Jun. 14, 2007Cambodian PM to lead call for investment from JapanTakashi Kikuchi
Yomiuri Shimbun Correspondent (Japan)Cambodian Prime Minister Hun Sen, who arrived in Japan on Wednesday, will likely call for direct investment in his country during talks with Prime Minister Shinzo Abe scheduled for Thursday.
Cambodia is keen to invite investment from Japanese companies, which has remained low even though the Southeast Asian country has posted higher economic growth than Vietnam.
He also will attend a seminar for investment in Cambodia to be held in Tokyo by the ASEAN-Japan Center. He plans to directly explain Cambodia's basic policy of economic development to Japanese companies.
Cambodia joined the World Trade Organization in 2004, earlier than Vietnam. Up until 2006, the country recorded more than 10 percent of real growth in gross domestic product for three years in a row.
Hun Sen is keen on luring Japanese firms to invest in his country because of his confidence in maintaining high economic growth and also of his personal feeling of friendship with Japan.
But the most important reason behind his enthusiastic campaign is that direct investment from Japan is tiny compared with that of other major nations.
According to the Council for the Development of Cambodia, South Korea was the top direct investor in the country on a registered basis, pouring in 2.36 billion dollars between 1994 and 2006. China, ranked third, invested 1.58 billion dollars during that period.
Japan invested only 22 million dollars, accounting for 0.2 percent of foreign direct investment in Cambodia. The figure was dwarfed by the 600 million dollars from the United States and the European Union.
In recent years in Cambodia, the inflow of foreign capital has helped the country's labor-intensive textile industry become second only to agriculture in the nation's economy.
According to the Garment Manufacturers' Association in Cambodia, about 300 plants in the country employ about 340,000 people.
Cambodia's advantage is low manufacturing costs, though its productivity is lower than China. Most investment in the industry in Cambodia comes from Taiwan, Hong Kong, China and South Korea.
In 2006, Cambodia exported 2.75 billion dollars worth of garment products, 70 percent of them to the United States and 25 percent to the EU.
But exports to Japan and investment from Japan have been small because Japan is a special market in which consumers are highly conscious of quality merchandise, a spokesman for one of the country's Malaysian-funded garment makers said.
To tackle the situation, Cambodia has taken rapid steps to sign a bilateral investment accord since January.
The accord includes a clause protecting investment, by which the Cambodian government is prohibited from unilaterally confiscating assets in which Japanese companies invest, as well as a measure liberalizing investment whereby Japanese companies are not discriminated from local firms in terms of investment approval.
Hun Sen is scheduled to sign the accord during his visit to Japan, aiming to encourage greater investment.
However, there have been glimmers of hope already, with Japanese investment already taking a foothold in the motorcycle production industry.
Cambodia's motorcycle market is expected to grow from about 100,000 units in 2006 to 350,000 units in 2015.
Due to these expectations, a Cambodian subsidiary of Suzuki Motor Corp. started producing motorcycles in 1999.
Though the subsidiary had previously imported fully assembled bikes from Thailand, it localized the assembling process because import tariffs on parts at 96 dollars is half those on fully assembled motorcycles. The subsidiary manufactured 35,000 units last year and plans to increase output by 10,000 units every year.
Monthly salaries for the 65 plant employees range from 89 dollars to 140 dollars. Rikuo Watanabe, president of the subsidiary, said, "Labor costs account for a tiny portion [of the total cost]."
Elsewhere, Toyota Tsusho Corp. formed a joint venture with local investors and constructed a plant in Phnom Penh that will start assembling Yamaha-brand motorcycles in July. The plant will obtain parts from a Yamaha Motor Co. plant in Thailand.
Toyota Tsusho also operates another joint venture to import and sell Toyota Motor Corp. cars in Cambodia, aimed at a small but growing market among the country's population of 14 million.
For Japanese companies, Cambodia has the disadvantages of being sandwiched between promising investment targets--Thailand and Vietnam--and having a small population. Some Japanese companies also point out problems stemming from rampant bribery--a hidden cost in certain situations in the country.
But investment in Cambodia has many merits. Foreign companies can be exempted from corporate tax for up to nine years with the approval from the Council for the Development of Cambodia.
Cambodia imposes no restrictions on foreign capital in most industrial sectors and its administrative systems are highly transparent.
The Cambodian government also plans to set up 10 special economic zones across the country and has made efforts to have close contact with the private sector.
Japanese companies can benefit from the merits as the Cambodian government is enthusiastic in improving investment.
Japanese manufacturers have begun looking for new investment locations to replace China, where labor costs have risen and the government started reviewing the preferential treatment of foreign capital.
But whether Japanese companies will invest more in the country as an export base to the rest of the world depends on Cambodia's efforts to improve circumstances for foreign investment.
