlights the
policy demands and business opportunities found in establishing CRVS in partner countries, namely
Lao People’s Democratic Republic (Lao PDR), the Philippines, and Myanmar, through an in-depth
analysis of successful civil registration and HMIS practices.
The short term objective is to strengthen partner countries’ potential for establishing and
maintaining strong CRVS systems and personnel’s capacity, while the long term objective is to
strengthen international sharing of knowledge and resources, benefits and successful practices on
CRVS among countries in the region.
2. Scope of Study
The study begins with an account of the history, current conditions of operation and future
challenges of Korea’s Civil Registration System2) , followed by an analysis of background,
developments and current status and operations of its Civil Registration System. This study also
analyzes institutional arrangements, work processes and critical success factors of Korea’s Civil
Registration System, and its future challenges. For example, there is an account of developments
and status of Korea’s HMIS, a mention of the Public Health & Medical Services Master Plan that was
introduced in 1995 and its information system, and also an analysis of the link and interoperability
between CRVS and IDM. This is followed by a comparison between CRVS of partner countries and
Korea, and an analysis of current situations of CRVS in partner countries. The analysis involves
reviewing strategy demands and policy directions of partner countries. The study concludes with
plans for capacity strengthening workshops and a final briefing to share experiences and directions
in CRVS planning based on Korea’s CRVS development as a case study.
1) Demographic Statistics Census

2) Resident Registration System (RRS)
153
3. Expected Outcomes and Main Focus Areas

3.1. Expected Outcomes
Expected outcomes are achieved through comprehensive and in-depth sharing of CRVS
experiences, i.e., successes (and failures), critical success factors, knowledge gained and technologies
used, risks and strategic management plans, information access, resources, mutual learning and
benefits of civil registration system applications.
It is expected that there will be more extensive undertaking of mission-oriented tasks through
close collaboration between project teams and researchers, and among domestic agencies in charge
of knowledge sharing programs (KSP) such as Ministry of Strategy and Finance (MOSF), Korea
Export/Import Bank (KEXIM) and Korea Development Institution (KDI). A long-term project outcome
is the strengthening of connection and cooperation among agencies in charge of Civil Registration
Systems, such as between Ministry of Government Administration and Home Affairs, and local
governments at all levels with information sharing agencies (e.g., Ministry of Health and Welfare,
Ministry of Employment and Labor, Ministry of Education).
3.2. Main Focus Areas

Main focus areas of this study include a detailed analysis of Korea’s Civil Registration System
database and information system. The analysis involves a review of the background, legal and
institutional regulations, operating processes, current management status and benefit-cost analysis
of the Civil Registration System. This is followed by a discussion on policy implications for partner
countries, namely Lao PDR, the Philippines and Myanmar. Critical success factors will be discussed,
among which are political and administrative leadership, inter-agency collaboration, and capacity
of officials in charge of CRVS. Risk factors discussed include aspects of legal and institutional,
managerial, physical and technological risks.
Outcomes lead to workshops to share the Korean success and experience in CRVS. In the final
stage, the main findings of this project are disseminated at a knowledge sharing forum.
4. Project Implementation
Project Implementation covers three stages: policy research, comparative study, and dissemination
of results or findings of this study.
The first part of the Plan recommends relevant solutions and measures for establishing a
successful CRVS agenda using public administration and policy science-based theories and practices.
Recognizing institutional components and information systems of Civil Registration System as key
data linking to other critical national databases and supporting its application is a vital aspect of
this study. Internal and external collaboration is critical, and significant research members consisting
of e-government, health policymakers, and official development assistance (ODA) specialists
154
Part 2 Ⅰ_Project Overview
should be consulted for their capability to identify critical success factors and barriers to successful
implementation.
In terms of policy research, the utilization of CRVS in developing countries is reviewed in fields
with high policy demands, based on the principle of interoperability structure. In particular, the
project aims to provide a better understanding of the current status of interoperability of Korea’s
Civil Registration System, Resident Indentification Number (RIN), IDM information systems, HMIS and
other health related information systems based upon e-government information sharing status, and
to better identify policy implications and effects as a consequence of institutional interoperability.
In May 2015, WB’s team embarked on a field examination of CRVS systems of Lao PDR and the
Philippines. The team conducted prior field examination of issues, constraints and challenges in
partner countries’ CRVS systems. Critical issues about CRVS under analysis involve application formats
and work processes for births and deaths, marriages and divorces, government-wide cooperation
mechanisms, legal and institutional arrangements, electronic ID card, and a review of CRVS
databases and IDM systems, among others.
155
Ⅱ Case Study of Korea’s CRVS
1. Introduction
1.1. Background
Korea is a peninsula country located in the Northeast Asian region, at the triangular point of
contact between China, Japan, and Russia, historically well-known for sharing her rich cultural
heritage and civilization with Japan that colonized Korea for 36 years in the early 20th century,
having accepted industrialization the earliest in Asia.
The division of Korea into South and North in 1948 and the Korean War in 1950 were the
aftermath of the Cold War, a legacy of World War II, and resulted in continued tension and armed
conflicts even in recent times. Despite these unfavourable conditions, South Korea has been
evaluated as a success model in economic development as well as democratization since the 1960s.
Early Korean dynasties have been carrying out property assessments and basic census for tax
collection, military drafts and public projects even as far back as the 7th century A.D..The current
resident registration and relationship system was implemented for verification in order to provide
public services such as election, child vaccination, education and so forth to the public. In fact, the
Resident Registration Act and Statistics Act were legislated in 1962 in order to efficiently manage
national resources such as manpower in the face of the South-North Korean face-off with the
launch of the first Five-Year Economic Development Plan.The Korean government recognized the
demand for a well-established Civil Registration and Vital Statistics (CRVS) system that would serve
as the administrative base for rapid industrialization and economic development.
This report seeks to present the historical experiences and actual outcome of Korea’s CRVS widely
recognized as a success case. According to the WB’s 2015 Country Overview database, Korea’s
experience in terms of her transition to a dynamic knowledge economy as well as advances in
sustainable development can provide invaluable lessons to other developing countries. Presented as
a country case study, this report aims to accurately present and clarify successes and failures of the
Korean case, in the hope that such information will help other developing countries’ efforts in their
implementation and enhancement of their own national CRVS systems.
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Part 2 Ⅱ_Case Study of Korea’s CRVS
1.2. Concept and Significance of CRVS

CRVS refers to the universal, continuous, permanent, and mandatory recording and
documentation of occurrences and vital events as well as their characteristics such as an individual’s
birth, death, marriage, divorce, adoption, etc., according to each country’s legislative or regulatory
requirements (UNDESA, 2015). In this respect, CRVS is one of the basic functions of nation building.
Socio-economic environment that Korea faced in the 1960s when the Korean government
began to institutionalize the CRVS system such as resident registration, was not all that different
than that faced by developing countries today. But without a doubt, there was a definite need for
institutionalization of the CRVS system to deal with rapid industrialization and urbanization that
follows rapid economic development.
The development of database for systematic management of resident registration service began in
the 1980s and the development of the public service delivery system capable of providing Internet-
based real-time online service began in the 2000s. The CRVS information serves as the foundation
for online processing of administrative services, such as voting, immigration, as well as the basis for
socio-economic services such as health, welfare, education, and employment. Despite the various
challenges that the resident registration service has faced since its implementation, it still serves
as the core information for providing diverse public services to the citizen based on location of
residency.
However, there may exist different institutional demand for the CRVS system among countries
caused by differences in national characteristics of each country such as population structure,
economic situation, and/or urbanization level. As can be seen from socio-economic indicators
presented in the table below, the densely populated Korea experienced rapid economic growth and
urbanization for half a century (Table II-1). The introduction of the CRVS was one of the political
and administrative responses to the impoverished economic situation of the 1960s that put heavy
pressure on the government to initiate industrialization for economic development.
Table II-1 | Major socio-economic indicators of Korea’s growth
Categories 1962 2014

2
Total area (km ) 98,431.03(‘61) 100,283.9
Total population (thousands) 26,513 50,424
Population Population density (persons) 275 503
Level of urbanization (%) 39.1(’60) 82.2(’13)
Total amount (1bil USD) 2.75** 1,410.38*

GDP
Per capita (USD) 103.57** 27,970.5*
Source: Statistics Korea, www.index.go.kr; World Bank DataBank*, indexmundi**
157
And the CRVS of Korea went through fast process innovation and system development in hand
with the rapid economic development and urbanization. As such, CRVS and development of its
information systems symbolize, in a sense, the history of industrialization and democratization of
Korea since the 1960s. An understanding of such historical background as well as paying attention
to lessons learnt from the decision-making process and implementation will greatly minimize the
trial-and-error process while contributing to institutionalization of CRVS for many developing
countries.
1.3. Scope of the Report

Chapter 2 introduces the institutional aspect of family relationship registration, resident
registration, population movement investigation, and national health insurance, which are the
fundamental components of Korea’s CRVS. In particular, to allow for a clear understanding of the
basics of the resident registration system, this report focuses on the resident registration card,
resident registration number, and resident registration management governance and processes.
Chapter 3 focuses on the information system of family relationship registration, resident

registration, population movement investigation, and national health insurance. Furthermore,
it describes the operational governance, administrative information sharing system, and physical
integrated management system of these information system.
Chapter 4 provides information on the various legal frameworks that act to regulate and promote
the institution and information system of CRVS.
Chapter 5 introduces the basic strategies and approaches that the Korean government adopted
in the e-Government projects carried out since the 1980s, and identifies the critical success factors
that made Korea’s e-Government what it is today, including political will and leadership, strategic
planning, resource mobilization, cost-benefit analysis, and project management.
In Chapter 6, this report presents valuable lessons learnt and resolutions to the challenges faced
and lastly, Chapter 7 completes the report by discussing the future of Korea’s CRVS.
2. The Framework of CRVS

2.1. Basic Structure
Korea’s CR consists of two different but closely related components, namely the family relationship
registration (FRR) and the resident registration (RR). The FRR builds the organizational structure
per individual and per family for the purpose of registration and verification of occurrences and
changes in family relationship such as birth, death, marriage, divorce, and adoption. The RR is the
management of location dependent residency of citizens to carry out appropriate administrative
activities and provide quality public service delivery for voting, tax payment, social security and more
by accurately assessing the residential relationship and other indicators of population movement.
158
Korea’s CR has several characteristics to keep in mind as well. First, registration of resident and
family relationship is divided into the FRR which was traditionally used as the means for verification
of family relationship in a patriarchal society and the RR which was used for administrative purpose
of managing residency of citizens. As such, Table II-2 shows the differences between the FRR and
the RR such as who needs to be registered, upper governance, registration locations, register books,
reporting deadlines, and fines for negligence.
Table II-2 | Comparison between family relationship registration and resident registration
Category Family relationship registration Resident registration
Subject of registration Birth, death, marriage, divorce, etc. Birth, residency (30 days or over)
Upper governance Supreme Court Ministry of the Interior
Location of registration City/district, community, overseas locations City/county/district, community
Residence (can be same or different as the

Location to be registered Location of registration
location of registration)
Register book FRR register RR card (individual, household)
Within 30 days of the occurrence of birth, Within 14 days of the occurrence of a

Reporting deadline
death, and etc. reason to report
Second, while the upper governance of CR is delegated to judiciary (Supreme Court) and
administrative agencies (Ministry of the Interior) due to historical, political and other reasons, actual
tasks that are carried out are processed in an integrated manner within the 226 city/county/district
offices (Si/Gun/Gu), and 3,560 community service centers (Eup/Myeon/Dong)3). From the three local
administrative tiers, the highest tier of wide area autonomous local governments (17 metropolitan
cities and provinces) do not play a key role in CRVS. In addition, administrative agencies have to
maintain the continuation and consistency of CRVS information in accordance with Article 15 of the
RRA, which requires information to be synchronized between the FRR and the RR.
3) Because the purpose of the FRR is to verify family relationship, the Supreme Court of Korea carries out the FRR activities
in Korean consulates abroad (three consulates in Japan), but since the purpose of the RR is only the verification of local
residency, only local governments carry out the RR activities.
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Table II-3 | Assignment system of resident registration tasks
Number of
Assignment institution Main Task
institution
- System task of reamendment of RR Act, etc.

Central government (The MOI) 1 - Directing and advising of RR tasks.
- Computerization and information sharing of RR tasks.
- Directing and advising of RR tasks

Wide-area local government
17 - Use and approval of computer processing information for areas
(metropolitan city/province)
under its jurisdiction.
Basic-area local government - Issuing of Civil Registration and grant of RIN

226
(city/county/district) - Inspection of RR card or delivery of certified & abstract copies
- Receipt of moving-in report, inspection of RR Record Card; delivery

Community Service Center of certified and abstract copies.
3,560*
(Eup/Myeon/Dong offices) - Grant of RIN
- Management of computer processes for RR tasks.
Source: The Ministry of the Interior, 2015

* Number of communities in charge of Family Relationship and in charge of Civil Registration tasks differs
Third, any changes in the location of the FRR are required to be reported to the corresponding
city or community offices within 30 days and any changes in the RR within 14 days. Also, if a report
is made in the RR for a move that follows change of domicile, this act isregarded as having fulfilled
the mandatory reporting of change of domicile in accordance to the Military Act, the Framework
Act on Civil Defense, the Certification of Seal Imprint Act, the National Basic Living Security Act, the
National Health Insurance Act, and the Act on Welfare of Persons with Disabilities (RR Act Article
17). The changed RR data is automatically updated using the administrative information sharing
system.
Fourth, citizens and public servants are legally obliged to register any changes and all processes
related to the FRR and the RR. By imposing fines for any violation of this compliance, CRVS
information is collected and updated automatically in a timely manner.
Fifth, the collected CRVS information is input, circulated, shared for usage, saved, and backed up
by various information system to be utilized for administrative purposes in real time. For enhanced
efficiency, information system for the entire CRVS processes have been developed, and shared with
other information system for common usage.
2.2. Family Relationship Registration

The FRR refers to all activities of recording and verification of occurrences and changes in family
relationship such as birth, death, marriage, divorce, adoption, etc. In the past, family registeration
institution was used to guarantee superior status of men within the family and discriminated
women while also being used as the vehicle to maintain patriarchal bloodline and was thusly
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declared as unconstitutional in 2005 by the Constitutional Court for infringing the human dignity in
the context of marriage and family life.
Information in the FRR includes traditional blood ties and relative relationship such as location
of registration, name, sex, birthdate, marriage, divorce status of oneself and parents. Therefore,
the basic structure of the FRR, such as birth, death, marriage and divorce, possesses clear legal
foundation laid out in the relevant regulations in regards items such as the time of declaration,
declaration form, accompanying documents, persons obligated to report, reporting location, and
other relevant details (Table II-4).
Table II-4 | Basic system of Family Relationship Registration
Category Birth declaration Death declaration Marriage declaration Divorce declaration
Basis of declaration Article 20, 21, 44-51 Article 20, 21, 84-91 Article 20, 71-73 Article 20, 74-78
- Divorce by mutual
consent: within 3
No fixed time period.
months of court
However, marriage by
Time period of Within 1 month of Within 1 month of confirmation issuance
trial must be reported
declaration birthdate knowledge of death date
within 1 month of
- Divorce by trial:
date of trial
within 1 month of
date of trial
Declaration form Birth report Notice of death Marriage license Divorce statement
- Divorce by mutual
consent: needs copy of
Death certificate Marriage by trial:
confirmation
Accompanying Birth certificate or postmortem copy and certificate
- Divorce by trial:
documents (Doctor) examination certificate of conclusion of
copy and certificate
(Doctor) judgment (Court)
of conclusion of
judgment (Court)
Persons obliged to Relatives residing

Parents Persons concerned Persons concerned
report together
Location of registration
Location of birth, of deceased, location
Location of registration Location of registration
location of registration, of death, burial,
Reporting location for persons concerned, for persons concerned,
office for address of crematory, office for
office for their address office for their address
person reporting address of person
reporting
Source: Korea Legislation Research Institute (n.d), Retrieved from http://www.klri.re.kr/
The person responsible for filing report of birth of an infant must be one of the following: (1)
parent for birth within wedlock; (2) the mother for birth out of wedlock; (3) if neither are feasible, a
relative living together or the doctor/midwife assisting the childbirth.
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In the upper portion of the birth report, (1) the infant’s name, family clan, sex, location of registra-
tion, (2) classification of birth in wedlock or out of wedlock, (3) date of birth and location, and other
details need to be filled out (Table II-5). A person can change their location of FRR freely, and is re-
quired to report the changes to relevant administrative agency of the new location of registration
at the time of the change. Since an infant cannot select a location of registration by his or her own
will, the location of registration of the parents is normally used.
Details like the gestation period of the infant, weight of the infant, nationalities of the parents,
etc. need to be included in the VS portion of the Population Change Survey (PCS) at the bottom of
the birth report (Table II-5). The birth report must be filed within one month of birth with a birth
certificate issued by a doctor, either by mail or attendance in writing, in person, or in electronic doc-
ument to a city office or a community service center of the birth address.
Table II-5 | Information needed in declaration form
Category FRR information VS Information Accompanying documents
Name, sex, in wedlock/out of Birth certificate: name/age/

Gestation week, weight,
wedlock birth status, location occupation of parents, mother’s
multiple births (order of
and time of birth, address, address, location/date & time of
birth), nationalities of parents,
RINs of the parents, location birth, name/sex of the infant, period
Birth actual date of birth, schools
of registration of the parents, of pregnancy, multiple birth (order
graduated, occupation, start
agreement of surname, of birth), physical condition/weight/
of married life, total number
name/ qualification /phone health of infant, number of births
of births of mother
number of person reporting from mother
Cause/type of death, time

Name, RIN, location of Postmortem examination certificate:
period of sickness, type/time
registration, address, date of name, sex, RIN, actual date of
of accident, region/location of
Death marriage dissolution before birth, family clan and address, time/
accident, nationality, schools
death, occurrence of surname location/ type/cause of sickness and
graduated, occupation,
agreement death
marriage status
Name, RIN, location of

Actual start date of married
registration, address, date of
life, nationality, type of
Marriage previous marriage dissolution
marriage, schools graduated,
occurrence of surname
occupation
agreement
Actual start date of married

life, actual date of divorce,
Name, RIN, location of number of children under 19,
Divorce
registration, address reason and type of divorce,
nationality, schools graduated,
occupation
When the employee at the city office or community service center electronically enters the birth
report into the information system of the Supreme Court and Statistics Korea (SK), the infant then
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receives a unique resident identification number (RIN) and recorded as a cohabitor of the parents
in the RR information system of the Ministry of the Interior (MOI) (Figure II-1). The premium for the
National Health Insurance is paid through registration in the National Health Insurance Service (NHIS)
under the parents, linked to the information system of the hospital that delivered the child. Once
the birth report is completed, the resident information of the child is managed as his or her own.
Figure II-1 | Birth report process
A death is reported by a cohabitor, caretaker at the location of the death, or the head of the
community at the location of death within one month of knowledge of the death together with
either a doctor’s death certificate or post-mortem examination certificate to the relevant city office
or community center of the location of death, burial or cremation(Figure II-2). The death report
includes name, sex, location of registration, resident identification number, location of death, and
the time and date of the death of the deceased, and is included in the Population Change Survey.
Figure II-2 | Death report process
For reports of marriage and divorce, the parties involved need to report to relevant FRR office.
The name, family clan, date of birth, RIN, and location of registration of the person involved and the
name, location of registration, and RINs of his or her parents are filled out in the declaration form.
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In short, while CRVS policies are handled separately by central government agencies, the working-
level tasks are operated in an integrated manner through similar proceedings in the city offices and
in the community service centers which serve as low-level administrative organizations.
The FRR information contains sensitive personal information such as blood relations or marriage/
divorce and can only be shared with other organizations under regulated and restricted conditions
managed by the Supreme Court. While such precautions are commendable from the personal
information protection point of view, there is also the increasing need for reforms that allow more
real-time information sharing with the executive branch of the government to increase convenience
of the citizen within the confines of the law.
2.3. Resident Registration

2.3.1. Significance
The RR is the core component of CRVS that manages a citizen’s residential relationships and its
changes. In 1962, with the launch of the first five-year economic development plan, the RR Act
was enacted for the purpose integrating management of personal data of citizens for taxation,
military service, elections, and other services. As infiltrations of North Korea’s guerrilla became more
frequent, the Korean government’s efforts to safeguard public order led to making use of the details
of the RR card and RIN system as the means for military resource mobilization and for identification
of suspected criminals and spies. In 2000, this policy was amended to better understand citizen
residency/movement conditions for public assistance in education, welfare, or culture, especially
when the country’s national income increased in the 2000s (Table II-6).
Table II-6 | Purpose and benefits of RR System
Purpose Benefits
Understanding Citizen Residency Movement Management of service blind spots and overlaps in education, welfare,
Conditions culture, etc.
Integrating Management of Citizen Personal Efficient supervision of human resources in taxation, military service,
Data elections, etc.
Maintenance of social order through public peace, national security,

Identification of Criminals, Spies, etc.
terrorism prevention, etc.
The RR system has since undergone transformation in three stages (Table II-7). The first
institutionalization stage (1962-1986) was the enactment of the RR Act. Following the incidents
of attacks by armed North Korean soldiers on the Blue House on 21st January, 1968, the Korean
government recognized the need for monitoring against North Korean spies and infiltrators through
the RIN and RR card system. Before these system, low-level administrative staff recorded residential
information manually on the RR ledger book, and issued paper certificates. Record keeping in such
manner was tedious and unreliable at best.
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Table II-7 | Development stages of the RR System
Purpose Year Resident Registration System
1962 RR Act legislated, City/District Resident Cards (Identification Cards) issued

1st Stage
(Institutionalization) (‘62- 1968 RIN (12 digits) and RR Cards (Age>18) introduced
’86)
1975 RIN (13 digits), RR Card Issuance Object (Age>17) and first renewal of RR Card
1987 Begin to build a RR Database (NBIS)
Foundation of regulations for data-processing organizations, Community service

1991
2nd Stage centers (3,700 Offices) began computerization of RR
(Database Build Up and
Scope Expansion) Completion of digitalization of RR Cards (70 million ct.) and online issuance over a
1994
(‘87-’00) large area
RR Card blood type rule (by individual choice), 3rd renewal of RR Cards (introduction
1999
of plastic cards)
2001 Development of RR Online Services (G4C)
Introduction of RR item authenticity inspection system, Electronic issue of certified

2004
3rd Stage copy/abstract of RR (G4C)
(Online Services)
2007 Administrative Information Sharing System
(‘01- Present)
2010 Start of Minwon 24 System
2014 Issuance of RR Cards to overseas citizens
During the second stage of DB implementation and service expansion from 1987 to 2000, the
RR database was built in 1994 as a part of the National Basic Information System (NBIS) that
commenced operation in 1987. Once the RR DB was implemented replacing manual work process
and paper documentation in favour of automated computer-based process, citizens had access to
digitized document services available in any local government offices nationwide.
From the third stage(2001~present) of Internet-based service delivery, it became possible to

process residency relocation in metropolitan unit of local government through online means
and issue various certificates from the Internet or kiosks after the implementation of the the
Government for Citizen (G4C) (2001-2003) initiative, one of the e-Government projects implemented
by the Korean government. Also, FRR functions offered by the Supreme Court were digitized and
online issuance services became possible. At present, the RR provides core information for common
use and reference among administrative agencies through the administrative information sharing
system.
2.3.2. Resident Registration Record Card

The first component of the RR is the RR Record Card. The information contained in the resident
registration database consists of the Individual RR Card which comprehensively manages individual
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records and the Household RR Card which consolidates and managesrecords of each household. The
RR Card is the basic information of an individual and a household that can be issued in the form of
RR abstract or copy. The Individual RR Card has 11 items including individual’s name, date of birth,
sex, RIN, etc. while the Household RR Card has 8 items such as household head’s name, names of
household members/cohabitors, RINs, etc. (Table II-8).
Table II-8 | Entries of Resident Registration Record Cards
Categories
Information Included
(number of information items)
RIN, name, date of birth, sex, blood type, standard location for registration, reason
Individual
to change standard location, address relocation items (e.g., move-in date, move-
RR Record Card
out dates, reason for move, head of household’s name and relationship), issuance
(11 items)
of RR Certificate (issuance, reissuance, photo), mid-transit institutions, etc.
Head of household’s name, household number, address usage data (address,

Household move-in date, move-out date), relationship with household head (household
RR Record Card members’ names, RINs, standard location for registration, reason for change),
(8 items) cohabiter (name, relationship with household head, RINs, standard location for
registration, move-in/out date), mid-transit institutions, etc.
When parents report the birth of an infant, an RIN is issued to the infant and saved as a household
member in the parents’ Household RR Card within the RR information system. Since the RR manages
resident information according to their location of residency, when there is a change in the location
of the residency for some or all of the members of the household, the head of the household or
the person concerned needs to report the change in residency to the appropriate local offices at
the newly relocated area or region within 14 days. However, it is difficult to monitor the accuracy
or timeliness of such reportings. (refer to Table II-2 above). Specifically, there have been social
issues with voter registration of young students eligible for voting who study away from registered
residency left with their parents since voter’s registration is compiled according to resid(ency, making
it impossible for these young students to vote.
2.3.3. Resident Identification Number

The RIN, the second component of the RR, is a ‘personally unique registration number’ that the
government issues to uniquely identify each citizen (RR Act Article 7). Other unique distinguishing
numbers such as passport number and driver’s license number are not capable of providing the
multi-purpose functions of the RIN. The RIN unique in that there is no overlap of RIN numbers, it has
lifelong validity and it can exclusively identify an individual (Song et al., 2007b).
As result, firstly, once issued, the RIN functions as the one and only unique key to distinguish an
individual from another for life (distinguish). Secondly, the RIN can be used to validate the identity
of the person as he or she appears in documentation for use in various official documentations and
entry into government offices (verification). Thirdly, the RIN contains information that describes
certain personal characteristics such as date of birth, sex, and region of birth or registration
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(descriptive). Fourthly, the RIN is the medium through which personal information collected by all
administrative information system can be shared with no exceptions.
Introduced in 1968, the RIN initially started as a12 digit number consisting of regional number (6
digits), sex (1 digit), and personal serial number (5 digits). This was modified in 1975 into a reformed
13 digit number consisting of birthdate (6 digits), sex by the century of birth (1 digit), regional code
for the place of original registration (4 digits), reported order (1 digit) and Error Verification Number
(1 digit), which is still in use today.
The RIN is processed by the data processing organization once the head of local government office
verifies the standard location for registration and has been recorded into the RIN issuance ledger
book. Modification of the RIN is regulated by the RR Act Enforcement Decree (Presidential Decree),
but has a life-long validity that can be changed only in exceptional cases4).
Figure II-3 | Structure of the Resident Identification Number
The RIN System is a universal personal identifier that manages aggregated data of an individual
citizen through digital coding5). Because the RIN consists of information attributable to each
individual such as date of birth, sex, location of birth registration, it can identify and distinguish an
individual offline and online, as well as in the public and private sectors. It is used for various public
service delivery, especially together with the administrative information sharing system to provide
online delivery of services for elections, military service, civil administrative services, national tax,
education, health insurance, welfare and more as well as to track suspects or criminals wanted
forterrorism, tax evasion and other crimes6). Public institutions surveyed indicated that they collected
RINs out of legal necessity (62.8%), and for identity verification (31.4%), while private sector
businesses collected RINs for identity verification (57.5%), legal necessity (41.1%), and to conclude
and carry out legal contracts (36.8%), as can be seen from Figure II-4.It is quite obvious that there is
a definite tendency of over collecting and abusing the RIN for the convenience it offers rather than
out of absolute necessity. As result, social cost has been rising steadily from financial frauds and
4) On December 23, 2015, the Constitutional Court declared Article 7 of the RR Act to be unconstitutionally thereby
forcing the National Assembly to amend this regulation before December 31, 2017. In the lawsuit filed by a citizen
claiming damage caused by the leak of RIN by a portal website, the Constitutional Court declared that “social
confusion can be avoided if a link system with the previous RIN is built when the RIN is changed, and the change of RIN
is carried out based on deliberation by a trustworthy and objective organization.”
5) Because of such convenience, the Japanese government will also implement a similar system that issues a unique
identifying number called the “My Number” to identify individuals to use in various policies such as tax, social security,
and disaster management, etc., from 2016. However, instead of personal identification numbers such as date of birth
of sex in the Korean system, Japan’s My Number system issues arbitrary number that can be changed.
6) As of 2013, 77 legal acts out of 1,510 (5.1%), 404 enforcement decrees out of 1,115 (36.2%), 385 enforcement
regulations out of 827, and 3,557 legal forms out of 10,179 have collected the RIN for identity verification, personal
identification, age verification, etc. (Shin Yeongjin, 2015).
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crimes that were caused by the leak or abuse of the multi-purpose and versatile RIN together with
theft of the RIN information printed on RR Cards that are lost or stolen7).
Figure II-4 | Purpose of Resident Identification Number data collection
Sources: Ministry of the Interior; Personal Information Protection Commission; National Information Society Agency, 2015
As such, the government introduced the legal justification for processing sensitive and unique
identification information and the regulatory legalism which prohibits the acquisition of the RIN
(Table II-9). The RIN can only be used by administrative agencies with legal authority and for strictly
limited purposes, while collection and use of the RIN is strictly prohibited. The Act on Promotion
of Information and Communications Network Utilization and Data Protection clearly prohibits
all online acquisitions of the RIN, except for cases stated otherwise by other legislations and also
stipulates the destruction of all RIN information previously collected by the end of 2015.
Table II-9 | Regulatory Structure of RIN Processing
Applicable Act Applicable To Basic Principle Exceptions
1. When allowed by law

Personal Information Principle of prohibition 2. Urgent necessity for life, or for physical
Private Information
Protection Act from collecting RIN health.
Processor
(2014) (Legalism) 3. Inevitable processing (Ministry of the Interior
Decree)
Act on Information Information and Principle of prohibition 1. Personal Verification Institutes

& Communications Communications from collecting RIN 2. When allowed by law
Network(2012) Service Provider (Legalism) 3. Inevitable for commerce (KCC Announcement)
Source: Sim, W.M., 2015
The RIN handling procedure corresponding to the appropriate legal principles for RIN acquisition
is as following (Figure II-5). First, in the case of pre-existing legal grounds for RIN processing in
7) In the United States, the instructions “do not carry this card with you” and “keep it in a safe place” applies to U.S.
Social Security Cards, but the RR Act effectively requires citizens to carry their RR Cards by allowing administrative
agencies or the police to demand for the RR Card to check the identity of anyone over 17 years of age.
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any statutes (i.e., acts, enforcement decrees, enforcement regulations) or legal forms that require
the attachment, submission or examination of records that have entries of the RIN, the current
status quo is to be maintained8). Second, if no legal basis in statutes exists but RIN processing
is fundamentally required to carry out the a given task, the legal statute necessary will be
implemented by the government agency responsible for the said task. Third, if there exists no legal
basis and the RIN is not absolutely required for a given task, the RINs already collected are to be
destroyed and substituted with alternatives such as mobile phone number, date of birth, I-PIN, etc.
Figure II-5 | Resident Identification Number processing procedure by the public sector
Source: Privacy Security Portal (n.d.), Retrieved January 14, 2016, from http://www.privacy.go.kr
Alternatate identification methods, such as the I-Pin, mobile phone number, Public Key Certificate,
date of birth, etc., differ in the number of subscribers, verification methods, personal identification
agencies, target population, and public preference (Table II-10)9). In general, using alternate personal
identification methods can contribute to the prevention of incidents of privacy intrusion caused by
circulation of the RIN.
Table II-10 | Comparison of alternate methods of Personal Identification
Category I-Pin Mobile Phone Number Public Key Certificate
Number of Subscribers Around 15 million Around 54 million Around 6 million
Date of birth, name, cell

Verification Method IP + password Password input
phone information
8) As of 2015, the registered number of legislations providing a legal basis for the collection of the RIN comes to 1,114 at
the portal website of the Personal Information Protection Commission.
9) A public opinion poll carried out for RIN alternatives show that the following methods were preferred in order of
highest preference: I-PIN (65.8%), date of birth (32..2%), mobile verification (29.0%), public key certificate (11.2%),
other personal information (7.2%)( Yeonhap News, 2015, March 9)
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Category I-Pin Mobile Phone Number Public Key Certificate
Personal Identification Telecommunications Public certification

Credit rating agencies
Institution companies organizations
Owners of cell phone under (All-purpose) Public Key

Target Population I-Pin ID subscribers
their own names Certificate Issue
Source: Korea Mobile Certification, Personal Identification Method. (n.d.) Retrieved January 14, 2016, form http://www.
kmcert.com
Since the adoption of the RIN legalism, the number of statutes for legal basis have increased from
866 in 2013 to 1,114 in 2014 and to 1,272 (111 acts, 565 enforcement decrees, 596 enforcement
regulations) by August 2015 (Shim, 2015). Of these statutes, many were within the jurisdiction of
the Ministry of Health and Welfare (125), the Ministry of Justice (102), and the Ministry of Land,
Infrastructure and Transport (98), serving to show that the RIN is directly linked to public services
involving welfare, crime and security, the exercise of property rights, etc.
There are also assertions that fundamental measures to develop an alternative to the RIN are
needed. Such assertations include suggestions to replace the numbers of the RIN with randomly
generated numbers that do not contain personally distinguishable information, only expose the
issuance number instead of the RIN on the RR Certificates, orinstall an IC chip into newly issued
electronic RR Certificate Cards as replacement. However, it would be very difficult to form any social
consensus based on these suggestions.
2.3.4. Resident Registration Certificate Card

The RR Certificate Card is a certificate issued by the mayor, county commissioner or chief of
Gu district to residents in their jurisdiction above the age of 17 which contains official universal
informationto facilitate administrative tasks and improve benefits and convenience of citizens.
Urban rural resident certificates had been in use since the enactment of the RR Act in 1962, but since
1970, the issuance and possession of the RR Certificate with RIN imprinted became mandatory for all
citizen over 18 years of ageThe use of RR Certificate began as the means to maintain public safety
by identifying possible spies or criminals but evolved to improve the benefit and convenience to the
citizens by providing the means for identity verification for civil services delivered by administrative
agencies and for use in various private commercial transactions since the 1990s. The RR Certificate
is now used mainly as the method of personal identification for the delivery of public serivces such
as voting, passport issuance, driver’s license exam, pension payments, etc., as well as for identity
verification in the private sector for commercial activities such as financial, real estate transactions
and acquisition of certification.
In the effort to protection personal information, sensitive personal information included in the
initial RR Certificates such as the location of family register (the address of the head of household
from the FRR Act), the date of birth, the Military Service Number, occupation, thumbprints, etc. have
been either removed or limited since 1999. Today, the front side of the RR Certificate contains the
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name, photo, RIN, address, and the back side contains space for changes in address and fingerprint
(right thumb) (Table II-11).
Table II-11 | Application Form for RR Certificate Issuance and Informatin on the RR Certificate
Category Information Contained
- Name, RIN, name of household head, address, standard location for registration
Personal Data - Blood type, photo, fingerprints, special technology
- Phone number, cell phone number
Application
Form for - Category of RR Certificate Issuance: resident, citizens residing overseas
Issuance of - RR Certificate issuance application verification form: distributed; not distributed
Resident Application
- RR Certificate receipt method: in-person visit, registered mail
Registration Contents
- RR Certificate receipt guidance: requested, not requested
Certificate - Address for registered mail receipt
Personal
- Civil servant in charge, head of village, family members
Identification
Front Side - Name, photo, RIN, current address, date issued, head of the agency of issuance
Resident
Registration
- Address change history, fingerprint, guide for processing lost cards (e.g., put in mail-
Certificate Back Side
box if found)
Data in the RR Certificate includes bio-information listed on the card such as photo, fingerprint
and blood type. When the application from for the issuance of the RR Certificate is submitted at
the age of 17, the applicant’s data including photo, all fingerprints, blood type, etc. are collected.
The photo is a necessity for identification but the submission of blood type is an option of personal
choice. However, since the collection of all fingerprints are mainly transferred to the National
Police Agency for criminal investigation, some human rights groups oppose to the collection of
such information. In response, the Constitutional Court ruled that ‘while fingerprint information
is bio-information, it is neutral information not closely to personal characteristics because it
cannot be used to determine and judge the personality, physical attributes or socio-economical
status of an individual’ and therefore does not infringe a person’s right of self-determination of
personal information (2005; 2015). Furthermore, governments of many countries are increasingly
implementing regulations to collect, record and store iris patterns or fingerprints as an act of
protection against terrorism.
The Korean government constantly strives to improve the quality of RR Certificate in many ways.
First, authenticity verification service through the Internet is being provided by government agencies
and banks from 2007 to prevent forgery of the RR Certificate and to verify the authenticity of RR
information.
Second, the government is continuously improving the quality of the RR Certificate against
possible forgery of the RR Certificate, leaks of the RIN printed on the RR Certificate, environmental
pollution from the plastic material, among other detriments to the system. Since its first issuance in
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1968, the RR Certificate has been renewed approximately every decade or so, in 1975, in 1983, and
finally in 1999. In 1999, the material of the RR Certificate changed from paper to plastic. However,
there is a need to replace the current RR Certificate because even plastic will wear out and fade over
time and difficulties can arise in identification of the Certificate holder when there is significant
changes in appearance from the photo on the Certificate. There are three possibilities for renewal
(Table II-12).
Electronic RR Certificate has an imbedded IC chip containing sensitive personal information which
can only be deciphered with special equipment to prevent forgery. To adopt such system, revision
of law is required. Advantages of Electronic RR Certificate include difficulty of forgery, protection
of sensitive information and expansion of administrative services. On the other hand, not only
large budget is needed but also numerous oppositions are expected from civil groups due to the
possibility of strengthened control on citizen supervision and information leakage, which ultimately
leads to different electronic ID card related policies of major countries.10)
Table II-12 | Considerations in the Case of Adopting Electronic Resident Registration Certificate
Legal condition Technical function Advantages Disadvantages
- Opposition from social

- Security technology - Impossible to forge
groups (strengthened
utilized for the Electronic - Protection of sensitive
- Legislation surveillance/restrictions
Passport (RIN and information
amendment and fear of information
fingerprint recorded on to - Possible expansion of
leaks)
IC chip) services
- Large-scale budget cost
2.3.5. Implications of Resident Registration System

The RR System served as the foundation for achieving goals of diverse policies in the last half
century in Korea. The RR System which is made up of the RR Record Card, the RIN, the RR Certificate,
and the RR Information System, is being used for general administration as well as identity
confirmation in commercial transactions of the private sector market.
And over the years, many contentious issues surrounding the RR System such as leak of the RIN,
the alternate use of personal identification methods, the mandatory possession of the Certificate
at all times, the inclusion of bio-information and more, have been raised. As result, many have
pointed out the problems of invasion of personal privacy or the abuse of personal information, but
not to the point of complete abolition of the system or even its comprehensive reform. Such radical
plans need to be followed up with hugh social cost. As such, improvement plans have taken various
10) Among the OECD members, 11 countries including Germany (2010) now issue electronic identification and six
countries, including France, are pushing for a plan to introduce electronic identification. The other 17 countries,
including Iceland, do not yet have any plans for the introduction of electronic identification. Some countries that have
adopted the electronic identification have issued the electronic form of IDs to all its citizens while others have not
made it a mandatory move. In the USA, UK, and Australia, for example, a Drivers’ License is a legal and acceptable
substitute for a national identification certificate. Refer to MOI (2013).
172
factors such as the side effects and the current conditions into account and consideration. Also,
increased situational awareness of personal information and advances in technology will allow the
resolution of new issues that may arise in the future.
2.4. Vital Statistics

2.4.1. Significance
The purpose of VS is to assess and identify the fundamental changes in structure and size of
national demography such as birth, death, marriage, divorce, etc., in order to provide the base
data used in developing public policies on population, residency, health, social welfare, education,
transportation, etc. as well as for use by private businesses in building their business plans.
Instruments for gathering VS include Population Change Survey (PCS) (conducted monthly) which
is based on a citizen’s obligatory duty to report individual changes, and Population and Housing
Census (PHC) (conducted once every five year).
The PCS was designated as a national statistics in 1962, in the same year when the first Five-Year
Economic Development Plan was launched, in accordance with the Statistics Act and VS Investigation
Regulation as the Decree of the Ministry of Strategy and Finance. In 1970, the PCS format was
integrated with the FRR format while the VS database as well as the RR database were developed
as part of the first National Basic Information System (NBIS) from 1987-1991. In 1997, the electronic
input system was completed, and the Internet-based VS entry system began its operations in 2004.
2.4.2. Population Change Survey

The PCS is an investigative statistics survey of reports of birth, death, marriage, and divorce based
on individual FRR and covers all citizens living within and outside the country. It is different from the
RR in that it covers citizens living abroad as well. However, since the result of the survey is published
monthly, after reviewing changes and trends from the first day of the month to the last, the PCS is
not a real-time information (Table II-13).
According to the Statistics Act, every citizen, domestic or abroad, must fill out the items of the PCS
in the lower part of the birth and death forms when reporting such occurrences. The PCS items to
fill out for the birth report include gestation week, weight of infant, multiple birth, order of birth,
parents’ nationality and so on (Table II-5 above). The PCS items for the death report include the
cause and type of death (death caused by external factors must have details of the accident type
and time of death), region and location of the accident, nationality, and highest level of education.
Marriage report must include the actual beginning date of married life, nationalities of the
married couple and the type of marriage while divorce report must include the details of the actual
beginning date of married life, actual date of divorce, number of children under 19, type of divorce
and the reason for divorce.
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Table II-13 | Basic structure of Population Change Survey
Classification Main Contents
- The Statistics Act: Designated Statistics (Article 17, Paragraph 1), Approval Number (Number
Legal Basis 10103, Article 18, Paragraph 3; Article 25; Article 26)
- VS Investigation Rules (Ministry of Strategy and Finance Decree Number 425)
- Target: every citizen (individuals) living in the Korean territory or in foreign countries
Target of
- Contents: FRR and birth, death, marriage, divorce reports (where foreign residents are included
Investigation
as targets of investigation)
- Relevant Investigation period: investigation from day 1 to last day of the month, and to day 1 of
Period of
the next month to the last day of that month; reports compiled and presented by month
Investigation
- Investigation cycle: Monthly
Source: Statistics Korea, Task Guide on Population Change Survey, 2015
According to the work process of the PCS, when a person files a report at the community service
center or the city/county hall, the data is gathered first at the city/county/district level and gathered
for a second time at the metropolitan city/province level, and then finally sent to Statistics Korea.
The PCS is not a real-time survey but rather, it is a monthly batch statistics that starts at the first day
of the month and ends on the last day of the month, and starts again at the first day of the next
month and ends on the last day of the next month. There are four stages of activities in the PCS
work process including data entry, linking, categorization, and publication. The handling process of
the statistics for the cause of death is presented in (Table II-14) below.
Table II-14 | Process of statistics for the cause of death
Linkage between Data Public

Handling Process Data Entry Data Classification
data Announcement
Community Service
Wide Area
Centers
Work Process Autonomous Local Statictics Korea
City/County/District
Governments
Offices
1. Related
1. Death Certificate administrative data
1. Verification of
(Doctor) collection
cause of death 1. Classification table
2. Death Report 2. Linkage between
2. Conclusion of creation
(Family) death report
Major Activity major cause of death. 2. Analysis
3. Data Verification information and
Code classification 3. Public announce-
1: missing item; administrative data
from WHO criteria ment
suspicious input of 3. Data Verification 2:
(ICD-10)
data, etc. consistency between
records
Source: Lee, J. Y., 2015
174
Survey results are made public largely in three ways: public announcement (monthly and yearly),
report publication, and data disclosure (Table II-15). VS is mashed up with other important data as
reference for national policy decision-making and private business purpose in finance, insurance,
and other areas (Table II-16).
Table II-15 | Vital Statistics data handling process
Handling Process Data Classification Data Public Announcement
Birth and Death (cause of death) Annual (August)
Marriage and Divorce Annual (April)

Public
Announcement of Multicultural Vital Statistics (birth, death, etc.) Annual (November)
Results
Life table Annual (December)
Demographic trends (monthly birth, death, etc.) Monthly (2 months after investigation)
Marriage/Divorce (May), Summary/Birth/

Annual report of Vital statistics
Death (October)
Report Publication Nationwide Unit (October), City/province

Annual report of death cause statistics
Units (November)
Life table December
Press Release: Statistics Korea website Real-time Online (http://kostat.go.kr)
Statistics table, report (Online periodicals): National

Real-time Online (http:kosis.kr)
Open Data Statistics Site
Detailed Statistics Data other than the public

Real-time Online (http://mdss.kostat.go.kr)
announcement contents: Micro Data
Source: Statistics Korea, 2015
Table II-16 | Investigation of Demographic Trends
Classification Produced statistics Main Field of use
- Basic data of future population projection

- Forecast of number of bed hospitals and doctor demand of regional
Number of births, obstetrics by proportion of number of births
crude birth rate, fertility - Demand forecast of baby products; presumed costs of childcare; yearly
Birth rate, sex ratio of birth, investment expense of educational facilities
number of multiple - Forecast of future labor supply quantity; policy of supply and demand of
births, etc. military service resources
- Selected data for birth control or birth promotion policy
- Provision to international organizations: UN, WHO, OECD, etc.
175
Classification Produced statistics Main Field of use
- Basic data of estimation of future population

- Basic data of policy establishment of health and diseases
Death scale, death rate,
- Establishment of prevention program of suicide, car crash, and etc.
Death cause of death, life
- Basic data of resource distribution of healthcare
expectancy, etc.
- Basic data of life table
- Provision to international organizations: UN, WHO, OECD, etc.
Number of marriages,
- Basic data of assumption of fertility for presumption of future population
marriage rate, average
- Forecast of housing demand by marriage
Marriage marriage age, types
- Forecast of calculation of wedding expenses and demand of wedding
of marriages, foreign
supply
marriage, etc.
Number of divorces,
- Basic data of prevention of youth problems arising from parents’ divorce
divorce rate (by age),
Divorce - Basic data for measure for prevention of family problems and for mainte-
average divorce age,
nance of healthy family
types of divorces, etc.
Source: Statistics Korea, 2015
2.4.3. Population and Housing Census

The PHC is carried out for all citizens and foreigners living within the national territory and their
residency at the time of the survey every five years (Table II-17). While Statistics Korea supervises the
PHC, the general survey of the PHC is carried out by the local government of either the city/province
or the city/county/district and other special survey is carried out by five central government agencies
such as the overseas foreign missions (Ministry of Foreign Affairs), the prisons (Ministry of Justice),
and the army corps (Ministry of National Defense).
Table II-17 | Population and Housing Census: Demographic Trends for Investigation
Standard date
No. Feature of Investigation
of investigation
- 10% sample survey in parallel (economic activities, population movement, fertility, aged
citizen, housing, welfare)
17 2005.11
- Introduction of internet investigation method for the first time; importation of web-
based data input method on local PC
- 10% sample survey in parallel (economic activities, population movement, fertility, aged
citizen, housing, welfare)
18 2010.11
- Expending internet investigation method; importation of ICR (intelligent character
recognition) data input method
- Conversion of complete enumeration survey into registration census method

19 2015.11 - Expansion of sample survey(10% 20%); application of internet investigation method;
ICR data input method
Source: Internal Data of Statistics Korea, 2015
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In 2015, for typical characteristics such as population, number of households and total size of
housing, PHC changed the traditional household visit survey method to registered census method
that makes use of administrative information (Table II-18)11) (WEF, 2015). Basically, the registered
census creates 12 base statistical items by linking 21 types of administrative information such as RR
Register, Building Register, etc., from 11 government agencies such as the MOI, Ministry of Land,
Infrastructure and Transport, Ministry of Education, Ministry of Justice, Supreme Court, Ministry of
Health and Welfare, Korea Electric Power Corporation, and others, thereby reducing the mandatory
survey population of the census from 100% to 20%. The use of the survey result is to be expanded
to include cooperative projects between government agencies resulting in large savings in the
government budget.
Table II-18 | Main festures of the 19th Population Census
2010 Census 2015 Survey

Classification
(not registration census) (based on registration census)
100% participated (i.e., approximately 50 20% participated (i.e., approximately 10

Response from citizens
million) million) (burden of response reduced by 80%)
Share results of statistics survey, and offer

Result utilization Share results of statistics survey access of citizens & government to other
information
Budget 271 billion and 200 million Won 125 billion and 700 million Won
Restricted policy utilization due to insufficient Registration census has sufficient

Data qualification administrative information by data- providing administrative information and could provide
organization feedback to data-providing organization
Source: Statistics Korea, Korea’s Population Census, Retrieved January 14, 2016 Available from http://www.census.go.kr/cui/
cuiKorView.do?q_menu=1&q_sub=3
2.4.4. Implications of Population Change Survey

The PCS possesses a number of implications to consider. First, the statistics collected and created
from registration declarations of birth, death, marriage, divorce, etc., follow the recommendations
of international organizations and relevant legal framework and various data are shared with
international organizations such as the UN, WHO, and OECD.
Second, in order to improve the accuracy of the VS, various activities such as the prevention of
omission of birth/death reports, improvement of time-series analysis, definitions of terms, and
supplementation of incomplete death certificates are being carried out with advisory committees,
Korea’s Center for Disease Control and Prevention, and the National Cancer Center. More specifically,
capacity building training are being strengthened for civil servants responsible for the data entry of
the PCS, doctors in charge of issuing death certificates and civil servants responsible for statistics.
11) The World Economic Forum expects the emergence of countries that identify the demography of their nations
through big data analysis instead of population censuses by 2023, but the registered census of Statistics Korea has
already implemented such method in full-scale.
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Third, sensitive items from information collected for statistics are protected by the Statistical Act
(Article 33). And only the civil servants responsible for the PCS are allowed to make use of such
administrative information with such authority revoked when reassigned to other duties. In specific,
personal information such as the RIN is specially managed in encrypted form and their download
and printing are prohibited while viewing history is strictly managed as measures for protection.
However, accuracy of some information of the PCS has not reached a perfect level yet. For
example, over 99% of VS related to births and dates are registered, but reports of fetal and infant
death are somewhat incomplete (Lee, 2015) and needs more comprehensive management even for
this type of data.
2.5. National Health Insurance

2.5.1. Significance
National Health Insurance (NHI) is a social security system where the insurer (i.e., National Health
Insurance) manages and operates the insurance premium and provides insurance benefits when
needed in order to spread out the health risk, provide the needed health services and reduce the
burden of high cost medical treatment on households. In Korea, once certain legal requirements
of the the Constitution, Framework Act on Social Security, and the National Health Insurance Act
are fulfilled, the subscription to the NHI is mandatory thereby obligating the payment of insurance
premium. The insurance premium is charged according to each subscriber’s ability to pay for social
solidarity and insurance services are provided to subscribers impartially according to the relevant
regulations.
2.5.2. Health Insurance System and CRVS

In order to manage health of an infant from pregnancy, the Health Insurance Services provides
insurance for not only the major pre-birth medical examinations such as infertility tests but also for
incubators as well. In addition, medical treatment cost is waived for in-patient treatment for up to
28 days after the infant’s birth.
When an infant is born, the employed subscriber (e.g., employees, civil servants, school staff)
must fill out a dependent qualification eligibility request, complete with details such as employer
information (business registration number, name of company, phone number), subscriber information
(name, RIN, phone number), dependent information (relationship, name, RIN, date of qualification,
qualification code, disability/veteran status, foreigner) and other relevant information to the head
of the National Health Insurance Service (NHIS) within 14 days of birth. When the self-employed or
regional subscriber (i.e., subscribers other than employed subscriber and his or her dependents) visits
a community service center and completes the birth report (RR Report) within 14 days of birth, the
NHIS receives this information on a daily basis and grants eligibility for the NHI to the declared (Figure
II-6).
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Figure II-6 | Filing Eligibility Request for health insurance services
When a death occurs and declaration of death is completed (via an RR Report) at the nearest
community center, the NHIS receives notification of such occurrence and withdraws eligibility for the
NHI for the deceased. Since the death certificate has to be attached to the death report, stored data
of the NHIS includes information on thedeath and cause of death as well.
2.5.3. Governance and Work Process

