Eldon-Online

Korea - In Transition

Reading recent news reports about Korea you could be forgiven for thinking that the country was about to implode. Politically and financially. Failed attempts to get major positions filled due to allegations of corruption. Resignations of cabinet ministers due to allegations of nepotism. Not the sort of things that fill foreign investors with confidence. And if that is the case, just imagine what ANZ is currently thinking, as it moves towards a hoped-for acquisition in Korea, when the media seems to be of the opinion that they don't want KEB to fall into foreign hands again - even if common sense suggests that at least this time they would get a proper bank involved for the long term, rather than someone who just wanted to run once they had made a profit.

And it's not as if Korea doesn't want foreign direct investment - it does. Neither do various entities of Government nor various cities give up in their ambitions for growth and the establishment of areas for education and financial centres. Indeed in the case of the former ambition, Jeju Island has already secured signatures at least from a couple of high class foreign schools - one Canadian and one British. 

But look, the economy is doing okay. They have certainly recovered well from the financial crisis and would seem to be on track for some decent growth. So what is it about Korea that is such a conundrum? That keeps investors on the back foot, scratching their heads.

I make no apology for the fact that I have been a long-term supporter of the potential that is Korea. A frustrated supporter, admittedly, but I still believe in Korea's ability - if it wishes to do so - to take its place properly amongst the major nations of the world. The hosting of the G20 summit this year is no mean feat for the smallest economy in the "20" - but when all the razzmatazz has died down - what then for Korea?

Actually, perhaps perversely, I don't necessarily see the political events I outlined above as being all bad. Neither do I view as entirely shocking, the news that a whole bunch of convicted business heads are about to be released from jail and pardoned. Perhaps the surprising thing is the manner in which it is being done, which once again suggests that the Korean PR machinery - such as it is - needs an overhaul.

But think about this:

South Korea became a Democracy in 1950, after its liberation from Japan by the USA and Russia - and then plunged into war with the North. It had a number of Governments - most of them military - but it has only really enjoyed a stable(?) civilian democratic government since 1992. As a young democracy, with a very rapidly growing economy, and an electoral system that only allows each President one five year term, Korea has had much to absorb in a short space of time. It is still officially at war with the North, and under threat of a rogue nuclear attack from that quarter. Even if you believe, as I do, that such an event is unlikely to happen there is no accounting for the actions of madmen.

It is also smarting from 40 years of Japanese occupation, and the Koreans are a proud and nationalistic race. Not a criticism - a fact.

In many countries in the world, those which are now described as civilised and developed, there existed at some stage of that development blatant nepotism. (And dare I say it remains - better hidden perhaps). In addition, accusations of corrupt practice was often laid at the door of people already in power - or of those aspiring to it - otherwise, they said, how would they have got there in the first place. It was all seen as "normal".

Thus I see events in Korea today as representative of a country in transition. Reaching the same conclusions those other countries discovered a while ago. Realising that certain behaviours are not acceptable in the global village but, as so often, finding out the hard way - for themselves.

And the wholesale release of "big business" leaders? Well, I am sure they should probably not ALL go free, but look at the Korean penal code. It has been under review certainly since the time I became a member of the Presidential Council on National Competitiveness, because many penalties in Korean legislation for economic offences - for example - are currently criminal offences, rather than civil as they would be elsewhere. In this regard I suspect - although I admit I have not looked at every case - that many of the releases would reflect the new codes of de-criminalising events. It is just the way it is announced that makes it look so bad.

So don't give up on Korea. They have not lost the plot - they are just taking time to understand it.

Korea - Hopes, Dreams ... and Reality

I like Korea. If I didn't, there is no way I would get involved as I have; what would be the point? Certainly Korea has its critics, both from inside and outside the country, but then what country doesn't. And just like every other country, emirate, state or region in which I have lived and worked in the last 40 years or so, Korea has its hopes and its dreams. The skill required towards achieving those dreams, though, is to indulge in an ongoing reality check to see whether and by how you much closer you are getting.

In September last year, South Korea was upgraded to "Developed Market" status by the FTSE Group - one year later than had been anticipated, but it happened. It is a status that many widely believe to have a significant impact on asset allocations by Fund Managers and a move that was, naturally, welcomed in Korea. Dream achieved.

