Kaesong closure precipitates financial loss and ruin for SK firms

As Kaesong Industrial Complex (KIC) was
completely shut down on February 11th, it was suddenly announced that all South
Korean workers would be expelled. The sudden departure meant that materials and
products had to be left behind. In the wake of this move, South Korean
companies are in a state of shock over the losses they face. If one considers
the stranded materials alone, the total costs add up to billions of KRW. 

The seed money for the facilities and
equipment for South Korean companies in the Kaesong Industrial Complex amounted
to 1 trillion KRW (~U.S. 828 million). There has also  been an estimate
that if one includes the losses of subcontractors, the total loss for the South
Korean side is closer to 2 trillion KRW (~U.S. 1.65 billion). There is a joint
North-South insurance policy that guarantees 90% of claims up to 7 billion won,
but only 60% of entities signed up for policies that cover the investment costs
for their facilities. The remaining companies are expecting huge losses.
 

“I cannot even begin to fathom the
losses I expect to see due to the closure of the KIC and the subsequent rapid
evacuation of South Korean workers. I honestly anticipate that I might need to
declare bankruptcy,”
the owner of a clothing company that had operated in the Kaesong Industrial Complex told Daily NK in a telephone conversation on February 12, 

“The sudden pullout doesn’t
merely affect companies that were operating in the KIC. Traders and merchants
that have a relationship with us and depend on us for materials and supplies
will also be hit hard by this turn of events. Because this affects the
credibility of our organization, many of our customers will likely sever ties.”
 

At a related emergency government meeting on Friday, it was announced that loan repayment periods and tax payment deadlines would be
extended. This response, according to the KIC clothing company head, “isn’t 
substantially different from the policy launched in
2013.” However, the scale of this incident is significantly larger and demands a proportionally large response, he said.

A party involved with a food company that
was active in the KIC prior to the shutdown said that the South Korean
government promised in 2013 to support the companies affected by the closure
with “astronomical financial assistance,” but that they still “ haven’t seen a
penny out of that promise.”
 

When asked about the insurance policy, this
individual said that costly premiums drive many small companies and their
assets to go uninsured, and that he has low expectations to see many
compensation payouts from the North-South Joint Insurance program.
 

“There are a significant amount of
companies who are not going to get insurance payouts this time around. The
government should actively support these companies,” he asserted.
 

“In some instances, the raw materials and
products left behind aren’t the property of companies that operated in the KIC,
but rather the property of their customers. Even if the northern side keeps the
facilities and equipment, if they were to return some of our customer’s
materials, it would go a long way to re-establishing trust.”
 

The CEO of a pharmaceutical company tethered to the KIC remarked,”If the government doesn’t step forward with swift and effective
measures to aid troubled South Korean companies, many will face crippling
financial problems and even bankruptcy. At bare minimum, the government should
present a policy to help us continue production.”
 

In this manner, many of the firm’s
representatives expressed frustration that they had worked very hard to build
up their companies, only to face the prospect of losing them due to events
wholly out of their control. There is a consensus among the companies that the
government needs to come up with a plan in order to minimize the damage to the
124 firms that operated in Kaesong and the 5,000 firms that had a financial
relationship with them.  
 

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