Mu-hyup: "Support for Costs and Low-Interest Loans Needed for Russian Withdrawal Companies"

'Impact on the Korean Economy by Scenario of Russia Response' Report

As the Russia-Ukraine war deepens the concerns of companies operating in Russia, opinions have emerged that the government should consider cost support and low-interest loans for Korean companies wishing to withdraw from Russia.

On the 27th, the Korea International Trade Association (KITA) released a report titled "Impact on the Korean Economy by Russia's Response Scenarios to International Sanctions," predicting four possible scenarios for Russia's future responses: ▲control of energy raw material supplies, ▲refusal to extend the Black Sea grain agreement, ▲strengthening disadvantages against companies withdrawing investments from Russia, ▲and export controls on certain items to Korea.

As of last year, Russia accounted for only 0.9% of South Korea's total exports and 2.1% of imports. Among 10,957 total import items, the number of items with an import dependency rate exceeding 90% from Russia is 23, representing only 0.2% of the total. However, for ▲radioisotopes, ▲non-alloy pig iron, and ▲ferrosilicon chromium (a raw material for steelmaking), although the monetary value is not large, the import dependency from Russia exceeds 90%, indicating a need to diversify supply sources.

Industry linkage analysis shows that a 10% increase in energy raw material prices results in a 0.64% rise in production costs across all industries. To enable rapid response in emergencies, it is necessary to minimize risks of supply disruptions of energy raw materials through real-time monitoring of the Russia-Ukraine war developments, securing safe coal inventories, and securing alternative import sources to replace Russia.

Furthermore, as Russia strengthens disadvantages against foreign companies within its borders, the management difficulties of Korean companies already operating in Russia continue, necessitating financial support from the Korean government for affected companies. In March, a new regulation was introduced requiring mandatory donations (5-10% of the asset sale value) for asset sales within Russia, which has imposed additional financial burdens on Korean companies deciding to withdraw from the Russian market.

Accordingly, KITA advised that financial support such as withdrawal cost assistance and provision of low-interest loans should be provided to companies wishing to exit the Russian market but burdened by the costs associated with asset sales.

Not only risk mitigation but also organic responses by the government and private sector to opportunity factors such as post-war reconstruction projects in Ukraine are important. If Korean companies are selected for the estimated $750 billion Ukraine post-war reconstruction projects, they could enjoy significant economic benefits. In particular, a rebound in overseas construction orders, which have remained at low levels since 2014, can be expected.

Do Wonbin, a researcher at the Korea International Trade Association, explained, “The impact of Russia’s responses on us is limited when viewed across the entire economy,” adding, “However, appropriate support measures from our government are necessary for some Korean companies already operating in Russia that are suffering damages.”

This content was produced with the assistance of AI translation services.