The Korea Times today reports that foreign investment has all but evaporated in the wake of five years of Roh Moo Hyun’s government and its handling of foreign-investment bête noire Lone Star Funds. Well, duh.
Bad news for hub dreamers:
“I don’t think Korea can change in the near future to reverse the poor FDI trend,” [former Morgan Stanley Asia economist Andy] Xie said.
“Korea may be unwilling to make the changes to attract FDI,” he added. “Korea may never become a truly open economy. The mere fact that people always talk about foreign versus local means that the economy cannot be truly open.”
See also this topic, and a handy chart showing the decline in net FDI, at Korea Law Blog.
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24 Comments
I already said regarding US beef “they don’t call it the hermit kingdom for nothing” and the same applies here.
“all but evaporated”
That doesn’t seem correct. The article is talking about net FDI, which would go negative if a lot of Korean money is invested elsewhere even if incoming FDI is strong.
The KT article doesn’t mention the incoming FDI numbers, so I looked on line and found these numbers from the Korea Economic Institute:
http://www.keia.org/images/sk_data.pdf
1997: $7.0 billion
1998: $8.9 billion
1999: $15.5 billion
2000: $15.2 billion
2001: $11.3 billion
2002: $9.1 billion
2003: $6.5 billion
2004: $12.8 billion
2005: $11.6 billion
2006: $11.2 billion
2007: $10.6 billion
From 2006 to 2007 it’s down $600 million (5.4%) but it’s still much higher than four or five years earlier than that. With the Lone Star debacle there are image problems, and even without that there are real problems to solve, but “all but evaporated” doesn’t seem correct.
I wonder if this article, along with the recent Bloomberg Monthly article dealing with the same subject through the lens of the Samsung scandal, has any relation with the survey on FDI that got asked by KOTRA and Gallup Korea to fill out today. LOL. My initial reaction is that they haven’t paid any attention to these in the past 15 years, except as a tool to figure out how to blow smoke up foreign investors’ asses, so why bother. Fifteen years of getting your salad tossed by the same slut gets boring.
The Korean “professor” who wrote the 2004 paper in the Journal of Human Gentics, that Koreans have a special gene that is susceptible to mad cow disease has lost contact. Rest of his research crew are too “busy” to meet with the press. This looks more and more suspicious of deliberate manipulation based on politics than science, and Korean commentators at chosun.com have picked up on it.
http://news.chosun.com/site/da.....00770.html
0$ foreign investment for all of 2006?
That doesn’t sound right. I mean, even North Korea gets a dollar or two per year from somewhere. I find that hard to believe if not impossible.
At least Microsoft is planning to invest in Korea big.
http://news.chosun.com/site/da.....01349.html
User-81 makes a good point.
But additional questions also need to be asked, viz.,
1. Are the quoted numbers so-called “reported”, i.e., projected numbers or the actual investment amounts. ROKGOV is fond of broadcasting the former, which often are very different from the actual flow of funds, which takes some digging to ferret out.
2. How much of the investment in a particular year is the result of one or two extraordinary events, such as Lonestar’s acquisitions of KEB. Star Tower and Kukdong Construction.
3. How much in any given year is really new investment. I’m willing to bet dollars to dimes that foreign investment in Korea First Bank is counted twice in the tables, first when it was bought up by the affiliate of Texas Pacific, then again when they sold off to Standard Chartered. Ditto for the massive property dispositions by the original foreign investors to the second stage acquirers.
4. How much is new investment in the sense of not being just knock-on investment by an existing foreign investor in an existing business. Obviously, this is legitimately new investment but should be separately considered from, say, FDI that created a whole new business or line of business, particularly one that is connected to a new technology or new (to Korea) know-how.
5. How much of the FDI since 1998 should be considered truly one-off in the sense that the market then was first generally opened (in the legal sense) in response to a once-in-a-lifetime economic meltdown and thus is not likely to be replicated (esp. given horror stories like the Lonestar case, which is just the tippy tip of the iceberg.)
#6 “(esp. given horror stories like the Lonestar case, which is just the tippy tip of the iceberg.)”
Tell us more!
Here is a sentence from the article:
BOK senior economist Lee Weon-joon said…
“The government has introduced a number of projects to attract foreign investment, including `Invest Korea’ in 2003, but most of them have turned out to be no more than slogan-oriented projects.”
Wow. ‘Slogan-oriented projects’ — that’s a good phrase. Wish I’d thought of that.
Describes a lot of what I see here: a grandiose opening ceremony with lots of speechifying by the bigwigs, banners waving in the breeze, and photographers scurrying around the stage — and precious little substance once things get underway.
“All icing no cake”, in other words.
Yes, the slogan(and sometimes the mascot) seems to be the most important part of any of these schemes. Many times, it seems as the slogan is the only actual part of it all.
