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Korea saw the record high of inbound foreign direct investment (FDI) last year.
However, some said there are still rooms for improvement in Korea’s FDI policy taking into account the fact that Korea’s FDI ratio to GDP is less than 1 percent.
The country’s inbound FDI on a notified basis in 2012 was USD 16.26 billion, which is an 18.9 percent increase from 2011’s USD 13.7 billion, according to the report titled Current Trend of FDI and Its Significance released by the Woori Finance Research Institute last Thursday.
The arrived inbound FDI posted the record high of USD 10.38 billion last year, up 57.8 percent from a year earlier.
The increased inward FDI seemed to be attributed to the improving domestic investment environment, the report said.
However, Korea’s FDI ratio to GDP still paled next to that of major economies.
As of 2011, Korea’s FDI ratio to GDP came to 0.6 percent while the U.S. recorded 1.5 percent, China 1.7 percent, India 1.8 percent, the U.K. 2.2 percent, Brazil 2.7 percent and Russia 2.9 percent.
The FDI inflows also paled in comparison with the equity investment by foreign investment.
The FDI inflows based on the international balance of payments stood at USD 5 billion last year, which is only 14 percent of the total equity inflows worth USD 35.7 billion by foreign investors. In 2011, the figure amounted to 38 percent with the USD 17.2 billion-equity investment and USD 4.8 billion FDI inflows.
This means that the increasing global liquidity led to the rising inflows of FDI but the FDI inflows were far below the volatile equity investment.
One surefire way Korea could expand FDI is to attract long-term investment, according to the report.
To entice long-term investment, Korea is well-advised to elevate not only business but residential environments to the global standards, including labor-management relations, protection of intellectual property rights and provision of education, medical and languages services for foreign investors.
With the declining investment from Japan and EU due to the weak yen and protracted European fiscal crisis, Korea should diversify investment sources from traditional ones to more unconventional ones in emerging countries, the report suggested.
It also added that strengthening FDI attraction, particularly from the tourism and leisure, IT and service industries that tend to create many jobs, and establishing industrial complexes exclusively designated for foreign investors can also be a contributor to luring foreign investors.
Source: Yonhap News (Feb. 14, 2013)
** This is the translation of a Korean article.