Korea lags in attracting foreign investments

Korea is lagging behind other advanced countries in attracting foreign investment as it has failed to create a business-friendly environment for multinational companies, according to a local think tank Sunday.

The Korea Economic Research Institute (KERI) urged the Moon Jae-in administration to ease regulations and make taxes and other regulations more corporate-friendly to spur growth and create jobs.

The institute is affiliated with the Federation of Korean Industries (FKI).

The ratio of foreign direct investment (FDI) Korea attracted to its gross domestic product (GDP) stood at 0.8 percent in 2016, ranking 152nd among 237 countries surveyed by the United Nations, the institute said.

Among 34 OECD member economies, Korea ranked 23rd.

Last year, Korea produced goods and services valued at $1.39 trillion domestically and attracted $10.8 billion in foreign investments.

There are two types of FDI — green-field investments to build plants and other business facilities, and mergers and acquisitions.

Luxemburg with $58.3 billion GDP topped the OECD list with 46.1 percent, with $26.9 billion in FDI, followed by the Netherlands with 12 percent, Britain with 9.8 percent, Ireland with 7.6 percent and Belgium with 7.1 percent.

Luxemburg’s GDP is only 4 percent of Korea’s, but it attracted nearly 2.5 times more in foreign investment.

KERI also said Korea was far behind other OECD members with similar size economies.

Canada’s FDI-to-GDP ratio stood at 2.2 percent, with $33.7 billion in foreign investments. Its GDP reached $1.54 trillion in 2016. Australia with $1.27 trillion GDP attracted $48.2 billion in FDI, pushing its ratio to 3.8 percent, 4.9 times Korea’s.

“These statistics show Korea is less attractive than most of its global competitors in the eyes of multinational investors and companies,” a KERI researcher said.

“Investors look not only at the size of the market, labor costs and the availability of natural resources, but also taxation and other regulatory systems.”

Canada and Australia have a similar GDP to that of Korea, but they are far ahead of Korea because they are not only rich in natural resources, but also have fewer regulations and are friendlier toward foreign businesses.

“In this regard, Korea should double its efforts to create a business-friendly environment and offer more attractive incentives to foreign companies if it seeks to bolster growth and create jobs,” the researcher said.

Also, militant trade unions have long been dubbed a major reason for foreign capital shunning Korea.

Some unions at large conglomerates, especially in heavy industries such as automobiles, have carried out walkouts almost every year, affecting the companies’ competitiveness.

In particular, critics have argued that trade unions have tended to be more hostile to foreign companies than homegrown ones.

Korea Times file Workers are on strike in front of a factory in Ulsan. Militant unions have been blamed as a major reason that foreign investors avoid Korea.