Korea lags far behind Indonesia, Malaysia and Thailand in attracting foreign direct investment and languishes near the bottom in Asia. Foreign investors prefer to park their money in economies with lower labor costs, higher productivity, less red tape and less militant labor unions.
The Chosun Ilbo and the Federation of Korean Industries analyzed FDI trends in eight East Asian countries over the last six years based on data from the UN Conference on Trade and Development and found that investment into Korea amounted to US$12.2 billion last year, in seventh place after China, Hong Kong, Singapore, Indonesia, Thailand and Malaysia.
The only East Asian country that attracted even less FDI than Korea was Vietnam.
FDI here hit $11.1 billion in 2008 but fell to $9 billion until 2012 and rose again to $12.2 billion in 2013.
Over the same period, Singapore saw FDI surge more than five-fold to $63.7 billion, although it had been similar to Korea's in 2008.
FDI in Indonesia, which was lower than Korea's six years ago, was 1.5 times higher last year. FDI in Malaysia soared from $7.1 billion in 2008 to $12.3 billion in 2013.
Investment coming here deteriorated in terms of quality as well as quantity. Song Won-geun of the FKI said, "Until the 1990s, almost 100 percent of FDI went into building factories, which led to job creation. But since 2001, around 31 percent of FDI has involved mergers or acquisitions, which creates fewer, if any, jobs."
Kwon Tae-shin of the Korea Economic Research Institute said, "Foreigners don't see the merits of investing in Korea due to militant labor unions and rising production costs. In order to boost FDI, the government, lawmakers and regional governments must join hands and reform inefficiencies in the system."
Rising costs are the biggest reason, with low labor productivity and high pay levels and corporate tax rates no longer appealing to foreign investors.
Korea ranked 28th out of the 34 OECD member countries in terms of hourly labor productivity in 2012. In money terms, Korea's hourly labor productivity stands at $30.4, far below the OECD average $47. In top-ranked Norway, it stands at $87.1.
As the country becomes less appealing for foreigners, Korean companies are also leaving the country and parking their money overseas. Lee Dong-geun, executive vice president of the Korea Chamber of Commerce and Industry, said, "Government around the world are racing to come up with more business-friendly policies. Korea must realize that falling behind in this race would subject the economy to persistent low growth."
