South Korea’s foreign direct investment (FDI) hit a record high of $36.05 billion last year. U.S. investment jumped more than 86 percent from a year earlier as the government’s artificial intelligence (AI) policy drive coincided with a high exchange rate.

The Ministry of Trade, Industry and Energy on Tuesday released the “2025 FDI trends” report with these figures.

Reported FDI last year rose 4.3 percent to $36.05 billion, extending a streak of record highs for 5 consecutive years since 2021. Compared with 2020, when it was $20.75 billion, it rose 73 percent in 5 years.

The amount actually executed, or arrivals, rose 16.3 percent to $17.95 billion, the third-highest on record. FDI fell through the third quarter of last year, but rebounded in the fourth quarter as investment linked to advanced industries such as AI and semiconductors flowed in sharply.

The ministry interpreted this as showing that foreign investment was also affected by restored market confidence and reduced uncertainty after the launch of the new government.

It also analyzed that active efforts to attract investment, carried out on the back of the Asia-Pacific Economic Cooperation (APEC) summit held in Gyeongju in late October last year, were effective along with the new government’s AI policy drive.

Large-scale investments were also concentrated in the fourth quarter, including AI data center investment by U.S.-based Amazon Web Services (AWS), back-end semiconductor processing investment by Amkor Technology, semiconductor process gas investment by France’s Air Liquide, and bio raw and ancillary materials investment by Germany’s Sartorius.

Nam Myung-woo, the ministry’s director general for investment policy, said, “Despite the global trend of shrinking FDI, overall investment sentiment revived as trust in our economy and industry was restored after the launch of the new government.” He added, “It means they view our manufacturing fundamentals positively.”

By industry, manufacturing drew the largest investment. Manufacturing investment last year was $15.77 billion, up 8.8 percent from a year earlier. Services rose 6.8 percent to $19.05 billion.

Within manufacturing, investment related to key materials used in advanced industries stood out. This is interpreted as an effort to strengthen supply chains amid external uncertainty. Chemicals at $5.81 billion and metals at $2.74 billion surged 99.5 percent and 272.2 percent, respectively.

By contrast, investment fell from a year earlier in electric and electronics at $3.59 billion, down 31.6 percent, and machinery and equipment and medical precision at $850 million, down 63.7 percent.

In services, investment expanded in areas such as AI data centers and online platforms, lifting inflows into distribution to $2.93 billion, up 71.0 percent, information and communications to $2.34 billion, up 9.2 percent, and research and development, professional and scientific technology to $1.97 billion, up 43.6 percent. Financial and insurance services fell 10.6 percent to $7.45 billion.

By country, the increase in U.S. investment was the most notable. The United States recorded $9.77 billion, up 86.6 percent from a year earlier, as inflows expanded mainly in metals, distribution and information and communications. The European Union also recorded $6.92 billion, up 35.7 percent, with investment rising mainly in chemicals and distribution.

By contrast, Japan and China recorded $4.4 billion, down 28.1 percent, and $3.59 billion, down 38.0 percent, respectively.

The sharp rise in direct investment from the United States is analyzed as having been influenced by last year’s high exchange rate.

Nam said, “It is true that when the exchange rate rises and the dollar strengthens, conditions for foreign investment improve.” He added, “But it is hard to conclude it is only because of the high exchange rate, because various factors come into play.”

In particular, the top contributor to the record performance was so-called greenfield investment, in which companies build factories or business sites directly.

Greenfield investment rose 7.1 percent from a year earlier to $28.59 billion, setting a new record. Unlike mergers and acquisitions (M&A) investment, which only acquires stakes, it is meaningful because it has large effects on revitalizing local economies and creating jobs.

M&A investment recorded $7.46 billion, down 5.1 percent from a year earlier, but the decline narrowed sharply from a 54.0 percent plunge in the third quarter of last year.

The government plans to carry the momentum from this record performance into this year despite domestic and external variables.

On the outlook, Nam said, “As in the minister’s New Year message asking, ‘Has the Korean economy ever not been in crisis,’ uncertainty is greater than ever due to intensifying U.S.-China competition and the blocification of the global economy.” He added, “We will do our utmost to achieve results above last year through strategic investment attraction and stronger incentives.”

[Yonhap]