The government increased the cash support budget to promote foreign investment from 60 billion won to 200 billion won over the past four years, but performance appears weak. The number of corporations eligible for support barely grew, and actual foreign direct investment (FDI) carried out has instead declined.
With foreign-invested corporations taking a wait-and-see stance ahead of last year's U.S. presidential election, analysts said the size and conditions of incentives were not sufficient to induce investment into Korea. Since the South Korea–U.S. free trade agreement (FTA) was nullified after the launch of the Donald Trump administration, and with the yellow envelop bill set to take effect next year, the outlook for attracting investment remains bleak.
According to the Ministry of Trade, Industry and Energy on the 12th, the number of corporations (excluding duplicates) that received central government funds was eight in 2021, seven in 2022, six in 2023, and nine in 2024. The central government budget for foreign-invested corporations shrank from 60 billion won in 2021 to 50 billion won in 2022–2023, then expanded fourfold to 200 billion won in 2024. However, the number of corporations receiving incentives has essentially been "treading water."
A Ministry of Trade, Industry and Energy official said, "The number of corporations is meaningless," noting, "Rather than sprinkling small amounts of incentives over many corporations, we focus on major projects and provide incentives to a few corporations."
However, that is unconvincing when looking at the overall FDI flow. On an "arrivals" basis, which reflects actual investment execution, FDI was $18.6 billion in 2021 and $18.167 billion in 2022. It inched up to $19.491 billion in 2023, but plunged to $15.287 billion in 2024.
Experts cited the "expansion of U.S.-origin trade uncertainty" as the backdrop for the recent slump in foreign investment. With an election looming until November in 2024, corporations held off on investment and waited for the results first.
Moon Jong-chul, research fellow at the Economic Security and Trade Strategy Research Office of the Korea Institute for Industrial Economics & Trade (KIET), said, "Corporations around the world put investment decisions on hold while waiting for the U.S. election results, and a 200 billion won budget is far too insufficient to serve as a carrot." The point is that ambiguously increasing a small budget produced no clear effect.
The problem is that such uncertainty has deepened this year. President Trump is using tariffs as a weapon to induce investment in the United States, and the nullification of the South Korea–U.S. FTA has further diminished Korea's investment appeal. Moreover, the yellow envelop bill, which passed the National Assembly in Aug., has become a factor prompting corporations already in Korea to consider withdrawing.
Recently, the Korea Foreign Companies Association (KOFA) surveyed representatives and HR managers at 100 corporations operating in Korea about their investment plans after the passage of the yellow envelop bill, and 35.6% responded that they "are considering scaling back investment or withdrawing their Korea branch."
Heo Yoon, a professor at Sogang University's Graduate School of International Studies, said, "Until now, there was the appeal that exporting to the United States would be duty-free if routed through Korea, but the Trump administration nullified that," adding, "With the yellow envelop bill and other risk factors, you cannot entice corporations with subsidies of that magnitude."
The government has continued to strengthen support for foreign investment this year. It improved the system by temporarily expanding the cash support cap from up to 50% of the existing investment size to as much as 75%. Starting next year, when the temporary measure ends, it will expand the cash support cap to as much as 60% for areas outside the Seoul metropolitan area. However, as of the first half of this year, only seven corporations received incentives, and FDI arrivals stood at $7.29 billion, indicating the support measures have not shown major results.