How bad is it
Internationally, no matter which way you look at it, the numbers don't paint a pretty picture either. But the numbers do show us one thing for sure - the world is definitely one global economy.
Korea's nearest neighbors, China and Japan, are export-driven economies, but their buyers are out of money. The United States and the European Union are the final destination for goods produced in East Asia, and as long as they are all still in a recession the export-oriented East Asian economies are at risk. Asian countries cannot take the same steps that Western economies do to decrease that risk, which would be to reduce employment, because that causes too much social instability.
However, they do have one option that Western consumer countries do not. Having export-driven economies has given currency reserves that they can use to flood capital into their own economies to create even more exports. This may be what Japanese Prime Minister Taro Aso was referring to when he met with South Korean President Lee Myung-bak in Seoul in mid-January and said that Japan and South Korea must take the lead in making Asia “a growth center of the world and play a big role in the global economic recovery.” Creating a flood of cheap consumer goods will not specifically make money, but will keep people working. China's US$570 billion stimulus package which was announced in November 2008 might be along those lines. But whether China, or Korea, or Japan will engage enough currency reserves in a short enough time has yet to be seen.
In Europe, the global recession is exposing more and deeper problems that are just beginning to show their own effects. The European Union's core economy is arguably Germany, which is driven by exports to the rest of Europe. In the same way that exports can determine the health of East Asian economies, German exports can also measure the EU's economy. Sadly enough, those German exports have been showing double-digit monthly declines well into January 2009, even though Germany announced its own stimulus package of 50 billion euros in mid- January. European countries that are dependent on the German market for their own growth are completely stalled, which are most of the central and southeastern European countries. Because of this, European states' credit ratings are going to be downgraded. In fact, Standard and Poor already downgraded the credit rating of Greece from A to A-, which will make it more difficult for the country to balance its growing budget deficit. More countries may follow in Greece's footsteps.
The United States, the country that started the whole crisis in the first place, is starting to show signs of recovery. The companies that made this disaster in the first place have already been bankrupted or absorbed by more stable players. And while there are still layoffs and credit rollbacks happening in the US economy, which makes it unpleasant for many Americans, the US economy is still relatively the most healthy in the world. Some analysts say that the solution to the economic crisis is already growing within the US economy.
Where's the investment at
There is one place investors are still giving their money to, however, which is the US Treasury. The US Treasury Bill auction in December 2008 saw investors buying up zero percent and even negative yield securities. This means that investors are just about as desperate as they can possibly be. They are so worried about losing the value of their money that they are willing to settle for a negative yield as long as it is a reliable negative yield. This is a great vote of confidence in the US government - investors all over the world are betting that the last thing standing, no
matter what else happens, will be the US government. It also means that the US government is essentially borrowing limitless amounts of money from individuals and governments all over the world at zero interest, and can then spend that money as fast as possible. It may double the US federal deficit from $455 billion in 2009 to over $1 trillion in 2009, but at least the US has the ability to expend the capital that it needs to in order to get the country out of recession.
This is not good news for the rest of the world, however. If investment monies are pouring into the US government treasury that means they are not available for anyone else to use. And, back in South Korea, it means that the Ministry of Knowledge Economy and other government ministries will have that much more difficulty in gaining foreign investment in 2009.
What was South Korea's first move
The government focused on three segments. The first, called M&A Strategy, is the privatization of public companies and private companies who use public funds. The second, the Greenfield Strategy, involves new large-scale projects like regional development projects and projects which can be linked to the national growth strategy, like new growth engines. The third, called Non-arrival Projects, means projects which have already reported investment but couldn't be finalized due to regulations.
With the second segment, the M&A Strategy segment, the government will especially focus on how to minimize the negative connotations to foreign investment like job layoffs and technology drain in order to increase liquidity. The government will try to promote a strategic project which can be linked to foreign industry cooperation or secure export lines.
In addition, the government plans to audit each ministry's results in attracting investment and improving regulations in every quarter, and it will effect the evaluation of ministers and ministries at the end of the year.
