2019 Foreign Direct Investment $23.3 Billion, Down 13.3% YoY... Second Highest Ever

Ministry of Industry Announces Foreign Direct Investment Trends for Q1 2019

[Asia Economy Reporter Moon Chaeseok] Last year, foreign direct investment (FDI) amounted to $23.3 billion, showing a 13.3% decrease compared to the same period the previous year. Although it slightly declined from the previous year, the government and local governments actively attracted excellent companies in the second half of the year, resulting in the second-highest FDI ever recorded.

On the 6th, the Ministry of Trade, Industry and Energy announced the 2019 FDI trends reflecting this information. Based on reported figures, FDI was $23.3 billion, down 13.3% from the same period last year, marking the second-highest amount ever. Based on actual arrivals, it was $12.8 billion, down 26% from the previous year, ranking fourth all-time. The reported figure refers to the amount foreign investors declared they would invest, while the arrival figure is the actual amount of money that came in.

An official from the Ministry of Trade, Industry and Energy explained, "In the first half of last year, external conditions worsened due to the US-China trade dispute and a decline in global investment demand, and the abolition of corporate tax reductions led foreign investors to take a wait-and-see approach toward investing in Korea. However, in the second half, the government and local governments actively sought to attract excellent companies based on increased cash support, turning FDI into an upward trend."

He added, "Since 2015, foreign companies have invested more than $20 billion annually for five consecutive years, so the FDI attraction trend at the $20 billion level has now entered a stable phase."

The ministry reported that excellent projects contributing to the stabilization of core material supply and localization were realized in industries such as secondary battery core materials (cathode materials), high-performance plastics and polymers, and system semiconductors (power semiconductors) in the materials, parts, and equipment sector.

In the field of technology development and research, a global semiconductor equipment company's research and development (R&D) center was attracted to Korea. Investment in research and development, professional, and scientific technology sectors also more than doubled from $360 million the previous year to $790 million.

In new fields such as K-beauty, food, culture, premium consumer goods, cold chain, sharing economy, and IT platforms like lodging, active mergers and acquisitions (M&A) were conducted targeting promising domestic companies with technological capabilities and innovation.

However, the ratio of reported amount to arrival amount, an indicator showing FDI implementation performance, was 54.9%, lower than last year's 82.4%, which recorded the highest FDI performance ever, and also below the 10-year average of 70.3%. This means that the implementation of planned investment projects was delayed compared to previous years. The ministry official explained, "For example, some amounts were reported in December last year but have not yet arrived, so the ratio between reported and arrival amounts cannot necessarily be expressed as the implementation rate."

The ministry forecasted that global FDI, which had decreased to the lowest level in the past decade in 2018, showed a moderate recovery in the first half of last year and is expected to maintain this trend this year. However, uncertainties due to protectionism from the US-China and US-European Union (EU) trade disputes are still expected to act as limiting factors.

Domestic FDI this year is expected to be at a similar level to last year. Although the Foreign Investment Promotion Act (FIPA) is expected to pass, allowing undistributed retained earnings to be recognized as foreign investment and maintaining a high level of external creditworthiness, uncertainties in global trade such as the US-China trade dispute and ongoing Japanese export restrictions remain burdens.

The ministry plans to strengthen incentives in the advanced materials, parts, and equipment sectors. The cash support limit for strategic items will be raised from 30% to 40% of the investment amount, and 2,990 advanced technology and industry categories under the Industrial Development Act will be added to the cash support targets.

Additionally, the government, local governments, and related agencies will form a joint task force (TF) to hold strategic investor relations (IR) presentations in the US, EU, and other regions, proposing proactive investment incentives to advanced promising companies.

This content was produced with the assistance of AI translation services.