Daewoo, Ukraine Auto Firm Launch $1.3-Billion Venture
Capping the largest foreign investment here in seven years of independence, the AvtoZaz automotive factory has launched a joint venture with South Korean conglomerate Daewoo that will pump $1.3 billion into Ukraine’s moribund passenger-car industry.
“This will not only renew the AvtoZaz company but will also boost Ukraine’s economy,” AvtoZaz General Director Oleksandr Sotnikov said after a formal signing ceremony Monday in Zaporizhia, 300 miles south of Kiev.
Government officials say that the seven-year investment could create 20,000 jobs and produce up to 250,000 to 300,000 vehicles, 80,000 of them AvtoZaz’s passenger car, the Tavria, and the rest Daewoo models.
The deal also underscores the determination of Daewoo to proceed with its aggressive automotive expansion in Eastern Europe despite South Korea’s economic woes.
Start-up capital for the joint venture is $300 million, half coming from Daewoo’s cash reserve funds and half consisting of material investment in facilities by AvtoZaz, a Daewoo spokesman in Seoul said.
An additional $1 billion of investment in expansion and development of new cars is planned over the next six years, with each side again contributing one-half, the spokesman said. Daewoo’s $500-million share will be financed from overseas sources, he added.
Daewoo is one of South Korea’s stronger conglomerates, and it appears to have better prospects for obtaining overseas financing for new projects than most other South Korean firms.
AvtoZaz--best known in Soviet times for the Zaporozhets, the “tin can on wheels” that made car ownership possible for millions of Soviet citizens--hopes to brighten its rusty image with the modernized TavriaZaz 1102.
Priced at about $4,000, the car should be affordable for many Ukrainians. Ukraine has countless millions living in poverty and a tiny upper class. But there is a growing middle class in the market for inexpensive, reliable cars.
Until now, that need has largely been filled by used Western cars. To protect the new joint venture from competition in its price range, the Ukrainian government slapped prohibitive new duties on imported cars more than 5 years old. Although this cleared the way for Monday’s signing, the move prompted an outcry at home and abroad.
The former Soviet republic, which has received only $2 billion in direct foreign investment since becoming independent in 1991, is struggling to attract more foreign business.
To sweeten the Daewoo deal when it was still being negotiated last September, the Ukrainian Parliament granted a 10-year profits tax exemption along with tax-free land for foreigners investing at least $150 million in car manufacturing joint ventures. Coming just three months after a previous generation of joint ventures had lost similar privileges, the decision prompted charges of discrimination.
