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Tuesday, March 21, 2023

South Korean companies to shut operations in Pakistan

South Korean companies are on the verge of operational shutdown in Pakistan due to import restrictions and a delay in the clearance of containers stuck at the port.

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According to the Korea Trade-Investment Promotion Agency (Kotra), the unavailability of letters of credit (LCs) for imports of raw materials is costing Korean companies millions of dollars in lost sales.

Moreover, the declining forex reserves and currency devaluation have largely affected the imports. There’s now only $3.19 billion in reserves left which are not sufficient to cover the national imports for even 20 days. Therefore, Pakistan is in desperate need of a $7 billion economic bailout from the International Monetary Fund (IMF).

The chairman of the Chamber of Korean Investors in Karachi, Ji Han Chung said;

“I am fighting with the bank every single day. Even for a small (outward) remittance of $20,000. Advance payments for imports are not being cleared. The situation is getting worse for the downstream industry as well,”

Read more: Auto industry seeks to lift import restrictions

At least 25 major Korean companies are operating in Pakistan. Kia, Hyundai, Lotte, and Samsung are some of the major Korean investors that have set up operations recently. In addition to this, some Korean companies are also involved in seafood export and power generation. Besides this, Kumyang company set up its local manufacturing unit in 2021 after a foreign direct investment (FDI) of $3 million and has been exporting chemicals to the Middle East and Europe.

Import restrictions 

The director general at Kotra, Sung Jae Kim was of the view that the in the past three months the situation got even worse for the Korean companies to operate in Pakistan. He highlighted economic insecurity and political instability as major reasons for the companies’ slow progress. It is pertinent to mention that despite State Bank’s official notice banks did not clear payments for containers stuck at the port.

The director mentioned that;

“We request that the government should release all pending LCs opened by Korean companies and their partners while allowing them to open new LCs to continue operations, Islamabad should issue a clear policy statement in support of export-oriented foreign companies.”

He further stressed that restricting raw material imports is not the solution and international trade and commerce must continue to overcome the industrial decline in the country. According to International Trade Centre, Pakistan’s imports from Korea in 2021 amounted to almost $1.5 billion showing a 41.8% increase against 2020.

Read more: Currency devaluation has jeopardized the Telecom industry

Furthermore, the chamber also highlighted that the companies have barely repatriated any profits back to their headquarters in Seoul for more than a year. The recent decline in FDI has also affected the industry to a greater extent.

The officials from the chamber added;

“The reason for low FDI is the economic instability, including the exchange rate fluctuation. It’s making it difficult for private companies to plan for the long term. They’re hesitant to send investment money to Pakistan,”

The data released by the State Bank of Pakistan(SBP) suggests that the net inflow of FDI from Korean investors in the first half of 2022-23 was $12.4 million, 2.7% of the overall FDI inflow of $460.9 million in July-December.