Business: Welcome to the kingdoom of ... rampant corruption and crony capitalism

Cambodia Calls

MONDAY, JULY 27, 2009
By LESLIE P. NORTON
Barron's (USA)

Checking out Cambodia's nascent economy.

REMEMBER FRONTIER MARKETS? Those in Pakistan and Vietnam, the high-octane sector of the developing world, promising even swifter growth than the more mature emerging markets?

They've been left in the dust this year as investors swarmed to so-called BRIC funds -- those that trade in shares of Brazilian, Russian, Indian and Chinese companies -- as well as to emerging-markets funds. The MSCI BRICs index has returned 53% in 2009, while emerging markets have returned 43%, and the corresponding frontier markets index, just 4.8%. (The Templeton Frontier Markets Fund is up 23%.)

Says Michael Hartnett, Merrill Lynch's global equity strategist: "Interest in frontier markets has lagged because of liquidity issues." But if enthusiasm about growth in China and almost anywhere outside the developed world gathers steam, expect new interest in frontier markets to jump.

David Wilton, chief investment officer of the International Finance Corp.'s private-equity and investment-funds department, thinks a change is already under way: "The mood has shifted noticeably from February. Now the listed equity markets have recovered, and they're thinking about investing."

The latest market to get attention is Cambodia, where a handful of investors familiar with Vietnam and Thailand are trying to set up funds. Cambodia is very poor, with rampant corruption and crony capitalism. But economic growth is robust, even if the economy is just $8 billion. Douglas Clayton, managing partner of Phnom Penh-based Leopard Capital, has raised just under $30 million and is trying to raise more; sitting on his board is markets commentator and Barron's Roundtable contributor Marc Faber.

Cambodia doesn't have a stock market yet, but Clayton believes it could by year's end. There are numerous foreign-sponsored companies, including banks and cellphone operators, though the economy is largely agricultural. The median age in Cambodia is 21, the lowest in Asia. Clayton reckons that about 70% of the population, which numbers 14 million, wasn't yet born during the horrific regime of the Khmer Rouge, estimated to have killed two million Cambodians.

"Cambodia is back open for business," says Clayton, who is applying for citizenship. "This is a failed state that's back on its feet."

Conservative investors aren't impressed. Says Peter Newell, managing director of Vontobel Asset Management: "We look for a $50 million bottom line, low leverage, high ROA [return on assets]. Can you find that in a frontier market? No. Not even in China, not easily."

David Wilton of the International Finance Corp. agrees: Investing in Cambodia may be, as he delicately puts it, "a wee bit nascent," and there are few deals to support private-equity funds. Still, Wilton concedes that the IFC is very close to seeding a fund to invest there.

Govt must address the real issues of concern

Wednesday, 01 October 2008
Written by Sophan Seng
Letter to The Phnom Penh Post

Security is a central claim for the next five years in power for Hun Sen. He says Cambodia in future decades will not worry about terrorism, civil war and social chaos. But the core issue of security here is not terrorism - it is food security, social equity security, democratic security and especially government officials who should be security-checked before being sworn in.

Dear Editor,

I refer to your article "New CPP-dominated Assembly sworn in" [Phnom Penh Post, September 25.] The recent swearing-in is a historical moment for Hun Sen's political leadership - his way to premiership was smooth and democratically legitimised. Previously, his path to premiership had experienced some hardships. For instance, in 1993 he was the second prime minister with Prince Norodom Rannaridh as first prime minister; in 1998 there was the coup that allowed him to consolidate his sole premiership; in 2003 parliament was stalled for almost one year before his premiership was given to him again.

I appreciate the fact that this 2008 assembly mandate has been smoothly, legally sworn in, and in particular the participation of the Sam Rainsy Party's 26 representatives who endorse Hun Sen's premiership for another five years as mandated. But the successful ascent to premiership through parliament does not warrant the level of centralisation in the executive branch. His government comprises far more high-ranking members than before, especially those from the dominant CPP party.

The challenges ahead are daunting - such as ensuring national security. Key issues to address this mandate are security, illegal immigration, the high rate of corruption under the current system of crony capitalism, land price speculation leading to land grabs and the ongoing border dispute with Thailand.

Security is a central claim for the next five years in power for Hun Sen. He says Cambodia in future decades will not worry about terrorism, civil war and social chaos. But the core issue of security here is not terrorism - it is food security, social equity security, democratic security and especially government officials who should be security-checked before being sworn in.

Many countries have different methods of ensuring lawmakers meet certain security standards, such as checking the background of persons to ensure that they are not abusing their position and mandate in government to do harm to their country.

This new approach of security should be amended by the parliament checking the background of any person who will be employed as military, police or state officials. Achieving this security clearance stabilises the government's leaders as well as the whole nation.

Crony capitalism has been widespread in Cambodia. After the civil war, the open horizon of market-based economics in Cambodia swiftly and horrendously embodied itself in a type of crony capitalism. Cambodia has significantly evolved itself a "national crony capitalism", which means all national economic mechanisms and dynamics are controlled by just a few businessmen. This kind of emergent economic trend will hinder the emergence of economic equity and will widens levels of inequality in the Kingdom.

Sophan Seng
PhD student in political science
University of Hawaii at Manoa