Korea’s health insurance began as medical insurance based on the Medical Insurance Act enacted in
1963 optional for employers of 300 or more employees but has been gradually expanded to employers
of 5 or more employees and made mandatory. The NHI expanded its coverage to include civil servants
and school staff in 1979 and then to all Koreans in 1989. The medical insurance above adopted an
independent self-supporting finance system for each employer, region and insurance union.
With the enactment and enforcement of the National Health Insurance Act in 2000, the NHIS
was launched as a single insurer that integrated all the regional medical insurance unions (227),
employer medical insurance unions (139), and the civil servant and school staff medical insurer.
However, subscribers are still divided into employed and regional subscribers. From 2011, the NHIS
collects insurance premium for the other social insurance programs under the Four Social Insurance
programs such as pension, employment insurance, and workers’ compensation.
179
Figure II-7 | National Health Insurance work process
Source: Park, J.H., 2015, Integration of CRVS and National ID to Health Information Management System, Presentation
at 2015 Global Knowledge Forum on Strengthening Civil Registration and Vital Statistics (CRVS) and National Identity
Management Systems, The World Bank/Korea Eximbank Joint Consulting
As shown in the diagram above, the health insurance work process is a three-way relationship
between the citizen who receives the health service, the NHIS who is the insurer, and hospitals or
pharmacies who are the medical service providers. First, as the single insurer, the NHIS manages the
eligibility of subscribers and their dependents and collects all insurance premium while managing
payment of insurance to medical service providers. Insurance payment are paid out after cost review
for recuperation and assessment of appropriateness by the Health Insurance Review & Assessment
Service. Second, all of the 50 million citizens in Korea pay insurance premium to the NHIS as
recipients of insurance, and when they require medical services for sickness or accidents, need to pay
their portion of the insurance payment as co-insurance to the medical service provider.
Third, the medical facility and pharmacy need to request for payment of insurance to the NHIS
after providing medical services to insured. The medical service providers, i.e., hospitals, dentists,
clinics or pharmacies, are connected to the National Health Insurance system and receive main
portion of the insurance payment using this system from the NHIS while receiving the remainder
portion of the payment as co-insurance from the insured on the spot (Table II-19).
Table II-19 | Medical Institutions linked to the Health Insurance Information System
Public Oriental
Dental Midwifery
Category Hospital health medicine Pharmacy Total
hospital clinic
center hospital
Number 32,625 16,741 3,484 13,873 35 21,365 88,123
Source: Statistics Korea, 2015b, Status of medical services institutions
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The current information system of the National Health Insurance is made up of a total of 80
unit system under five classifications of health insurance, consolidated social insurance premium
collection, long-term care for the elderly, customer counselling support, and management support
(Table II-20).
Table II-20 | Components and unit system of the Health Insurance Information System
Component Unit System
Management of eligibility; management of medical care benefit; management of

Health insurance local insurance premium; imposition of workplace or business pay, payment after care;
system of health examination
Consolidated collection of Integrated notification of social insurance; default of taxes; information connection
social insurance system
Long-term care insurance for Use & recognition of long-term care, request for examination; payment of long-term
the aged care expenses; medical benefits; qualification check system for insured
Customer service support Homepage system
Management support Data warehouse system
In order to provide services such as eligibility management and contributions, medical/health

monitoring service and long-term care service to the whole nation, the information system of the
NHI consists of 5 DBs with information on health monitoring, medical facilities, birth·death, service
contributions, patient registration and long-term care (Figure II-8).
The NHIS is one of the public institutions that makes the heaviest use of administrative information
sharing to receive information needed to manage the nation’s health insurance including eligibility
management for subscribers and premium collection. Specifically, in order to receive information
necessary to determine the eligibility of a candidate subscriber, CRVS information including birth/
death (MOI), Family Relationship Registration (MOI and the Supreme Court), address (MOI) and
immigration (Ministry of Justice) as well as other relevant information such as business registration
and employment (National Tax Service), medical payment registration (Ministry of Health and
Welfare), disability registration (Ministry of Health and Welfare) are used in conjunction with other
relevant government agencies. In addition, information on personal income (National Tax Service),
property tax (National Tax Service), pension income (pension institutions), and business registration
(National Tax Service) are shared for insurance premium collection.
181
Figure II-8 | Structure of the National Health Insurance System databases
Source: Park, J.H., 2015, Integration of CRVS and National ID to Health Information Management System, Presentation
at 2015 Global Knowledge Forum on Strengthening Civil Registration and Vital Statistics (CRVS) and National Identity
Management Systems, The World Bank/Korea Eximbank Joint Consulting
2.5.4. Implications of the National Health Insurance System

There are many advantages to a health insurance system that makes it mandatory to register all
citizens. First, together with the RIN that is given to a citizen at birth, the citizen or the insured can
receive medical and pharmaceutical services anywhere in the country. Second, the single insurer
system allows systemic simplicity and operational efficiency in the management of the entire
population’s medical insurance needs. Third, by using the administrative information sharing system,
accurate data and information on eligibility of NHI subscribers and benefits received as well as
service record of the medical facility can all be used in real-time for assessment and review.
Specifically, contribution to evidence-based decision-making can be made for heath policies by

promoting research on diseases and accidents based on big data analysis using long accumulated
data.
3. CRVS Information System

While city offices and community centers are responsible for the daily operation and handling of
the FRR, the RR, and VS, their information system are managed independently by three authorities,
namely the Supreme Court, the MOI and Si/Gun/Gu (district level), and Statistics Korea.
The basic structure of the CRVS information system is presented in (Figure II-9). The upper part
represents portal websites that provide administrative services to citizens such as the electronic
FRR, Minwon 24, and National Statistics. The middle part is the Public Information Sharing Center
that links information system of each agency together for data sharing, while the bottom part lists
182
information systems such as the RR database. Physically, the FRR database is managed independently
at the Supreme Court’s Judicial Archives Center, but administrative information system are mostly co-
located in the two government integrated data centers of the National Computing and Information
Service (NCIS). However, the information system of the NHI is not located within the government
integrated data centers but rather within the NHIS.
Figure II-9 | Basic structure of CRVS information system
3.2. Main Information Systems

3.2.1. Family Relationship Registration Information System
The FRR information system of the Supreme Court was developed in three stages. The first stage
was completed by the Supreme Court Judicial Archives Center when it built the web-based FRR
information system (http://efamily.scourt.go.kr) in 2007. In the second stage, this system was linked
up with the nationality system of the Ministry of Justice in 2008, and with the MOI’s RR system in
2011 and such connectivity enabled the viewing, issuing, reporting and requests for various FRR
services such as verification of birth, death, marriage, adoption and more through both the FRR
information system of the Supreme Court and the Minwon24 portal website of the MOI from 2013.
At the third stage, Internet-based declaration services will enable citizens to report various events
such as birth, marriage, or death and improve the convenience of the people.
3.2.2. Resident Registration Information System

The RR information system began development in 1987 and went into operation in 1991 in
3,700 community service centers nationwide, thereby digitizing the paper registers that stored the
resident registration information (19 million household data, 51 million individual data). In 1990, to
ensure accurate data input, data for entry was finalized after comparing citizen verified data which
was distributed to all the citizens for a 3 month-review, with previous handwritten RR Record Card
data stored in paper registers.
183
As result, RR tasks, issuance of abstracts and copies, and statistics reporting began to be processed
electronically thus allowing the issuing and editing of RR information in different regions regardless
of residency through wide-area network. Resident DBs provide the resident information needed
for DB operation of many businesses including real estate, automobile, and employment through
online means.
The RR information system consists of two layers: central and city/county/district (Figure II-10).
First, the central information system is connected to the metropolitan city/province or city/county/
district civil servant tasks such as provision of RR data, Civil Registration Vital Statistics, confirmation
of RR Certificate issuance, authenticity verification of copies and abstracts, and other similar tasks.
In turn, the city/county/district information system is connected to the city/county/district or eup/
myeon/dong civil servant tasks such as move-in reports, viewing and distribution, RR Certificate, and
birth reports.
Second, the both systems are linked with 31 central government agencies (70 tasks) such as
the Ministry of Foreign Affairs, National Tax Service, and Statistics Korea as part of administrative
information sharing. Third, the central and city/county/district information system are tasked with
handling birth reports, move-in reports, RR Record Card viewing and distribution, RR Certificate
issuance and renewal online through civil petitioners, Minwon 24 portal, and kiosks.
Figure II-10 | Structure of Resident Registration Information System
Source: Ministry of the Interior, 2015
3.2.3. Minwon 24 Portal

Upgraded from the Government for Citizens project (G4C, 2002), the Minwon 24 Portal system
(http://www.minwon.go.kr) is a comprehensive electronic civil service window that processes various
civil petitions 24/7 non-stop through Internet-based RR DB. Citizens can apply for and receive civil
documentation online anytime, anywhere through the Internet-based Minwon 24 system without
visiting the appropriate agencies (Civil petition processing without visiting, Article 9 of the Electronic
Government Act). Currently, Internet guidelines for civil petitions as set out by individual laws, civil
184
petitioning through the Internet such as relocation report for the RR, and land registers can all be
issued through the Internet or mobile app immediately or sent via the post mail. Because of such
high level of user convenience, cases handled by the Minwon 24 portal increased from 83 million in
2009 to 113.2 million in 2014, with petitioning making up the highest number of cases (Table II-21).
Table II-21 | Yearly usage of Minwon 24 Portal services (unit: thousands)
Classification 2009 2010 2011 2012 2013 2014
Application 63,132 62,347 68,262 68,736 64,407 63,435
Issuance 16,245 21,106 28,245 39,442 50,093 57,488
Viewing 3,944 5,263 5,950 7,207 10,572 10,959
Total 83,321 88,716 102,457 115,385 125,072 131,882
The most used civil services of the Minwon 24 is viewed and issued from the standard RR
information database. The RR Record Card has the highest issuance requests at 38.5%. Other
documents issued or inspected include building registers, land registers, land registration map, and
proof of local tax payments (Table II-22).
Table II-22 | Top 5 online requests for public services via Minwon 24 Portal
Number
of cases of Ratio
Rank Type of public service Department
issued (%)
(thousand)
1 Issuing RR card 10,162 38.5 Ministry of The Interior
Request and inspection of Certified copy of Ministry of Land, Infrastructure

2 7,500 28.4
Building register & Transport
Issuance & inspection request of certified copy Ministry of Land, Infrastructure

3 3,512 13.3
of land register & Transport
Issuance and inspection of certified copy of land Ministry of Land, Infrastructure

4 2.072 7.8
registration map & Transport
5 Local tax payment certification 1,796 6.8 Ministry of the Interior
Source: The Ministry of the Interior, 2015
Minwon 24 provides guidance to civil services at the front office through menu made up of civil
service guides and petitions, verification service, useful information, use guide and my page sections;
it allows registration of civil petitions and also issues civil documentation; it provides comprehensive
information for the family on tax, health and other issues; it also has the common base services such
185
as civil petition processing and work management operation window and online payment in the
back office (Table II-23, Figure II-11). Many civil services can be provided because it is connected to
the RR database through the administrative information sharing system.
Table II-23 | Main menu contents of Minwon 24 Portal
Main Menu Sub Menu Services
Civil application Package service guidance of civil application for livelihood; search 5,000 types of civil applications
guidance by institution, sector, index, and theme.
Civil application 1,200 types of issuance and inspection; safe and convenient requests of 3,000 types of civil
request applications
Confirmation of RR and householder; confirmation and inspection of authenticity of submitted

Confirmation service
documents
Customized examination of information useful for everyday life without having to visit
Lifestyle information
corresponding institutions
Minwon 24’s customer service center and site use; samples offered for preparation of applications;
User guidance
glossary of administration jargon
Recent details of application and civil application stored basket; confirmation of inspection of
My page
refund information; search information function of real-time information.
Figure II-11 | System structure of Minwon 24 Portal
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3.2.4. Administrative Information Sharing System

The Administrative Information Sharing System (AISS) confirms and verifies the civil applicant’s
identity and information using information such as data on RR, automobiles, real estate, and tax
mediated through the information-sharing structure of the common usage centers between the
information-holding institution and information-utilizing institution (Figure II-12). Different types of
information sharing include simple transmission (one to one), distribution (one to many), collection
(many to one), collecting and distributing (many to many), and customized distribution format (as
shown in Figure II-13).
Figure II-12 | Structure of Administrative Information Sharing System
Figure II-13 | Basic principles of shared administrative information usage
Source: Hwang, J.S., 2015
Through verification of CRVS information using diverse methods of information sharing, the
verification procedures and accompanying documents needed to receive civil services have been
reduced greatly. Types of information shared increased from 71 types in 2008 to 147 types in 2014,
while work types increased from 2,142 types to 2,494 types. And public organizations allowed access
to the AISS is being expanded to include public institutions, financial institutions and educational
institutions from the original central and local government agencies12) (Table II-24).
12) Change in numbers of central government agencies and local governments is the result of reorganization of
administrative organizations and integration of local governments.
187
With increase in the number of information and work types for sharing as well as organizations
making use of all this information, the number of views of the information shared jumped
from 27 million to 213 million. The most viewed information was the RR Record Cards which is
used for resident identity verification while FRR verification, eligibility of NHI, receipt for NHI
premium payment all were in the top 10 most viewed information, showing the demand for CRVS
information.
Table II-24 | Annual records of joint-use administrative information and institutions
Classification 2008 2009 2010 2011 2012 2013 2014
Target information (type)* 71 82 92 120 135 141 147
Target office (type) 2,142 2,182 2,327 3,657 3,675 2,561 2,494
Total (institutions) 378 390 415 438 456 600 618
Central administration 50 53 53 53 53 49 50
Target Local government 262 262 260 260 261 244 243
institu-
tions Public institution 50 58 79 100 106 118 121
Financial institution 16 16 17 18 18 18 18
Educational institution - 1 6 7 18 171 186
Total (Thousands) 26,849 43,058 45,039 47,094 49,898 58,672 52,418
Certified and copies of RR

6,371 10,062 9,601 10,859 12,710 16,233 13,190
cards
Certification of land
Viewing 7,333 9,573 11,299 11,632 10,638 10,784 10,864
registration
of shared
informa- Land register 2,224 9,661 7,929 8,259 9,101 12,041 8,855
tion
Certification of building
4,006 4,890 5,529 5,672 5,465 5,955 6,285
registration
FRR information 61 1,083 2,106 1,832 1,926 2,138 2,285
Others 6,854 7,790 8,575 8,839 10,058 11,522 10,940
*refers to the top 5 shared information; the rest were consolidated
There should be continued efforts dedicated to expansion of inter-agency information sharing

while maintaining information security, personal information protection, and appropriate restriction
of state authority on information accumulation. These efforts will expedite smooth cooperation
between departments and contribute significantly to providing customizable services that can
benefit citizens through convenience of use.
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3.3. CRVS Operational Governance

3.3.1. Fundamental Structure
The basic governance of CRVS falls under the responsibility of the Supreme Court (FRR), MOI (RR),
and Statistics Korea (VS) (Figure II-14).
As mentioned in earlier sections, tasks for the FRR and the RR are the responsibility of lower-level
administrative institutions, with their databases are physically separated and located at the Court’s
Judicial Archives Center and MOI’s NCIS data centers.
Figure II-14 | Structure of CRVS Governance
The health insurance information system is managed by the NHIS. While lower-level administrative
offices collect VS data and transmitthem to Statistics Korea, the statistics database is located at the
NCIS data center. In general, individual CRVS information system undergo a prescribed procedure
to deliver services through the AISS. Similarly, FRR tasks such as birth and death have its institution
and policies supervised by the National Court Administration, while the Judicial Archives Center
manages its information system. Electronic FRR services are provided through the FRR information
system (http://www.efamily.go.kr) which is operated by the Information System Center in city offices,
community service centers, and consulates abroad (such as in Tokyo, Osaka, and Fukuoka) which
are supervised by 56 heads of Local Family Court. Provision of information through portals like
Minwon 24 and online document issuance is possible using the FRR information system based on
the AISS administered by the MOI. While the MOI oversees the RR tasks in general, and city/county/
district offices and community centers are responsible for carrying out the work of RR; however
administrative roles of metropolitan city and provincial governments are relatively small (refer to
Table II-3 above).
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3.3.2. National Computing Information Service (NCIS)

The NCIS was launched in 2007 in order to resolve problems arising from the increase in IT
equipment such as redundant investment by different government agencies, lack of professional
manpower, poor server room environment and inadequate security by co-locating all the IT resource
operated throughout the different government agencies.
The NCIS now operates 22 IT systems of central government agencies in each of its two data
centers with real-time mutual backup schem. The NCIS is the national core information management
facility that operates the integrated information system, deals with external cyber-attacks, operates
the national backbone information network, integrates government-wide management of
information resources, and makes efficient use of cutting-edge computing technology (Table II-25).
Table II-25 | Key and target functions of National Computing and Information Service
Key Function Target Functions
- To manage operation automation and integrated systems of 44 central institutions.

Integrated operations of
- To reduce average functional disorders per month (reduction from 67 mins before
Information System
construction to less than 4 mins in 2014).
- Real-time blocking of 6 to 10,000 cyberattacks per day on centers.

Response to cyber attack
- Removal of vulnerability, block DDOS and resolve hacking in 10 mins.
Operation of national - Use and management of Central office group, local government, etc. and 776 public
communication system institutions.
Government-wide
- Joint use and blanket purchase of ICT resources by government institutions; resulted in
integrated information
budget reduction of 30~60%.
resources
Utilization of new - Converting into G-cloud Computing Center.

computing technology - Operation and structuring of big data common platform.
Source: National Computing and Information Service, 2015
Although CRVS information system are being constructed and operated separately by the
Supreme Court, the MOI and Statistics Korea, portal service through system like Minwon 24, is
provided by connectivity and shared information through the AISS. However, the Judiciary Archives
Center and the NHIS directly manage the FRR System and the NHI information system.
Information system of most central government agencies are comprehensively managed by

the NCIS. The NCIS operates 44 information system of central government agencies in real-time
and provides mutual backup. The RR Computing and Information Service located within the
NCIS operates the RR management information system that handles birth and death reports and
residency data from city/county/districts and eup/myeon/dong based on a real-time basis. In order to
prepare against cyber threats such as DDoS or hacking attacks and also physical hardware failures,
the RR information system is operated in two locations with mutual back-up configuration at the
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RR Computing and Information Service Center in Daejeon and Backup Center in Gwangju. The NCIS
also oversees the Minwon 24 and the AISS.
As of 2015, the NCIS is currently being transformed into a cloud based computing system with the
goal of tearing down barriers between departments to share information resource and increase
collaboration (Table II-26). Construction of a big-data analysis structure based on Software as a
Service (SaaS), Infrastructure as a Service (IaaS), and Platform as a Service (PaaS) is underway.
Table II-26 | Evolution of the National Computing and Information Service
Classifi cation 2005-2007 2008-2012 2013-current
Integrated location: transfer of Integrated center-lead HW Introduction of cloud

Name
central ministries’ systems consolidation computing
Integration of ministries’ servers; Introduction of SaaS, IaaS,

Integrated management of 44
Integration of infrastructure PaaS, etc.
Contents ministries’ systems; Integration
resources; Reinforcement of network Common platform service for
of computer centers’ resources
security analysis of big data
Source: National Computing Information Service, 2015
3.3.3. Public Institutions

Public institutions carry out work commissioned by central government agencies in accordance
to the Act on the Management of Public Institutions. Public institutions are not administrative
agencies and, thus, their employees are not civil servants. In addition to government commissioned
work, public institutions support government agenciesin diverse ways. In particular, well-educated
employees under long-term assignment and abundant experience carry out the role of a Think Tank
to supplement the lack of expertise of civil servants that face frequent job rotations. As examples,
the National Information Society Agency (NIA) (http://www.nia.or.kr), Korea Internet and Security
Agency (KISA) (http://www.nia.or.kr), Korea Minting and Security Printing Corporation (KOMSCO)
(http://wwwo.komsco.com), Health Insurance Review and Assessment Service (HIRA) (http://www.
hira.or.kr), etc., are public institutions that support the CRVS information system (Table II-27).
However, the Supreme Court and Statistics Korea do not have independent public institutions that
carry out their FRR and VS duties.
The NIA was established to provide technical support for the National Basic Information System
(1987-1995), and played a key role in the development of CRVS information system, Minwon 24,
AISS center, and other government-wide projects, such as the Information Superhighway (1995-2005)
and the e-Government (2001-2007). It also contributed to the development of the Supreme Court’s
FRR system. The NIA currently supports both the MOI and the Ministry of Science, ICT and Future
Planning (MSIP) on ICT policies (ICT future strategies and investment plans, global cooperation),
ICT convergence (IoT unified infrastructure and services), e-Government planning and project
management (expert technological support, smart platform, network service), digital culture (digital
culture and capacity development), and Government 3.0 agenda.
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Table II-27 | Current status of public institutions supporting CRVS
Name of Ministry Capacity

Applicable Act Main functions
institution concerned (person)
Performance management and national

Ministry of development strategies based on ICT;
National
Science, ICT Framework Act on Infrastructure development of national
Information Society 328
and Future National Information information communications and ICT
Agency
Planning converged services; Business promotion and
policy of E-government.
Act on Promotion
Development of internet & information
Ministry of of Information &
protection industries; Creation of personal
Korea Internet and Science, ICT Communications
information protection and safe internet 346
Security Agency and Future Network Utilization &
usage; Development of policy & technology
Planning Information Protection,
for internet and information protection.
etc.
Manufacture of money and security

Korea Minting,
Ministry of Korea Minting and printed products of bank notes and coins;
Security Printing &
Strategy and Security Printing Manufacture of ID products: RR, passport, 1,466
ID Card Operating
Finance Corporation Act credit card; Manufacture of forgery
Corporation
preventative products.
Health Insurance Ministry of Examination of costs and propriety appraisal

National Health
Review & Health and of medical care benefits; Development of 2,110
Insurance Act
Assessment Service Welfare standards of examination and appraisal.
Qualification management of subscriber

Ministry of and dependent; Collection of insurance
National Health National Health
Health and premium; Management of insurance benefits 12,670
Insurance Service Insurance Act
Welfare and payment of benefit costs; Integrated
notification of social insurance premium.
Sources: Ministry of Strategy and Finance; Korea Institute of Public Finance, 2015
The KISA is a public institution in charge of building the foundation for the Internet, respondingto
invasion of national information security and personal information, and promotion of information
security sector. First, KISA’s primary duty is to prevent cyber threats to the Internet such as external
hacking, malicious codes, and DDoS as well as minimize any damage in the occurrence of such
events. Second, it carries out the policies for protection of personal information such as the provision
of the I-PIN and offline RIN alternatives (My-PIN) cause by the policy that prohibits collection of the
RIN. This agency regulates the online collection, usage and storage of the RIN by setting up a RIN
Clean Center (http://www. clean.kisa.or.kr).
The COMSCO manufactures national identification products such as passports and cards and
produces RR Certificates. This Corporation uses cutting-edge technology for forgery recognition and
distinction, and has in place many advanced security mechanisms for forgery prevention.
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The HIRA pursues the improvement of national health and social security by reviewing medical
care benefits and assessing the appropriateness of these benefits. The NHIS carries out insurance
payments for the prevention, examination, treatment, rehabilitation of citizens after illnesses and
injuries. It oversees health insurance matters in births, deaths and assists in health improvement
activities, by monitoring physical activities of elderly groups with various difficulties.
4. Statutes and Regulations

The statutes for CRVS are part of a four-level legal framework which consists of the Constitution at
the highest level and goes down to legislative laws, enforcement decrees (Presidential decrees) and
finally, to enforcement rules or regulations (Ministerial decree); in content, these statutes include
statutes for institutions and procedures while statutes for the information began to be legislated
after the 1990s in step with the development of the Internet. Institutions for CRVS include the Family
Relationship Registration Act, the Resident Registration Act and Regulation on Population Change
Survey and National Health Insurance Act while statutes for information sytem of CRVS include
the Act on Promotion of Information and Communications Network Utilization and Information
Protection, Etc., Official Information Disclosure Act and Act on Promotion of the Provision and Use
of Public Data.
4.2. Act on the Registration of Family Relationship

The Act on the Registration of Family Relationship defines and regulates registration and
verification work process of occurrences and changes in family relations such as birth, marriage,
death, and other events. The Chief Justice of the Supreme Court delegates the actual tasks of the
FRR to the mayors or heads of community service centers. The heads these local governments handle
the FRR tasks according to the computing and information processes of the Judicial Archives Center.
However, when an administrative agency in the executive branch needs to work with FRR data,
discussion is needed with the head of the National Court Administration.
4.3. Resident Registration Act

The heads of city/county/district are responsible for carrying out the delegated RR tasks to always
be aware of movement of population, improve the convenience of public services and appropriately
process administrative work. The head of the household must report changes in the RR information
should the need arise for corrections such as expiry or non-resident registration within 14 days of the
occurrence.
4.4. Statistics Act and Regulation for Population Change Survey

The Minister of Statistics Korea must designate VS as a designated statistics and if needed, can
request cooperation from heads of organizations that contribute to the compilation of needed
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statistics (Statistics Act, Article 17 and 20). And in order to facilitate the compilation of VS statistics,
the heads of the central government agencies and local governments can request reports needed
from their subordinate organizations or heads of local government under jurisdiction (Enforcement
Decree of Statistics Act, Article 30).
The Regulation for Population Change Survey (425th Decree of the Ministry of Strategy and
Finance, 2015) defines the items of the PCS designated as a designated statistics by the Statistics Act
(Article 17). This act serves to understand the factors behind population sizes and structural changes.
Main items include subject of investigation (Article 2), categories of investigation (Article 3), survey
items (Article 4), Article 6 (deadline for data submission) and other relevant data.
4.5. Framework Act on Social Security

The Framework Act on Social Security seeks to provide safety and protection for all citizens from
social risks such as birth, child raising, unemployment, old age, disabilities, poverty and death, and
improve the quality of life by guaranteeing the needed income and services through regulations that
determine the scope of coverage for social insurance, public assistance and social services (Article 3).
4.6. National Health Insurance Act

The National Health Insurance Act was enacted to improve national health and social security by
provide insurance support for disease and injury, medical examinations, treatment, rehabilitation, birth,
death, and other healthcare related matters. Additional payment are also provided for treatment cost
for pregnancy and birth in accordance with the National Health Insurance Act (Article 50).
4.7. Electronic Government Act

The Electronic Government Act defines electronic processing of civil petitions, electronic public
service delivery (front office), electronic administrative management (back office), shared use of
administrative information, information technology architecture and efficient management of
information resource, as well as trust in and stability of information system. In particular, the Act
allows and promotes shared use of administrative information as listed in Table II-28 through the
administrative information sharing centers (Article 38).
Table II-28 | Types of administrative information for shared use
1. Administrative information needed for the handling of civil application items.

2. Administrative information referred to in administrative task execution such as statistical information, literary
information, and policy information.
3. Administrative information accepted by administrative institutions as necessary for concerned task
execution determined in the Court.
4. Administrative information related to national safety security; administrative information ruled to be secretive by
legislation can be omitted from shared information regulations.
Source: Korea Legislation Research Institute (n.d), Retrieved from http://www.klri.re.kr/
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4.8. Personal Information Protection Act and the Act on Promotion

of Information and Communications Network Utilization and
Information Protection, Etc.
For protection of personal information, there exists the Personal Information Protection Act
(PIPA) for the public sector and the Act on Promotion of Information and Communications Network
Utilization and Information Protection, etc. (NUIPA) for the private sector. The PIPA prohibits all
acquisition of the RIN by private companies except for financial companies that need to collect the
RIN as part of the Act on Real Name Financial Transactions and Confidentiality in order to prevent
abuse and leak of RR information such as the RIN by limiting the processing of the RIN. RIN. The
NUIPA also restricts the use of the RIN (Clause 2 of Article 22). For service providers of information
communications, except for (i) designation as institution to verify identity of a person by the Korea
Communications Commission; or (ii) allowed the authority to collect and use subscribers’ RIN by legal
statutes, cannot collect or use RIN of their subscribers. Moreover, they must provide an alternate
means of identity verification without using the RIN.
4.9. Official Information Disclosure Act and Act on the Promotion of the
Provision and Use of Public Data
The basic principles of both the Official Information Disclosure Act and Act on the Promotion
of the Provision and Use of Public Data are the disclosure and provision of all administrative
information and public data with designation of classified information and data as exceptions.
Specifically, the negative system is applied by disclosing list of all non-disclosed and classified
information as administrative information (Article 9). In fact, information that can lead to invasion
of privacy or freedom when disclosed, such as name and RIN, have been designated as non-
disclosable and classified to prohibit their disclosure.
5. Critical Success Factors

5.1. Strategy and Approach
The Korean government has made significant changes in the past 50 years since the introduction
of its CRVS system, particularly with the RR Act and Statistics Act in the 1960s, and the current
provision of electronic services in CRVS implementation.
Innovation in institutions and process as well as the e-Government have been the key drivers
for the development and progress of CRVS in Korea. In addition, policy-oriented learning in the
operation of the CRVS system by trial-and-error was always provided as feedback for the next step
of system development. As result, the CRVS service initially implemented which required physical
visit to relevant service center to receive the paper documentation, has now evolved greatly into an
electronic service capable of delivering its services anywhere, any time through diverse channels such
as the Internet. The current CRVS of Korea can therefore, be described as a a dynamic process of
evolution shown in (Figure II-15).
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Figure II-15 | Process of Institutionalization and Informatization of CRVS
The priorities of national informatization strategy and approach of the Korean government can
be classified in two dimensions (Figure II-16). First, the priority can be further classified into supplier
point of view of improving efficiency of internal work process (the back office) and the consumer
point of view of service delivery (the front office). Second, the approach to implementation can also
be further classified into the top-down approach where the President takes directly control of the
projects and the bottom-up approach where each government agencies slowly implements their
own projects.
Figure II-16 | Policy-related strategies and approach of governments
From the level of internal work process digitalization in the 1970s to early 19080s then to
implementation of government-wide national DB in the 1980s to late 1990s and then to the
development of Internet based civil service portal in the 2000s, the CRVS information system
development in Korea is a typical maturity model in that it started out as digitization of internal
work process by individual government agencies and developed into the Internet based portal
service it is today. That is, it evolved and developed in steps from A (internal informatization by
each agency) to B (development of national DB) to C (e-Government by each agency) and finally
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to D (government-wide e-Government) (Figure II-17). Such process clearly shows the transition
from internal work process to window service for service delivery and from bottom-up approach
initiated by each agency to top-down approach led by the President. Political leaderships plays a
very important role in the selection process for approach strategy based on flexible interdependency
between government innovation and advances in IT technology.
5.2. Political Will and Leadership

The dominant factor that contributed to the success of the CRVS system is the political will and
leadership of the Korean presidents. The enactment of the RR Act, development of the RR database,
RR online service (Minwon 24), AISS, and NCIS are the fruits of the many Korean presidents’ strong
will and political leadership. The strong will and political leadership of the President took the form
of various Presidential advisory committees and swift commitment of government resource (Table II-
29). For example, the Chief Presidential Secretary was appointed as the Chairman of the Computer
Network Steering Committee for the RR DB implementation project (Figure II-17) and since then,
informatization has been led by either the Prime Minister or special Presidential committees.
Figure II-17 | Governance of Resident Registration computer network project (1987-1991)
Table II-29 | Governance of CRVS development
Business Upper Governance (Chairman) Main Project
Resident Computer Network Steering Committee (Chief presidential Administrative network: RR DB,
Registration DB secretary) (1987-1991) etc.
High-Speed Informatization Promotion Committee (Prime Minister) (1995-
High-Speed Internet
Internet 2008)
Presidential E-Government Special Committee (Cabinet
E-Government G4C
minister level civilian) (2001-2002)
Presidential E-Government Special Committee (Cabinet
AISS, NCIS
minister level civilian) (2003-2007)
E-Government
Informatization Strategy Committee (Prime Minister) (2009-
FRR information system
2012)
Government 3.0 Committee (Cabinet minister level civilian) Innovation of birth and death
Government 3.0
(2014-present) registration, Cloud computing
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5.3. Strategic Planning: Comprehensive Plan

The will and leadership of the President materializes as strategic planning. In fact, behind the
successful development of the world’s best e-Government and Internet access in the 2010s from
weak capacity in IT in the 1980s, there is the strategic and comprehensive plan.13) The informatization
of public administration was carried out in four stages (Table II-30) (Song et al., 2007b).
The preliminary stage (1978-1988) focused digitalization of internal work such as HR management,
payroll, pension, immigration, etc., by individual government agency for batch processing
these tasks. In the first stage (1987-1996), prior to the Internet, nationwide service delivery was
implemented through the administrative network after building the five core national DBs for FRR,
RR and VS. In this stage, the President was directly and deeply involved and provided the support to
build the five administrative network for public administration, finance, real estate and education
and research, allowing automation and remote processing of internal government work. Also, high
speed network was implemented during the Korea Information Infrastructure project (1995-2014).
Table II-30 | Development stages of National Informatization Project (1970s to present)
Stage CRVS projects CRVS project details
Administrative - Computerization of administrative tasks such as human resource, wages,

Preliminary
computerization pension, etc. for each department
stage
(1978-1986) - Issuance of abstracts by visiting dong offices of manual RR & residency
- First phase (1987-1991): administrative DBs built for RR, economic statistics,
National key etc.: RR computerization (70 mil citizens) with abolition of paper work, RR
Databases document issuance at metropolitan level
First stage (1987-1996) - Second phase (1992-1996): EDI customs, post office, welfare for a total of
(foundation seven priority agendas of pursuit
construction)
High-speed - Nationwide high-speed networks using optic fibres in major areas
network - High speed internet access for all schools nationwide; management of grades
(1995-2005) and life records linked to RR
- First phase (2001-2002): G4C online issuance of RR

Second Stage e-Government
- Second phase (2003-2007): AISS, NCIS; FRR DB development and internet
(Online Service) (2001-2007)
service (2003); web based vital statistics linked to FRR (2004)
- E-government enhancement (2008-2012) and its maintenance

Third stage Smart
- Government 3.0 (2013- present): smart customizable service that locates
(Service e-government
citizens (using hospital based birth/death reports); big data analysis based
enhancement) (2008-present)
population housing census; CRVS cloud computing environment
In second stage, the Stage One of the e-Government of Korea reduced the number of physical
visits to government offices and eliminated many required documentations to receive public service
by building an information sharing system for the five core national DBs for residential information,
13) In 1986 levels, South Korea’s informatization level(58) in area such as information equipment, information utilization,
informatization investment was just one-eighth of the USA (422), and one-fourth of Japan(266), German(247),
England(284), and France(286)
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real estate, automobiles, etc. as part of the Government for the Citizen (G4C) project. The Stage
Two of the e-Government of Korea went on to implement 31 projects ranging from digitization of
all the process in document processing, informatization of national and local government finances
to sharing of administrative information. In particular, the administrative information sharing
project allowed replacement of documentation to be submitted for verification with online shared
information provided through the administrative DBs shared between administrative agencies.The
third stage is currently in progress (2008-present) and it is the upgrade of Korea’s e-Government
information system. Focus has been put on facilitating the sharing of administrative information
through integrated and connected information system and on stable operation of the NCIS. Also,
diverse efforts are being made to provide customized CRVS service using technology such as mobile,
IoT and the cloud computing.
5.4. Human Resources

Another important component is the civil servants with passion for national development
and with strong capacity in strategic planning and project management. Currently, Korea has
the smallest government among the OECD countries whose average of ratio of civil servants to
economically active populationis 20% compared to 10% for Korea (OECD, 2015).
Civil servants in charge of statistics (1,554 persons or 1.6%), IT engineering (2,883 persons or 3.0%)
and communications (474 persons or 0.5%) are mostly in the mid-to-lower positions and when
promoted to higher positions, will usually be transferred to general administrative position and
assigned the responsibility of policy decision-making (Table II-31). There are no statistics available for
job assignments of the local government civil servants (360,000, or 27%).
Table II-31 | Current civil servants in data processing network and statistics
General service
Classification of Education,
Total
officials Communi- General security, etc.
Statistics Compu-ting Sub total
cation administration
National 1,554 2,883 474 89,684 94,595 527,513 622,108
Local n.a. n.a. n.a. n.a. 295,344 68,060 363,404
Source: Ministry of the Interior, 2015; Innovation institution of Human resources, 2015
* n.a: not available, none: No local public official in Public Security and Postal services
The lack of ICT capacity in civil servants has been supplemented with expertise of various public
institutions such as the NIA, KISA, and KLID. Even so, due to the shortage of civil servants with
expertise in ICT for the core planning tasks, projects with big impact on public service delivery and
efficiency of public administration as well as projects needing highly technical capacity to implement,
such tasks can be commissioned to private companies if the head of the administrative agency
acknowledges such needs for effective implementation of such projects (Electronic Government Act,
Clausee 2 of Article 64).
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5.5. Financial Resource

Many countries are constrained by rigid annual budget structure focused on control under
parliament’s budget review and auditing by the audit authority. However, for investment in CRVS
information system, there needs to be a focus on change and innovation, away from the traditional
budget structure of annual cost, project based results, financial cost-to-benefit ratio, flow of current
work process and control to a system to innovative structure of multi-year investment, government-
wide result, financial and non-financial cost-to-benefit ration, innovation of current work flow and
more. (Table II-32). Such innovation in budgeting for information system often requires the resolve
and determination of political leadership that can overcome the minister in charge of government
budget.
Table II-32 | Comparison of traditional budget formulation and multi-year financial investment
Classification Traditional budget formulation High-value investment
Duration Annual expense Multi-year investment
Unit of appraisal Result of outcome by programs Government-wide result
Cost/Benefit assessment Financial cost/benefit Non-financial & financial cost/benefit
Focus Focus on restraint within current task flow Innovative change of task flow
Source: OECD, 2004
The budget allocation system of Korea for informatization and e-Government went through
changes several number of times following the times (Table II-33). First, the “invest first, settle later”
method was used for the RR database development (1987-1991) project where the implementation
plan was established first and budget was financed from the financial sector which was reimbursed
by the government later. Such strategy is considered to be extremely unusual and a case of
exception to achieve flexible appropriation of financial resource.
Second, the Informatization Promotion Fund allocated from proceeds of sale of frequency for
telecommunications, dividend and stock sale income from public institutions(Korea Telecom) and
such, was used to finance the e-Government projects. The combination of the “invest first, settle
later” approach and the Informatization Promotion Fund represented flexible multi-year budgeting
methods that enabled swift response to the fast development of technology that bypassed budget
restraints imposed by budget authorities such as the Ministry of Strategy and Finance, audit
authorities and the parliament. This strategy helped to contribute to fast and strong implementation
of informatization projects based on the strong political will of the President.
Third, from 2005, the Informatization Promotion Fund was reallocated into the Information
Technology Promotion Fund that can only be used to finance ICT research and development
initiatives and projects, while the budget for e-Government projects now has to be appropriated
from the general budget account of the Korean government by the Ministry of Strategy and
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Finance. Since then, the Ministry of Strategy and Finance allocates the budget for e-government
projects in lumpsum to the MOI and allows the MOI the discretionary authority to deliberate and
allocate budget based on government-wide integration and connectivity perspective for individual
e-government projects. For developing countries facing difficulties in securing the financial resource
for e-Government projects, flexible financing strategy above should be actively considered as
the solution. Implementing information system tends to be low in priority for most governments
while the rapid change in ICT technology is very difficult to catch up with. If difficulty exists in
implementing the flexible financing model like the national fund, private funding will be the only
other option. In such cases, public-private partnership (PPP) models such as the BOO (Build-Own-
Operate) and the BOT (Build-Operate-Transfer) may be considered.
Table II-33 | History of resource procurement methods
Classification Budgeting method Contents
National Basic
“Invest first, settle - Execution of project through financing of bank funds
Information System
later” - Post adjustment after end of project
(1987-1991)
E-Government Informatization - Fund raising from compensation for frequency allocation, etc.
(2001-2004) Promotion Fund - Information investment by (former) MIC
E-Government General budget of - E-government support Budget: Execution by MOI within boundaries,
(2005-present) Government as allocated by Ministry of Strategy and Finance.
5.6. Cost-to-Benefit Analysis

5.6.1. Basic Structure
The economic validity of information system is crucial in securing a high priority status in
government policies. In the decision making to determine the priority of public projects, the result
of the cost-to-benefit analysis which compares investment made with resulting benefit is used quite
often. Even so, the current trend also considers long term, intangible benefits and costs as much
as short-term, tangible benefits and costs. The balanced scorecard model reflects internal process
innovation, employee capacity growth, and customer satisfaction as well as financial achievements.
Typical costs include system developing cost, maintenance cost, and labor training cost while short-
term benefits include reduction of civil petition and documentation cost, reduction of transportation
cost and time of the petitioner, reduced time and cost of civil servant issuance tasks, among others.
5.6.2. Cost-to-Benefit Analysis

A cost-to-benefit analysis is the scientific policy analysis activity that looks for project validity by
comparing the investment cost and expected benefits of a public project. Project validity exists if
the calculated benefits are greater than the investment cost. Currently, according to the National
Finance Act of Korea, all projects that require funding of over 50 billion KRW must go through the
preliminary feasibility study.
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Cost-to-benefit analysis was made for all e-government projects launched in 2001. The investment
cost of the Government for Citizen G4C (the predecessor of Minwon 24) project was 3.3 billion
KRW. For this project, direct and indirect benefits calculated amounted to the sum of the the
effect of reduction in paper documentation with use of the AISS, reduced cost in transportation
for customers and cost converted from time spent by customers.14) This figure reached 1 trillion and
113.6 billion KRW, showing that the calculated benefits significantly outweighed the investment
costs (E-Government Special Committee, 2002). The National Education Information System (NEIS)
implemented during the same period as the G4C also had an estimated benefit that was 3-7 times
greater than the investment cost (Benefit-cost ratio=3.0-7.0)(Song & Lee, 2007). Such scientific
evidence that proves benefits to be greater than the cost gives a hugh help hand in persuading the
highest level of policy decision makers and the public.
It is difficult to accurately gauge the total investment cost that went into the development of the
RR system due to the long period of development from building of the RR information system DB to
the Internet service and also due to the frequent system upgrades. 3 billion and 3 hundred million
KRW was invested to development and shared usage of RR system during the electronic government
program period, and 60 million KRW was invested into the linkage with FRR system of the Supreme
Court. Also, it is estimated that total budget of the development of authenticity confirmation of
RR certificate on the web, RR related task program development for overseas Koreans, encryption
of RINs and establishment of related buildings is approximately 10 to 20 billion KRW. Annual
maintenance cost of this system is estimated to be roungly 1.5 to 2 billion KRW. Currently, cost of
civil registration system development and establishment has lowered thanks to state-of-the-art
technologies including utilization of open-source program and cloud computing.
From the benefit perspective, the cost reduction effect from using the RR information system (i.e.,
reduction proportional to the number of RR documents issued) calculated directly by the MOI was
about 3-4 billion KRW annually. In this estimate, atypical and long-term effects such as organization
innovation, employee capacity strengthening, opportunisty cost and satisfaction of customers were
not included. However, it must be pointed out that the CRVS is a project that builds the foundation
for nation building and economic development, and thus cannot be viewed solely with the simplistic
perspective of cost-to-benefit analysis.
5.7. Project Management

Project management is the effort to systematically manage the core components of project
implementation by project life-cycle that begins with Informatization Strategic Planning (ISP),
Business Process Reengineering (BPR), system development, and ends with after services including
follow-up and maintenance. Even with the most exhaustive and thorough planning, unexpected
problems may occur during the implementation of any project and even more so when no to little
planning. For information system, even when a project is evaluated to be successful, unexpected
problems can arise from poor accessibility and low usage.
14) This calculation was drawn from two-way transportation costs x number of issuances x ratio of administrative institute
submission) and the conversion cost of time spent by petitioners (average transportation time + average civil petition
processing time x number of issuance x average wage x ratio of administrative institute submission).
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Because development of information system includes technical component, it is difficult to

implement such projects exclusively with government employees who only possess general
knowledge. For project management of CRVS information system, there are three methods
available; self development using internal human capital, strategic partnership between a
government agency and an external company; and outsourcing (Table II-34). The strengths and
weaknesses of each of these approaches differ, so it is important to select an approach that suits the
current situation.
In order to deal with lack of system development capacity of civil servants and to actively
introduce superior technology from the market, the Korean government was dependent on outside
commissioning of many of its projects. But the NIA and supporting public institutions of each
government agency supervised the project planning and implementation. In fact, the NIA was first
established in 1987 when the RR DB implementation project was launched to provide technical
support and has been carrying out the core functions of system planning, development, auditing
and performance management for national informatization and e-government projects. Projects are
commissioned to external businesses through the procurement process of the Public Procurement
Service from the competitive market. Even in such instances, the government agencies and public
institutions must possess the capacity to manage the project in compliance with the work schedule
and the Service Level Agreement (SLA) and not be dependent on a specific vendor.
Table II-34 | Comparison of project management approaches
Type Pros Cons
- Difficulty in project planning due to a lack of

- Secured control of project professional knowledge and technology among
- Linkage with other projects and securing civil servant workforce
In-house flexibility of execution - Difficulty in matching quality services to allocated
- Knowledge development and internal capacity human resources for project success
growth - High cost of supplementary human resources or
workforce
- Investment of incidental expenses and long-term

- Importation of external technology, knowledge,
involvement
professionalism
Strategic - Potential mismatch of culture and expectation
- Possibility of capital investment to technology
partnership between partners
- Transfer of external professional knowledge
- Difficulty of change of priority due to contract
into internal workers’ knowledge base.
terms
- Problem solving becomes commitment of third - Weakening of control of project priorities and
(neutral) party. methods
- Utilization of external resource and high - Gap in communication between concerned parties
Outsourcing
expectations on professionalism. - Eventual efficiency reduction and incurrent of high
- Reduced demand on human resources cost/over budget risk.
allocation and management. - Rigidity of contractual terms and relationship.
Source: Song, H.J., 2006; UN, 2008
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6. Challenges and Lessons

6.1. Lack of Inter-government Information Sharing and Collaboration
Due to the nature of agency oriented work process of the CRVS, there is high possibility of
limitation in information sharing and collaboration between government agencies. The biggest role
of the CRVS is to provide the necessary base information needed for diverse policy support in diverse
areas such as voting, national defense, national safety, education, health, welfare, employment,
industry and so on, by managing citizen information like birth, death, marriage and divorce, rather
than having an intrinsic purpose on to itself. CRVS without the perspective of government-wide
integration and connectivity will only form structural fragmentation and islands of automation that
causes inconvenience to the people and inconsistency in public administration. There are political,
organizational, economic, and technical factors that restrict information sharing, and collaboration
among government agencies (Table II-35).
The biggest obstacles to information sharing and collaboration that government agencies
presented when the AISS was being developed were the possibility of abuse and leak of personal
information and the assigning the responsibility that follows such incidents. In order to overcome
this problem, leadership from upper governance and appropriate institutional, organizational,
financial and technical measures were needed. And to address this issue, the Korean government
decided to implement the RR system and informatization as Presidential agenda.
Table II-35 | Obstacles in sharing of administrative information
Classification Obstacles
- Absence of strategy and vision from leader

Political - Poor information security; infringement and abuse of personal data
- Ambiguity of law and system (uncertain responsibility of task distribution)
- Lack of information sharing experience

- Lack of awareness of convenience and other benefits
Organizational
- Lack of credibility or trust between departments
- Insufficient system of professional workers and task distribution
Economic - Lack of budget promoting and sharing
- Lack of compatibility between components of information systems (HW, SW, etc.)

