By Lee Hyo-sik
Staff Reporter
South Korea should create a more welcoming environment for foreign investors and companies if it wants to attract more investments from outside for higher growth and greater job creation, veteran financer David Eldon said.
In an interview with The Korea Times, the chairman of the Dubai International Financial Center Authority, who also serves as a special advisor to the presidential committee on national competitiveness, said the nation needs to send a clear message to foreigners that they will be given the same treatment as locals, stressing that it should take a more friendlier attitude toward non-Koreans.
``Koreans have to make it very clear at all levels that they welcome foreign investment and that non-Koreans will be allowed to operate on the same terms as domestic businesses. If the message is not clear, investors will not come,'' Eldon noted.
He expressed concern over Korea's falling inbound foreign direct investment (FDI), saying the trend indicates that international investors are feeling there are other countries more willing to accept their investment dollars. The world's 13th largest economy has become a less attractive place in the eyes of foreign investors, with FDI coming into the country declining for the third consecutive year from 2005 through 2007.
``Foreign investment has declined sharply. As far as I can tell the majority of inbound FDI has come from existing businesses operating in Korea, not new businesses. It is not a healthy trend. The government can do a number of things to rules and regulations that will assist in creating an attractive investment climate, but the key must be how willing the Korean people are to accept foreigners and their investments,'' Eldon said.
Touching on Korea's effort to transform itself into a financial and business hub for Northeast Asia, he said the nation has indicated its desire to turn the plan into reality by electing outwardly-focused President Lee Myung-bak.
``Of course, Korea has a lot of catching up to do. But Koreans are determined people who have demonstrated on numerous occasions what they can achieve over the past several decades. One thing Koreans should keep in mind is that foreigners do not want to be isolated to some special locations. They want to be part of everyday life here,'' Eldon said.
He said the designation of the free economic zones will not help Korea's bid for a financial hub. ``Foreigners want to be where the centers of activity are located. London, New York and Frankfurt encourage foreigners to participate in the day-to-day life. It is the `togetherness' that makes them attractive.''
Eldon stressed that Korea is not the only economy either regionally or globally that is suffering from the ongoing global financial market turmoil and the consequent economic downturn.
``This particular crisis is of unusual proportions. There is hardly an economy anywhere globally which has not suffered, so I do not believe that Korea should feel it as been singled out. No one is finding it easy to refinance loans from either domestic or international sources. Korea is not unique in this'' he said.
Touching on a series of the government's stimulus measures, including additional fiscal spending and tax cuts, against an economic downturn, Eldon said such moves are on the right course. ``The government has been trying to reinvigorate economic activities and I think it has been doing the right things. However, the difficulty facing Korea is that the confidence of market participants has significantly weakened. Consumers are not in the mood for spending. Businesses are not willing to make new investments and hire new workers,'' he stressed.
Eldon then said Asia's fourth largest economy should take advantage of the weakened local currency to boost its outbound shipments and draw more foreign investment.
``I think the won's recent fall has been excessive. But it has made Korean-made products more competitive on overseas markets. The depreciation of the local currency has also turned Korea into a more attractive destination for international investors and tourists. The nation now has an edge over China, Japan and other Asian economies in this respect,'' he said.
Eldon suggested that Korea act quickly to encourage investors and tourists to come and spend money here, adding it should make the best use out of the weakened won while it can because the domestic currency will gain strength down the road.
He stressed that Korea should open up its financial and other sectors wider to foreign investors to ride out the international financial market debacle and economic slowdown, rather than close its border. Touching on suggestions that Korea should impose a restriction on the capital movement in and out of the country to prevent the ongoing domestic financial market turmoil from happening again, Eldon said financial market liberalization cannot be blamed for the ongoing woes.
``The current difficulties facing Korea were largely created by external events. From a global perspective, I do not think Korea has liberalized its financial and other areas of the economy broad enough, given its status as a developed economy. This may be counterintuitive to many Koreans at the moment. But markets like Britain are suffering just as much but yet they remain open for business,'' he stressed.
Eldon then said Korea should continue to ease regulations and take other measures to further liberalize its economy rather than become a protectionist to emerge as a winner when the global economy rebounds.
``When the ongoing crisis is over, the financial markets will still be operational and will need jurisdictions in which to operate. Korea does not need to have aspirations to be a global financial hub but at least it can prepare itself for being a regional hub. You do not win battles by waiting until everyone is dead and then coming out of hiding, because by then there is nothing left,'' he said, stressing the nation should take the first steps and lead to become successful.
Eldon said the Lone Star Funds' legal trouble concerning the sale of Korea Exchange Bank (KEB) is an important factor in the minds of potential investors.
``I believe that Lone Star's trouble here has sent a very negative message to outsiders. It is possible that there were sound reasons why the transaction proposed by Lone Star was deemed unworkable, but if so it needs to be made clear so that future potential investors can understand their position,'' he said.
He said many international investors remain interested in entering the Korean market but they will not do so unless they know they are welcome, in the same way that many countries open their doors to Korean companies, without restriction.