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. Senior representatives from the government-backed trade organization and the local chamber of Korean investors claimed in a recent interview at the Kotra headquarters that the non-opening of LCs for the import of raw materials is costing Korean companies “millions of dollars” in lost sales.
Official restrictions on the majority of imports have been put in place as a result of the economy’s dollar shortfall. While the $7 billion loan program with the IMF is still pending, the central bank’s reserves have been reduced and are currently only $3.19 billion, which is insufficient to meet the country’s import bill for even 20 days.
“I have a fight with the bank every day. even for a meager $20,000 (outward) remittance. Import advance payments are not being cleared. The downstream business is also facing worsening conditions, according to Ji Han Chung, the head of the Karachi-based Chamber of Korean Investors.
At least 25 significant Korean businesses are active in Pakistan. Some of the most significant Korean investors that have established businesses recently include Kia, Hyundai, Lotte, and Samsung. Power generating and the export of seafood are other business ventures of Korean firms. With a $3 million FDI, another firm, Kumyang, established its local manufacturing facility in 2021 and has since been exporting chemicals to the Middle East and Europe.
Sung Jae Kim, director general of Kotra Karachi, claims that the crisis for Korean businesses started to get bad three months ago and has since gotten worse. This is true even though the State Bank of Pakistan’s (SBP) governor ordered banks to clear payments for containers that were stranded at the port in January.
He went on to say that Islamabad should make a “clear policy statement” in favor of foreign firms that are focused on exports. “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.
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.
In 2021, Pakistan imported $1.5 billion from Korea, a 41.8 percent increase from 2020, according to the International Trade Center.
According to Mr. Kim, Korean businesses haven’t returned many profits or dividends to their Seoul headquarters in more than a year. More significantly, he noted, there has been a slowdown in FDI coming from Korea recently. “The economic instability, which includes exchange rate fluctuation, is the cause of the low FDI. Private businesses are finding it difficult to make long-term plans as a result. They are reluctant to offer Pakistan investment capital, he said.
According to SBP data, Korean investors contributed $12.4 million, or about 2.7 percent, of the total $460.9 million in FDI inflow from July to December 2022–2023.
