The cumulative foreign direct investment (FDI) reported amount for the third quarter this year fell 18.0% from a year earlier. The main reasons are seen as the continued uncertainty in the trade environment stemming from U.S. tariff policy and a contraction in the mergers and acquisitions (M&A) market.
The Ministry of Trade, Industry and Energy said on the 15th that cumulative FDI for the third quarter this year, on a reported basis, was $20.65 billion, down 18.0% from the same period a year earlier. The arrival amount, the actual funds that came into the country, fell 2.0% to $11.29 billion.
The ministry said the decline in FDI performance was "because uncertainty in U.S. trade policy has persisted and the domestic political situation showed instability through the first half of this year." It also cited the contraction of the M&A market triggered by the MBK Partners–Homeplus situation, a base effect from the record-high performance in the third quarter of last year, and a rise in exchange rates.
By type of reported amount, greenfield investment to establish and directly operate factories or business sites recorded $17.77 billion, down 6.1%. M&A investment aimed at acquiring or merging corporations' equity and the like fell 54.0% to $2.88 billion.
By country, investment reports from the United States rose 58.9% to $4.95 billion. Yoo Beop-min, director of investment policy at the ministry, said, "Since the biggest factor in global trade environment uncertainty is the United States' trade policy, the United States has a relatively free production economy," adding, "The sectors affected by tariff are in manufacturing, but the United States has relatively little investment in manufacturing, so it is the least affected by changes in the trade environment."
In contrast, investment reports from the European Union ($2.51 billion, -36.6%), Japan ($3.621 billion, -22.8%), and China ($2.891 billion, -36.9%) decreased.
By industry, investment in manufacturing, which is directly affected by U.S. tariff policy, fell 29.1% to $8.73 billion. Specifically, investment rose in transportation machinery ($880 million, 27.2%) and other manufacturing ($200 million, 93.4%), while it declined in electrical and electronics ($2.85 billion, -36.8%) and chemicals ($2.43 billion, -13.8%). However, reports related to artificial intelligence (AI) continued, centered on information and communications ($1.79 billion, 25.7%).
Investment in services also fell 10.6% to $11.11 billion. Reports increased mainly in distribution ($2.08 billion, 122.5%) and information and communications ($1.79 billion, 25.7%), while they decreased mainly in finance and insurance ($4.13 billion, -43.6%).
A ministry official said, "The FDI arrival amount is at a level similar to the third quarter of last year, indicating that the reported investments are flowing in normally with a certain time lag," adding, "As investment in AI continues, it appears that foreign investors' trust in the fundamentals of the Korean economy is being maintained."
To attract FDI, the ministry plans to continue efforts to identify and attract potential domestic and overseas investor corporations by using various incentives such as cash and site support. It will carry out a range of domestic and overseas investment promotion activities, including overseas investor relations (IR) targeting greenfield high-tech industries such as AI, semiconductors, and "materials, parts and equipment" (so-called "small-but-strong" industries), and regional roadshow IR to identify additional investment demand from foreign-invested companies operating in Korea.
In addition, to resolve difficulties arising during the investment execution process, the ministry plans to provide close support for each FDI project through the FDI Implementation Support Team launched 4th.