Last year, South Korea’s defense industry, which experienced a slight downturn, is set to rebound in 2024, with expectations of achieving an unprecedented $20 billion in annual exports.
S. Korea’s defense exports, which were around $3 billion in 2020, more than doubled to $7.3 billion in 2021 and reached $17.3 billion in 2022. Although there was a decrease to $14 billion last year, exports to Eastern Europe, the Middle East, and Latin America have driven this year’s performance.
The number of countries importing S. Korean defense products also expanded from four in 2022 to twelve last year, with a target of exceeding fifteen countries by the end of this year. One of the reasons for the expansion of export destinations is the ongoing conflicts, such as the Russia-Ukraine war and the Israel-Hamas war, which have sustained global demand for defense supplies.
In the Middle East, the United Arab Emirates (UAE), a key customer of S. Korean defense products, signed a Comprehensive Economic Partnership Agreement (CEPA) with S. Korea in May, removing tariffs on weaponry.
An official from the defense industry commented that “if the UAE continues to express satisfaction with S. Korean defense products, it could spark increased interest from neighboring countries like Saudi Arabia and Qatar.”
Following this trend, S. Korean defense companies are continuing to secure contracts and maintain their momentum by strengthening their presence in countries such as Poland and Romania.
In July, Hanwha Aerospace signed a $1.3 billion export contract with Romania’s Ministry of Defense for K9 self-propelled howitzers and other equipment. Meanwhile, Hyundai Rotem is aiming to replace Romania’s outdated tanks with the K2 model. With its expertise in both tank production and railway infrastructure, Hyundai Rotem can offer comprehensive package deals that integrate both systems.
Driven by these favorable conditions, S. Korea’s five major defense companies—Hanwha Aerospace, Hanwha Systems, Hyundai Rotem, Korea Aerospace Industries (KAI), and LIG Nex1—are expected to achieve a combined operating profit of 2 trillion won $1.5 billion) for the first time in history. Earlier this year, in just the first half alone, their combined operating profit exceeded $675.2 million.
As exports continue to grow, another significant factor to consider is the ‘lock-in effect’ of weapon system exports. Once a country adopts a specific weapon system, it becomes challenging to switch to another, leading to additional purchases of compatible weapons and expanded military cooperation.