Technological
- Lack of standards in data sharing procedures.
Source: Song, H.J. & Oh, C.H., 2012
6.2. Business Process Reengineering

In general, civil servants in government bureaucracy are wary of changing current work
procedures and processes. And increased complications from formalism and red tape in work
processes lower transparency and efficiency in public administration. Moreover, mere automation
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of such complicated work process without any innovation cannot bring about efficiency in public
administration or innovation in public service delivery.
Through long years of innovation of work process, Korea’s RR system evolved from paper
documentation written manually to computer based electronic document, from document issued
at public office that had to be visited to instant online delivery, from information used within a
single agency to information shared with other agencies, and from separately managed information
resource to government-wide integrated management. And even now, diverse efforts are being
made to provide customized CRVS service using the latest technology such as mobile devices,
cloud computing and big data analytics. Through such process of endless process innovation and
innovation of information system, the CRVS information system developed into what it is today.
6.3. Personal Information Protection and Technological Measures

The biggest issue concerning the CRVS system is the abuse and leak of personal information such
as FRR information, RIN, and RR Certificate. Personal information is defined as ‘information (including
information that cannot be used to identify a person on its own but can easily be combined with
other information for identification) of a living person such as full name, RIN, images, etc., that can
be used to identify the individual’ (Article 1 of the Personal Information Protection Act).
Information systems inevitably generate national concerns on matters of information security and
personal information protection. In particular, the CRVS information system, which uses the RIN as
a medium, distinguishes identity of the individual and provides as well as derives basic information
from other information services. Since the RIN has become the most utilized method of identity
verification for online transactions through the Internet, personal information protection is being
strengthened in conjunction with development of alternate identity verification methods. The
MOI, KCC, and the MSIP are taking actions for legal, managerial, and technical measures to totally
prohibit the use of the RIN on the Internet by the end of 2015.
Legal measure refers to amendments of the various related legislation, while managerial measure
refers to policy, execution procedures and processes of the administrative agencies in charge
of managing CRVS personal information. Technical measure, on the other hand, refers to the
development of various technical devices for the protection of personal information.
Technical measure to prevent security breaches from the outside through the Internet such as
hacking of internal CRVS DB and administrative network is an extremely important issue. The core
components of this task is to install a dual layer of firewalls between the Internet and the internal
network, DMZ implementation for the servers and encryption applied to all the sections of the
network (Figure II-18). The Korean government will implement such technical measure from 2016.
Also, technical mechanisms such as separation of the administrative network from general Internet
network (network isolation), enhancement of information security technology (invasion detection
management system, IDMS), de-identification technology for personal information and privacy
impact assessment (PIA) must all be upgraded consistently.
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Figure II-18 | Technical and encryption solutions for RIN protection
Source: Kwon, H.J., 2015, Privacy Issues in National ID & Bio Information, Presentation at 2015 Global Knowledge Forum
on Strengthening Civil Registration and Vital Statistics (CRVS) and National Identity Management Systems, The World Bank/
Korea Eximbank Joint Consulting
Collection of bio-information such as the ten fingerprints and blood type is also a serious issue of
the RR system. While registering the blood type is optional, the obligatory registration of the ten
fingerprints for issuing the RR Certificate has always been an issue of human right violation.
6.4. Legal and Regulatory Reform

Relevant and timely legislation acceptable to the people is an important factor for CRVS. First,
legal mechanisms must be considered when new measures are being introduced for CRVS system
development and expansion of its usage. The Korean government added new regulation for
enforcing the right to view and the obligation to gather consent of the owner of the information
in order to remove any possibility of invasion of personal privacy from information sharing to
the Electronic Government Act during the development of the AISS (Table II-36). This has largely
contributed to reducing the citizens’ anxiety by prohibiting acts of viewing or using personal
information at the discretion of administrative agencies without knowledge of its owner and by
limiting information sharing between civil servants at their discretion since the right to view the
activities of information sharing after execution of such activities.
Table II-36 | Rights and obligations of information owners (E-Government Act Article 42, 43)
Right Nature of Rights
Prior consent of owners of Purpose of sharing the information,the administrative information subject to sharing and
information the scope of sharing, the name of the agency using the shared information
Agency that used the information, the purpose of sharing the information, the types of
Owners of information to
the information shared, the time of information shared, Legal grounds for sharing the
request access
administrative information
Second, there needs to be timely amendment or enactment of statues that will assure that
innovation of the existing work process of civil servants and offline administrative processes will
match the rapidly evolving information and communications technological developments. New
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technology such as mobile phones, cloud computing, Internet of Things (IoT), big data analysis, and
social media present expanding opportunities to provide all types of service anytime and anywhere.
For example, database of administrative and public institutions and machine-readable format
disclosure of electronic file data based on the 2013 Act on the Promotion of the Provision and
Use of Public Data, and the introduction of cloud computing based on the 2015 Cloud Computing
Development Act will bring about a fundamental change to the government-wide computing
environment including the CRVS information system. Legislation of laws appropriate to meet such
changes in the environment is very important.
Third, when CRVS system evolves in the direction of government-wide integration and
interconnectivity, problems may arise from how to deal with legacy system that has been in use for a
long time.
6.5. Incentive System

The Korean government made use of appropriate incentive system to make the CRVS and its
information system work in accordance to the purpose of the policy for the CRVS. Legal regulations
charge the civil petitioners who request for paper documents for FRR and RR verifications a small
fee and allow such fee to be used as management cost for the organization that issued such paper
documentation.The actual cause of resistance to digitization of civil services came from the fee issue.
Specifically, the electronic issuance of the RR Certificate verification (G4C) and the AISS faced strong
resistance from city/county/district offices and community service centers. Because there was no way
to collect the small amount of fee for issuance of paper documentations, it was decided to waive
such small fee which the income for some of these offices. Therefore, it is important to take care of
the problem arising from fee collection with an incentive system for administrative agencies during
the digitization of the CRVS.
Second, there is a fundamental difference in the approach for collecting information from the
people by the government and from the customers by private companies. Private companies
proactively collect customer information to survive in the competitive market whereas the
government forces the people to provide information with legal statutes and can automatically
collects such information. In other words, the government can collect CRVS information in a timely
manner through adequate legal management. For example, the government ensures accuracy of
birth and death reports by charging a fine (50 000 KRW) if birth and death reports are not submitted
to corresponding institutions within 30 days. In addition, severe penalties are imposed for illegal
generation and use of the RIN. Civil servants are also punished for wrongful manipulation of the
FRR, RR and their system. There also exists many legal grounds and stipulations for various penalties
and fines to ensure the reliability and accuracy of CRVS management (Table II-37).
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Table II-37 | Penalty and fines for personal information violations (2009 – 2014)
Classification Object Main contents Penalty
-Providing family relationship information to others for 3 years’ imprisonment;

Civil servant
external use /reasons fine of 10 mil KRW
Family
relationship -Not reported within 30 days of birth Fine of 50 000 KRW
registration
Citizen
- Viewing and issuing of others’ FRR information 1 year’s imprisonment;
- Fake reports or fake witnesses fine of 10 mil KRW
- Illegal manufacture and usage of RIN

- Using RR certificate as means to fulfill unlawful
Resident obligations 3 years’ imprisonment;
Citizen
Registration - Double reporting to RR reporting office fine of 10 mil KRW
- Distributor of fake RIN generating program
- Illegal use of others’ RR certificate
- Activities related to administrative information forgery,

3 years’ imprisonment;
Civil servant modification, damage, and leaks
fine of 30 mil KRW
- Illegal forgery, modification, and damages to AISS
Electronic
Government - Lack of prior consent of the information agent for
information sharing
Civil servant Fine of 30 mil KRW
- violation of information owner’s right to view during
information sharing
Electronic Private - Leaking secrets related to commissioned tasks of 3 years’ imprisonment;

Government commissioner e-government fine of 30 mil KRW
6.6. User Capacity and Digital Divide

Once the CRVS information system is developed and deployed, the final stage of actual operation
by the civil servants at the counter and interaction with citizens is reached. A well- planned and
well-designed education and training program for the civil servants at the counter is a critical
success factor that can influence the outcome of the system usability. At the initial stage, there were
many undesirable instances where civil servants unfamiliar with computers, would regress back to
the traditional manual work practices. Diverse training programs toned to be provided to the civil
servants to provide innovative electronic services to the people. For example, the MOI successfully
organizes diverse regular training programs for civil servants in charge of the Minwon 24 services,
which led to its efficacious implementations. Another point to note is that the front office RR service
has regular contact with citizens, and this user group needs to receive informal training on how to
make full use of the CRVS information system.
In short, solutions and measures to address digital divide issues through strengthening of digital
capacity and accessibility of both the user groups and service providers need timely consideration
and planning to ensure CRVS system efficiency.
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7. Directions for Development

7.1. Birth and Death Report Processing in Hospitals
The Korean CRVS institution and its information system are by no means perfect. More than
anything, because of traditional culture, direct reporting of birth and death does not occur swiftly in
hospitals. The Korean culture of naming infants in accordance with the birth date and time and the
considerably long period of grieving time have had some effect in deciding one month as the period
for birth and death reporting. Moreover, the core process in the birth and death reporting belong
to the Supreme Court and hospitals which are non-profit organizations, not the executive agencies.
However, it is also true that when over 99% of infants are born in hospitals, and 73% of the
deceased die in hospitals, one-stop reporting would greatly enhance convenience of their families
(Table II-38). And omission in service delivery, taxation as well as inheritance tax problems that can
occur from setting the period of the reporting to 30 days after birth or death, can be prevented..
Table II-38 | Places of birth and death of population in 2013 (Unit: Thousand)
Classification Hospitals House (Home) Others* Total
Place of Birth 430.7 (99.0) 2.9 (0.7) 1.5 (0.3) 435.1 (100)
Place of Death 88.2 (73.1) 20.0 (16.6) 12.4 (10.3) 120.6 (100)
Source: Statistics Korea, 2014 and 2015

* Others in place of birth indicate transportation (bus, ship, car, etc.) or public buildings; Others in place of death indicate
social welfare institute, workplace, or roadside.
Currently, location of most births and deaths happen largely in hospitals and the public role of
doctors in health care, treatment of disease and health insurance process is ever more important.
Therefore, there is a need implement a system for automate the reporting and registration of births
and deaths through the NHI information system by strengthening the responsibilities of the hospital
and doctors in the process of CRVS (Government3.0 Committee, 2015). Also, incentive that match
the expanded responsibility of the doctor needs to be considered.
7.2. Resident Registration System Improvement

While the RR system evolved for a long period of time to fulfill the many objectives of various
policies, some unresolved issues still remain under discussion. First, as mentioned previously,
the current RR Act which prevents change of the RIN has been ruled unconstitutional by the
Constitutional Court of Korea in Dec. 2015. Already, the MOI which had been aware of the problems
caused by inability to change the RIN, submitted a bill for establishing the Resident Registration
Number Change Committee that can review and change the RIN in cases of significant possibility
of harm to life, body or property from the leak of the RIN and for victims of sexual crimes while
maintaining the current 13-digit RIN system. On the other hand, the opposition party proposed a
bill which reforms the RIN to random digit number that excludes any personal information on the
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occasion of this judgement. Because the final bill is a choice between economic cost perspective and
value of protection of personal information, social consensus is needed by 2017 to amend the law.
Second, since the adoption of the RR system in the 1960s, the ten fingerprints have been the
only biometrics that could identify or verify an individual’s physical and behavioral characteristics.
Nowadays, with advances in ICT technology, many methods for identity verification based on
acquired traits such as the voice, facial expressions and handwriting are being developed together
with inborn trait based methods using the iris, retina and veins. Such biometric information can
incur different costs and the accuracy of these biometrics may differ from different False Reject
Rates as well as rate of acceptance for others. If the private sector including financial sector could
appropriately use some of these biometrics, issues arising from the abuse and leak of the ten
fingerprints from the RR Certificates may be prevented..
Third, efforts should be made to find an alternate solution such as electronic RR Certificates and
so forth. since the plastic RR Certificates that have been issued since 1999 are losing their original
functionability due to the wear and discoloration.
7.3. Hyper-connected CRVS system

The CRVS is the base information needed for the smooth operation of safety and national security
such as maintaining order and law, smooth operation of economic functions such as employment
and industry support, and smooth operation of social security functions such as education, health
and welfare. Without accurate and updated CRVS information, it would be difficult identify the
exact demands for nutrition and vaccination for infants and children, and for admission to schools,
and provide welfare services “from cradle to grave” for each citizen in his or her life cycle.
Accordingly, the government has to maintain accuracy and update the CRVS information using
hyper-connected information technologies such as Internet of Things (IoT), cloud computation,
big data analysis, and mobile connectivity. First, the government should provide more methods of
registration for citizens, using various devices and multi-channels such as mobile devices, kiosks, and
PC, other than the traditional method of visiting the front office in charge of CRVS registration.
Second, if the capacity for analysis, assessment and prediction can be improved through mash-
up of diverse data from IoT and big data analysis, accuracny of CRVS can be greatly improved.
The newly introduced registered census method used for the 2015 Population and Housing
Census, for example, did not investigate every single citizen by field survey but still obtained
accurate population statistics efficiently through integrated analysis based on data from numerous
government agencies. Such use of information sharing by government agencies can be utilized
more through the cloud based NCIS.
7.4. Information Disclosure and Personal Information Protection

The points of contention on abuse and leak of personal information as well as information
security that surround the CRVS such as the FRR and RR and its information system may get
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worse with implementation of new ICT technology such as the cloud computing and IoT. Technical
measures such as anonymization and de-identification are important tasks in the efforts to dispel
concerns of abuse and leak of CRVS information as data from each government agency are used
more heavily for information sharing through the RR information as medium.
At the same time, there is increasing social demand for disclosure of administrative information
and open data. Disclosure and provision of information greatly affects the citizen’s trust in
transparency of public administration and evidence-based policy decision making. Therefore, a well
balanced policy between information security and personal information protection is needed.
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Ⅲ Current Status of Target Partner Countries:

Analysis and Comparative Study
1. Current Status of Target Partner Countries: Analysis

1.1. Current Status of CRVS in Laos15)
1.1.1. National Background and Characteristics
Laos is a landlocked country surrounded by land located in the centre of Southeast Asia.
Administratively, it consists of 18 provinces, 148 districts, and 8,524 villages. Its population is
estimated to be around 6.6 million, occupying an area of 236,000 square kilometres. Laos has
the lowest population density among ASEAN countries, and around 80% of its people live in
mountainous regions that are mostly undeveloped. Laos’ per capita income is only approximately
1700$, and its economy is slowly turning away from agricultural and moving into mining and
tourism-oriented industries.
Since Laos became independent from France in 1949, it has maintained a communist system, and
is currently ruled by Lao People’s Revolutionary Party, the only legal political party. The government
takes the form of separation of powers, where the head of state is the president, and the head of
government is the prime mister. The president and vice president are elected through an indirect
election from the national assembly and serve a 5-year term with no limits on consecutive terms,
and the prime minister is appointed by the president and elected by the national assembly to serve
a 5-year term. Thus the legislature is a unicameral system composed of 132 congressmen with 5-year
terms. The highest court of judiciary branch is the Supreme People’s Court.
Ethnic Lao make up 54.6% of the nation’s population, with other minority ethnic groups such as
Lao Loum, Lao Theung, Lao Soung, and others accounting for the rest. In terms of religious beliefs,
Buddhism accounts for 66.8%, and other religions account for 31%. The population below 14 years
of age constitutes 34.1%, 15-24 years of age constitutes 21.31%, 24-54 years of age 35.54%, 55-
64 years of age 5.23%, and above 65 years of age constitutes 3.82% of the overall population. The
urban population represents 38.6% of its total population, and the yearly rate of urbanization
comes up to nearly 4.93%.
15) Succeeding reference to Laos’ CRVS status is based on the field investigation report of the World Bank Mission carried
out over two phases (May 2015 and December 2015), unless otherwise cited.
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Part 2 Ⅲ_Current Status of Target Partner Countries: Analysis and Comparative Study
Following nation-wide promotion of decentralization and private enterprise in 1986, Laos has
become one of the fast growing countries in Asia. Records show 8% growth rate during the past
10 years, and 6% average annual growth rate during the period 1988 to 2008. According to the 8th
National Socio-Economic Development Plan, the government of Laos plans to make strong progress
towards industrialization and modernization so that it will no longer be regarded as one of Asia’s
listed Least Developed Country. Its plans include strengthening international integration with ASEAN
economic community, and improving national welfare. From this point of view, its 8th Five-Year Plan
places great emphasis on having records of accurate and timely data to enhance the planning and
monitoring of its development programs.
Table III-1 | General Status of Lao PDR (Laos)
Classification Lao PDR (Laos)
Capital Vientiane
Population 6.60 mil (2013 est.)
Area 236 000 km2

General
Details
Ethnicity Lao Loum, Lao Theung, Lao Soung and other various minorities
Religion Buddhism (90%), Catholicism and Protestantism, etc. (10%)
Language Lao
Government Single party state of Lao People’s Revolutionary State

Politics
President Choummaly Sayasone
GDP 11.7 bil USD (2014)
GDP
1 697 USD
(per capita)
Economy
Growth rate 7.4%
Trade 5.9 bil USD (Exports 1.6 bil USD, Imports 4.3 bil USD)
Industries Mining, Electricity generation, Agriculture, Textiles
Source: Ministry of Foreign Affairs (Korea), 2015
1.1.2. History of CRVS Systems

Following the enactment of the Law on Family Registration in 1991, the Ministry of Public Security
had jurisdiction over the issuance of identification cards and family registration until 2009. According
to this law, the head of household or the representative of family had to report to the Village Chief
when an infant was born, and the Village Chief had to then record this in the Family Book that all
families possessed. This procedure was regulated, in principle, to be done within 30 days of birth,
and there were no related fees (Plan International, 2015).
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This procedure used to be the responsibility of many in the government: of the Ministry of Public
Security at a central government level, of mayors or governors in provinces, and of village chiefs
in corresponding districts. Individual families held in their safekeeping the family book, and it was
utilized extensively as a method of providing birth records for school registration, passport issuance,
and similar procedures. Compared to the family book usage, the issuance of birth certificates was
mostly not executed owing to its complex and cumbersome process, and also to families being
uncertain of benefits related to birth certificate issuance.
To address problems from relying on an incomplete family registration system, the Ministry of
Home Affairs was established in 2011 by the ordinances of the prime minister and the Department
of Citizen Management, which was subordinate to the Ministry of Public Security, was moved to the
Ministry of Home Affairs. This department was tasked to develop a CRVS system to provide essential
information on the population intended for national planning and development.
The prime minster’s office, which recognized the need for integration of various fields in order
to develop the CRVS system, established the Citizen Management Inter-ministerial Coordinating
Committee (CMCC) and appointed the Secretary of Interior as its high commissioner. The CMCC
enlisted the participation of ministers of departments listed below:
Ministry of Public Security
Ministry of Education and Sports
Ministry of Public Health
Ministry of Planning and Investment, Chief of National Statistics Center
Ministry of Foreign Affairs
Ministry of Justice
Laos put great effort into analytical development of its CRVS system by participating in
international conventions such as the 28 November 2014 Ministerial Conference on Civil Registration
and Vital Statistics in Asia and the Pacific, held in Bangkok, Thailand.
Nonetheless, the civil registration process is a slow moving one. As shown below (Table Ⅲ-2),
as of 2012, only 32.7% of children under five has a birth registration certificate and the general
birth registration rate remains at 74.8%. The relatively recently launched Ministry of Home Affairs
is putting in great efforts to develop a CRVS system; however, for these efforts to be successful,
the Ministry realizes there needs to be integration between departments as well as capacity
consolidation of the Ministry of Home Affairs and comprehensive legislative action related to CRVS
(Pommier, 2015).
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Table III-2 | Status of Children Registration in Lao PDR (2012)
Children under age 5 whose birth is registered with

civil authorities
Children under age 5 whose birth
is not registered
Has birth
Has no birth certificate
certificate
Children whose
Number
Not No birth Total Number mother/caretaker
Seen of children
seen certificate Registered of knows how to do
(%) without birth
(%) (%) (%) children birth registration
registration
(%)
Male 16.7 16.4 41.2 74.3 5,593 40.5 1,437

Sex
Female 16.6 15.9 42.8 75.2 5,474 43.1 1,356
North 16.3 9.1 42.0 67.3 3,502 16.0 1,145
Region Central 15.9 24.1 39.0 79.0 5,154 55.6 1,082
South 18.6 9.4 48.5 76.5 2,411 67.6 566
Urban 28.5 30.3 29.0 87.8 2,319 53.5 283
Rural 13.5 12.4 45.4 71.3 8,748 40.5 2,510
..Rural
Residence 14.5 13.0 45.2 72.8 7,661 40.0 2,087
with road
..Rural
without 6.4 8.0 46.8 61.1 1,086 42.6 423
road
0-11
21.0 12.2 26.9 60.1 2,307 55.3 921
months
12-23
17.9 16.6 39.8 74.2 2,141 39.7 551
months
24-35
Age 15.5 16.9 44.7 77.1 2,193 38.5 503
months
36-47
15.6 17.8 47.7 81.2 2,302 27.0 434
months
48-59
12.8 17.5 51.7 81.9 2,124 33.4 384
months
TOTAL 16.6 16.1 42.0 74.8 11,067 41.8 2,793
Source: Lao Statistics Bureau, 2012
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1.1.3. CRVS Registration Management: Issues and Concerns

This section focuses on CRVS registration management and reviews its organizational structure
and procedures in terms of birth registration, death registration, cause of death verification, and
related concerns and issues.
1) Birth registration procedures

Births are registered in the main records system of the Ministry of Public Security. There are
difficulties experienced at various levels with current birth registration procedures.
Generally, for a baby delivered at a healthcare facility, the facility provides the parents with a
birth registration form. For a baby delivered at home, the village chief has to provide the form.
The completed registration form should be submitted to the Ministry of Home Affairs along with
signatures of three guarantors and authorization of the village chief. The issuance of a birth
certificate takes three to five days after the registration is submitted and the applicant should
pick up the certificate from a government office in person. When a birth certificate is brought to
a local office of the Ministry of Public Security to be registered in the family book, only then will
the village chief record the birth in the village family book. It is very possible in many instances
healthcare facilities and village chiefs do not possess copies of the birth registration forms issued by
the healthcare facility. If the parents do not present the form to the village chief, this makes it more
difficult for the Ministry of Home Affairs to aggregate the number of births required for accurate
birth report statistics, since healthcare facilities are not obliged to share the total number of birth
reports issued with the ministry.
Costs of birth registrations vary by region, but an average of 15,000 Laos kip (approximately 2.0
USD) is charged as a birth registration fee. The birth registration fee is seen as a deterrent by many
poor families to undertake official birth registration. In addition, applicants must visit the Ministry
of Home Affairs for a birth certificate to be issued, so it can be both costly and time consuming
for especially the poor living in remote areas. Owing to poor awareness of birth registration
requirements and also because of the costs involved, many families do not record births in their
village’s Family Book. During the 2015 census, the National Statistical Center of Laos found village
family books contain either incomplete or not up-to-date information. Reasons given for this state
were families did not record births accurately or residents moved frequently from one region to
another.
Accurate CRVS registration is also made complicated by the fact that issuance of official documents
is currently processed using family books, rather than birth certificates. A government agency like the
Ministry of Foreign Affairs, for example, requires a family book or national ID for identification instead
of a birth certificate when issuing passports. The Ministry of Home Affairs has since recommended that
the Ministry of Education, the Ministry of Public Health and other governmental agencies make the use
of birth certificates mandatory; however, residents tend not to follow this recommendation as this is not
strictly enforced and might result in government services not rendered if they were to show up with
only birth certificates. At this time, healthcare facilities in the same province are known to sometimes
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use different birth report forms or forms different from the standard issuance by the Ministry of Home
Affairs. All these irregularities complicate the entire process of birth registration and ensuing matters
related to establishing a reliable CRVC system in Laos.
2) Death registration and cause of death verification procedures

The procedure for registering deaths is similar to that for registering births. For cultural and
religious reasons, Lao people prefer to leave the hospital and return to their homes when faced with
imminent death. Because less than 10% of the people actually receive a death notification from a
hospital or healthcare facility, the status of death registration in Laos is essentially more incomplete
than that of birth registration.
According to the standards of the WHO’s International Classification of Diseases (ICD), many
doctors in Laos lack sufficient training to diagnose and classify the cause of death in many instances.
Although it is required to record the cause of death on the death certificate, very often the cause
may be unclear and hence, in many cases, the medical officer does not specify the cause.
Moreover, issuing a death certificate incurs cost and time. Details concerning a death can be
recorded in the family book after the funeral, but as there is no practical need for an official death
certificate record, death registration and verification are not seriously undertaken and these records
are not accurate or reliable.
3) Implications and concerns

For Laos, there are severe implications arising from this low awareness and lack of concern with
regard to accurate birth and death registrations. Since Laos is without a proper CRVS system that
can provide reliable mortality statistics to identify causes of death, the country is unable to contain
or manage the hazardous risks unidentified diseases can cause. The government of Laos also lacks
the capacity to resolve public health issues, emergency health risks and related complications that
challenge the nation’s development.
1.1.4. CRVS Governance (Interagency Cooperation and Division of Roles)

The Family Registration Act has clearly indicated the Ministry of Home Affairs to be the authorities
for CRVS related tasks in Laos. Furthermore, the Ministry of Home Affairs, through the CMCC, is to
carry out the responsibility of adjusting CRVS related tasks between connected departments. Other
than the Ministry of Home Affairs, major agencies connected with CRVS are the Ministry of Public
Security, Ministry of Public Health, National Statistical Center, Ministry of Foreign Affairs, Ministry
of Justice, and Ministry of Education and Sports. Specific roles of these agencies related to CRVS are
listed in a report by a global organization called Plan International (Plan International, 2015).
Having functional, efficient civil registration systems in place is critical for governments to function
properly, and major government agencies in Laos are tasked with significant roles in establishing a
national CRVS system. The main role of the Ministry of Home Affairs is to establish procedures and
rules to enable the Civil Registration system to operate efficiently, such as in executing tasks like
the registration of non-citizens, marriage registration between a Lao and a non-Lao, utilization of
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registration records to complete the electoral register, and related administrative procedures. The
most important task of the Ministry of Public Health is to notify the family and agencies linked
to the Ministry of Home Affairs about information related to birth (such as birth date, place, sex,
location) and to death (such as death date, age of death, sex, place, cause of death). Besides this, it
conducts promotional and support activities to improve birth and death registrations, for example,
it carries out the collection and management of birth and death related data within health facilities.
The Ministry of Public Security collects and manages population related data, issues identification
certificates, and directs the management of migration related information. Furthermore, it provides
access to interoperable Civil Registration DB to the Ministry of Home Affairs. The Ministry of
Education and Sports requires proof of birth when enrolling for school and carries out activities to
stimulate awareness on the importance of registration through educational agencies.
At the same time, National Statistical Center manages and collects data related to total number of
births, birth rate, distribution of regional births, total death toll, distribution of regional death toll,
age and cause of death, death rate per to cause of death, divorce, and related matters. The Ministry
of Foreign Affairs is in charge of the issuance and renewal of identity verification documents
Lao citizens residing overseas, such as identification certificates and passports, and is tasked with
developing a procedure for registration of overseas residents’ vital statistics. The CRVS support role
of the Ministry of Justice includes taking legal action to ensure CRVS systems operate well and also
establishing a registration procedure related to child adoption.
The figure below Figure Ⅲ-1 shows the operational structure and flow of information between
major CRVS related agencies in Lao PDR.
Figure III-1 | Operational Structures and Information Flows for CRVS
Source: Plan International, 2015, Retrieved from https://plan-international.org/
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1.1.5. Cooperation with International Organizations and Private Sector

Cooperation between inter-agency institutions (other than government agencies) happens mostly
with international organizations. Cooperative relationships have been built through advice sharing
and support for Laos’ CRVS restructuring and development with organizations like UNICEF, Plan
International, WHO, ESCAP, among others.
Cooperation with private sectors is in the form of collaboration with private experts connected to
research, DB construction, and other support resources for its CRVS system development.
1.1.6. Current Status of Related Laws

Currently, there are three important laws regarding CRVS in Laos, namely (i) the Supreme People’s
Assembly Family Law No. 07/90SPA (November 29, 1990); (ii) the Supreme People’s Assembly, Family
Registration Law 03/SPA (December 30, 1991); and (iii) the National Assembly of Laos, Statistics Law
No. 03/NA (June 30, 2010) , all enacted by the Government of Laos (GoL).
At the Citizen Management Inter-Ministerial Coordinating Committee (CMCC) meeting in April

2015, it was discussed whether current legislation was sufficient to establish a new comprehensive
CRVS law or bill for Laos. However, the Ministry of Justice claimed it did not have the capacity to
benchmark legal systems that existed in other countries, and it also did not have international
experts who could provide advice on CRVS bills. With regard to establishing and implementing CRVS
bills, the duties of the Ministry of Justice, the Ministry of Home Affairs and the Ministry of Public
Security overlap and their individual roles are not clearly specified. In the case of a child adoption,
for example, only after the Ministry of Public Security has endorsed registration of this adoption
in the family book can the Ministry of Justice give final approval of the said adoption. However,
it appears now that the Ministry of Justice may be formulating a new law or decree by the Prime
Minister, and this law will be implemented by the Ministry of Home Affairs or the Ministry of Public
Security.
1.1.7. Human-Institutional Structure (CRVS Personnel)

The Ministry of Home Affairs (MOHA) was founded in 2011 after being separated from the
Ministry of Public Security (MOPS), and the Citizen Management Inter-Ministerial Coordinating
Committee (CMCC) was established in 2013 to promote CRVS mediation among the various
government ministries. The CMCC designates the Minister of Home Affairs as the committee chair
and its members include deputy ministers of six government ministries (i.e., Ministry of Public
Security, Ministry of Education and Sports, Ministry of Public Health, Ministry of Foreign Affairs,
Ministry of Justice, and Ministry of Planning and Investment which has control over the National
Statistical Center). The CMCC holds two meetings (or more if necessary) every year, while its senior
technical specialists meet on a quarterly basis.
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The process of assigning duties and responsibilities to related ministries is under way but multiple
problems exist. In particular, duties of the Ministry of Home Affairs and the Ministry of Public
Security seem to overlap at the metropolitan and regional levels. Additionally, the process of
assigning roles and responsibilities is not clear even to the parties concerned.
The Lao government has taken urgent measures to improve its CRVS systems and has
incorporated them into the government’s 8th National Socio-economic Development Plan (2016-
2024). A comprehensive evaluation of the CRVS systems is being carried out and the results have
been reflected in the draft for CRVS strategy plans. These plans correspond to the Regional Action
Framework approved at the Ministerial Conference on CRVS in Asia and the Pacific, held on
November 28, 2014 in Bangkok, Thailand. Their main goal is a universal civil registration for vital
events such as births and deaths. According to the 2011-2012 Lao Social Indicator Survey, the birth
registration rate for children under the age of five was 74.8%, but the percentage of birth certificate
holders at the time of the survey was only 16.6%.
While strategy plans are high-level documents, they are neither comprehensive nor do they
provide order of priority. These strategy plans normally lack details and calculations of relevant
budgets and costs. Moreover, they do not provide supervision guidelines for CRVS implementation
or use established evaluation systems to measure attainment of quantifiable goals.
1.1.8. Budget
The Lao government is currently establishing a strategy to develop the CRVS system analytically
and establishing a specific execution plan for this strategy. Contents of a tentative cost budget,
presumed to be the most critical part of this execution plan, is shown below (Table Ⅲ-3).
Looking at the cost budget by CRVS development’s critical priority areas, USD1,320,000 is allocated
on standardization of procedures related to notification, registration, and certification. The
budget also allocates USD350,000 for developing a CRVS related legal framework, USD5,150,000
on enhancement of services for general citizens, USD4,300,000 on improving public awareness
of registration services, USD4,200,000 on registration database development, USD560,000 on
utilization and production of vital statistics, and USD500,000 on assessment and monitoring of the
CRVS program. The estimated total cost comes to USD18,180,000.
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Table III-3 | Budget for critical priority areas in CRVS development
Priority Area Outputs Cost(USD)
1. Standardization of 1.1. Vital events (birth, death, marriage and divorce) notification,
740,000
vital events registration, registration, and certification forms revised and simplified
notification, and 1.2. Revision and simplification of birth/death registration and
certification 580,000
certification processes
2.1 CRVS related exiting laws reviewed 50,000
2. Develop comprehensive 2.2 Comprehensive CRVS legislation/framework including data

200,000
CRVS legal frameworks protection and privacy developed and enacted
2.3 Public awareness of the new legislation created 100,000
3.1. Service delivery points including mobile/outreach registration

50,000
services for remote populations established
3. Improved service
provision to the population 3.2 Infrastructure developed 3,000,000
3.3 Required personnel hired 2,000,000
4.1. Plan for community mobilization and related advocacy strategies

100,000
developed
4. Enhanced community 4.2. Multimedia information, education and communications (IEC)

300,000
awareness of and demand campaigns executed
for civil registration services 4.3 Mobile outreaches to remote areas for registration and
3,000,000
certification implemented
4.4 IEC unit in MOH established 1,000,000
5.1 Digital CRVS architecture and development plans (including

interoperability of electronic-ID programme and other national 100,000
databases)
5. National civil registration 5.2 ICT equipment procurement 3,000,000

database development 5.3 Personnel trained in the use of ICT including digital birth
1,000,000
registration
5.4 ICD-coding for causes of death and linkage between

100,000
immunization and birth registries in DHIS2 developed
6.1. Standardized tabulations and analytical plan for use of civil

10,000
6. Annual vital statistics registration data developed
from civil registration
6.2. Standard operating procedures for the transmission of civil
database used for planning, 30,000
registration data to the LSB developed
reporting and dissemination
6.4 Reporting and dissemination of vital statistics 520,000
7. CRVS program
coordination, monitoring 7.1 CRVS program coordinated at all levels, monitored and evaluated 500,000
and evaluation
Grand total 18,180,000
Source: Ministry of Home Affairs, 2015, First five-year CRVS action plan (2016-2020)
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1.1.9. Incentives and Disincentives

The announcement of a strong political will to consolidate CRVS system and of the Lao
government to commit resources to realizing its CRVS strategy plans has proven to be a powerful
incentive for its ministries and its populace. CRVS has since been recognized as an essential factor
that contributes to the success in the 8th Five-Year National Socio-Economic Development Plan (2015-
2020) of Laos. This Development Plan is aimed at improving the country’s national statistical system,
as well as its administration and governance.
Following the evaluation of the CRVS system by the Ministry of Foreign Affairs in 2011- 2012,
workshops have been conducted to strengthen the capability of public officials of the Ministry of
Home Affairs at local and central levels. Goals for the first stage were to establish the first stage
CRVS consolidation strategy, collect data from various provinces and districts, dispatch policy trainees
to the Philippines, and examine the current situation of ICT utilization in Laos to improve birth
registration. Following the first stage strategy, the CRVS development strategy over the period of
2015-2014 was established, and the execution plan to achieve the national objectives and purposes
of CRVS was also established.
In order for efforts to establish CRVS in Laos to succeed, various deterrents and obstacles need to
be addressed by the administration. At the forefront, the database (DB) for registration of birth,
death and related events which forms the core of the CRVS system, has yet to be constructed.
Although plans for this DB construction are being established, progress is held back by a lack of
support and direction from the Lao government. The fact that systematic and comprehensive
lawmaking action related to CRVS is not prioritized also poses a major obstacle. Even though family
registration laws constitute the legal body of Laos’ CRVS, the ambiguous set-up and vagueness of
task jurisdiction and roles between the existing Ministry of Public Security and the Ministry of Home
Affairs (since the founding of the latter by the ordinances of the prime minister in 2011) poses
another major obstacle.
Above all, it is still unclear at this stage whether it is possible to overcome such problems and build
an effective CRVS system due to the severely low capacity of department staff tasked with carrying
out CRVS duties in the newly established Ministry of Home Affairs. These problems and coping
capabilities of staff are even more severe at province and district levels. Although the system works
to a certain extent in big cities and urban areas, basic awareness of the need for birth and death
registrations in rural and mountainous areas is extremely low.
Establishing and strengthening CRVS require efforts and initiatives that cut across various sectors,
governments and non-government agencies like the United Nations. CRVS as a strategic priority
for many developing countries can succeed with a strong government’s political will and people’
determination, and also with the technical support and know-how from development partners
and developed countries. This is the challenge, and all parties concerned have to realize that
considerable time and effort will be needed to put a CRVS system on the right track in Laos.
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1.1.10. Statistical Capacity

Two government agencies, namely the Ministry of Planning and Investment, and Lao Statistics
Bureau, conduct a population census every 10 years and also carry out various scheduled surveys such
as Lao Social Indicator Survey. The National Statistical Center is a core institution that has the roles of
distribution, analysis, collecting of statistical data, according to the country’s Law on Statistics.
However, validity and credibility of compiled statistics in Laos have a low rating according to
general assessments by international organizations and other external agencies. Hence, it is critical
to have international statistical agencies join efforts to improve the collection, collation, availability
and dissemination of country-specific data in order not to undermine the credibility of statistical
systems, since this lack of credibility can lead to serious policy implications in the long run.
1.1.11. Computerization and Online Services

According to the 2012 Lao Social Indicator Survey, computer and internet usage was mainly limited
to large urban cities such as Vientiane or Luang Prabang. The proportion of people who have used a
computer in the past was 47.9% in the case of city residents, but the percentage was merely 7.9% in
rural areas. Similarly, city residents who were internet users came up to 29.6%, but the percentage
was only 3.2% in rural areas.
The level of data communication development in Laos is very low by international standards.
Laos has stagnated at a very low level. This country ranks 109th among 144 countries in the Network
Readiness Index of the World Economic Forum, and ranked 153th among 190 countries in 2012 and
152th among 193 countries in 2014, according to the UN e-Government Development Index that
combines online services, infrastructure and human resources (Pommier, 2015).
The Family Management and Grass Roots Development is an initiative by the Ministry of Public
Security, an agency in charge of realizing and implementing the government’s electronic ID
program. However, progress of its efforts has been very slow.
Moreover, Laos currently faces difficulties due to lack of experience in ID management systems,
and insufficient opportunities to learn and obtain advice from international experts and other more
developed countries. In Laos, if CRVS and the identity management system can be developed as an
integrated system, this will greatly save time and cost while enhancing efficiency in information
sharing among related agencies. In recognition of this important operation, the WB recently
launched the Identification for Development (ID4D) program to resolve issues related to its
Sustainable Development Goals target #16.9 (i.e., providing a legal identity for all by 2030). The ID4D
program team is currently working on a management system that allows CRVS data to be utilized
in an integrated, coherent manner, with mutual understanding among countries’ governments,
partner countries and stakeholders concerned.
1.1.12. Application of Biometric Identification Technology

The Lao Government uses biometric identification techniques that are regularly utilized in other
countries to verify individuals’ identity. An interview between the World Bank Mission team and a
local Lao interviewee (WB Mission Team, personal communication, November 2-6, 2015) revealed
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that locals thought that main identification techniques used by the government are hair color, color
of eyes, and fingerprints.
According to a report in Planet Biometrics (2015), World Bank and a private enterprise
are collaborating on a project, Identification for Development (ID4D), which contributes an
implementation roadmap for developing nations like Laos, Pakistan and Kenya seeking to build or
expand citizen identity programs, regardless of the country’s status in technology infrastructure.
1.1.13. Policy Implications and Conclusion

The CRVS system of Laos faces numerous challenges due to problems and obstructive factors.
Some of the more critical and immediate challenges are low capability of CRVS-related departments,
unclear procedures, and a lack of integration between agencies and departments.
A case in point is the administration of the Ministry of Home Affairs, the authority in charge of
CRVS. In this ministry, the executive system that connects to Central (MOHA) Provinces (POHA) –
Districts (DOHA) has not been properly prepared since its establishment in 2011. As for District
Offices, which can be seen as the front line of Civil Registration, workers who have received only
basic training are fulfilling CRVS duties, and the roles between District Office and the Provincial
Office are not well defined. Utilization of ICT is very low due to a lack of budget and equipment.
Currently, in the Ministry of Home Affairs, all CRVS procedures are processed manually using paper
documents, because an electronic DB has not been fully constructed. Documents for civil registration
have not been standardized, and procedures differ by provinces and districts. Barriers to expanding
civil registration include low incentive among locals to spend considerable effort and money to get
a birth certificate issued, especially with the Family Book being widely used. In rural areas, local
residents do not perceive the difference between recording a birth in the family book and official
birth registration, and hence the rate of civil registration remains low.
The CMCC has been set up to facilitate discussion and consultation between CRVS related
agencies, but it is not really functioning according to its mission. According to the Family Registration
Act, the Ministry of Home Affairs has been clearly appointed as the CRVS competent authority, but
the Ministry of Public Security still maintains the Family Book, and information sharing is not well
executed between these agencies. Currently, it is still not possible to obtain a birth certificate issued
solely from a birth notice issued by a health facility; signatures of the Village Chief and witnesses are
still required. Agreement between the Ministry of Public Health and the Ministry of Home Affairs
is not reached on the information recorded on the birth notice and on the birth certificate, and
their handling procedures. Furthermore, procedures to liaise with the Ministry of Justice in cases of
divorce, separation, or adoption are not clearly stipulated.
To solve these numerous problems arising from poor communication and alignment of
procedures, a systematic and comprehensive CRVS strategy based on widely imposed legal
frameworks is necessary. After that, executive procedures have to be established and made clear
to all levels of stakeholders. Without this foundation for a CRVS system, efforts pursued by the Lao
government, such as educational training of civil servants and computerization of administrative
procedures through ICT, would experience difficulty in arriving at desired outcomes and optimal
utilization.
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1.2. Current Status of CRVS in the Philippines

The Philippines is a country located in Southeast Asia with a total area of 300,400 square
kilometers. The Philippines is a volcanic region consisting of 7,107 islands, and it can be categorized
broadly into three main geographical divisions: Luzon island, Visayas archipelago, and Mindanao
island. Most of the islands are uninhabited, and there are only approximately 880 islands with
residents and only one third of the islands are named. The percentage of land in the Philippines that
is used for agriculture is low because the geography of these islands is mostly mountainous, with
plains limited to river basins in contact with the shore.
A racially mixed population of Malay, Chinese, American, and Spanish origins constitutes the
majority of the population as a result of a long history of colonization by western countries and
trading merchants. Based on 2014 records, the total population is 107 million people and citizens
living abroad account for approximately 11 million people. Eighty-five percent of the population
professes the Roman Catholic religion, and a part of the population residing in the southern parts of
the archipelago professes other religions including Islam.
The Philippines adopts a six year single-term presidential system and is a republic that has a system
of separation of powers into the three powers of the legislature, the executive, and the judiciary.
Its President and Vice President are elected from direct vote by citizens and each member of the
cabinets is appointed by the President through the approval of the Commission of Appointments of
the Congress. The Congress is organized as a bicameral legislature of the upper chamber, the Senate,
the lower chamber, and the House of Representatives. The Senate comprises 24 senators elected
by the whole electorate through acquiring the highest votes, for a term of six years. The House of
Representatives is composed of 250 seats elected by single-member constituencies that appoint
one congressman per constituent. Their terms are three years long and each can serve up to two
consecutive terms.
In a recent 2015 report, Philippine Statistics Authority posted a 6% GDP growth, and stated
that among its three major economic sectors, Services gave the highest contribution to its GDP
growth, followed by Mining and Manufacturing, and then Agriculture. World Bank said it considers
Philippine GDP as healthy, with next year’s growth advancing to 6.4%. Philippine unit of currency
is the Philippine Peso. Its primary exports are semi-conductors and electronic products, transport
equipment, garments, copper products, petroleum products, coconut oil, fruits, etc., and its major
trading partners include the United States, Japan, China, Singapore, and South Korea. Agriculture
is one of the most important sectors within the Philippines, with over 55% of the population
employed in agriculture and cultivates food staples for residents such as rice and corn and exports
such as sugar, tobacco, and coconut. Meanwhile in the industrial sector, industrialization for
exportation emerged as an important assignment after the 1960s and investment into this sector
was gradually pursued, though currently its industrial sector development retains the status of light
industries.
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Table III-4 | General Status of Phillipines
Classification Philippines
Capital Manila
Population 107.60 mil (2014)
Area 300 400 km2

General
Details
Ethnicity Malay, Chinese, American and Spanish origins
Religion Catholicism (83%), Protestantism (9%), Islam (5%), Buddhism (3%)
Language Tagalog, English
Government Non-consecutive 6-year termed Presidential system

Politics
President Benigno S. Aquino III
GDP 272.1 bil USD (2013)
GDP
2 790 USD
(per capita)
Economy
Growth rate 7.2%
Trade 119.1 bil USD (Exports 56.7 bil USD, Imports 62.4 bil USD)
Industries Services, Mining and Manufacturing, Agriculture and Fisheries
Source: Ministry of Foreign Affairs (Korea), 2015
Over the past decade, the Philippine government has taken great efforts to increase its budgets
for education, health, and other social programs. However, infrastructure remains underfunded,
and the government often has to rely on the private sector to help with major projects, for example,
its Public-Private Partnership initiatives. Long term challenges for this nation include reforming
governance, the judicial system, and overall improving the regulatory environment to project a
more efficient and reliable form of governance.

The Philippines has a long history of CRVS system construction from the period of Spanish
colonization to the present day. Management undertakings on the collection, interpretation, and
conservation of Civil Registration records were absent at least until 1889, and past records about
Vital Statistics were kept within a church’s archives. Later, the Spanish government established
a central statistics institution (Central Estadistica) in 1889, and required each priest through this
institution to submit detailed items concerning birthdates, marriage, and death to the government
on a regular basis. This was seen as their first attempt to collect detailed items about the population
periodically.
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Following the peace treaty of the Spanish-American War that resulted in the transfer of the
sovereign over the Philippines from Spain to the United States, there were no official statistical
units but data were collected by the United States government for administrative purposes. The
first population census instigated under the U.S. rule was carried out in 1903, and the next censuses
were held in 1918 and 1939. Each of these was implemented by different agencies during this
period of time. Later, awareness of the need for all statistical activities to be conducted through
a single agency was realized, and the Bureau of the Census and Statistics was founded by the
Commonwealth Act of 1940. Following that, activities of major statistical agencies such as the
Department of Agriculture and Commerce, Department of Labor, Bureau of Health, Bureau of
Customs, National Library, and Department of Public Information were consolidated to form a new
centralized statistical system. However, activities of the centralized statistical system were obstructed
by World War II, and most Civil Vital records of the 20thcentury were lost (The National Statistical
Coordination Board, 2007).
The first census administered in the Philippines after the end of the war was in 1948. Afterwards,
statistical institutions gradually grew prominent again as government activities expanded in many
areas such as public health, education, social welfare, public administration, crop subsidies, monetary
stabilization, and agro-industrial development. This consequentially resulted in the recommendation
of a decentralized statistical system regarding the cooperative efforts of all government activity
agencies related to statistical exercises. Subsequently, decentralization connected to statistical
activities was instigated by the 1956 Executive Order No.119. Through the executive order, the
government was to direct the five major statistical management organizations, which were: 1) the
Bureau of the Census and Statistics, 2) Bureau of Agricultural Economics, 3) Department of Economic
Research, Central Bank of the Philippines, 4) Labor Statistics Service, Department of Labor, and the 5)
Disease Intelligence Center, Department of Health, and over 100 administrative organizations (The
National Statistical Coordination Board, 2007). This board was tasked with these roles: to formulate
policy measures designed to introduce new statistical frameworks, methodologies and activities, and
also enhance the quality and accessibility of government-produced statistics.
Afterwards, the statistical system was readjusted with the enactment of Executive Order No.121
in 1987 called “Reorganizing and Strengthening the Philippine Statistical System and for Other
Purposes,” and the foundation of present day statistical system of the Philippines was laid down
through this legislation. A change in the functional structure of the bureaucratic organization
was needed to lead a national economic recovery after the EDSA revolution of 1986. The Bureau
of Agricultural Statistics (BAS), which is in charge of producing statistics of agriculture and fishery
sectors, was newly founded by the Executive Order no.116 presented on January 30, 1987 as one of
the seven affiliations of the department of agriculture and forestry. The BAS inherited most of the
functions of its predecessor, BAE. On January 30, 1987, the Department of Labor was reorganized by
another Executive Order no. 126; one of the measures of reorganization instructed the cessation of
the Labor Statistics Service (LSS) and the establishment of the Bureau of the Labor and Employment
Statistics. Other departments sustained units in charge of statistics internally. During this period,
the Banko Sentral ng Pilipinas (BSP) founded a Department of Statistics on March 20, 2005 and
transferred the statistical duties of the Department of Economic Research.
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Registration management organizations are spread around in every city in the Philippines. Civil
registry offices will register and forward copies of civil registration information to regional offices
of the Philippine Statistics Authority (PSA) and also register data for the generation and integration
of vital statistics. Meanwhile, PSA regional offices are currently required to register vital events at
the local government level and generate vital statistics for the purpose of utilizing the data. Births,
deaths, and marriages occurring overseas are reported to Philippine diplomatic missions before they
are incorporated in the PSA (Hufana et al., 2009).
Civil registration-related processes in the Philippines start at the Local Civil Registrar Offices (LCROs)
and all documents registered there are subject to editing and coding. After this process is completed,
the documents are submitted by regional PSA offices within the first ten days of every month.
The PSA regional offices are in charge of preparing processes such as separation, classification and
labeling before sending the documents to the Vital Statistics Division of the PSA’s Civil Registration
Department. Public officials in the National Statistics Office are responsible for distributing codes
and creating statistical tables for checking completeness and updating editing records. Such a system
for registering civil information in the Philippines allows all local government offices to carry out civil
registration procedures smoothly. Through this system, LCROs do not have to generate additional
costs related to civil registration. Nevertheless, additional costs may be incurred in some registration
offices because not all LCROs have the infrastructure to implement this system (Hufana et al., 2009).
As for overseas civil registrations and production of national statistical data, the Philippine
Statistics Authority (PSA) is the main competent authority. However, institutional responsibility for
actual registration affairs lies with the municipal authorities since the country’s civil registration
management system is decentralized. Overall, the PSA and the Department of Health are responsible
for centralizing registration information on birth and death registrations, which is collected at the
local government level through 1,677 local registry offices.
As a country comprising 7,100 islands with a population of about 100 million, the Philippines
has experienced considerable difficulties in collecting, editing, processing and authorizing CRVS
information. Therefore, the country needs to put in more effort to provide citizens with more
accurate information while minimizing corrupted or falsified data through public-private sector
partnerships (AbouZahr et al., 2014).
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Figure III-2 | Structure of Civil Registration and Vital Statistics System of the Philippines
Source: PSA - Philippine Statistics Authority, 2015
The recent CRVS strategy of the Philippines is in line with the country’s objective to lower the
rate of infant mortality, as well as the deaths of young children and mothers. By reviewing data
on mortality (who is dying, where, and why), and by pursuing effective engagement, the country
aims to lower the overall mortality rate. The Department of Health is working to achieve this goal
through two projects utilizing medical information technology. The first one is called “Watching
Over Mothers and Babies (WOMB),” which enables mothers, families, and other members of
society to monitor health conditions of mothers and infants via tablet PCs and to have easy access
to medical services. The second project is Maternal Neonatal Deaths Reporting System (MNDRS),
which collects information on maternal and infant deaths at all levels of the healthcare system
in an attempt to eliminate under reporting and late reporting. This system enables a complete
aggregation of mortality data including cases occurring outside healthcare facilities. These two
systems notify local civil registrars, barangay16) officials and city health officials of the occurrence of
births, and maternal and neonatal deaths in real time. As shown in Figure IV-6, they are linked to
the broader CRVS system through the local-level barangays (AbouZagr et al., 2014).
16) A barangay is the smallest administrative division in the Philippines. Municipalities and cities of the Philippines are
made up of barangays.
229
Figure III-3 | Structure of CRVS System in the Philippines
Source: WHO, 2014, Strengthening civil registration and vital statistics: A case study of the Philippines.

A national database of population or Civil Registration does not exist in Philippines’ CRVS. Instead,
each local government sends their linked Civil Registration to the local and central agencies of
the PSA for statistical purposes and for the issuance of verifications (WHO, 2014). Furthermore,
a cooperation mechanism solely for CRVS does not exist, and cooperation is achieved through
the utilization of connections between national agencies including National Statistics Office and
Department of Health and other mechanisms like the Philippines Health Information Network (PHIN)
(WHO, 2014). Below are government organizations associated with CRVS interagency cooperation.
Table III-5 | Governments organizations associated with CRVS cooperation
Agency/organization Involvement and contribution
Foreign embassies in the

• Verification of Civil Registration documents of visa applicants
Philippines
Philippine embassies • Registration of vital events of over 10 million Filipinos overseas
• Execution of legal act that requires submissions of marriage and birth certificates
Department of Foreign Affairs
for acquisition of passports
Department of Social Welfare

• Identity verification for social protection programs and financial aid
and Development
230
Agency/organization Involvement and contribution
• Although a birth report is requested for admission, a student is not banned from
Department of Education admission if he/she does not have a birth report. However, students without a birth
certificate are required to register their birth for graduation procedures.
Bureau of Immigration • Verification of marriages and births
Department of Justice/Supreme/
Court/ Office of Solicitor • Execution of CRVS regulations and creation of related guidelines
General
Armed forces of the Philippines

• Confirmation of birth as an identity verification for employment
and Philippine National Police
Philippine Regulations • Request for verification of birth documents before issuing permission on specialty/
Commission professional tests
Philippine Health Insurance • Birth certificate requested for medical claims, and marriage certificate requested for
System provision of health insurance
Government Service Insurance

• Verification of death and marriage documents
System
• Restructuring the electoral college through verifying qualified voters and death
Commission on Election
registration records
• Birth certificate requested for issuance of a membership card. Documents related

Social Security System
to death and marriage verified.
Legislative bodies • Enactment and amendment of CRVS-related legal acts.
Office of Muslim Affairs • Provision of guidelines for Civil Registration of Muslims

• Request for birth and marriage documents prior to baptism and solemn wedding
Churches/Religious Sects
ceremonies.
National Commission on
• Provision of guidelines for Civil Registration of indigenous peoples.
Indigenous Peoples
Regional Trial Courts/Sandigan • Utilization of Civil Registration documents as evidential material in trial
Bayan investigations.
Source: WHO, 2014, Strengthening civil registration and vital statistics: A case study of the Philippines.
1.2.5. Cooperation with International Organizations and Private Sector

Cooperation with organizations related to CRVS was raised in an earlier discussion on CRVS
Governance. Various filling application channels are established for private agencies and
government agencies such as SM, LGUs (Local Government Units), and NEDA (The National Economic
and Development Authority).
231

The resident registration system in the Philippines is implemented on the basis of many laws. These
are the Republic Act No. 3753, Commonwealth Act No. 591 (Civil Registrar General), Administrative
Order No. 1, Series 1993 (No. 1, s. 1993), Republic Act (RA) 7160 (Local Civil Registrars), RA 8371
(Indigenous Peoples), PD 1083 (Muslim Filipinos), Executive Order 209 (Family Code), Republic Act
No. 9048 (Clerical Error Law) and Presidential Decree 856 (Code of Sanitation in the Philippines).
Table III-6 | CRVS-related Laws in the Philippines
Act Date Purpose of Enactment and Details
• An act regarding mandatory requirements for marriage including international

marriage.
Act No. 3613 1929.12.4
• Failure to comply with one or more of these prerequisites invalidates the
marriage.
• An act regarding civil status registration.

Commonwealth
1930.11.26 • Civil Register – all marriages, births, deaths, divorces, adoptions, naturalizations,
Act No. 3753
and changes of name should be registered.
• A decree regarding sanitation in the Philippines

Presidential • Bodies cannot be buried without death certificate issued by attending physician.
1975.12.23
Decree No.856 • Death certificates should be delivered to local resident registrar within 48 hours
of death.
Presidential • A decree to ordain a code codifying Muslim personal laws and providing for its
1977.2.4
Decree No.1083 administration.
Republic Act No. • An act allowing correction of typographical errors and changes of first names
2001.3.22
9048 or nicknames without requiring a judicial order.
Republic Act No.

2004.5.14 • An act allowing illegitimate children to use surname of their fathers.
9255
Republic Act No.

2009.12.20 • An act regarding registration of children born out of wedlock.
9858
Republic Act No. • An act allowing correction of typographical errors (e.g., day and month in date
2012.8.15
10172 of birth, or sex of a person) without need for a judicial order.
• A bill passed by House of Representatives to implement the National

Identification System for strengthening of civil registration services and
Bill No. 5060 2015. 5. 19
promotion of transactions with governmental offices. This Bill is pending in the
Senate as of May 21, 2015.
Source: Philippine Statistics Authority (PSA), 2015, Retrieved from https://www.senate.gov.ph/
Civil registration is mandatory in the Philippines, and this is the case since the Commonwealth Act
No. 591 (Civil Registrar General) took effect in 1930. This law was enacted to maintain the cultural
traditions of Muslim Filipinos and indigenous peoples, eliminate the confusion of having one’s name
232
presented differently in birth documents, and register children who need protection from abuse,
exploitation, and discrimination.
The Philippine laws regarding resident registration apply to all Filipinos domestically and abroad.
Vital events occurring inside the Philippines should be registered at a Local Civil Registrar Office
(LCRO) and those occurring outside the country should be registered at the nearest Philippine
diplomatic mission (Hufana et al., 2009).
In 2015, it was reported by local news (the Dailypedia, May 26, 2015) that a new bill (Bill No.
5060) was proposed and passed by the House of Representatives to implement the National
Identification System with a view to strengthening civil registration and promoting transactions with
governmental offices. According to this bill, every Filipino, including those staying abroad, would
be required to register with the Philippine ID System. The Philippine ID based on this system will
be used for all government and private transactions. These include applications for passports and
driver’s licenses, applications for services and benefits offered by the Government Service Insurance
System (GSIS), Social Security System (SSS), Philippine Health Insurance Corporation (Philhealth) and
Home Development Mutual Fund (Pag-IBIG), applications for clearances from the National Bureau
of Investigation, and also all applications for employment.

