South Korea Woos Russian Investors

ReutersHyundai Motors automobiles waiting to be shipped abroad at the company's export pier in Ulsan, South Korea.
South Korea on Tuesday proposed an array of tax incentives and subsidies in an aggressive pitch to lure Russian investors to the country.

As part of an ambitious three-year plan to attract Russian investors, Seoul will grant them a five-year corporate and income tax exemption and remove customs duties on capital goods for three years, said Chung Tong-soo, head of Invest Korea, the promotion division of South Korea's trade department.

Chung said at a presentation in Moscow that Russian companies also stood to benefit from a 15-year local tax exemption program and a refund of a certain percentage of their investment in any given project, the precise amount of which would be negotiated.

"The financial crisis could provide Russia with the long-awaited opportunity to clinch lucrative deals and increase foreign direct investment in Korea," he said. "Crisis time is when companies reorder their priorities and lots of merger and acquisition deals are made."

Chung said foreign investment played a pivotal role in pulling South Korea out of the 1997 financial crisis.

Under the newly adopted policy, Russians willing to invest more than $10 million in various sectors, including high-tech, car parts and research and development facilities, would receive cash grants representing 5 percent or more of their total investment.

Russian firms that hire 20 local employees will qualify for financial aid of up to $300,000 to provide training and infrastructure. In addition to the package, corporate tax on imported components would be waived for three years for prospective investors.

Hoon Chae, vice governor of the Korean province of Chungcheongnam-do, said the country's policy of unifying and simplifying its various economic zones was "already yielding fruit."

"Last year, Russian automaker [TagAZ] invested $650 million in a parts plant in Chungnam," Chae said. TagAZ and Hyundai signed a strategic partnership agreement in 2000, and the Russian company assembles Hyundai models at its plant in the Rostov region.

Chung also said South Korea was pursuing aggressive negotiations on free trade area deals and hopes to sign such agreements with Russia and China shortly.

He cited Russia's role as an economic powerhouse and the country with the third-largest foreign reserves as reasons why Seoul had targeted Moscow for investment.

Bilateral trade has grown astronomically, totaling $20 billion this year, Chung said, and major South Korean companies, including Samsung, LG Electronics and automaker Hyundai, are already household names in Russia.

But while Russian companies have invested heavily in Europe and the Americas, they have been slow to invest in South Korea, with a paltry $3 million so far this year. South Korea has invested $1.5 billion so far this year in Russia.

"This is an investment misbalance of huge proportions," said Alexander Minayev, head of the Russian Foreign Ministry's Korean department. "I hope Russia will move to correct such a lopsided investment balance regardless of the current financial crisis."