The rest is just hot air!
Instead of the “if you build it, they will come”, they have the “just make a slogan and everything else will take care of itself” attitude.
“The government has introduced a number of projects to attract foreign investment, including `Invest Korea’ in 2003, but most of them have turned out to be no more than slogan-oriented projects.”
Incoming FDI jumped from $6.5 billion in 2003 to $12.8 billion in 2004 and still remains 63% higher. I’d like some of that all-icing-no-cake slogan please.
The fact of the matter is Koreans are truly unfriendly to foreign investment.
Michael Breen said some time ago that it is easier to do business in China, a communist country, than it is in Korea. That says a shit load. Is he wrong?
Korean newspapers have been reporting a decline in FDI for the last two years. Those FEZ things don’t seem to be panning out. So are the newspapers wrong?
The icing should have gotten a lot thicker, since 2004.
Just out of curiosity, how and why did Korea drop from 10th to 13th? It all can’t be China’s faulty.
“Just out of curiosity, how and why did Korea drop from 10th to 13th? It all can’t be China’s faulty.”
Oil. Countries w/oil, such as Mexico and Russia, which were previously below Korea in total GDP size got a big spike in their GDPs due to the rise in this critical commodity.
Net FDI means foreign investment inflows as against foreign investment outflows — said foreigners withdrawing their investments. To the extent that less new money comes in than goes out, from a Korean perspective that should be worrisome.
Also, as Sperwer notes above, official Korea has a habit of counting the same asset twice or more times as “new foreign investment”. That tends to pump up the volume of FDI in the statistics.
But I admit, “evaporates” overstates things. Over at Korea Law Blog I use “plummets”.
Serious question: That’s why you mean when you say net FDI, but when the KT says net FDI, are they talking about FDI inflow by foreigners minus FDI outflow by foreigners?
I’m no economist, but official Korea complains about tourism deficits by subtracting outgoing Korean tourists from incoming foreign tourists. If Korea’s tourism were measured the way you say net FDI is, then Korea would have almost no tourism: Foreign tourists come in and then they leave. That’s net tourism of zero!
Sperwer’s caution about the stats is interesting. I wonder how widespread that actually is (an assertion on Marmot’s Hole carries about as much empirical weight as Wikipedia ;)). But even if it is common, it might have been similar for all the years in the stats I mentioned above, so there may still be a high rate of incoming FDI that is only about 5% lower than the previous year.
I think the KT piece is part of an agenda to scare the public and certain authorities into not going LoneStar in the future and to prepare for some pro-business edicts from on high that will offend the progressives and the populists.
MOFE Q1 Green Book:
“The capital and financial account balance has suffered a net outflow of US$370 million in February as the portfolio investment account was deep in deficit although the direct and other investment accounts showed net inflows.
Investments in overseas stocks by domestic investors surged while foreign investors rushed to withdraw their investments from the Korean stock market, which triggered a capital outflow from the country.”
“Inbound foreign direct investment (FDI) in the first quarter of this year surged 69.8 percent from a year earlier to US$2,175 million. The first-quarter FDI increased year-on-year for the first time since 2005 when it gained 2.6 percent. FDI fell 29.4 percent in the first three months of 2006 and 27.6 percent during the same period in 2007. Large and medium-scale investments shot up 99.5 percent from a year earlier to US$2,235 million or 82.3 percent of the total, which helped spur the FDI growth momentum. By business category, investments in the service sector have sustained solid growth by increasing 94.9 percent to US$1,933 million. By investment type, Greenfield investments account for 64 percent , of the FDI with an year-on-year increase of 58 percent to US$1,738 million.”
“The Korean government will establish a three-year plan to improve foreign investors’ corporate management and living conditions by the end of May.”
“Streamlining regulations and providing greater financial support are expected to transform Korea into one of the top 10 business-friendly countries in the world by 2012, said the government on March 17.”
“Newly elected South Korean president Lee Myung-bak said on March 22 that his administration is determined to open official positions to foreign experts in a bid to overhaul the nation’s civil service community. “In an era of globalization, various talented people should be brought into the public service sector. In particular, South Korea will adopt the most open policy in the world in the hiring of foreigners as civil servants,” President Lee said in an interview with the Maeil Business Newspaper, Japan’s Nikkei Newspaper, China’s Economic Daily News, and the Financial Times.
In addition, Knowledge Economy Minister Lee Youn-ho said at the meeting with foreign company executives on March 22 that the government may invite foreign businessmen to economic policy meetings. He also added that Seoul will host discussions with foreign businessmen working in Korea more frequently, which will lead to active exchanges of views and opinions regarding the Korean business environment.”
http://english.mofe.go.kr/medi.....0d95b7.pdf
I’m not sure that this is what is meant. It could be that they are talking about the net of inbound FDI as against the aggregate of both foreign disinvestment and outbound domestic generated FDI - the latter has been burgeoning in the past several years.
