Are Korea’s Top 30 Firms Investing Less?

It is reported that conglomerates may not be expanding their investment levels any time soon this year because of various uncertainties regarding the economy, including fluctuations in foreign exchange rates and oil prices, along with the upcoming presidential election.

In the report “600 top enterprises: investment plans for 2006-2007,” the Federation of Korean Industries (FKI) conducted a survey of 600 domestic firms with the highest sales records (financial and insurance companies were excluded). The survey showed that Korea’s 600 largest firms plan to invest 7.74 trillion won, up 2.1 percent from last year. In this survey, 559 out of the nation’s 600 top firms participated.

The investment rate this year dropped sharply compared to the past few years after the investment surges of 14.4 percent in 2003, 18.7 percent in 2004, 12.8 percent in 2005 and 10.4 percent in 2006, respectively.

In particular, the affiliates of top 30 companies surveyed are expected only to invest 5.19 trillion won, a rise of only 0.6 percent year-on-year.

“Firms tend to hesitate to expand investments when the economic outlook is uncertain and if they are having difficulties finding new business opportunities,” the FKI said. “In particular, external uncertainties, such as fluctuations in foreign exchange rates, oil prices, and the presidential election hinder businesses from making stable management plans.

Indeed, 58.5 percent of the respondents pointed out the “uncertain economic outlook” as the major factor for their unwillingness to invest. Difficulties in finding new business opportunities (20.3 percent), excessive regulation by the government (8.4 percent) and financial transparency (7.8 percent) were the other factors surveyed.

higgledy@donga.com