The state-run Korea Development Institute on Tuesday called for a reduction in the number of free economic zones in Korea to focus on improving areas of core competitiveness.

“In order to attract more foreign companies, the government should shut down some of the economic zones, those that have been underperforming,” said Song Young-kwan, a senior KDI researcher. “Instead, we should focus on those that are doing well, allowing them more deregulation and the means for more efficiently managing foreign investment,” said Song Young-kwan, the KDI’s researcher.

Free economic zones are areas that were designated in mostly port cities to attract foreign investment by offering incentives including lower taxes and high-quality living conditions. Korea currently operates eight FEZs.

The government set aside 139 trillion won from the public and private sectors to invest in FEZs for 20 years starting in 2003. Last year alone, around 280 billion won was spent on infrastructure and management of the economic zones by the central and regional governments.

Despite the bulk of the investments, performance has been unimpressive, according to the institute.

More than 90 percent of companies in the areas are Korean, which contradicts the original purpose of the zones. Further, about 45 percent of land in the zones has not yet been developed for industrial uses.

The business performance ― in terms of labor productivity and profitability ― of foreign-invested companies in the economic zones is also no better than local companies located outside the zones, according to KDI figures.

The KDI cited a lack of professional manpower to support the foreign firms as one of the main reasons behind the lackluster performance.

Most of the support staff are government employees dispatched to the Free Economic Zone Planning Office and regional FEZ authorities on a temporary basis, leading to a lack of consistency and professionalism, the think tank said.

Singapore’s Economic Development Board and Hong Kong’s Invest HK, which run similar systems, both hire business professionals or industry experts for such jobs.

The market access and infrastructure of economic zones, except for Incheon, are also below the standard of equivalent zones in nearby countries including China, Hong Kong and Singapore, KDI said.

By Shin Ji-hye (shinjh@heraldcorp.com)