KARACHI: South Korean companies are on the brink of operational shutdown in Pakistan because of import restrictions and a delay in the clearance of containers stuck at the port.
In a recent interview with Dawn at the office of the Korea Trade-Investment Promotion Agency (Kotra), senior officials from the state-backed trade body as well as the local chamber of Korean investors said the non-opening of letters of credit (LCs) for imports of raw material is costing Korean companies “millions of dollars” in lost sales.
The economy is facing a dollar shortage, which has resulted in official curbs on most kinds of imports. The $7 billion loan programme with the International Monetary Fund (IMF) is still in limbo, causing a depletion in the central bank’s reserves that’re now $3.19bn — a level that’s not sufficient to cover the national import bill of even 20 days.
“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,” said Jin Han Chung, chairman of the Chamber of Korean Investors in Karachi.
There’re at least 25 major Korean companies operating in Pakistan. Kia, Hyundai, Lotte and Samsung are some of the major Korean investors that’ve set up operations in recent years. Korean companies are also involved in seafood export and power generation. Another company, Kumyang, 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.
Raw material shortages aggravate due to import curbs
According to Sung Jae Kim, director general at Kotra Karachi, the crisis became severe for Korean companies three months ago, and the situation has since worsened. This is despite the fact that the governor of the State Bank of Pakistan (SBP) directed banks in January to clear payments for containers stuck at the port.
“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,” he said, adding that Islamabad should issue a “clear policy statement” in support of export-oriented foreign companies.
Mr Kim said he understands the constraints faced by the government when it comes to allowing the dollar outflow, but restricting raw material imports is no solution. “International trade must go on. Commerce must continue,” he said.
Pakistan’s imports from Korea in 2021 amounted to $1.5bn, up 41.8 per cent from 2020, according to the International Trade Centre.
Mr Kim said Korean companies have barely repatriated any profits or dividends back to their headquarters in Seoul for more than one year.
More importantly, there’s been a slowdown in FDI from Korea in recent months, he 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,” he said.
SBP data shows the net inflow of FDI from Korean investors in the first half of 2022-23 was $12.4m, about 2.7pc of the overall FDI inflow of $460.9m in July-December.
Published in Dawn, February 18th, 2023
