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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.
| Foreign Direct Investment | 2020 | 2021 | 2022 |
| FDI Inward Flow (million USD) | 8,765 | 22,060 | 17,996 |
| FDI Stock (million USD) | 260,801 | 280,085 | 272,328 |
| Number of Greenfield Investments* | 83 | 103 | 116 |
| Value of Greenfield Investments (million USD) | 3,710 | 4,965 | 13,405 |
Source: UNCTAD- Latest available data.
Note: * Greenfield Investments are a form of Foreign Direct Investment where a parent company starts a new venture in a foreign country by constructing new operational facilities from the ground up.
| Country Comparison For the Protection of Investors | South Korea | OECD | United States | Germany |
| Index of Transaction Transparency* | 8.0 | 6.5 | 7.0 | 5.0 |
| Index of Manager’s Responsibility** | 6.0 | 5.3 | 9.0 | 5.0 |
| Index of Shareholders’ Power*** | 8.0 | 7.3 | 9.0 | 5.0 |
Source: Doing Business - Latest available data.
Note: *The Greater the Index, the More Transparent the Conditions of Transactions. **The Greater the Index, the More the Manager is Personally Responsible. *** The Greater the Index, the Easier it Will Be For Shareholders to Take Legal Action.
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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.
The South Korean government significantly increased cash incentives for foreign companies to encourage more investment at home. In 2021, FDI flows to South Korea recorded a historical high of USD 29.51 billion.
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Investment Opportunities
- The Key Sectors of the National Economy
- Shipbuilding, semiconductors, automobile and automobile components, electronics (TV, mobile phone, etc), cosmetics, education services, defence industry, tv and music production (strong imports of Korean culture), textile.
- High Potential Sectors
- Aerospace, biotechnology, display, environmental industry, IT industry, logistics, nano-industry, cyber-security, new and renewable energy sources, R&D, real estate development, semiconductors, Smart Production, tourism, chemical, venture industry.
- Privatization Programmes
- Among the latest privatisations in South Korea are the state-owned banks such as the Korea Development Bank and Woori Bank, partially sold in December 2016. However, the government is currently at a standstill in an attempt to fully privatise Woori Financial Holdings because of the low price of its shares due to the increasing market volatility triggered by the COVID-19 pandemic. The privatisation of shipping company HMM is also scheduled for 2022.
- Tenders, Projects and Public Procurement
- Public Procurement Service, Tenders
DgMarket, Tenders Worldwide
Sectors Where Investment Opportunities Are Fewer
- Monopolistic Sectors
- Some sectors are totally closed to FDI:
- Nuclear energy
- Broadcasting (TV and radio)
Other sectors have restrictions on FDI (from 25% to 49%)
- Water and thermal energy
- Newspaper publication
- Telecommunication services
Finally, in numerous sectors, FDI cannot exceed 50%. The government has the right to approve FDI in the domain of defence.
- Sectors in Decline
- Agriculture
Finding Assistance For Further Information
- Investment Aid Agency
- Invest Korea
Korea Trade Investment Promotion Agency (KOTRA) - Other Useful Resources
- Korean Free Economic Zones
- Doing Business Guides
- Doing business in South Korea (Thomson Reuters Practical Law)
Exporting to Korea (Export.gov)
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