With the rapid strengthening of inter-State relations between Seoul and Moscow, which began in 1990, South Korean companies are increasingly interested in expanding economic cooperation with Russia. Korean entrepreneurs associate reasonable hopes for the development of direct investment in this country, in particular, with the large capacity of its market and its general geographical proximity.

South Korean private capital began to take an interest in investment opportunities in the USSR as early as the second half of the 1980s, but showed great caution due to the unclear prospects for political and economic development in the country in those years. South Korean companies were attracted to various aspects of investing in the Soviet economy.

Large companies were primarily interested in the possibility of organizing production locally, on the basis of existing Soviet enterprises with the most modern industrial and scientific base, including conversion ones. At the same time, it was meant that in the future their products will be sold on the potentially capacious domestic market of the USSR. Major South Korean capital also showed a willingness to cooperate in the joint development of oil, gas and coal reserves in the Soviet Union and, above all, in the Russian Far East.

Medium and small South Korean enterprises were interested in setting up small joint ventures in the manufacturing and service industries in the regions of the USSR that were geographically close to the Republic of Korea, especially in areas where Koreans lived compactly. These companies also expressed interest in investing in the planned creation of a South Korean-Russian industrial complex in the Nakhodka Free economic zone.

For its part, the Soviet Union made offers to South Korean investors to create large joint shopping centers for conducting foreign trade operations, Soviet-Korean venture enterprises based on its scientific institutions, projects for the development of large agricultural land, etc. However, the constantly changing political and economic situation in the country, the lack of the necessary legal framework, the ambiguity of the intentions of specific partners, and the lack of proper experience of cooperation between the parties - all this did not contribute to the rapid influx of South Korean private investment into the Soviet economy.

At the stage before the establishment of official diplomatic relations between the Republic of Korea and the USSR, even the issue of issuing visas to South Korean entrepreneurs turned into a difficult problem to solve. The South Korean side believed that the representative offices of the Korea Corporation for the Promotion of Foreign Trade (KOTRA) ¹ could not be granted the right to issue visas, since, in accordance with the South Korean law, they could not be granted visas.-

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under Korean law, this is the prerogative of consulates and embassies. The Soviet side believed that this function could be performed by the representative office of the Chamber of Commerce and Industry of the Russian Federation in Seoul, which is also against South Korean law. A temporary solution was found in the opening of consular departments in the representative offices of both sides.

It was only after the establishment of diplomatic relations in 1990 that this aspect of relations lost its relevance, but a certain ambiguity in the legal support of investment cooperation still remained. The Government of the Republic of Korea supported the urgent demand of its entrepreneurs for clear and legally irreproachable guarantees for investment in the USSR. The Soviet side, for many reasons, could not reliably provide them in those years.

But it was not only the unresolved problem of guarantees for foreign investment that hindered the flow of South Korean capital to the USSR. Thus, attempts to create venture enterprises have encountered the problem of determining the ownership of their products. Projects to create agricultural enterprises, in turn, were rejected due to ambiguity with the ownership of land and the procedure for disposing of it. Although the Soviet side gradually realized that, in accordance with international practice, the development of free economic zones should be mainly financed by it, it did not yet have the appropriate capabilities to solve this problem.

As a result, by the beginning of 1989, only one agreement was signed on the establishment of a joint South Korean-Soviet enterprise "Jindo" in the USSR (for processing fur and selling fur products in a duty-free store at Sheremetyevo-2 Airport). In 1989, the Central Bank of the Republic of Korea for the first time issued two official permits for investment in the USSR, and in 1990 - three permits, respectively. Actual South Korean investment in the Soviet economy by the beginning of 1990 was estimated to be extremely low - only $ 0.48 million.

The normalization of diplomatic relations between Seoul and Moscow in September 1990 provided an important impetus for South Korean firms to become more active, which undoubtedly helped in many ways to implement their plans for direct investment in Russia. After the opening of the duty-free Zhindo fur store in Moscow in 1989, which became the first South Korean-Soviet joint venture, Hyundai made major investments in the development of forest resources in the Svetlyaya River area of Primorsky Krai in 1989, and by 1991, i.e., during the Soviet period, the number of people living in the area was growing. investment objects of South Korean enterprises in the Russian regions reached seven. Overall, however, the number of actual investment projects implemented during the 5 years from 1989 to 1993 was significantly lower than expected. Despite the fact that Korean enterprises continued to invest in Russia even after the collapse of the USSR and the emergence of the independent Russian state, they did not differ in any particular scope. As shown in Table 1 , from 1989 to 1993. South Korean firms invested only 26 projects in Russia, amounting to about $ 24 million, or slightly less than $ 0.5 million per year. This amount is estimated to be extremely small and is only 0.4% of the total direct investment of the Republic of Korea abroad.

