South Korean Companies
South Korean companies are closing their operations in Pakistan due to import restrictions and delays in clearing containers stuck at the port.
During a recent interview with Dawn at the Korea Trade and Investment Promotion Agency (Kotra) office, senior officials from a state-backed business organization and the local Chamber of Korean Investors said that failure to open letters of credit (LC) is a raw material import cost Korean Company “millions of dollars” in lost sales.
The economy is facing a shortage of dollars, which has led to official restrictions on most types of imports. The $7 billion lending program with the International Monetary Fund (IMF) is still on hold, depleting the central bank’s reserves, which currently stand at $3.19 billion, a level not enough to cover the national import bill even in 20 days.
“I fight with the bank every day. Even for a small (outgoing) transfer of $20,000. Import advances are not paid. The situation is also deteriorating in the downstream industry,” said Ji Han Chung, chairman of the Korean Chamber of Investors in Karachi.
At least 25 major South Korean companies operate in Pakistan. Kia, Hyundai, Lotte, and Samsung are among the largest Korean investors to have started operations in recent years. South Korean companies are also involved in seafood exports and power generation.
Another company, Kumyang, set up a local manufacturing unit in 2021 after $3 million in foreign direct investment (FDI) and exporting chemicals to the Middle East and Europe.
Raw material shortages aggravate due to import curbs
According to Sung Jae Kim, general manager of Kotra Karachi, the crisis for South Korean companies deepened three months ago and the situation has worsened since then. This is despite the fact that in January the governor of the State Bank of Pakistan (SBP) ordered the banks to make payments for containers stranded in the port.
“We call on the government to release all outstanding LCs opened by Korean companies and their partners so that they can open new LCs to continue their operations,” he said, adding that Islamabad has a “clear policy statement” that should give up for export. foreign-oriented South Korean companies.
Mr. Kim said he understood the restrictions the government faced in circulating the dollar, but limiting commodity imports was not the solution. “International trade must go on. Trade must continue,” he said. Pakistan’s
Imports from Korea in 2021 totaled $1.5 billion, up 41.8 percent from 2020, according to the International Trade Center.
Mr. Kim said South Korean companies have hardly sent profits or dividends to their headquarters in Seoul for more than a year.
More importantly, foreign direct investment from Korea has slowed in recent months, he added. “The reason for low FDI is economic instability, including currency fluctuations. It is therefore difficult for private companies to plan for the long term. They are reluctant to send investment money to Pakistan.”
Data from SBP shows that net FDI inflows from Korean investors amounted to US$12 in the first half of 2022-2023.4 million or about 2.7% of the total FDI inflow of $460.9 million for the July-December period.