[Yang Nak-gyu's Defence Club] Flood of Defense Industry Support Measures... What Are the Effects?

Limited Impact of Financial Support Programs... Fundamental Solutions Needed

Various financial policies are being poured out for domestic defense industry companies. Although the export to Poland has been eased for the time being, there are calls for long-term export support measures.

On the 18th, the Defense Acquisition Program Administration (DAPA) announced that it will implement the 'Defense Industry Interest Subsidy Loan Program' to improve the management conditions of defense companies. The scale is 300 billion KRW. Defense companies can borrow necessary funds from commercial banks through this program and receive partial interest support from the government.

DAPA stated that it plans to continuously improve the system, including establishing support grounds for companies selected as the '100 Defense Innovation Companies' in the national defense advanced strategic industry sector. However, defense companies are demanding fundamental solutions. According to the 2022 Defense Industry Promotion Association management analysis data, the operating profit margin of domestic defense companies in 2017 was 0.5%. At that time, domestic demand was the focus, and the operating rate was 69%, which was below the manufacturing industry average operating rate of 72%.

The criteria for company selection are also ambiguous. DAPA uses criteria such as companies participating in defense projects, small and medium enterprises producing general military supplies, and excellent companies in the national defense advanced strategic industry sector. Defense companies state that general partner companies do not fall under these criteria.

Although a second contract worth 30 trillion KRW is pending following the first contract worth 17 trillion KRW with Poland, progress is slow due to funding issues. The government increased the statutory capital limit of the Export-Import Bank from 15 trillion KRW to 25 trillion KRW through a legal amendment in February. It is reviewing an additional capital injection of about 2 trillion KRW into the Export-Import Bank. The loan limit available for Poland is also expected to increase partially. The Ministry of Trade, Industry and Energy has decided to expand relatively flexible trade insurance support. However, compared to the financial support of advanced overseas defense countries, it is still insufficient. For example, the United States supports defense export financing through the Foreign Military Financing (FMF) program in the form of aid and loans.

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