As the political and economic situation in Russia has already begun to stabilize relatively, in 1994 there was a noticeable increase in investment by South Korean firms, both in terms of scale and number of projects. The total amount of capital invested, which peaked in 1996, declined sharply with the onset of the Asian financial crisis, but after a slight increase in 1998, it still remains at the same level as before.

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Table 1

South Korean direct investment in Russia, 1989-2001 (USD million)

Table 2

Comparison of direct investments of South Korean companies in Russia and other countries, 1989-2001

at an extremely low level, although there was an increase in investment volumes in 2000 and 2001.

The total volume of direct investments actually made by South Korean companies in the Russian economy at the end of 2001 totaled more than $ 161 million in 115 projects, which is less than 70% of the previously planned ones. However, as for the average scale of individual investments of South Korean enterprises in Russia, they are almost two times smaller than the global average (Table 2). Even in 1995 and 1996, when there was the greatest recovery in this area, the total scale of direct investment by South Korean companies in Russia is only 1.0% in terms of the amount of investment and 0.97% in terms of the number of projects, respectively, foreign direct investment by South Korean firms around the world.

Stagnation in South Korean investment in Russia is particularly low compared to investments in other CIS countries - Uzbekistan (30 projects, $ 203.9 million) and Kazakhstan (27 projects, $ 111.9 million) ^.2 Although the total amount of South Korean investment in Uzbekistan, whose economy is known to be much smaller than that of Russia, is mostly made up of investments in the construction of the Daewoo Nexia passenger car assembly plant, the investment itself is larger than the sum of all South Korean investments in Russia. South Korean investments in Russia are particularly insignificant compared to those of South Koreans-

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Table 3

South Korean investments in Russia by economic sector, 1989-2001

over the same period, which covers 5854 projects and reaches $ 5018.9 million. ³

In order to increase South Korean investment in Russia, investments should be made not so much in small factories for the production of textiles, clothing, etc., as in the production of products in the field of electronics or automotive industry, but South Korean entrepreneurs operating in these industries are very skeptical about this.

For example, Samsung Electronics has been planning to build a factory for the production of electronics products in Russia since the first half of the 1990s, but in 2002 the attitude to these plans became negative ^.4 The first reason for this was the recent trend towards a reduction in sales of South Korean household electrical goods on the Russian market, and the second was that as a result of the attempt to transfer the assembly production of televisions to a Russian company in 1992, the defect rate was very high, more than doubling. Third, when buying electrical goods, Russian consumers attach importance to the country in which they were manufactured, and even if they have a South Korean trademark, confidence in them decreases if they are manufactured in Russia, which ultimately negatively affects their sales. As a result, Samsung Electronics currently rents a warehouse in Finland to sell its products on the Russian market, sending goods there in advance and storing them there until receiving orders from Russian importers, after which it transfers them to Russian importers not in Russia, but in Finland. This allows Samsung Electronics, which is a foreign company, not to participate directly in the passage of complex procedures at the Russian customs, so sales under this scheme are much more convenient for it.

The number of projects with investments of South Korean enterprises in Russia is significant in the manufacturing industry, wholesale and retail trade. According to the size of total investment, sectors and industries are arranged in the following order: manufacturing, mining, real estate and services, communications, hotel and restaurant business (Table 3).

As shown in Figure 1, the manufacturing industry absorbs the largest share of South Korean direct investment abroad, not only in Russia,

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Diagram 1 .

Share of South Korean direct investment abroad by economic sector, 1989-2001 (%)

Note: Up to June 2000: 1. Manufacturing; 2. Mining; 3. Communications; 4. Real estate, services; 5. Hotels / restaurants; 6. Wholesale and retail trade; 7. Agriculture and fishing; 8.Construction.

