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Foreign Investment Hits Historic High of $15.69 Billion in 2000

A $1.977 billion capital influx in December brought foreign direct investment (FDI) into Korea to an all-time annual high of $15.69  billion in 2000, an increase of just 0.1 percent on the $15.54 billion recorded a year earlier. The number of FDI cases amounted to 4,136, nearly double the 2,102 reported in 1999. Notably, investments under $5 million amounted to 93.8 percent of the total, up 6 percent from a year ago. Investments worth between $5 million and $10 million accounted for 2.3 percent, those between  $10 million and $100 million 3.1 percent and those over $100 million, 0.8 percent.

By sector, the service industry received the most  FDI, 54.6 percent or $8.5 billion of the total. This represents an increase of 2.5 percent over 1999. Within the service sector, investment in wholesale and retail sales, lodging and hotels escalated, but fell in financial and insurance businesses following a recent wave of restructuring in this sector. Investment in manufacturing accounted for 45.4 percent or $7.1 billion, a contraction of 11.2 percent compared to 1999. Although FDI into the machinery sector surged, it fell significantly in  petrochemicals and food and beverages. Investment in primary industries such as agriculture, fisheries and mining amounted to only $20 million.

By region, FDI was greatest from the European Union (EU), which accounted for 29.4 percent of the total amount or $4.6 billion, followed by the United States with 18.6 percent or $2.91 billion. Japan placed third with 15.6 percent or $2.45 billion. Investment from this quarter surged in 2000, growing by 39.9 percent. By contrast, investments from the EU and the U.S. declined by 26.4 percent and 22 percent, respectively, from 1999. MOCIE attributed the slide in EU investment to the spate of large-scale capital movements from this region last year, e.g., the $1.6 billion Philips/LG joint venture. The ministry said American investment was apparently down since many U.S. corporations were choosing to invest in Korea indirectly via tax havens.

Some 89.7 percent of foreign investment during 2000 was made in the form of acquiring shares in newly created firms or through participation in capital increases of established firms. Only 8.1 percent of foreign capital entered the country through M&A, a 45.3 percent fall-off year-on-year, while 2.2 percent of total FDI was made via long-term loans, a contraction of 45.7 on a yearly basis.

Large-sized investments due to corporate restructuring decreased sharply, while those through strategic partnerships increased. Many investors increased their capitalizations of existing operations.

Major strategic partnerships included those of Hyundai Motor/DaimlerChrysler and Ssangyong Cement/Taiheiyo Cement of Japan, worth $245 million and $332 million, respectively. The most outstanding capital increases were in BASF Korea ($400 million) and Carrefour Korea ($360 million). The prime case of investment through restructuring was the $275 million buy-in of Samsung Motors by Renault.

The ministry set the foreign investment target for 2001 at $15 billion, down almost $1 billion from that  of last year, but predicted that the figure could reach only $13 billion, depending on national economic  conditions. ?ubstantial restructuring, consistent government policies and stable labor-management relations  are needed to continuously attract foreign investment,?the ministry said.

Updated January 3rd 2001