South Korean Firms Postpone Their Move into the Kaesong Industrial Complex

A number of South Korean firms are giving up on moving into the Kaesong Industrial Complex due to reduced financial support from the government.

“78.5 percent of those firms which received lots at the Kaesong Industrial Complex in the second round of the first stage of distribution in June last year have not begun construction of their facilities. 62.4 percent of them have not even hired a firm for construction,” said the Korea Federation of Small and Medium Business (KFSB) in a report released on April 27. For the report, the KFSB selected 85 firms out of all those firms which received lots and conducted a survey on how these firms are preparing their move into the Complex.

Companies distributed with lots in June last year are required to begin construction of their facilities within two years after the initial distribution contract. It is true that these firms have enough time to build their facilities. However, a number of firms have expressed that they would not move into the Complex.

The report says, “13 out of a total of 167 firms have already told the KFSB that they would not move into the Complex, and five of them have canceled the contract.”

59 percent of the firms including those 13 said that they would relinquish their rights to move into the complex because they are unable to raise enough money. 64 percent of these firms said that the reduced government funding has contributed to their financial difficulties.

The report says, “The Ministry of Unification has consistently said that the government would help finance these firms [which received lots in the second round of the first stage of distribution]] to move into the Complex through trust guarantee funds. However, strict rules are applied to these firms when they seek the government’s financial support. In a stark contrast, the firms which received the lots in the first round of the first stage of distribution were allowed to borrow 50 percent of their investment expenses from the inter-Korean Economic Cooperation fund. ”

The KFSB voiced its concern saying, “Although ten months have passed since the second round of the first stage of distribution was over, many firms are still unable to move into the complex. Some even canceled the distribution contract.” The organization said that the operation of the Kaesong Industrial Complex, a symbol of inter-Korean economic cooperation, has begun to stumble, and therefore the government must come up with a solution.

An official from a company which runs its production lines at the complex said in a phone conversation with Daily NK, “The government should not be ambiguous about its policies on financial support [for firms bidding for operation at the complex.] However, the problem also lies with companies which apply to enter into the complex without a specific financing plan, believing that they could get a loan from the inter-Korean Economic Cooperation Fund.”

The official said, “It is important that the government implements its policies on financial support in a consistent and principled manner, and applicant companies make thorough preparation in a bid to enter into the complex.”

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