Inversió estrangera directa (IED) a Corea del Sud

FDI in Figures

Global foreign direct investment (FDI) flows in the first half of 2021 reached an estimated USD 852 billion, showing stronger than expected rebound momentum, with an increase of 78% of the partial-year growth rate on the previous year according to UNCTAD’s Investment Trends Monitor released on October 2021. The global FDI outlook for the full year 2021 has also improved from earlier projections. The current momentum and the growth of international project finance are likely to bring FDI flows back beyond pre-pandemic levels. Nevertheless, the duration of the health crisis and the pace of vaccinations, especially in developing countries, as well as the speed of implementation of infrastructure investment stimulus, remain important factors of uncertainty. Other important risk factors, including labour and supply chain bottlenecks, energy prices and inflationary pressures, will also affect final year results. (UNCTAD, October 2021). Covid’s impact on developing markets and shifting investment from China are major trends that will impact foreign investment in 2022.

According to UNCTAD's 2021 World Investment Report, FDI to the Republic of Korea declined by 4% to USD 9.2 billion in 2020 from USD 9.6 billion in 2019. FDI stocks increased to USD 265 billion, up from USD 135 billion in 2010. Although the country was among the first to contain the pandemic and economic growth remained strong, a sharp decline in cross-border M&As caused the drop in FDI.In 2020, M&A fell from USD 3.8 billion in 2019 to - USD 1.9 billion, driven by large disinvestments. Despite the overall decline, FDI inflows continued to be robust in some sectors, particularly in sectors related to artificial intelligence (AI), big data, cloud computing, as well as electric cars and biotechnology. Inflows of FDI pledged to these industries grew by 9.3% to USD 8.4 billion. According to data from OECD, Japan, the US, the Netherlands and the UK hold most of FDI stock. Investments have been mainly oriented towards manufacturing, finance and insurance, trade, hospitality, real estate, information and communication, and transportation.

South Korea's appeal in terms of foreign direct investment is the result of the country's rapid economic development and the country’s specialisation in new information and communication technologies. However, the lack of general transparency in regulations remains a major concern for foreign investors. The World Bank esteems that the Republic of Korea is a country with a highly developed business environment as testified by its 5th position in ranking of the last 2020 Doing Business report.

The latest United Nation Asia-Pacific Trade and Investment Trends Report provides additional information on FDI in South Korea in Asia-Pacific in 2021 and 2022.

What to consider if you invest in South Korea

Strong Points

South Korea's strong points include:

• Highly skilled workforce thanks to an efficient education system
• Advanced R&D capabilities
• Dominant position in high-end electronics
• High quality infrastructure
• Solid banking sector
• Strong international financial position (currency reserves and low external debt)  
• Growth of investment in Asia
• Brand savvy consumers willing to spend on quality products
• High level of disposable household income
• Strong shipping and air cargo infrastructure

Weak Points

South Korea's weak points include:

• Regulatory frameworks can be restrictive and opaque
• Dominance of big industrial groups (chaebols)
• Cost of manpower is comparatively high
• Ageing population
• Frequent contract negotiations throughout a business relationship are common
• Property (leased or owned) is expensive
• Unique industry standards
• Dependence to raw materials imports  
• Household indebtedness and high unemployment rate among young people
• Regional tensions with North Korea and competition from China (steel, shipbuilding, electronics)

Government Measures to Motivate or Restrict FDI

The Foreign Investment Promotion Act was enacted to support and facilitate efforts to attract foreign investment. Most of FDI incentives offered by the Korean government are provided via:

• Tax support (corporate tax and income tax reduction, acquisition tax and property tax reduction, exception from custom duties)
• Cash grant (land purchase expense, lease expense, employment/education/training subsidy)
• Industrial Site Support (location support, subsidy for difference of sale price, rent reduced-subsidized)

Nevertheless, some restrictions and interdictions exist in public administration, education, national defence, energy, media sectors.
For more information, visit the Invest Korea website.
In January 2019, the South Korean government significantly increased cash incentives for foreign companies to encourage more investment at home, which reached 50 billion won compared to 6 billion last year.

Bilateral investment conventions signed by South Korea

Korea is a signatory to many conventions - a full list can be found at UNCTAD.

Find out more about Investment Service Providers in South Korea on GlobalTrade.net, the Directory for International Trade Service Providers.