The ruble devaluation has caused a sharp drop in the hard currency prices
of cars produced in Russia. As of January 20, the selling price for the
VAZ Model Five was RUR 52,000 ($2168), Niva RUR 70,000 ($2919), and Model
Ten RUR 112,000 ($4670).
Meanwhile, the Ukrainian government intends to increase customs duties
and impose more strict regulations on foreign car imports, advocating the
patriotic idea of protecting the domestic producer. Similar ideas were
popular in the middle of the last century, but, as world experience shows,
always brought negative results and caused economic stagnation, because
they provided hothouse conditions for domestic producers and permitted
them, without upgrading their production capacities, to get maximum profits
using their old equipment during the whole term of the protective duties,
and, after hitting the jackpot, quit the business. Unfortunately, the AvtoZAZ-Daewoo
strategy corroborates this experience. The duty-free import of 12,926 South
Korean cars, with the wheels and gas tanks removed in Bulgaria and put
back in the Ukrainian port of Illichivsk, cost the state budget $25-30
million, and the drop in the number of foreign cars imported after April
1 decreased budget revenues by another $100-120 million. Having shielded
itself from competition, AvtoZAZ-Daewoo expected to garner super-profits.
However, economizing on customs duties which account for 27-30% of the
price (at least $2,000), has not actually reduced the price for these South
Korean products: even in Poland, which has become economically robust,
they are sold cheaper. For instance, the Lanos model there costs $1,500-2,000
less than in Ukraine. A 60% devaluation in 1997 also brought about a considerable
drop in export prices, but this had practically no impact on DAEWOO's cost
in Ukraine.
Recognizing the resultant fiasco, the joint venture is now demanding
additional measures be taken to protect the domestic producer.
Meanwhile $41 billion given last year to South Korea in financial aid
and economic reforms are improving the situation in that country. In 1998,
its foreign debt decreased from $53 billion to $32 billion, and foreign
investment rose last January by 640% to $1 billion. Compare this with Ukraine,
which during the last eight years has received slightly under $2 billion
in investment, and its per capita GDP is 10 times lower than in South Korea.