The only definition I’ve ever known is in the second paragraph, above. That is, all declared inflows of money that go to the purchase of stocks, bonds, real estate, etc., as well as what is used as starting capital for new companies, and additional capital paid into existing companies, whether foreign or domestically-owned. All that minus outgoing money used for the same purposes - again, based on declaration of the same. Inflows naturally originate almost entirely with foreign entities, while outflows are comprised of both foreigners pulling out of Korea (or just taking their dividends), as well as Korean nationals exporting capital to purchase overseas assets. The use of this measure is its gauge of what is happening to the national wealth (is it increasing or decreasing), and to measure where global investors think the growth opportunities are.
The KSE and other stock markets often report foreign net trading balances by day/month/year, etc. This is limited only to equity purchase and sale, and gives an idea whether the world’s buyers agree with the local biz news. Koreans generally do better on the stock market by following foreign net behavior - logical, since most of that action is taken by foreign institutional investors who presumably know what they’re doing better than Korean day-traders.
I think it’s quite natural that outflows from Korean nationals are increasing. They are buying homes for their kids to live in while they study overseas, for example. And as Koreans become more globally aware, they find outside investment opportunities. Any Korean is allowed to wire transfer dollars into an account with Scottrade and start investing in the NYSE, so long as they can handle the English internet platform. Korea also recently increased the allowable limit on real estate purchases - I think Koreans can now buy $1mil properties overseas, up from a few hundred K, if I remember right.
Anyway, enough about the definition of FDI. Back OT.
Let’s also remember that a business relies on other businesses to perform its own functions, and these services are pretty sad here. I’m on my third accountant now, and all three have cost me money in penalties paid to the government because my accountant did something wrong. And I have to pay taxes four times a fucking year!
I’ve gone into printers in Kangnam - Kangnam, for chrissakes, and they can’t figure out how to print a Word doc from a memory stick.
I’ve had my customs agent lie to me repeatedly about what’s taking so long for the KFDA to release a shipment to me, just to get me to shut up for another day or two, and act generally like he’s working for the KFDA, rather than working for me.
And then there’s payment. What the fuck is it with Korean companies thinking that an invoice is something to be ignored for months??? Yo! Dude - fucking pay up!!!
Third party anecdote: Major convention from Singapore, 10,000 foreign attendees over 3 days. It took their organizing committee a frickin month to get a straight answer on how much it would cost to set up and carpet the stage area. When the answer came through, they calculated that they could actually bring in their own crew from S’pore and billet them for 3 days for less money than paying the Koreans to set it up and tear it down. They gave up the deposit and cancelled.
And on and on…
Whatever the regulatory hassle, whatever public sentiment, ultimately foreign companies will invest if they can make money. This is a small market, so revenue potential is limited, and it’s a high-cost market, so profitability is squeezed. Revenues minus costs equals THE BOTTOM LINE.
profit is profit, it depends on what the % return is.
But i’ll take Buffett’s word over yours.
You could be right. But I have frequently read government publications — the same ones that seem to count changes of ownership as new foreign investment — which have stated the accounting as incoming versus declared withdrawals. The Korea Times, though, didn’t state what its standard was.
Its true that outbound Korean investment is way, way up. Korean companies are increasingly looking to overseas markets for growth, as the domestic market is both saturated and cartelized.
But anyone working in a service industry which has traditionally focused on foreign investors — like law firms — could tell you the decline in inbound investment interest since 2004 is quite noticeable.
While both numbers have their uses, stacked, there is not a 금융가 in the world, who would choose ROI over NPV as the best way of determining what to invest in. Buffett included - I’ve read his bible.
LOL; as you know, I’m up there even closer to the action — where the money meets the soju/kimchi breath — and it’s been even more obvious to me for much longer. My projects depend on the availability of substantial funds from other foreign financial partners, and the tolerance of those with the potential to be players for bad breath has been plummeting precipitously for at least 5 years. I still get a hearing — generally because people with whom I was at school are now are senior investment decision-makers, even CEOs, of a number of the relevant firms — but their response is uniformly one of not being willing to get (further) involved in a country with Korea’s track-record of active discrimination and duplicity towards FDI (and which some of those already here are trying to exit as noiselessly as possible in the interest of preserving any gains made) regardless of the attractions/project returns of a particular project — which are perceived as unacceptably uncertain because of the Korea’s general unreliability.
If the Yongsan foreign school saga was representative of how Korea tries to attract foreign investors, I’m amazed that foreigners aren’t queuing up to pour their money into this country.
You still harping on that?
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