Overseas Direct Investment Drops Again in Q2 Amid COVID-19... Only Real Estate Increases

Trends in Foreign Direct Investment in Q2 2020

Q2 Overseas Direct Investment at $12.14 Billion, Down 27.8% YoY
Manufacturing Down 62.7%, Finance & Insurance Down 21.3%, Real Estate Up 7.3%

[Asia Economy Reporter Ju Sang-don] Overseas direct investment (ODI) declined again in the second quarter following the first quarter. In particular, due to the impact of the novel coronavirus disease (COVID-19), manufacturing dropped by more than 60%, and finance and insurance also fell by over 20%.

On the 18th, the Ministry of Economy and Finance announced that overseas direct investment in the second quarter of 2020 (April to June) amounted to $12.14 billion, down 27.8% compared to the same period last year. The decline was significantly larger than the 4.0% decrease in the first quarter. This marks the first time in five quarters since Q4 2017 to Q1 2018 that ODI has decreased for two consecutive quarters. The first quarter's investment decline rate was revised from -15.3% to -4.0% after reflecting delayed reports.

Monthly changes in ODI clearly show the impact of COVID-19 on investment reduction. January and February of this year showed levels similar to last year, but in March, when COVID-19 began to spread widely, investment dropped by 45.6%. The downward trend deepened with April at -38.3% and May at -60.0%. However, in June, the decline rate narrowed to -0.7%.

In particular, the decrease in manufacturing and finance & insurance sectors was significant. Manufacturing ODI, which fell 43.7% in Q1, saw a sharper decline of 62.7% in Q2. Finance and insurance also decreased by 21.3%. Moon Kyung-hwan, head of the Ministry of Economy and Finance’s External Economic Division, explained, "ODI decreased due to the spread of COVID-19. In manufacturing, investment decisions require direct visits to local sites, but movement was restricted due to COVID-19. In finance and insurance, investment declined due to uncertainty caused by COVID-19."

On the other hand, real estate investment increased by 7.3% year-on-year, continuing its upward trend driven by diversification of income sources amid low growth and low interest rates.

By country, investment amounts were as follows: Cayman Islands $2.43 billion (20.0% of total investment), United States $2.18 billion (18.0%), Singapore $1.49 billion (12.3%), and United Arab Emirates (UAE) $660 million (5.4%).

The net investment amount, calculated by subtracting investment recovery amounts such as equity sales, loan investment recoveries, and liquidation recoveries from total investment, was $7.61 billion, down 46.0% compared to the same period last year. By industry, investment recovery amounts were highest in electricity and gas supply ($1.51 billion), finance and insurance ($1.21 billion), and mining ($600 million).

Meanwhile, overseas direct investment refers to cases where individuals residing in Korea or corporations with main offices in Korea invest 10% or more of the total issued shares or capital of foreign corporations to participate in their management, or provide funds to establish, expand, or operate branches, offices, or other business locations abroad, or to conduct overseas business activities. Recent surges in overseas stock investments by individual investors are not included.

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