Источник: Jung Y. C. The Prospect of Foreign Investment to Russia by Korean companies // Evaluation of 10 years of Economic Relation between Korea and Russia, and the Prospect of Russian Economy / Ed. by Jung Y. C. Сеул: KIEP, 2000. P. 56; The EXIM Bank of Korea. Overseas Economic Information System (http://www.koreaex-im.go.kr).

but also all over the world. It accounts for more than 30% of South Korean investment in Russia, while in other countries, South Korean companies ' investment in the manufacturing industry reaches 53.3% of the total volume. The situation is similar in the wholesale and retail trade sector - 5.8% in Russia and 22.2% in other countries, respectively. According to an analysis conducted by the Association of South Korean Small and Medium-sized Entrepreneurs in Moscow in 2000, the reason that Korean investment in wholesale and retail trade remains low is that profits here are lower than in manufacturing, while taxes and business risks in Russia are high.

In general, the clothing industry attracted the most attention of South Korean entrepreneurs, where their investments accounted for almost a third of the total amount invested in the Russian manufacturing industry in 2000. Previously, South Korean clothing manufacturers mainly invested in the economies of developing countries in Southeast Asia and Latin America to take advantage of its cheapness. the labor force. However, in recent years, South Korean companies have been paying increasing attention to Russia, which not only offers skilled labor at relatively low wages, but is also geographically closer to the Republic of Korea, which significantly reduces transportation costs. In addition, since the Russian Federation is not subject to the import quotas imposed by the United States for clothing products, South Korean companies take advantage of this advantage in order to export most of the products they produce in Russia to the markets of the United States and other industrialized countries. ⁵ So, the South Korean company "Woosung Apparel" (Woosung Apparel), built in 1993. A clothing factory in Birobidzhan exports all jeans made there to the United States.

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Diagram 2.

Scope of investment projects of South Korean firms, 1989-2001

Source: Ministry of Finance and Economy. Report on Foreign Investment by Korean Companies. Seoul, 2002. P. 5 - 7.

On the other hand, as shown in fig. 2, most of South Korea's foreign investments are small-scale investments of less than $ 1 million per project, and investments in Russia are no exception. Nevertheless, the scale of investment projects of South Korean firms in the manufacturing industry, which accounts for a large share of South Korean direct investment in Russia, is relatively small. At the end of 2001 they totaled $ 49.8 million in 45 projects, and the average investment project was only $ 1.1 million, compared to an average of $ 2.0 million. for South Korean manufacturing investments worldwide (there they amount to $ 14.4 billion in 7,027 projects). According to the Ministry of Industry and Resources of the Republic of Korea, there has never been a single case where a South Korean firm has invested more than $ 10 million. in the manufacturing industry in Russia, while most of the investment projects were limited to less than $ 1 million. based on each of them.

As for South Korean direct investments in Russia in the context of their overall geographical distribution, as shown in Table 4, more than 60% of projects were in the Far Eastern region, and just over 20% - in Moscow and the Moscow region, the main centers of economic activity in Russia.

It is interesting that the largest foreign investments of other countries were directed to the regions of the Russian Federation, primarily related to the Central (approx.-

Table 4

Geographical distribution of Korean investments in Russia, 1989-2001

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Источник: Jung Y. C. The Prospect of Foreign Investment to Russia by Korean Companies // Evaluation of 10 years of Economic Relation between Korea and Russia, and the Prospect of Russian Economy / Ed. by Jung Y. C. Сеул: KIEP, 2000. P. 63.

total FDI* in Russia), the Southern, Northwestern, and Ural districts, and only the rest - the Far Eastern District (about 7% of the total volume of foreign direct investment in Russia) ⁶ .

Naturally, the high concentration of South Korean investments in the Far East is largely due to the geographical proximity of the region to the Republic of Korea. The Far East covers 35% of the entire territory of Russia, although it is inhabited by only 7.3 million people, i.e. 4.9% of the population of the Russian Federation. It is very remote from the economic and political center of the country - Moscow, and in general is relatively poorly developed. For Korean companies, however, this region, which borders the Korean Peninsula, is of great interest, since it is well-developed air and sea routes. It is also important that there are many ethnic Koreans living in the Russian Far East, which facilitates business and cultural contacts. However, we must admit that the industrial infrastructure of this region is not sufficiently developed.

