Inside Asian Gaming

INSIDE ASIAN GAMING | July 2011 2 Editorial Inside Asian Gaming is published by Must Read Publications Ltd 8J Ed. Comercial Si Toi 619 Avenida da Praia Grande Macau Tel: (853) 2832 9980 For subscription enquiries, please email [email protected] For advertising enquiries, please email [email protected] or call: (853) 6680 9419 www.asgam.com Inside Asian Gaming is an official media partner of: http://www.gamingstandards.com Publisher Kareem Jalal Director João Costeira Varela Editor Michael Grimes Business Development Manager José Ho Operations Manager Sarih Leng Contributors Desmond Lam, Steve Karoul I. Nelson Rose, Richard Marcus James Rutherford, Sudhir Kale James J. Hodl, Jack Regan William R. Eadington Graphic Designer Brenda Chao Photography Ike ,Alice Kok, James Leong Michael Grimes We crave your feedback. Please email your comments [email protected] Blues and Seoul “Generals always fight the previous war” is a popular maxim of military historians. The same principle might be applied to investors and governments when it comes to foreign direct investment in gaming. South Korea is likely to engage in a major expansion of casino gambling—both in terms of liberalising its domestic market and building several international-standard integrated resorts. That news should be welcomed by the industry. But the excitement should also be tempered by a dose of realism. South Korea is not Macau, nor is it Singapore. South Korea may rely on the military might of the United States to protect it from neighbouring North Korea, but its track record of attracting FDI is patchy. In 2010, FDI in South Korea climbed to US$12.8 billion—a 10-year high, according to the country’s interestingly-named Ministry of Knowledge Economy. To put that in perspective, during the same period, Estonia—a Baltic country of just 1.3 million people— had €11.4 billion (US$16.3 billion) in FDI, according to data from the Bank of Latvia. And the structure of FDI in South Korea appears skewed towardmergers and acquisitions, rather than greenfield investment of the sort associated with casino resorts. A study in 2008 by Young-Han Kim, from the Economics Department at Sungkyunkwan University in Seoul, showed that in the second quarter of 2006, cross border M&A activity into South Korea grew by 500%, while greenfield FDI fell by nearly 30%. That skewing toward M&A appears to have become a trend rather than being a one-off. Why is that? One answer may be potential rates of return on greenfield schemes in South Korea. Labour, materials and land are expensive compared to China. The rate of return on investment—even for a cash generator like a casino—is likely to be significantly lower than in Macau (or even Singapore, where plentiful Malaysian labour was available to build the Lion City’s IRs). Another reason may be that there are still some significant barriers to FDI in certain high growth sectors. Since 1998, South Korea has done a lot to make FDI simpler. Under the Foreign Investment Promotion Act of 1998, out of a total of 1,148 FDI subject sectors, 1,117 were completely opened and 18 were partially opened, according to a paper by Byung S. Min, writing in the Asia-Pacific Trade and Investment Review. The sectors only partially- opened were either politically sensitive, such as cattle-raising and fishing (South Korea’s farmers are notoriously militant); strategic (power generation, logistics, communications and media-related industries); or major tax revenue generators (alcohol distilling, tobacco and crucially, gaming). Local politics also cannot be ignored. Some foreign investors will be wary about sinking large amounts of capital into the soil of a divided peninsula where the northern neighbours have a track record of lobbingmunitions over the fence when under pressure at home. Macau and Singapore have their challenges for investors, but at least in those cities no one needs to carry a tin hat with them when they go gambling.