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Asia is Getting Closer
The cooperation between the insurance corporation of Korea and domestic importers in the scope of trade finance transactions, enabled trade volume growth between Korean and Ukrainian commercial and industrial companies.
Such national railway modernization involving Hyundai, is going to be a part of the preparation process for Euro-2012, in compliance with the Framework of the Program of Highspeed Railway Service between the Hosting Cities of the European Football Championship 2012 (dated December 3, 2010). The Framework of the Program provides for the high-speed passenger traffic implementation throughout the country.
Double-system inter-regional trains, carrying passengers in superior comfort coaches with the speed of 160 km per hour, will be introduced due to this investment project. According to the representatives of «Ukrzaliznytsia»
Сhanging pipes for machinery
Trade agreement, under which most favored nation treatment applies to the bilateral trade between two states, was signed between Ukraine and the Republic of Korea in 1995. Two years later, an agreement on facilitation and mutual protection of investments between two countries was also signed. This opened up the very real possibilities to attract Korean capital in the Ukrainian economy. Strategic segments for Korean investors are herein mining and processing industries, trade, real estate, engineering, transport and communications.
According to the State Statistics Committee of Ukraine, the volume of trade between Korea and our country over the past year totaled nearly 1.3 billion dollars: exports in 2010 reached the amount of 498 million dollars and imports - 786 million dollars. While imports from Korea is growing much faster than export: for example, last year the figure was 40%, and during the first three months of this year the volume of Korean imports into Ukraine has increased to 126% compared to the same period last year.
Base metals and products, machinery and equipment, vehicles, plastics and rubber, as well as paper and chemical industry goods dominate in import volumes from Korea. Moreover, Korean cars and household appliances (TVs and accessories, washing machines, refrigerators, microwave ovens, storage units, etc.) occupy the lion’s share of Korean imports. Such Korean giants as Samsung, LG Electronics, Hyundai, Kia Motors and SSangYong have remained the leaders on the Ukrainian market for a long time.
Ukraine, in its turn, exports ferrous metal products, rolled metal and semi-finished iron products, plain steel, Ukrainian ferroalloys, viscose fibers articles, pigments, dyes, anhydrous ammonia and grain products to South Korea. It should be noted that the share of domestic goods with high added value is growing every year in the trade between the countries due to selling industrial machinery and equipment (explosion turbines, transmission and crank-shafts)
Foreign safety net
The reason for the huge volume of imported products from Korea may partly be the wellestablished system of commercial projects implementation by Korean companies thanks to government support, which is due to Korean exporters risks coverage by the State Insurance Corporation K-sure. Working with the involvement of this export credit agency (ECA) facilitates as well, to a great extent, the work of Ukrainian companies, which, being the buyers of Korean products, can obtain insurance coverage from the Korean ECA. But, as we have repeatedly written in our newspaper, coverage of foreign ECA (Korean K-sure in this instance) is available to a Ukrainian importer only provided that there is properly prepared reporting instruments, clear ownership and appropriate business plan project.
The Korean Export Credit Insurance Corporation itself frankly states its plans to increase insurance coverage volumes for Ukrainian customers as well as buyers from the CIS region. «The total amount of our liabilities for commercial contracts with Ukrainian companies by the end of 2010 totaled 125 million dollars, while the lion’s share thereof is covering risks for shortterm transactions. Our very positive experience in Ukraine involved exactly this type of financing,» - commented the representative of K-sure to IBobserver. - In Russia, our liabilities in the same 2010 year amounted to 1.676 billion dollars, 75% of which were for short-term transactions, and the rest - for the medium and long-term projects. At the same time, we pay an average of 50 million dollars annually due to the insured risk from the Russian importers».
However, trade finance market is much more developed in Russia than in Ukraine. While in Ukraine the trade finance transactions volume is maximum 2-2.5 billion dollars a year, in Russia this figure was 20 billion dollars a year before the crisis. In times of crisis, the segment fell by 30-40%, but in the last year the volume of transactions amounted to more than 17 billion dollars.
Full version of the article is available in the fourth issue of IBobserver newspaper at http://ibcontacts.com.ua/
IBcontacts company specializes in trade relations development between Ukrainian companies and their foreign partners, with the participation of export credit agencies, foreign banks and government agencies. The company operates in project and structured finance, credit insurance, financial analysis, due diligence, and market research.
For more information, please contact the Head of IBcontacts Communications Department Ms. Iryna Vasylenko via phone +38 044 359 02 00 or e-mail firstname.lastname@example.org