At the same time, the Russian Far East is able to offer abundant and diverse natural resources: wood, coal, fish products, and much more. However, South Korean investments were mainly focused on relatively cheap labor. Of the 31 investment projects of South Korean companies in Primorsky Krai, 18 are located in the manufacturing sector, including 11 projects in the clothing industry.

Unlike in the Far East, South Korean investments in Moscow and the Moscow Region were made in more diverse industries. So, 7 out of 22 projects are related to manufacturing industries and only one of them is related to clothing production, while others include areas such as electronic instrumentation, food processing, plastics, stationery, pharmaceuticals, etc. It is typical that 5 out of 6 projects in the real estate sector are located in the Moscow region.

The corporate structure of South Korean investments in Russia is notable (figure 3). Companies wholly owned by South Korean investors account for 45% of all projects, compared to 54% for direct investment by South Korean companies in other countries. In Russia, South Korean investors, ime-

* FDI - foreign direct investment.

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More than half of the company's shares represent 55% of all South Korean investor companies, compared to the global average of 72%.

Usually, South Korean companies prefer to own a share of more than 50% in order to be able to exercise effective control over production. However, in Russia, they are more likely to participate in joint ventures with Russian capital, even with 50% of the shares or less, in contrast to the practice that they follow in other countries. The latter is due to the specifics of the Russian market and the lack of confidence of South Korean companies in the possibility of effective production management without close business cooperation with local experienced Russian partners. In other words, South Korean investors believe that the benefits of setting up joint ventures with local partners outweigh the benefits of setting up firms that are wholly owned by them. However, the situation when business moves not in accordance with principles, but through familiarity, ultimately indicates that the state of affairs in Russia is not favorable for independent business conduct by foreign enterprises.

The dynamics of South Korean FDI in Russia shows that, despite more than 10 years that have passed since the normalization of diplomatic relations between our countries in 1990, Russia has not yet become a truly serious investment partner for the Republic of Korea. Moreover, many South Korean investors continue to believe that investing their capital in Russia at the present time is very risky. This is clearly reflected in the investment decisions of major South Korean companies. Thus, in 1994, a consortium of LG, Hyosung and other companies signed an agreement with Lomonosov Moscow State University to build a South Korean-Russian shopping center on its territory (with an estimated South Korean capital investment of up to $ 400 million), ⁷ and a South Korean company "Elji Construction" has started construction work, but at present this company has no intentions to continue what it started. This is due to various difficulties: during construction work, due to theft of building materials, etc., unforeseen additional costs arose, receiving construction materials sent from South Korea at customs took too long, so the work schedule was stretched; in addition, it was not possible to ensure uninterrupted supply of relevant construction materials in Russia. According to the statement of Mr. Ch. H. Kim of Elji Construction, who is responsible for this construction work, the company has made some expenses during this time, but the damage it will suffer will be less if the work is stopped ^.8 In addition, South Korean companies that participated in the consortium have also largely lost interest in the project.

Here's another example. In 1996, a large South Korean company "Daewoo Motors" signed a contract with the administration of Rostov-on-Don for the construction of a car manufacturing plant, investing about $ 10 million in it. and began to collect on it South Korean cars "Leganza" ⁹, but at the time of sale of the produced cars there were disagreements with the city administration on the management of the joint venture and the payment of taxes. In the end, the cars produced (about 20,000 units) were sold by a Russian company appointed by the city administration, all the income was received by this enterprise, and the company "Daewoo Motors", which received nothing, had only to close ^the plant10. After such a finale of the Rostov investments of Daewoo Motors in the Republic of Korea, there could not but be a desire to refrain from further large-scale investments in Russia.

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However, in recent years, observers note that many of the fundamental problems that prevent South Korean investors from successfully operating in Russia - such as political and economic instability in the country - have eased, which creates more favorable conditions for the development of investment activities. During these years, the Russian Federation has achieved a generally satisfactory level of political and economic stability, significantly improved the competence and timeliness of decisions taken by the authorities, and improved the criminal situation and moral and psychological climate among Russian businesses. The country's credibility in international business circles is being strengthened. It is also important that since 2000, the Russian economy has shown clear signs of recovery, and the country's gold and foreign exchange reserves have steadily increased. These are undoubtedly positive changes that will help attract foreign investment to Russia.

