FDI in S. Korea drops 2.9 pct to US$11.2 bln in 2006

Foreign direct investment (FDI) in South Korea fell 2.9 percent from a year ago to US$11.2 billion in 2006, the second straight annual decline, a government report said Wednesday.

However, last year's decline was smaller than the 9.6 percent decrease recorded in 2005 and the amount was larger than the government target of $11 billion, according to the report by the Ministry of Commerce, Industry and Energy.

Investment by foreign businesses reached $12.7 billion in 2004 before falling to $11.5 billion in 2005.

The ministry said the government has set its FDI target at around $11 billion this year and hopes to achieve the goal by providing better incentives.

"The main reason for last year's drop can be found in fewer M&A deals being won by foreign investors," said Lee Sung-hun, deputy minister for trade and investment policy.

The amount of money put into mergers and acquisition (M&A) deals fell 18.3 percent to $4.31 billion last year, while investments used to set up new services and production facilities gained 10 percent to $6.93 billion, he said.

The official said while there were 679 M&A deals amounting to $37.5 billion in South Korea last year, foreign capital was a factor in only 15 percent of the transactions. This is a drop from 25 percent in 2005.

"There were more M&A opportunities but most of the big companies up for grabs, including LG Card, were taken over by local firms," he said.

The official then said Seoul did not discriminate between local and foreign investments. South Korean public sentiment had turned sour towards foreign funds due to the perception that they were in the country to make a quick profit and leave without contributing to the economy.

"Studies have shown that many foreign funds that buy local companies stay in the country for more than 5 years and contribute to production and employment," he said.

According to the report, FDI in the manufacturing sector alone rose 37.1 percent year-on-year to $4.2 billion, with the electronics and chemical sectors rising 70.7 percent and 171.5 percent, respectively, from a year earlier.

By region, companies from the European Union remained the largest foreign investors here with an increase of 4.1 percent over last year to $4.9 billion.

They were followed by Japanese firms which invested $2.1 billion into the country, or an increase of 12.2 percent from 2005.

Money coming from U.S. companies declined 36.8 percent to $1.7 billion last year, the report showed.

Seoul, Jan. 3 (Yonhap News)