The Ministry of Trade, Industry and Energy announced on January 6 that foreign direct investments (FDI) pledged to Korea in 2019 hit USD 23.3 billion, marking the second highest in history and reaching $20 billion for the fifth consecutive year.
FDI commitments dipped 13.3 percent last year, compared with the record high $26.9 billion in 2018. However, the figure in 2019 slightly exceeded the recent five-year average of $23.1 billion, and the Ministry said that it is an indication that Korea has entered a stable phase toward annual FDI pledges of $20 billion.
In the first half of the year, foreign investors took a wait-and-see stance on Korean investment as the tax breaks ended amid worsening external conditions such as the U.S.-China trade dispute and the fall in global investment demand. However, FDI to Korea rebounded in the second half as the government actively engaged in attracting firms by means of cash grant incentives, and hit $9.8 billion in the fourth quarter, the all-time high record for the fourth quarter.
In the materials, parts and equipment sector, noticeable projects were accomplished to help stabilize domestic supply of major materials in the secondary batteries, high-performance plastics and polymers, and system semiconductors industry.
In the research and development sector, a global semiconductor equipment manufacturer’s R&D center was brought in, and investments in research, development, and scientific technology more than doubled compared to those of the previous year.
M&A activities targeting prominent Korean firms with technological prowess and innovation in new areas of high-end consumer goods (K-beauty, food, and culture) and IT platforms (cold chains, the sharing economy, and accommodation) also played a role.
The global FDI recorded its lowest figure in the recent 10 years in 2018, but in 2019 showed a modest recovery, which is expected to continue on. FDI to Korea in 2020 is forecast to be affected by both positive and negative factors. The former includes recognition of unappropriated retained earnings as foreign direct investment and a high level of external credibility. The latter involves remaining global uncertainties such as the US-China trade dispute and continued Japanese export restrictions.
The government will strengthen cash incentives to attract high-technology materials, parts, and equipment industries, actively seek potential investors, and expand reinvestment.
By country, new FDI commitments from the U.S and Japan increased from a year earlier while those from the EU and China decreased.
FDI pledged from the U.S. to Korea increased 16.4 percent year-on-year to $6.8 billion, while those actually arrived dropped 64.6 percent to $1.4 billion. FDI pledged from Japan to Korea increased 9.9 percent to $1.4 billion, but those arrived fell 0.6 percent to $1.0 billion.
The European investment pledged to Korea fell 20.1 percent to $7.1 billion while that arrived rose 27.7 percent to $7.0 billion. China’s pledged investments in Korea decreased 64.2 percent to $1.0 billion, and those arrived also fell arrived fell 76.2 percent to $200 million.
By industry, the amount of FDI pledges in the manufacturing sector dropped 18.2 percent to $8.2 billion and that of FDI arrivals fell 33.1 percent to $4.7 billion. Investments in chemical, food, and pharmaceutical industries saw improvements, but those in transport machinery and metal products decreased.
For the service sector, FDI pledged to Korea declined 5.3 percent to $14.8 billion and those arrived dropped 27.9 percent to $7.3 billion. While investments in information and communication technology and business maintenance services decreased, those in the retail and wholesale sector as well as the research and development sector improved.
By type, greenfield investments pledged to Korea went down 20.5 percent to $16.0 billion, and those arrived also went down 49.3 percent to $6.1 billion. For merger and acquisition (M&A) investments, those pledged to Korea inched up 7.6 percent to $7.4 billion and those arrived also rose 27.8 percent to $6.7 billion.