During the last eighteen months it has been my privilege to sit as a Special Adviser on the Presidential Council for National Competitiveness. A Council that meets monthly and has undertaken to review many of the country's rules, regulations and laws with the aim of creating, inter alia, a more friendly business environment both for domestic and foreign participants. The meetings are chaired by a senior member of the Blue House, but are always attended by the President who remains throughout the length of every meeting. Much progress has been made over the period so far, but it takes time for this information to reach the world outside and in some cases legislation has been difficult to push through when dealing with a traditional culture where change is often viewed with some suspicion.

One of the more prominent dreams, for Seoul in particular a number of other cities and regions in general and the country as a whole, is the creation of a financial hub in Korea. After all, look around the region - Tokyo, Shanghai, Hong Kong, Singapore and a number of other aspiring centres and you can see the attraction of wanting to join in. Developed markets are generally service centres, rather than centres of heavy engineering and manufacture. But if you ask around the region and then further afield for their diagnosis of Korea's ability to become a financial hub, the view is that it is a long way down the list. That is a reality.

And while we are at it, let's just think of another financial hub reality - the reality of the huge Japanese economy on the one side (slow moving though it may be), and the ever growing and powerful economy of China on the other - and guess who is in the middle?

Korea certainly needs to do something, but why does it give negative perceptions to the global financial community? Because the financial scene in Korea remains less inviting to the very people who should be encouraged to enter the market. Existing rules and regulations remain ambiguous and complex despite ongoing attempts to make them clearer. But more needs to be done to unravel these regulations and to open up the financial services market wider to more participants.

Such concerns raise the noise levels around "obstructive ambiguity" and lead to charges of protectionism - of course not just in the case of Korea but around the world. And let's be clear, there are plenty of Governments whose actions suggest they say one thing and do another; think "Buy (Country)", think of the European Government that provided money for auto makers on condition they stayed in that country, and some months later very publicly spoke out on the subject of never returning to protectionism.

I can say this; I have heard President Lee say himself publicly, and maybe more importantly privately, that he has no time for protectionism. I certainly hope that his administration pays close heed to his words - especially as Korea is about to lead the G20 in 2010. The last thing Korea will need is to be confronted with any examples of protectionism as they move into this leadership role. That could put a halt to the hopes of a greater involvement from the outside world.

I was invited to advise, and I do so freely. Happily I am in a position where I can suggest certain courses of action - even if they may not be universally popular, but I do so with the best of intentions because I would like to see Korea succeed. Better that we have a collection of strong players in Asia than just one or two.

But never underestimate the Korean single-mindedness of purpose. They have proved time and again in their young democracy (which many forget is only 22 years old), that they can get things done once they put their minds to it. The world is a big place, and they need to be a two-way part of it if the dreams and hopes they nurture are to become reality.

Korea - What Next?

It was never going to be easy!

President Lee fought his election campaign in 2007 on the basis of change. Against a backdrop of falling investment in the country. With a history of being tough minded but successful, he won the election by the widest majority achieved in a democratic South Korean election. A win which sparked a glimmer of hope amongst people in Korea and in businesses outside Korea. It brought a full email box to me from Koreans working outside Korea who were writing "At last, positive change and we would like to come back".

Fast forward to today and we have a President whose ratings in Korea have dropped to a low level. A major project, The Grand Canal, was abandoned. A waterway project that was not only going to be for practical business  use, but was potentially environmentally friendly for the most part, and would have created leisure opportunities and wet lands, although admittedly financing was an issue. And then to the import of beef, about which significant protests still abound - but is this really about beef-related health issues - or does it go wider than that?

It seems to me that this is more to do with internal issues, seeking an outlet for domestic woes like unemployment, especially amongst the young. A view clearly shared by others that I have spoken to within Korea, but who have not spoken about it publicly for fear, I guess, of being criticised. But if anything was set to derail the ambitions of President Lee in his quest to make Korea a more open and welcoming economy, then the usual media feeding frenzy on the "standard" pictures of Korean demonstrators does nothing to help.

So, what next?

From the perspective of foreign investors, existing or potential, nothing much has changed. Korea remains, to many, as being "anti-foreign" or at the very least "systemically unfriendly" to foreign investors. Views that have been confirmed by various polls of business leaders in such organisations as the UK's Institute of Directors, and by the complete omission of a mention of Korea in the International Herald Tribune in an article about foreign investors in the the region. Not once was Korea mentioned. But I prefer to think of Korea as being less anti-foreign and more pro-Korean. In others words Korean interests tend to be put, or considered above all others. And I see nothing inherently wrong with this attitude, but the reality is that if you want to be a major player on the world economic stage you cannot be perceived, in any way, as being unfriendly towards foreign business.

