FKCCI "Overseas Direct Investment Down 16%...Urgent Need for Attraction Policies"

Overseas Direct Investment Inflow Ranking: Korea Drops 2 Steps
"Must Benchmark US, France, Japan"

[Asia Economy Reporter Han Yeju] As competition for attracting investment intensifies among major countries worldwide such as the United States, France, and Japan, there is an urgent call for measures to attract foreign direct investment (FDI).

The Federation of Korean Industries (FKI) announced on the 7th that a comparison of the net inflow rankings of overseas direct investment among G20 countries from 2017 to 2021 showed that South Korea's ranking dropped two places from 15th in 2017 to 17th in 2021. According to the OECD, among G20 countries, only three countries?Argentina, T?rkiye (Turkey), and Italy?that were experiencing economic crises attracted less FDI than South Korea in 2021. South Korea was also overtaken by countries with relatively lower rankings such as South Africa, France, and Japan.

Additionally, according to the overseas direct investment attraction report released by the Ministry of Trade, Industry and Energy in July, the amount of foreign direct investment attracted in the first half of 2022 (based on reported figures) was $11.09 billion, a 15.6% decrease compared to the first half of 2021. In contrast, overseas direct investment outflows from South Korea in the first quarter of 2022 recorded $25.4 billion, more than double (123.9%) the amount during the same period last year. The investment imbalance, where outflows exceed inflows, reached a record high of $80.75 billion in 2021. This figure represents a fivefold increase over seven years since 2014, indicating that South Korea's attractiveness as an investment destination has declined compared to competing countries.

Accordingly, the FKI emphasized the urgent need to establish measures to attract foreign direct investment.

First, France is a representative country that has actively pursued overseas investment attraction at the whole-government level and achieved results. The United States has been holding an international conference called Select USA annually since 2006, and France has been holding Choose France since 2018. Both countries saw their overseas investment inflows more than double in the first year of the campaign compared to the previous year (US 109%, France 116%), and their average annual growth rates have since exceeded global FDI growth. Notably, the US FDI growth rate averaged 11.7% annually from the campaign's first year in 2006 through 2020, significantly surpassing the global FDI growth rate of 4.4%.

France's 'Choose France' is one of the flagship policies actively promoted by President Macron, who was re-elected this year. The campaign, held at the ?lys?e Palace, the presidential residence, invites CEOs of major global companies, and the president and ministers personally present reasons to invest in France. This year, under President Macron's presence, €6.7 billion in investments and 4,000 new jobs were secured. As of 2021, a cumulative total of 1,607 investments and 45,008 jobs have been generated and maintained through this campaign. Global companies such as Facebook made investment decisions during this period.

The United States' 'Select USA Summit,' initiated during the Obama administration, has continued for over 10 years regardless of changes in administration, with top-level officials attending annually. This year's event, the first in-person meeting since the pandemic, was held on the largest scale ever, with government officials and stakeholders from 51 states and businesspeople participating in over 100 investment sessions. More than 2,000 overseas participants from 70 countries attended, resulting in $59 billion in investments and over 50,000 jobs secured.

The common success factors of these two campaigns can be summarized into three main points: ▲the president's active frontline involvement as a representative figure ▲comprehensive information provision including regional investment incentives ▲and the creation of a networking platform where key figures from government, businesses, and local governments gather.

Japan and Germany are lowering investment barriers by allocating large-scale funds to advanced strategic industries that are core to their economies. Notably, ▲funds are concentrated in semiconductor and secondary battery industries, which are fiercely competitive with Korean companies, and ▲support has expanded from traditional research and development to production facilities to respond to supply chain disruptions.

The Japanese government established the 'Council for Promotion of Direct Investment in Japan' directly under the Prime Minister in 2014 and created a fund of 600 billion yen (approximately 6 trillion KRW) in November 2021 under the name of 'support for semiconductor manufacturing companies.' Of this, about 46 billion yen (approximately 4.5 trillion KRW) was invested in the TSMC Kumamoto semiconductor plant (June 2022), and about 92.9 billion yen (approximately 8.9 trillion KRW) was invested in the Kioxia Mie Prefecture semiconductor plant construction project (July 2022), supporting 50% and 30% of the total project costs respectively.

The German government has established funds to support investment in the secondary battery industry with the goal of fostering core industries and developing underdeveloped regions. The German Federal Ministry for Economic Affairs and Energy has invested €1 billion (2019, approximately 1.4 trillion KRW) to foster the battery industry and €300 million (2021, approximately 400 billion KRW) to attract advanced industries to underdeveloped regions, supporting large-scale production facility projects.

Ireland, which successfully turned international political developments into opportunities for investment attraction, is also noteworthy. Ireland quickly moved to attract international capital leaving the UK due to Brexit, becoming the country that attracted the most European headquarters of global financial institutions. IDA Ireland, Ireland's overseas investment promotion agency, prepared reports such as 'Brexit advice for FDI' earlier than other European countries, sharing administrative and logistics action plans and support measures for companies relocating from the UK. As a result, Ireland attracted over 70 investments and more than 5,000 jobs related to Brexit, with 135 global financial institutions including Bank of America, JP Morgan, and Citibank relocating their European headquarters from the UK to Ireland. This is attributed to the Irish government's swift response to political changes and the creation of a business-friendly environment including tax systems.

Considering recent developments in Asia, it is necessary to refer to Ireland's example during Brexit. In fact, the global corporate exodus from Hong Kong, which began with the 2019 Hong Kong democracy movement, has extended to Shanghai due to the Chinese government's authoritarian COVID-19 response. According to Bloomberg, foreign investors sold approximately 8.5 trillion KRW worth of mainland China stocks in March alone and about 17 trillion KRW worth of Chinese government bonds in March and April. A survey conducted by the Asian Securities Industry and Financial Markets Association at the end of 2021 found that 48% of international financial institutions were "considering withdrawing staff from Hong Kong."

Kim Bongman, head of the FKI International Headquarters, said, "The recent investment imbalance in South Korea has deepened due to the simultaneous deterioration of the business environment and a boom in overseas investment by Korean companies," adding, "Considering recent Asian geopolitical developments, neighboring countries such as Japan, Singapore, and Malaysia may actively pursue investment attraction to host the Asian headquarters of global companies leaving China, so our government also needs to take a more proactive approach to attracting foreign direct investment."

He continued, "With the new administration in place, significant regulatory reforms and support to improve the business environment and concretely present these improvements to global companies will be necessary to achieve visible results."

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