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South Korea’s FDI Conditions are Deteriorating
Matter of Regret
South Korea’s FDI Conditions are Deteriorating
  • By Jung Suk-yee
  • April 12, 2016, 02:45
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The ratio of greenfield investment in south Korea is on a rapid decline.
The ratio of greenfield investment in south Korea is on a rapid decline.

 

Last year, South Korea attracted US$20.9 billion, a record-high, in foreign direct investment (FDI). However, its overseas investment amounted to US$40.2 billion during the same period.

From 2010 to 2014, South Korea recorded a FDI-to-GDP ratio of 12.7%. The ratio was pretty low given that the global average was 31.3% and the averages of emerging and advanced economies were 32.2% and 29.8%, respectively.

A significant concern is that the ratio of greenfield investment is on a rapid decline. It dropped from 85.6% to 67.5% of the total FDI between 2011 and last year. On the contrary, the ratio of M&A investment more than doubled from 14.4% to 32.5% during the period. This is because investors increased their equity investment in the service sector rather than investing in production facilities. In not a few cases, M&A investment leads to the outflow of investment profits instead of reinvestment.

These days, an increasing number of South Korean enterprises doing business abroad are forming value chains for on-site procurement. This means large South Korean corporations’ overseas market penetration is leading to a less increase in exports than before. In this context, experts point out that South Korean enterprises’ investment should be redirected into South Korea and measures, including those for deregulation, should be taken for the inflow of foreign investment. According to the OECD, South Korea recorded a FDI regulatory restrictiveness index of 0.135 in 2014, when the average of OECD member countries was as low as 0.068.