As for the Philippines’ CRVS human resources, the number of public officials at local civil
registration offices may vary from one person to many. Local civil registration offices are in charge
of the technical aspects of civil registration, and these services are offered by departments in charge
of registering births, marriages, deaths and legal affairs. One or two public officials are assigned to
smaller local governments, and their salaries and the number of employees hired to work depends
on these local governments’ internal revenue (Hufana et al., 2009).
With regard to qualifications for personnel in charge of civil registration, there are no special
requirements to practice mortality coding. Since 2001, the training of ICD coders has been one of
the requirements for the issuance/reissuance of the License to Operate (Hufana et al., 2009). The
National Epidemiology Center and the Philippine Health Insurance Corporation are responsible for
providing ICD-10 training. These days, some hospitals will consider whether prospective medical
records staff has completed ICD-10 training.
Regarding the institutional structure of the Philippine CRVS system, a rapid assessment of CRVS
systems in 49 Asia-Pacific countries was carried out in December 2012. In this rapid assessment, the
Philippines received 83 points and was considered to have a “functional but inadequate” CRVS
structure (Mikkelsen, 2012).
233
Figure III-4 | Rapid Assessment Scores for 49 countries in the Asia-Pacific Region
Source: School of Population Health, University of Queensland, 2012, Improving civil registration and vital statistics systems:
Lessons learnt from the application of health information tools in Asia and the Pacific.
A closer look at the institutional and structural characteristics of the Philippines’ “functional but
inadequate” CRVS system indicates that this nation has an insufficient legal framework, inadequate
experience in international classification of diseases and coding, and also a very low level of coder
training for CRVS work.
Table III-7 | Rapid Assessment Scores in the Philippines
Overall Data Storage Data Access,

Legal frame- Registration Organization Data Quality
Country Assess-ment Completeness & Trans- ICD COD Quality Coding Coder Training Dissemination
work Infrastructure & Function & Check
score mission & Use
35 83 1.7 3.0 2.5 3.0 3.0 1.5 2.5 3.0 1.0 3.0 3.0
Source: School of Population Health, University of Queensland, 2012, Improving civil registration and vital statistics systems:
Lessons learnt from the application of health information tools in Asia and the Pacific.
1.2.8. Budget
CVRS-related budgets in the Philippines can be divided into two categories: Personal Services
budget, and Maintenance and Other Operating Expenses budget. Looking more closely at the
2014 budget situation, in particular, the total budget estimates that Personal Services as well as the
Maintenance and Other Operating Expenses allocated for statistical generation and compilation
services were 384,549,000 PHP and 67,862,000 PHP, respectively.
For its subsections, developing and maintaining information systems and updating statistical
publications, the Personal Services budget was set at 39,524,000 PHP. The Maintenance and Other
Operating Expenses budget was allocated 17,549,000,000 PHP, which was managed by the Central
Office. For CRVS related activities, 282,025,000 PHP from Personal Services and 50,313,000 PHP from
Maintenance and Other Operating Expenses were used to conduct household-based surveys and
generation of population and social statistics in 2014.
234
As for the total budget for Civil Registration Services, Personal Services spent 59,032,000 PHP and
Maintenance and Other Operating Expenses used 112,004,000 PHP. Among the subsections of the
Civil Registration Services, Personal Services allocated 35,668,000 PHP and Maintenance and Other
Operating Expenses spent 56,480,000 PHP for processing civil registry documents and generating
vital statistics reports.
Details of the budget operation are presented below.
Table III-8 | CRVS-related Budget Operating Status of the Philippines’ National Statistics
Office (2014) (In Thousands of Pesos)
Current Operating Expenditures*

Programs and Activities
Maintenance & Other
Personal Services
Operating Expenses
II. Operations
a. MFO 1- Statistical Generation and Compilation Services 321,549 67,862
1. Develop and maintain information systems; prepare

and update statistical publications
Central Office 39,524 17,549
sub-total, a.1 39,524 17,549
2. Conduct household-based surveys and generate

population and social statistics
Regional Operations 257,594 38,735
sub-total, a.2 282,025 50,313
b. MFO 2- Civil Registration Services 59,032 112,004
1. Process civil registry documents and generate vital

statistics reports
Regional Operations 25,710 6,339
sub-total, b.1 35,668 56,480
235
Current Operating Expenditures*

Programs and Activities
Maintenance & Other
Personal Services
Operating Expenses
2. Archive and issue certification and authenticate civil

registry documents
sub-total, b.2 23,364 55,524
Total Budget for Operations 380,581 176,866
* The category of Capital Outlays of Current Operating Expenditures was omitted as there was no itemized budget for
operations.
Source: Philippine Statistics Authority (PSA), 2015, Retrieved from https://psa.gov.ph/content/approved-budget
Local civil registrar offices receive funding for civil register operations from local government units
(LGUs). At the same time, local government agencies allocate the budget for the operation of civil
registration to local registration agencies. The amount of budget allocation for local government
agencies differs according to their internal rates of return, and local chief executives allot the budget
out of a general fund available to them. Since the proportion of the budget allocated to each LGU
differs depending on its internal rate of return, local chief executives must plan their budgets carefully.
Many LGUs have budget appropriation limitations and have to set aside budget funds for programs,
projects and activities related to civil registration, and some LGUs feel they need to charge fees for the
registration and issuance of documents related to resident registration (Hufana et al., 2009).
In 2014, the Philippine government invested a budget of $ 25,922,488 to consolidate CRVS from
2015 until 2019. The budget invested to consolidate CRVS is used for three specific objectives: i)
improvement in the coverage and quality of registration; ii) increase in awareness and utilization of
vital statistics; and iii) enhanced support for strengthening CRVS.
Each specific objective has set goals. The first objective aims to increase the rate of death
registration from 66% to 80% until 2019, and the rate of birth registration from 93.5% to 99%
through the budget committed to the objective. The overall goal is to improve the quality and scope
of registration for citizens in the Philippines. In addition, the government plans to boost the death
medical certification coverage from 35% 70% and to decrease the proportion of ill-defined causes
of death from 15% to 7%. The second objective aims to improve public awareness and utilization of
Vital Statistics by 2019. To do this, government agencies have to make vital services related services
easily accessible for sharing and utilization in policy development, health planning and program
management. Lastly, for the third objective that involves increased support for CRVS strengthening,
the government aims to develop a mechanism of government and policy for Civil Registration, and
aims to produce and execute a CRVS development plan by 2019 (WB, 2014).
Detailed items of the above objectives are presented in Table III-9.
236
Table III-9 | Implementation Plan and Budget (2015-2019)
Implementation Period
Achievement Period: 2019
2015 2016 2017 2018 2019 Total
• Increase death registration from 66% to

Objective 1 -
80%, and birth registration from 93.5% to
Improve
99%
coverage and $3,705,315 $6,146,980 $6,762, 949 $3,053, 054 $1,413,672 $21,081, 970
• Increase medical certification of deaths from
quality of Civil
35% to 70%, and decrease the proportion of
Registration
ill-defined causes of death from 15% to 7%.
Objective 2 -
Increase • Quality VS is readily available and accessible
awareness for use on policy development, health
$121,815 $1,284,547 $454,201 $435,098 $108,500 $2,404,160
and utilisation planning, and program management across
of Vital all levels
Statistics
Objective 3 -
• Governance and policy support mechanisms
Enhanced
for civil registration are established
support for $287,673 $765,000 $546,204 $509,851 $327,630 $2,436,358
• CRVS Development Plans are crafted and
strengthening
implemented
CRVS
Source: The Philippines Civil Registration and Vital Statistics Indicative Investment Plan (2015-2019)
237

In 2014, the Philippines National Statistics Office published contents of its CRVS related SWOT
analysis. In the discussion that follows,“opportunities”are seen as“incentives”, and“threats”are
regarded as“disincentives.”
Table III-10 | Results of Philippine CRVS-related SWOT Analysis
OPPORTUNITIES / INCENTIVES
▪ Creation of the Philippine Health Information Network (PHIN) as a platform to address multi-sectoral issues
▪ Increased potential partnerships with organizations such as funeral parlors in registering quality death data
▪ Opportunity to tap on technical and financial support from international organizations
▪ Acceptance of the Barangay Civil Registration System for possible nationwide rollout
▪ Increasing awareness and support from stakeholders on the importance of the CRVS system
THREATS / DISINCENTIVES
▪ Presence of some cultural practices (e.g. Muslims) affecting CRVS data capture and reporting
▪ Limited commitment in several local leaders in Local Government Units to ensure quality CRVS
▪ Inconsistent practices of private doctors signing death certificates
▪ Lack of budget support for the Local Civil Registry Office by Local Government Units
▪ Lack of appreciation on importance of CRVS
▪ Lack of political will and sponsorship on some mayors
Source: Philippines National Statistics Office, 2014
There are six identified incentives for establishing a CRVS system. Firstly, Philippines creates
the Philippine Health Information Network (PHIN) as a platform to addresss CRVS issues faced by
multiple sectors in the country. Secondly, there has been an increase in CRVS initiatives such as
partnerships with institutions such as funeral halls related to the registration of death data. Thirdly,
opportunities to share and use technical and financial support from international organizations
have been increasing. Fourthly, a Civil Registration system of local government units for nationwide
registration has been approved. Lastly, there has been an increase of support and responsiveness
from stakeholders on the importance of the CRVS system.
It is also critical to realize threats and disincentives related to Philippines’ CRVS as this involves
planning of strategies to anticipate potential threats and to suggest ways to overcome disincentives.
Firstly, some cultural customs practiced by ethnic groups affect prompt and accurate collection
and reporting of CRVS data. Secondly, local leadership in Local Government Units present several
constraints and limitations in ensuring the quality of CRVS data. Thirdly, there is inconsistency in
practices of doctors tasked with issuing and examining death certificates. Fourthly, there is a lack
of financial support for the budgets of local Civil Registration institutions. Fifthly, the nation as a
whole still experiences low public awareness, appreciation for and understanding of the importance
of having a strong CRVS system in place. The above factors are linked to the sixth disincentive,
which refers to a lack of local leadership and political will that adversely affect the drive to gain
sponsorship and policy support.
238

The Philippines has continuously carried out the computerization of statistical procedures and file
storage of vital events since the implementation of the 2001’s Information Technology Project on
the Civil Registry system. Consequently, around 128 million records and microfilms for the period
1944-1998 are currently stored in the central database. Unfortunately, the National Statistics Office
(NSO) and Local Government Units (LGU) experienced data loss despite the efforts of the Philippine
government to upkeep data storage and backup systems. To recover loss of saved records from
the National Statistics Office, authorities can request a verified Certified True Copy (CTC) from the
personal records kept in the Local Civil Registrar Offices (LCRO). Local Civil Registrar Offices will send
copies of personal records to any central institution (Hufana et al., 2009).

Owing to the NSO’s Information Technology Project established in 2001, citizens in the Philippines
can easily and quickly retrieve civil registration information. Since online service facilities were
established in about 40 locations throughout the country, it is possible to request a resident
registration almost anywhere, and a citizen can even obtain a copy of a civil registration via mobile
phone or website (www.ecensus.com.ph). The LGUs use NSO-certified Batch Request Entry systems,
which allow their offices to issue copies for all clients. When an office issues certificates for civil
registration and related documents, it can order registry documents in duplicate or copies of various
reports. The documents are delivered to the Central Statistics Organization twice a week, and then
linked with more than two vital event records. (Hufana et al., 2009).
Recently, a bill (Bill No. 5060) passed by the House of Representatives on May 19, 2015 requires
all Filipinos, including overseas residents, to file a civil registration for their national identification
cards to be issued. The bill, which was sent to the Senate on May 21, 2015 and is currently pending,
is designed to facilitate government transactions, such as issuance of national identification cards,
applications for driver’s licenses and passports; access to benefits from the Social Security System (SSS),
Government Service Insurance System (GSIS), Philippine Health Insurance Corporation (Philhealth),
Home Development Mutual Fund (Pag-IBIG); and clearance applications with the National Bureau of
Investigation, Philippine National Police and the courts (Senate of Philippines, 2015). In addition, the
current President of the Philippines, Benigno S. Aquino declared the period between 2015 and 2024
to be the “Civil Registration and Vital Statistics Decade” via Presidential Proclamation No. 1106.
Today, approximately 13,500 children under the age of five do not have birth certificates in the
Asia-Pacific region, and some countries have incomplete statistics data (according to the Economic
and Social Commission for Asia and the Pacific press release, August 29, 2014). In order to address
these problems, 32 countries participated in the Ministerial Conference on CVRS in Asia and the
Pacific held under the theme “Get everyone in the picture.” At this conference held on November
28, 2014 in Bangkok, participating countries reached an agreement to improve national registration
systems related to births, deaths, and marriages. Following the agreement to enhance national
CRVS, the Philippine government designated the Philippine Statistics Authority (PSA) as the
organization responsible for carrying out, enforcing, and administering all civil registration functions
239
relevant to individual status including births, deaths, and marriages (Philippine Statistics Authority
press release, September 11, 2015).

Biometric technology is frequently used for identification of individuals in the Philippines. In
accordance with House Bill No. 489, House Bill No. 2243, and House Bill No. 2249, technologies
related to photography, signatures, and finger printing may be used for identification purposes.
Table III-11 | Bills on Biometric Information Technology in the Philippines
Bill Date Biometric Information
House Bill No.489 2013. 7. 1 • Legal grounds for collecting signatures and photographs (Sec. 4)
• Legal grounds for collecting signatures, photographs, and fingerprints of the right
House Bill No.2243 2013. 8. 5
thumb or other available fingers (Sec.4)
House Bill No.2249 2013. 8. 5 • Legal grounds for including biometric technology in ID cards (Sec.4)
Source: House of Representatives, 2014, Retrieved from http://www.congress.gov.ph/download/?d=billstext_results&title=

identification
An example of biometric technology use is the unified multi-purpose ID (UMID) issued in 2012 for
effective job performance among governmental organizations based on biometric measures. The
UMID provided by the Social Security System (SSS) is used by the Government Service Insurance Sys-
tem (GSIS), and Philippine Health Insurance Corporation (PhilHealth). As of 2014, the SSS has issued
more than 1,700,000 cards (Business Diary, May 29, 2014).
Figure III-5 | Unified Multi-Purpose ID card of the Philippines
Source: Peroro, 2013, SSS ID Application procedure, Retrieved from http://www.peroro.net/2015/01/SSS-ID-UMID-

application-guide.html
In addition, on July 23, 2012, the Philippine government enacted Republic Act No. 10367 to
implement biometric voter registration. In accordance with this Act, the Commission on Elections
issued ID cards for voters whose biometric data have not been captured through Voter’s Registration
Machines (VRMs) (Commission On Elections, 2013).
240
Figure III-6 | Voter’s ID Card of the Philippines
Source: Commission on Elections, 2014, Retrieved from

http://www.comelec.gov.ph/?r=VoterRegistration/GeneralInfo/BiometricsCapture/VoterIDIssuance

The Philippines set up a mission to offer high quality data that satisfies the needs of the
international society, citizens, and the government by constructing an efficient and effective system.
The country proposes three detailed objectives to achieve their mission of establishing an efficient
CRVS system. The first objective is to extend the scope of CRVS data collection and improve its
procedures and related services. Specifically, this means increasing the percentage of birth and death
registration, and also decreasing the percentage of deaths that have ill-defined causes by increasing
issuance rate of death diagnosis. The second objective is to enhance the perception of Vital Statistics
and actively utilize this data. The third objective is to ensure there is full policy support and system
organization regarding Civil Registration from national and local government levels by 2019.
To attain the above objectives, the Philippines has put forth its agenda and action plans (WHO,
2014). The first agenda relates to inducing participation in report registration and establishment
of a remote registration service system with proactive support from the government. As stated
previously, the Philippines is a nation comprising an archipelago of 7, 107 islands of various sizes,
with a population of 107 million. The Philippines government faces financial and time restrictions,
for example, in the aggregation of Civil Registration statistics data to cover every citizen, and to
overcome the challenge of a low aggregation rate in death registration in GIDAs (Geographically
Isolated and Disadvantaged Areas) like highlands and islands. Thus, the action plan for the first
agenda necessitates the set-up of a remote registration system through additional and sustained
investment support, as well as the implementation of a campaign that induces active participation
of citizens in CRVS related registrations.
Secondly, there is an agenda to improve CRVS governance via the action plan to construct a
unified cooperation system that can manage CRVS. The PSA, the Department of Health and many
Local Government Units are participating agencies in the execution of national projects such as the
CRVS. However, at present a cooperation mechanism solely for CRVS has not been organized, and
problems of inconsistency have emerged in data collected and counted in individual units due to
the Philippine government organizational structure which is considerably decentralized. Therefore,
it is necessary to build a cooperation system united under the aim of producing pro-objective
information to meet the needs and standards of stakeholders such as citizens, governments, and
international organizations.
241
The third agenda is to prepare a customized CRVS structure plan for specific marginalized groups.
The total count of Civil Registration has appeared to be significantly lower in three particular
minority groups (consisting of Muslims, indigenous peoples, and those living in extreme poverty),
when compared with national levels. In the cases of Muslims and indigenous peoples, problems
of security administration in the Autonomous Region in Muslim Mindanao, of inadequate public
infrastructure due to long distance separation, all contribute to constraints posed by geographical
factors. At present, some issues in non-registration or postponed registration have been solved,
but there still exist obstacles arising from costs needed for reporting CRVS related procedures.
Achievements to date are encouraging, but measures to continually solve the information gap
should be developed by devising a customized strategy towards minority groups that are neglected
from public services.
The fourth agenda is to improve public awareness of the importance of assertive death verification
and reports. Aggregation efforts are experiencing difficulties because most deaths in the Philippines
do not take place in confines of medical facilities. It is regulated under current laws that death
reports are mandatory when applying for burial, but even with this regulation, only two thirds of
the total deaths are being registered. There are sociocultural reasons for this non adherence to the
law; for instance, Islam dictates Muslims must be buried within 24 hours of death. On the whole,
public awareness must be accompanied with assertive methods for event records. There should
also be reliable and trusted methods of recording by government agencies, for example, setting up
autopsy measures to replace the current signed investigation procedure that relies on oral autopsies,
and designating trained medical personnel to conduct inquiries of medical events and records. In
sum, the government’s concerted efforts in public awareness, public education, personnel training
and capability building are essential.
1.3. Current Status of CRVS in Myanmar

According to the 2014 Myanmar Population and Housing Census, Myanmar has a population of
51,486,253 and is about three times the size of the Korean Peninsula (677 km2). Myanmar consists
of 14 regions and states, the Nay Pyi Taw council territory, 74 districts, 330 townships, 3065 wards,
13,619 village tracts, and 64,134 villages. The population comprises a total of 135 ethnic groups,
with the Bamar comprising 70% of the population, minority ethnic groups including the Karen
and Kachin making up 25%, and other groups from China or India accounting for the remaining
5%. Most civilians are Buddhists (89%) and use the Myanmar language as an official language, but
in some regions Chinese and Thai are also spoken. The government of Myanmar is a presidential
system. After 50 years of military dictatorship, general elections resulted in the establishment of a
new administration in March 2011 led by the current president U Thein Sein. The constitution was
newly established and local assemblies and governments were formed in May 2008. In referring
to his national nation building agenda, President U Thein Sein mentioned the following areas:
improved governance, guarantee of fundamental rights, and reforms in economy, politics, and
society.
In terms of economic status, 2015 WB reports show that Myanmar’s economy grew at 8.5% in
2014/15 though GDP is projected to be only 6.5% in 2015/16 owing to poor weather conditions and
slowing investments. In 2014/15, the real economic growth rate was only 5.0%, total trade volume
was 24.2 billion USD (exports: 11.2 billion USD, imports: 13.0 billion USD), and the unemployment
rate was 4.0%. The country’s main industries are agriculture, services, energy (natural gas), and
242
manufacturing. Myanmar possesses oil, gas, mineral, agricultural and marine products, and forest
resources, but experiences great difficulty in economic development due to an agriculture-oriented
industrial policy and a lack of infrastructure, capital, and institutional capacity.
According to the country’s national census, literacy rate of adults was 89.5%, male and female
life expectancy at birth was 63.9 and 69.9 years, respectively, and the life expectancy of the urban
population was seven years longer than that of the rural population. The birth rate was 2.3 per
woman (urban: 1.8 per woman, rural: 2.5 per woman), and the sex ratio was 93:100, which means
there were more women than men. Some 26% of the total population lived in poverty, and the
poverty rate in rural areas was double that of other areas. In particular, remote rural areas where
minor ethnic groups lived or which experienced high tension among residents saw higher poverty
rates. Only 26% of the population had electricity supplied, and the disparity of facilities between
urban and rural areas was severe. In addition, people in Myanmar were exposed to extreme weather
phenomena, such as climate change and cyclones.
The school enrollment rate of Myanmar between the ages of 10 and 13 was 76.2%, the ages of
14 and 15 was 50.5%, 16 and 20 was 21.8%, and of people whose ages are 20 or over was 0.9%,
indicating very few people had higher education. About 32.9% of the population was able to use
the Internet, the illiteracy rate was 10.5%, and 27.3% of population did not have a civil registration
card.
Table III-12 | General Status of Myanmar
Classification Myanmar
Capital Nay Pyi Taw
Population 51,486,253 (2014)

General
Details Area 6,770,000 km2
135 ethnic groups: Bamar (70%), ethnic minority groups (Kachin, Karen, etc. 25%),
Ethnicity
Other groups (Chinese, Indian, etc. 5%)
General Religion Buddhist (89%) and others (Christian, Muslim, Chinese traditional religions, Hindu, etc.)
Details Language Myanmar language (official language), English, Chinese and Thai (in some regions)
Government Presidential system

Politics
President U Thein Sein (inaugurated in March 2011)
GDP 45.9 billion USD (2013)
GDP
1,300 USD (2013)
(per capita)
Economy Growth rate 5.0% (Real economic growth rate)
Total trade volume: 29.1 billion USD (Exports: 12.5 billion USD, Imports: 16.6 billion
Trade
USD) (2014)
Industries Agriculture, Services, Energy (natural gas), Manufacturing
Source: Ministry of Foreign Affairs (Korea), 2015; MMSIS, 2015, Indicators of Myanmar, Retrived from http://www.mmsis.
gov.mm/sub_menu/indicator/indicators.jsp?menuId=all
243

Official registration of births and deaths in Myanmar began in 1907 in accordance with the Towns
Act, and the head of a village was obliged to register all births and deaths of the town in accordance
with the Villages Act of 1908. Through these two Acts, the birth and death registration system of
Myanmar covered some 80% of the population by 1931, but this system was suspended during
World War II.
After the war, in 1962, the Ministry of Health’s vital statistics section took charge of vital
registration, and of generating vital statistics with birth and death information that was delivered
by health administrators from each village and region. In 1964, these tasks were transferred to
the Central Statistical and Economic Department (now, the Central Statistical Organization) under
the Ministry of Planning and Finance (now, the Ministry of National Planning and Economic
Development). In 2001, the Central Statistical Organization was charged with these core tasks, and
Ministry of Health, the Department of Public Health (DOPH) undertook practical tasks including
issuances of birth and death certificates for village health centers.
According to a survey conducted in 2010, birth registration coverage in Myanmar was as high
as 72%. However, the disparity between rural areas (63.5%) and urban areas (93.5%) was high.
Acknowledging this disparity problem, UNICEF Myanmar and the government since 2013 cooperated
with a view to improving the birth registration rate. In January 2014, a management committee of
birth and death registration was organized by the President and chaired by the Deputy Minister of
Immigration and Population. This committee produced and distributed guidelines on data collection
technology, reporting methods, and policies and procedures for updating and maintaining CRVS
statistics. On this basis, the national strategic plan for CRVS was generated in May 2014 and
announced at the Forum on Accelerating Birth Registration in Myanmar in July 2014. At these
events, the need for birth registration became a matter of priority and emphasis, and this was made
clear to government agencies at municipal levels, officers in charge of national CRVS organizations,
development partners, members of the press, NGOs, and members of the National Assembly.

Since Myanmar’s civil and vital registration system is primarily paper-based, officials at the
government agencies concerned have difficulty with permanently storing essential data and
protecting data loss from natural disasters and other potential sources of damage. This is why it has
become evident that the government must use information and communication technologies more
actively in order to record and save data that would accumulate hourly by means of an electronic
system.
Currently, more than two government ministries are responsible for the civil registration system.
However, it is assessed that, because of an unclear division of roles and responsibilities, there is a lack
of accountability and capacity to utilize the CRVS system from time to time. In this regard, UNICEF in
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a report suggests that the Office of the Civil Registrar General (OCRG) manages the registrations of
births and deaths (Terms of Reference for Birth Registration Consultancy, UNICEF Myanmar, 2014).
Figure III-7 | Process of CRVS system in Myanmar
Source: Thet Thet Mu, 2015, Country Presentation for CRVS and IDM; Maynmar, Presentation at 2015 Global Knowledge
Forum on Strengthening Civil Registration and Vital Statistics (CRVS) and National Identity Management Systems,
The World Bank/Korea Eximbank Joint Consulting
The diagram Figure III-7 shows the general process underlying the CRVS system in Myanmar.
The Ministry of Health (MOH) first handles birth registration and issuance of birth certificates,
then conveys them to the General Administration Department (GAD) and the Central Statistics
Organization (CSO). The GAD then delivers the birth registration data to the Ministry of Immigration
and Population (MOIP). Having received birth registration data from the MOH and GAD, the CSO
and the MOIP take charge of managing data relevant to their work. The CSO manages these data
for statistical purposes and the MOIP uses them in generating NRCs or for other administrative
purposes. There is interagency cooperation in the handling of CRVS data within the government.
The table Table III-13 shows the processing of registration forms for health statistics. The types of
forms are Birth Information Form and Death Information Form (including the Medical Certificate of
Cause of Death) which are to be sent to the CSO, and Birth Registration and Death Registration for
the Department of Public Health under the Ministry of Health. Other forms include Birth Certificate,
Still-birth Certificate, Death Certificate, and Burial Certificate for Death that includes still-births for
applicants.
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Table III-13 | Registration Forms for Health Statistics

Sr. Types of Forms Particulars Remarks
V.R. Form 101

1 Birth Information Form (For CSO)
(includes still-births)
V.R. Form 201

2 (includes Medical Certificate of Death Information Form (For CSO)
Cause of Death)
V.R. Form 102

3 Birth Registration (For DOPH)
4 V.R. Form 202 Death Registration (For DOPH)
5 V.R. Form 103 Birth Certificate (For applicant)
6 V.R. Form 153 Still-birth Certificate (For applicant)
7 V.R. Form 203 Death Certificate (For applicant)
V.R. Form 204

8 Burial Certificate for Death (For applicant)
Source: Thet Thet Mu, 2015, Country Presentation for CRVS and IDM; Maynma”, Presentation at 2015 Global Knowledge
Forum on Strengthening Civil Registration and Vital Statistics (CRVS) and National Identity Management Systems,
The World Bank/Korea Eximbank Joint Consulting

In order to reinforce the CRVS system, the Myanmar government established the Coordination
Committee on Birth and Death Registration in February 2014. Chaired by the Deputy Minister of
Immigration and Population, the Committee consists of and is operated by public officials from
various government bodies that handle civil registration. The main roles of this Committee are to
oversee policies on data accumulation methods, publication of birth and death registration data
submitted by the Region/State Coordination Committee on Birth and Death Registration, and
technologies for managing statistics.
The Committee holds a regular meeting every one or two months to share information on the
goals and progress of each CRVS-related agency. Other committees of a similar nature have been
in place at every administrative level, down to the village level. The two common goals across this
diverse range of committees at each administrative level are i) to provide CRVS-related training
to public officials and other concerned staff members; and ii) to achieve universal civil registration
coverage.
Myanmar’s other agencies are actively affiliated with the Committee’s work. The Interagency
Working Group on Birth Registration (IAWG-BR) focuses on promoting cooperation among
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government agencies while boosting coverage. Co-chaired by the CSO and UNICEF, its membership
includes the General Affairs Department (GAD), the Department of Public Health (DOPH), the CSO,
the Ministry of Immigration and Population (MOIP), Myanmar Radio and Television (MRTV), the
Union Attorney General’s Office (UAGO), the Maternal and Child Welfare Association (MMCWA),
EDU, and UNICEF.
1.3.5. Cooperation between International Organizations and Private Sector

As an example of cooperation aimed at improved CRVS governance, a birth registration campaign
has been launched in cooperation with UNICEF. However, there are currently no cooperation
ventures with the private sector in Myanmar.

The rate of birth registration coverage for children under five years of age has reached
approximately 72% in Myanmar, with large gaps among states or regions, between urban and rural
areas, and among income brackets. This is believed to reflect the lack of clearly defined roles and
responsibilities among government agencies tasked with collecting demographic data in Myanmar,
as well as the absence of any legal framework to define their roles and responsibilities.
There is neither a comprehensive legal framework to cover the entire CRVS system in Myanmar in
general nor any applicable law governing CRVS in particular. Those laws that are partially applicable
to CRVS include the following: the Municipal Act (1898), the Towns Act (1907), the Villages Act (1907),
the City of Rangoon Municipal Act (1922), the Myanmar Villages Head Manual Act (1948), the
Development Affairs Act (1993), and the Child Law (1993, as modified in 2007).

Under the auspices of the Ministry of Health (MOH), vital statistics data in Myanmar have been
collected, compiled and published in collaboration with the CSO. However, these data contain
institutional limitations in that they cover only births and deaths. For one type of vital statistic, i.e.,
the causes of death, medical practitioners must check and certify the causes based on their medical
knowledge and expertise. However, very often these medical personnel do not have adequate
capacity to identify the cause of death to be recorded on a given death certificate.
In general, it can be said that the CRVS system in Myanmar is decentralized and independently
operated by the statistics department under each local government, thus leading to a lack of
standardization and uniformity with the central government. There is a Coordination Committee on
Birth and Death Registration at each level of central or local government, and at the city, province,
county, or village level. Within the central government, the Committee is presided over by the
Deputy Minister of Immigration and Population.
In accordance with the Statistical Authority Act 34 of 1952, the Central Statistical Organization
247
(CSO) is responsible for national statistics. The CRVS system was initially implemented in 1952 and
expanded to the national level in 2001. The Department of Public Health implements and manages
the system. As the lead agency, the roles of the CSO are to develop and provide vital registration
forms as well as to collect birth and death registration data. It also computerizes and estimates vital
statistics and manages, supervises, monitors and gives feedback on the system.
The roles of Myanmar’s Ministry of Health (MOH), the main implementing body, are shown in the
table below.
Table III-14 | Roles of MOH as Implementing Body
Classification Roles
- Coordinate and cooperate with CSO

Central government level
- Supervise, monitor and provide feedback
State/local government levels - Order, store and distribute forms
- Primary player
- Collect vital events
Village level
- Certify and issue registrations
- Submit reports (birth and death information forms) to the CSO
The roles of the General Administrative Department (GAD) are specified in the Ward of Village
Tract Administration Law. Under this law, the administrators of each administrative area must
collect registration data on births, deaths, and moving in and out of households; and they must also
provide public guidance and supervision so that births and deaths are registered within three days
of their occurrence.
The Coordination Committee on Birth and Death Registration chaired by the Deputy Minister of
Immigration and Population is tasked with providing updates on and maintaining data collection
methods, reporting tools and statistics while also developing and distributing guidelines relevant to
CRVS policies and procedures.
The nationwide CRVS strategy plan was prepared in May 2014 and subsequently presented at the
Forum on Accelerating Birth Registration in Myanmar held in July 2014. For government agencies
concerned, public officials at major national organizations responsible for CRVS activities in relevant
fields, development partners, members of the press, NGOs and lawmakers, the strategic plan
served as an official opportunity to jointly stress the importance of birth registration starting at the
municipal level.
In an effort to study and establish objectives in accordance with the guidelines provided under
the Regional Action Framework, the Myanmar government designates civil registration centers,
establish comprehensive CRVS-related regulations, and expands E-Platforms to allow for effective
permanent archiving of registered data and accumulation of the data at the national level.
248
Public officials handling vital statistics and registration have provided training to their counterparts
in each area for the purpose of managing CRVS personnel. In particular, training on facilitating the
use of E-Platforms is offered to public officials responsible for CSO at the municipal level.
1.3.8. Budget
The table below shows the CRVS budget for Myanmar, as proposed by UNICEF.
Table III-15 | Costs for Establishing CRVS in Myanmar (proposed by UNICEF, 2015)
Number of Estimated Cost

Total Budget
Main Activities for Outputs Residential per Residential
(USD)
Districts District
Output 1:
Raise birth registration coverage to near 100% during Birth
246 2,300 565,800
Registration Week by registering the births of approximately 1
million children under the age of five living in eight areas
Output 2:
Continue to promote the Communication for Development
(C4D) program, raising awareness of the importance of civil
246 1,000 246,000
and birth registration by distributing pamphlets and posters in
the Myanmar language to 200,000 households and mobilizing
religious leaders in each area
Output 3:
Create and maintain additional E-Platforms in order to allow
286 2,000 572,000
hourly and real-time based data monitoring and permanent
archiving
Output 4:
Purchase one backup server and provide technical support for 100,000
the database system including related staff training
Output 5:
Dispatch 12 public officials to Philippines and India for ten days 12 10,000 120,000
of field research
Output 6:
112,200 (TA)
Under the National Strategy on Development of Statistics,
122,800
support efforts to enhance capacity for information systems
6 (Training costs 235,000
used to generate vital statistics, including defining roles and
+ curriculum
responsibilities of the Office of the Civil Registrar General, and
development)
emphasizing South-South cooperation
Sub-Total program costs 1,888,800
Technical support and monitoring costs
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Number of Estimated Cost

Total Budget
Main Activities for Outputs Residential per Residential
(USD)
Districts District
Management, operation, monitoring and technical support

100,000
costs
Total direct costs 1,988,800
Overhead costs 11,200
Total proposed budget expenditure (total direct costs +

2,000,000
overhead costs)
Source: Aye, Gillian San San, 2015, Securing the first right-giving Myanmar’s children a birth certificate, using E-Platform
for Permanent Archiving System in Myanmar and Civil Registration System development, Unicef Humanitarian
Fundraising Concept Note.

Incentives underlying Myanmar government efforts to enhance its CRVS system include the
following: compliance with CRVS-related international standards; more complete coverage of
the civil registration system; more reliable information on civil registration; and linkage of civil
registration with vital statistics. Based on these incentives, the Myanmar government was able
to enter into cooperative ventures with international organizations. For example, Myanmar
participated in the WHO’s rapid assessment which evaluated its CRVS system and submitted the
results to the CRVS organizing committee for approval. Since then, WHO has supported efforts by
the Myanmar government to perform assessments that are comprehensive rather than merely rapid.
In addition, the birth registration campaign now in progress nationwide has also served as an
incentive. A total of 185,000 children have been registered in six regions/states so far, through
birth registration campaigns launched in Chin, Magway and Mon from October 20 - 24, 2014, and
in Ayeyarwady, Kayah and Kayin from May 4 - 8, 2015. The birth registration campaign relied on
promotional materials, such as those seen in Figure III-8. The campaign, which will be conducted in
other areas on an ongoing basis, contributes to raising public awareness of the importance of birth
and death registration.
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Figure III-8 | Promotional Material for Birth Registration Campaigns in 2014
Source: Promotion of Myanmar’s birth registration campaign, 2014, Retrieved from http://shwetahkarhmuchitthu.blogspot.
kr/2014/07/blog-post_29.html
At the same time, disincentives also exist that offset efforts of the Myanmar government in pro-
moting CRVS. Main disincentives refer to the lack of a comprehensive framework and low capacity
for managing CRVS tasks.
Myanmar does not have a comprehensive legal framework in place to support its CRVS system
and this is evident in a number of ways. Firstly, the registration system for recording details of vital
events is based on only two paper forms, without any computerized system based on data; secondly,
the security, safety and confidentiality of CRVS related information and data storage mechanisms
cannot be ensured even though these are recorded and maintained by public officials assigned to
this task. In addition, the huge disparity between urban and rural areas in terms of recording of civil
registrations and vital events also serves as an obstacle to a fully-functional civil registration system
in Myanmar.
Furthermore, the existing system has limited capacity that makes it difficult to record accurately
causes of death, manage data quality on a regular basis, and generate statistical data from the vital
registration system. Capability of personnel is low and as a consequence, raising public awareness
and public acceptance of CRVS reforms pose real challenges. Although a nationwide birth registra-
tion campaign is under way now, the public still does not fully appreciate the need for vital regis-
tration. CRVS related communities continue to debate how to address problems and to overcome
disincentives.

At present, the statistical capacity of Myanmar is considered very weak in many aspects. For
example, coverage of birth and death registrations and the statistical standards for recording causes
of death are particularly low. Furthermore, International Classification of Diseases (ICD) coding for
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mortalities is often performed incompletely, without regular audits or inspections. This is due not
only to a shortage of personnel but also the inadequate capability of the personnel available.
Enhancing statistical capacity requires efforts, which include deploying statistical experts to each
administrative area and providing medical personnel (i.e., doctors, health practitioners and CSO-
related staff) with training on statistical principles for the causes of death. All these efforts will
improve statistical accuracy. In addition, data management and feedback processes as well as a
system for regular assessments of data quality should be established as soon as possible.

In 2014, efforts to raise public awareness came to fruition. The outcomes include a forum for
birth registration, a week dedicated to promoting birth registration to the public, and with the
cooperation of UNICEF and the EU, E-Platforms were established in 44 residential districts across
Myanmar to facilitate the establishment of permanent birth records. Among these, the Chin, Kayin,
Kayah, Mon, Ayeyarwady and Magway residential districts were chosen as focal areas; in particular,
the Mon, Chin and Magway districts established E-Platforms for civil and vital registration at their
respective CSO offices.
Success in the above areas led to a review of the feasibility of expanding the Myanmar
government’s birth registration campaign, along with E-Platforms for vital registration, to the rest
of the nation. In order to promote the transition from paper-based to information technology-
based civil registration, computers and printers have been provided to civil registration centers in
the remaining 286 residential districts. Meanwhile, technical support is provided on a continual basis
for the establishment of database systems to computerize and make permanent data that has been
registered already. As E-Platforms send such data from each region or state to the central server in
real time, they have been instrumental to accurate and reliable data recording and compilation,
streamlining paperwork, and establishing policy in areas such as public health.
The health management information system covers 321 out of 330 villages (WHO, 2014).
According to plans to develop and utilize a computerized and integrated index at government and
regional levels, the Health Management Information System (HMIS) will be upgraded to become
the District Health Information System (DHIS). In order to strengthen the system’s capabilities,
appropriate education and training will be provided to medical and administrative personnel in
public and private hospitals (WHO, 2014).
By 2014, Myanmar’s national eHealth strategy was successfully implemented with technical
support from WHO, the Ministry of Health (MOH) and the Ministry of Communication and
Information Technology (MCIT). The MCIT is focused on establishing a governmental master plan
while the MOH will include performance and future agenda related to eHealth in the plan (WHO,
2014). It is expected many plans will follow these efforts to further enhance Myanmar’s e-Health
strategy.
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In Myanmar, National Registration Cards issued since 1990 include registered fingerprints.
However, these prints are unclear and inaccurate at times, making them difficult to use and
unreliable. This has led the University of Computer Studies, Yangon to conduct research to develop
technology that allows fingerprint recognition and other biometric recognition technologies to
be used in identification. Their research aims at developing technologies to accurately recognize
and record fingerprints, irises, etc. and to efficiently use immutable biometric information for the
purpose of personal identification.
Figure III-9 | Development of Biometric Technology through Fingerprint Recognition
Source: University of Computer Studies, Yangon, 2015, Retrieved from

http://www.ucsy.edu.mm/ucsy/humanbio.do

Myanmar has a relatively low birth registration coverage rate of 72%, with a large disparity
between urban and rural areas. Civil and vital registration for birth and death reporting is still paper-
based. In addition, there is neither a comprehensive legal framework to cover the entire CRVS system
in Myanmar in general nor any applicable law governing CRVS in particular. Medical professionals
do not have the capacity to identify causes of death and write related medical certificates. Use of
statistical capacity and biometric technologies are in their infancy. With these various obstacles in
mind, the Myanmar government and the local UNICEF office are working closely to improve CRVS
procedures. This includes closely cooperating on ways to enhance the birth registration system since
2013.
In January 2014, the President of Myanmar established the Coordination Committee on Birth and
Death Registration, chaired by the Deputy Minister of Immigration and Population. The Committee
plays significant roles in preparing and distributing guidelines, covering data collection methods,
expanding data reporting tools, and revising policies and procedures related to updating, storing
253
and maintaining of CRVS related statistics. This strategic plan for Myanmar’s CRVS was prepared
as a report in May 2014 and formally presented in the July 2014 Forum for Facilitation of Birth
Registration, which was held in Myanmar.
For future smooth operations of its CRVS system, the Myanmar government should have in place
a comprehensive legislative framework to cover its entire CRVS system. It should lay the groundwork
for managing the national CRVS system with a view to further development, by establishing a
comprehensive legal framework that combines CRVS-related provisions and institutions which are
currently scattered across several different laws. These include the Municipal Act (1898), the Towns
Act (1907), the Villages Act (1907), the City of Rangoon Municipal Act (1922), the Myanmar Villages
Head Manual Act (1948), the Development Affairs Act (1993), and the Child Law (1993, as modified
in 2007). In anticipation of new and upcoming needs, the government would have to also consider
adding new applicable laws for population registration and statistics.
The capacity of medical professionals and institutions (i.e., the main agents for identifying
causes of death and writing medical certificates) should clearly be enhanced. Causes of death
involve compilation of invaluable information that may have greater implications on vital statistics
compared to other kinds of information, and such information can be utilized to make informed
decisions in more diverse policy areas. As such, education and training should be provided on an
ongoing basis to update medical professionals and institutions responsible for this critical task of
identifying causes of death. Some initiatives include inviting personnel from relevant international
bodies such as WHO and collaborating with medical staff from more advanced countries that use
more sophisticated methods and means for this task.
Statistical capacity and the computerization of CRVS systems also pose major challenges within
Myanmar. Statistical capacity, which is essential to compile, process and update data collected by a
civil registration system, is seen as a qualification required of persons who handle statistics within
the system as well as a key factor to dramatically improving the quality of statistical data collected.
In addition, if the written forms used for CRVS are computerized, the various policy areas and civil
registration information can be more easily linked.
As for biometric identification technology, research is being conducted at the University of

Computer Studies, Yangon on the use of fingerprint recognition and other biometric technologies
that can be reliably used for identification purposes. The Myanmar government should actively
support such and more research activities in order to accelerate the use of biometric information
ranging from clearer fingerprints on the National Registration Card to iris recognition as a reliable
means of verifying personal identification.
The goal is therefore to support a CRVS management system that takes into account incentives
and disincentives that exist, the need for a comprehensive legal framework, capacity building, and
also adopting advances in IT such as biometrics and data management support.
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2. Comparative Study on CRVS Systems in Partner Countries

2.1. Comparative Analysis Framework
2.1.1. Vital Statistics Performance Index (VSPI)
The performance of vital statistics indicates the degree to which vital statistics produce information
that accurately reflects the health status, especially the causes of death, of a specific population
group. As a metric, the Vital Statistics Performance Index (VSPI) represents the performance of civil
registration and vital statistics (CRVS) by taking each nation’s mortality data as proxy variables for
the quality and utilization of vital statistics produced by the civil registration system. The use of
mortality data as the standard for measurement can be justified by the fact that in general, each
nation’s birth registrations are higher than its death registrations.
The VSPI is converted on a continuous scale from zero to one for each calendar year of vital
statistics data that have been reported since 1980, and are publicly available for a given country. A
value close to 1 denotes that the data of a nation for the year accurately represent demographic
characteristics of the nation’s population group and are suitable to be used for establishing policies.
In contrast, a value close to 0 indicates that the data are entirely unrepresentative of a country’s
demographic profile, and are unsuitable to be used for establishing policies.
One of the measurement items of VSPI is the “quality of cause of death reporting” for which
the most widely used indicator is the proportion of ill-defined causes of death (IDCD). Another
measurement item is “the level of detail of cause of death,” which uses the concept of “garbage
coding” from the Global Burden Disease (GBD) lexicon to classify ill-defined or unspecified causes
of death into either entirely meaningless (such as ill-defined causes) or somewhat meaningful (such
as malignant neoplasm of an unspecified site). “Completeness of death reporting” is measured
through “complete estimates” on CRVS performance, which is a combination of estimated adult
and infant mortality rates and registered numbers of deaths. In addition, the VSPI measures the
“quality of age and sex reporting,” and missing values for the age and sex of the deceased (such as
demographic characteristics) lead to decreased utility of the data. The “internal consistency” item
measures the biological appropriateness of reported causes of death. “Timeliness and availability
of data” can be secured by applying a “weighted smoothing algorithm” which places emphasis on
having the most consistent and most recent data over intermittent and less timely data (Phillips et
al., 2014).
The data source of VSPI is the death-related database of the “GBD 2010 study” (WHO, 2016). This
database provides the most comprehensive data among all information related to human deaths,
information that has been collected and edited utilizing open sources including reports from WHO,
the UN, and statistics and publications provided by other research organizations.
Mikkelsen et al. (2015) classified the performance of CRVS based on vital statistics of 148 countries
between 2005 and 2012 by applying the highest VSPI scores. A typology was then created based
on the intervals of VSPI scores. For example, countries with a VSPI score less than 0.25 are classified
255
as at the “very low” level, between 0.25 and 0.49 as “low,” between 0.50 and 0.69 as “medium,”
between 0.70 and 0.84 as “high” and between 0.85 and 1.00 as “very high.”
Figure III-10 | Typology of CRVS systems based on Vital Statistics Performance Index (VSPI)
scores for the best available year between 2005 and 2012
Source: Mikkelsen et al., 2015,A global assessment of civil registration and vital statistics systems: monitoring data quality
and progress. The Lancet. doi: http://dx.doi.org/10.1016/S0140-6736(15)60171-4
Group 1 (very high level) consists of 46 countries with death registration systems that enable
them to produce data reliable enough to be used in health care, research and policy planning. In
most cases, these are countries in regions with a long history of civil registration such as Europe,
North America and Australasia. However, middle- and low-income countries in the regions of
Latin America (including Chile, Cuba and Venezuela), the Middle East (Kuwait), Africa (Mauritius)
and Central Asia (Kyrgyzstan) also show death registration rates of nearly 100 percent, and the
statistics data produced from the highest rates are widely used for health care policies and research.
Moreover, death statistics for Group 1 countries are widely publicized and can become available to
others in a timely manner.
Group 2 (high level) consists of 28 countries where most deaths are registered, but the timeliness
of death statistics data is low and the causes of death are either ill-defined or unspecified. Included
in this group are some countries in Europe (including Belgium, Bulgaria, Greece, Russia and
Portugal), Latin America (including Argentina, Brazil, and Colombia), Asia (Hong Kong, Malaysia,
Singapore and Taiwan), and Africa (Egypt, South Africa).
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Although countries in Group 3 (medium) have CRVS systems in place, civil registration coverage
for their respective populations is incomplete, and the use of mortality statistics is low due to the
low accuracy and materiality of the statistics. In addition, the data are not consistently produced.
These countries are distributed in the regions of Central Asia (including Ukraine, and Kazakhstan),
Southeast Asia (Thailand and the Philippines), the Middle East (Iran and Jordan) and Latin America
(including Ecuador and Peru).
As for Group 4 (low level), this group consists of 14 countries where the completeness of the CRVS
system and the quality of data has seen recent improvements. These countries include China, Sri
Lanka and Algeria.
Group 5 (very low level) consists of 39 countries mainly in South Asia or Southeast Asia. These
countries including Bangladesh, India, Myanmar, Ghana and Kenya where CRVS systems are lacking
in that their governments intermittently report only a portion of deaths, and data with clear causes
of death are provided only by medical facilities like hospitals. Finally, the more than 60 countries
that remain are mainly found in Africa and do not have civil registration systems at all or at most,
have very inadequate systems, thus rendering them unable to accumulate and report data of CRVS
nature.
2.1.2. Country Accountability Framework

The Country Accountability Framework (CAF) is an assessment roadmap for accountability at
the national level aimed at strengthening each country’s accountability in the field of health.
This refers to a roadmap reviewed and validated through a broad-based consultation with
the major stakeholders in each country, along with CAF-based assessments and plans drafted
during accountability workshops. Specifically, the CAF is used as a tool for assessing and planning
implementation of the country accountability for public health with a focus on women’s and
children’s health (WHO, 2012).
The main purpose of the CAF is to determine the current status and provide a relevant framework
for each country, based on various country accountability assessment items related to maternity and
infant health. In addition, it is intended to lay the foundation for development of a roadmap and
related activities required for CAF implementation while also evaluating and monitoring procedures
for a given country’s accountability roadmap and its major activities.
The CAF is used to assess country accountability largely based on seven items, namely Civil
Registration and Vital Statistics (CRVS), Monitoring of Results, Information and Communication
Technology (ICT), Maternal Death Surveillance and Response (MDSR), National Review Mechanisms,
Resource Tracking, and Advocacy.
Countries and agencies have come to realize that very different circumstances and capacities exist
and are available in different countries, and country collaboration efforts can be very beneficial. For
these reasons, country experiences need to be documented and shared.
A strong Civil Registration and Vital Statistics strategy plan for countries in Asia and the Pacific
257
should include a strong regional platform where governments, development agencies, country
partners, and technical experts can exchange information, share experiences, document best
practices, and propose innovative approaches. The shared goal is to build resources and capacities
strong enough to manage and overcome CRVS challenges faced by countries in this region. In
this regard, joint collaborative research and partnerships initiated and supported by international
organizations like the World Bank have significant roles in enabling country experience sharing to
facilitate information sharing and mutual learning.
2.2 Analysis Results

2.2.1. VSPI Scores and Typology Results
The results of VSPI assessment are provided in Table III-16. First, Korea is in Group 1 (high level),
where the death registration systems to produce data are assessed to be reliable enough to be used
in health care, research and policy planning. The Philippines belongs to Group 3 (medium) because
their civil registration coverage for the populations is incomplete, and the use of mortality statistics
is low due to the low accuracy and materiality of the statistics. Myanmar is placed in Group 5 (very
low level), since the CRVS system there is lacking in that their government intermittently reported
only a portion of deaths, and data with clear causes of death are provided only by medical facilities
like hospitals. Unfortunately, the VSPI score of Lao was not available.
Table III-16 | VSPI Scores (median score at 5-year intervals, 1980-2012) and Typology
Results
1980-1984 1985-1989 1990-1994 1995-1999 2000-2004 2005-2009 2010-2012 Typology
South Korea 9.5 44.7 75.2 80.0 82.2 85.8 81.5 Group 1
Laos . . . . . . . .
Myanmar 0.0 0.0 0.0 0.0 0.0 1.6 0.5 Group 5
Philippines 49.5 48.6 53.4 69.0 70.3 45.6 20.6 Group 3
Source: Mikkelsen, et al., 2015, A global assessment of 85.8 civil registration and vital statistics systems: monitoring data
quality and progress;
Phillips, et al., 2014, A composite metric for assessing data on mortality and causes of death: the vital statistics
performance index, Population Health Metrics 12.1: 14.
2.2.2. Country Accountability Framework (CAF)

Country Accountability Framework is a means of providing the assessment of CRVS systems found
in the Philippines and Laos.
In the case of the Philippines, although the assessment and plan for CRVS and coordinating
mechanism attain a certain level, these need further strengthening. Specifically, rapid assessment
is conducted using WHO VRA (Visual Rapid Assessment) and Health Metrics Tool, and its results
258
integrated into the PHIN (Public Health Information Network) strategic plan. As the full assessment
is ongoing, its results are disseminated in real time. Furthermore, once the full CRVS assessment
process is finalized, the improvement plan needs to be developed.
With regard to the coordinating mechanism, we note that the forms and manuals for birth and
death registration have been revised and an interagency committee is formed by NSO (National
Statistics Organization) and DOH (Department of Health). However, there is a need to further
strengthen the process for interagency coordinating committee involving all key stakeholders.
In addition, the system for community reporting and local studies for mortality does not exist.
Because the community reporting of births and deaths is done manually now, a computerized
reporting system and validation for data quality should therefore be developed. Moreover, the
weak registration systems for IP’s and Muslims pose limitations in their vital statistics reporting, so
the community reporting of births and deaths should be supported using innovative approaches,
for example, using current updates of Barangay civil registration system by NSO and relying on
Provincial Maternal Death Review Committees to provide helpful information.
Meanwhile, hospital reporting needs strengthening in two ways. First, it is incomplete and
inaccurate because of minimal private sector data and manually reporting system, so leveraging
electronic data from private facilities using PHIC, professional societies can strengthen the quality
of data. Second, ICD-10 is not used properly in hospital reporting for cause of death, so training of
doctors in ICD 10, regular quality control of certification, and improving coding practices should be
emphasized.
Lastly, the vital statistics system needs a lot of strengthening in its dissemination and quality
assessment. Vital statistics is published every year at national and subnational levels, with a 2-year
time lag, but this needs to be reduced to 1 year. In addition, minimal data quality assessment can
be developed by strengthening the analytical capacity of vital statistics office, including data quality
assessment. There is at present no surveillance system for the real-time vital statistics, so appropriate
surveillance system such as maternal and neonatal death reporting systems should be developed.
Additionally, the birth and death registration from CRVS can be validated using data from the
census.
In Laos, more improvement and strengthening strategies are needed compared to the Philippines.
First of all, there is no comprehensive assessment and plan for CRVS. However, a simple assessment
is included in Laos’ national HIS strategic plan 2009-2015 (Goal 4 Objective 9) and the rapid
assessments are ongoing by the Lao Statistics Bureau. A situation assessment and design of CRVS was
proposed by UNICEF, UNFPA, WHO, UNESCAP and Plan International in 2011. Following this, UNICEF,
UNFPA, WHO have secured some seed fund for it, and concerned ministries and development
partners would discuss its development.
Second, although there are national standardized forms for facility-based death reporting, and
computer-based system is being piloted in selected central hospital. Hence, more functions need
to be improved. For instance, hospital reporting of death needs to be improved using electronic
259
reporting system from central hospitals, and training of doctors in ICD-10 is also important for
developing an accurate reporting system.
Third, community reporting needs more reinforcement or strengthening. There is a form of

community reporting in selected provinces in some aspects. Existing forms need to be reviewed and
scaled up to other provinces in the future.
Fourth, a vital statistics system is not present. Because vital statistics rely on 2005 national census
projection, there is a need to improve analytical capacity of vital statistics office, including its data
quality assessment.
Meanwhile, there is no official interagency coordinating committee, but an interagency (MPI/NSB,

MOHA, MOH, MOE, UNICEF, UNFPA, UNESCAP, ADB, WB, Plan International) task force is in place.
In future, interagency coordination involving all key stakeholders needs to be established, and
opportunities to follow up for multi-stakeholders need to be provided.
Lastly, there are no local studies for mortality. In view of further development, consulting with the
University of Health Science and NIOPH to start HDSS in selected districts is needed.
260
Table III-17 | Assessments by Item (Philippines, Laos)
Achievement
CRVS Item Descriptions for CRVS Item Action Plan
Level*
- Assessment made by using WHO’s Visual Rapid Assessment

(VRA) and Health Metrics Tool and collecting various proposals.
System needs - Distribute assessment results.
Assessment and
certain level of - Assessment results integrated into Public Health Information - Complete entire CRVS assessment and establish plans for
Plan
improvement Network (PHIN) strategic plan. improvement measures.
- Assessment on all items under way.
- Birth and death report forms and manuals reviewed.
- Philippine Health Information Network.

