“Moving Beyond Misconceptions: Korean Investment in Cambodia” is a series of three reports. It comprises a critical review of Korean investment in Cambodia as well as two extensive investment case studies, one in mining (Kenertec) and the other in agri-business (MH Ethanol).
As indicated in its name, this series aims to help dispel certain misconceptions about Korean investment in Cambodia. However, it should be stressed that this research is not meant as a charge on Korean investment. Rather, it aims to provide a hitherto nonexistent scrutiny of one of Cambodia’s perceived top investors and shed some light on the issues arising in the context of foreign investment in the developing country, whether they come from Korea or somewhere else.
One of Cambodia's top investors?
Korea’s growing influence in Cambodia in recent years is hard to miss. Korean dramas and songs commonly feature on the local TV and radio channels, young Cambodians worship Korean fashion and hairstyles, and Koreans have long represented the largest group of tourists visiting Cambodia. Meanwhile, Korean projects had the ambition to modernize the urban landscape with a scattering of modern high-rises, most prominently Camko City’s satellite city or the Gold Tower 42, the first skyscraper project initiated in Phnom Penh. Without drawing as much attention - or criticism - as their Chinese counterparts, Koreans had become one of Cambodia’s top investors... or so was it widely claimed.
Approved investment vs real investment
The Council for the Development of Cambodia (CDC), the government body in charge of approving investments, publicly releases statistics for approved investment only. These indeed show that Koreans became Cambodia’s second investors in 2008 with over $1.2 billion and even, after a post-crisis slump in 2009, its top investor for the first quarter in 2010 with more than $1.02 billion. However, approved investment does not equate with an actual one.
In contrast to the CDC, the Korean Export-Import Bank publishes data for both approved and actual investments. While its figures confirm that Korean investment to Cambodia have experienced a genuine boom over the last decade, they also reveal a consistent discrepancy between approved and real investment. At times, the difference is quite significant, especially for the so-called record years for Korean investment, which actually saw real investment at a third less than the approved levels in 2007 ($629 million vs $829 million) and less than half in 2008 ($526 million vs $1.2 billion). For the first half of 2011, actual investment paled at $45 million compared to a $1.1 billion approved figure, which resulted from a surge of more than $1 billion of approved investment in the Cambodian mining sector.
What does this mean?
This difference means that while Koreans investors have - and continue to - apply for projects in Cambodia, their interest may remain as “virtual capital” and fail to translate into real developments on the ground. One such example is provided by Korean company Booyoung. While it has acquired various plots of land in Phnom Penh for real estate development projects, the land has not seen any construction take place for a few years already.
On their own, approved investment figures reflect foreign interest in the investing opportunities offered by a country. But they fail to provide an accurate picture of the actual economic contribution made by foreign investors. The discrepancy between approved and real investments appears to indicate that the actual magnitude and impact of Korean investment in Cambodia might have been overstated, especially its flagship involvement in the real estate and construction sectors where this gap was starkest. It also raises questions over the quality of those projects that are approved but not realized and how solid they actually were.
In this regard, a look at various Korean projects highlights some troubling issues. Progress has stalled at Camko City since the end of 2010, with questions arising over the project’s future when its main financial backer was engulfed in a large corruption scandal in Korea.
The two case studies examined for this research also failed to meet their business goals. MH Ethanol suspended operations at its biofuel factory barely two years after its start. Kenertec pulled out of the country without any major development of its mining concessions, after its mother company was involved in a corruption scandal and went bankrupt. In addition, a closer look at these cases revealed a troubling record of being associated with the Cambodian military and causing land disputes and/or environmental pollution, with no proper remedy for those communities who suffered negative impact.
A need for closer scrutiny
Of course, it is not suggested here that the reviewed case studies are representative of Korean investments at large. However, it is believed that they illustrate the issues that may and do arise in the context of foreign investment in Cambodia, concerning both business performances and the potential or actual impact at the local level.
Despite its frequent portrayal as an “emerging investment destination”, Cambodia offers persisting challenges to investors as a country still plagued with serious transparency and governance issues, which effect businesses are not immune from. In addition, the fate of some Korean projects in Cambodia raises questions relating directly to the Korean corporate world. Looking at the corruption scandals that affected Kenertec or more recently Camko City, one wonders whether mismanagement and a lack of transparency within certain Korean companies may not facilitate the inception of unrealistic or ill-prepared investment projects overseas.
Foreign investment can and should play a role in the development of an impoverished country such as Cambodia. However, this can only happen where there is sound investment, strong accountability, and their cornerstone, public transparent information. At the extreme opposite, flimsy or irresponsible investors may not only fail to make a meaningful contribution to the economy, but also damage the image and reputation of their company but Korea itself too.