Korean Infrastructure Projects and Investment Seminar
City • November 4, 2002
Speech by Keith W, Rabin
afternoon. I would like to thank all of you for taking time today
to attend the Korea Investment Service Center’s Korean Infrastructure
Projects and Investment Seminar. Before introducing you to our
speakers and members of the delegation, let me take a moment to
talk about some of the reasons I believe Korea represents one
of the most exciting investment stories in the world today.
About ten years ago, I was working on a consulting assignment
for one of the world’s largest financial institutions. Our
role was to support the launch of their new telecom finance division.
A review of the data revealed that Korea possessed high growth
rates and on paper -- perhaps the most attractive market in Asia
for telecom equipment and services. We brought this to the attention
of the client -- suggesting Korea as an initial focus. This recommendation
was immediately dismissed. They viewed the market as closed and
impenetrable, preferring other countries such as Indonesia, which
they viewed as more promising and inviting.
I mention this anecdote to illustrate a critical point. The Korean
economic miracle was based upon an insular strategy. Until the
mid-1990s, the nation had been able to finance one of the world’s
strongest growth rates -- for over thirty years -- largely through
its domestic savings. Drawing on its traditional spirit of self-reliance,
it developed a world-class presence in sectors ranging from semiconductors,
chemicals and steel to industrial components, textiles, ships,
and construction. Korea’s great success, however, was accompanied
by rising living standards and expectations. Newer low cost competitors
including the Southeast Asian counties, and more recently China,
followed in their path. Over time, this eroded the competitive
advantage they had built as a low-cost manufacturing power.
By the mid-1990s Korea had grown to the point where it was the
fifth largest trading partner of the United States and the world’s
eleventh largest economy. Many Korean firms, particularly the
large conglomerates, realized the need to develop offshore. The
traditional Korean tendency to go it alone, however, provided
few examples of successful joint ventures and business alliances
between Korean and foreign firms and most foreign consumers had
little or any awareness of Korean brands or products. Investments
into Korea were even more scarce, and for many years the Korea
Fund, a U.S. closed-end mutual fund, traded at a large premium
to net asset value due to restrictions that were placed on foreign
investors that sought to directly invest in the stocks of Korean
Realizing its future growth and prosperity was ultimately dependent
upon the nation’s ability to reach out and internationalize
its economy, Korea moved to adopt a national globalization policy.
The IMF crisis intervened in 1997, though in retrospect this can
be seen to have greatly accelerated this process.
To resuscitate its economic standing, Korea rapidly introduced
the reforms needed to create a more market-driven economy. Substantial
progress has been achieved through enhanced corporate governance
and profitability; disposal of non-performing loans and financial
sector consolidation; a more flexible labor market; and in the
public sector, privatization, deregulation and decentralization.
Korea’s success in recent years is reflected in ratings
upgrades and the dramatic change of its external position. A net
debtor with obligations totaling $54 billion in 1997, earlier
this year Korea achieved a net credit of $41.6 billion. Reserves
have stood as high as $108 billion — higher than the U.S.,
Germany or France.
These achievements are now widely recognized by international
investors. From 1998-2001, Korea attracted nearly $52 billion
in foreign direct investment. This is more than twice the $25
billion it gained in the 36 years before the crisis. Ninety-eight
percent of all industrial sectors are now unrestricted and foreigners
own about 37% of listed Korean shares. Among Korea’s most
competitive and widely-held companies such as Posco, Samsung Electronics
and Kookmin Bank foreigners hold about 66% of listed equity. This
is an extraordinary change from a few years ago.
Changes in banking practices have also reduced non-performing
loans from 13% of assets in 1999 to 3.4% last year. Korean banks,
which suffered a 4 trillion won loss four years ago, now earn
net profits totaling 5.2 trillion. Corporate reorganization has
also proceeded rapidly. Of Korea’s top 30 firms in 1997,
16 have been closed or significantly reorganized. Companies that
remain have downsized and sold assets in an effort to maximize
In addition to more robust financial strength, Korea has also
begun to emerge as an international technology center, positioning
itself as a world leader in areas including, but not limited to
broadband, Internet gaming and mobile communications. Moreover,
Korean firms, including Samsung Electronics, Kia, Hyundai Automotive
and LG have all made significant progress in launching high-end
proprietary brands that have been well received by U.S. and other
Korea, which had formerly relied upon exports as the primary engine
of its economy, is also developing as one of the more robust domestic
markets in Asia. Its well-educated work force is quickly transforming
itself into a sophisticated consumer society. Consumption of goods
and services is growing at a rapid rate — making the nation
an increasingly attractive destination for foreign consumer and
luxury goods manufacturers.
One other trend, however, is of critical importance to investors
that focus on infrastructure investment – the subject of
our seminar today.
In addition to the achievements that I have mentioned, which have
strengthened Korea from both the perspective of its domestic market
and its international competitiveness, Korea has come to recognize,
and is now moving rapidly to take advantage of its strategic location.
It is making significant investments to develop the expanded physical
infrastructure needed to position the nation as the business and
financial hub of Northeast Asia. This includes the new Incheon
Airport, which possesses the capacity to carry 27 million passengers
and 1.7 million tons of cargo annually. Over the next two decades,
the airport will grow in phases to handle 100 million passengers.
It is the largest infrastructure project ever undertaken in Korea.
Additional infrastructure includes a renovation of Incheon’s
seaport and the resumption of rail traffic through North Korea
and all the way through to Western Europe.
In addition to these central government initiatives, Korean municipalities
and provinces are also moving to develop a wide range of projects
that will serve to further expand their regional, and Korea’s
overall, economic potential in the years and decades to come.
This includes technology, tourism and industrial-oriented initiatives
including the development of public works, residential and commercial
real estate, resorts, R&D centers, transportation facilities
and much more.
Our visiting delegation includes representatives from Gangwon
Province, as well as Gyeongbuk, Jeju Island and Jeonbuk, Incheon
Metropolitan City, Seoul and Daejon and the Korea National Tourism
They have all traveled here today to speak with you about their
regional development plans and local investment opportunities,
as well as general trends within their respective jurisdictions.
After lunch, I urge you to meet with delegation members individually
so that you might exchange views and gain further insight into
their activities. If you have not already scheduled appointments,
please take a moment after lunch to visit the registration desk,
where representatives can help you to arrange a convenient time.
I would now like to again thank you for your participation and
to commend our first speaker, Mr. Pyeong-Rak Choi, Executive Director
General of the Korea Investment Service Center for his helpful
introductory comments. In a moment I will introduce you to Mr.
Dae-Hyung Cho, Head of the Investment Consultation Team of the
Korea Investment Service Center, who will speak to you about Korea’s
Business Environment and Foreign Investment Incentives and provide
an introduction to the Infrastructure and Investment Projects
offered by the visiting delegation. We will then have time for
a question and answer session, after which we will adjourn for
Finally, before concluding, should any of you have questions in
the weeks to come after this event, I would urge you to contact
representatives of the Investment Consulting team at KOTRA, the
Korea Trade and Investment Promotion Agency here in New York.
They would be pleased to help you in your efforts to better understand
and enter into the Korean market.
Please let me now introduce Mr. Dae-Hyung Cho, Head of the Investment
Consultation Team of the Korea Investment Service Center.
The preceeding information is provided by:
KWR International, Inc.
New York, NY 10023
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