System needs
System Manage- - Interagency committee led by the National Statistics Office - Strengthen procedures for organization and management of
certain level of
ment Mechanism (NSO) and Department of Health (DOH). interagency committee involving all stakeholders.
improvement
P - Concerning health and statistics, interagency committee
h made reports to executive board of National Statistical
i
Coordination Board (NSCB).
l
i
- Improve overall quality of reporting at health institution level
p
p through use of electronic reporting system.
- Reporting at healthcare facility level is incomplete and
i System needs - Manage ICD-10 and death certificate quality on regular basis
n Healthcare inaccurate: all reports are written manually due to lack of
significant and offer medical staff training to improve coding operation.
e Facility-level private sector reporting.
level of - Collect and accumulate more varied private sector data.
s Reporting - ICD-10 standard applied for health institution level reporting;
improvement - Utilize electronic data from Philippines Health Insurance
valid quality data needed.
Corporation (PHIC), professional societies and private sector
organizations.
- Community-level birth and death reporting also made - Strengthen community capacity and implement innovative
manually. To address this problem, the National Statistics measures in birth and death reporting.
Office has established and updated the Barangay Electronic - Barangay Electronic Civil Registration System.
Development
Community-level Civil Registration System. - Provincial Maternal Death Review Committees.
required due to
Reporting - Another system shortcoming is IP registration and civil - Strengthen community level reporting through use of verbal
lack of system
registrations of Muslim residents. autopsies by local public officials.
- Currently, verbal autopsies are performed at minimal level, - Integrate National Commission on Indigenous Peoples (NCIP) and
but applicable and coherent standards are absent. Office on Muslim Affairs (OMA) into interagency committee.
261
262
Achievement
Level*
- Strengthen analysis capacity of agency responsible for VS,

including data quality assessment.
- Reduce time lag between registration and publication from 2
P years to 1 year.
h System needs - Vital Statistics (VS) publicized and released annually at
- Establish electronic reporting system at local government level.
i significant national and local levels with two-year delay.
l Vital Statistics - Build surveillance and monitoring system (e.g. maternal and
level of - Minimum level of assessment made in terms of data quality.
i infant mortality report system).
improvement - Currently, no surveillance and monitoring agency exists.
p - Establish surveillance system for Autonomous Region in Muslim
p Mindanao (ARMM) and urban slums.
i
n - Integrate birth and death registrations of 2007 into civil
e registration system by using 2007 census data.
s
Domestic Development
Research on required due to
Mortalities lack of system
- No comprehensive assessment for CRVS system exists, but

simple evaluations of system are included in Objective 9,
Development - Implement CRVS Situation Assessment and Design.
Goal 4 of 2009-2015 Health Information System (HIS).
Assessment required due - UNICEF, UNFPA, and WHO secured a certain amount of seed
- Rapid assessment provided by National Statistics Office of
and Plan to lack of funding, and relevant discussion with related agencies and
Laos.
system cooperative organizations planned.
- CRVS Situation Assessment and Design proposed by UNICEF,
L
UNFPA, WHO, UNESCAP, and Plan International in 2011.
a
o
s - No official interagency organization or management
System needs committee; rather, joint task force team from relevant - Strengthen interagency organization and management
System
significant agencies (including Ministry of Planning and Investment, involving all key stakeholders.
Manage-ment
level of National Statistics Office, Ministry of Home Affairs, Ministry - Create opportunities for various officials concerned to follow up
Mechanism
improvement of Health, Ministry of Education, UNICEF, UNFPA, UNESCAP, on progress.
ADB, WB, Plan International) commenced work.
Achievement
Level*
- There is a national standard institution-based death - Enhance capacity of healthcare facilities responsible for death
Healthcare Development
registration form. reports, using electronic reporting system (starting with key
Facility-level required due
- A computer-based registration system is being piloted by hospitals); Technical Assistance (TA) funds needed.
Reporting to lack of
several medical institutions, but its overall function needs to - Provide medical staff with training on ICD 10 (WHO supports
system
be improved. such training in Thailand).
System needs
- Evaluate reporting procedures in selected local areas and
Community significant - Some registration forms are available in some local areas at
expand to other local areas (additional funds required for
Level Reporting level of community level.
L expansion).
improvement
a
o
s Development
- Strengthen analysis capacity of agency responsible for VS
Vital Statistics required due
- VS relies on 2005 national census data. including data quality assessment while preparing for national
(VS) to lack of
census (2015).
system
- To apply Health Data Standards and System (HDSS) to some

Development
Domestic selected areas,
required due
Research on - No domestic research on death has been conducted. - Conduct consulting with health and science research universities
to lack of
Death and public health research centers (Technical Assistance (TA)
system
funds needed)
Source: Retrieved from http://www.who.int/woman_child_accountability/countries/Lao_Scorecard_and_Roadmap_final.pdf; Retrieved from http://www.who.int/woman_child_

accountability/countries/PHL_Roadmap_final_web.pdf
* Achievement levels are indicated based on 4-point scales: “Development required due to lack of system” which is the lowest score; “System needs significant level of
improvement”; “System needs certain level of improvement”; “System already exists and no additional measure required” which are the highest scores.
263
2.2.3. Roadmap
The CRVS roadmap of partner countries includes Myanmar, Laos, the Philippines, and details are
found in Table III-18.
According to the roadmap of Myanmar, activities with the highest priority were mostly those
related to comprehensive planning and evaluation including CRVS rapid/comprehensive assessment
and strategy development for CRVS improvement. The task of managing stakeholders of Myanmar’s
CRVS involves activities such as organizing national stakeholders’ meetings, and holding regular
meetings of interagency coordinating committee with expanded membership also was accorded
high priority. Technical factors related to identifying cause of death were also regarded as very
important. Also, training of doctors and managing the data quality of certificates using ANACoD
(Analyzing mortality level and cause of death data) to evaluate the quality of cause of death
were seen as highly prioritized activities. Subsequently, activities with medium priority included
strengthening community reporting of births and deaths through innovative, multi-sectoral
collaboration to expand informant base, and enhancing the capacity of personnel doing CRVS
tasks such as reporting capacity, ICD-10 encoding, data quality assessment and so on. Furthermore,
Myanmar was the only country among the three partner countries that tried to develop an
alternative strategy used to fill up deficiencies in vital statistics reporting through HDSS (Health Data
Standards and System), a sample registration system. The lowest priority involved legal frameworks,
which referred to legislation and regulation review, update and compliance.
By comparison, the roadmap of the Philippines presented reporting system development and
computerization of medical facilities, strengthening innovation, improving birth and death reporting
such as electronic civil registration system as highly prioritized activities. While computerization of
CRVS occupied the highest priority of the Philippines government, dissemination of CRVS assessment
results, development of statistical capacity and analysis capability were accorded the lowest priority
in the Philippines.
Last but not least, Lao PDR selected Situation Assessment and Design of CRVS as the most
important activity. To elaborate, Lao PDR government had a comprehensive discussion regarding
CRVS with related ministries and cooperating organizations. The enhancement of medical facilities
in terms of death reporting using the electronic reporting system, and national expansion of report
process assessment both had high priority. However, a factor in common for these activities was that
in spite of getting high priority, funds collected were not adequate, which implied the necessity
of ensuring sufficient funds in future. Strengthening statistical capacity and analysis capability of
vital statistics related organizations was also included in the group of highly prioritized activities.
Meanwhile, giving opportunities to multi-stakeholders to follow up and improve inter-agency
management had medium priority. IDC 10-related doctors’ training was also included in this group.
The lowly prioritized activities included preparation of national surveys, and consulting with colleges
on research of public health and science, and cooperation with other public research institutes. The
main problem was also lack of funds.
264
Table III-18 | CRVS Roadmap
Priority Lead institutions Year
(1-2=high, Approach and Coopera-ting
Priority activities (Government and Total costs
2=medium, measures organiza-tions
national agencies) 2012 2013 2014 2015
3=low)
Conduct rapid,
Ministry of National
comprehensive Organize meeting of
Planning and Economic WHO,
assessment on CRVS; domestic stakeholders;
Development (MNPED), UNICEF, $810,000
Develop strategies to Establish development
1 Ministry of Health (MoH), UNFPA,
improve CRVS; strategies using WHO’s
Ministry of Home Affairs WB, USAID,
Create advocate rapid, comprehensive
(MOHA) AusAID
groups and mobilize assessment tool
core stakeholders
Strengthen Hold regular

interagency meetings of
Planning and Economic
mediation committee mediation committee
Development (MNPED), $5,000
including all core 1 by increasing its
Ministry of Health (MoH),
stakeholders; membership and
Ministry of Home Affairs
Myanmar empower it and hold delegating new
(MOHA)
regular meetings authority
Revise law to make it

compulsory for people WHO,
in rural areas to submit Ministry of National UNICEF,
death certificates Planning and Economic UNFPA,
Introduce mechanism before burying Development (MNPED), WB, USAID,
to inspect, update deceased; Ministry of Health (MoH), AusAID
3
and observe laws and Hire advisors for legal Ministry of Home Affairs
regulations documents; (MOHA),
$525,000
Heighten awareness Attorney General
on revised laws
and advocate legal
execution
265
266
3=low)
Train national
Offer medical staff
facilitators at national/
training for ICD-
local level (17) so
10 briefs and death
that they can provide
certificates;
training for medical
Quality management
staff in their respective
for certificates on
areas;
regular basis use;
Proceed with training
Analyzing mortality WHO,
for central statistical
level and cause-of- UNICEF,
authorities on
death data (ANACoD) Ministry of Health (MoH) UNFPA,
ANACoD;
to assess data quality Ministry of National WB, USAID,
Implement ANACoD in
Myanmar for causes of death Planning and Economic AusAID
analyses on causes of
Improve ICD-coding Development (MNPED) $500,000
death through training
method through
strategy development
central statistical
and quality assessment
authorities’ computer
process;
systems;
ICD coding
Enhance data
computerization and
reporting process
workflow analysis
from hospitals to
at central statistical
statistical agency
authorities;
through computeriza-
Evaluate electronic
tion
reporting system
3=low)
Clarify list of variables

Strengthen birth and
for birth and death
death reporting in
reporting (HMN: Health
local communities;
Metrics Network/
Intensify multi-
WHO);
disciplinary
Expand scope of
cooperation to Ministry of Health (MoH),
informants to various
expand sources of Ministry of National
fields and define their
information; Planning and Economic WHO,
role and authority;
Strengthen Development (MNPED) UNICEF,
First, examine local
reporting capacity UNFPA, $500,000
2 reporting and verbal
of local healthcare WB, USAID,
autopsy system
manpower, AusAID
and expand use of
volunteers and
automated verbal
local administrative
autopsies in deducing
Myanmar organizations under
causes of death
Ministry of Home
nationwide;
Affairs;
Expand strategies
Automated verbal
and action plans
autopsy of basic
nationwide via short-
health facilities
term pilot program
Offer training to 200
Strengthen capacity Planning and Economic WHO,
relevant staff through
of agencies handling Development (MNPED) UNICEF,
Training-of-Trainer
vital statistics, UNFPA, $500,000
2 (TOT) method (most
including data quality WB, USAID,
at central level, and
assessment and ICD- AusAID
1-2 persons at state/
10 coding
regional level)
267
268
3=low)
Develop strategies
to fill void in vital
statistics via Health WHO,
2 Planning and Economic
Data Standards Evaluate strategies, UNICEF,
Development (MNPED), $200,000
and System (HDSS) after developing and UNFPA,
Myanmar Ministry of Health (MoH),
or sample civil implementing WB, USAID,
Ministry of Home Affairs
registration system; AusAID
(MOHA)
Expand system
nationwide through
pilot program
Department of
Health (DOH),
Department
Distribute results of National Statistics Office
Distribute results 3 of Interior Done
rapid assessment (NSO)
and Local
Government
(DILG)
Philip-pines
Laos
Department of
Complete entire
Health (DOH),
CRVS assessment Establish measures to
Department
and establish apply to entire National Statistics Office
of Interior Done
improvement 3 assessment tools and (NSO)
and Local
measures improve system
Government
(DILG)
3=low)
Strengthen
procedures
for interagency
Under
organization and _ _ _ _
planning
management
committee involving
all stakeholders
Improve reporting PhilHealth,

Invest in strengthening
from healthcare National
Health Management Department of Health $400,000
facilities and utilize 1 Statistics Office
and Information
electronic reporting (NSO)
System (HMIS)
system
Philip-pines Offer training

Laos for medical staff Train medical teams
involving ICD-10, at national healthcare Department of Health National
$180,000
and regular quality facilities; (DoH) Statistics Office
management of Apply electronic tools (NSO)
certificates; Improve
coding operation
Obtain private sector

_ _ _ _ _
data
Obtain electronic
data from private
institutions such as _ _ _ _ _
PHIC and professional
societies
269
270
3=low)
Strengthen
community-level birth
Department of
and death reporting
Health (DOH),
and implement 2 Lobby local
Department
innovative measures; government units National Statistics Office
of Interior $100,000
Barangay Electronic (LGUs) to increase (NSO)
and Local
Civil Registration budget for civil
Government
System; registration
(DILG)
Provincial Maternal
Death Review
Committees
Strengthen
Philip-pines
community- level
Laos Improve maternity NSO, Local
reporting by using Department of Health
and infant mortality Government $150,000
verbal autopsies _ (DOH)
reporting system by Units (LGUs)
provided by
using text messages
community public
officers
Integrate National
Commission on
Indigenous Peoples Department
(NCIP) and Office of _ _ _ of Health, _
Muslim Affairs (OMA) Academia
into interagency
committee
3=low)
Strengthen analytic
Offer task-specific
capacity of VS Department
training for enhancing $50,000
management agency NSO of Health,
analysis capacity of
including data quality Academia
workforce
assessment
Reduce time lag

between publishing
3 _ _ _ _
assessment results
from 2 to 1 year
Computeriza-tion
of local government _ _ _ _ _
level reporting system
Laos Establish surveillance

Evaluate and invest in
system (e.g. maternal Department of Health $50,000
health data and the _
and infant mortality
system
reporting system)
Conduct CRVS
Situation Assessment
Ministry of Interior,
and Design (UNICEF, Rapid assessment UNICEF,
Ministry of Health,
UNFPA and WHO UNFPA,
Ministry of Planning and
secured seed UNESCAP, $30,000
1 Investment, Ministry of
funding, and planned WHO, Plan
Labor Social Welfare,
discussion with International
National Assembly
relevant agencies
and cooperating
organizations).
271
272
3=low)
Strengthen Ministry of Interior, UNICEF,

interagency Ministry of Health, UNFPA,
organization and Ministry of Planning and UNESCAP, $0
2 Meetings
management Investment, Ministry of WHO, Plan
involving all Labor Social Welfare, International
stakeholders National Assembly
Ministry of Interior, UNICEF,

Create opportunities Ministry of Health, UNFPA,
for multiple Follow-up measures Ministry of Planning and UNESCAP, $0
2
stakeholders to Investment, Ministry of WHO, Plan
follow up Labor Social Welfare, International
National Assembly
Laos
Improve medical
institutions
responsible for
Introduce sample
death reports using Local healthcare facilities,
procedures for WHO $30,000

electronic reporting 1 DPF (Depositor
improvement and offer
system (starting Protection Fund)
training
with key hospitals);
Technical Assistance
(TA) funds needed
Offer training for

Local healthcare facilities,
ICD-10 medical staff Training WHO $100,000
2 DPF (Depositor
(WHO supports such
Protection Fund)
training in Thailand)
3=low)
Ministry of Planning
Evaluate selected
and Investment,
provincial reporting Assessment meetings,
(National Statistics UNICEF,
procedures first, support for expansion
Office), Department UNFPA, WHO,
and then expand and training at $20,000
1 of Preventive Hygiene, WB, JICA,
these to other provincial and local
Maternal and Child KOFIH, LUX
areas (additional levels
Health Service Center,
funds needed for
DPF (Depositor
expansion)
Protection Fund)
Strengthen analysis
National Statistics
capacity of VS
Training, Consulting Office, DPF (Depositor $0
management office 1
Laos Protection Fund)
including data quality
assessment
National Statistics
Prepare for national Advocacy $0
3 Office, DPF (Depositor
census (2015)
Protection Fund)
Consult with health

Contract with
science and research
research organizations
universities and $1,000,000
3 (universities, national
public health research
public health research
centers
centers)
(TA funding needed)
Source: Retrieved from http://www.who.int/woman_child_accountability/countries/MMR_roadmap_final_web.pdf Retrieved from http://www.who.int/woman_child_

accountability/countries/Lao_Scorecard_and_Roadmap_final.pdf
Retrieved from http://www.who.int/woman_child_accountability/countries/PHL_Roadmap_final_web.pdf

273
Ⅳ Conclusions and Recommendations
Civil registration and vital statistics (CRVS) systems draw on many sectors of government including
statistics, health, civil registry, finance, and planning. These systems play a significant role in public
administration and governance by providing individuals with legal identity and civil status, and
also by generating information that can be used for planning government services and monitoring
development. The data is also essential for identifying and monitoring key health issues in the
population.
The timeframe of 2015-2024 is now known as the UN Asia Pacific Decade for CRVS (UNESCAP,
2015). Regional governments and CRVS partnerships have a shared vision, which is that, by 2024, all
people in Asia and the Pacific region will benefit from comprehensive, unified, and responsive CRVS
systems that can support good governance and accountability in developing health, education, as
well as for equality and human rights improvement.
Furthermore, post 2015 Millennium Development Goals (MDGs) and Sustainable Development
Goals (SDGs) call for promises to “Leave No One Behind” and “Get Everyone in the Picture”, which
are in turn commitments that highlight the need for inclusive and accountable CRVS systems for
all nations in the region. For these goals to succeed, governments must first realize that the vital
statistics function inherent in CRVS is fundamental in providing data to create the most suitable
policies for nation building and monitor targets set when formulating these policies.
Despite the steady increase of the awareness for the importance of the CRVS system and its
benefits, the actualization of such a system, in reality, remains as a difficult task fraught with various
challenges in many developing countries.
This research study aims to identify the many challenges faced by developing countries in
developing a comprehensive CRVS system. Specifically, it examines the history and development
status of CRVS systems in three countries, namely Laos, Myanmar, and the Philippines. These three
countries are in the process of attempting to construct national comprehensive CRVS systems and
to successfully operate their systems to meet operational standards of CRVS systems established in
more developed nations like South Korea.
South Korea is exemplary of a nation where the CRVS system has taken root and is being operated
relatively efficiently by actively utilizing high-tech computerization technology, and where CRVS
274
Part 2 Ⅳ_Conclusions and Recommendations
functions are supported by legal frameworks. In addition to having a sound infrastructure, South
Korea has the advantage of being steered by the political will and leadership of policymakers who
strongly and steadfastly support the establishment, consolidation and management of a CRVS
system for nation goal setting, aimed at development and improvement “of and for all citizens”.
These advantages, or critical success factors listed below, are indeed critical to having an established
CRVS system in place for a nation’s development.
1.1. CRVS Promotion and Integration

The construction of a system based on strong legal and technological foundations and the
generation of demand for CRVS functions and ensuing benefits in order to induce citizens to
understand and actively participate in the system are important prerequisites for a CRVS system to
be established successfully in a developing country.
1.1.1. Recognition and Utilization of CRVS

Citizens of developing countries like Laos and Myanmar have a low awareness of the necessity
and significance of the CRVS system, so the usage and participation rates for this system remain very
low despite efforts to promote civil registration of vital events like birth and death. A key challenge
in developing countries is how to overcome practices, tradition or customs that seemingly reject
the very act of registration of a vital event, as in the case of indigenous peoples’ preference to have
babies delivered at home, or with Muslims’ religious arrangements for their deceased. Most low
and middle income countries have primarily paper-based records of birth and death events, and
these are not easily retrievable or shared between government agencies that need these records for
decision or policy making.
Nevertheless, much progress has been made in the past decade on higher recognition and
utilization of CRVS and having in place an established system for the registration of vital events. The
health sector benefits from utilizing CRVS data for planning services, for example, by offering health
benefits to senior citizens. Linking birth registration to health immunization programs and other
child care services (e.g., provision of a basic education) is also beneficial to those involved.
1.1.2. Incentives
There are many good reasons for the need of an established CRVS system for a country. On the
whole, the registration of vital events is beneficial not only for the individual, but also for national
and local governments, and for the private sector. In order for a civil registration system to work, the
individual citizen would want a good reason and incentives to register. Many incentives are linked
with government benefits, though the individual can be convinced of the convenience and value in
following civil registration procedures, such as in these instances:
• Being registered in a civil register serves as evidence of citizenship and is accorded certain rights
like getting a passport for travel, embassy’s assistance while overseas, etc.
• Easier access to government services, e.g., hospitals, driver’s licence, or applying for places in
schools.
275
• In some places, there is a cost or fee for registration and for getting certificates (on birth, death,
migration etc.) as this involves manual procedures of checking, printing etc. A comprehensive
electronic CRVS system avoids manual costs and thus this may lower or do away with fees for
registration and certificate requests.
In other words, when the CRVS system is utilized as a mechanism that provides various welfare
services and other services, its usage by citizens will automatically be viewed more favourably. As
with the case of other countries that have high CRVS system utilization, the CRVS system in South
Korea was started for purposes of people control and management, but over time, it is seen as a
means to provide services and improve the quality of life of citizens.
With all the benefits and incentives, there should be no reason why a CRVS system should not be
promoted and established in all countries. However, many developing countries find that such a
system requires substantial initial investment – financial, technical, manpower- to which they cannot
afford to allocate resources. Another reason for the slow establishment of CRVS in developing
countries is the lack of systematic or systemic coordination between public and private agencies that
already utilize different systems or methods of registration.
It is thus recommended that for CRVS establishment and implementation to work, the
governments concerned should first ensure there is a needed broad base of CRVS cooperation and
strategy planning across sectors, agencies, or stakeholders.
1.2. Strategy Planning and Collaboration

Strategy planning for a strong CRVS is made possible with strong administrative support,
exchange of innovative ideas, and integration of functional information systems through
collaborative development partners’ support and assistance. As part of this partnership, participating
governments, agencies and international organizations are expected to commit to a long-term
program of improvement, with clearly set short- as well as long term goals, and also a roadmap of
milestones to achieve, while bearing in mind the contexts and constraints of developing countries
concerned. For their part, partner countries on the receiving end must also commit to work closely
through the partnership collaboration to see through the commitment, and to devote adequate
resources to ensure goals are met in the most efficient way possible.
1.2.1. egional Knowledge Sharing through Country Analysis and Sharing of

Success Stories
Many government and agency heads acknowledged the importance of regional knowledge-
sharing to promote the advancement of CRVS systems. Knowledge exchange and sharing lessons
learnt is an integral part of strengthening CRVS, especially for partner countries. Political will,
leadership, and commitment at the highest government levels play a very essential and significant
role to ensure all relevant stakeholders remain unified around a central, comprehensive and
multisectoral national CRVS strategy.
276
In this regard, Korea is a very good example. The country case analysis of Korea reveals that the
president and his ministries were very committed to the development and improvement of the
national CRVS system. This commitment was realized through many outcomes and outputs; most
critically, these included a very well thought-out and worked-through implementation plan as well,
which served the nation’s interests for people at all levels.
At the same time, Myanmar made notable progress when it attempted a very proactive national
awareness improvement campaign through cooperation with UNICEF. It is important to reference
these kinds of success stories as incentives for other developing nations.
It is recommended that sharing of country case analysis, success stories, lessons learned and best
practices is a very advisable step toward establishing collaboration between partner countries. This
strategy also lends itself to encouraging governments to find ways to seek mutual benefits from
having these kinds of sharing experiences.
1.2.2. Human-Institutional Capacity Development

Monitoring a comprehensive CRVS system requires improvements in both human resource and
statistical capacity building. Building up human resources capabilities include providing education
and training opportunities for CRVS staff, such as government officials in charge of registration
procedures, healthcare staff involved in recording vital events in or outside of medical facilities,
and team leaders tasked with promoting CRVS to the public. As for statistical capacity building,
systematic collection of administrative data will improve government performance and encourage “a
culture of evidence-based policy making” as “data will be the backbone of implementation, helping
to direct resources, prioritize investments, and ensure effective service delivery” (SDSN, 2015).
The recommendation here is for governments to allocate adequate resources in building the
capacities of human resources who can plan and conduct procedures resulting in quality CRVS
data collection and analysis. By encouraging the accumulation and analysis of new, reliable, and
accessible administrative data, this in turn provides governments the capacity to design better
policies and programs that can improve people’s quality of life.
1.3. CRVS Governance and Management

Good governance is key to the success of any system. With growing recognition of the value a
good CRVS system brings to development planning and human rights monitoring, there is every
reason to ensure the CRVS system has good governance and management.
1.3.1. upport of legal framework

For a well-functioning CRVS system, there should be a clear responsibility to the public that
agencies can ensure consistent and reliable statistics are produced and disseminated on time. Hence,
one recommendation is to ensure there is in place a comprehensive civil registration and vital
statistics legislation system. In this regard, the attention and continued support from policy-makers
is essential so that necessary legal amendments and provisions can be proposed, made or amended
in a timely manner to react responsibly to citizens’ needs.
277
Sometimes, it is necessary to have amendments to national laws so that rights of citizens are
protected. There is also the need to react to citizens’ needs, as in the case of governments who
reviewed and amended policies and legislation to ensure that registration of births and deaths is
free of charge and does not pose additional burden to low income families.
Another legislation is the law or act that protects the integrity of civil registration data and
prevents fraudulent registration of vital events, such as marriages. Related to this is the need for
regulations and laws that protect the confidentiality of personal data in civil registration records
from being misused or abused.
1.3.2. Balancing Priorities: Privacy, Security, Access

A complete and efficient CRVS system needs good governance, and can also help governments
achieve good governance in its policies and practices, particularly as these relate to citizens’ rights to
security, data privacy, access and convenience of information. However, there are always challenges
as these mentioned rights are very often conflicting in priority and importance.
There exists pressing issues related to information security, private data leak, and abuse
concerning information systems that support the CRVS system, including the Family Relationship
Registration and Civil Registration procedures practised in Korea. With the extraordinary speed and
ease in which data can spread with the advent of DB construction, online information systems as
well as information technologies such as clouding computing and The Internet of Things (IoT), it is
no wonder the average citizen is wary of the risks in data registration and transfer these days.
At the same time, increasing levels of civic consciousness and demand of government
accountability lead to increased social demands about disclosing administrative information and
public data. In many instances, legal access to information stored in government systems’ operations
is beneficial not only for ensuring administrative transparency, but also supports the making of
political decisions based on data-rich evidence. Furthermore, this transparency greatly affects
securing the trust of people toward the government.
Thus, there needs to be a balance in safeguarding people’s right to information, and a need for
laws and regulations that protect data privacy and at the same time, allows access to information
that affects a nation’s security. Mechanisms have to be in place that can open up exchange of
data between parties without compromising on data privacy, security, and access. This should be
considered a critical recommendation in the planning process to improve the CRVS system in a
developing country.
1.4. Conclusion
There are many considerations for the efficient establishment of a CRVS system. It is very crucial
that all parties commencing on this initiative are strongly committed to long-term and sustainable
CRVS development. This means there should be reviews of short and long term goals, appraisals
of methods and mechanisms used, reflections of personnel involved, capacity building and other
enhancement efforts along the way to make sure the CRVS project stays on track.
278
It is equally critical that there is close collaboration and synergy of work between all stakeholders.
In a joint venture or partnership, all tasks and responsibilities should be clearly identified, defined
and distributed so there is accountability not only to the system but also to the people for whom the
CRVS system serves.
279
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Empowering Ethiopia’s Textile
Industry and Industrial Park
Part 3

So-min Oh, Korea Eximbank
Ye-lin Jung, Korea Eximbank
Jae-hoon Lee, Korea Institute for Development Strategy
Hee-chul Cha, Korea Institute of Industrial Technology
Bu-heung KIM, Korea Federation of Textile Industries
Eun-saem Lee, Korea Institute for Development Strategy
Hee-joon Kwon, Korea Institute for Development Strategy
Song-a Chae, Korea Institute for Development Strategy
Se-jin Park, Korea Institute for Development Strategy
Young-moo Kim, Korea Federation of Textile Industries
Sung-ho Joo, Federation of Textile Industries
Mun-kyum Kim, Soongsil University
2015 KSP-WB Joint Consulting : Empowering Ethiopia’s Textile Industry and Industrial Park
List of Abbreviations
ASEAN Association of South-East Asian Nations

CAFTA Central America Free Trade Agreement
CJC Competitiveness and Job Creation Project
GOE Government of Ethiopia, The
GOK Government of Korea, The
EIC Ethiopian Investment Commission
FTA Free Trade Agreement
GSP Generalized System of Preferences
GTP Growth and Transformation Plan, Ethiopia
IFC International Finance Corporation
IP Industrial Park
IPDC Industrial Park Development Corporation, Ethiopia
MFA Multi-Fiber Agreement
MOFED Ministry of Finance and Economic Development, Ethiopia
OEM Original Equipment Manufacturing
ODM Original Design Manufacturing
RMGs Ready-made-Garments
SPA Speciality retailer of Private label Apparel
SSA Sub-Saharan Africa
TICFA Trade and Investment Cooperation Forum Agreement
TIN Tax Identification Number, Ethiopia
TPL Tariff Preference Level
TPP Trans-Pacific Partnership
WB World Bank, The
WTO World Trade Organization
288
Part 3 _Summary
Summary
This project aims to improve foreign investment promotion policies and industrial park
management strategy of Ethiopia and furthermore, the business environment as a whole while
accommodating potential investors for their information needs. The report suggests an appropriate
policy recommendation for Ethiopian government based on diagnosis on Ethiopia’s Investment
Climate and analysis of Korean textile and apparel industry’s overseas investment.
1) Diagnosis on Ethiopia’s Investment Climate

Ethiopia positioned itself in the upper stratum of the countries that hosted FDIs among the
Sub-Saharan Africa (SSA) countries. The positive growth in FDIs appears to have been a successful
outcome of the GOE’s industrial strategies and political, social and economic factors. Unlike such SSA
countries that received FDIs mostly in the extractive sector, Ethiopia has facilitated FDIs largely in the
manufacturing sector.
Ethiopia’s relative political stability seems to be continuing although instability reigns in the Horn
of Africa. Also the security at the national level is relatively well controlled and maintained by the
government. Ethiopia’s political stability seems to be well translated into economic stability. Ethiopia
posted one of the highest growths in the world, let alone in SSA. Ethiopia recorded on average
10.3% of growth for the period of 2004-2012. The government also appears to be quite successful
with their prudent fiscal policy that focuses on macro-economic stability.
Regarding infrastructure environment in Ethiopia, Ethiopia faces numerous challenges arising

particularly from the fact that it has no access to the sea. By using Djibouti as an access port, it
evidently increases the relative costs of logistics. The cost of power generation is one of the lowest
in the region but power interruption and outages frequently occur due to the obsolete power grid
and inferior quality. On the other hand, water is generally abundant in the country. As for the “soft”
infrastructure: inefficiency is a major challenge in Ethiopia’s governance. Decision-making is slow
across the government organs that lead to serious delays in issuing permits and licenses.
The government of Ethiopia issued a new proclamation in order to restructure the institutional
framework of the regulatory body of FDI and promote investment and business activities.
Investment incentives can be divided into fiscal incentives including customs duty, income tax
exemptions, export incentives and non-fiscal export incentives. Regarding on the legal framework
of industrial parks, the implementing regulations are being drafted but not approved yet.
289
As reviewed, the benefits and challenges fairly co-exist in investing in Ethiopia. Benefits can be
summarised: political and macro-economic stability, fiscal and non-fiscal incentives for FDI, abundant
land and labour, low cost for labour and utility, high level of security, availability of raw materials
(cotton) and duty-free access to the U.S and European markets under the AGOA and EBA scheme.
On the other hands, the challenges are: gaps in the legal framework of Industrial Parks, shortfall
in infrastructure, frequent power interruption, high logistics costs, high cost and poor quality of
the Internet, low skill-level workers, weak investor aftercare, scarcity of fabric and accessories,
undeveloped industrial clusters and the lack of economies of scale and shortfall of affordable
housing for workers.
2) Experience of Korean textile and apparel industry’s overseas investment

The growth path of the textile and apparel industry in Korea has been turbulent, having oscillated
between the rise and decline and re-rise. The textile industry grew to a major export industry in
the 1960s, achieving rapid growth through a low cost domestic labor and strong support of the
government. Although the government’s supports for further development of textile industry
stalled due to the transition of national development strategy, textile export exceeded US$10 billion
in 1987. Since the later 1980s, however, the industry has faced formidable challenges, such as a
weakened production base caused mainly by labour shortages and rapidly increasing labour costs,
and intensified competition at the global-level.
However, from the late 1990s, the industry has made a transition from the traditional mass
production system to a small quantity batch production system. Today, the industry’s efforts of
transforming itself to a high-value-added production structured industry continue. Korean textile
and apparel industry pursues its growth by transforming itself to a technology-intensive industry
from a factor-intensive one.
The textile and apparel industry in Korea has decided to moved its production bases overseas in
order to deal with the the challenge originated from the factor shortages (labour shortage) and
the job mismatch since 1980s. As such, the Koran firms actively expanded to overseas, such as China,
Bangladesh, Indonesia, the Philippines, Vietnam, El Salvador, Guatemala, etc.
The Korean investments, like as the investments from any other sources, obviously have
contributed to the growth of the manufacturing and export sector in the host countries, as shown
in the cases of Vietnam, Bangladesh and Indonesia. This corroborates the argument that FDIs in
general contributes to the development of manufacturing sector of host countries.
One crucial observation is that the textile and apparel trade between the host countries and
Korea has rapidly increased. It was obvious that the investment firms acted as the trade agents
between the host and home countries. In addition, they have taken the advantage of their global
production networks, which they have established, utilizing the host countries’ endowments. This
point becomes clear when reviewing the cases of the Korean investment firms presented in Box III-2
and Box III-3.
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Part 3 _List of Abbreviations
Another critical observation is that the investment firms also benefitted from their investment
tremendously. As revealed in the case of Youngone Corporation in Bangladesh, for example,
Youngone was a small- to medium-sized firm when it made the first investment in Bangladesh in
1980. Now, Youngone is not only a formidable actor in Bangladesh’s manufacturing and export
sector, but it also is a global player, having a large share in the global supply chain of textile and
apparel. It is obvious that there is a close relationship between the growth of Youngone Corporation
in Bangladesh and Bangladesh’s textile and apparel sector as well as its national economy, even
though the direction of causality cannot be observed. It was all the same with other firms who have
made investments in Vietnam, Indonesia and other countries.
Nevertheless, it is perhaps safe to say that the Korean investments thus far were in general
successful and beneficial for both host countries and the investors. Indeed, the benefits form FDIs
went both ways. However, the same externalities from the nation’s development, such as rising
wage level, tighter investment control, etc., are emerging in the host countries. Thus, it has become
a policy exigency as to how the host countries sustain the existing investments, so that the benefits
from the investments can be extended.
Study on the motivation and goals of the Korean textile and apparel investments indicate that
the cost and availability of labour and the labour-related issues thereof are the most significant
determinants which shape the investment behaviour. However, they are not all for the final
investment decision. The firms in general adopt so-called the total cost approach in which not a
single or a small group of the determinants lead to the final investment decision. Hence, from the
host country’s perspective, it is necessary to enhance the factors of the advantages in the long-
run that forge the country’s over-all investment climate. In the short-term, however, it would be
necessary to offset the impact from the disadvantageous factors by enhancing the effects from the
advantageous factors. The low labour productivity issue may be addressed by an active promotion
and enhancement of eeducational and trading programmes as technical vocational education
and training (TVET). In addition, an institutional consultation to the investment firm on the labour
management would not only help facilitate new investments, but it would also help make the
exiting investments more sustainable.
3) Policy recommendation
Based on the research and analysis, this study proposes the following policy recommendations,
particularly in the areas of infrastructure, legal framework, and encouragement of FDI; these policy
recommendations may also be helpful in closing the gaps between the GOE and the potential investors.
As a firm usually makes a locational choice based on superior infrastructure, the following are
recommendations in improving the infrastructure:
• Minimise land transportation costs by accelerating road and railway networking construction
along the export corridor (i.e. from the port of Djibouti to the hinterland);
• Provide good quality and reliable on-site and off-site infrastructure, including access roads,
factory sheds, wastewater treatment plants, power and water systems;
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• Ensure the availability of foreign exchange for exporters while improving the efficiency of the
procedure and authorisation from the National Bank of Ethiopia for foreign exchange control;
• Ensure the multiple clusters development of inputs and accessories manufacturers in the country
along with the development of industrial parks by the public as well as the private sector so that
serviced industrial land as well as manufacturing premises are readily available at scale;
• Develop capacity in all spheres of professional management, thus to ensure efficient and
effective operations of one-stop shops;
• Consider providing affordable housing and transport to workers foreseen to be employed in the
IPs;
• Properly assess the modality of providing the services in consultation with the developers and
operators of the parks as well as the resident enterprises and city or town administrations as this
has critical bearing (1) on the cost of living of workers; (2) efficient operation of the parks and (3)
industrial co-operation and harmony;
• Provide technical training in order to enhance the capacity of worker, which can be later
translated to an increase in labour productivity.
Regarding legal framework, while there are challenges in implementing provisions of the policies
aligned with GTP goals, such as employment of foreign nationals or staff, participation in foreign
capital markets to raise loans, guarantees, etc., and provision of services in the park, related to
utilities, the following is recommended:
• Issue the implementing regulations as soon as possible to ensure transparent, smooth and
efficient application of the industrial parks law;
• Develop regulatory and operational capacity in the IPs; and
• Simplify and expedite business registration and regulatory processes and subsequent
transactions;
The encouragement of FDI is critical to the growth and development of Ethiopia’s textile and
apparel industry but at the moment the weak aftercare of investors presents a stumbling block.
Furthermore, the GOE has to exert extra efforts in attracting FDI for raw material and accessory
inputs. Thus, it is recommended that:
• The co-ordination links among the various regulatory bodies and service providers be
strengthened;
• Ensure the one-stop shop become fully functional;
• Improve the efficiency of procedures related to customs, visa or work permits, and electric
power, among others, by perhaps creating a channel for the textile and apparel industry to
expedite such procedures;
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Part 3 _List of Abbreviations
• Assign properly qualified EIC and IPDC staff and representatives of key regulatory bodies and
service providers to operate the one–stop shop on a daily basis at Bole-Lemi I and then replicate
this in the future in other IPs under development; and
• Address the scarcity of raw materials and accessories by strengthening the forward and
backward linkages along the value chain with major investment to prevent significant import of
raw material inputs.
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Ⅰ Project Overview
1. Project Background and Objective

1.1. Background
Since the establishment of the world’s first industrial park (IP) in Ireland, many nations e.g. China,
Korea, Singapore, etc., have recognized the potential value of IPs and have followed the strategy
of utilising IPs as stepping-stones to industrial development. Their overarching IP strategies were
designed to facilitate foreign investment, industrialisation and job creation, ultimately leading to
national development. Many of these nations successfully transformed their economies, from what
primarily was an agriculture-led economy to a manufacturing-led economy. This, in turn, provided a
pathway to join the global value chain, ensuring national development and economic sustainability.
In this vein, it is not surprising that numerous African countries such as East African nations,
Ethiopia, Kenya, Uganda, Tanzania, etc., are now launching new IP initiatives thus following the
good practice of the countries before them.
The move towards the development of IPs in East African countries is quite timely, as there has
been an “out-of-China” rush that has been triggered by increasing labour costs. Because of an
abundance of factors of production, land and labour in particular, Ethiopia, along with its regional
neighbours, e.g. Kenya, Uganda and Tanzania, is classified in a group of countries widely known as
the “post-China 16, or PC16,” referring to those 16 countries that possess the potential to replace, or
to “succeed,” China’s role as the hub of light manufacturing.1) Ethiopia has a stock of comparative
advantages in promoting light manufacturing, which is usually labour-intensive. The country’s
population will soon reach 100 million, of which ages 0-14, as of 2013, account for about 42% and
ages 15-64 approximately 55%—an indication that the total eligible labour population is potentially
high. In addition, the average wage in general is less than 1/5th of that of Chinese labour in inland
cities.
1) The PC 16 refers to a group of the countries—Vietnam, Bangladesh, Myanmar, Laos, Cambodia, Sri Lanka, the
Philippines, Indonesia, Mexico, Dominican Republic, Nicaragua, Peru, Kenya, Uganda, Tanzania, and Ethiopia. See
Friedman, G. (2013). The PC16: Identifying China’s Successors. Geopolitical Weekly: Stratfor Global Intelligence.
Retrieved from https://www.stratfor.com/weekly/pc16-identifying-chinas-successors
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Part 3Ⅰ_Project Overview
The Government of Ethiopia (GOE) is moving fast to capture changes taking place in the global
value chain and the opportunities created therein by establishing the bases for light manufacturing.
It has also designated such light manufacturing industries, agro-processing, leather, etc., but textile
and apparel in particular, as the strategic industries that would serve as Ethiopia’s growth engines
for now and the future. Indeed, the textile and apparel manufacturing industries in Ethiopia are
regarded as a conduit to attain the goals set forth in the Growth and Transformation Plan (GTP),
the nation’s overarching growth strategy, that aims the creation of employment opportunities,
the increase in exports and the promotion of a vibrant manufacturing sector so that Ethiopia can
effectively join the global value chain. Obviously, the GOE regards the textile and apparel industry as
the Ethiopia’s growth engines for now and the future.2)
Over the last decade, the growth in Africa—sub-Saharan Africa (SSA) in particular has been
noteworthy, posting approximately 4-5% annually, thus surpassing the world average. Within the
SSA countries, Ethiopia’s growth has been extraordinary, posting average growth of 10.3% for the
period of 2004-2012, which exceeded the African average. To continue the growth momentum and
to attain the goals set forth in the GTP, the GOE has strenuously pushed forward the promotion of
the manufacturing sector, with the confidence that a vibrant manufacturing sector would make a
significant contribution to the realisation of the national development goals.
Figure I-1 | Ethiopia’s GDP Structure, 2014
Source: World Bank Open data. (2015). World Development Indicators [data file]. Retrieved from http://databank.worldbank.org
2) Textile and apparel used in this study refers to those commodities that belong to the SITC group 261-269, 651-659
and 841-848. The apparel manufacturers, often cases, produce textiles as a part of their vertical integration strategy.
Based on the fact, this study uses the term, the textile and apparel insutry, for the sake of convenience; as the matter
of course, they differ in terms of the nature of the final products. Nevertheless, the indsutries are separately referred to
where necessary. The terms, garment, apparel and ready-made-garment, are used interchangeably.
295
And as a tool to serve the creation of such a manufacturing base, the GOE sets out to develop
IPs around the country, as IPs are an important instrument that not only supports the development
of the manufacturing sector, hence economic diversification, but also attracts both foreign and
local investment.3) Furthermore, IPs, as discussed earlier, facilitates industrialisation, supporting the
nation’s efforts in transforming its economic structure to an industry-led one. As such, the GOE
expects to garner multiple benefits from the development of IPs around the country (Table I-1).
Table I-1 | IPs in Ethiopia
IP Size (ha) Power Source of fund Time of operation
Adama 349 (1st Phase:120) 60MW 2016
Dire Dawa 3,200 (1st Phase:150) 50MW MOFED 2016
Kombolcha 700 (1st Phase:75) 50MW MOFED 2016
Bole-Lemi II 171 230/ 33KV World Bank 2016
Addis Industry Village 8.7 2014
Bole-Lemi I 156 2014
Kilinto 297 World Bank 2016
Hawassa 300 (1st Phase:100) MOFED 2016
Mekelle 238 (1st Phase:75) MOFED 2016
Bahir Dar 1,000 (1st Phase: 50) 2017
Jimma 500 (1st Phase: 50) 2017
Note: MOFED (Ministry of Finance and Economic Development, the GOE);

Source: Korea Federation of Textile Industries. (2016). Unpublished internal document.
However, the GOE’s plans to host investors in its IPs are not without challenges. For example,
comparatively high costs of logistics in Ethiopia—as it is now a land-locked country—intrude as
a hindrance to the GOE’s efforts to attract FDIs. Thus, the GOE would have to design the policy
measures that compensate and address the challenges. Indeed, the IP development in Ethiopia is still
in the nascent stage and has obviously room to be improved in order to cater to the needs of the
investors. This raises some interesting questions that need to be addressed:
3) In Ethiopia, IP is an overarching concept that embraces special economic zones, technology parks, export processing
zones, agro-processing zone, free trade zones, etc. Refer to the GOE’s Proclamation No. 886/2015, 21st year, No. 39,
09 April 2015, p.8206. According to the proclamation, IP in Ethiopia is defined as an “area with distinct boundary
designated by the appropriate organ to develop comprehensive, integrated, multiple or selected functions of
industries, based on a planned fulfilment of infrastructure and various services such as road, electric power and water,
one stop shop and have special incentive schemes, with a broad view to achieve planned and systematic, development
of industries, mitigation of impacts of pollution on environment and human being and development of urban centres,
and includes special economic zones, technology parks, export processing zones, agro-processing zone, free trade
zones and the like designated by the Investment Board.”
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• What are the “needs” of the investors?
• What should the GOE do to minimize the impact of the shortfall and maximize the values of its
IPs that can be rendered to the investors?
An active strategy as to develop IPs notwithstanding, the managing of their sustainability is

another issue. It is important to note that there is severe competition as more than 120 countries
globally are competing to attract foreign investments. Regionally the countries with similar industry-
fabrics, if not the same, are competing for foreign investments from virtually the same sources. This
structure of competition clearly indicates that the GOE has to ensure that they differentiate and
maintain the competitiveness of their IPs. To that effect, the World Bank (WB) has initiated a US$250
million industrial park development programme under the banner of the Competitiveness and Job
Creation (CJC) Project, which sought not only to support IP development, but also to enhance the
competitiveness of the management and operation of IPs.
Complimentary to the GOE’ quest to attain their goals, the Korean textile and apparel companies
operating overseas, in China and Vietnam in particular, are seeking new production bases.
These firms appear to have reached the upper limit of competitiveness in their existing overseas
production locations in China and Vietnam. The firms are now looking favourably at Ethiopia as a
likely place to establish production bases because, in large part, the availability of abundant labour
and raw materials, e.g. cotton. Ethiopia’s rapid growth undoubtedly garnered a positive assessment
not only from Korean firms but also from other foreign investors as a whole as a future market with
high potential.
Korean textile and apparel manufacturers are now global players, assuming critical roles in the
global textile and apparel supply chain, whom the GOE has targeted to host in its industrial parks
along with the main investors to Ethiopia, such as China, India, Saudi Arabia, Turkey, etc., in order
to promote the textile and ready-made-garment (RMG) sector. The Korean firms can provide the
required technologies, skills, capital, and most importantly, markets to move the final products to
the global market places. An interesting observation is that the Korean investors were not global
players when they went to new overseas bases but that they grew together with the economies
of host countries. For example, Youngone Corporation of Korea moved its production base to
Chittagong, Bangladesh in 1980, when it was a mere original-equipment-manufacturer (OEM)
for a large Swedish outdoor brand. At that time, Bangladesh’s main export was confined to a few
agricultural products, such as jute and jute bags.
Today the Youngone Corporation has become a global-level manufacturer, exporting

approximately US$1 billion from its Bangladesh production base; Bangladesh’s exports textile and
garments in 2014 recorded about US$18 billion, accounting for about 80% of Bangladesh’s total
exports.4) The contribution of manufacturing to GDP climbed from 5.8% in 1970 to 13.8% in 1980
and then to 17.4% in 2014; the contribution of agriculture to the nation’s GDP has decreased from
4) Central Intelligence Agency, U.S. (2015). Bangladesh: Economy. The World Factbook. Retrieved from https://www.cia.
gov/library/publications/resources/the-world-factbook/geos/bg.html
297
54.6% in 1970 to 16.1% in 2014.5) Export increased from US$997 million in 1984 to US$32.8 billion
in 2014 in the current dollar term. This Youngone Corporation case is in sync with the findings put
forth in many studies that FDIs, in general, contribute to growth of host countries, and especially to
the development of manufacturing sector.6) This case further implicates that an incentive structure
can be created between the GOE and Korean textile and garment manufacturers who operate in
overseas bases and are in search of other investment destinations. In other words, the GOE’s long-
term objective of maximising national welfare through the facilitation of FDIs is certainly in accord
with the Korean firms’ search for alternative production bases which may enable them to maximize
their profits.
To that extent, the Knowledge Sharing Programme (KSP) in 2015 with Ethiopia offers the GOE,
the Industrial Park Development Corporation (IPDC) and the Ethiopian Investment Commission
(EIC) in particular, an excellent opportunity to benefit from consultation and capacity building
programmes.7) The benefit includes lessons learnt through an analysis of the development
trajectories of the Korean textile and garment industry; especially why the industry invested in and
set up overseas production bases and particularly what prompted them to invest in the countries
where they are now.
As such, the findings yielded by the KSP consultation and capacity building can be put to use in
mainly the following areas:
The GOE can close the policy/strategy gap, if any, between the current policy measures and
investment strategies and the needs of the Korean investors, utilising the findings of this
consultation programme;
Findings may be applicable to investors in the textile and garment sector from other countries,
given that the Korean investors in the sector are global-level players who have set the “standards”
in textile and RMG manufacturing; it means that the determinants that Korean investors adopt
when they make investment decisions are likely to be used by the sector investors in general.
The GOE has an opportunity to enhance its investment and IP management and operation policies
and strategies based on the findings, so that it would effectively calibrate its policy environment
for the attraction of FDIs in the textile and garment sector. In addition, it would enable the GOE to
devise a solid base for policy and strategy provisions that will ultimately lead to the sustainability of
the IPs.
5) World Bank Open data. (2015). World Development Indicators [data file]. Retrieved from http://databank.worldbank.
org
6) See, for example, Loungani, P. & Razin, A. (2001). How Beneficial Is Foreign Direct Investment
for Developing Countries? Finance and Development. Volume.38, No.2. Washington, D.C: IMF.
; Vu, T. B., Gangnes, B.& Noy, I. (2006). Is foreign direct investment good for growth? Evidence from sectoral analysis
of China and Vietnam. Journal of the Asia Pacific Economy, Volume.13, Issue 4. pp.542-562. Retrieved from http://
www.tandfonline.com/doi/abs/10.1080/13547860802364976.
7) KSP is initiated by the Ministry of Strategu and Finance (MOSF) of the Government of Korea and is implemented
by the Korea Export and Import Bank (Korea Eximbank). This programme, the KSP 2015 with Ethiopia, is a joint-
consulting programme in co-ordination with the World Bank.
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1.2. Objective
The KSP project with Ethiopia 2015 contains three primary objectives:
To uncover the underlying reasons that prompted the Korean textile and apparel firms to move
their main production bases to overseas markets;
To identify the main determinants employed in the node of decision-making in the selection of a
certain country as the most suitable investment locations; and
To review the current investment climate of Ethiopia and provide a useful point of reference for
future investors, regardless of industrial sectors.
As mentioned, this programme ultimately intends to link the GOE’s efforts of promoting its IPs
with Korean investors in the textile and apparel sector by closing the gaps, if any, between the needs
of investors and the investment promotion policy and strategy that the GOE devised. Thus, the KSP
project contributes to the efforts of the promotion of investment in-flows in the textile and apparel
sector in Ethiopia. In addition, the programme intends to benefit those investors who are in search
of an adequate place to relocate, or expand, their production bases. In the process, this report, a
part of the outputs of the KSP, can serve as a source of references for the improvement of Ethiopia’s
foreign investment, IP management and operation policies and strategies and further the business
environment as a whole while accommodating potential investors for their information needs.
2. Scope of Project and Expected Outcomes

2.1. Project Approach and Methodology
This study portrays Ethiopia’s investment environment based on the factors in relation to Korea’s
textile and garment firms’ overseas investments. It will also bring forth appropriate technical and
policy recommendations based largely on the case studies of the firms’ growth experiences. In
addition, this study plans to conduct a reality check by employing advice from those experts both in
Korea and Ethiopia, so that it yields a meaningful and useful report.
In order to achieve such expectations, the research for this study begins with an assumption that
IP is an effective tool to attract FDI. Needless to say, FDI contributes to foster an industrial sector
through the nexus of financial and technical transfers and the provision of markets. The GOE’s
strategy does not deviate much from this principle. In fact, the GOE envisions promoting the textile
and apparelling industry as delineated in the strategic framework of the GTP. As such, the GOE sees
that IPs can serve as an instrument to realise the strategic plan.
Based on the assumption, the approach of this study used aimed to maintain a balance between
the supply-side perspective, viz. the GOE’s perspectives, and the demand-side, viz. potential investors.
As such, this study ensures objectivity and credibility obtained through both qualitative analysis
research such as interviews and quantitative analysis through survey data as well as an extensive
literature review.
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2.2. Scope of the KSP and the Organisation of the Report

