US looks beyond garments to deepen Cambodia trade

Local people watch from the roadside as a motorcade with US Secretary of State Hillary Clinton passes on its way to the US-Asean business forum and dinner on July 13 in Siem Reap, Cambodia. AFP

23/07/2012
By Steve Finch in Siem Reap
Bangkok Post

The biggest US trade delegation to Cambodia in decades joined Secretary of State Hillary Clinton here as the two countries look to expand their economic relationship beyond exports of cheaply produced garments.

Executives from Google, Goldman Sachs and MasterCard were among the cast of US multinationals that attended the US-Asean Business Forum in Siem Reap on July 13 following Mrs Clinton’s stops in Vietnam and Laos.

“On the economic front, there is much more room for us to grow together, so we are working to foster economic activity in very tangible ways,” the secretary of state said at the US-Asean Ministerial Meeting in Phnom Penh.

Leading a delegation of more than 20 American companies to Hanoi in a meeting with Prime Minister Nguyen Tan Dung, Mrs Clinton noted the trade relationship with Vietnam had grown more than twenty-fold since 2001 to US$22 billion last year.

Cambodia, however, was the focus of the secretary of state’s tour of Asean, a region in which she said the US has invested more than in China.

In what organisers described as the largest contingent of American businesses ever to visit Cambodia, General Electric signed an energy agreement in Siem Reap, which followed an announcement last month that it would invest $3 million in generators for a rice-husk power plant.

Cambodia in 2007 became the seventh Asean market for GE, which has seen revenues in the region grow by 20% annually in recent years.

Other US businesss represented in Cambodia last week, such as Dow Chemical and Cargill, have yet to enter the country, having instead followed the familiar path of investing first in Thailand and Vietnam respectively.

“This mission should further develop US investment in Asean in general, and Cambodia in particular,” said Brett Sciaroni, senior partner at the law firm Sciaroni & Associates and chairman of the American Chamber of Commerce in Phnom Penh.

Despite rising American interest, the US ranks only 10th in terms of foreign investors in Cambodia, accounting for just over one percent of the total overseas capital registered in the country at about $80 million by the end of last year.

China, by contrast, has poured in about $700 million and Malaysia more than $1.6 billion since 1994, according to Cambodia’s investment board.

While US investment has remained insignificant in Cambodia, its trade relationship continues to be distinctly lopsided.

The US trade deficit with Cambodia has grown for each of the past three years, rising to more than $2.5 billion last year, almost all of which was made up of imports of cheaply made garments by American brands such as Abercrombie & Fitch and Calvin Klein.

Although the focus on clothing as a percentage of total Cambodian exports to the US is diminishing, the shift has only been gradual, highlighting the limitations of the country’s industry and of its trade relationship with the world’s largest economy.

Up to May this year, garments made up 95.1% of Cambodia’s exports to the US, a slight fall from 95.4% for the first five months of last year and 96.1% over the same period in 2010, according to US Department of Commerce figures.

American fashion brands have traditionally maintained a presence by proxy in Cambodia, enlisting Asian-owned factories to produce their clothing at rock-bottom prices.

However, some large US companies in different sectors have announced a number of recent multi-million dollar investments in Cambodia.

In March, Prime Minister Hun Sen bought the first-ever Ford vehicle to be assembled in Cambodia, an Everest SUV, after the US automaker invested $3 million in a plant at Sihanoukville’s new special economic zone on the southern coast.

In mid-May, the Philadelphia-based packaging firm Crown Holdings announced it would build a second beverage-can factory, also in Sihanoukville, following a $40-million investment in a similar plant in Phnom Penh.

The US fast-food chain KFC has seen rapid expansion in Cambodia in the past two years, particularly in the capital, while John Deere has seen its tractor sales climb on the back of strong growth and rising mechanisation in the farming sector.

“So while it is true that the main business link to the US is the garment export industry, the economic relationship between the US and Cambodia is becoming more broad-based,” said Mr Sciaroni.

Among the most keenly anticipated US investments in Cambodia, particularly by the government in Phnom Penh, is Chevron’s long-delayed start to oil production at an offshore block in the Gulf of Thailand, which would include an offloading vessel and port storage facility.

The energy company first discovered oil off Sihanoukville a decade ago but the scattered nature of the deposits means its commercial viability is only marginal and therefore determined by, among other things, the rise and fall of oil prices.

“We continue to work with the Royal Government of Cambodia to obtain project approvals to achieve a final investment decision at the earliest possible date,” said Chevron spokesman Gareth Johnstone.

In April, Chevron said it expected to make a decision on the block by the end of the year.