Free economic zones falter in Korea

Cheongna in the Incheon Free Economic Zone

This is the first of a series highlighting the country’s free economic zones. — ED.

By Lee Min-hyung

The government’s ambitious bet to establish nationwide free economic zones (FEZ) is facing growing uncertainty, hit hard by a sharp decline in foreign investment and botched management for the designated trade hubs.

The FEZ drive started in 2003 during the President Roh Moo-hyun administration. Back then, the government designated the nation’s western port city of Incheon as the first international free trade cluster.

The move came as part of the government’s bid to win more foreign investment and push for balanced growth across the nation. The government has since given FEZ designation to eight regions here where foreign companies can enjoy tax benefits.

But the much-hyped economic policy is losing steam, with FEZs coming under fire for failing to win enough foreign investment largely due to sloppy management under regional governments.

In particular, data showed the nation’s largest free economic hub, the Incheon Free Economic Zone (IFEZ), is facing growing setbacks over dwindling foreign investment. The IFEZ covers three regions in Incheon including Songdo, Yeongjong Island and Cheongna.

The arrival of foreign direct investment (FDI) in Incheon stood at $1.72 billion (1.96 trillion won) in 2012, which has since nosedived to $729 million last year.

The figure continues to decline, with the Incheon metropolitan government attracting only $244 million in foreign investment during the first half of this year, according to data by the Ministry of Trade, Industry and Energy.

This is because the IFEZ has failed to attract mega investments from foreign capital in recent years.

This March, Indonesian conglomerate Lippo Group and U.S. casino operator Caesars Entertainment withdrew their plan to establish a casino complex on Yeongjong Island. The deal was worth 2.3 trillion won.

IFEZ officials were unavailable for comments.

Things are no different for other FEZs here.

The Chungbuk Free Economic Zone (CFEZ) in North Chungcheong Province has also come under criticism for wasting taxpayers’ money without generating any outstanding achievements so far.

The government included the CFEZ in 2013, pushing for what it calls an “eco-polis” project in Chungju City. The project, which is set to finish by 2020, is aimed at building an industrial cluster, focusing on auto parts, new renewable energy, logistics and retail businesses. The government allocated a 386.4 billion won budget for the project.

But the CFEZ has failed to draw investment, putting an end to the project this April.

“We have failed to reach a consensus with a group of private investors over details for fundraising plans,” North Chungcheong Province Governor Lee Si-jong said at that time.

Calls have since grown that the CFEZ should be disbanded or completely restructured to stop the recurrence of such botched management. Amid mounting controversy, Lee said the provincial government is mulling cutting the CFEZ workforce.

The FDI at the eight FEZs reached $5.6 billion between 2004 and 2015, taking up only about five percent of total FDI in Korea during the same period, according to the trade ministry.

The Moon Jae-in administration has yet to unveil specific plans for the FEZs.