This report appended to the KSP 2015 with Ethiopia includes the diagnosis on investment climate
in Ethiopia (Chapter 2); the analysis of the Ethiopian investment environment was intended to
analyse the overall investment environment in Ethiopia, focusing especially on an analysis based on
the textile industry, industrial park development, and subsequent FDI promotion efforts. The chapter
will be followed by the development trajectory of the Korean textile and apparel industry (Chapter 3).
In this chapter, the path of Korean textile companies’ overseas expansion, major expansion factors,
investment decision factors, and the size of investment as well as success and failure cases are
analysed to identify the differences between the nations in terms of the investment environment
in order to also enable that the findings will assist the GOE to the formulate adequate strategies to
facilitate the investments in the textile and apparel sector.
Based on the research and analysis discussed above, this study proposes policy recommendations
that may be helpful to close the gaps between the GOE and the potential investors (Chapter 4).
The findings included in the final report are to be shared with partners and stakeholders of this
KSP programme: The World Bank, the Ministry of Strategy and Finance of Korea, the Korea Export-
Import Bank, the Industrial Park Development Corporation of Ethiopia, the Ethiopia Investment
Committee, and other relevant agencies and personnel.
2.3. Expected Outcome

This project is expected to assist the promotion of the economic co-operation between Ethiopia
and Korea as well as forming a foundation for industrial development in Ethiopia. The policy and
strategy recommendations appended in this report are expected to contribute to the attraction of
in the textile and garment sector FDIs to the IPs being developed in Ethiopia by serving as the point
of reference for the improvement of its FDI promotion policies and strategies.
On the other hand, this report is expected to provide new investment opportunities for Korean
textile companies in Ethiopia through the collection and subsequent analyses of information on the
investment conditions and appended risks in Ethiopia.
As stated earlier, the yields produced by the KSP 2015 with Ethiopia will eventually contribute to
strengthen Ethio-Korea economic co-operation through encouraging and promoting active private-
sector exchanges and participations. The programme will surely contribute to expand to other areas
for co-operations between the two nations in the future.
2.4. Limitations of the study

Like any other research and/or consultation projects, this KSP project was also limited by numer-
ous factors. Time was the most compelling factor that set a limit on this project. It had to implement
four workshops both in Ethiopia and Korea in addition to a preparation of a policy consultancy re-
port as a final deliverable; yet, time available to complete this project was about five months only.
300
The adjustment and alignment of disparate schedules of the officials invited to and participated in
the workshops set another limitation in the progress of the project as a whole.
Furthermore, the contents of this project, especially of the policy consultancy report, were largely
limited by the fact that some executives of the Korean textile and apparel firms declined to agree
on interviews, let alone answering to some questions/topics, which they deemed “sensitive” to their
business operations. As the matter of course, this was quite comprehensible, as the textile and ap-
parel industry today faces fierce global competition and they intended some internal information
not to go public. Thus, it is hoped that further detailed analyses that might have been omitted in
this report would be dealt with in other research/consultancy projects.
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Ⅱ Diagnosis on Ethiopia’s Investment

Climate
1. Recent Trend of FDI Flows to Ethiopia

The world FDI flows experienced a downturn in 2012. In 2013, the trend had not changed much;
with approximately 40% of the world FDI flows headed towards the developed economies. This was
largely due to political and economic stability.8) During the period of 2014- 2016 signs of recovery
are seen with postings of US$1.6 trillion in 2014 and US$1.7 trillion in 2015 and are estimated to
increase to US$1.8 trillion in 2016.9) Nevertheless, SSA and Latin America gained in 2013 in terms
of the number of FDI projects. The growth of FDIs in SSA is partly attributable to an enhanced
confidence about the future prospect of African economy among the firms that already established
in Africa. Among the SSA countries that received most FDIs, Ethiopia positioned itself in the upper
stratum of the countries that hosted FDIs (Figure II-1).
Figure II-1 | FDI Inward Stock: Selected SSA Countries, 2014
Source: Reproduced from the UNCTAD STAT. (2015). Data Centre [data file]. Retrieved from http://unctadstat.unctad.org/EN/
8) Ibid.
9) United Nations Conference on Trade and Development, UNCTAD. (2014). World Investment Report 2014: Investing in
the SDGs: An Action Plan. Geneva: Switzerland.
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Part 3 Ⅱ_Diagnosis on Ethiopia’s Investment Climate
Ethiopia’s ascension as one of the most preferred investment destinations in SSA is largely
attributable to its robust economic performances. FDI flow to Ethiopia increased by 671% to
US$7.26 billion in 2014 from US$941.1 million in 2000 in the current US dollar term (Figure II-2).
Figure II-2 | Growth in GDP and FDI In-flows to Ethiopia
Notes: RA= Right axis; LA=Left axis; Unit: millions for both axes; Source: Reproduced from the World Bank Open data. (2015).
World Development Indicators [data file]. Retrieved from http://databank.worldbank.org
The positive growth in FDIs appears to have been a successful outcome of the GOE’s industrial
strategies that targeted Asian capitals to develop manufacturing bases in Ethiopia.10) In addition,
such factors as political stability, macro-economic stability, potentially large domestic market
supported by over a 90 million population, low labour and energy costs, fiscal and non-fiscal
incentives for investment in manufacturing and export production, etc. act as the main points
of investment attraction. Unlike such SSA countries as Mozambique, Uganda, Tanzania, Zambia,
etc. that received FDIs mostly in the extractive sector, Ethiopia has facilitated FDIs largely in the
manufacturing sector. In 2014, about 44.8% of total FDI that Ethiopia went to non-metal products
sector, 14.9% to the food and beverages sector and about 14.2% to the textile (Figure II-3).
10) United Nations Conference on Trade and Development, UNCTAD. (2014). World Investment Report 2014: Investing
in the SDGs: An Action Plan. p.xix. Geneva: Switzerland.
303
Figure II-3 | FDI Stock in Ethiopia by Industrial Sector, 2014
Source: Reproduced from the Ministry of Industry, the GOE data (2015)
As discussed, Ethiopia is now one of the most preferred FDI destinations in SSA, as supported
by a rapidly increasing trend of inward FDIs. As the matter of course, this trend is attributable to
Ethiopia’s robust and potent economic performances as well as the GOE’s proper FDI and industrial
strategies. Today, the inward FDIs to Ethiopia seem to be diversified, targeting mainly Ethiopia’s
various sectors in manufacturing such as non-metal products, food and beverage and the textile.
Obviously, this trend is in accord with the strategic direction of national development set forth by
the GOE.
It is widely known that there are pre-requisites for the attraction of FDIs. They include: (1) political
and macro-economic stabilities, (2) adequate physical and social infrastructure and (3) a sound and
accommodating FDI policy and institutional regime. Among the major determinants, the policy and
regulatory environment and efficiently functioning institutions that support laws and regulations
deserve close attention, as they are more crucial elements for the facilitation of FDIs than cheap
labour costs and tax incentives. Indeed, to an investor, it is important that how many administrative
and regulatory hurdles which s/he has to go through and how disputes are handled by the judiciary
system of a host country.11) For, it inevitably yields transaction costs which may, or often times negate
costs saved from, for example, low waged labour. As such, the policy environment may differentiate
the overall investment climate of a country in a competitive global FDI environment in which the
magnitude of information asymmetry has diminished.Then, how well prepared are the institutional,
legal and regulatory frameworks in Ethiopia with which the GOE continues, and even accelerates,
11) Sun, X. (2002). How to Promote FDI? The Regulatory and Institutional Environment for Attracting FDI. Paper
presented at the Capacity Development Workshops and Global Forum on Reinventing Government on Globalization,
Role of the State and Enabling Environment, p.2. Marrakech, Morocco: the United Nation.
304
the increasing trend of inward FDIs? The following section will diagnose Ethiopia’s investment
climate focusing on the institutional, legal and regulatory perspectives.
2. Political and Macro-economic Environment in Ethiopia

Although instability reigns in the Horn of Africa, Ethiopia’s relative political stability seems to be
continuing. It is the political stability that Ethiopia enjoys that renders the GOE focuses more on
national development agendas. The result was impressive that Ethiopia posted one of the highest
growths in the world, let alone in SSA. Ethiopia recorded on average 10.3% of growth for the
period of 2004-2012. The political stability of the nation was manifested by the national elections
that took place in May 2015, in which the ruling party, the Ethiopian Peoples’ Revolutionary
Democratic Front (EPRDF), won all 546 seats for the national parliament and all but 21 but 21 of
the 1,987 regional state council seats in nine regional states and the two chartered cities.12) As a
result, no serious domestic political divisions or political polarisation are predicted in near future. In
fact, the EPRDF has been ruling this federal state since it ousted the Derg military regime in 1991.
The EPRDF consists of four political parties: the Oromo Peoples’ Democratic Organization (OPDO),
the Amhara National Democratic Movement (ANDM), the Southern Ethiopian People’s Democratic
Movement (SEPDM) and the Tigrayan People’s Liberation Front (TPLF).
However, at the international level, a fragile peace is maintained at best in parts of the Somali
Region, in the Ogaden, in particular. But, security at the national level is relatively well controlled
and maintained by the GOE in spite of inter-communal conflicts, though they are rare. The level
of security Ethiopia revels in is partly translated to the safety indices assessed and published by
numerous private sector institutions and organisations (Table II-1). As shown in the table below,
Addis Ababa, for example, is regarded as one of the safest places to live in among major SSA cities.
Table II-1 | Safety Index: Selected Countries
Addis Ababa, Nairobi, Dar es Salaam, Maputo, Washington, Tokyo, Seoul,

Ethiopia Kenya Tanzania Mozambique D.C., USA Japan Korea
70.66 32.85 33.41 33.83 36.28 77.88 86.01

(H) (L) (L) (L) (L) (H) (H)
Notes: (H)=High; (L)=Low; The index is created based on the survey responses;
Source: Numbeo. (2016). Cost of Living. Retrieved from http://www.numbeo.com
As mentioned earlier, Ethiopia’s political stability seems to be well translated into economic
stability. GDP is rapidly growing and inflation is maintained at below 8% for the last decade (Table
12) Agence France-Presse. (2015, June 22). Ethiopia's ruling party wins by landslide in general election. The Guardian.
Retrieved from http://www.theguardian.com/world/2015/jun/22/ethiopias-ruling-party-win-clean-sweep-general-
election. The nine regional states are designated mainly by ethnic demarcation; they include Afar, Amhara,
Benishangul-Gumuz, Gambela, Harari, Oromia, Somali, the Southern Nations, Nationalities, and Peoples’ Region
(SNNR) and Tigray and two chartered city Addis Ababa and Dire Dawa.
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II-2; See also Figure II-2 in the preceding section for the GDP growth trend). It is notable that saving
rate in Ethiopia is about 22%, exceeding by far 3.9% in Kenya and 4.9% in Mozambique. It suggests
that this high rate of saving could enable mobilisation of local investments possible and facilitate
consumer spending if conducive conditions were created. However, the current account deficit is a
chronic problem; nevertheless, it is maintained at less than a 7% level of total GDP. A positive sign is
that merchandize exports expanded by 5.6% in 2014 to US$ 3.25 billion.
Table II-2 | Ethiopia: Selected Indicators
Indicator 2014
GDP at market prices (constant 2005 US$ billion) 30.62
Inflation, consumer prices (annual %) 7.39
Gross domestic savings (% of GDP) 22
External balance on goods and services (current US$ billion) -9.71
Current account balance (BoP, current US$ billion) -2.99
Population, total 96,958,732
Employment to population ratio, 15+, total (%) (modelled ILO estimate) 80
Labour force participation rate for ages 15-24, total (%) (modelled ILO estimate)* 76.5
Notes: * 2013 data; Source: World Bank Open data. (2015). World Development Indicators [data file]. Retrieved from http://
databank.worldbank.org
The GOE appears to be quite successful with their prudent fiscal policy that focuses on macro-
economic stability. The fiscal deficit was contained at 2.6% of GDP in 2014, although it has increased
from 1.9% in 2013 and 1.2% in the year before.13) The debt to GDP increased to 24.3% in 2014 from
the preceding year, Ethiopia is known to have a low risk in debt re-payment concerns.14)
In sum, Ethiopia’s political and macro-economic stability is well controlled and is predicted to be
so, as there are no significant foreseeable threats that poise to hamper the status quo structure of
overall political and economic stability at the domestic and the international level.
3. Infrastructural Environment in Ethiopia

Infrastructure is a significant determinant when investment decisions are made. It is obvious
that investors will select, ceteris paribus, a place with superior infrastructure over others. There is
a large volume of empirical studies and literature that affirmed the positive relationship between
13) Wondifraw, A. Z., Kibret, H. & Wakaiga, J. (2015). African Economic Outlook: Ethiopia 2015. Paris, France:
AfDB,OECD & UNDP. Retrieved from http// http://www.africaneconomicoutlook.org/en/country-notes/east-africa/
ethiopia/
14) Ibid.
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FDI inflows and infrastructure.15) Needless to say, the provision of energy, water, waste treatment
facilities, communication networks, roads, etc. is a necessary condition for effective business
activities. Hence, it is not surprising that a firm will make a locational choice based on superior
infrastructure.
In this respect, Ethiopia faces numerous challenges arising particularly from the fact that it has no
access to the sea. Thus, Ethiopia uses Djibouti as an access port to sea-lanes. This evidently increases
the relative costs of logistics. For a 40-foot ocean container, it takes about 10-14 days and costs about
US$4,500 from the port of Djibouti to Addis Ababa, while it takes about 4-5 days and US$2,500 from
Addis Ababa to Djibouti. By comparison, it normally takes about US$2,000-3,600 and 14-22 days
from Busan, Korea to Djibouti).
As such, it is an exigent task for the GOE to shorten the time to and from Djibouti. To that effect,
the railways connecting Djibouti is bound to open in 2016. If so, it will significantly reduce the
time taken to/from Djibouti (See Table II-3). For example, the time taken to/from Bole-Lemi II IP
to Djibouti for cargo transportation will be reduced to 11hour 29 minutes by rail from 22 hours it
usually is taken by road.
Table II-3 | Distance and Time Taken between the Respective IPs and Djibouti
Distance and Time to/from Djibouti

Distance to
IP Adjacent Airport
the airport
By road By rail
871km/ 687km/
Adama Bole Int'l Airport 90km
20H 17M 8H 34M
Dire Dawa 394km/ 311km/

Dire Dawa 25km
Domestic airport 10H 1M 4H 28M
Kombolcha Domestic 1,127km/ 989km/

Kombolcha 1km
airport 25H 4M 14H 52M
909km/ 788km/
Bole-Lemi II Bole Int'l Airport 10km
22H 11M 29M
Note: H=Hour; M=Minute;

As of 2015, Ethiopia’s power generation capacity is at 2,414MW consisting of 1,940MW hydro-

power generation, 324MW of wind, 7MW of geothermal and 134MW of diesel. The GOE ambitiously
plans to increase the generation capacity of hydro-power to 22,000MW, geothermal 1,000MW and
wind 2,000MW, totalling 25,000MW by 2030. If the plans are realized, Ethiopia will not only be self-
sufficient in power but will also be able to sell excess power to neighbouring countries.
15) For example, see Cheng, L. K. & Kwan, Y. K. (2000). What are the Determinants of the Location of Foreign Direct
Investment? The Chinese Experience. Journal of International Economics 51 (2): pp.379-400.
307
The cost of power generation is about US$0.09/kWh and after the government subsidy, the basic
rate of electricity becomes about US$0.05/kWh, one of the lowest in the region. Due to the obsolete
power grid and inferior quality however, power interruption and outages frequently occur. As
a result, a large number of households and businesses are equipped with back-up diesel power
generator being ready for the power outages. As domestic diesel is sold at about US$0.89/l, the cost
of back-up power generation is not entirely inconsequential. However, the power outage is more
of a challenge to the businesses operating in IPs; for it leads not only to a deficit in productivity, but
also to product delivery schedule.16)
On the other hand, water is generally abundant in Ethiopia except some parts of the country
where droughts occasionally occur. Ethiopia has topographical landmass of mountainous highlands,
plateaus, flat-lands, lowlands, etc. that are stretched over approximately about 1.1 million km2,
having the 110m-4,600m altitude. The topographic diversity is attributable to diversified climate
patterns across the country, which, in turn, affect the amount of precipitation. Basically, tropical
monsoon climate Ethiopia generates on average about 1,073mm annual rainfall, becoming bases
for the total renewable water resource of 122 billion m3.17) In sum, water potential in Ethiopia is
high but is not fully developed.
Mobile users were estimated to exceed 30 million in 2014 and pre-paid mobile tariff is
approximately US$0.05, one of the lowest tariffs in the region. However, Internet connection is
expensive, costing a subscriber about US$175.00 a month for 6Mbps cable or ADSL connection;
initial installation costs amount to about US$500.00. The quality of the Internet is poor and slow and
interruptions occasionally occur.
As for the “soft” infrastructure: corruption is not a major challenge in Ethiopia’s governance
system but inefficiency is. Decision-making is slow across the government organs that lead to
serious delays in issuing permits and licenses.18) For example, clearance at the customs may take
weeks if not months. The delay is caused not by an anticipation of bribery of public officials but by
an unsophisticated system of laws and regulations that are sometimes unclear. Hence, lower-level
officials procrastinate in decision-making and are prone to toss them to the higher-level, thus to
create backlogs in the system. As such, it seems that governance is an issue of exigency in the area of
soft infrastructure that also is a major determinant for an investor’s investment decisions.
The next section will review policy, institutional and legal frameworks that constitute an
infrastructural foundation for inward FDIs.
16) Korea Federation of Textile Industries. (2016). Unpublished internal document.

17) Food and Agriculture Organisation of the United Nations, FAO. (2016). Ethiopia. AQUASTAT. Retrieved from http://
www.fao.org/nr/water/aquastat/countries_regions/eth/index.stm
18) Korea Federation of Textile Industries. (2016). Unpublished internal document.
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4. Institutional and Legal Framework to Facilitate FDIs in

Ethiopia
4.1. Institutional Framework
The GOE issued a new Proclamation No. 849/2014 on 22nd July 2014, which amended the previous
investment proclamation No. 769/2012, aimed at restructuring the institutional framework of the
regulatory body of foreign direct investment.
Under the currently amended investment proclamation19):
a) The Investment Agency was renamed the Investment Commission. The Commission will report
to a new supervisory body called the Investment Board and will be chaired by the Prime
Minister;
b) The mandate of the Investment Board is quite extensive as it is empowered to:
• supervise the administration of industrial development zones;
• pass a decision on the reduction or expansion of the boundaries of industrial development

zones;
• grant new or additional incentives other than what is provided under the law;
• open investment areas for foreign investors which are exclusively reserved for domestic investors.
Furthermore, the definition given to Industrial Development Zone has been broadened to include
special economic zones, industrial parks, technology parks, export processing zones, free trade
zones and the like that may be designated by the Investment Board. The development of industrial
zone may be undertaken either by the Government, or by joint venture of the government and the
private sector, or by the private sector alone. The institutions of investment administration are now
comprised of the Investment Board, the Commission and Regional Investment Organs.
Regarding the regulatory organs of IPs, a new and separate proclamation was passed by the
government, Proclamation No. 886/2015, specifying the roles of the Investment Board, the Ministry
of Industry, and the Investment Commission. Accordingly, the Investment Board is vested with
the powers of designating and overseeing the administration of industrial parks and deciding on
complaints of developers, operators and tenant enterprises. The Ministry of Industry is authorized
to supervise industrial enterprises that are provided with assistance such as extension services,
technology, inputs, marketing and methods of manufacturing.
According to the Proclamation No. 769/2012 (2012), the service includes:
• Promoting the country’s investment opportunities and conditions to foreign and domestic
investors;
19) Federal Negarit Gazette. (2014 July). Proclamation No. 849/2014. 20th year, No. 52. Addis Ababa, Ethiopia:
Government of Ethiopia.
309
• Issuing investment permits, business licenses and construction permits;
• Notarising memorandum and articles of association and amendments;
• Issuing commercial registration certificates as well as renewals, amendments, replacements or

cancellations;
• Effecting registration of trade or firm name and amendment, as well as replacements or

cancellations;
• Issuing work permits, including renewals, replacements, suspensions or cancellations;
• Grading first grade construction contractors;
• Registering technology transfer agreements and export-oriented non-equity-based foreign

enterprise collaborations with domestic investors;
• Negotiating and, upon government approval, signing bilateral investment promotion and
protection treaties with other countries;
• Issuance of tax identification number (TIN); and
• Advising the government on policy measures needed to create an attractive investment climate
for investors.
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4.2. Legal and Regulatory Framework of Foreign Direct Investment in

Ethiopia
The basic regulatory framework for commercial enterprises in Ethiopia is the Commercial Code of
1960. Currently the GOE is revising this code to facilitate investment and commercial operations.
The law that regulates foreign as well as domestic investments is the Investment Proclamation,
which has undergone a few revisions in the past 20 years. The prevailing investment law is
Proclamation No. 769/2012 as amended by Proclamation No.849/2014. Investment incentives and
guarantees are provided for in this Proclamation as well as the Council of Ministers Regulation No.
270/2012 on Investment Incentives and Investment Areas Reserved for Domestic Investors.
As mentioned earlier, Investment Proclamation No. 769/2012 introduced provisions for the
establishment of industrial development zones, both state-run and private; and these are also
eligible for favourable investment, tax, and infrastructure incentives.
According to Proclamation No. 769/2012, the minimum capital requirement is US$200,000

per project for wholly-owned foreign investments and US$150,000 for joint investments with
domestic investors (or US$100,000/US$50,000 respectively in the areas of engineering, architectural,
accounting and auditing services, business and management consultancy services and publishing). A
foreign investor reinvesting profits or dividends may not be required to allocate minimum capital.
4.2.1. Government Promoted Industries

Under the first Growth and Transformation Plan (GTP I) that was recently concluded, the
Government of Ethiopia promoted the following key priority industries: textile and garment
industry, leather and leather products, sugar and sugar-related products, cement, metal and
engineering, chemical, pharmaceutical and agro-processing. Investments in this area are
accompanied with additional tax and duty incentives as established in Proclamation No. 769/2012.
Under GTP II, in addition, but new industries are also being promoted.
4.2.2. Restrictions on Foreign Investment

Ethiopia’s investment code prohibits foreign investment in banking, insurance, and micro credit
and saving services. The remaining state-owned sectors include telecommunications, power
transmission and distribution through the national grid, and postal services with the exception
of courier services. Manufacturing of weapons and ammunition can only be undertaken as joint
ventures with the government.
The following are other areas of investment reserved for Ethiopian nationals or prohibited to
foreign investors:
(1) broadcasting service;
(2) mass media services;
(3) attorney and legal consultancy services;
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(4) preparation of indigenous traditional medicines;
(5) advertisement; promotion and translation works;
(6) air transport services using aircraft with a seating capacity up to 50 passengers;
(7) travel agency services, ;
(8) retail trade and brokerage;
(9) wholesale trade (excluding supply of petroleum and its by-products as well as wholesale by
foreign investors of their locally-produced products);
(10) most import trade;
(11) capital goods rentals;
(12) export trade of raw coffee, khat, oilseeds, pulses, hides and skins bought from the market;
(13) live sheep, goats, and cattle not raised or fattened by the investor;
(14) construction companies excluding those designated as grade 1;
(15) tanning of hides and skins up to crust level; hotels (excluding star designated hotels);
(16) restaurants and bars (excluding international and specialized restaurants);
(17) trade auxiliary and ticket selling services;
(18) transport services;
(19) bakery products and pastries for the domestic market;
(20) grinding mills;
(21) hair salons;
(22) clothing workshops (except garment factories);
(23) building and vehicle maintenance;
(24) saw milling and timber production;
(25) custom clearance services;
(26) museums, theatres and cinema hall operations; and
(27) printing industries.
4.2.3. Screening of FDI

With the exception of the restricted areas of investments, foreign investors generally do not face
undue screening of FDI, unfavourable tax treatment, denial of licenses, discriminatory import or
export policies, or inequitable tariff and non-tariff barriers.
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4.2.4. One-Stop Shop Services

According to Article 30 of Proclamation 769/2012, EIC is authorized to provide one-stop shop
services with the objective significantly reducing the time and cost of acquiring investment and
business licenses. However, bureaucratic hurdles continue to affect service delivery and project
implementation due to capacity limitation to meet the time deadlines it has itself set.
4.2.5. Remittance Policies

According to Ethiopia’s Investment Proclamation No. 769/2012, all registered foreign investors are
allowed, whether or not they receive incentives, to remit freely profits and dividends, principal and
interest on foreign loans, and fees related to technology transfer. Foreign investors may also remit
proceeds from the sale or liquidation of assets, from the transfer of shares or of partial ownership of
an enterprise, and funds required for debt service or other international payments.
The right of expatriate employees to remit their salaries is granted in accordance with NBE foreign
exchange regulations.
4.2.6 Expropriation and Compensation

According to Article 25 of Investment Proclamation No. 769/2012, investments (of domestic
investors or foreign investors) cannot be nationalized or expropriated, except when required by
public interest and in compliance with the laws and with payment of adequate compensation.
4.2.7. Investment Incentives

Investment incentives are provided for under the “Council of Ministers Regulation No. 270/2012
on Investment Incentives and Investment Areas Reserved for Domestic Investors.”
(a) Fiscal Incentives

ⅰ) Customs Duty
According to the analysis from Department of State, U.S. (2015), the exemptions are applicable
to both domestic and foreign investors engaged in new eligible enterprises or expansion projects in
manufacturing, agriculture, agro-industries, generation, transmission and supply of electrical energy,
Information and Communication Technology Development (ICT), tourism, construction contracting,
education and training, star designated hotel, specialized restaurant, architectural and engineering
consultancy works, technical testing and analysis, capital goods leasing and importation of liquefied
petroleum gas (LPG) and bitumen as follows:
• A 100% exemption from the payment of customs duties and other taxes levied on imports is
granted to all capital goods, such as plant, machinery and equipment and construction materials;
• Spare parts worth up to 15% of the total value of the imported investment capital, provided
that the goods are also exempt from the payment of customs duties;
• An investor granted with a customs duty exemption will be allowed to import capital goods
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duty free indefinitely if his investment is in manufacturing and agriculture, and for five years if
his investment is in other eligible areas;
• An investor entitled to a duty-free privilege who buys capital goods or construction materials
from local manufacturing industries shall be refunded the customs duty paid for raw materials
or components used as inputs for the production of such goods; and
• Investment capital goods imported without the payment of custom duties and other taxes levied
on imports may be transferred to another investor enjoying similar privileges.
ⅱ) Income Tax Exemptions

• Investors engaged in manufacturing, agribusiness, generation, transmission and supply of
electrical energy; and ICT are entitled to income tax exemptions for a period ranging between 1
and 9 years, depending on the specific activity and the location of the investor
• An investor who expands or upgrades his existing enterprise and increases at least by 50 percent
its production or service capacity, or introduces a new production or service line at least by 100
percent of an existing enterprise is entitled to the income tax exemption period specified in the
first bullet above
• Investors who export at least 60 percent of their products or services, or supply these to an
exporter, will be exempted from the payment of income tax for an additional 2 years.
ⅲ) Export Incentives
Fiscal incentives available to all exporters include:
• With the exception of a few products, no export tax is levied on Ethiopian export products (e.g.
semi-processed hides and skins: 150%)
• A duty drawback scheme offers investors an exemption from the payment of customs duties and
other taxes levied on imported and locally purchased raw materials used in the production of
export goods. Duties and other taxes paid are drawn back 100 percent at the time of the export
of the finished goods
• Voucher Scheme: a voucher is a printed document having monetary value, which is used in lieu
of duties and taxes payable on imported raw materials. The beneficiaries of the voucher scheme
are also exporters
• Bonded Factory and Manufacturing Warehouse Schemes are issued to producers not eligible
for voucher scheme but having licensed for bonded are entitled to operate such factory or
warehouse in importing of raw materials duty free
(b) Non-Fiscal Export Incentives

• Exporters are allowed to retain and deposit in a bank account up to 20 percent of their foreign
exchange earnings for future use in the operation of their enterprises and no export price
control is imposed by the National Bank of Ethiopia;
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• Franco valuta import of raw materials are allowed for enterprises engaged in export processing;
and
• Exporters can benefit from the export credit guarantee scheme, which is presently in place
in order to ensure an exporter receives payment for goods shipped overseas in the event the
customer defaults, reducing the risk of exporters’ business and allowing it to keep its price
competitive.
4.2.8. Bilateral Investment Agreements

The GOE has entered into bilateral investment and protection agreements with China, Denmark,
Italy, Kuwait, Malaysia, Netherlands, Russia, Sudan, Switzerland, Tunisia, Turkey, Yemen, Spain,
Algeria, Austria, UK, Belgium/Luxemburg, Libya, Egypt, Germany, Finland, India, and Equatorial
Guinea and a protection of investment and property acquisition agreement with Djibouti. It also
has avoidance of double taxation treaties with fourteen countries, including Italy, Kuwait, Romania,
Russia, Tunisia, Yemen, Israel, South Africa, Sudan and the UK.
4.2.9. Labour
According to the analysis of Department of State, U.S. (2015), labour remains readily available
and inexpensive in Ethiopia even though skilled manpower is still scarce in many fields. In order
to increase the skilled labour force, the government of Ethiopia has established a plan for a rapid
expansion of tertiary education as well as TVETs. The government also promotes technical and
science education, adopting a policy that 70% of the annual student intake in public universities
must focus on science, engineering and technology.
4.3. Legal Framework on Industrial Parks

The GOE issued Proclamation No. 886/2015 on 9th April, 2015 with significant improvement on
Proclamation No. 849/2014, which amended the previous investment proclamation No. 769/2012,
in terms of breadth and depth of its coverage of legal provisions pertaining to industrial parks. The
term “Industrial Park” has now replaced “Industrial Development Zone” as defined in Proclamation
No. 849/2014.
The new law on industrial parks has eight parts, all of which are either more detailed or new in
scope compared to the previous legal framework, thus addressing the earlier gaps; bringing more
transparency and clarity; as well as alignment with international best practice. The contents of the
law are as follows:
• Part One: General provisions covering title; 25 definitions; scope of application; and objectives
• Part Two: Provisions covering rights and obligations of industrial park developer and operator;
• Part Three: Provisions covering industrial park enterprise and investment, specifying rights and
obligations of industrial park enterprise; administrative measures against speculation; and
business registration and compliance
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• Part Four: Provisions on industrial park work permits and residence;
• Part Five: Provisions on guarantees and protection and national treatment, specifying rules
for protection of investment against expropriation unless otherwise for public purpose; and
entitlements related to foreign exchange remittance, external borrowing, and listing in foreign
security markets
• Part Six: Provisions on access to land and environmental protection
• Part Seven: Provisions on regulatory organs and grievance procedure
One can observe from the explanation above that the law is wide ranging. Further, it has
identified and specified numerous provisions that need detailed regulations for implementation,
which means that these gaps in the regulatory framework must be urgently filled.
4.3.1. Objectives of the Industrial Park law

The Proclamation on Industrial Parks20) has the following objectives:
(1) Regulating the designation, development and operation of Industrial Park;
(2) Contributing towards the development of the country’s technological and industrial
infrastructure;
(3) Encouraging private sector participation in manufacturing industries and related investments;
(4) Enhancing the competitiveness of the country’s economic development; and
(5) Creating ample job opportunities, and achieve sustainable economic development.
The achievement of the above objectives is dependent on a number of factors, including the
fair and transparent implementation of the law, infrastructure development, logistics and customs
procedures, etc.
Notwithstanding the importance of all provisions of the law, it is more pertinent to dwell on
those that are critical from the perspective of industrial park developers, operators and resident
enterprises or tenant firms. These are detailed out below.
4.3.2. Rights and Obligations of Industrial Park Developer

(ⅰ) Rights of an Industrial Park Developer
• Design, construct, develop, exploit industrial park and provide services;
• Sub-lease developed industrial park land;
• Rent or sell to industrial park enterprises his immovable assets, buildings and rooms built
within the industrial parks in accordance with the proportion specified in the regulation for
manufacturing, office, residential and other services;
20) Federal Negarit Gazette. (2014 July). Proclamation No. 849/2014. 20th year, No. 52. Addis Ababa, Ethiopia:
Government of Ethiopia.
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• Enter into sub-lease agreement for the development, operation and promotion of industrial
park land;
• Operate, maintain and promote industrial park in accordance with industrial park development
agreement;
• Employ Ethiopian citizens and foreigners in accordance with the regulation;
• Participate in financial markets in order to obtain loan, fund guarantees and other financial
resources in the manner provided for in the Regulations issued pursuant to this Proclamation
and other applicable laws;
• Provide service to industrial park enterprises engaged within the industrial parks, in accordance
with the Commission agreements reached with the utility suppliers, collect charges and fees; the
details shall be specified in the regulation;
• Enjoy tax and customs duty exemptions and other incentives granted under applicable laws.
(ⅱ) Obligations of an Industrial Park Developer

• Construct immovable property with the industrial park, on-site infrastructure, office space and
other facilities for the commission’s one-stop shop use and for the revenues and Customs
Authority as may be required by the permit and the Industrial Park Developer or Industrial Park
Operator Agreement;
• Facilitate conditions necessary for the participation of domestic training institutions in the design
works of industrial park development;
• Commence development within the period specified in industries park development agreement;
• Adhere to the performance requirements for the phased development of the Industrial Park as
well as any financial obligations and time schedule for capital and debt financing, specified in
the permit;
• Produce document envisaging their financial source trustworthiness;
• Shall not transfer the un-developed industrial park land in any manner to third party;
• Comply with any other obligations specified in this Proclamation, the Regulation, environmental
protection legislation and other applicable laws and the permit;
• Replace expatriate personnel or professional by Ethiopian nationals by transferring required

knowledge and skills through specialized trainings.
(ⅲ) Rights and Obligations of an Industrial Park Operator

• Transfer on sub-lease developed industrial park land and let or sub-let immovable assets, provide
utilities and other services, on behalf of the industrial park developer, provide basic service and
other service with charge;
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• Operate, manage, maintain and promote the industries park in accordance with the industrial
park operator’s agreement;
• Employ both Ethiopian and foreign nationals in accordance with the Regulation;
• Use such other rights provided for in this Proclamation, regulation and other applicable laws.
(ⅳ) Obligations of an Industrial Park Operator

• Adhere to this Proclamation, the Regulations, and the permit terms;
• In accordance industrial park permit, operate, maintain and promote the industrial park and
keep its assets and utilities in operational condition;
• Maintain readily available office space and facilities for one-stop shop and customs services;
• Refrain from transferring the un-developed industrial park land in any manner to third party,
with the exception of the Corporation’s transfer of industrial land to other industrial park
developer;
• Link domestic manufacturing enterprises with industrial park enterprises in order to develop
their technological capacities and not benefit them from international market;
• Comply with the social and environmental as well as any other obligations as provided for in this
Proclamation, the Regulation, applicable laws , its permit or agreement;
• Replace expatriate personnel or professional by Ethiopian national by transferring required

knowledge and skills through specialized trainings.
4.3.3. Industrial Park Enterprise and Investment

(ⅰ) Rights of Industrial Park Enterprise
• May obtain Industrial Park Permit in order to carry out investment activities within Industrial
Park;
• Obtain tax, customs duty and other incentives as provided in applicable laws
• Freely exercise investment activities in accordance the terms and conditions of the permit,
excluding those endangering public order, moral , safety and security as well as human and
animal health and plant life;
• Acquire land on a sub-lease basis and possess, sell own buildings, rent other immovable assets,
export out of the Country, import into any industrial parks, sell in the industrial park customs
controlled area goods and services pursuant to customs treatment specified in this Proclamation
and other applicable laws.
(ⅱ) Obligations of the Industrial Park Enterprise

• Commence development within the period specified in the industrial park enterprise permit
and agreement;
318
• Carry out the investment activities specified in the permit;
• Allow entrepreneurship trainings of the technical and vocational education and trainings,
collaboration trainings and that of higher education;
• Comply with its obligations set forth in the Proclamation in general and the environment, social
and employer obligations in particular contained therein and in other applicable laws;
• Replace expatriate personnel or professionals by Ethiopian nationals by transferring required

knowledge and skills through specialised trainings
4.4. Opportunities and Challenges in Investing in Ethiopia

4.4.1. Opportunities for the Investors in the Textile and Garment Industry
At present, Bole-Lemi I is the only operational industrial park developed by the GOE. All of the
twenty factory sheds in the park have been taken up by foreign investors, mainly from China, Korea
and India, who are currently engaged in the production of textile apparel and footwear. Five of
the sheds (25%) are leased to a Korean firm, namely, Shints ETP Garments PLC, which is planning
to construct additional garment factories on adjacent land in Bole Lemi. Shints manufactures and
exports water-proof seam-sealed and ‘welded’ technical garments to be used by mountaineers,
motor-cyclists, snow sportsmen, etc. Jay Jay Textiles PLC, whose parent company has production
facilities in India, Bangladesh and Sri Lanka, manufactures children’s wear in Bole Lemi for export. Its
buyers include Gerber Children’s wear, USA.
The construction design of Bole Lemi II and Kilinto industrial parks is being undertaken under
the CJC Project being financed by the World Bank. Besides these IPs, the GOE has ambitious plans
to develop industrial parks in other parts of the country, including Hawassa, Adama, Kombolcha,
Mekelle, Dire Dawa, and Jigjiga,
There are also initiatives by foreign investors from Turkey, China and Taiwan to develop industrial
parks. The Eastern Industrial Zone in Dukem, about 30kms south of Addis, developed by a Chinese
firm, is one of these initiatives.
Having scanned the investment climate of the country and taken into consideration the
factors, such as fiscal and non-fiscal investment incentives, the availability of the skills required to
manufacture apparel, low labor cost advantage, potential to significantly increase production of
high-quality cotton in the country, duty-free access to the U.S.A. and EU markets, priority sectors
promoted by the GOE, 92 investment licenses for the manufacture of textiles and apparel have been
issued to 87 foreign firms from 13 countries in the period between January 2010 and September
2015, as presented in the table below.
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Table II-4 | Investment In-flows to the Textile and Apparel Sector in Ethiopia, 2010-2015
Origin of FDI Number of Projects %
1 China 41 44.6
2 Turkey 20 21.7
3 India 12 13.0
4 Pakistan 5 5.4
5 Korea 3 3.3
6 Sudan 2 2.2
7 Saudi Arabia 2 2.2
8 Yemen 1 1.1
9 Bangladesh 1 1.1
10 United Arab Emirates 1 1.1
11 Uganda 1 1.1
12 Seychelles 1 1.1
13 Britain 1 1.1
14 Israel 1 1.1
Total 92 100
Source: Ministry of Industry, the GOE. (2015). Unpublished internal document.
The main sources of FDI in the textile and apparel sub-sector are China, Turkey, India, Pakistan and
Korea, ranked in that order. As of now, the status of the 92 projects is as follows:
• 34 projects (37%) are operational;
• 17 projects (18%) are under implementation; and
• 42 projects (45%) are in the pre-implementation phase
The list of investors includes such companies as PVH Far East Ltd, a member of the PBH Group,, a
leading American garment company that owns Tommy Hilfiger, Calvin Klein, and Heritage brands;
Ayka Addis, a Turkish company that has established an integrated textile factory, manufacturing
yarn, knitted dyed fabrics, and apparel and plans to develop an industrial park in joint venture
with the Industrial Parks Development Corporation (IPDC), a government-owned company; Kanoria
Africa Textiles from India that produces denim fabric for export as well as for the domestic market;
and so on.
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Furthermore, the Swedish fashion retailer, H&M Group, has opened an office in Ethiopia and
is sourcing clothing from garment manufacturers in the country. It is major buyer of garments,
retailing them under the brands of H&M, COS, Monki, Weekday, and Cheap Monday. Their stores
are found across all continents in the world.
All of the three projects from Korea are operational. However, investments, particularly
from China, Turkey, and India have outpaced those from Korea, mainly due to relocation of
manufacturers of textiles and apparel as a result of rise in labor costs in their home countries and
consequent loss of competitiveness in the global market. This implication for Korean firms is that
they will face the late comer disadvantage, while those from competitor countries will be reaping
first-mover advantages.
4.4.2. Challenges in attracting FDIs in the Textile and Apparel Industries in

Ethiopia
(ⅰ) Gaps in the legal framework of Industrial Parks
The implementing regulations stipulated in the Proclamation are being drafted and not approved
yet. As a result, implementation of some provisions of the law related to rights and obligations of
developers and operators will remain cumbersome to implement; for instance:
• Employment of foreign nationals or staff;
• Participation in foreign capital markets to raise loans, guarantees, etc.;
• Provision of services in the park, related to utilities.
In alignment with GTP goals to further develop medium and large scale industries, the
government established the Ethiopian Industrial Zones Corporation (EIZC) under the Ministry of
Industry in 2012 to undertake the development and operation of industrial zones or parks. The
corporation is now renamed Industrial Parks Development Corporation (IPDC). The implementing
regulations should be issued as soon as possible to ensure transparent, smooth and efficient
application of the industrial parks law.
As of now, Bole Lemi-I is the only operational industrial park developed by the government.
All of the twenty factory sheds in the park have been taken up by foreign investors, mainly from
China, Korea and India. Five of the sheds (25%) are leased to a Korean investor, namely, Shints ETP
Garments PLC. They are engaged in the production of textile apparel and footwear.
The construction design of Bole Lemi II and Kilinto industrial parks is underway with the support
of the World Bank financing and technical advice. The government has ambitious plans to develop
industrial parks in other parts of the country: Hawassa, Adama, Kombolcha, Mekelle, Dire Dawa,
and Jigjiga,
There are private sector initiatives by foreign investors from Turkey, China and Taiwan to develop
industrial parks. Eastern Industrial Zone in Dukem, about 30 kms south of Addis, developed by a
Chinese firm is one of these initiatives.
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(ⅱ) Infrastructure Development

In Bole Lemi I, however, investors have been facing power surges and interruptions. They have
also faced shortage of water supply. The waste water treatment system was not built when they
moved into their factory premises.
In order to attract any investor into industrial parks, it required to provide good quality and
reliable on-site and off-site infrastructure, including access roads, factory sheds, wastewater
treatment plants, power and water systems. This ensures that investors can start operations the
moment they take over their premises and minimises delays and subsequent losses.
(ⅲ) Weak Investor Aftercare

The co-ordination links among the various regulatory bodies and service providers, including
IPDC, EIC, Federal Inland Revenue & Customs Authority, Ethiopian Electric Power, Ethiopian Utility,
Ministry of Industry, and Ministry of Environment & Forestry are not robust. The one-stop shop is
still not fully functional. Consequently, issues related to customs procedures, electric power, and visa/
work permit procedures, among others, are cumbersome and slow.
There is a need to assign properly qualified EIC and IPDC staff and representatives of key
regulatory bodies and service providers to operate the one–stop shop on a daily basis at Bole Lemi I.
This should be replicated in the future in other industrial parks under development.
(ⅳ) Scarcity of Raw Materials and Accessories

Manufacturers both in the industrial parks and outside face shortages of raw materials and
accessories due to the low base of the domestic manufacturing industry and weak forward and
backward linkages along the value chain, resulting in the import of most raw material inputs for
the apparel industry, including fabrics, sewing thread, buttons, zippers, etc. Major investments are
required to address the shortage of inputs.
In order to be competitive in the international textile and apparel market, it is critical to be able
to access inputs not only at competitive prices, but also in sufficient volumes and reliable quality and
at the right time so that the final goods can be manufactured and exported in accordance with the
requirements of the buyers, meeting delivery times.
Textile and apparel manufacturers in countries such as China have a distinct competitive
advantage in this regard as there are so many firms engaged in the production of inputs that can
supply large volumes of quality raw materials and accessories at competitive prices at short notice.
The Ethiopian government has to exert extra efforts to attract investments related to the production
of inputs and accessories so that manufacturers of textiles and apparel can compete in the global
market in the medium and long run.
(ⅴ) Weak Trade Logistics

Weak trade logistics is a binding constraint on Ethiopia’s competitiveness in textile and apparel
trade, despite its labor cost advantage and cheap hydro power, due to the high inland transport
costs to and fro the port of Djibouti; cumbersome customs procedures and also lengthy process to
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access foreign exchange to buy inputs from the international market, especially when there is a
shortage.
Rationalising customs procedures for textile and apparel and ensuring the ready availability of
foreign exchange for exporters would alleviate the problem. In tandem with this, it is critical to
take measures to minimise inland transport costs by accelerating the construction of the road and
railway network, which is under way, along the export corridor, i.e., from the port of Djibouti to the
hinterland.
(ⅵ) Development of Industrial Clusters and Economies of Scale

The government needs to ensure the development of multiple clusters of manufacturers of inputs
and accessories in the country along with the development of industrial parks by the public as well
as the private sector to so that serviced industrial land as well as manufacturing premises are readily
available at scale. This is extremely important if it is to realise its ambitious plan of industrialisation
and job creation as well as export targets, particularly with respect to the textile and apparel
industry.
At the same, it has to develop capacity in all spheres of professional management and regulation
of industrial clusters and parks, thus to ensure efficient and effective operations of one-stop shops
and simplify and expedite business registration and regulatory transactions
(ⅶ) Affordable Housing for Workers near IPs

The government is now engaged in the construction of low-cost housing for the urban
population. With investments industrial parks that are underway as well as those being planned to
be developed, it is important to consider the issue of providing affordable housing and transport to
thousands of workers foreseen to be employed in the industrial parks.
The modality of providing the services has got to be properly assessed in consultation with
the developers and operators of the parks as well as the resident enterprises and city or town
administrations as this has an critical bearing (1) on the cost of living of workers; (2) efficient
operation of the parks and (3) industrial peace and harmony.
China’s successful industrial parks provide enterprises with security, good basic infrastructure (roads,
energy, water, sewers), streamlined government regulations (through government service centers),
and affordable industrial land. They also provide technical training in order to enhance the capacity
of worker, which is later translated to an increase in labor productivity.
The National Bank of Ethiopia charges a 1.5% foreign exchange commission fee on the dollars
needed to import the inputs (1% production cost penalty in apparel). Waiting for the National
Bank’s authorisation can take up to six months when foreign exchange is scarce.
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4.4.3. Summary: Benefits and Challenges to Investment in Ethiopia

As reviewed, the benefits and challenges fairly co-exist in investing in Ethiopia. The benefits and
challenges of investing in the IPs in Ethiopia can be summarised as in the following:
Table II-5 | Benefits and Challenges to Investing in Ethiopia
Benefits Challenges
• Political and macro-economic stability • Gaps in the legal framework of IPs

• Fiscal and non-fiscal incentives for FDIs • Shortfall in infrastructure
• Abundant land and labor • Frequent power interruption
• Low labor cost • High logistics costs
• Low utility costs • High cost and poor quality of the Internet
• High level of safety/security • Low skill-level of workers’
• Availability of raw materials, e.g. cotton • Weak investor aftercare
• Duty-free access to the US and European markets • Scarcity of raw materials, e.g. textiles and fabrics and
under the AGOA and EBA scheme accessories
• Weak trade logistics
• Undeveloped industrial clusters and the lack of
economies of scale
• Shortfall of affordable housing for workers near IPs
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Part 3 Ⅲ_Experience of Korean Textile and Apparel Industry’s Overseas Investment
Ⅲ Experience of Korean Textile and

Apparel Industry’s Overseas Investment
1. Overview of the Korean Textile and Apparel Industry

1.1. The Development Path of Korean Textile and Apparel Industry
The growth path of the textile and apparel industry in Korea has been turbulent, having oscillated
between the rise and decline and re-rise. A crisis hit the industry the 1950s when the Korean War
destroyed virtually all the textile production facilities; however, they were restored relatively quickly
through foreign aid. The rapid recovery enabled the self-sustainability of natural fiber industry, e.g.
cotton; yet the industry was at the nascent stage in terms of the level of technology that it could not
produce synthetic fibers with exception of nylon.
After the recovery, the textile industry grew to a major export industry in the 1960s, achieving
rapid growth through a low cost domestic labor. Domestic production of polyester began in
the 1970s. Firms like Kolon, Hanil Synthetic Fibre, and Sunkyung grew into the three export-
powerhouses of yarn and fabric, serving domestic and international market-places. The Government
of Korea (GOK) supported the industry to enhance the competitiveness so that it would grow to the
vanguard of the national development strategy based on the export-driven strategy. To meet that
goal, the GOK created IPs and notably, government-funded research institutions (GRIs) in order to
assist industry competitiveness by improving product quality (See the Box 1 at the end of the section
for the details).21)
In the early 1980s, as the government’s developmental focus changed to the development and
promotion of the heavy and chemical industry (HCI) from the light-manufacturing. As a result, the
government’s supports for further development of textile industry stalled, as the textile industry was
not a priority in the government’s developmental agenda any more at the rise of such highly value-
added industries as ship-building, automotive, electronics, etc.
Nevertheless, textile export exceeded US$10 billion in 1987. It was a remarkable achievement,
amid the business environment changing to an unfavorable direction, as no other single export
21) The IPs in Korea has been established as a tool mainly to generate employment and to promote exports and to
enhance the industry’s competitiveness through developing linkages; the promotion of FDIs was apparently given less
weight.
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product categories have exceeded a US$10 billion threshold before. The growth of textile fiber
exports compensated and complemented to the decrease of RMG exports, which began to show a
sign of declination. The declining trend of the RMG sector has become conspicuous and continued
throughout the 1990s.
The success of the government’s HCI promotion policy, along with an increase in the national
income level, yielded an unintended challenge to the textile industry that it could not easily respond
(Figure III-1). That is, the industry now faced a shortage in domestic labor and subsequent cost
increase.
Figure III-1 | Korea: Change in per capita GDP, 1960-2014
Notes: Labels show the values in every 10 years, staring from 1970; unit in current US$;
Source: Reproduced from World Bank Open data. (2015). World Development Indicators [data file]. Retrieved from http://
Furthermore, the level of competition at the international market intensified as China and
numerous Latin American countries, which enjoyed low cost inputs, mainly labor began to enter to
the world market. The competition at the global-level has deepened since 1995 when textile and
RMG quotas have been relaxed. The world’s textile sector has indeed entered to an era of limitless
competition. Numerous Korean firms lost in cost competition and liberalized textile trade. In
addition, the Asian Financial Crisis in 1997 delivered another blow to the Korean textile and apparel
industry that was already suffering from the unfavorable changes in the business environment.
Korea’s share of textiles and fabrics, e.g. synthetic fabrics and polyester fibers, in the world market
reached its peak in 1999 and began to decline. It seems that the textile and apparel industry was
unable to sustain and survive in Korea any more.
A crucial change came in the late 1990s. The government recognized the growth potential of the
textile industry and called for the industry-wide transformation, urging the change in the industry’s
strategic focus from the quantity-based to the quality-based growth. It actually coincided with the
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industry’s own growth strategy. In fact, the industry also planned to gradually make a transition
from the traditional mass production system to a small quantity batch production system. But more
profoundly, the industry finally intended to abandon the government-led or government-guided
growth strategy. As such, the 2000s, to the industry, stood at a critical juncture in its growth path.
The industry’s efforts for transformation and revitalization were manifested by holding a
massive marketing drive, for example, a major international textile and apparel fair, known as the
“Preview in Seoul (the Seoul International Textile Fair)” in 2000. The fair grew to a successful forum
of exchange of new and innovative designs and products today participated by 307 firms from
16 countries, besides Korea, in 2014. The industry also sought to converge its core strengths with
culture and information technology; in addition, inter-industry co-operation with other industries
was actively pursued. The promotion of local apparel brands was also encouraged. As a result, such
local apparel brands as EXR, Beucre Merchandising, etc. began penetrating the Chinese market,
taking advantage of the Korean cultural wave called Han-ryu.
Today, the industry’s efforts of transforming itself to a high-value-added production structured

industry continue. Based on the complete upstream to downstream production capacity built in
Korea, there is an additional emphasis on “collaborative stream” projects that concentrate on the
development of “smart fibers” and “nano-fibers” in order to increase the share of technology-
ridden fiber manufacturing. The GOK also responded to the industry’s efforts by supporting R&D
and instituting some forward-looking projects, such as the commercialization of super textile
materials and convergent products that utilizes mainly aramid fibers, the development of the
“Carbon Valley” at which R&D and commercialization of carbon fibers and convergent products
would be studied and researched. Other efforts included global brand development and marketing,
new market expansion, an expansion of overseas production bases, and fostering a high-tech and
skilled workforce, including supporting the professional training of managers. In sum, the Korean
textile and apparel industry pursues its growth by transforming itself to a technology-intensive
industry from a factor-intensive one. The re-rise of the industry has started.
Thus far, this chapter discussed, though in brief, on the development trajectory of the Korean
textile industry. Major events that brought forth significant impacts on the growth path of the
Korean textile industry juxtaposed by the change in textile and apparel exports are presented in
Figure III-2 below.
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Figure III-2 | Major Events in the Growth Path and Exports of the Korean Textile Industry
Yet, the review on the developmental trajectory of the Korean textile industry poses a few
profoundly important questions that deserve to be answered. Those are:
What prompted the Government of Korea (GOK) recognized the potential of the textile industry?
What were the specific responses of the textile industry when it faced the crisis of labor shortages
and rapidly increased labor costs starting from the late 1980s?
And, in the context of the KSP, the answers and elaborated discussion on the points raised
would serve as excellent references for the policy-makers in Ethiopia who are particularly keen on
understanding the background of the development of the Korean textile and apparel industry as a
whole.
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Box III-1: The Establishment of IPs and GRIs for the Textile and Apparel
Industry in Korea
(1) Development of Industrial Parks for Textile Industry
Since the 1960s, the government has continuously carried out five-year economic and social development
plans, and as a part of the national development plan, a number of IPs was established around the
country. Among those, in 1967 the Guro Industrial Park was developed to focus on the promotion of
textiles and apparels, which soon became major export products, leading the country’s exports at the time.
Subsequently, in 1973, the Gumi National Industrial Park was established and corporations such as Kolon
Co., Ltd. and Cheil Synthetic Fiber Co., Ltd. moved in and through these yarn companies, a fiber technology
professional training center was established in Daegu, making Daegu a hub of the textile industrial base in
Korea. In 1979, through the enactment of the Textile Industry Modernization Promotion Act, corporations
sought to enhance their value-added products and then in the 1980s, with specialized industrial complexes
such as the Bi-San Dyeing Industrial Complex in Daegu and the Ban-Wol Dyeing Industrial Complex in
Ansan-City, were established in order to improve dyeing and processing technology. Thus the textile
industry in Korea had a completely integrated supply chain from upstream to downstream and the overall
competitiveness of the industry has largely been enhanced. This constitutes a clear division of labor with
overseas manufacturing bases, which will be elaborated further in the later section.
Since the 1990s, rather than building large-scale textile industrial parks, small- and medium-sized facilities
have been established in the metropolitan areas. And the new emphasis was given to the development
of eco-friendly textile industrial complexes and the carbon-fiber specialized complexes as the basis of new
development plans.
(2) Establishment of Textile Test and Research Institutes
In conjunction with the establishment of IPs in the 1960s, three specialized testing inspection agencies
(KOTITI, KATRI, FITI) were established to examine textiles and clothing products, conduct quality inspections,
provide certification, and conduct other related administrative tasks as well as R&D. Furthermore, as
specialized research institutions were established by regions, there were nine specialized institutes that
were established in total; those are, Seoul (clothing); Daegu (synthetic fiber and textile); Busan (footwear);
Jinju (silk); and Jeonbok (knits). These institutes established based on sector and region provide new
technology to improve value-added products, conduct new product research and development, research
ways to improve productivity and cost reduction for the textile industry, and provide required technical
training.
Specialized Textile Research Institutions by Region
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1.2. Recent Textile and Apparel Industry in Korea

