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July FDI Brings Yearly Total Near $8 Billion

Services and financial services, big winners in June/July, portfolio investment remains strong

Korea's ongoing efforts to induce Foreign Direct Investment (FDI) have netted continuous growth in strategic sectors. For the months of June and July 2000, FDI amounted to $1.176 billion and $2.12 billion, respectively. These amounts reflect a 19.0 percent year-on-year increase in FDI for June and a 2.2 percent increase for July. Total FDI for the year amounted to $7.854 billion through the month of July, up 20.0 percent on a yearly comparison.

The number of FDI notifications to the government, representing actual cases of investment, have also remained strong. In June, the government received 434 such cases, and 364 during the following month of July. The total number of cases reported between January and July of 2000 (2,465) already exceed the total reported over the same period last year (2,102). The reporting ministry ( Commerce, Industry and Energy) commented this development coupled with the strong inflow of FDI recorded to date this year, indicates Korea has successfully created a business environment that is conducive to the attraction of foreign investment.

Moreover, the ministry maintained that Korea has also effectively communicated this message to global markets, which has resulted in respectable gains in FDI each year following the crisis of 1997. Investments were most highly concentrated in the following areas: services, financial services (financing, insurance, etc.), and energy, although many other industries benefited from FDI inflow during June/July, 2000. Major investments during this period include $1.3 billion by England Holdings Corporation; $106 million by Labuan ( Indonesia) LTD; $33 million by Hitachi Maxell; and an investment of $20.8 million by Wal-Mart that followed the $18.3 million invested in May.

Some 341 cases of FDI notifications were recorded in August 2000, with an additional 305 in September. The total number of cases reported to the end of September stood at 3,116, an increase of over 48 percent from the 2,102 reported January/September 1999. By region, Germany was the largest source of FDI, comprising $548 million of the total in 15 cases. Trailing Germany was the United States with $222 million in 61 cases; Japan with $94 million in 42 cases; and the Netherlands with $70 million in three cases. Following them were the "tax haven" jurisdictions (see "Investment Window" of Malaysia with $54 million in 13 cases; Hong Kong with $20 million in seven cases; and the British Virgin Islands (BVI) with $13 million in two cases.  

Over the year, the greatest amount of investment has come from the U.S., $1.9 billion in 604 cases. Following is Japan, with $1.45 billion in 446 cases; Bermuda with $1.38 billion in 22 cases; Germany, $1.32 billion in 76 cases; the Cayman Islands, $840 million in 18 cases; BVI, $642 million in 46 cases; and France, with $546 million in 31 cases.  

Notably, FDI has increased from the Asian countries neighboring Korea, particularly China and Japan. FDI from China has increased dramatically this year. To Sept. 30th it totaled $62 million in 917 cases, a four-fold increase over last year's $16 million. FDI from Japan has doubled  to $1.454 billion this year from last year's $773 million.

The Foreign Investment Promotion Act (FIPA) was amended in October to allow foreign investors to acquire equity in Korean firms in exchange for intellectual property, local real estate and/or stocks beginning next year. The intellectual property rights so approved can include Internet contents, e-commerce skills, and business models (BM), according to the Ministry of Commerce, Industry and Energy (MOCIE). This revision paves the way for foreigners to invest directly in domestic startups through stock swaps. Such agreements will henceforth be recognized as direct foreign investment and will entitle the concerned companies to eligibility for FDI-related benefits, such as tax breaks and remittance guarantees.