South Korea aims at $4b in defense exports by 2020

President Lee Myung-bak on Tuesday discussed with related ministers ways to further develop the defense industry based on a blueprint to reach $4 billion in annual defense exports.

The Presidential Council for Future and Vision laid out a draft on how to develop an export-oriented defense industry, create more jobs and promote research and development in the private sector.

The goal is to reach $10 billion in annual production, $4 billion in annual exports, 50,000 jobs in the industry and to become one of the world's top seven countries in defense technology and exports by 2020.

Unlike in advanced countries where defense R & D is led by private companies, Korea's defense R & D has so far been dominated by the Agency for Defense Development, which gives out production orders to private contractors.

The council proposed handing over R & D for all weaponry except strategic weapons such as missiles, cyber warfare devices or reconnaissance satellites to private companies by 2015.

"The ADD was established in the past when the private sector lacked capacity, but things have changed in the past 40 years," President Lee was quoted as saying during the meeting by his spokesperson Kim Hee-jeong.

"Now is the right time to change the system."

Lee also instructed Chun Young-woo, his new top aide for foreign affairs and national security, to immediately push ahead with reform of the national defense system.

He called for "a diplomacy focused on economy" as he officially appointed Chun Tuesday.

Based on the council's suggestion, a joint team of nongovernmental experts, government officials and military officers will get involved from the point military demands are raised to add an industrial viewpoint in development. A feasibility study will be conducted to ensure that the newly developed weapons meet military demands.

"This way, the weapons system can be reviewed from strategic, tactical, technological as well as industrial viewpoints like in Britain, allowing us to procure weapons that best meet the needs of our military and industry," said a council official.

The council said the R & D budget for core technologies should be expanded and that priority must be given to the R & D budget for measuring weapons performance.

It also plans to draw up detailed measures to support defense firms including tax cuts, while launching a consultative body led by the ministers of defense and knowledge economy to increase defense exports.

Korea's weapons exports amounted to only $2.5 billion in 2008, accounting for a mere 0.5 percent of the world's $55 billion market, despite efforts by the Defense Acquisition Program Administration.

"So far we have exported completed weapons mainly to the U.S. and the Middle East, but we will diversify export markets to Africa and Asia," a DAPA director told reporters.

"We also plan to sell weapons parts, software and services from now on. There will be financial support and industrial cooperation to promote exports."

The council noted that due to the focus on development of high-end weapons based on the Korean military's demand, the country has not been up to the mark in terms of export competitiveness.

Korea failed to export T-50 Golden Eagle supersonic advanced trainer jets to Singapore and the United Arab Emirates due to less competitive prices compared to similar Italian jets.

Korea's K2 Black Panther tanks are equipped with a 120-militmeter main gun and cutting-edge electronic devices, but are more expensive than U.S., British and German competitors.

Most of the defense companies here are small, nibbling on a humble domestic demand ― 7.2 trillion won ($6.2 billion) in 2008 ― whereas the global defense industry is seeing an increasing number of businesses grow into giants through mergers and acquisitions.

Only about 10 percent of local defense firms are fully devoted to military procurement; others produce goods for civilian use as well. Three out of every five defense companies in the world produce only military supplies.

The plan to make more use of nongovernmental resources to raise efficiency of defense management as part of a national defense reform since 2006 has not seen much outcome due to the passive attitude of the Defense Ministry, the council said.

The U.S., Britain and Germany have been doing it. Germany, for example, set up a company called GEBB to adopt civilian management methods to enhance efficiency of its military's management of property, military supplies, information technology, training and catering.

By Kim So-hyun (sophie@heraldm.com)