Foreign direct investment can give the Korean economy many benefits such as assuring foreign currency liquidity and creating good jobs. The MKE currently plays the main role in attracting foreign investment in cooperation with local autonomous entities such as Invest Korea and the Foreign Trade Authority. Then, the Ministry of Strategy and Finance and other ministries focus on the foreign investment environment and revision of the law. This current system, however, has problems providing all of the rapid data needed for investment decisions and the relevant authorities have no incentive to solve investor complaints about regulations.
The government announced: “We are going to choose preferential projects among those we already know about, organize TF, and arrange concrete plans for attracting investment in each project in February. On the other hand, we plan to find ways to expand foreign investment at the root, such as easing restrictions, and then thoroughly examine them.”
One hope one vision
It is quite obvious to see why the government is gearing up to attract foreign investors, but with the not-so-optimistic movement of the global foreign investment market, is this something that we should really rely on as part of the country's economic boosting plan Investors are not like predators who hunt in the jungle to survive. They are more like farmers, coming to sow and reap. This farming process is something that takes time and patience to wait until harvest time. Sometimes there is no sign of a successful crop either. So when the economy is challenged, investors' patience is challenged much more than ever before. Then where is the government's courage coming from Many wonder yet pray at the same time that the government's dedication to attract foreign investors will somehow be the key out of this crisis.Chung Tong-soo, Head of Invest KOREA, said that depending on the way the current numbers were interpreted, one could get a good or a bad picture of the country's current foreign direct investment (FID) stance. In some analyses, FDI numbers have been dropping over the last few years. If one were to count net FDI, "...that is inbound FDI minus outflow of that FDI, meaning repatriation," explained Mr. Chung, "on the net figure, we've seen a decline over the last few years since 2004 primarily because there has been greater termination of investments, not because of a drop in new investment that is coming in." But the repatriation of funds from successful investments in the country is a good sign for future investors, as it proves Korea to be a steady investment option that, as many FDI companies now know, gives a solid return.
This means that as long as we have a land of soil where the farmers see the potential to aid irrigation and cultivation, the investment will go on.
Where lies the potential
Korea's strong industries still represent excellent opportunities for parts manufacturers to find clients. Globally competitive parts and components manufacturers regularly find a market in Korea due to the large and well-known companies in electronics, automotives, and shipbuilding. Since these client relationships are so lucrative in Korea, many of these parts manufacturers establish new plants in the country to supply their products more rapidly and efficiently. Particularly in the case of LCD panels, it is almost a necessity to set up manufacturing plants locally because shipping the large, delicate components required for LCD panels quickly becomes infeasible. Shipping 3-meter square panels of glass even from Japan to Korea, well, as Mr. Chung put it: "It's a mess." That's why there are now wellknown glassmakers setting up plants in Korea.
There are also small and medium-sized auto parts or electronics companies from such places as the EU or the US that do a majority of their business supplying the large Korean conglomerates and foreignowned automobile manufacturers as well.
“This year we have seen a significant increase in FDI compared to last year in the services sector, especially in financial services. We believe that is in anticipation of the new act, what we call the Financial Services, or Capital Markets Consolidation Act," Mr. Chung stated. Under this new act, financial services companies will be able to get licenses to offer every type of financial service rather than just one. Mr. Chung expects mergers and consolidation to be the order of the day in the financial sector for the next few years, and companies are already adjusting their Korean operations in order to be able to compete.
Someday the sun may shine
Korea's intellectual property protection and highly educated labor force have always been strong points that attracted the foreign investors. The companies that care a great deal about their sensitive IP have been choosing Korea as a base for Northeast Asia to secure their technology. As a matter of fact, the Korean judicial system is much further ahead of China in providing intellectual property protections to companies both domestic and foreign. Now that the government announced to give its full support to attract and host the foreign investors, FDI companies will enjoy having fewer regulations to tie them down.
Just as the old American saying goes, “Even a broken clock is right twice a day,” Koreans have long been saying that even a tiny rat hole gets sunlight some years. Time is surely challenging and the investment future may seem cloudy currently with all the statistical information echoing around our ears, but our moment will come one day as long as we have a seed in our possession. In the end, those who wait until last will be rewarded with the most blessings.
