Few Perks, Vigils Chase Away Foreign Investors
By Jane Han
Staff Reporter
Earlier this year, office supply giant 3M was weighing up two site options regarding its new manufacturing factory in Asia: Singapore and Korea. Citing Korea's less competitive incentives, however, the Post-it and Scotch tape maker's money ended up going to Singapore.
This wasn't a surprising decision, as it is a no-brainer for global players to sum up that the perks offered by dynamic neighboring economies like Singapore and Hong Kong well outstrip what Korea can offer. Topping it all are the recent candlelit protestors that have cast doubts in the minds of new and existing investors.
Mainly driven by these reasons, foreign direct investments (FDI), such as building factories, has been freefalling for the third straight year. And the volume of net FDI ― FDI inflow minus outflow ― in the first quarter fell to minus $670 million for the first time in one and a half years, according to the Bank of Korea. This means investors withdrew more money than they invested.
What's worse is that Korea is the only country among the 30 OECD members to have its FDI plummet for three consecutive years. According to OCED data released last week, the 30 member states attracted a record $1.37 trillion in FDI last year, up 31 percent from 2006. But FDI in Korea dropped 56.7 percent to $1.6 billion.
This isn't good news for the self-proclaimed business-friendly Lee Myung-bak government, especially the Ministry of Knowledge Economy, KOTRA and Invest Korea, which are the main state-run agents responsible for bringing in cash investments from abroad.
Claiming to attract $12 billion in FDI this year, Knowledge Economy Minister Lee Yoon-ho said at his first meeting with reporters in March that a country's FDI result is like a report card assessing its competitiveness. Going by his words, apparently, Korea isn't at the top of the class.
Investors point out that their FDI-attracting efforts too often end up as campaigns and promotions, rather than leading to fundamental changes in the system.
``Korea is lagging because it's not putting better options on the table compared to China, India and Vietnam,'' Tariq Hussain, the Northeast Asia representative for Maxmakers, a Swiss-based business advisory firm, said in a recent media interview.
Darren Krakowiak, the director of Jones Lang LaSalle, said a lack of transparency and the often-mentioned poor attitude toward investors are still the biggest concerns.
``It's a shame because Korea has excellent infrastructure and so much potential,'' said the executive of the global commercial property broker, adding that it is disappointing to see the new president's attempts to change the attitude towards foreigners being pushed aside.
Park Jung-sung, divisional director of Invest Korea, however, said a lot of the promised changes are currently ``cooking.''
This delay and others are not only repelling direct investors, but also fanning the exodus of participants in the local stock market.
Foreigners offloaded a net $19.3 billion worth of shares in the domestic market during the January-June period, according to the Korea Exchange (KRX) Monday. The recent 28-day-long selling spree is the longest such stretch.
Many factors are attributed to this dumping, such as jitters over the global crunch in general, but experts aren't ruling out the social and political shakiness as a deterrent.
One foreign trader said market participants are generally refraining from making stock investments lately due to rising uncertainties, but many are also seeing the world's 13th-largest economy as less attractive with more risks.
``The reports and pictures recently seen in the international media about the violent protests and annual labor strikes has damaged Korea's image as a competitive and predictable investment destination,'' says Tami Overby, President and CEO of the American Chamber of Commerce (AMCHAM).