Losses of Companies in Kaesong Industrial Complex Likely to Snowball

As a sanction against North Korea’s recent carrying out nuclear test and launching long-range missile, the South Korean government decided to shut down the Kaesong Industrial Complex on February 10. Under the circumstances, the companies located in the industrial complex, most of which are small firms, are expected to take a direct hit.

According to the Ministry of Trade, Industry & Energy, a total of 124 firms are currently located in the industrial complex and approximately 3,000 more Korean firms are doing business in association with them. The 124 firms recorded an output of US$515.49 million between January and November last year and the annual total for 2015 is estimated at US$560 million. As of the end of November, 54,763 North Korean and 803 South Korean employees were working in the industrial complex.

The shutdown is predicted to lead to US$1.53 million in losses per day. Besides, the South Korean government’s and enterprises’ investment in the zone, which amounts to about one trillion won, is about to go up in smoke. Industry experts are estimating the total losses at no less than six trillion won, including the sunk investment, production setback, contract cancellation and corporate bankruptcy.

Those firms’ last resort is insurance such as that based on the Inter-Korean Cooperation Fund. However, the insurance becomes available after their business is suspended for at least a month and 52 out of the 124 firms do not have the insurance.

The South Korean government is considering various ways to save them. When the industrial complex was shut down three years ago, the government assisted in the business of those firms by means of the Inter-Korean Cooperation Fund, special loans, postponement of principal and interest payments, etc.