Due to the Impact of COVID-19, First Quarter Foreign Direct Investment Also Frozen... Turning to Decline After 2 Years (Comprehensive)

MoEF, 2020 Q1 Overseas Direct Investment Trends

[Sejong=Asia Economy Reporter Joo Sang-don] As the novel coronavirus infection (COVID-19) spread worldwide, overseas direct investment (FDI) in the first quarter of this year turned to a decline for the first time in two years. Due to the impact of COVID-19 and the base effect (a phenomenon where statistical figures decrease due to the magnitude of change in the previous year), overseas investment in manufacturing dropped by more than 55%, and the finance and insurance sector, which is particularly sensitive to economic conditions, decreased by about 31%.

According to the '2020 Q1 Overseas Direct Investment Trends' announced by the Ministry of Economy and Finance on the 19th, the amount of overseas direct investment was $12.62 billion, down 15.3% compared to the same period last year. This is the first decline in overseas direct investment since Q1 2018 (-27.9%), marking eight quarters.

The net investment amount, which is the total investment amount minus investment recovery such as equity sales, loan investment recovery, and liquidation, was $10.55 billion, down 21.4% compared to the same period last year.

The direct cause of the decrease in overseas investment was COVID-19. In January this year, overseas investment amounted to $5.45 billion, up 30.4% compared to the same period last year, and in February it was $3.23 billion, down 7.1%. However, as the spread of COVID-19 intensified in March, the decline rate widened to 45.6%.

The sector with the largest decline was manufacturing. This was the result of a combination of reluctance to invest overseas due to COVID-19 and the base effect. In February last year, CJ CheilJedang acquired the second-largest frozen food company in the U.S., Schwan's, for 2.1 trillion won, and in China, domestic companies increased investment in semiconductor and other information and communication technology (ICT) production facilities, resulting in overseas investment of $14.91 billion in Q1 last year, up 51.2% compared to the same period the previous year.

The finance and insurance sector decreased by 31.3% compared to the same period last year due to uncertainty caused by COVID-19 and the global stock market decline. A Ministry of Economy and Finance official explained, "The finance and insurance sector generally has a shorter investment period than other sectors and is more sensitive to economic conditions. The decrease in investment in finance and insurance is due to increased uncertainty from the spread of COVID-19, leading to reluctance to invest."

On the other hand, the real estate sector increased by 23.9% compared to the same period last year due to special factors such as large-scale real estate investments in Europe and North America earlier this year. The electricity and gas supply sector increased by 694.0% due to investment by a domestic gas public enterprise in a liquefied natural gas plant in Canada.

The stock price decline also contributed to the decrease in investment in finance and insurance. Overseas direct investment basically refers to investments where the acquired shares or equity stakes in a foreign corporation account for 10% or more of the total issued shares or total equity capital of that foreign corporation. However, in the case of overseas funds, investments exceeding 10% of the total fund size are also included in overseas direct investment. When fund investments are withdrawn due to stock price declines, overseas investment amounts decrease accordingly.

By country, investment generally decreased in major countries such as the U.S. (-7.1%), the Cayman Islands (-17.2%), Singapore (-20.4%), and Vietnam (-16.0%), except for Canada, which increased by 134.6% compared to the same period last year. Notably, China ($730 million, -56.7%) and Hong Kong ($170 million, -74.9%) showed significant declines.

By sector, investment recovery amounts were highest in finance and insurance ($1.14 billion), followed by real estate ($270 million), and manufacturing ($250 million). By country, the Cayman Islands ($590 million), the U.S. ($400 million), and the U.K. ($180 million) ranked highest.

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