Foreign investors show confidence in Korea as FDI arrivals surge

[홀랜]

FDI marks second-highest Q1 total on record

South Korean Industry Minister Ahn Duk-geun speaks at Invest Korea Summit 2024 held in Seoul on Nov. 6, 2024. (Newsis)

Despite political turmoil surrounding the impending decision on President Yoon Suk Yeol's impeachment and broader economic uncertainty, foreign direct investment in South Korea remained resilient, bolstered by government efforts to stabilize investor sentiment.

According to the Ministry of Trade, Industry and Energy on Thursday, FDI pledges to Korea in the January-March period totaled $6.41 billion, down 9.2 percent year-on-year. Despite the decline, the figure still marks the second-highest first-quarter total on record.

The amount of investments actually received reached $3.51 billion in the first quarter, up 26.4 percent, making it the fourth-highest quarterly total ever.

The ministry attributed the quarterly decline in investment commitments to the base effect from last year’s record performance, as well as growing uncertainty both domestically and globally — particularly with the introduction of new tariff policies under the Trump administration. A weaker Korean won, which lowered the dollar-equivalent value of investments, and cautious investor sentiment also played a role.

"We proactively engaged with foreign businesses, holding more than eight conferences from the end of last year through the early months of this year. We issued press releases and maintained close communication to minimize the impact of the political situation on investment sentiment," a ministry official said. The official noted that the increase in actual arrivals demonstrates continued confidence in Korea’s economic fundamentals among foreign investors.

“Typically, the first quarter accounts for only about 15 to 20 percent of total annual FDI, so we will need to monitor how (the second and third quarter) develop.”

According to ministry data, greenfield investment pledges — including new plant construction and expansions — reached $4.66 billion in the first quarter, a 20.7 percent year-on-year increase, while actual arrivals stood at $1.61 billion. This marks the highest first-quarter greenfield investment ever recorded, signaling strong expectations for job creation and regional economic revitalization, the ministry said.

Meanwhile, investments related to mergers and acquisitions saw a 45.4 percent year-on-year decline in pledges to $1.74 billion. However, the amount actually executed rose 31.9 percent to $1.91 billion.

The United States, a key trade and business partner, pledged $830 million in the first quarter, a 15 percent increase on-year. However, actual investments fell 25.3 percent to $220 million.

The European Union showed significant growth, with pledged investment surging 163.6 percent to $1.49 billion and arrivals jumping 123.5 percent to $1.14 billion.

China saw sharp declines, with pledges falling 75 percent to $330 million and arrivals down 24.9 percent to $40 million.

Japan pledged $1.23 billion, up 8.6 percent, while actual arrivals plummeted 73.6 percent to $100 million.

Manufacturing saw FDI pledges drop 24.5 percent to $2.33 billion, with arrivals declining 43.2 percent to $570 million.

The services sector experienced a 7.4 percent decline in pledged investment to $3.56 billion, but actual arrivals rose sharply by 68.7 percent to $2.78 billion.

Given the ongoing global economic uncertainty, the ministry said it is too early to predict full-year FDI trends based on first-quarter data alone.

“We will strengthen incentives for foreign investors, improve Korea’s FDI environment to meet global standards, and carry out strategic outreach initiatives to attract more investment throughout the year,” the ministry added.

herim@heraldcorp.com