A newly received Korean K9 Thunder Howitzer is pictured in front of a military exercise at a training range in Toruń on February 23, 2023.
Wojtek Radwanski | Afp | Getty Images
South Korea is known for many things. K-pop, K-dramas and Korean food have made their way around the world.
Now, a new face of South Korea is poised to make a splash in investors’ portfolios – defense stocks.
Shares of these military manufacturing firms have been rising this year, driven by massive arms orders from other nations.
Most of the leaders in this space, namely, Hanwha Aerospace, Korea Aerospace Industries, Hyundai Rotem and LIG Nex1, have recorded stellar gains so far this year.
Statistics from Stockholm International Peace Research Institute It showed that world military spending increased for the ninth consecutive year in 2023, 6.8% year-on-year and totaling $2.44 trillion. This was the steepest year-on-year increase since 2009 and pushed global spending to a record, the institute added.
Song Hun Seok, an Indo-Pacific visiting fellow at the Royal United Services Institute, a UK-based policy think tank, explained to CNBC that the steady increase in global spending has provided South Korean arms makers with growing geopolitical uncertainties. Large global markets.
“South Korea’s Position as a Defense Industrial Power Backed by Real Numbers,” a April report The Italian Institute for International Political Studies indicated that the country’s arms exports have risen steadily from $2 billion in late 2010 to $3 billion, to $7.3 billion in 2021.
Exports will then rise to $17.3 billion in 2022 and, despite a slight decline to $14 billion in 2023, South Korea’s arms exports will exceed $20 billion in 2024. August report From media outlet Chosun Ilbo.
Moreover, most countries are importing defense products from Asia’s fourth largest economy. The Chosun Ilbo said that in 2022, only four countries were importing South Korean weapons, but this number rose to 12 in 2023.
South Korea’s arms appetite can be explained by the mantra of “cheaper, better, faster”. Basically, analysts told CNBC, South Korea’s weapons are seen as cheaper with faster production and as good as high-end counterparts from other countries.
is cheap
The first reason is, of course, cost. RUSI’s Seok put it simply: “South Korean exports are more cost-effective.” For example, A PAC-3 interceptor missileUsed by the US Patriot surface-to-air missile system, each reportedly cost about $4 million.
He noted that South Korea’s Cheon-gong interceptor missile manufactured by LIG Nex1 offers similar performance to the PAC-3 and costs a third of its cost.
The prohibitive cost of such weapons was brought into sharp focus during the Russia-Ukraine war when Moscow launched several drone and missile strikes against Ukraine, some of which included more than 100 unmanned aerial vehicles.
A A report from the Center for Strategic and International Studies in 2022 pointed out this disparity: “A $250,000 Russian cruise missile might justify shooting a $4 million missile. If those missiles hit sensitive targets. A $50,000 Iranian Shahed-136 drone might not shoot a $4 million missile.”
Although US weapons systems are known for their high-end performance, Bruce Bennett, a senior defense analyst at the US think tank RAND Corporation, said that due to the high cost of US-made weapons, most countries cannot afford them. “So, the Korean approach of offering a low-cost weapon is almost as good, which is very attractive to a lot of countries,” he said.
fast
A cost-effective weapon is great, but arms orders do not protect the country. Only when a weapon arrives and operates in a country does it contribute to its defense.
Hoshik Nam, an assistant professor in the Department of Sociology and Political Science at Jacksonville State University, told CNBC that South Korea has continuously invested more in its defense industry because the country is still formally at war with North Korea and prepared for it. Demand increases when orders increase after Russia’s invasion of Ukraine.
As such, “this continued investment has allowed the industry to maintain robust manufacturing capabilities, unlike some Western countries that have scaled back their military production lines since the Cold War.”
For example, Poland placed an order for 48 FA-50s made by KAI in 2022, as the country later replenishes its fighter platforms. Donated some of its ex-Soviet fighters to Ukraine.
The FA-50 was chosen because of KAI’s ability to quickly deliver the aircraft, Poland’s Deputy Prime Minister and Defense Minister Marisz Blaszczak said. He said that it was reported In an interview with Polish media.
12 FA-50s are reported to have been delivered From South Korean stocks by the end of 2023, the rest will be built to Polish specifications and delivered from 2025.
The FA-50 is also highly compatible with the US-made F-16 fighter, which Poland also operates, making it an attractive option for countries seeking cost-effective alternatives with faster procurement timelines, JSU’s Nam said.
(almost) better
South Korean arms are, by and large, not the cream of the crop, but in addition to their cost effectiveness, their compatibility with many systems and their high reliability make them attractive to buyers.
JSU’s Nam said that due to South Korea’s regular joint military exercises with the US, South Korea’s weapons platforms are highly compatible with US and NATO systems, allowing countries to simplify their logistics when acquiring South Korean weapons.
Compared to Russian or ex-Soviet weapons systems, South Korean systems have significant reliability advantages, Nam added, because they mean a wider support network for servicing systems with a wider customer base.
RUSI’s Seok said South Korean defense companies are offering generous terms in other areas such as technical cooperation, local manufacturing and financing. Companies are very proactive in adapting to the changing requirements of buyers and provide extensive after-sales support, he said.
RAND’s Bennett highlighted the case of India, which signed an agreement with South Korea to produce domestically. K9 Thunder (locally known as K9 Vajra-T) in 2015.
He said that India has traditionally bought Russian weapons, but Russia has not been able to provide support for the sold systems such as maintenance and spare parts.
“So the Korean approach is from the beginning, let’s make sure we have a viable supply chain. Let’s provide maintenance. We send people all over the world to help you get your maintenance capabilities, your supply chain, your spare parts,” Bennett said.