As discussed in the preceding section, the textile and apparel industry in Korea was regarded by
many as a declined industry for a long time. In reality, however, it has not only survived against all
the odds, but some in the industry also have begun to thrive again. In addition, it is still recognized
as a key industry in the Korean national economy today. As shown in Table III-1, there are about
45,475 firms operating in the industry, accounting for about 12.3% of total manufacturing firms
in 2013; it employs approximately 7.9% of the workforce or 301,188 workers. If some industry sub-
sectors and linkage industries are included, e.g. leather, bags, and shoe manufacturers as well as
dyes, pigments, textile machinery companies, wholesale and retail companies, laundry companies,
etc., the total number of firms in the industries would amount to 300,000 with 837,000 employees.
Thus, these statistics explain the reasons why the textile and apparel industry is still a key industry
and driving force in the national economy in Korea, even though the industry has reduced both
in the number of firms and employees compared to a few decades ago. Indeed, at one point (e.g.
in 1987/88), the industry had employed about 700,000 workers and had once accounted for about
33.7% of the total manufacturing (Figure III-3).
Table III-1 | The Textile and Apparel Industry in the Manufacturing Sector in Korea,
2013
Number of Number of Production Value added Export*

firms employment (US$ bill) (US$ bill) (US$ bill)
Whole Manufacturing 370,616 3,802,218 1,496 479.2 572.7
Textile and apparels 45,475 301,188 45.2 16.7 15.9
% 12.3 7.9 3.0 3.5 2.8
Note: * 2014 data; Source: K-stat, Korea International Trade Association, KITA. (2015). Korea Trade statistics [data file].
Retrieved from http://stat.kita.net
Figure III-3 | Number of Firms and Employment in the Textile and Apparel Industry by
Year
Source: Overseas Economic Research Institute, Export-Import Bank of Korea, Korea Eximbank. (2015). Overseas Investment
Statistics [data file]. Retrieved from http://keri.koreaeximbank.go.kr
330
In 2014, although textile exports decreased by 0.1% over the previous year, with an export of
US$159.4 billion, Korea was ranked as the eighth top textile exporter in the world.22) As of April
2014, Vietnam emerged as the top exporter of textiles in the world with exports amounting to
US$27.3 billion, followed by China with US$25.2 billion, and the US with US$14.3 billion. Main
export product categories are such textile products as synthetic fiber fabrics, knitwear, and the like,
accounting for 58.1% of the trade balance. For imports, RMGs accounted for as high as 71.5% (See
also Table III-2).
Table III-2 | Korea Textile and Apparel Industry Exports by Prouct Category, 2014
Export Change (%)* Import Change (%)*
Textile Fiber 1,431 -1.4 223 -4.1
Yarn 1,644 -4.6 2,091 -1.8
Fabric 9,262 -1.1 1,866 4.2
Apparels 3,617 5.5 10,477 11.8
Total 15,936 -0.1 14,657 8.4
Notes: * the change compared to the previous year, 2013; Unit: US$ million;
Source: K-stat, Korea International Trade Association, KITA. (2015). Korea Trade statistics [data file]. Retrieved from http://
stat.kita.net
On the other hand, Korea’s textile imports in the same year recorded US$14.66 billion, posting
a surplus of US$1.28 billion in trade balance, which accounted for 2.7% of the total trade surplus
(US$47.15 billion). The imports from China were US$6.59 billion, or 45% of total imports, and
imports from Vietnam showed a 20% increase over the previous year to US$2.76 billion.
The size of the domestic Korean apparel/fashion market as of 2014 is estimated as KRW38.7
trillion (about US$38.7 billion); of the total, Speciality-retailer of Private-label Apparel (SPA) brands
account for KRW3.3 trillion and outdoor clothing account for KRW6.6 trillion (Table III-3). In the total
fashion market, haberdashery such as shoes and bags account for KRW8.7 trillion and men’s clothes
account for 14.1% while women’s clothes account for 16.6%; sports gear has seen an increase from
12% in 2010 to 17.1% in 2014. Although there has been somewhat decline in recent years, the SPA
and outdoor markets have grown rapidly. In 2009, for example, the SPA market posted about 60%
of growth, while the outdoor recorded 35%.
The main distribution channels of the industry are department stores, which accounted for 34.1%
of the total distribution channels but in recent years, their market share has been declining while
sales in street shops and on-line stores has been on the rise.
22) The global laders in the textile exports in 2013 are ranked as: (1) China, (2) EU, (3) India, (4) Turkey, (5) Bangladesh, (6)
USA, (7) Vietnam, (8) Korea, (9) Pakistan, and (10) Indonesia
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Table III-3 | Share of the SPA and Outdoor Apparel Market in Korea
Total Fashion Industry SPA Market Outdoor Apparel Market

Year
Amount Amount Amount
Change (%) Change (%) Change (%)
(US$ million) (US$ million) (US$ million)
2006 23,113 5.6 - - - -
2007 26,011 12.5 - - - -
2008 25,216 -3.1 455 -
2009 25,575 1.4 727 60.0 2,209 35.0
2010 27,432 7.3 1,091 50.0 2,955 33.7
2011 30,669 11.8 1,727 58.3 3,955 33.9
2012 31,160 1.6 2,245 30.3 5,015 26.8
2013 32,375 3.9 2,636 17.4 5,955 18.7
2014 33,809 4.4 3,091 17.2 6,509 9.3
Note: SPA, Speciality-retailer of Private-label Apparel; Source: Korea Federation of Textile Industries. (2016). Unpublished
internal document.
In sum, the textile and apparel industry in Korea can be characterized as follows:
• It is still a key manufacturing industry in Korea, accounting for 12.3% of manufacturing outputs
with 7.9% of the employment generated by the manufacturing sector. The industry’s export
share account for more than 2% of the manufacturing exports and about 2.7% of the total
trade surplus;
• A foreign-dependent, export-driven industrial structure: It imports about one-third of raw

materials and exports two-thirds of its finished products;
• The supply chain in the industry is fairly balanced between upstream to downstream production
bases in such areas as yarn, fabric, dye process, fashion apparel, and distribution, while
production technology has been also developed; and
• Sales through the street shops and on-line stores are increasing, while those at the department
stores are inclined to decline.
1.3. Overseas Investment Trends of Korean Textile and Apparel Industry

As discussed, the Korean textile industry has gone through a number of challenges in its growth
path. Since the later 1980s, the industry has faced formidable challenges, such as a weakened
production base caused mainly by labor shortages and rapidly increasing labor costs (See Table III-4
332
and III-5). As a result, the number of firms in the textile industry in 2013 was about 31.6% less than
the number of companies in 1995, while the number of employees was reduced by half in the same
time period. Rising wages and labor shortages aggravated the decline of the business environment,
whereas in countries such as China and Indonesia, light manufacturing was booming. This, in
turn, exacerbated and intensified the level of competition at the global-level. These issues arising
from the changing internal and external environment continued to exacerbate the decline of the
industry.
Table III-4 | Labor Cost Increase in the Textile and Apparel Industry in Korea, 1985-
1990 (%)
1985 1988 1989 1990
Whole manufacturing 7.5% 25.9% 24.9% 19.0%
Textile 14.0% 23.2% 20.3% 19.1%
Apparel 12.0% 23.8% 19.5% 19.4%
Source: Sung, K. H. (1997). Localisation Strategy of Youngone Trading Company: Bangladesh. in Korean. Localisation
Strategy in the 3rd World Market pp.77-93. Seoul, Korea: International Management Study Association.
Table III-5 | Hourly Labor Cost in the Textile and Apparel Industry: Selected Countries,
1996 and 1997
1996 1997
Hong Kong US$4.51 US$5.20
Korea 4.18 2.69*
Costa Rica 2.38 2.52
Mexico 1.08 1.51
Guatemala 1.31 1.28
China 0.28 0.43
India 0.36 0.39
Bangladesh 0.31 0.30
Indonesia 0.16 0.16
Note: *Korea faced the Asian Financial Crisis in the year. As a result, wage rate plummeted, as unemployment rapidly
increased; Source: Jeon, M. S., Hwang, J. W., & Hong, W. S. (1997). A Study on Regional Development Strategy
and Regional Partnership: Focusing on the Textile and Apparel Industry Cluster. in Korean. Seoul, Korea: Korea Labor
Institute.
333
The labor shortage crisis has also created a “mismatch” in which there are shortages in highly
skilled personnel as well as in new entrants owing to low wages and poor working conditions; this
translated to a shortfall in qualified manpower in the production lines, especially, in small and me-
dium enterprises (SMEs) in the industry. Although an immigrant workforce has been introduced to
address this problem since 2007, the labor shortage has not yet been resolved even today.
The GOK has placed tremendous efforts as to revitalise the industry based on the reasons dis-
cussed before. In fact, the GOK anticipated that textdueile exports would grow, resulting from free
trade agreements (FTAs) that Korea has entered with numerous economies. It strengthened support
for continued development of a variety of value-added products as well as government-led R&D
projects to ensure competitiveness of the industry. The efforts include the promotion of qualified
human resources, the establishment of regional textile research centres and specialized laboratories,
etc. In order to support R&D, design, global marketing, sewing and patter engineering, manufac-
turing and quality control, the government agencies, firms and universities co-operated as the Triple
Helix Model. As there are now such pronounced global-level industries as ship-building, automotive,
and electronics that exist in Korea, the textile industry may expand its markets as they also are ulti-
mate end-users of new fibre materials.
In spite of such supports, the industry was not able to specifically respond to the challenge
originated from the factor shortages (labor shortage) and the job mismatch. Therefore it has
decided to restructure itself as to move its production bases overseas. Hence, the beginning of the
“out-of-Korea” rushes (Figure III-4).
Figure III-4 | Annual Changes in Foreign Investment Out-flows Made by Textile and
Apparel Industry
Since the time when the stampede of the industry’s going overseas has begun, the industry’s
cumulative investments in overseas have accumulated to 5,495 in terms of the number of firms,
or US$7.3 billion by 2014. Of this total, 34.4% has been invested in China, amounting to US$2.5
billion, and US$1.5 billion has been invested in Vietnam along with US$8.7 million in Indonesia (See
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the Table III-6 and III-7). Since the establishment of formal diplomatic relations between China and
Korea, domestic apparel manufacturers have been rapidly expanding into the China and in the year
2000, China emerged as the largest foreign investment destination, but more recently investment
destinations have included a number of ASEAN countries such as Vietnam, Myanmar, and the like.
Table III-6 | FDI Out-flows Made by the Textile and Apparel Industry
New Investment (Number of firms) Investment Amount (US$ million)
2014 Accumulated* 2014 Accumulated*
Whole Manufacturing 1,063 28,666 7,250 99,484
Textile & Apparel Industry 113 (10.6%)** 5,495 (19.2%) 344 (4.7%) 7,326(7.4%)
Note: * Accumulated in the period 1968-2014; ** Share in manufacturing;

Table III-7 | Foreign Investment in the Textile and Apparel Industry by Destination
Country
Accumulated Total (1968-2014)
New Investment (No. of firms) % Amount (US$ million) %
Global 5,495 100.0 7,326 100.0
China 3,240 59.0 2,524 34.4
Vietnam 646 11.8 1,508 20.6
Indonesia 306 5.6 867 11.8
USA 359 6.5 458 6.3
Uzbekistan 24 0.4 214 2.9
Since the 1980s, the Korean textile and apparel manufacturers have faced formidable challenges
arising from both domestic and international sources, which were intertwined and interrelated.
They were labor shortages and rapidly increasing labor costs resulting from the rapidly developing
domestic economy. This, in turn, led to the dissipated cost advantages in the international market
which were replaced by such countries as China, Mexico, Indonesia, Thailand, Vietnam, and the like.
As the challenges associated with endowed factor conditions were obviously beyond the industry’s
control, the industry sought their own survival by searching for the places where it could produce at
lower factor costs. In sum, the Korean textile and apparel manufacturers were known to expanding
to overseas in search of new production bases where main input costs, e.g. labor, were acceptable
and permissible to maintain their cost advantages. As such, the Koran firms actively expanded to
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overseas, such as China, Bangladesh, Indonesia, the Philippines, Vietnam, El Salvador, Guatemala,
etc., as shown in Figure III-5 below.
Figure III-5 | Selected Investment Destinations of Korean Textile Companies
Table III-8 | Major Korean Investors and Major Investment Destinations
Firm Revenue from

Major Investment Destination Major Buyer Main Products
(year established) Sales (2014)
Walmart,
Guatemala, Nicaragua, Haiti,
Sae-a (1988) 1.6761 Trillion Kohl’s, Knit, Woven
Costa Rica, Indonesia, China
J.C.Penny
Guatemala, Nicaragua, United
Gap, Hollister,
Hansae (1982) 1.3131 Trillion States, Vietnam, Indonesia, Knit
Kohl’s
Philippines
Youngwon Corp Bangladesh, Vietnam, China, North Face,
1.2463 Trillion Outdoor
(1974) El Salvador Nike
Walmart,
Guatemala, Nicaragua, Vietnam,
Hansol Textile (1992) 1.412 Trillion GAP, Knit
Indonesia, Cambodia, Philippines
Kohl’s
Shinsung Trade Nicaragua, Vietnam, Indonesia,
7,454 Billion Gap, Target, Forever21 Knit, woven
(1968) Myanmar
Nevertheless, the firms’ decision to move their production bases to overseas need to be further
scrutinised. Have they really retained the cost advantage that they have sought by moving overseas
in spite of the risks associated with new locations? Indeed, they began to operate in whole new
business environment. To this extent, what were the business conditions in host countries other than
the cost of labor?
The next section will discuss a few selected Korean investments and will portray the business and
investment conditions in some host countries where the Korean investments were concentrated,
namely Vietnam, Bangladesh and Indonesia.
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2. Major Investment Destinations of Korean Textile Companies

2.1. Vietnam
As discussed in the previous section, Vietnam is the second largest investment destination of
the Korean textile firms, following China. Korea’s textile and apparel firms, along with those of
China and Japan, are primary investors in Vietnam with a cumulative total of US$1.59 billion in
investments, 682 firms, which have generated approximately 550,000 local jobs at the end of
June, 2015. Korea’s investment in the Vietnamese textile sector accounts for 21.1% of its overall
international textile/apparel investment per year.
To Korean investors, on the other hand, Vietnam has ascended as one of the most preferred
investment destinations; on dollar value basis, Vietnam surpassed China as the largest investment for
the Korean textile industry. In 2014, the investment in the textile/apparel sector increased to US$195
million, showing a gradual increase from US$98 million in 2010.
Then, what have attracted the Korean investors to move to Vietnam? As the matter of course,
there were multiple reasons that have attracted the investors. However, it was mainly some factors
in Vietnam’s business environment that have moved to positive directions. For example, Vietnam
became a member of the WTO in 2007 and its textile quotas were abolished. In addition, China’s
rising labor costs contributed to deteriorating investment conditions while Vietnam’s participation
in the Trans-Pacific Pact (TPP) created affirmative conditions; the investors anticipated that Vietnam
would enjoy such as exemption of duties when its goods entering the US markets.23) Perhaps the
anticipation for the future was largely moved the Korean investments in Vietnam’s textile sector,
which have been steadily increasing over the years.
Table III-9 | Korean Investment in Vietnam’s Textile and Apparel Industry
’90-99 ’00-09 2010 2011 2012 2013 2014 2015 Total
Textile 31 166 15 7 10 21 10 6 266

New
Apparel 29 224 21 18 21 29 45 23 410
Business
Textile & Total 60 390 36 25 31 50 55 29 676

Apparel
Textile 163,301 263,991 34,006 39,238 37,795 32,660 81,250 25,177 677,418
Investment
Amount Apparel 23,569 388,970 64,719 85,996 75,253 105,428 114,152 54,715 912,802
(US$000)
Total 186,870 652,961 98,725 125,234 113,048 138,088 195,402 79,892 1,590,220
Note: Statistics for 2015 includes until the end of June 2015;
23) 2015 KSP-Ethiopia research tem (personal communication: interview, December 26, 2015)
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An interesting observation drawn from the FDI in-flows in Vietnam is that they corroborate
the arguments put forth in academia and the industry that they have indeed contributed to
the development of the textile and apparel manufacturing sector in Vietnam. In addition, the
investment has directly contributed to an increase of the textile and apparel trade between Korea
and Vietnam. Next section will be briefly examining the status of the textile and apparel industry in
Vietnam.
2.1.1. Recent Textile Industry in Vietnam Today

Vietnam’s textile and clothing industry has emerged as the largest manufacturing sector in the
country. The industry has rapidly grown after the transformation from the government-led growth
to the private sector-led, focusing mainly on small- and medium-sized enterprises (SMEs). Today,
Vietnam has emerged as the 6th top exporter of textile and apparel in the world, mainly driven by
the apparel manufacturing industry; however, Vietnam’s RMG industry has high dependence on
imported raw materials, as raw material manufacturing, e.g. yarn, fabric, etc., is rather fragile and
under-developed. As shown in Figure III-3 below, the apparel manufacturing has to import about
6 billion m2 of raw materials from abroad as local manufacturing capacity is not ready to meet the
rapidly growing demands.
Figure III-6 | Supply Chain of the Textile and Apparel Industry in Vietnam
In 2014, the Vietnamese textile and apparel industries’ revenue accounted for approximately
US$24.8 billion and US$12.8 billion respectively, recording an annual growth rate of 21% and 17.8%
from 2010 to 2014. The industry’s trade surplus was US$12.0 billion, rising just about US$1.6 billion
over the previous year’s surplus but the trade balance in the textile sector is continuing to show a
deficit trend while the apparel sector posts a surplus.
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The share of yarn and fabric exports in the total exports in Vietnam is quite small but has seen
a sharp increase from 2010 to 2014 by an annual average of 17.9% and in 2014, posted an export
of US$5.26 billion. Furthermore, Vietnam’s apparel exports in 2014 grew 14% over the past year,
totalling US$19.54 billion, and recorded an average annual growth of 22% from 2010 to 2014 (Table
III-10). Vietnam’s apparel manufacturing sector holds the second largest market share especially in
the US market at 11.3%, following China at 35.1%.
Vietnam’s textile product imports in 2014 amounted to US$120.2 billion, and apparel imports
amounted to US$8.1 billion, recording an annual average growth of 17.7% and 19.8% respectively
from 2010 to 2014. Vietnam’s imports appear to primarily consist of textile materials necessary for
the apparel production.
Table III-10 | Vietnam’s Textile Trade, 2000-2014
Avg. Increase/Decrease
Rate (%)
2000 2005 2010 2011 2012 2013 2014
’00-‘05 ’05-‘10 ’10-‘14
Textile 299 725 3,061 3,770 3,894 4,612 5,256 28.5 64.4 17.9
Export Apparel 1,821 4,681 10,390 13,149 14,443 17,148 19,544 31.4 24.4 22.0
Total 2,120 5,406 13,451 16,919 18,337 21,760 24,800 31.0 29.8 21.1
Textile 1,379 3,435 7,042 8,702 9,075 10,633 12,020 29.8 21.0 17.7
Import Apparel 450 332 451 529 619 716 809 -5.2 7.2 19.8
Total 1,829 3,767 7,493 9,231 9,694 11,349 12,829 21.2 19.8 17.8
Textile -1,080 -2,710 -3,987 -4,932 -5,181 -6,021 -6,764 30.2 9.4 17.5
Trade
Apparel 1,371 4,349 9,939 12,620 13,824 16,432 18,735 43.4 25.7 22.1
Balance
Total 291 1,639 5,958 7,688 8,643 10,411 11,971 92.6 52.7 25.2
Note: Unit: US$ million; Source: World Trade Organization, WTO. (2015). Merchandis trade [data file]. Retreived from http://
stat.wto.org.
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Table III-11 | Destinations for Vietnam’s Textile and Apparel Export, 2013
Export(US$ million) %
Total 21,534 100.0
USA 9,070 42.1
Japan 2,604 12.1
Korea 2,051 9.5
China 1,331 6.2
Germany 698 3.2
Spain 555 2.6
United Kingdom 516 2.4
Canada 421 2.0
Turkey 392 1.8
Netherlands 263 1.2
Source: United Nations Comtrade Database. (2015). UN Comtrade Database [data file]. Retrieved from http://comtrade.
un.org/data.
2.1.2. Vietnam’s Textile and Apparel Trade with Korea

Currently, Korea’s trade with Vietnam’s textile and apparel industry recorded US$2.73 billion
in exports and US$2.76 billion in imports for 2014, reflecting a growth rate of 18.8% and 56.2%
annually during 2010 to 2014. Product-wise, yarn and fabric trade export recorded US$2.37 billion in
2014, showing an average annual growth rate of 15.8% in the period 2010-2014.
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Table III-12 | Korea’s Textile and Apparel Trade with Vietnam
Avg. Increase/
Classification 2010 2011 2012 2013 2014 Decrease Rate
(%)
Artificial
52 78 74 76 78 12.5
Filament
Textile Knitted
657 790 818 942 978 12.2
fabric
Subtotal 1,451 1,811 1,809 2,213 2,369 15.8
Export
Knit 13 14 14 23 38 48.1
Apparel Fabric 95 150 179 265 322 59.7
Subtotal 109 165 194 290 365 58.7
Total 1,561 1,976 2,094 2,503 2,734 18.8

Artificial
single 92 130 115 86 77 -4.1
Import Textile fibre
Subtotal 470 624 589 614 597 6.8
Knit 105 193 253 371 469 86.7
Apparel Fabric 273 626 829 1,308 1,683 129.1

Import
Subtotal 378 819 1,084 1,683 2,160 117.9
Total 849 1,442 1,672 2,297 2,758 56.2
Textile 981 1,187 1,309 1,599 1,772 20.2

Trade
Apparel -269 -654 -890 -1,393 -1,795 141.8
Balance
Total 712 534 422 206 -24 -25.8
Note: Unit: US$ million; Source: K-stat, Korea International Trade Association, KITA. (2015). Korea Trade statistics [data file].
Korea’s trade of textiles and apparels with Vietnam saw a gradual decrease in trade surplus then
it turned gradually to deficit of US$20 million in 2014. An important characteristic of the Korea’s
textile and apparel trade with Vietnam is that Korea makes a surplus from the textile exports to
Vietnam while vice versa for Vietnam. For example, exports of double-knit fabric and synthetic fibres
posted US$0.98 billion and US$0.47 billion in 2014, corresponding to annual average growth rates
of 12.2% and 35.9% respectively between 2010 and 2014. In the same time period, trade of apparel
recorded an average annual growth rate of 59.7% and in 2014; especially apparel import from
Vietnam surged to an average annual growth rate of 117.9%, posting the growth of 5.7 times from
2010 to 2014, from US$378 million to US$2.16 billion.
The rapidly increased trade between the two countries is partly attributable to the structure of
the Korean textile industry that it largely depends on imports for raw materials, as pointed out in
the previous section. And it will not be surprising that the Korean investment firms are sourcing the
raw material inputs from their investment factories established in Vietnam (See Box III-2).
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Box III-2: Major Korean Investment Firms in the Textile and Apparel
Sector in Vietnam
1. Hansoll Textile Ltd.
Hansoll Textile is currently operating 19 factories with 601 lines in eight countries including Vietnam,
Indonesia, Guatemala and Nicaragua and produces about 35 million pieces of clothing (T-shirt basis
estimate) on a monthly basis, which are primarily exported to the Americas. Hansoll’s main clients include
Walmart, Kohl’s, JCPenny, and Adidas and so on.
In Vietnam, Hansoll operates four sewing factories, including Hansoll Vina Co., Ltd, Hansoll Vietnam Co.,
Ltd, Kotop Vina Co., Ltd, and Unisoll Vina Co., Ltd. These four sewing factories employ 12,800 people in
261 lines and produce 14,320,000 pieces on a monthly basis. On the other hand, Global Dyeing Co., Ltd is
Hansoll’s dyeing and finishing factory in Vietnam which has been established in 2004 for the acquisition
and production of high value-added fabrics in Vietnam. It supplies raw materials for its business operations
in Vietnam and worldwide by producing 3,000,000kg of dyeing products and 500,000kg of printing on a
monthly basis.
Hansoll’s sales revenue from Vietnam in 2015 recorded about 40% compared to total sales from its all
overseas factories, US$ 473 million, indicating that Vietnam is the most valuable investment that Hansoll
has made.
Revenue by Country to Which Hansoll Has Invested
Note : Unit in US$ million ;

Source: Reproduced from Hansoll Textile. (2016) 2016 Hansoll Textile Profile. Retrieved from http://www.hansoll.
com/_ENG/html/hansoll.html#world_network.
2. SAE-A Trading Company
Sae-A Trading Co., Ltd. which is founded in 1986, currently operates 41 plants and 24 subsidiaries in
ten countries including USA, Haiti, Guatemala and Indonesia. Sae-A has been focusing on the completion
of vertical integration from yarn-production though its fabric mills to retail operations in Korea, by
establishing a fabric mill, WIN TEXTILE, in 2012 in Indonesia and a spinning mill in 2015 in Costa Rica.
Through this vertical integration, about a million pieces of clothing are produced per day to be exported to
the Americas and Europe, totalling US$1.8 billion. Its main clients include DKNY, KOHL’s, TESCO, and ZARA
and so on.
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3. Hansae Co., Ltd’s

Hansae Co., Ltd currently operates in five countries including Vietnam, Nicaragua, Guatemala, Indonesia
and Myanmar and has 11 overseas subsidiaries. Hansae’s main clients include GAP, Nike, H&M, Abecrombi
and so on and the company’s overseas sales achieved KRW1.3 trillion in 2014.
Hansae established the production base in Vietnam because of Asian Financial Crisis and a shortage of
labor supply in U.S and Saipan. To resolve such shortages, Hansae chose Vietnam as an alternative, which
now produces about 60% of Hansae’s total global production. There are currently three garment factories
and one dye factory operation, in addition to a reliable and stable supplier of fabric through the company’s
vertically integrated production system.
4. PANCO
Japan's Uniqlo is the main customer base for Panco, which has a total of seven production bases in three
Asian countries (China, Vietnam, and Myanmar), employing 12,000 people both at home and abroad. These
production bases include dyeing, knitting and building a vertically integrated system for the entire sewing
process, and exports amount to US$250 million annually.
Panco Vietnam, in particular, has four production bases with seven knitting, dyeing, and sewing plants,
and accounts for about 68% of the total garment production while dyes (dyeing yarn or fabric) account for
about 70% of total production.
2.1.3. The Investment Environment in Vietnam

Then, how do the Korean investment firms perceive the investment conditions in Vietnam?
And what do they think of the merits and de-merits of the business environment? The investors’
perception would be helpful for the policy-makers in Vietnam to devise their investment policies in
order to make the current investment “sticky” and sustainable as well as to continue attracting new
investments.
As discussed, Vietnam has emerged as one of the most preferred investment destinations with low
investment costs comparative to China as well as some of the other ASEAN countries including India
due to the potential that it could replace China in addition to such anticipations for the beneficial
treatment rendered by the TPP. Furthermore, not only that but Vietnam’s economy has been
showing a steady growth of 5% each year, indicative of a sustainable and stable growth making it a
promising market to investors. Vietnam is also politically and socially stable, and as a member of the
ASEAN countries along with China and India, there are many benefits to Vietnam’s position as an
investment destination.
Viewed as a stable economy with a population of 9.3 million and possessing lower investment
costs than other countries, Vietnam was selected as one of the top 15 promising investment
destinations by the United Nations Conference on Trade and Development (UNCTAD) in 2011.
(1) Merits
Simplified investment procedures and the securing of transparency due to an enactment of the
Integrated Investment Law/Corporate Law are the pronounced merit for the investors. In order to
join the WTO, Vietnam enacted new investment laws in July of 2006 based on the elimination of
discrimination between citizens and foreigners; these laws aimed to simplify the investment process
and ensure transparency as well as amend the Corporations Act to allow the establishment of
private companies in any forms, such as limited liability companies, joint-venture firms, corporation,
sole-proprietorship, etc.
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Vietnam maintains a highly positive stance to enter free trade agreements (FTAs) with other
countries, including AFTA, which are applied to the ASEAN nations, ASEAN-Korea FTA (AKFTA), of
the ASEAN-China FTA (ACFTA), ASEAN-Japan FTA (AJCEP), ASEAN-Australia and New Zealand FTA,
ASEAN-India FTA (AIFTA), Korea-Vietnam FTA, and Vietnam-Japan FTA (VJEP) among others. As
such, benefits from tariff reduction or exemption are certainly positive factors for investors.
Vietnam has an advantageous position with the ability to act as a preferential import tariff
production base that connects all the ASEAN countries in the region; with the settlement of the TPP,
it can also easily access markets in the United States and Europe.
(2) De-merits
On the other hand, inefficiency due to the shortfall in administrative system is obviously
a shortcoming. Vietnam’s institutions and regulations still largely depend on the arbitrary
interpretation of civil servants and their authority is excessive, thus giving rise the possibility of
corruption cases. The lack of overall business-friendly attitude due to lingering socialist ideology is
translated into the difficulties for new business start-ups; particular attention and careful judgment
needs to be exercised when selecting partners for joint ventures.
Recently, the investors see the surge in investment costs. It is observed that such costs as
labor costs, lease/rent costs in industrial parks are rapidly rising. In 2015, minimum wage was
approximately 14.3% higher than the previous year and is expected to rise another 12.4% in 2016
(Table III-13).
Table III-13 | Investment Infrastructure Cost in Vietnam
Category Vietnam (North) Vietnam (South)

2
Industrial Park ($/m /50 year) 55-80 50-75
Lease
2
Office (m /month) 25-35 30-35
Electricity/kWh (general/high/low) 0.07-0.10

Electricity, 3
factory/m 0.3-0.4
water
3
Waste/m 0.4-0.5
Logistics Air (~Incheon airport/1ton) 1,100-1,400 1,600-1,900

costs Sea (~Busan harbor/FEU) 800-900 700-800
Minimum wage (1st class) 89 - 127

Wage
Manual labor (Entry level) 190-230 200-250
Manual labor (5-year experience) 300-500 350-600
Office worker (Entry level) 300-400 350-450

Wage
Management (5-year experience) 500-700 600-750
Increase rate (%), 2014 14.9
Corporate Tax (%) 22

Tax
VAT (%) 10
Source: Global Window, Korea Trade-Investment Promotion Agency, KOTRA. (2013). Country Profile: Vietnam. Hanoi,
Vietnam: KOTRA Hanoi Center. Retrieved from http://www.globalwindow.org
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With the strengthening of Vietnam’s environmental standards for wastewater sewage treatment
facilities and sewage treatment facility installation costs, it is becoming difficult to obtain permits for
dye industry facilities that are critical to the textile industry.
Local governments do not issue permits for the establishment of a new sewing factory within
two hours’ travel from Hanoi. It is presumed that the textile sector, due to its low added value, has
relatively low augmenting effects on workers’ income as well as local government tax revenue vis-à-
vis other industrial sectors.
2.2. Bangladesh
The first Korean investment in Bangladesh was in 1978 when Daewoo Co., Ltd. entered into a
joint venture with the government to establish a sewing factory. This became the foundation of
Bangladesh’s textile and apparel industry, expanding investments and trade while establishing the
country position as a world-class apparel production base (See also Box III-2)
Korea’s investment in Bangladesh’s textile industry grew rapidly in the late 1980s to the early
1990s when Korea’s domestic manufacturing wage started soaring and peaked between 1994 and
1999. Then in 1997, the government of Bangladesh restricted investment to the simple processing
sector and the textile industry and began to enforce quotas as well as conditional investment in
order to ensure the revitalisation of the forward and backward linkages of the textile industry. As a
result, there was a decline in Bangladesh’s exports to the Korean market.
On a cumulative basis, at the end of June 2015, Korea’s investments in Bangladesh’s textile and
apparel industry denoted an investment of US$160 million over the past five years with a total
number of 87 new businesses. Furthermore, over the past five years, the annual investment in
Bangladesh was an average of 2.6 cases and US$3.5 million per case (See also Table III-14).
Table III-14 | Korean Investment in the Bangladesh’s Textile and Apparel Industry
’80-89 ’90-99 ’00-09 2010 2011 2012 2013 2014 2015 Total
Textile 1 25 7 2 0 1 4 0 0 40
New
Business Apparel 2 26 13 2 2 1 1 0 0 47
Total 3 51 20 4 2 2 5 0 0 87
Textile 66 28,579 7,601 326 74 1,293 2,440 1,925 166 42,470

Investment
Amount Apparel 592 69,467 32,532 3,640 211 3,409 3,079 1,299 710 114,939
(US$’000)
Total 658 98,046 40,133 3,966 285 4,702 5,519 3,224 876 157,409
Note: Note: Statistics for 2015 includes until the end of June 2015;
Source: Overseas Economic Research Institute, Export-Import Bank of Korea, Korea Exim bank. (2015). Overseas Investment
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2.2.1. Recent Textile and Apparel Industry in Bangladesh

The textile and apparel industry in Bangladesh is centred on clothing and sewing products, which
amount for 81.7% of total exports in the manufacturing industry, making it the primary exporter
(2014-2015 fiscal years).
Bangladesh, in 2014, ranked as the world’s third largest exporter of clothing and apparel;
however, because of the growth of the textile and apparel industry in Bangladesh has been centred
around industrial sewing, its raw material production industry, such as the fabric and yarn industry is
rather frail and the dependency on foreign import of raw materials is high.
Bangladesh is now the second top apparel supplier for the EU and the third top apparel supplier
for the US. As major brands in the EU and the US are utilising Bangladesh as a main outsourcing
base, Bangladesh is positioning itself as one of the world’s major apparel suppliers (See also Table III-
15).
Table III-15 | Global Market Share of Major Apparel Exporters
2000 2005 2010 2014
Global Rank( 2014) 100.0% 100.0% 100.0% 100.0%
China 1 18.3 26.8 36.9 38.6
EU 2 28.5 30.9 28.1 26.2
Bangladesh 3 2.6 2.7 4.5 5.1
Vietnam 4 0.9 1.7 3.1 4.0
India 5 3.0 3.1 3.2 3.7
Turkey 6 3.3 4.3 3.6 3.5
Indonesia 7 2.4 1.8 1.9 1.6
USA 8 4.4 1.8 1.3 1.3
Cambodia 9 - - - 1.2
Pakistan 10 1.1 1.3 1.1 1.0
Notes: Unit in %; Bangladesh’s Fiscal Year (FY) starts from the 1st of July of the year to the June 30 of the following year;
Source: World Trade Organization, WTO. (2015). Merchandis trade [data file]. Retreived from http://stat.wto.org.
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Table III-16 | Change in Export and Import of Bangladesh’s Textile and Apparel Industry
2000 2005 2010 2011
Textile (%) 6.2 7.6 6.6 7.8
Export Apparel (%) 79.3 74.1 77.4 80.9
Total Textile and Apparel (%) 85.5 81.7 84.0 88.6
Textile (%) 15.2 17.5 16.1 16.0
Import Apparel (%) 2.0 1.8 0.6 1.6
Total Textile and Apparel (%) 17.2 19.2 16.6 17.7
Notes: Unit in %; Source: World Trade Organization, WTO. (2015). Merchandis trade [data file]. Retreived from http://stat.
wto.org.
According to the WTO’s trade statistics, Bangladesh’s textile and apparel trade volume recorded
double-digit growth from the 1990s to the 2000s. Trade volume in 2014 amounted to US$34.4
billion, increasing over the previous year’s volume by 6.5%. The textile industry’s annual average
growth rate from 2010 to 2014 was 14.8% while the apparel industry’s annual average growth rate
was 17.1% during the same time period. The trade volume of the apparel sector appeared to be
about 2.8 times greater than the textile sector in 2014, posting a surplus while the textile sector’s
deficit is expanding (Table III-17).
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Table III-17 | Status of Bangladesh’s Textile Trade with the World
Av. Increase/Decrease
Rate (%)
Classification 2000 2005 2010 2011 2012 2013 2014
’00-‘05 ’05-‘10 ’10-‘14
Textile 393 705 1,263 1,898 1,634 2,261 2,361 15.9 15.8 21.7
Export Apparel 5,067 6,890 14,855 19,214 19,788 23,501 24,584 7.2 23.1 16.4
Total 5,460 7,595 16,118 21,112 21,422 25,762 26,945 7.8 22.4 16.8
Textile 1,350 2,425 4,471 6,610 5,480 5,947 6,778 15.9 16.9 12.9
Import Apparel 174 247 161 675 559 607 692 8.4 -7.0 82.5
Total 1,524 2,672 4,632 7,285 6,039 6,554 7,470 15.1 14.7 15.3
Textile -957 -1,720 -3,208 -4,712 -3,846 -3,686 -4,417 -15.9 -17.3 -9.4
Trade
Apparel 4,893 6,643 14,694 18,539 19,229 22,894 23,892 7.2 24.2 15.6
Balance
Total 3,936 4,923 11,486 13,827 15,383 19,208 19,475 5.0 26.7 17.4
Notes: Unit: US$ million; Bangladesh’s Fiscal Year (FY) starts from the 1st of July of the year to the June 30 of the following
year; Source: World Trade Organization, WTO. (2015). Merchandis trade [data file]. Retreived from http://stat.wto.
org.
2.2.2. Korea’s Textile and Apparel Trade with Bangladesh

Korea’s exports to Bangladesh in 2014 amounted to US$190 million while imports from
Bangladesh amounted to US$200 million, recording an average growth rate of 12.7% and 76.5%,
respectively, from 2010 to 2014 and a deficit of US$4 million. In recent years, the apparel imports
from Bangladesh has surged so that Korea’s trade surplus in the textile/apparel sector has gradually
decreased, thus recording the deficit for the first time in 2014. This is a similar situation to that in
Korea’s trade with Vietnam.
Table III-18 | Korea’s Textile and Apparel Trade with Bangladesh
Average Increase/Decrease
2010 2011 2012 2013 2014
Rate, 2010-2014 (%)
Export 132 163 162 181 199 12.7
Import 50 102 138 173 203 76.5
Trade Balance 82 61 24 8 -4 -26.2
Unit: US$ million; Source: K-stat, Korea International Trade Association, KITA. (2015). Korea Trade statistics [data file].
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Box III-3: Youngone Corporation

In the recent wake of the rapid increase of Chinese workers’ wages and labor disputes, the global
textile production bases in China were swiftly relocated to Southeast Asian countries such as Vietnam and
Bangladesh. Bangladesh in particular has received preferential tariff exemptions, due to the GSP scheme in
2011, for all exports from Bangladesh to Europe; this has increased demand from European buyers.
Youngwon was founded in 1974 and fills the orders of around 40 of the world’s famous brands in
outdoor and sports apparel and shoes with overseas subsidiaries’ products utilizing the OEM basis to
develop and export products. With its capacity for product development and technical knowledge, the
company has diversified its production bases with factories in Bangladesh, Vietnam, China, and Latin
America, and maintains an excellent financial structure to remain competitive in the global market.
In addition to manufacturing products through the OEM basis, during the 1997 financial crisis,
Youngwon launched North Face in domestic outdoor wear markets and advanced to the domestic outdoor
wear market in 2003 where it has consistently been since then. Youngwon continues to produce about 40%
of all North Face products that are sold all over the world.
Based on its 2014 sales of KRW 2,463 trillion, Youngwon posted an operating profit of KRW1,855 billion
and recorded an operating margin of approximately 14.9% which significantly exceeds that of an average
operating margin in the industry.
Youngone’ Financial Status, 2012-2014
2012 2013 2014
Revenue 1,596,728 1,680,984 1,872,757

Apparel
Operating profit 163,562 142,887 164,065
Revenue 156,659 198,291 209,695

Footwear
Revenue 238,721 239,657 212,031

Others
Revenue (932,959) (1,010,705) (1,048,147)

Connection Control
Operating profit (832) (727) (2,423)
Revenue 1,059,149 1,108,227 1,246,336

Total
Note: KRW million; Source: Korea Federation of Textile Industries. (2015). Unpublished internal document.
In addition, in March of 2013, the company acquired the US brand, Outdoor Research, and recorded a
surplus in the first year and in 2015, acquired a majority stake in Swiss Bike premium’s materials company,
Scott Corporation SA, and anticipates future business growth.
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(1) Entering Bangladesh: Weakened Domestic Business Environment and Targeting niche
Early in the 1970s-1980s, Youngone’s domestic textile industry was at a crossroads because of the
declining profits due to soaring labor costs. The world major textile markets in the United States and
Europe were difficult to enter due to textile export quotas.
As textile companies became increasingly global, foreign investors began to pay attention to China.
However, Youngone decided that there would be no profit among other companies in China and thus
decided to enter into niche markets via Bangladesh.
Furthermore, in Bangladesh, there were no textile quota restrictions for European export in addition to
low labor costs. The company has continuously expanded since its inception in 1980 with its first apparel
factory in Chittagong, Bangladesh, which paved an alternate way for access to the world market. Currently
about 70% of Youngone’s production bases is concentrated in Bangladesh and is growing at an average
annual growth rate of 10%. In 2007 it is anticipated that exports from Bangladesh will amount to KRW1
trillion.
Global Distribution of Youngone Corporation’s Subsidiaries
2009 2010 2011 2012 2013 2014
Bangladesh 6 11 17 18 19 19
Vietnam 1 1 2 3 4 4
China 3 3 4 4 4 4
Others - 1 6 6 6 9
Total 10 16 29 31 33 36
(2) Factors for Investment Success: Localization
Youngone’s initial investment period in Bangladesh was plagued by frequent protests of workers and
unreasonable management policies insisted by local partners, which led to the establishment of a subsidiary
in 1987 through sole investment. Furthermore, for a period of 10 years from 1980 to 1982, production
costs in Bangladesh were higher than domestic production costs in Korea. However, the company chose to
enhance productivity by adopting active localization strategy.
Production plants in Bangladesh currently consist of a 99% local workforce, including a local Bangladeshi
general manager. In fact, not only in Bangladesh but in all other parts of the world where production
plants are located, the production base staff consists of locals rather than Korean expatriates. In addition,
the company strives to protect the environment and carries out corporate social responsibility initiatives
with a sincere interest in the welfare of employees. This has earned the company the trust of the local in
Bangladesh and has enabled Youngone as the largest manufacturer in Bangladesh with 19 subsidiaries.
As the level of minimum wage in Bangladesh is the lowest, compared to other Asian countries such as
Vietnam and China, Youngone is able to utilize this advantage to offer superior cost competitiveness.
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Furthermore, as the EU has applied duty-free benefits for EU importers from Bangladesh since 2011,
Youngone has accessed major markets in the EU and its EU exports have increased by about 40%, bringing
about an average increase of 22.1% annually from 2010 to 2014. Additionally, the US and Bangladesh
TICFA (Trade and Investment Framework Agreement) increases the prospects for future duty-free exports
to the United States.
Youngone has acquired a large site to establish the Bangladesh-Korea Export Processing Complex (KEPZ),
in addition to its existing plants, and can receive tax benefits, such as tax exemption for 10 years, customs
duty exemption for raw materials. Youngone also plans to continue its investments, making it easy when
adding new production lines. As such, Youngone’s growth will continue.
Bangladesh’s poor investment climate increases the initial entry barriers for other apparel companies
giving the impression that it is too difficult to invest in Bangladesh. As a result, Youngone’s competitive
advantage, as a leader of the first group of investors and manufacturers in Bangladesh, will be unsurpassed
for a while.
In order to remain competitive, Youngone seeks to meet customers’ needs and also develop competitive
production strategies and bases not only in Bangladesh but also in China, Vietnam, El Salvador, as well as
developing new sourcing strategies in other region.
Bangladesh’s Apparel Exports to EU
2010 2011 2012 2013 2014 2015*
Exports 5,856 7,589 8,250 9,680 11,035 6,865

Bangladesh
exports to EU EU market
18.9% 22.6% 25.9% 29.1% 30.1% 38.0%
share
Import sales of EU 56,205 60,761 58,803 60,829 67,085 33,060
Note: million;
Source: World Trade Organization, WTO. (2015). Merchandise trade [data file]. Retrieved from http://stat.
wto.org.
2.2.3. Investment Environment in Bangladesh

Then, how do Korean investors assess the investment conditions in Bangladesh? In fact,
Bangladesh has become a spotlighted investment destination due to the soaring labor costs and
stricter labor laws in China; thus low-wage countries such as Bangladesh and others on the Asian
continent have presented as alternative advantageous investment destinations in light of the
new business conditions in China. Due to the Rana Plaza collapse in 2013, however, labor laws in
Bangladesh’s garment industry became an issue for investor countries, and the United States once
had suspended the generalized system of preferences (GSP) until the safety and suitability of the
work environment were ensured for all Bangladeshi workers.
(1) Merits
The most attractive merit in Bangladesh would be the availability of low-waged and abundant
labor. Bangladesh has the highest population density in the world with a population of 160
million. While approximately 70% of the total population lives in the rural areas, there certainly
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is the potential for a future industrial work force as industrialization progresses. And, according
to numerous international institutions, the estimated unemployment rate in Bangladesh is
approximately 13.7%. Thus there is the availability of an abundant workforce, and due to the
inexpensive costs of labor, Bangladesh is poised to be one of the best investment areas for labor-
intensive industries.
A favorable environment for foreign investments would be a plus. The law guarantees foreign
investment and provides various tax benefits and financial grants to foreign investment companies
as there seems to be less animosity towards foreigners’ “invasion” from the nationals compared to
other countries.
As one of the poorest countries in the world, Bangladesh enjoys GSP benefits from the EU,
Canada, and Australia, and as one of the world’s least developed countries, even foreign-investment
enterprises can also enjoy these benefits. Some 29 countries including Korea and the US have signed
an investment guarantee, while 28 countries including Korea and China have signed a double
taxation agreement.
The existence of export processing zones (EPZs) is a tool to facilitate foreign investors. In fact, the
government has also established export processing zones installed with such basic infrastructure as
electricity and gas for foreign investors who receive benefits in taxes and customs duties.
Bangladesh has a population of about 160 million and with the increasing economic growth,
household income also will increase relatively. Thus, the mid- and long-term potential for a domestic
market is high and positive.
(2) De-merits
On the other hand, the disadvantages include wide-spread inefficient government bureaucracy
and administration, entrenched corruptions etc. Duplication of efforts in government agencies in
Bangladesh is widespread and the bureaucratic administrative structure and decision-making process
slow down the processing of foreign investments. As is often the case, after an investment approval,
it takes an unusually long period of time for the company to commence its business operations. It
is mainly because the provision of the basic infrastructure such as water, electricity and telephone,
requires the approval of multiple officials and repetitive steps of submission and approval of
documents.
Entrenched Corruption in the public sector is an obstacle to a smooth flow of investments. From
2001 to 2007, the corruptions in Bangladesh’s public sector were even customary; thus Bangles were
evaluated and received a lower rating from the Transparency International on its Corruption Index
than that of those in the lowest tier—Nigeria, Somalia, Myanmar, Afghanistan, and Sudan. The
magnitude of corruption was improved somewhat in 2008 as to have ranked as 145th out of 175
sample countries; however, the public sector corruption seems to be deeply entrenched—e.g. upper
echelon of the government bureaucracy often receives kick-back for the issuance of project approval
and in the lower strata of the bureaucracy it is customary to demand “extra-fees” to expedite for
permits and applications needed in business operations.
A severe power shortage poses as a hindrance to business operations. Bangladesh faces serious
power shortages after a failed attempt to develop natural gas and coal resources as well as
an efficient gas pipeline network. As a result, Bangladesh has been deemed one of the worst
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rated in the power sector among its Asian competitors for investment, as power shortages are
commonplace—at times up to eight hours a day.
On the labor dimension, frequent wage increase demands and labor disputes are the challenges.
Although Bangladesh has been one of the most highly regarded investment destinations among
low-wage countries, recent workers’ strikes and demand for higher wages has dropped the country’s
ratings in terms of investment environment.
Low level of education and worker skills is other types of challenges. The population of
Bangladesh provides an abundant labor force of about 80 million people; however, the low levels of
education and worker skills make it necessary for foreign investors to increase productivity through
workforce trainings, to in turn produce high quality products.
There are difficulties in land acquisition. Although land-ownership by foreign enterprises is
permissible in Bangladesh, most of the land is already owned by the government and public
enterprises. Therefore, not a lot of land is available for purchase, and because tracking down exact
registration for parcels of land can also be a challenge, it is very difficult for foreign enterprises to
acquire any land.
There are judicial challenges that investors may face. With the weak legal system in Bangladesh
as well as a lack of transparency, disputes with foreign investors and timely resolutions are expected
difficulties; as a result, this acts as a large deterrent for foreign investment.
The advantages and disadvantages in the investment conditions in Bangladesh are summarized in
Table III-19 below.
Table III-19 | Advantages and Disadvantages of Investment in Bangladesh
Area Advantage Disadvantage
Workforce Low wage and abundant workforce Insufficient qualified workforce, language barrier
Export Weak subsidiary materials and general materials

GSP benefit from EU, Australia, Canada
environment industry
Tax Tax support for export company High corporate tax (40%)
Corruption, slow administration process, political

Government Encourage foreign investment
instability
Raw/Subsidiary Active investment in follow-up industries High dependency on raw/subsidiary material

materials related to textile industry import due to weak industry supply
Investment Lack of compliance, long legal procedures,

Organised investment security law
security require policy support in case of legal disputes
Domestic market 6% growth over the past 5 to 6 years Weak domestic market, low income
Frequent blackouts, gas shortage, poor roads

Infrastructure Cheap electricity, water, and gas
and ports
Source: Global Window, Korea Trade-Investment Promotion Agency, KOTRA. (2013). Country Profile: Bangladesh. Dakar,
Bangladesh: KOTRA Dakar Center. Retrieved from http://www.globalwindow.org
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2.3. Indonesia
Korea’s textile and apparel sector in Indonesia accounts for 11.8% of its total overseas
investments, cumulative as of June 2015, ranking it third after China (33.5%) and Vietnam (21.1%).
Because of declining investment environment in China, such as rising labor cost, Korean investment
to Indonesia as an alternative investment destination has increased.
After Korea’s initial investment in Indonesia, it has increased to US$890 million by June 2015 and
309 new invested firms have started their operation. In the first half of 2015, the Korean investment
in the textile/apparel sector in Indonesia accounted for 17.3% of Indonesia’s total number of
invested firms and for 10.5% of total investment inflows.
Korea’s investment to Indonesia’s textiles and apparel sector in the last five years (2010-2014)
showed an average annual investment volume of US$63 million, and the sector has emerged as
Korea’s main investment area, as in the 1990s, it accounted for about 25% of Korea’s investments
to Indonesia. After initially showing a declining trend in 2000, the latter half of the year showed
an upward trend and since then, Korea has largely invested in the textile and apparel industry in
Indonesia, making it the second largest Korean investment destination after Vietnam.
Table III-20 | Korean Investment in the Indonesian Textile and Apparel Industry
’80- ’90- ’00-

