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Despite investment uncertainty stemming from interest rate hikes, rapid fluctuations in the exchange rate, and economic slowdown, foreign direct investment (FDI) in Korea continues to increase. This can be interpreted as the result of a partial redirection of demand for investment in China in line with US measures to contain the country.

According to data released by the Ministry of Trade, Industry and Energy (MOTIE) on Wednesday, the amount of FDI pledged to Korea as of the third quarter was US$21.52 billion, up 18.2% from the same period last year. The number of investment pledges was also up by 12.7% to 2,498.

However, the amount of investment that actually arrived in Korea fell 6.7% on-year to US$11.16 billion, though the number of individual investments did rise to 1,745, up 12.7%. This marks the first time that FDI pledges for the first three quarters of the year have exceeded US$20 billion, with the previous record of US$19.2 billion set in 2018. The average value of FDI for the first three quarters of the year from 2018 to 2022 is estimated to be US$17.76 billion.

Nam Myeong-woo, head of the foreign investment promotion division at the MOTIE, said, “Though some of the investment pledges may change, most of them will lead to actual investment,” adding, “We are using the pledged amount as a preliminary indicator [to show future trends].” The amount of actual investment arriving in Korea is compiled by the Ministry of Economy and Finance through foreign exchange banks.

Regarding the continued increase in FDI despite investment uncertainty due to factors such as economic slowdown, Nam said, “We believe that there is a lot flowing to Korea as the US is not investing in China.”

The MOTIE explained, “Investment in manufacturing (up 152.0%) has increased significantly due to a large influx of investment in high-quality, high-tech industries such as semiconductors, electric vehicles and secondary batteries.”

“Korea’s investment attractiveness has been proven in terms of its manufacturing base, manpower and technology,” the ministry added.

By industry, manufacturing investment (based on amount pledged) increased, while investment in the service sector was down 11.5%. Among manufacturing industries, FDI in textiles and clothing (up 4,949.1%), food products (up 572.7%), metal/processed metal products (up 528.8%), electricals and electronics (up 232.1%), machine equipment/precision medicine (up 136.4%) increased the most.

Among service industries, transport/storage (up 368.7%), leisure/sports/entertainment (up 194.2%), R&D/professional services/science and technology (up 70.6%), and wholesale/retail (up 58.7%) increased significantly.

By country, US investment increased the most, up 115.9%, accounting for about one-third (33.1%) of total investment. Japanese investment was up 42.9%. Investment from the European Union and China fell 55.0% and 14.9%, respectively.

In terms of investment target, greenfield investments, which involve the construction of new factories and other places of business, increased by 24.4%, while mergers and acquisitions increased by 8.3%. Looking at regional trends, investment in the Seoul metropolitan area decreased by 9.7% from the third quarter of last year, while investment in other regions increased by 186.0%.

By Kim Young-bae, senior staff writer

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