Foreign direct investment (FDI) in South Korea last year contracted for the first time in six years while overseas investment by Korean companies has surged at an overwhelming pace, underscoring Korea`s waning appeal to both foreign and domestic capital due to stagnant growth and stifling regulations.
Asia’s fourth-largest economy received $23.3 billion worth of FDI pledges in 2019, down 13.3 percent from the previous year, the Ministry of Trade, Industry and Energy said Monday.
Actual investment last year turned out 26 percent lower at $12.8 billion. FDI in 2013 reached $14.5 billion and climbed every year to hit $26.9 billion in 2018, only to retreat last year.
FDI shrunk in both manufacturing and services. In 2018, Korea received 521 FDI commitments in the manufacturing sector for a total of $10 billion. Last year, this dropped to 466 pledges for a total of $8.2 billion. FDI in services also fell from $15.6 billion in 2018 to $14.7 billion last year.
Experts said investor sentiment soured after the government eliminated corporate tax cuts for foreign direct investors. But they say this has also triggered questions about Korea’s overall appeal as an investment destination.
“Multiple factors are behind this, including unpredictable policies and a slowing economy,” said Ju Won, researcher at Hyundai Research Institute, adding “This may be a sign of waning momentum rather than a temporary contraction.”
Meanwhile Korean companies are increasingly taking their capital overseas in search of better business conditions. Outbound direct investment gained 22 percent on year to $41.8 billion as of September 2019 and is projected to exceed the previous year`s record high of $49.7 billion.
By Oh Chan-jong and Kim Hyo-jin
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