Foreign Direct Investment in Korea to Decline for 2 Consecutive Years... "Need to Benchmark Canada"

[Asia Economy Reporter Kim Hyewon] Foreign direct investment (FDI) in South Korea is expected to decline for the second consecutive year following last year. While the abolition of corporate tax reductions for foreign-invested companies and other deteriorating investment conditions negatively impacted last year, this year companies are postponing investments due to uncertainties caused by the COVID-19 pandemic.

On the 20th, the Federation of Korean Industries (FKI) analyzed global FDI data from international organizations such as the Organisation for Economic Co-operation and Development (OECD) and the United Nations Conference on Trade and Development (UNCTAD), concluding that due to the global economic crisis caused by COVID-19, a significant decrease in both global FDI and FDI into South Korea is inevitable this year.

Due to the contraction of global FDI caused by COVID-19, investment demand from the United States (29.3%), the European Union (EU, 30.6%), China (4.2%), which account for approximately 64.1% of domestic FDI, is expected to decline. In the first quarter of this year, FDI into South Korea recorded $3.27 billion based on declarations, a 3.2% increase compared to the same period last year, but on an arrival basis, it was $2.41 billion, a 17.8% decrease compared to the previous year. The FKI expects the decline to deepen from the second quarter onward.

UNCTAD forecasted at the end of March that global FDI will decrease by 30-40% over this year and next year, and the OECD also predicted that global FDI will shrink by at least 30% this year and will only recover to last year's level next year.

Kim Bongman, head of the FKI's International Cooperation Office, said, "As a decrease in foreign investment demand from the US, EU, China, and others is inevitable this year due to COVID-19, the government should focus its policy capabilities on revitalizing FDI in related fields by benchmarking Canada's case, where advanced industries such as artificial intelligence (AI) have seen active FDI over the past five years."

Canada possesses world-class technological capabilities in advanced industries such as aerospace, energy, life sciences, and AI, and over the past two years, FDI increased by 63.6% and 15.8%, respectively. To attract foreign-invested companies, Canada lowered the federal corporate tax rate from 19% to 15%, and applies a 9% corporate tax rate for small and medium-sized enterprises. It also provides tax incentives equivalent to 20% of research and development (R&D) expenses.

Kim added, "In President Moon Jae-in's special speech on the third anniversary of his inauguration, he highlighted the post-COVID era pioneering industries such as non-face-to-face medical services, AI, big data in the digital economy, and the three new growth industries of system semiconductors, biohealth, and future cars, as well as FDI attraction related to self-reliance in materials, parts, and equipment. Authorities should focus on policy development and investor relations (IR) activities to attract investment in these areas."

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