ΆΓ Remodeling of foreign investment zones necessary

 KoreaHerald 2000.07.19

    In its push to induce more investment, the Korean government has implemented a system of incentives for foreign investment. These include rent reduction on government properties, tax exemption and deductions, and foreign industrial complexes (FICs) and foreign investment zones (FIZs), which are specifically designed for high technology investment.

    By introducing these systems, the Korean government is able to accomplish its objectives in terms of inducing foreign investment and the transfer of the technologies. However, it is required to have additional assistance and reasonable systemic control of the government.

    At present there are three foreign industrial complexes: Chonan, South Chungchong Province, and Kwangju and Mokpo, South Cholla Province. Also three foreign industrial zones currently exist in Sacheon and Yangsan, both South Kyongsang Province, and Chonan, South Chungchong Province..

    In the case of the Chonan Foreign Investment Complex, the entire complex area of 491,392 square meters, has been successfully rented out or sold to 36 companies who are mostly high-technology orientated companies. At present 15 of these companies have commenced operations, while the remainder are still in the process of setting up.

    Despite making these facilities available to foreign investors, those companies who have begun operations face difficulties due to the lack of supporting infrastructure. Public transportation, accommodation, post offices, medical and banking facilities are all absent within the Chonan Foreign Investment Complex.

    These facilities are essential if the foreign investment is to become successful. It falls upon the regional government to have the necessary commitment, concern and planning capability to provide assistance and to resolve such a lack of everyday facilities. It is doubtful whether these facilities will even be in place before all businesses are operational.

    The foreign industrial complexes in Pyongdong of Kwangju and Daebul of Mokpo are only 1/3 of the rental cost of Chonan. The minimum ratio of foreign investment as total capital required by both complexes is 10 percent which is much lower that the 30 percent of Chonan. Pyongdong and Daebul also offer better conditions compared to Chonan. In spite of this, their rental and sale occupancy rates are only 76 percent and 58 percent those of Chonan. Both complexes presently have 18 and four sites under construction with three and one company operating respectively.

    However, substantial logistical problems exist within these two locations which are a major factor in their lack of success. There is neither an international airport nor a major seaport in the surrounding areas which leads to high transport costs and difficulties in obtaining regular supplies of raw materials. These two factors combined with low local demand can be pointed out as the biggest reason for foreign investors not to consider investing in these areas.

    However, most investments are large in scale and this can end up being a huge financial burden for the regional government. The government is now considering more flexibility with the financial burden of developing FIZs with the Ministry of Planning and Budget in the case of large scale investment which have high employment or technology transfer effects.

    It is necessary for the Government to expand its financial support to the regional government from its current 40-50 percent to 40-70 percent. These three FIZs reflect this need for increased financial support for investment as even with 100 percent occupancy rates, there is still insufficient finances among regional governments to provide the necessary infrastructure.

    The OIO has recommended the extension of financial support for expansion of support infrastructure within the foreign investment zones by both the national and regional government.

    Furthermore, the OIO will continue to place continued and sustained interest on this matter.

    It is expected and desirable that more support for foreign investment zones will come from the government and regional government bodies. This is needed to improve the quality of foreign investment zones and to continue sustainable foreign investment.

    The writer is a home doctor of the Office of Investment Ombudsman. Please contact (02) 551-4232 for assistance in resolving problems your business is experiencing in Korea. ? Ed.