Your Global Local Partner - Why Cambodia ?

Cambodia is a rapidly changing society that presents many opportunities to encourage the investors who want to research and proceed prudently. For last decade, FDI has been increasingly convinced of the Royal Government’s commitment to the process of reform itself. The country’s commitment to a market-based economy is without question and is enshrined in the Constitution. In looking at economic opportunities in Cambodia, one always needs to look at them in the context of Cambodia’s larger relationship with the region. In 1999, Cambodia became a member of the Association of South-East Asian Nations (ASEAN), a political grouping which groups 10 countries with a total population of about 550 million and a GDP of something under $600 billion — at purchasing power parity, $1.8 trillion. The Asia Free Trade Area (AFTA) is the economic manifestation of area economic integration. Under agreements, which give Cambodia a phase-in period to protect local companies, the Cambodian government will reduce most tariffs on Cambodia’s exports to its neighbors to between 0 and 5% by 2010 or before and will abolish them altogether by 2018. The much later China–ASEAN Free Trade Area (CAFTA), will come into effect in 2010 and will create a trading block of 1.7 billion people. Talks under way between India and ASEAN could create another trading relationship almost as large. In addition, as an LDC, Cambodia has preferential access to some of the world’s richest markets for a number of products.

Cambodia has one of the most open economies in what is a generally very open economic region. According to the Heritage Foundations Index of Economic Freedom which is complied annually Cambodia ranked 35th among 170 countries in 2003 in terms of economic freedom. This puts it on a par with Japan and well ahead of several of its neighbors (Malaysia, 72nd; Indonesia, 99th; Viet Nam, 135th; and Lao People’s Democratic Republic, 153rd). The Index noted the Cambodian government’s positive policies in terms of the level of fiscal burden, labor market restriction, regulatory barriers and trade policy. This is not to say that Cambodia is not without problems similar to many poor less developed countries (LDCs) such as poor health care, limited infrastructure, low government salaries, etc. but at least with respect to doing business the country does offer a progressive welcome to investors. Emblematic of this welcome, according to the Index, Cambodia is at the top of the chart among world’s LDCs in market-friendliness. Among the areas of note are:

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Why Cambodia for Your Investment?

Why not Cambodia for Your Investment with many advantages:

Young, dynamic workers - Low wages - Low cost - Liberal government policy on business - Access to larger markets....

and a country that offers extensive opportunities for FDI...

Agriculture

Investment in agriculture offers extensive opportunities, especially in organic farming, agro-processing and several other sectors. Fertile land, plentiful water and access to a willing and cheap workforce all offer opportunities for further development if the foreign partner brings in the necessary know-how, knowledge and access to markets, etc. Although foreign investors cannot own land, they can acquire long-term use of it through 99-year leases, and can also acquire partial ownership by joint venturing with a local partner who owns 51% of the equity. Among the opportunities identified by the Government are those in fisheries, rubber processing, sugar processing, jute, palm oil refineries, and all kinds of tropical fruit and organic fruits and vegetables.

Foreign direct investment (FDI)

Throughout the 1990s, Cambodia attracted increasing amounts of FDI. When viewed on a US Dollar per $1,000 GDP basis, Cambodia has done excellently and compares favorably to China and Vietnam by this measure. The improving political and macroeconomic situation has helped, as has the openness of the economy. According to the official figures supplied by the Cambodian government, Malaysia was the biggest investor during the 1994–2001 period, with 31.2% of all investment and 79% of ASEAN investment over this period. Why has Malaysian done so well in Cambodia? Malaysia was the first country to sign a bilateral visa exemption agreement with Cambodia in 1992 and Malaysian investors were the first to come and thus received a great many investment concessions, including concessions in mining and forestry. Other important sources of FDI were Taiwan (8.27%), the United States (7.28%) and China (4.47%).

FDI grew from almost nothing in the late 1980s to an annual average of $61 million in the first half and $217 million in the second half of the 1990s. This is all testament to the way in which Cambodia had managed to turn itself around after a prolonged period of instability. Two further points must be noted. First, this was not FDI going into natural resources, as is often the case in a developing economy such as Cambodia. The breakdown of FDI approvals by the Cambodian government suggests that FDI in this period went mainly into tourism and manufacturing, with infrastructure and construction a somewhat distant third. Secondly, through much of the last decade of the century, Cambodia attracted proportionately more FDI, given its gross domestic product (GDP), than most of its neighbors and competitors. Even in 2001, it attracted more per $1,000 in GDP than its neighbors as well as China. When this is taken together with some of the advantages and positive trends mentioned above, it suggests that the country’s investment performance is likely to continue being robust in the foreseeable future. Please note that official FDI figures in Cambodia as in many other developing countries particularly LDCs, are based on approved investment. Actual investment may be only a small percentage of the approved amount. Cambodia’s approved figure for FDI flows in the period 1994–2001 is close to $6 billion. According to a study done by UNCTAD actual figure for the same period is somewhat under $1.4 billion. Cambodia has come a long way in a very short period for today security which is a lesser issue although crime is rising as in any other developing society; but tourists freely travel to most major tourist venues with little worry.

Tourism

Tourism is the area in which Cambodia rightly most wants to attract foreign investment. This goal is little different than its neighbors like Thailand, Vietnam and most recently even Laos. The country is anticipated to exceed the 1-million-tourists mark in the next two years and the potential here may be huge. Although much of the development to date has concentrated on servicing visitors at the Angkor complex of temples near Siem Riep, the laid back colonial charm of Phnom Penh and the beautiful beaches of the South also offer abundant opportunities. Eco-tourism and cultural based tourism still offer almost unlimited potential as do investment in hotels, golf courses and other amenities. The government of Cambodia is quite progressive in dealing with these opportunities and several build-operate-transfer (BOT) schemes are already in operation, for example

at the Phnom Penh international airport. Additionally potential financing can be explored from a variety of sources, including the Asian Development Bank (ADB), the International Finance Corporation (IFC) and donor countries such as Japan.