Even before the COVID-19 pandemic hit businesses, hundreds of small and medium-sized (SMEs) firms in South Korea had already started to move out of the country, a report claimed on Tuesday.
The firms claimed production costs are rising in the country, making it less affordable for them, Korean daily Chosunilbo reported.
Data from the Export-Import Bank of Korea said foreign direct investment in South Korea by SMEs “grew steadily from $6.9 billion in 2016 to a record $15.4 billion in 2019.”
“Over the same period, the number of branches Korean SMEs established abroad increased from 1,684 to 2,063. That means they were building more than 2,000 factories abroad every year,” the report added.
Through this June, investments by Korean SMEs abroad totaled $6.1 billion, down around 20% year-on-year due to the epidemic “but still brisk.”
The report said Korean factories “have been moving to China and Vietnam for decades due to soaring costs here.”
Rising wages and growing red tape have also been cited as reasons to leave the country.
A survey by Korea Trade-Investment Promotion Agency said only 4.2% firms said they “considered downsizing their overseas operations.”
Among the 1,028 SMEs surveyed last year, many argued mounting production costs, unfavorable labor conditions, red tape, and shortage of workers were the main reasons not to return home.
“The government should have drastically eased regulatory barriers and created favorable conditions but instead hiked the minimum wage and shortened the working week. At this rate, we will only see more and more small and mid-sized companies leaving Korea,” said one anonymous businessman.
- Economy expands
South Korea’s central bank said today the country’s economy “expanded at a faster-than-estimated pace in the third quarter” of 2020.
The Bank of Korea said South Korea’s real gross domestic product (GDP) grew 2.1% this July-September from the previous quarter, Yonhap News Agency reported.
Economic experts had estimated a 1.9% rise in the growth.
The bank said it was “fastest expansion in 11 years and the first positive growth in three quarters.”
The data showed South Korea’s exports jumped 16% in the third quarter.
The bank said there was rising global demand for semiconductors and automobiles. South Korea is a leader in the production of semiconductors.
Government consumption edged up 0.2%, while construction investment fell 7.3%, the agency reported. Weaker consumer spending, which stayed flat in the third quarter, was the biggest drag on the momentum of economic recovery.
Last year, the South Korean economy shrank 1.1% in the third quarter, compared with a 2.7% on-year contraction in the previous quarter.
According to Bank of Korea officials, the bank raised the third quarter growth rate because industrial output in September was better than expected.
"South Korea could meet this year's growth target if the economy expands at a pace of 0.4% to 0.8% in the fourth quarter," the agency quoted Park Sung-bin, a bank official, as saying.
- COVID-19 impact
However, a recent wave of coronavirus infections is expected to have a negative impact on private consumption, the official added.
The economic expansion comes amid rising numbers of coronavirus cases in the country.
South Korea reported at least 451 infections today, with health authorities warning that “next few days may be critical in the virus fight.”
The country has reported a total of 34,652 COVID-19 cases since the outbreak, including 526 deaths.
* Islamuddin Sajid from Islamabad, Pakistan contributed to this report
