The government said Wednesday it would establish small free economic zones in provincial cities this year in an effort to attract more foreign direct investment, in particular from small and mid-sized firms.

Ministry of Trade, Industry and Energy officials said in a press briefing that the so-called “mini” FEZs could be created for foreign-invested land exceeding 80,000 square meters, one-fourth the land required for an existing FEZ.

Previously, an area was designated as an FEZ when the foreign-invested land exceeded 330,000 square meters or when a foreign company invested more than $30 million.

“The introduction of smaller FEZs will be helpful to attract foreign SMEs in such sectors as parts and materials,” senior ministry official Kim Chang-kyu said.

Foreign investors in the mini FEZs will enjoy a variety of incentives including tax benefits. Companies will pay 1 percent of the land price for rent. If a foreign company brings in advanced technology worth more than $1 million, its land rent fee will be completely waivered.

“The government also expects mini FEZs to boost the economies of cities and to create jobs,” Kim said.

The ministry will launch a road show in cities with an interest in creating a mini FEZ starting with Daegu this Friday.

The nation’s foreign direct investment rose 44.7 percent to $3.39 billion in the first quarter of this year from the same period a year ago thanks to large-scale investment pledges from the U.S. in the nation’s property market.

But industry watchers said FDI was likely to gradually decrease in the medium and long term, affected by the nation’s low economic growth.

The nation has so far opened a total of six free trade zones across the nation, including the Incheon Free Economic Zone and Busan-Jinhae Free Economic Zone.

In February, the government also designated two more free economic zones, one in North Chungcheong Province and the other in Gangwon Province.

By Seo Jee-yeon  (jyseo@hearldcorp.com)