[기고] Need for a change in perception of foreign direct investment

Recently, financial authorities announced a plan to abolish the foreign investor registration system that has been in place for over 30 years to improve accessibility to foreign investment in the country. Since the Foreign Investment Promotion Act was enacted, whenever there has been a global shock such as a foreign exchange crisis or a financial crisis, Korea has quickly overcome it by using Foreign Direct Investment (FDI) as a stepping stone. Despite the government’s open policy direction and positive results regarding foreign direct investment, negative perceptions of foreign capital still act as a major barrier.

Although this perception was solidified by the inflow of short-term capital during the foreign exchange crisis and the side effects of the controversy over ‘scams’ by some foreign speculative capital, such as Lone Star Gate, last year’s record high foreign direct investment report amounting to $32.7 billion (approximately 43 trillion won), trade, and As the country continues to record surpluses for 10 consecutive months, some say that it is time to change the perception of foreign direct investment.

At the end of the year, the issue of large-scale dividends to foreign capital becomes the center of social controversy. For example, Costco Korea was criticized for leaking 2.2 times its net profit to its U.S. headquarters despite not paying a single dividend for 23 years since opening its first store in Korea in 1998. However, this ignores the fact that Costco Korea has laid the foundation for growth in the domestic market by receiving continuous investment from headquarters and has accumulated 1.3684 trillion won in the long term. Starbucks Coffee Korea also received similar criticism. It was criticized for paying 40 billion won in dividends to its U.S. headquarters in 2018 before being acquired by Shinsegae, but this was a half-hearted criticism that did not take into account the economic contribution through long-term investment in the domestic market, job creation, and technological innovation. What kind of investor, not just a foreign investor, would want to invest and lose money? Also, who would invest in Korea if foreign investors only lost the money they invested in Korea?

Despite the positive effect that attracting foreign capital has on corporate development and, by extension, economic development, it is unfortunate that there is a blindly negative view on returning profits through dividends. Sales generated through domestic investment due to foreign investment account for 11% of domestic company sales, and in the process of generating such sales, 6% of domestic employment is created, and other expenditures necessary for management activities are made domestically, creating added value. do. In addition, the dividend itself comes from net profit that can be ultimately returned to shareholders after deducting all costs, including corporate tax, from sales generated domestically.

The fact that a company can pay dividends means that the company is financially stable and trustworthy. Profit is generated as a result of the normal business activities of these companies, and fair dividends are in accordance with the basic principles of global investment, which can be an important driving force for the growth and development of the national economy. Therefore, there is a need to go beyond the stereotype that foreign investment capital is an outflow of national wealth and fairly evaluate its positive role and contribution in the domestic market.

Seongyong Yoo, Professor, Department of Accounting, Soonchunhyang University

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