SMEs struggle under faltering Korean economy
By Nam Hyun-woo
An increasing number of small and medium-sized enterprises (SMEs) are losing ground amid gloomy economic circumstances, casting worries that the country’s economy is faltering.
On Tuesday, the Financial Supervisory Service (FSS) announced that 176 SMEs are subject to immediate corporate restructuring. The number is up 28.5 percent from the average number of SMEs that were in the same circumstances three years ago, 137, and the highest since 2009, when the FSS conducted three credit risk assessments amid the global financial crisis and named 512 firms in that category.
In a breakdown, most of the firms are manufacturers, comprised of 22 metal, 20 electronic and 19 machinery parts manufacturers.
SMEs themselves are also expressing their concerns over the current economic circumstances. According to the Korea Federation of SMEs on Nov. 28, 86.7 percent out of 300 SMEs responding to a recent poll said they believe the country’s economy is in a crisis.
Of these, 28.7 percent said the current situation is tantamount to the 2008-2009 global financial crisis or the Asian financial crisis back in the late 1990s.
In the poll, the firms citied worsening consumer sentiment and shrinking domestic demand as the main reasons for their worries. Also, they agreed that rising economic uncertainties stemming from the leadership vacuum in the government cast more concerns over next year’s outlook.
Externally, they also mentioned U.S. President-elect Donald Trump’s economic policies as a potential concern, as he is expected to lean toward protectionism.
The Korea Small Business Institute said in a recent report that an anti-graft law that was enacted on Sept. 28, affecting more than 4 million public workers, teachers and journalists, has also slowed SMEs’ businesses.
According to the report, manufacturers’ Small Business Health Index, an indicator gauging SMEs’ business conditions, dropped to 84 points in October, down 2.6 points from a month earlier. The indexes for small shops and traditional markets have also declined to 76.6 and 75 points, respectively.
“After the anti-graft law took effect, the country’s consumer sentiment has dropped and exports have also been affected.” the report said.
Their worries can also be shown in the falling operating rates of industrial complexes.
According to data from the Korea Industrial Complex Corp., the operation rate of industrial complexes across the nation has slightly increased to 81.4 percent in September from 80.8 percent in August. However, several major complexes were showing rates far below the average, with the Namdong complex in Incheon posting 71 percent and the Banwol complex in Gyeonggi Province recording 77.2 percent in September.
The economic relationship between Korea and China is also of concern for SMEs, because companies selling products related to Korean dramas will be hit hard if China enforces its restrictions on the programming being aired.
“With those issues expected to remain as negative factors next year, more comprehensive measures should be implemented,” a Seoul-based economist said.