The economic situation in the Republic of Korea has also improved significantly, which, in turn, should have a positive impact on the investment activities of its firms in the Russian Federation. Having quickly overcome the 1997 financial crisis, the Republic of Korea was able to return to rapid economic growth - more than 10% of GDP growth in 1999, 8.8% in 2000, and 3.0% in 2001. According to The Exim Bank of Korea, the scale of direct investment by South Korean companies abroad increased to 1,846 projects in 2001 from 585 projects in 1998, creating a favorable prospect for the overall revival of direct investment abroad.

Feeling the lack of essential natural resources, the Republic of Korea is actively expanding into foreign markets to support its economic development. And Russia, with its vast territory and rich natural resources: oil, natural gas, coal, iron, various non - ferrous metals, as well as seafood, timber, etc. - is undoubtedly a favorable potential market for South Korean companies. Despite the fact that most of the country's regions are still relatively underdeveloped, there are huge potential opportunities for sustainable and intensive development.

The most significant feature of FDI, as we know, is its ability to dramatically revive trade between the respective countries. Through effective production management, foreign investors who invest in the economy of another country can take advantage of the business relationships established with local partners, suppliers and consumers, thus strengthening trade between the two countries in every possible way. In fact, the Republic of Korea's trade relations with former socialist republics and now independent states, such as Uzbekistan and Kazakhstan, have expanded rapidly over the past decade due to investments made by large South Korean companies in these countries. Investment projects in some of them were carried out primarily in the industrial sector: automotive and electronic instrumentation, the creation and development of which, in turn, required the supply of a wide range of production equipment and spare parts from the Republic of Korea.

* * *

South Korean-Russian economic relations started relatively recently, and therefore, probably, they have not yet developed into a multi-faceted and large-scale fruitful cooperation.

In terms of investment relations, entrepreneurs from the Republic of Korea have made large investments in the manufacturing sector, especially in the garment and clothing industry, and regionally, they have made significant investments in the manufacturing sector.

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Investment tends to be concentrated in areas of the Russian Far East that are close to the Republic of Korea.

However, signs of an unfavorable economic situation still persist to some extent in the Russian Federation, which makes it difficult to attract investment from the South Korean business community, although the Republic of Korea is undoubtedly very interested in developing business partnerships with Russia. Not having its own raw material base, it is ready to invest in the development of various industries, including the development of natural resources on the territory of its neighbor. However, so far South Korean entrepreneurs are in no hurry to do this due to the generally unfavorable investment climate in the Russian Federation.

For more than a decade, South Korean companies have made many mistakes in the process of investing in Russia. Now it is necessary to draw constructive conclusions from past mistakes and turn them into productive experiences for expanding South Korean investments. Moreover, the economic situation in both countries has recently begun to improve markedly, and the investment climate in Russia also tends to change for the better.

notes

¹ KOTRA representative office in Moscow in 1998, after the establishment of diplomatic relations between the Russian Federation and the Republic of Kazakhstan, became known as the "Trade Department of the Embassy of the Republic of Korea in Moscow".

² Korea EXIM Bank. Overseas Economic Information System (http://www.koreaexim.go.kr).

³ Ibid.

⁴ From the author's conversation with Ch. M. Zhong, General Director of Samsung Service Center in Moscow.

⁵ In order to prevent excessive imports for certain commodity items from certain countries, the United States restricts their exports by introducing export quotas for these countries for certain commodity items. Since Korea's share of clothing imports abroad is very high, the United States seeks to limit it; on the contrary, the import of clothing from Russia to the United States is small, so its imports are free from quotas.

⁶ See: ODNOKLASSNIKI. Russia's Foreign economic complex: Sovremennoe sostoyanie i perspektivy [Current state and prospects], Moscow, 2001, p. 51.

^{Bogdan I. I.} 7 On the current state and prospects of trade and economic cooperation between the Russian Federation and the Republic of Korea: Tez. dokl. III nauch. konf. Moscow, 1999.

⁸ From the author's conversation with Mr. C. H. Kim, Manager of Elji Construction.

⁹ In Russia, they were sold under the brand name "Condor".

¹⁰ From the author's conversation with S. H. Yun, Chief Economist of UzDeu Bank in Tashkent.

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