Views Mixed on Private Investment Plunge

The notable drop in private investment last year shocked businessmen and economic ob­servers alike, but some say the figures do not reflect the country’s actual economic activities.

Critics, however, say the investment statistics show Cambodia is still not attractive enough to bring in investors because of unsolved fundamental issues essential for a healthy business climate.

Ninety-seven projects worth $270 million were pledged by private investors last year, a 43 percent drop from the previous year, according to figures released earlier this month by the Council for the Development of Cambodia.

The figures were the lowest in the last six years, and only one-tenth of the country’s peak investment year of 1995.

CDC officials have said the decline is due partly to the negative impact of the regional financial crisis and partly to the government’s effort to approve only serious investment projects. Because of the strict measures, CDC claims that the implementation rate of approved projects in­creased dramatically from just above 10 percent in 1995 to more than 85 percent in 1999.

Thieng Kith, vice chairman of Cambodia’s Royal Group, questioned why private investment has been declining when the country has become more stable and peaceful in recent years.

“Private investment in 2000 should have increased,” he said

MA Mokaddem, general manager of British American Toba­cco, said his firm is going through a difficult time. Last year, the company experienced an 8 percent drop in sales. “The cigarette market is going down fast,” he said.

Business insiders agree that large-scale investors have not come yet, and no new industries other than labor-intensive manufacturing and tourism have been developed.

“Only two industries are active in this country—garment and shoe manufacturing, and tourism,” said Michiaki Takahashi, country manager of Japan-based conglomerate Marubeni. For foreign investors, Takahashi said, cheap labor is the only attraction Cambodia can currently offer.

“The question is: what is the merit for foreign investors to come to Cambodia instead of other competitive countries, like Malaysia, Thailand and China?” he asked. “Cheap labor is the only one Cambodia can provide now, but it’s still not significantly cheaper than others. There is no need to come to Cambodia.”

According to the CDC figures, the industry sector which includes garment, agro-industry, machinery and other manufacturing was in a downturn last year, with total investment of $166 million. Although investment in the garment industry remained stable with 51 factories pledging $79 million in investment, other sectors did not match figures from previous years.

The service sector, including transportation, retail and telecommunications, saw an 85 percent decline from $209 million in 1999 to $30 million last year. Only tourism was up, with a sharp increase in new investment to $79 million last year, thanks to plans to build a tourism center in Siem Reap and other six hotels.

Critics say Cambodia needs to develop incentives to offset its negative investment climate. They say fundamental issues such as a lack of legislation, poor infrastructure and rampant corruption should be taken care of first.

Roger Tan, secretary-general of the Garment Manufacturers Association in Cambodia consisting of 200 factories employing 100,000 workers, said the drastic drop in investment can be attributed to poor results experienced by existing investors.

“Past and current investors have not seen good results,” Tan said. “Therefore, [Cambodia] could not attract new investments.”

He also noted the cost of operations remains high because of Cambodia’s dollarized economy while bureaucratic red-tape hinders investment.

Tan claimed that garment exports, which increased to $950 million last year from $650 million in 1999, could have been 20 percent higher if ministries and their executive arms provided manufacturers more efficient services. Because of delays on decisions and other encumbrances, some manufacturers to fail to meet demands, he said.

“Cambodia [should] brush up its public sector services very quickly because opportunities do not come around in many circles,” he said.

Booming tourism also has room to improve, said Ben Bala, sales and marketing director of Hotel Sofitel Cambodiana.

“It seems we already have enough hotels to accommodate an increasing number of tourists,” he said. “But that is just because only limited number of people can arrive in Cambodia at one time because of the small capacity of international airports.”

Bala said more tourists would visit Cambodia and stay much longer if airports and other transportation networks were developed to handle a large number of tourists. He also said more tourism attractions such as modern shopping centers and theme parks should be built.

“So many things can be done,” he said.

Senaka Fernando, a manager at PriceWaterhouseCooper and head of the 33-member International Business Club, blamed the middle management of government institutions for incompetence.

He said the middle-ranking officials often lack an understanding of the laws, regulations and procedures and many demand bribes to process paperwork. More legislation such as commercial and bankruptcy laws is also needed to establish a standardized investment environment.

Takahashi of Marubeni echoes Fernando’s view, urging the government to enforce the rule of law and fight corruption and smuggling. For example, he said, it is estimated that about 40 percent of petroleum circulating in the domestic market is smuggled from neighboring countries.

“Large-scale investments will not happen unless Cambodia forms legislation, develops infrastructure and has better governance,” he said.

Other business insiders were more optimistic and said the CDC figures simply do not reflect the country’s actual economic situation.

Tim Smyth, managing director of Indochina Research and head the Australian Business Association, said the decrease in investment shows a decrease in “nominal investment.”

Smyth said the retail sector is growing steadily, reflected by a 37 percent increase in the last three years in consumer expenditures on household items. He said the increase shows people now have more money to spend on everything from clothes to electric appliances. He also noted that Cambodians living overseas are now returning with money, ready to invest in housing and other sectors.

“Local domestic economy is growing,” he said.

Smyth said more potential and existing multinational investors are looking for opportunities to expand their businesses in Cambodia. He said his investment research firm has seen a 20 percent increase in clients in the past year.

“There are huge interests in investment,” Smyth said. “The [CDC] figures do not indicate the reality.”

Fernando of PriceWaterhouseCooper also said economic activity is increasing, thanks to better business in the beer, tobacco and gasoline markets. More active Official Development Assistance projects financed by international donors have also helped the economic climate.

“We are getting more and more projects year after year,” Fernando said

Active advertisement is another indicator of an improving economy in Cambodia, according to Pascal Duriez, a general manager at the advertising firm Bates Cambodia. Duriez said petroleum, mobile phone, cigarettes and beer are fast moving sectors in Cambodia’s economy, at least in advertisement. He said his firm estimates that advertisement in those four sectors experienced a 12 percent growth last year.

For example, about 20 new brands joined the cigarette market in the last two years, while the competition in the mobile phone market has become more heated, Duriez said.

“There are positive signs in the economy,” he said.

 

 

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