For Korea, to move slower than the other neighbouring economies or, worse yet, stand still means it is losing ground. Look at the region. A powerhouse economy like Japan, countries which are developing rapidly like China and India. Newly emerging economies like Taiwan, Vietnam and the "next Vietnam" - Cambodia. Established business hubs like Hong Kong and Singapore, which are constantly enhancing their offerings and, in addition to Shanghai the newly emerging Chinese cities like Tianjin, Dalian, Chengdu and Chongqing which all have serious aspirations as business hubs. 

Let's be blunt, I am concerned that Korea runs the very real risk of being marginalised.

When I first became an Adviser to President Lee I made it very clear to all who listened that for Korea to take its place on the world stage, it had to want to be there. I was not there to tell them what to do, but to provide help if I could and if it was what they wanted. The message I am receiving now is one that is divided. For the President, I believe he knows very clearly what needs to be done for his country, and for the future. For the Korean people, they have a choice. They can either see foreign participation in the domestic economy as some sort of threat...and see only the downsides. Or they can realise that such foreign interest is actually a vote of confidence in the future of Korea, and in the many talents of Koreans. It should bring employment, and a wider marketplace for the economy.

I, for one, hope it happens.

Korea - Land of the Morning Calm

The western nickname for Korea has not proven so true in my house for the last couple of days, where my telephone has been ringing off the hook, ever since President-elect Lee Myung-bak announced my appointment as co-chairman of the special committee on National Competitiveness. It seems it is the first time a foreigner has been appointed to such a role, and let's not be coy, I am both flattered and honoured (not to mentioned somewhat amazed).

There will be many who ask why I agreed to take this on, and you may be sure that I asked myself the same question. I did not seek the role, and there is no compulsion for me to do so. I owe nobody anything, and I am beholden to no-one. I was rather amused, in fact, by a suggestion reported in the UK newswire Times Online that I might be able to influence the Korean regulators to approve an application from my former employer who wishes to invest in a Korean bank. It only goes to show that the commentators don't know me at all, and the comment from the regulator who said I would not influence them was absolutely right; I wouldn't dream of even trying. The piece, under the byline of Andrew Salmon suggested that I was "unavailable for comment". I think, on reflection, that about the only journalist from Korea who didn't call me yesterday was Andrew Salmon.

So, for those good people who swamped my blog site yesterday - and look like doing the same today - here are some facts (that might also correct some of those in the Times Online's rather inaccurate "potted" CV).

I am a career banker, who started out in 1964, left Britain in 1968 and who has worked and lived in a variety of Middle East countries as well as Hong Kong and Malaysia. I have been traveling globally on business since the late 1980s, and first started visiting Korea regularly from about 1992. I retired from the HSBC Group over two and a half years ago after an association of 37 years. I believe it was a mutually satisfactory relationship, but since leaving them I have got on with my life and have no association with them other than some shares and some friends. I live in Hong Kong.

I am independent, and always have been, sometimes to the dismay of others who wished I was more "flexible". I believe in fair play and get easily irritated by bullies (and by companies like Amazon.com who still refuse to answer my letters on identity theft (mine) - even though I have sent the recent letters earlier this month by registered mail - see "Up the Amazon (.com) Without a Paddle" posted 17 September 2007).

I first got to know President-elect Lee Myung-bak when I chaired the Seoul International Business Advisory Council (SIBAC). I found him to be a man with drive and vision. His views on creating Cheonggyecheon were being criticised by many people, it seemed, but having lived through some of the disruptions caused in Hong Kong by the creation of the Mass Transit Railway, I could see that there was a long term benefit to be gained by short term inconvenience. I believe that today the benefits of Cheonggyecheon are plain for all to see, and I expect Mr Lee has not finished yet.

I have no illusions (or delusions) of "guruhood". I am conscious that I am a foreigner with a remit to suggest ways in which Korea might become a more "acceptable" destination for foreign direct investment. Korea itself has to determine if this is what it wants. I have no magic, no crystal ball, but I hope I bring a degree of openness and objective thinking with no pre-conceived ideas or bias to a country with potential that in my view should be realised.