By Jane Han
Staff Reporter
Foreign direct investment (FDI) in South Korea tumbled almost 40 percent in the first quarter of this year, according to a government report on Thursday, a sign that companies battered by the global financial crisis are trimming overseas spending to weather the deepening recession.
Asia's fourth-largest economy received a total of $1.67 billion worth of investment in the January to March period, down 38.2 percent from a year earlier, the Ministry of Knowledge Economy said in a report.
The fall is the steepest decline since the country saw a 48.4 percent drop in the first quarter of 2003.
The skittish investment isn't unique to South Korea, as most countries have reported a decrease in FDI due to the contracting global economy.
The United Nations Conference on Trade and Development (UNCTAD) in January painted a downbeat investment outlook for 2009, following a 21-percent decline in global FDI last year.
The ministry said South Korea is faring decently considering the depth of the economic uncertainties tying up businesses worldwide.
It said the disappointing start will not affect the government's pledge to attract $12.5 billion in FDI for 2009, up from the $11.7 billion estimate for last year.
``We're hoping that things will turn around in the second half of this year,'' Chung Tong-soo, the head of Invest Korea, the government agency responsible for promoting inbound foreign investment, told The Korea Times.
He said that active cross-border mergers and acquisitions (M&As) may help halt the falling trend.
Investments generated by M&As plunged by 80.8 percent in the first quarter, the report showed.
``M&As are largely up to the private sector,'' said Chung, ``but what the government can do is expedite selling ownership shares of significant companies such as the Korea Asset Management Corporation and Korea Development Bank.''
However, doing so may be politically sensitive, he added.
Despite the overall decline, investment in the manufacturing sector surged 25 percent on-year to $913 million, with the bulk of the inflow channeled into the electrical, electronics and chemical sectors.
Japanese investment jumped 162.8 percent on-year to $661 million, while FDI from the U.S. and the European Union dropped 21 percent and 65.2 percent, respectively, according to the report.