Despite 'Record-Breaking' Q3 Performance... Challenges Remain for '6 Consecutive Years of $20 Billion FDI'

Cumulative $12.89 Billion in Q3... Over $7.11 Billion Needed in Q4
Lowest Q3 Cumulative Performance in 6 Years... Below $13.27 Billion in 2015

[Image source=AP Yonhap News]

[Asia Economy Reporter Moon Chaeseok] Although South Korea attracted the highest-ever quarterly foreign direct investment (FDI) in the third quarter, concerns are emerging that it will be difficult to surpass the '6 consecutive years of $20 billion' mark. To achieve this, $7.11 billion in performance is required in the fourth quarter, but global concerns over the spread of the novel coronavirus disease (COVID-19) remain.

On the 13th, the Ministry of Trade, Industry and Energy announced the '2020 Q3 FDI Trends' containing this information. FDI in the third quarter was $5.23 billion based on reported figures, a 43.6% increase compared to the third quarter of last year. This is the highest quarterly performance ever recorded. Based on actual arrivals, it was $3.12 billion, an 83.1% increase. This ranks as the third highest performance ever.

Source: Ministry of Trade, Industry and Energy

However, the cumulative performance from Q1 to Q3 was $12.89 billion based on reported figures, a 4.4% decrease compared to the same period last year. This is the lowest since 2013, when it was $10.74 billion. The impact of remaining at $7.66 billion in the first half, which was lower than the 10-year average of $8.98 billion, was significant. During the years 2015 to 2019, when annual FDI performance exceeded $20 billion, the first half FDI never fell below $8 billion.

The government stated that due to the impact of COVID-19, global FDI is declining. According to the United Nations Conference on Trade and Development (UNCTAD) global FDI outlook, this year is expected to be $1 trillion, a 40% decrease from last year's $1.54 trillion, and next year is expected to remain below $900 billion, a further 5-10% decrease. A Ministry of Trade, Industry and Energy official explained, "The significant increase in Q3 performance has mitigated the decline in cumulative reported figures and secured momentum for a rebound in the second half."

Source: Ministry of Trade, Industry and Energy

However, it is noteworthy that high value-added industries such as advanced materials and components showed increased performance in Q3. Manufacturing recorded $3.78 billion (a 9.2% increase compared to the same period last year) based on reported figures, with electrical and electronics surging from $220 million to $700 million. Pharmaceuticals also increased from $140 million to $430 million. The service sector was $8.91 billion, a 9.5% decrease compared to the same period last year. This was due to the impact of COVID-19 shrinking wholesale and retail (distribution) performance from $2.2 billion to $590 million.

Investment in 'greenfield' projects, which involves directly establishing production facilities or corporations, was $9.29 billion based on reported figures, a 4.7% decrease compared to the same period last year. Greenfield investment from the United States decreased by 22.6% to $2.99 billion. Mergers and acquisitions (M&A) type investment decreased by 3.6% to $3.6 billion.

An official from the Ministry of Trade, Industry and Energy said, "FDI in the second half is expected to continue recovering due to M&A related to business restructuring and strengthened online investment attraction activities, but the possibility of contraction remains due to prolonged and recurring COVID-19 concerns." He added, "We will check action plans for major projects such as chemical materials, secondary batteries, and bio, identified by the 'Advanced Industry Project Investment Attraction Task Force (TF),' and realize early investment attraction through consultations among the Ministry of Trade, Industry and Energy, KOTRA, local governments, and companies."

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