Classification 2010 2011 2012 2013 2014 2015 Total
89 99 09
Textile 4 28 51 5 6 5 3 4 2 108
New
Apparel 18 57 79 11 16 5 6 7 2 201
Business
Total 22 85 130 16 22 10 9 11 4 309
Textile 1,855 196,485 63,502 18,468 24,635 17,290 6,754 16,866 17,535 363,390
Investment
(US$’000)
Apparel 12,084 76,906 200,208 32,272 77,846 70,350 33,389 16,301 8,573 527,929
Total 13,939 273,391 263,710 50,740 102,481 87,640 40,143 33,167 26,108 891,319
Note: Statistics of 2015 includes until end of June 2015; Source: Overseas Economic Research Institute, Export-Import Bank of
Korea, Korea Eximbank. (2015). Overseas Investment Statistics [data file]. Retrieved from http://keri.koreaeximbank.go.kr
In the case of Indonesia, labor productivity is rapidly increasing. Furthermore, it can be expected
that Indonesian can not only serve as the small quantity batch production bases but it can also meet
the stringent demands of buyers and their patterns. Furthermore, the quality of the labor force
makes it less likely to encounter labor-management problems.
2.3.1. Indonesia Textile and Apparel Industry

Indonesia’s textile and apparel industry follows the coal and electronic industries with a total
share of exports amounting to 7.2%. Being primarily an export industry, apparel exports account
for a large portion of the exports at 58.2% and the middle stream of the industry is the weakest.
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The total number of textile and apparel companies is 3000, divided into knit and dye companies but
because most of the companies are small in scale, creating samples for products are difficult and
product delivery is rather unstable.
Indonesia’s textile industry has grown by focusing on the sewing process and therefore, raw
materials such as textiles and fiber are primarily imported from China or Korea. However, in the
case of rayon or polyester, Indonesia is the 5th largest producer of these synthetic textiles. In order
to expand the textile industry, the Indonesian government has developed an advanced fiber
technology as well as improves aging equipment, focused on the training of specialized personnel,
utilized the favorable business environment and cluster composition, and created various support
policies and incentive programs to strengthen the competitiveness of its textile industry.
In recent years, due to the rising labor costs in China and rising production costs, Korean sewing
companies that were based in China are seeking to transfer their production bases to Indonesia
and other such countries in Southeast Asia. Currently, the number of Korean production companies
and their local partners has reached approximately 300 in Bekasi and Bogor and these Korean
apparel manufacturers accounted about 73%, or US$2.5 billion, Indonesia’s apparel exports (totaling
US$3.44 billion) in 2009.
2.3.2. The Investment Environment in Indonesia

As Indonesia experienced the shortfall in domestic capital, it has actively attracted foreign
investment to bolster economic development. To this end, since the 1980s, the government has
moved to increasingly alleviate regulations that would be impediments to foreign investment. Then
in 1994 and 1998, amendments were made to foreign investment regulations in order to further
encourage foreign investments.
Subsequently, in order to utilize foreign investment to improve the infrastructure, in January of

2005, the Indonesian government organized the First Infrastructure Summit, with 91 projects. Then
in November of the same year, the government organized the Second Infrastructure Summit with
10 model projects and 101 potential projects. Then in March of 2009, 87 projects were planned
through public-private cooperation and then in March of the following year, 100 more projects
were announced to be completed through public-private cooperation.
In addition, the Indonesian government has been improving the investment environment, and in
2007, it announced the New Investment Law, followed by the Income Tax Act amendment in 2008
to continue corporate tax cuts. The tax benefits have since September 2008 expanded as to include
eight more industrial sectors from existing beneficiaries, such as textile, machineries, etc.
According to the IFC, Indonesia ranked 114 out of 189 countries in 215 for favorable business
investment environment and received good ratings for small investor protection and trade
environments. Obtaining building permits, judicial system, and tax burdens received low ratings.
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(1) Merits
The pace of development in Indonesia itself is the most attractive merit. Indonesia’s economy
has shown stable growth of about 5% to 6% since 2007 due to the government’s active efforts on
infrastructure expansion. Furthermore, the World Bank estimated that 130 million were rising to
the middle class in Indonesia and this would result in a drop in the nation’s corruption index in the
future.
The availability of labor is perhaps one of other merits. Indonesia’s population ranks fourth in the
world and is the most populated among the ASEAN countries. More than 60% of the population is
working age population and the population is continuing to grow.
(2) De-merits
However, inadequate infrastructure conditions are challenges. Indonesia’s highways, railways,

ports, installation and overall infrastructure is outdated or lacking; because the infrastructure is
weak, the costs of logistics such as container transportation, docking, and storage facilities are 60%
higher than countries such as Malaysia and Thailand.
PDMN is the sole water supplier in Indonesia and the industry’s oligopolistic cartel formation,
the lack of market surveillance by the Fair Trade Commission (KPPU), lack of medical facilities and
professional staff members all create vulnerabilities in the overall infrastructure.
Despite the government’s efforts to improve the efficiency of institutions, there is still inefficiency
in the taxation system, strict import and export regulations, corruption, smuggling, and other
obstacles that appear as challenges to foreign investment. Obscure and unclear laws and regulations
are referred to as a barrier to business operations and investments. For example, the Indonesian
Ministry of Trade has mandated in September 2010 that imported products and their packing must
be labeled with Bahasa Indonesian (local language); however it rather causes confusions since those
products that are subject to the labelling are ambiguous.
2.4. Lessons Learned from the Korean Investment Activities

Thus far, this study has reviewed and analysed the Korean textile and apparel investments made in
three countries—Vietnam, Bangladesh and Indonesia—as to draw some patterns in the investment
activities. The Korean textile and apparel industry was a key for the expanding exports and
employment generation in the 1970s and 1980s. But the comparative advantages it possessed began
to diminish by the changing business environment in Korea. Especially, the rising labor cost acted as
the most formidable challenge to the industry. In addition, the industry had to compete with other
industries for limited amount of labor, which led to labor shortages.
In addition, the competition at the global level was also deepening. Utilising low labor cost,
China has emerged as a global manufacturing house for light industry products, such as textile and
apparels. The Korean textile and apparel industry had to find the way to compete with Chinese
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manufacturers and the solution was to go to abroad where labor inputs were cheaper and stable
than the Korean domestic market.
As a result, the industry began to expand to overseas countries where local inputs were
advantageous as to permit the industry retaining the cost advantage at a reasonable level in the
1980s.
The Korean investments, perhaps just like the investments from any other sources, obviously have
contributed to the growth of the manufacturing and export sector in the host countries, as shown
in the cases of Vietnam, Bangladesh and Indonesia. This corroborates the argument that FDIs in
general contributes to the development of manufacturing sector of host countries.
One crucial observation is that the textile and apparel trade between the host countries and
Korea has rapidly increased. It was obvious that the investment firms acted as the trade agents
between the host and home countries. In addition, they have taken the advantage of their global
production networks, which they have established, utilizing the host countries’ endowments. This
point becomes clear when reviewing the cases of the Korean investment firms presented in Box III-2
and Box III-3.
Another critical observation is that the investment firms also benefitted from their investment
tremendously. As revealed in the case of Youngone Corporation in Bangladesh, for example,
Youngone was a small- to medium-sized firm when it made the first investment in Bangladesh in
1980. Now, Youngone is not only a formidable actor in Bangladesh’s manufacturing and export
sector, but it also is a global player, having a large share in the global supply chain of textile and
apparel. It is obvious that there is a close relationship between the growth of Youngone Corporation
in Bangladesh and Bangladesh’s textile and apparel sector as well as its national economy, even
though the direction of causality cannot be observed. It was all the same with other firms who have
made investments in Vietnam, Indonesia and other countries.
Nevertheless, it is perhaps safe to say that the Korean investments thus far were in general
successful and beneficial for both host countries and the investors. Indeed, the benefits form FDIs
went both ways. However, the same externalities from the nation’s development, such as rising
wage level, tighter investment control, etc., are emerging in the host countries. Thus, it has become
a policy exigency as to how the host countries sustain the existing investments, so that the benefits
from the investments can be extended.
Thus far, this study has uncovered the background why the Korean firms went abroad. Perhaps
the firms behaviour can be well explained by such the eclectic framework put forth by Dunning and
others.24) But what it cannot explain is why the firms have choses the countries where they have
made investments. In fact, developing countries in general possess favorable endowments the firms
24) For example, Dunning, J. H. (1977). Trade Location of Economic Activity and the Multinational Enterprise. A Search
for an Eclectic Approach. The International Allocation of Economic Activity, eds.B. Ohlin, P. Hesselborn, and P.
Wiskman. London: MacMillan.
357
were seeking. But why Vietnam, Bangladesh, Indonesia, El Salvador, Guatemala, etc.? What were
the determinants that prompted them to move to the locations where they have decided to move
to?
The next part will seek the answers to the questions as to explore the main determinants of the
decision-making made by the investment firms. In addition to the underlying reasons uncovered
in the previous discussions, the answers will serve as the useful parameters for the policy-makers in
Ethiopia in order to enhance the competitiveness of their investment strategies and policies.
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3. Firm-Level Determinants for the Locational Decisions

3.1. FDI as a Strategy to Develop a Network between the Streams
As is widely known, the global value chain of the textile and apparel industry consists of such up-
stream industries as dyeing, the production of yarns, fabrics, accessories, etc., the middle-stream
industries, mainly manufacturing of finished goods, cutting and sewing, etc. and the down-stream
of distribution channels (Figure III-7). As discussed in the previous chapter, the textile and apparel
industry in Korea has a fairly good linkage with balanced level of technology between the streams
today. In the past, however, the industry has joined the global value chain (GVC) by penetrating
the middle-stream as original equipment manufacturers (OEMs) at the initial stage of development
while enhancing the capacity of up-stream industry. As the matter of fact, the HCI policy of Korea
initiated in the 1980s included the promotion of up-stream industries.
Figure III-7 | Global Value Chain of the Textile and Apparel Industry
The main challenges to growth then were certainly the costs of labor that was rapidly increasing
beyond the permissible level at which the industry could compete at the global market places and
labor shortages. In addition, a growing competition from such countries as China, Mexico, etc. also
prompted the industry to urgently address the challenge. And, as a matter of course, the imposition
of quotas, at least before 2005 when the MFA was struck, certainly placed an upper limit to the
further growth of the export-driven Korean textile and apparel industry.
Thus, the industry has sought the way out of the uncontrollable challenges by expanding to
overseas, as discussed earlier. The investment firms created vertical linkages in host countries in order
to save transaction costs and lead-time in production and to assure and control quality. For example,
Youngone Corporation in Bangladesh established 12 subsidiaries in the Chittagong and Dhaka
area since 1988. Of which two are up-stream manufacturers producing and supplying accessories
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for shoes, such as soles. Sae-A Trading Co., Ltd. established PT Win-Textile in Indonesia, dyeing and
finishing fabrics in its investments firms, in addition to its 41 production bases located in 10 countries
(See Appendix for a detailed case study on Sae-A). PT Win-Textile not only serve the Indonesian
domestic partners and other manufacturers of apparels but it also supply Sae-A’s production bases in
the region, specifically in Cambodia, Myanmar and Vietnam. Sae-A also started an operation of its
spinning mill in Cost Rica in 2015, aiming to create regional production network in Central America.
As such, the firms have actively developed their own global production network by re-investing
aggressively the profits they have made (Figure III-8).
Figure III-8 | Sae-A’s Investment Locations
Source: Reproduced from Sae-A Trading Co., LTD. (n.d.). Sae-A PR Brochure. Retrieved from http://www.sae-a.com/eng/
3.2 Motivations and Main Determinants for Locational Decisions

3.2.1. Motivation for Investment
As discussed, the active investments that the Korean textile industry has undertaken helped the
industry to build an optimized global production network, which has led to the global division
of labor. That is, the product planning, designing and marketing tasks as well as the R&D and
production of technology-ridden raw materials are undertaken by the headquarter in home country
while actual production is carried out by investment factories in overseas. Thus the industry has
sought to maintain its global competitive advantages.
Under the scheme to build the global production network, the Korean investments have
selected the countries from Indonesia to Guatemala to El Salvador (Figure III-9). Nevertheless, it
has become conspicuous after 2000 that they are moving out of China, actively seeking other
investment destinations. And after 2010, Myanmar and Cambodia have emerged as new investment
destinations for the industry. Myanmar has become the 2nd largest investment designation,
following only Vietnam.
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Figure III-9 | Change of the Location for the Industry’s Global Production Network
Source: Korea Federation of Textile Industries. (2015). Unpublished internal document;

(Original source: Korea Institute for Industrial Economics and Trade, KIET.)
An intriguing question is then: what are the factors that have influenced the textile firms’ decision
to move to particular locations? As shown in the previous chapter, Sae-A has invested heavily in
Indonesia and Vietnam while Youngone has concentrated its production facilities in Bangladesh.
A vast volume of literatures that have analyzed on FDIs thus far have identified numerous
determinants for a firm’s locational decisions. A study done by the World Bank aggregates and
summarizes the determinants often adopted in numerous research studies on FDIs largely in three
types of framework—policy framework for FDI, economic determinants and business facilitation.25)
And the determinants under the frameworks are:
(1) Policy framework for FDI

• Tax policy (tax holiday, tax incentives)
• Trade policy (import-substitution vs export-orientation)
• Policies affecting economic, political and social stability (monetary, fiscal, exchange rate policies)
• Rules regarding entry and operations
• Sectoral policies (e.g., mining)
(2) Economic determinants

• Availability of raw materials
• Cost of local labor
• Skills of the labor force
• Quality and efficiency of infrastructure
25) See Figure 2: Host Country Determinants of FDI: a Theoretical Framework in Chen, G., Geiger, M., & Fu, M. (2015).
Manufacturing FDI in Sub-Saharan Africa: Trends, Determinants, and Impact. Washington, D.C.: The World Bank
Group. p.8.
361
• Local market size
• Market growth
• Access to regional and global markets
• Structure of domestic market
• Exports
• Per capita income
• Consumer preferences
• Inflation rate
• Cost of production
(3) Business facilitation

• Investment promotion
Investment incentives
• Corruption, red tape, etc.
• Support services such as banking, legal accountancy services
The economic determinants are further sub-divided into three main types of the investment
motivation whether it is a resource seeking FDI, a market seeking FDI and an efficiency-seeking
FDI.26) It is a general agreement affirmed by the studies is that the determinants, or a set of the
determinant, for FDI in-flows vary depending the sector and region.
Analyses on the purpose/motivation of investments made by the Korean textile and apparel firms
reveal the similar traits to the existing studies but can be typified somewhat differently.27) They are:
(1) The production efficiency seeking investment: this type of investment is mainly the “toll
processing” type based on the expectations of utilizing low-cost labor;
(2) The raw material seeking investment: this type of investment targets the utilization of
abundant raw materials;
(3) The export-market seeking investment: this type of investment aims mainly the expansion of
exports via a host country, e.g. exports to EU or to the US from host country in order to take
preferential trade benefits permitted to the host country.
(4) The local market seeking investment: this type of investment is for the penetration of the local
markets in a host country; and
(5) The advanced technology seeking investment: this type of investment intends to acquire
advanced-level technologies from the host country; and
26) Ibid.
27) The analyses are done based on the applications for the overseas investments filed to the Korea Export-Import Bank
during the period 1990-2014.
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(6) Others.
It seems that the production efficiency seeking, the export-market seeking and the local market
seeking types of investments are most frequently made in the industry. Of the three types, the
production efficiency seeking behavior is still a pronounced type of the investment motivation, as
shown in Figure III-10. It was 1.9% of the total firms applied for overseas investment; but in 2014,
some 58% of the firms indicated that they were going to invest for utilizing low-cost labor. The
export-market seeking type seems to have been gradually subsiding. It seems that the MFA abolition
has placed more weight on the production efficiency than the trade barriers, such as quota. The
local market seeking investments are in general on an increasing trend. It was 0% in 1990 but
increased to 27.5% in 2014.
Figure III-10 | Motivation of the Korean Textile and Apparel Investment, 1990-2014
Notes: Unit in % of the number of firms applied for a new investment in overseas; Source: Reproduced from Overseas
Economic Research Institute, Export-Import Bank of Korea, Korea Exim bank. (2015). Overseas Investment Statistics
[data file]. Retrieved from http://keri.koreaeximbank.go.kr
However, the firms’ motivation or purpose of investment seems to vary depending on host
country. For example, the new investments that pursue local markets in China have been increasing
since 2005 while the production efficiency seeking investments have been down.
On the contrary, the production efficiency seeking investments are on the rise in four ASEAN
countries—Vietnam, Indonesia, Myanmar and Cambodia—replacing China, as discussed in the
previous chapter. The pattern indeed is congruent to general behaviors of the Korean textile and
apparel investments.
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Figure III-11 | Motivation of the Korean Textile and Apparel Investment by Country
(a) China (b) 4 ASEAN Countries*
Notes: * It includes Vietnam, Indonesia, Myanmar and Cambodia Unit in % of the number of firms applied for a new
investment in overseas;
Source: Reproduced from Overseas Economic Research Institute, Export-Import Bank of Korea, Korea Exim bank. (2015).
Overseas Investment Statistics [data file]. Retrieved from http://keri.koreaeximbank.go.kr
An intriguing question then is: what are the factors that have influenced the firms’ decision to
move to particular locations? The next section will discuss specific determinants that effect on the
firms’ decision-making on the investment in a specific country.
3.2.2. The Determinants

The question that has been repeatedly asked throughout the study was which determinants
the firms adopt when they make investment decisions. Are they labor cost, labor availability, tax
exemption, market access, logistics, quality of infrastructure and the like? Under what motivational
parameters do they change? Or, do they not change at all?
These simple questions may carry significant implications to the promotion of the IPs in Ethiopia,
as the policy priority may be re-calibrated in order to effectively facilitate FDIs. Nonetheless, the
answers are simple; they are, “all of the above.”28) However, a set of the determinants and the
weight they assign to each group of determinant categories—macro-economic, social and political
conditions, investment policy, tax policy, environmental law, demographic structures, estimated
through-put time and lead time, logistics, and the like—vary depending on the purpose and type
of a business operation to which they make investment (See Appendix for the case study on Sae-A
Trading). For example, the firms concentrating more on the production of textile and dyeing
operations would certainly assess heavily on the rigidity and the requirement of the environment-
related laws and regulations, which is directly related to the compliance cost.
Regardless of the motivational types, however, the most important variable would be whether the
“total cost of production” makes a business sense—whether it permits them to reach an anticipated
level of internal rate of return (IRR) in addition to shareholders’ expected rate of returns (dividends).29)
To that effect, the firms in general conduct environmental scanning on the planned investment
destination/s, e.g. macro-economic stability, macro-economic conditions, general living conditions,
28) 2015 KSP-Ethiopia research team (personal communication: interview, December 26, 2015)
29) Ibid.
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political stability, etc., as any other investors would do. Under the total cost approach, the costs on
free-on-board (FOB) basis serve as a crucial criterion to a final determination whether the investment
would make a business sense after the study on macro-level investment conditions was exhausted.
In a list of the determinants covers all quantitative and qualitative criteria that would affect to an
initial estimation of the FOB costs. For example,
• Cost of freight (both inbound and outbound, loading and unloading, in-land freight, etc.);
• Time and cost required to clear the customs;
• Availability and cost of raw materials and other vital inputs, e.g. accessories;
• Cost of land for factories
• Cost of building a factory
• Cost and availability of labor
• Skill-level of labor
• Labor laws and regulations
• Environmental laws and regulations
• Cost of utilities e.g. water, power, waste disposal, etc.
The Total cost approach renders an important implication. That is, a host country needs to work
on maximizing the effects from its “strengths” and minimizing the “weaknesses” in a way to offset
and to balance out the effects, given that the investors are not swayed by a single or small number
of determinants for investment decisions. In the Ethiopian setting, the disadvantages in logistics may
be offset by low cost utilities. On the flip side, the advantages in low cost labor may be negated by
the lack of support industries that leads to high input costs, such as accessories, carton boxes, etc.
3.2.3 Satisfaction and Dissatisfaction of the Korean Investment: An Investors’

Perspective
Then, have the Korean investors obtained what they have sought with their investment? In other
words, are they satisfied with the investments they have made in the intended destinations? A
survey done on the investments made by the Korean textile and apparel industry indicates largely
“yes (56%)” as opposed to “no (9.4%)” (See Table III-21 below). In general, the investment firms are
more satisfied in revenue turn-over and achievement of initial investment goals. And the apparel
sector is inclined to be more satisfied than the textile sector.30)
30) The survey was done on 54 investment firms in overseas during the period of 8th May –5th June 2015.
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Table III-21 | Satisfaction and Dissatisfaction of the Korean Textile and Apparel
Investments
Very Generally Total Generally Very Total

Indifferent
dissatisfied dissatisfied dissatisfied Satisfied satisfied satisfied
(1) Revenue Turn-over
Textile 0.0 14.3 14.3 57.1 28.6 0.0 28.6
Apparel 0.0 10.9 10.9 20.0 58.2 10.9 70.1
Total 0.0 11.4 11.4 27.9 52.9 8.6 61.5
(2) Profitability
Textile 0.0 21.4 21.4 42.9 35.7 0.0 35.7
Apparel 3.6 8.9 12.5 51.8 35.7 0.0 35.7
Total 2.8 11.3 14.1 50.7 35.2 0.0 35.2
(3) Achievement as Supposed to Initial Investment Goal
Textile 0.0 21.4 21.4 14.3 64.3 0.0 64.3
Apparel 0.0 1.9 1.9 47.2 39.6 11.3 50.9
Total 0.0 5.9 5.9 41.2 44.1 8.8 52.9
(4) Total Assessment
Textile 0.0 21.4 21.4 28.6 50.0 0.0 50.0
Apparel 3.3 3.3 6.6 35.0 51.7 6.7 58.4
Total 2.7 6.7 9.4 34.7 50.7 5.3 56.0
Note: n=54; Unit in %;

Source: Korea Federation of Textile Industries, KOFOTI. (2015). An Analysis on Structural Changes of the Foreign Investments
Made by the Korean Textile and Apparel Industry. in Korean. Unpublished internal document.
It indicates that there were no firms which were highly satisfied in the profitability dimension, but
a large number of firms were generally satisfied. At the same time, there were no firms that were
very dissatisfied either in the revenue turn-over and achievement of investment goal dimensions.
Then, what made them satisfied? The firms responded that they were in general the low cost
labor (38%) and the availability of skilled labor (27.8%), followed by the production cost saving by
adopting mass-production, ease of access to raw materials (10.4%), etc. (Figure III-12).
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Figure III-12 | Factors Inducing Satisfaction
On the other hand, the dissatisfaction was in general caused by such challenges as low labor
productivity (47.6%) and inadequate infrastructure (22.9%), competition among investment firms
(16.2%) , followed by the difficulties in management and the acquisition of foreign currency (3.8%)
and the difficulties in access to raw materials (2.9%) and the like.
Figure III-13 | Factors Leading to Dissatisfaction
There are some conflicting responses that are noted with regards to the access to raw (and
subsidiary) materials and infrastructure. Some were satisfied with infrastructure in host countries
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while some were dissatisfied with the inadequacy in infrastructure in host countries. It seems that
the disparate responses were caused by the differences in the investment destinations in relation
to the type and nature of investors’ businesses. In addition, the specific nature of the infrastructure
should have been identified and asked in a more detailed manner, e.g. road, railway, sewage, water
treatment facilities, telecommunication system, etc. Nevertheless, it is not in the purview of this
study and may be dealt in some other opportunities.
The conflicting responses notwithstanding, such a response as low labor productivity and the
difficulties in labor management should be noted, as close to half of the firms chose to indicate that
the labor related issues are the most difficult challenge.
Although the analysis is brief, the survey results reported in this study partly explain why the
Korean investment firms are focusing largely on the total cost, as their investments perhaps do
not yield the anticipated level of profits, as noted by the response rate that more than half of the
responses were either indifferent (50.7%) or dissatisfied (14.1%). Hence, these are perhaps the areas
in which the host country would extend its support in order to facilitate FDI firms.
3.2.4. Lessons Learned from the Investment Behaviours and the Appended
Determinants
This chapter has explored the motivation and goals of the Korean textile and apparel investments
made during the last 25 years. The findings undeniably indicate that the cost and availability of
labor and the labor-related issues thereof are the most significant determinants which shape
the investment behaviour. However, they are not all for the final investment decision. The firms
in general adopt so-called the total cost approach in which not a single or a small group of the
determinants lead to the final investment decision. Hence, from the host country’s perspective, it is
necessary to enhance the factors of the advantages in the long-run that forge the country’s over-
all investment climate. In the short-term, however, it would be necessary to offset the impact from
the disadvantageous factors by enhancing the effects from the advantageous factors. For example,
the fostering of the stock of more skilled workers would help investment decisions. The low labor
productivity issue may be addressed by an active promotion and enhancement of educational
and trading programmes as technical vocational education and training (TVET). In addition, an
institutional consultation to the investment firm on the labor management would not only help
facilitate new investments, but it would also help make the exiting investments more sustainable.
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Part 3 Ⅳ_Policy Recommendation
Ⅳ Policy Recommendation
1. Rationale of Policy Recommendations

The GOE has designated the textile and apparel manufacturing industries as the strategic
industries that would serve as Ethiopia’s growth engines. And as a tool to serve the creation of
such a manufacturing base, IPs are an important instrument for attracting FDI that can provide the
required technologies, skills, capital, and most importantly, markets to move the final products to
the global market places. Bearing questions of ‘What are the “needs” of the investors?’ and “What
should the GOE do to minimise the impact of the shortfall and maximise the values of its IPs for the
investors?” in mind, the policy and strategy recommendations are formed. The experience of Korean
textile and apparel manufacturers operating production bases overseas would give good answers to
formulate the recommendations.
As discussed in the previous chapters, Korean textile and apparel manufacturers had to move
to overseas countries where local inputs, especially labour costs, were advantageous as to permit
the industry retaining the cost advantage at a reasonable level in the 1980s. Also, the types of
investments made by the Korean textile and apparel firms were classified into six categories:
the production efficiency seeking investment; the raw material seeking investment; the export-
market seeking investment; the local market seeking investment; the advanced technology seeking
investment; and others. It seems that the production efficiency seeking, the export-market seeking
and the local market seeking types of investments are most frequently made in the industry.
Regardless of the investment types, however, the most important variable would be whether the
“total cost of production” makes a business sense—whether it permits them to reach an anticipated
level of internal rate of return (IRR) in addition to shareholders’ expected rate of returns. To that
effect, the followings are the determinants of investment covering all quantitative and qualitative
criteria: the cost of freight (both inbound and outbound, loading and unloading, in-land freight);
the time and cost required to clear the customs; the availability and cost of raw materials and other
vital inputs, such as accessories;the cost of land for factories; the cost of building a factory; cost
and availability of labor; skill-level of labor; labor laws and regulations; the environmental laws
and regulations; the cost of utilities such as water, power, waste disposal, and etc. The total cost
approach gives an important implication that a host country needs to work on maximizing the
effects from its “strengths” and minimizing the “weaknesses” in a way to offset and to balance out
the effects.
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Also, some specific issues were found by interviewing Korean companies doing business in Central
America and East-south Asia such as Guatemala, Nicaragua, Bangladesh, Vietnam, Indonesia and so
on. Korean firms are different from Chinese, Turkish or Indian companies operating in Ethiopia with
respect to target markets, production items, base of domestic market, a period of delivery, etc, which
indicates that there would be a special package inducing the investment of Korean companies into
Ethiopia. The domestic markets of those Chinese, Turkish and Indian companies are relatively near to
Africa and their target markets are located in Europe, Turkey or Middle East. Also, their production
items are kinds of standard goods with mid to low prices, which are not sensitive to a period of
delivery. But, the Korean companies produce fashion items with high prices, which have usually a
short period of delivery and aim at the US market. The climate producing the high fashion items
is not favourable in Ethiopia so that Korean textile and apparel manufactures need to establish a
vertically integrated production system to make up the poor production infrastructure and poor
domestic sourcing. This indicates that GOE needs to offer a special promotion package customized
to attract not only Korean textile and apparel companies but also other major manufacturers mainly
manufacturing the high fashion items.
The policy and strategy recommendations are specifically suggested based upon the lessons
learned from the motivation and behaviours of Korean textile and apparel companies’ overseas
investment in addition to the review of the FDI climate in Ethiopia. This is supposed to close the gaps
between the needs of Korean textile and apparel manufacturers and GOE’s investment promotion
policy and strategy. The policy and strategy recommendations are expected to contribute to the
attraction of Korean textile and apparel manufacturers to the IPs being developed in Ethiopia and
further to the improvement of FDI climate in Ethiopia.
2. Policy and Strategy Recommendation

2.1. Infrastructure
Under the total cost approach, the costs on free-on-board (FOB) basis serve as a crucial criterion
to a final determination whether the investment would make a business sense. As discussed in
the chapter 3, among the determinants affecting an initial estimation of the FOB costs, some
determinants such as cost of freight (both inbound and outbound, loading and unloading, in-
land freight, etc.), availability and cost of raw materials and other inputs like accessories, cost
and availability of labor, skill-level of labor, and cost of utilities (e.g. water, power, waste disposal)
are concerned with the infrastructure of host countries. The foreign investments are often made
based on superior infrastructure host countries would provide. Some specific recommendations are
suggested in improving infrastructure.
First, it is important to facilitate and accelerate road and railway networking construction along
the export corridor to minimise inland transportation costs. As Ethiopia is hinterland, the port of
Djibouti which is located in other country, is only open way of marine transport. This evidently
increases the logistics cost. As analysed in Chapter 2, it takes 22 hours from the Bole-Lemi II which is
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located in Addis Ababa IPs to Djibouti. The high cost of inland transportation is a binding constraint
on Ethiopia’s competitiveness in textile and apparel trade, despite its labour cost advantage and
cheap electric power. As the GOE is making its effort on railway construction to connect Djibouti, it
will significantly reduce the time and cost.
Second, it is required to provide good quality and reliable on-off-site infrastructure of IPs,
including access roads, factory sheds, wastewater treatment plants, power and water systems. Now,
Bole Lemi-I is the only operational industrial park developed by the government. All of the twenty
factory sheds in the park have been taken up by foreign companies, mainly from China, Korea and
India. Five of the sheds (25%) are leased to a Korean investor, namely, Shints ETP Garments PLC. By
interviewing this companies, it is noted that the tenant companies operating in Bole Lemi-I have
been frequently experiencing power surges and interruptions. They have also faced shortage of
water supply. In particularly, the waste water treatment system was not built when they moved into
their factory premises. In order to attract Korean textile and apparel manufactures producing rather
complex fashion items into Ethiopia IPs, this is a very urgent matter. Thus, GOE should ensure that
tenant companies can start operations immediately when they take over their premises without
delays and generating subsequent costs by providing improved and reliable infrasturctures.
Third, multiple clusters of raw materials and accessories manufacturers in the country should be
developed along with the development of industrial parks. As revealed in Chapter 3, one of the
motivations that Korean textile and apparel manufactures moved into China was affluent ecosystem
of textile and apparel business in China. Those textile and apparel manufacturers operating in China
have a distinct competitive advantage in getting sufficient supply of raw materials as there are
many firms engaged in the production of inputs that can supply large volumes of high quality and
competitively priced raw materials and accessories at short notice.
Smoothing procurement of raw materials and accessories is critical to maintain high productivity
and meet delivery time, which directly related with profitability and market status. Those clusters
of manufacturers of raw materials and accessories could be developed by the public as well as the
private sector so that manufacturing premises are readily available at economy of scale. Promoting
upper stream business by developing multiple clusters is important to ensure the success of GOE’s
ambitious plan of industrialization and job creation, particularly with respect to the textile and
apparel industry.
Fourth, it is required to provide technical development and training in order to enhance the
capacity of worker, which later translated to an increase in labour productivity. In addition to
cost and availability of labor, skill-level of labor and technologies in host countries are important
determinants affecting the costs of FOB. The Figure III-13 indicated that the first dissatisfaction
factor of Korean firms was low labour productivity and poor labour management. The Ethiopian
government should set up a research institute for textile and apparel to raise the level of
technologies and ensure further development of skilled workforce to raise labour productivity.
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As discussed before, Korea founded specialized research institutes such as KOTITI, KATRI, and
FITT during 1960s to examine textiles and clothing products, conduct quality inspections, provide
certification, and conducts other related administrative tasks as well as R&D. These research
institutes have tremendously contributed to the development of new technology and new value-
added products, improvement of productivity and cost reduction for the Korean textile industry.
Also, they have provided the skilled workers with technical training. Thus, the establishment of
research institutes is critically important to ensure the industry’s sustainable growth and to develop
competitive edges.
Fifth, GOE should consider providing affordable housing and transport system to workers
foreseen to be employed in the IPs. It is necessary to provide foreign workers with pleasant
residential environment, educational environment for residents’ children, neighbouring facilities,
accommodations and convention facilities. At the same time, the modality of providing services is
decided and properly assessed in consultation with the developers and operators of the parks as
well as the resident enterprises and city or town administrations as this has critical bearing (1) on
the cost of living of workers; (2) efficient operation of the parks and (3) industrial co-operation and
harmony. Otherwise, it would raise a series of inconsistency problems, which would be hard to fix at
later stages. In addition, a legal system should be prepared to give residential foreign workers legal
protection.
2.2. Legal Framework

The basic regulatory framework for commercial enterprises in Ethiopia is the Commercial Code
of 1960. Currently the GOE is revising this code to facilitate investment and commercial operations.
As shown in Chapter 2, however, the revision has not been completed. There are many incomplete
provisions that need detailed regulations for implementation, which means that these gaps in
the regulatory framework must be urgently filled. While there are challenges in implementing
provisions of the policies aligned with GTP goals, such as employment of foreign nationals or staff,
participation in foreign capital markets to raise loans, guarantees and provision of services in the IPs,
related to utilities, the following is recommended.
First, the implementing regulations of IPs should be issued as soon as possible to ensure
transparent, smooth and efficient application of the industrial parks law. In alignment with GTP
goals to further develop medium and large scale industries, the Ethiopian government established
the Ethiopian Industrial Zones Development Corporation (IZDC) under the Ministry of Industry in
2012 to undertake the development and operation of industrial zones. The corporation is now
renamed as Industrial Parks Development Corporation (IPDC). But, the implementing regulations
stipulated in the Proclamation are not approved yet. Thus, implementation of provisions related to
rights and obligations of developers and operators still remains cumbersome such as employment
of foreign nationals or staff; participation in foreign capital markets to raise loans, guarantees, etc.,
and provision of services in the park, related to utilities.
Second, there is a need to enhance not only the regulatory and operational capacity in the IPs,
but efficiency of regulatory process. As discussed in Chapter 2, inefficiency is a major challenges in
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Ethiopia’s governance. Decision-making is slow across the government organs that lead to serious
delays in issuing permits and licenses, which needed to be improved. The business registration and
regulatory processes, and subsequent transactions should be simplified and the pendency period
should be shortened. Also, the process of authorisation and licensing on corporation establishment,
moving-into IPs, production, export, etc. needs to be minimised to facilitate swift operation. Thus,
the coordination links among the various regulatory bodies and service providers, including IPDC,
EIC, Federal Inland Revenue & Customs Authority, Ethiopian Electric Power, Ethiopian Utility, Ministry
of Industry, and Ministry of Environment & Forestry are to be strengthened to raise efficiency of
regulatory process.
2.3. Encouragement of FDI

The encouragement of FDI is critical to the growth and development of Ethiopia’s textile
and apparel industry but at the moment the weak aftercare of investors presents a stumbling
block. As suggested in Chapter 2, the GOE has to exert extra efforts in resolving issues of foreign
currency and raw material and accessory inputs, which are major factors leading to dissatisfaction.
Furthermore, an incentive scheme that GOE could offer to attract FDI should be considered. Some
recommendations are below:
First, GOE is to ensure the availability of foreign exchange for exporters while improving the
efficiency of the procedure and authorisation from the National Bank of Ethiopia for foreign
exchange control. While the National Bank of Ethiopia charges a 1.5% foreign exchange commission
fee on the dollars needed to import the inputs (1% production cost penalty in apparel), waiting time
for the National Bank’s authorisation can take up to six months when foreign exchange is scarce.
Also, there are cumbersome customs procedures and lengthy process to access foreign exchange to
buy production inputs from the international market, especially when there is a foreign exchange
shortage. This would be tremendous obstacles at time in import and export business. Therefore, it is
necessary to reform the regulations on the current foreign exchange system to make it favourable
to international business.
Second, GOE has to concern with the scarcity of raw materials and accessories which are supposed
to be purchase in Ethiopian domestic market. GOE should exert extra efforts to attract investments
or to foster domestic companies producing raw materials and accessories so that tenant companies
can compete in the global market in the medium and long run. Those textile and apparel
manufacturers in countries such as China have a distinct competitive advantage in getting sufficient
supply of raw materials as there are so many firms engaged in the production of inputs that can
supply large volumes of high quality and competitively priced raw materials and accessories at short
notice.
The foreign companies operating in Bole Lemi-I suffer from shortages of raw materials and
accessories due to the low base of the domestic manufacturing industry and weak forward and
backward linkages along the value chain. They should import most of the raw materials such as
fabrics, sewing thread, buttons, zippers, etc, which requires extra time and money. It is critical to
be able to obtain raw materials not only at competitive prices, but also in sufficient volumes and
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reliable quality and at the right time. Otherwise, the final goods cannot be manufactured and
exported in accordance with the requirements of the buyers, meeting delivery times.
Third, increasing operational efficiency of IPs and supporting systems is urgent issue to be
resolved. Especially the issue of the customs is seriously pointed out many times. Rationalizing
customs procedures through the system of a green channel (express) for textile and apparel and
ensuring the ready availability foreign exchange for exporters would alleviate problems related to
imports and exports. Also, the efficiency of procedures related to visa or work permits, and electric
power could be improved by perhaps creating a special channel for the textile and apparel industry
to expedite such procedures.
There is a need to assign properly qualified EIC and IPDC staff and representatives of key
regulatory bodies to operate the one–stop aftercare centre on a daily basis at Bole Lemi-I, which is
not yet fully functional. The establishment of efficient and effective one-stop aftercare centre is one
of the most important factors to induce subsequent FDIs. Once it would be properly worked out,
this should apply to the other industrial parks under development in the future.
Fourth, GOE should offer at least a comparable scheme of incentives that competing countries
would provide. Pecuniary incentives usually comprise tax exemption, subsidies for work-force
training and education, and subsidy for investments. As a non-pecuniary incentive, GOE may help
those prospective Korean textile and apparel manufactures access to new markets such as EU, Turkey
and Middle East. Korean textile and apparel manufactures have done their business focusing on the
US market to the extent that the share of export to the US is more than 85% so that they do not
know how to approach those markets. Ethiopian textile industry has abundant business experiences
with the markets of EU, Turkey and Middle East, so that GOE may design an incentive package to
help the prospective Korean textile and apparel manufactures by utilizing GOE’s knowledge about
those markets. In addition, a legal system for fruitage remittance and should be prepared.
Fifth, there is a need for Korean textile and apparel manufactures to ensure a certain autonomy
of operation in IPs. Those Korean textile and apparel manufactures mainly produce the high-end
fashion items with higher price level. The facilities and equipment producing the high-end fashion
items are various and complicated comparing to the facilities making standard items. Thus, they
need to change layouts of sheds or lands according to their complexity while IPs in Ethiopia provide
sheds or lands for plants only in a standardized form. GOE should consider more flexibility in
managing IPs allowing a certain degree of autonomy of tenant companies.
Lastly, active promotion is needed to attract Korean investors. Since many Korean textile and
apparel manufactures considering overseas investment do not have much information about
Ethiopia, GOE should access those prospective companies and potential investors by making special
efforts. The promotion activities of foreign investment include offering information on comparative
advantages, advertising positive images through mass-media, publishing brochures, sending
direct mails, face-to-face contacts and construction of promotion system. Also, it is recommended
to customize promotion and incentives to each of potential investors since each has different
investment strategy, determinants and weights.
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Part 3 Ⅴ_Conclusion
Ⅴ Conclusion
Many nations have recognised the importance of establishing industrial parks (IPs) since the
world’s first in Ireland. These IPs provide stepping stones to industrial development for those nations
that have utilised IPs. IPs have facilitated foreign investment, industrialisation and job creation,
thereby leading ultimately to national development and successful transformation of a nation’s
economy. Transformation of the economy entailed moving from an agriculture-based industry to
a manufacture-based industry, which in turn enabled nations to join the global value chain (GVC)
and providing an avenue for national development and economic sustainability. It then follows that
numerous East African nations, such as Ethiopia, Kenya, Uganda, Tanzania, etc., are modelling their
IP initiatives after those countries that have demonstrated success in industrial development and
reaped the benefit of establishing IPs.
Furthermore, the move towards IP development in East African nations comes at an opportune
time, when increasing labour costs in China have triggered an exodus of companies. Ethiopia is
one of the countries that has emerged as possessing comparative advantages in promoting light
manufacturing, which is usually labour-intensive. Along with the country’s growing eligible labour
population, soon to be 100 million, the overall average wage is less than about 1/5th that of China’s
labour costs in inland cities. As a result, the Government of Ethiopia (GOE) is seeking to capitalise
on the opportunities being created through the changes in the GVC by establishing IPs for light
manufacturing, particularly focusing on the textile and apparel sector as the major conduit for
achieving its development goals.
With the noteworthy growth in Africa over the past decade, particularly with respect to sub-
Saharan African countries, Ethiopia’s growth has exceeded the African average at an average
growth of approximately 10.3%. To continue this extraordinary growth momentum, the GOE
has set forth plans to develop IPs around the country in order to support the development of the
manufacturing sector and also attract foreign and local investment. However, attracting foreign
investment is not necessarily a simple matter. Challenges, such as the high cost of logistics, present
a significant barrier to foreign investment, which may be difficult to overcome if the GOE does not
design policy measures that address such challenges. Thus, some questions need to be addressed,
such as:
What are the “needs” of the investors?
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What should the GOE do to minimise the impact of the shortfall and maximise the values of its IPs
that can be rendered to the investors?
In tandem with the GOE’s goals for growth, Korea is also revising its foreign investment strategies.
Korea has been seeking to compete against emerging economies in the textile and apparel industry
and decided to move production bases to overseas countries that had significantly lower production
and labour costs compared to the Korean business market in the 1980s. Going overseas has enabled
Korea to become competitive but in doing so has also helped those host countries develop and
grow their own economies; for example, host countries such as Vietnam, Bangladesh, and Indonesia
have seen growth in their textile and apparel industries upon hosting production bases of Korean
companies while FDI resulted in benefits to both investors and host countries. However, host
countries are also beginning to face the same challenges of rising labour and production costs and
therefore, it has become crucial for countries to examine how they might sustain benefits from
current investments.
Thus, a joint project with Ethiopia brings about benefits for both nations at this point in time
due to its ability to meet both countries’ objectives. As Korean textile and apparel manufacturers
are now global players, assuming critical roles in the global textile and apparel supply chain, the
GOE has targeted Korea to host in their developing IPs, along with other main investors such as
China, India, Saudi Arabia, Turkey, etc., in order to promote the textile and ready-made-garment
(RMG) sector. Korean firms are able to provide the required technologies, skills, capital, and most
importantly, global market-access for the final products. Interestingly enough, while Korean
investors were not global players at the time of the move to overseas bases but have developed and
grown together with the economies of host countries. To this end, the KSP project with Ethiopia
2015 contains three primary objectives:
(1) To uncover the underlying reasons that prompted the Korean textile and apparel firms to
move their main production bases to overseas markets;
(2) To identify the main determinants employed in the node of decision-making in the selection of
a certain country as the most suitable investment locations; and
(3) To review the current investment climate of Ethiopia and provide a useful point of reference
for future investors, regardless of industrial sectors.
This programme aims to link the GOE’s efforts of IP promotion with Korean investors in the textile
and apparel sector through bridging any potential gaps between the needs of the investors and the
provisions of the GOE. The results of the project will contribute to the promotion of investments
in the textile and apparel sector in Ethiopia. In addition, the programme intends to benefit those
investors who are in search of an adequate place to relocate, or expand, their production bases. In
the process, this report, a part of the outputs of the KSP, can serve as a source of references for the
improvement of Ethiopia’s foreign investment, IP management policies and strategies and further
the business environment as a whole while accommodating potential investors for their information
needs.
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Part 3 Ⅴ_Conclusion
This study was conducted based on the assumption that IP is an effective tool to attract FDI as FDI
contributes to foster an industrial sector through the nexus of financial and technical transfers and
the provision of markets. As the GOE envisions the promotion of the textile and apparel industry
as delineated in the strategic framework of the GTP, IPs can serve as an instrument to realise this
plan. Based on this assumption, the study aimed to maintain a balance between the supply-side
perspective, viz. the GOE’s perspectives, and the demand-side, viz. potential investors while ensuring
objectivity and credibility through both qualitative and quantitative analysis of survey data as well
as an extensive literature review.
Not only can the results of this project assist the promotion of the economic co-operation
between Ethiopia and Korea, but it can also form the basis of Ethiopia’s industrial development by
contributing to the attraction of FDIs to Ethiopia’s IPs in the textile and garment sector through its
recommendations for the improvement of FDI promotion policies and strategies. This report can
also assist in providing new investment opportunities for Korean textile companies in Ethiopia with
the analyses of investment conditions and risks in the country. Furthermore, it is anticipated that
the economic co-operation between the two countries will expand to other areas and industries
in the future, based on the yields of this current partnership. The findings from this report will be
shared with such partners and stakeholders of this KSP programme: The World Bank, the Ministry
of Strategy and Finance of Korea, the Korea Export-Import Bank, the IPDC of Ethiopia, the EIC, and
other relevant agencies and personnel.
Based on the research and analysis discussed so far, this study proposes the following policy
recommendations, particularly in the areas of infrastructure, legal framework, and encouragement
of FDI; these policy recommendations may also be helpful in closing the gaps between the GOE and
the potential investors.
INFRASTRUCTURE:
As a firm usually makes a locational choice based on superior infrastructure, the following are
recommendations in improving the infrastructure:
• Minimise land transportation costs by accelerating road and railway networking construction
along the export corridor (i.e. from the port of Djibouti to the hinterland);
• Provide good quality and reliable on-site and off-site infrastructure, including access roads,
factory sheds, wastewater treatment plants, power and water systems;
• Ensure the availability of foreign exchange for exporters while improving the efficiency of the
procedure and authorisation from the National Bank of Ethiopia for foreign exchange control;
• Ensure the multiple clusters development of inputs and accessories manufacturers in the country
along with the development of industrial parks by the public as well as the private sector so that
serviced industrial land as well as manufacturing premises are readily available at scale;
• Develop capacity in all spheres of professional management, thus to ensure efficient and
effective operations of one-stop shops;
377
• Consider providing affordable housing and transport to workers foreseen to be employed in the
IPs;
• Properly assess the modality of providing the services in consultation with the developers and
operators of the parks as well as the resident enterprises and city or town administrations as this
has critical bearing (1) on the cost of living of workers; (2) efficient operation of the parks and (3)
industrial co-operation and harmony;
• Provide technical training in order to enhance the capacity of worker, which can be later
translated to an increase in labour productivity.
LEGAL FRAMEWORK:
While there are challenges in implementing provisions of the policies aligned with GTP goals,
such as employment of foreign nationals or staff, participation in foreign capital markets to raise
loans, guarantees, etc., and provision of services in the park, related to utilities, the following is
recommended:
• Issue the implementing regulations as soon as possible to ensure transparent, smooth and
efficient application of the industrial parks law;
• Develop regulatory and operational capacity in the IPs; and
• Simplify and expedite business registration and regulatory processes and subsequent
transactions;
ENCOURAGEMENT OF FDI:
The encouragement of FDI is critical to the growth and development of Ethiopia’s textile and
apparel industry but at the moment the weak aftercare of investors presents a stumbling block.
Furthermore, the GOE has to exert extra efforts in attracting FDI for raw material and accessory
inputs. Thus, it is recommended that:
• The co-ordination links among the various regulatory bodies and service providers be
strengthened;
• Ensure the one-stop shop become fully functional;
• Improve the efficiency of procedures related to customs, visa or work permits, and electric
power, among others, by perhaps creating a channel for the textile and apparel industry to
expedite such procedures;
• Assign properly qualified EIC and IPDC staff and representatives of key regulatory bodies and
service providers to operate the one–stop shop on a daily basis at Bole-Lemi I and then replicate
this in the future in other IPs under development; and
• Address the scarcity of raw materials and accessories by strengthening the forward and
backward linkages along the value chain with major investment to prevent significant import of
raw material inputs.
378
Part 3 _References
References
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ter: John Wiley & Sons.
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ing capacity. Urban Studies, 36(5-6): 987-999.
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Chen, G., Geiger, M., & Fu, M. (2015). Manufacturing FDI in Sub-Saharan Africa: Trends, Determi-
nants, and Impact. Washington, D.C.: The World Bank Group.
Cheng, L. K. & Kwan, Y. K. (2000). What are the Determinants of the Location of Foreign Direct In-
vestment? The Chinese Experience. Journal of International Economics 51 (2): pp.379-400.
Data Analysis, Retrieval and Transfer System, DART, Financial Supervisory Service. (2015). Retrieved
from http://dart.fss.or.kr/
Department of State, U.S. (2015). Ethiopia: 2015 Investment Climate Statement. Retrieved from
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Dunning, J. H. (1977). Trade Location of Economic Activity and the Multinational Enterprise. A
Search for an Eclectic Approach. The International Allocation of Economic Activity, eds.B. Ohlin, P.
Hesselborn, and P. Wiskman. London: MacMillan.
Ethiopia Investment Commission, EIC. (2015). Ethiopia: A Preferred Location for Foreign Direct
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gov.cn/et/201509/20150922215452876.pdf
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France: AfDB,OECD & UNDP. Retrieved from http// http://www.africaneconomicoutlook.org/en/coun-
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381
발간등록번호
2015 KSP Joint Consulting with IOs WB

11-1051000-000714-10
2015 KSP
Joint Consulting with
International Organizations
국제기구와의 공동컨설팅
Aug. 2016
World Bank
Ministry of Strategy and Finance, Republic of KOREA

Government Complex-Sejong, 477, Galmae-ro, SejongSpecial Self-Governing City, 30109, Korea
Tel. 82-44-215-2114 www.mosf.go.kr
The Export Import Bank of KOREA

38 Eunhaeng-ro, Yeongdeungpo-gu, Seoul, 07242, Korea
Tel. 80-2-3779-6114 www.koreaexim.go.kr

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The Export Import Bank of KOREA

Systematic Use of Jang-soo Jun, Korea Eximbank

Strengthening Civil Jang-soo Jun, Korea Eximbank

2015 KSP-WB Joint Consulting

II. Characteristics of the Korean Healthcare System ················································································ 35

III. HIRA as the Healthcare Purchaser·········································································································· 43

IV. Analysis of the Peruvian Health Insurance Programs ·········································································· 83

References - Appendix································································································································· 140

Table III-1 | Calculation of Medical Procedures ···················································································· 61

Figure II-1 | Structure of National Health Insurance In Korea ···························································· 36

2015 KSP-WB Joint Consulting

List of Abbreviation ····································································································································· 146

I. Project Overview ···································································································································· 153

II. Case Study of Korea’s CRVS ·················································································································· 156

5. Critical Success Factors······················································································································· 195

IV. Conclusions and Recommendations ···································································································· 274

Table II-1 | Major socio-economic indicators of Korea’s growth ······················································ 157

Table III-1 | General Status of Lao PDR (Laos) ····················································································· 213

Figure II-1 | Birth report process ··········································································································· 163

2015 KSP-WB Joint Consulting

I. Project Overview ···································································································································· 294

II. Diagnosis on Ethiopia’s Investment Climate ······················································································· 302

3. Firm-Level Determinants for the Locational Decisions ·································································· 359

IV. Policy Recommendation ······················································································································· 369

Table I-1 | IPs in Ethiopia······················································································································ 296

Figure I-1 | Ethiopia’s GDP Structure, 2014························································································ 295

Jang-soo Jun, Korea Eximbank

Abbreviation Full Description

AUS Universal Health Coverage

CEABE Central de Abastecimiento de Bienes Estrategicos (Central Strategic Supply of Goods)

DUR Drug Utilization Review

EPS Entitdades Prestadoras de Salud (Health Service Providing Entities)

EsSalud Social Health Insurance

FFS Fee for Service

Fondo NaciÓnal de Financiamento de la Actovidad Empresarial del Estado (National

HCQI Health Care Quality Indicators

HIRA Health Insurance Review & Assessment Service

IAFAS Fund Management Institutions to Ensure Health

ICT Information and Communications Technology

Instituto de EvaluaciÓn de Technologias en Salud e InvestigaciÓn (Institute for

ILO International Labour Organization

INEI National Institute of Statistics and Information

IOM Institute of Medicine

toIPSS Healthcare Service Providers

JCI Joint Commission International

KOHIA Korea institute for Healthcare Accreditation

KPIS Korea Pharmaceutical Information Service

Abbreviation Full Description

KSP Knowledge Sharing Program

LPIS Prioritized List of Health Interventions

LSHTM London School of Hygiene and Tropical Medicine

MDGs Millenium Development Goals

MFDS Ministry of Food and Drug Safety

MINSA Ministry of Health

MOU Memorandum of Understanding

MRI Magnetic Resonance Imaging

OECD Organization for Economic Cooperation and Development

P4P Pay for Performance

PEAS Essential Health Insurance Plan

PNME National Essentioal Medicines List