- FDI pledged to Korea reach record-breaking $26.9 billion in 2018 2019-01-03
The Ministry of Trade, Industry and Energy announced on January 3 that foreign direct investments (FDI) pledged to Korea in 2018 reached a record-breaking USD 26.9 billion, up 17.2 percent from a year earlier.
The increasing trend of FDI commitments continued last year, achieving more than $20 billion for four years in a row.
FDI pledged through the second quarter reached a record $15.8 billion, thanks to foreign investment growth momentum that started in the fourth quarter of 2017. This led the annual FDI pledged in 2018 to reach an all-time high, even though the last two quarters saw year-on-year decreases.
This unprecedented record indicates Korea’s robust economic fundamentals and various investment-attracting efforts. Eased geopolitical risks in the Korean peninsula, exports of more than $600 billion, an extensive network of free trade agreements, high sovereign credit ratings, and highly skilled R&D workforce all contributed to making Korea an attractive investment destination.
FDI arrivals in 2018 also improved 20.9 percent to $16.4 billion, posting the second highest on record. Despite declines in the second half, a steady growth to $10.2 billion in the first half led to this achievement. This reflects that investment inflows from overseas continued to be solid in spite of many internal and external risk factors, including rising global protectionism and slowing employment growth.
The country’s leading industries such as semiconductors, machinery, and petrochemicals saw their investment growing. More investment was committed to new industries related to the fourth industrial revolution (4IR), including biotechnology, autonomous vehicle sensors, e-commerce, and sharing economy. At the same time, investments were extended to other sectors such as green and renewable energies and maritime leisure activities.
By country, new FDI commitments from the EU, the U.S. and China increased from a year earlier while those from Japan decreased.
FDI pledged from the EU to Korea increased 26.9 percent year-on-year to $8.9 billion, while those actually arrived dropped 24.6 percent to $4.9 billion. The European investment pledged in the Korean manufacturing industry fell 3.5 percent to $3.7 billion while that in the service sector rose 36.5 percent to $4.1 billion. Investor relations efforts made in France in October contributed to this growth.
The U.S.’ pledged FDI in Korea improved 24.8 percent to $5.9 billion, and those actually arrived surged 210.5 percent to $3.8 billion. The pledged investment from the U.S. in the manufacturing sector increased 34.2 percent to $1.8 billion and that in the service sector climbed up 19.4 percent to $4.0 billion. The number of joint venture projects increased because American investors sought to join the global value chain and enter into other countries through investing in technologically advanced Korean companies.
China’s pledged investments in Korea jumped 238.9 percent to $2.7 billion, and those arrived also soared 287.3 percent to $780 million. The pledged investment from China in the manufacturing industry spiked 283.1 percent to $870 million and that in the service industry grew 227.5 percent to $1.8 billion. This is attributable to an investor relations meeting that took place in June in China.
FDI pledged from Japan to Korea dropped 29.4 percent to $1.3 billion, and those arrived fell 19.3 percent to $1.0 billion. Japan’s investment pledged in the Korean manufacturing and service industries recorded $660 million (down 31.5 percent) and $630 million (down 27.2 percent), respectively. Investments from Japan decreased for several reasons: the overseas transfer of Korean supply companies, a 3 to 5 year cycle of facility investment in traditional industries such as chemical and electrical industries, increasing investment in China and the Association of Southeast Asian Nations (ASEAN), and growing facility investment within Japan.
By industry, the amount of FDI pledges in the manufacturing sector expanded 38.9 percent to $10.1 billion and that of FDI arrivals grew 25.7 percent to $6.9 billion. Even though investments in chemical and electrical industries fell slightly, those in transport machinery and machine equipment saw significant improvements.
For the service sector, FDI pledged to Korea inched up 1.4 percent to $15.6 billion and those arrived increased 19.7 percent to $9.5 billion. While investments in information and communication technology and business maintenance services improved sharply, those in the real estate industry and the retail and wholesale sector declined.
By type, greenfield investments pledged to Korea went up 27.4 percent to a record $20.0 billion, increasing for five straight years. Those arrived also climbed up 65.9 percent to $11.5 billion.
Greenfield investments pledged in the service sector inched down 1.0 percent to $12.0 billion, whereas those in the manufacturing industry more than doubled to $7.5 billion. While greenfield projects were mostly concentrated on major industries such as automobiles and electronics, they also expanded to renewable energy facilities as well as other new industries.
For merger and acquisition (M&A) investments, those pledged to Korea contracted 4.9 percent to $6.9 billion and those arrived also slid 26.2 percent to $4.9 billion.
While M&A investments committed in the service sector improved 10.4 percent to $3.6 billion, those in the manufacturing industry dropped 31.7 percent to $2.6 billion. Korean companies are expected to improve their competitiveness by securing financial health through foreign investments.
Global foreign direct investment in 2019 is forecast to be affected by both positive and negative factors. The former includes accelerated investment in the 4IR-related global value chain and a positive economic outlook in emerging markets. The latter involves concerns over global economic downturn, sustained volatility in key macroeconomic indicators, and other uncertainties such as the US-China trade dispute and Brexit.
The Ministry will make efforts to attract more than $20 billion of FDI commitments for the fifth year in a row this year. It will seek potential investors for the 4IR and actively attract foreign investments for the key industries such as electric vehicles and semiconductors. In addition, it will push for implementing more business-friendly measures and proactively resolve difficult issues.