Even with investment slowing down and the economy in the grips of a downturn, investors say rumours of the death of South Korean investment in Cambodia have been greatly exaggerated.
Construction workers at the Korean-owned Camko City site in Phnom Penh. Developers say the project is going ahead and will be complete by next year.
- Cambodia is becoming a major tourism destination for Koreans. Last year, 266,525 South Koreans visited Cambodia. But the low Korean won and the economic crisis meant arrivals were 12.5 percent below 2007. With the Korean won recovering, authorities hope that Cambodia will see more Korean visitors in 2009.
- Some of the Kingdom's most high-profile construction megaprojects have been from South Korea. They include the US$2 billion Camko City Satellite City in Phnom Penh, the $240 million Gold Tower 42, and the $1 billion International Finance Complex. The developers say the projects are going ahead, despite the economic slowdown and falling property demand.
- The global financial meltdown has not stopped some of Korea's largest banks from expanding into the Kingdom. There are now a total of 6 Korean banks with operations here, most recently South Korea's largest bank, Kookmin Bank. The banks say that high lending rates in Cambodia and low borrowing rates in South Korea are one of the draws to setting up shop in Cambodia.
From construction megaprojects to garments and banks, South Korea is one of Cambodia's biggest economic players, contributing more than US$1.2 billion in investment dollars last year.
Asia's fourth-largest economy, Korea is behind some of the Kingdom's largest and most high-profile projects, including Camko City, Gold Tower 42 and the International Financial Complex. South Koreans visit Cambodia more than any other nationality, with 266,525 arrivals in 2008 making up 12.5 percent of total foreign visitors.
But the economic crisis put Korea's economic might in question - its currency, the won, fell from an average 917 to the US dollar in November 2007 to a low of 1,570 in March 2009. Leveraged Korean banks were on shaky ground, and falling Korean exports were leading to mass layoffs.
The Korean slowdown took its toll on Cambodia, and in the second half of 2008, Korean investment slowed, tourism fell and the Korean-backed Cambodian Stock Exchange faced an increasingly uncertain future. Some questioned whether the large-scale construction projects would be abandoned altogether.
But with relations between ASEAN and Korea approaching its 20th year, and with some signs of economic recovery, Korean officials and investors say they are still very much in the game and that more investment may be on its way.
"Investment slowed down in the last part of 2008, but the economy is starting to look a bit better now, and I expect that Cambodia will see some new Korean projects in the second half of the year," said a South Korean embassy spokesman.
Korean investors say Cambodia is one of the region's last unexploited markets where land and labour are still inexpensive, and the high-end real estate and tourism markets remain largely untapped.
The $2 billion Camko City satellite city, backed by World City Company, says the project is moving ahead on schedule, despite the property slowdown. During a visit to the development in Phnom Penh, workers were busy putting the finishing touches on houses, fountains and roads in a mini-city that resembles an American suburb. Some units already had stoves, counters, electricity and running water, and appeared months away from completion.
"Nearly 80 percent of the units have been sold out. We are strongly confident that our first-phase units will be supported by clients," wrote DK Kim, vice president of World City, in an email.
"Cambodia really has a lot of potential for not only real estate, but also other types of investments. Real estate is not the only objective that we have in Cambodia," he said.
The project is set to be completed by early 2010 and is to feature condominiums, a shopping centre, fitness facilities and public gardens.
Another major Korean investment is Kookmin Bank, Korea's largest bank by assets, with US$195 billion in assets as of December 2008. The bank's Cambodia president, Ki Sung-jang, says the financial crisis has not affected plans to expand into what he says is an untapped market.
The bank opened its doors in Phnom Penh in early May, and Ki says Cambodia's emerging wealthy class is a major opportunity.
We see Cambodia as a high-potential market, similar to Vietnam 15 years ago.
"We are mainly targeting wealthy individuals, people who have a lot of money, but are not confident to put it in local banks. We want people to know that we are a safe place to put their money," he said from the bank's new offices in Phnom Penh.
"Last year, we had a problem with the US dollar being too high, but now we are fully covered. The margins have gone from deficit to profit," he said. "Korea's banks are restructuring and we expect them to fully recover."
Local interest rates are considerably higher than in other Asian countries, which is good for banks that can borrow abroad. "Cambodia's interest margins are also very attractive compared to other countries," Ki Sung-jang said.
"We came to Cambodia because we want to be here early. We see Cambodia as a high-potential market, similar to Vietnam 15 years ago ... We still don't have many of the big players like HSBC, so we want to be established here beforehand."
Diplomatic relations between Cambodia and Korea began in 1997, and from 1994-2004, Korean investment averaged less than $2 million per year. The turning point came around 2006 when the economy was nearing the height of its recent bubble.
The managing partner of one of Cambodia's largest investment funds says Korea
was one of the major drivers behind the country's property boom from 2006-08. "The first wave of Korean investment was mainly because of large-scale property projects rather than manufacturing that creates jobs," said Douglas Clayton of Leopard Fund.
"In the memory of the Korean government, they saw South Korea go from being a frontier market to a developed economy. So they know it is possible for historical reasons. They also don't want to put all of their eggs in the China basket. Cambodia is an alternative base for production and investment," Clayton said.
But with the economic recovery still in question, experts say Korean investment in Cambodia depends on conditions in Korea itself.
The Economist Intelligence Unit's most recent report on Korea revised upwards its 2009 GDP growth projections from negative 10.1 percent to negative 6 percent; and upped the 2010 projection from 0.1 percent to 0.4 percent. Exports, the main driver of growth, would fall 13.1 percent in 2009 and grow 2.1 percent in 2010, the EIU said.
Korea's government for its part has taken action to boost growth. Since September 2008, sweeping stimulus measures have included tax cuts, increased spending and looser monetary policy.