Foreign Direct Investment

Global foreign direct investment (FDI) flows in 2021 were USD 1.58 trillion, up 64 per cent from the exceptionally low level in 2020. The recovery showed significant rebound momentum, with booming merger and acquisition (M&A) markets and rapid growth in international project finance because of loose financing conditions and major infrastructure stimulus packages. However, the global environment for international business and cross-border investment changed dramatically in 2022. The war in Ukraine – on top of the lingering effects of the pandemic – is causing a triple food, fuel and finance crisis in many countries around the world. Investor uncertainty could put significant downward pressure on global FDI in 2022. The 2021 growth momentum is unlikely to be sustained. Indeed, world flows in the second quarter of 2022, the latest data available, were down 31% from the first quarter and 7% less than the quarterly average of 2021 (UNCTAD Global Investment Trends Monitor, October 2022). The negative trend reflects a shift in investor sentiment due to the food, fuel and finance crises around the world, the Ukraine war, rising inflation and interest rates, and fears of a coming recession. Expectations for the full year are for a marked slowdown. In developing Asia, despite successive waves of COVID-19, FDI rose to an all-time high for the third consecutive year, reaching $619 billion. Asia is the largest recipient region, accounting for 40 per cent of global FDI. However, inflows remain highly concentrated; six economies account for more than 80 per cent of FDI to the region (UNCTAD, October 2022).

According to UNCTAD's 2022 World Investment Report, FDI to the Republic of Korea declined by 9% to USD 8.76 billion in 2020 from USD 9.63 billion in 2019, before reaching 16.82 billion USD in 2021. FDI stocks increased to USD 264.92 billion in 2020 and 263.25 billion in 2021, 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 in 2021, 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.

In the first half of 2022 FDI inflows were already reaching 9.041 billion USD (OECD FDI In Figures, October 2022)

The country is ranked 16th on the AT Kearney Foreign Direct Investment Confidence Index 2022 on the most attractive economy for foreign investment. 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.

The latest United NationAsia-Pacific Trade and Investment Trends Report provides additional information on FDI in South Korea in Asia-Pacific in 2022 and 2023.