South Korean Businesses Quit Kaesong

November 5, 2013, 5:18 PM

South Korean Businesses Quit Kaesong

By Kwanwoo Jun

South Korean businesses are exiting the Kaesong industrial park in North Korea,making Seoul’s efforts to attract foreign investment to the site an even tougher sell. At least nine South Korean firms have ended or have decided to end business at the Kaesong Industrial Complex, just north of the inter-Korean military border, because of uncertain investment prospects and financial crunches following a five-month operational halt amid cross-border tensions.Officials at the Unification Ministry in Seoul confirmed two of 123 South Korean firms in Kaesong had fully withdrawn from North Korea after selling out their business assets there. They withheld the names of the companies—one manufacturing electronics parts and the other textile.

Korea Exim Bank, which manages state insurance funds for South Korean firms in Kaesong, said another seven South Korean companies, which had leased land to build factories in the industrial complex, informed the state bank of their decision to give up and scrap their business plan.

Operations at the industrial park were suspended in April after Pyongyang abruptly pulled its workforce in protest to South Korean media portraying the joint venture as a cash cow for the cash-strapped North Korean regime. North Korea also complained about U.S.-South Korean military drills at that time. The industrial park reopened in September.

South Korean firms are still reeling from months of suspended operations, with client orders still not back to normal following the long hiatus. The Unification Ministry said on Tuesday the number of North Korean employees in Kaesong had dropped to 43,000, 20% fewer than before April, because of reduced work.

“We were afraid that the factory in Kaesong—though accounting for only one-fifth of our total output–might continue to be a problem,” said a manager at Magic Micro Co., a South Korean electronics firm that has completely withdrawn from Kaesong and sold out its assets there.

A senior Korea Exim Bank official said another seven South Korean firms had abandoned their land leases for factories in Kaesong after waiting for North Korea’s permission for years in vain. “They could no longer wait and they could no longer bear uncertainty,” the official said.

The bank official also said the largely weak financing is another key reason for South Korean firms to leave Kaesong, adding 59 South Korean firms used state insurance funds to stay afloat during the work stoppage and 35 of them have yet to pay money back on time.

“If they keep failing to pay the money back, we will have to put their business assets up for auction according to law,” the bank official said. “Businesses trade in their assets in Kaesong as there are still South Korean firms which intend to move into North Korea.”

The two Koreas have agreed to push for developing the inter-Korean park into an international industrial complex with foreign investment, but little progress has been made since the two sides agreed to restart operations.

Cash-strapped North Korea has also interested in enticing foreign investment not only in Kaesong but also elsewhere by creating more similar industrial parks on its soil.