Korea’s net corporate investment exodus hits record $59 bn in 2022

The National Assembly passes a bill that raises the tax credit rate for conglomerates investing in six national strategic technology sectors on Mar. 30. [Photo by Yonhap]

South Korea’s outbound direct investment overtook the foreign direct investment by an all-time high last year, raising an alarm over a dampening economy as the U.S., Europe and other countries and regions offer tax incentives to attract businesses.

Net outflow of overseas investment reached $59.1 billion from Korea last year, according to a recent analysis by Maeil Business Newspaper using data from the Ministry of Economy and Finance and the Ministry of Trade, Industry and Energy. Korea’s foreign direct investment stood at $18.03 billion in 2022, the second-largest amount after 2021, but those spent overseas was $77.2 billion, the highest since the ministries began compiling related data in 1980.

The U.S. was the most popular investment destination for Korean companies. The investment reached $27.8 billion to account for 35.9 percent of the entire overseas investment, followed by Europe at 19.9 percent, China at 8.5 percent and Singapore at 3.9 percent.

Concerns, in the meantime, rise as Korean companies’ exodus to foreign countries may hurt the economy.

“Corporate funds keep flowing out of Korea, which slows economic activity, while the U.S. and Japan are actively engaged in offering reshoring policies,” said Kim Jung-sik, professor emeritus at Yonsei University. “The government should sharply lift its regulations with a view that it is directly competing with overseas clusters such as the Silicon Valley.”

The National Assembly on Thursday passed a bill that raises the tax credit rate for conglomerates investing in six national strategic technology sectors, including chips and batteries, to 15 percent from 8 percent. Industry insiders note this should have been made earlier as it had been delayed by three months due to issues related to the rate increase.

There is also a sense of crisis that Korea may lose its attraction as an investment destination not only to foreign companies but also Korean businesses as global competition intensifies to attract foreign investments. The U.S., under its Chips and Science Act, directly offers $52.7 billion as subsidies for production and research and development for five years.

“Korea should also establish a tax environment that can compete with other major economies,” said Lee Sang-ho, head of economic investigation at the Federation of Korean Industries. “We should also speed up labor reform.”