Invest KOREA

Investment facilitation measures including deregulation and SME support introduced

The Korean government has started all-out efforts to attract corporate investment.

This year, the government will introduce various measures to attract investment, which includes allowing u-turn companies (i.e. Korean companies that are withdrawing from overseas markets and relocating to Korea) to move into an industrial complex for long-term lease in Free Economic Zones. Such efforts are based on the conclusion that without corporate investment, it will be difficult for the Korean economy to overcome uncertainties in the 2nd half such as the US exit strategy and a possible economic slowdown in China.

◇ Retention ratio of affiliates of top 10 listed corporate groups increases to 1,400 percent

Industrial figures in May released by Statistics Korea show that the government’s contribution to economic recovery has been minimal. For example, total industrial output in May dropped by 0.7 percent from the previous month largely due to the 5.0 percent decrease in public administration and 4.3 percent decline in construction. This is in contrast to the figures in April, in which total production output rose by 1.6 percent from the month before owing to a 9.4 percent increase in construction and 11.4 percent growth in public administration. However, the reason for such temporary rebound in April was because the bottleneck in budget execution was resolved after the completion of government reorganization, and without such one-time factors, May figures slumped.

Above all, the biggest problem is that companies are reluctant to invest.

The retention ratio of 69 affiliates of Korea’s top 10 listed corporate groups in 2012 increased by 517.8 percent compared to the end-2008 figure of 923.9 percent to stand at a record high of 1,441.7 percent. The retention ratio, an indicator of how much a company retains its earnings, is calculated by dividing the sum of earned surplus and capital surplus with paid-in capital.

Last year, the top 10 listed corporate groups’ investment capacity was lower than the pre-2008 global financial crisis level, but increased slightly from 2011. Overall, the top 10 groups’ investment capacity stood at an average of 10.4 percent in 2003 through 2008, 10.5 percent in 2009, 9.0 percent in 2011 and 9.1 percent in 2012. Facilities investment grew by 8.8 percent, which was higher than the average of all Korean corporations (2.4 percent). The ratio of facilities investment to operating profit edged up from 0.89 percent in 2011 to 0.93 percent, but still fell short of 1.11 percent, the average of all Korean corporations.

◇ Investment facilitation measures on standby

Hyun Oh-seok, Deputy Prime Minister and Minister of Strategy and Finance (MOSF), met with the heads of five leading economic organizations in Korea last month to discuss measures to facilitate investment.

Deputy Prime Minister Hyun noted that the Korean economy is in a difficult situation, and asked companies to become more active in investment and employment. Hyun added that because the U.S. government’s plan to scale back qualitative easing is based on a strong belief in economic recovery, Korean companies should be more active in making investments in order to take advantage of the economic recovery in the U.S. An increase in corporate investment creates a virtuous cycle: investment creates jobs, which stimulates spending and results in even more investment. Also, while recognizing the importance of economic democratization, Hyun said that the government will not overly regulate conglomerates.

The Korean government plans to announce the second package of investment facilitation measures this week. They will be aimed at easing regulations that stand in the way of convergence between industries and minimizing discrimination between domestic companies and foreign-invested companies.

The second package will be announced along with plans to strengthen the export competitiveness of SMEs, in consideration of the trade-investment facilitation meeting taking place this month. This year, the Korean government will come up with additional measures to facilitate corporate investment. One such example is the government’s plans to support export financing for overseas construction and plant export projects. Measures to improve Korea’s investment environment, including the conversion of overseas investment to domestic investment, will be announced in November. In addition, a one-stop service system will be established to enhance the competitiveness of SMEs in terms of design, accounting, consulting, etc. Support for M&As with foreign parts and materials companies will also be provided.

Combined with the first investment facilitation package announced in May, the second package is expected to help the economy’s recovery in the second half of the year. Under the first package, investment of 12 trillion won was successfully induced from six investment projects by 10 companies, owing to the resolution of regulation-related grievances. An MOSF official forecast that if such investment facilitation measures start to take effect in the second half of the year, the economy will lay a foundation to escape the cycle of slow growth and take a new leap forward.


Source Text

Source: Yonhap News (July 1, 2013)

** This article was translated from the Korean.