FDI in S.Korea Contract 4.4% Down to $5 Billion in 1st Half

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Thursday, July 20th, 2017
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Foreign direct investment (FDI) in South Korea recorded USD 5 billion in the first half of this year that 4.4 percent down from a year earlier.  
According to the Ministry of Trade, Industry and Energy(MOTIE) in South Korea announced on July 4 that New FDI commitments to Korea also contracted 9.1 percent year-on-year to USD 9.6 billion amid growing uncertainties in the global economy such as two interest rate hikes by the U.S. Federal Reserve, negotiations on Britain’s exit from the European Union, and the rising protectionism across the world. Foreign direct investment into other Asian countries fell at fast paces on these factors.

The MOTIE will strengthen efforts to achieve the goal to secure $20 billion or more in FDI this year. In order to attract more investments and improve the contribution of FDI to the country’s development including job creation, the Ministry will pursue largely three policies.

The MOTIE firstly will actively host various investor relation activities during the President’s visits to foreign countries including information sessions, round tables, and individual meetings with CEOs of foreign firms. The Ministry will also regularly hold meetings with foreign chambers of commerce and foreign investors in Korea.

Furthermore, the government support and regulations to help create jobs through foreign investments will be reorganized. Job creation will be the main criteria for granting three major incentives available to foreign investors including taxation, sites, and financial support,

A breakdown of FDI arrivals and commitments in the first six months of 2017 showed that investments from the U.S. Japan, and certain Asian nations expanded, while those from the European Union declined.

New FDI commitments from the U.S. jumped 35 percent to $2.5 billion as they soared 64.7 percent in the second quarter after the U.S. administration announced in April a tax reform plan. The FDI pledges to the manufacturing leaped 36.2 percent to $1.1 billion, exceeding the $1 billion mark in a first half for the first time, and those to the service sector expanded 34.1 percent to $1.4 billion. Investments worth $603 million arrived from the U.S. -- down 7.8 percent from a year ago.

Investments pledged by Chinese and other Asian entities inched up 0.3 percent to $2.9 billion -- $2.6 billion into the service sector and around $260 billion into manufacturing. A total of $15.9 billion arrived from China and other Asian countries, and that’s 15.6 percent larger than the amount received during the same period of 2016.

Japanese entities pledged $819 million, up 18.3 percent from a year earlier, with commitments to the service sector, particularly technologies related to the Fourth Industrial Revolution, more than doubling to around $480 million. Investments from Japan returned to growth in the first quarter of this year after six quarters of contraction. Investment arrivals from Japan also jumped 33.4 percent to $566 million.

Investment committed by entities from the EU declined 47.3 percent to $2.2 billion, and FDI arrivals from the region shrank 34 percent to $1.5 billion amid uncertainties over negotiations for Britain’s exit from the EU.

New FDI pledged into Korea’s manufacturing sector inched down 0.5 percent to $2.8 billion, although investments into the chemical engineering and machinery sectors expanded at double-digit rates and those into medicine and medical supplies grew more than nine folds.

Investment commitments to the service sector fell 8.1 percent to $6.7 billion, while more capital flew into sectors relevant to the Fourth Industrial Revolution such as financial technologies and games as well as logistics.

Greenfield investments into Korea jumped 8.8 percent to $7.9 billion, and those to the service sector, in particular, leaped 30.8 percent to $5.6 billion. Greenfield investments involve foreign companies building their operations in Korea from scratch and potentially large job creation. Investments in forms of mergers and acquisitions declined 48.3 percent to $1.7 billion.

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