Weak spots seen in Kingdom trade

Tuesday, 08 November 2011
Don Weinland and May Kunmakara
The Phnom Penh Post

While the World Trade Organisation yesterday lauded Cambodia’s economic achievements since joining in 2004, officials pointed to the lack of much-needed financing for the Kingdom’s burgeoning trade sector.

Cambodia lacks the capacity to finance the manufacturing and agriculture exports that would allow the country’s industries mature, Minister of Commerce Cham Prasidh said yesterday, speaking at a presentation of the WTO’s first trade policy review of the Kingdom, released on Friday.

“We are still running short of liquidity from commercial banks and from other financial institutions. We have a lot of warranties to trade but not [enough] money to roll out these activities,” he said.

Cambodia has exported more than 2 million tonnes of unmilled rice this year, the minister claimed last month. And rice yields have increased by more than 4 per cent compared to last year, rice experts in country have said.

Still, rice, corn and cassava traders largely fail to capitalise on value-added processing, which is currently done abroad, and lose out on potential revenues, Cham Prasidh said.

Exporting 2 million tonnes of milled rice requires about US$1 billion to finance the buying, processing and exporting of the grain, Cham Prasidh offered as an example. Resources from local banks are limited at about $300 million for rice financing, he said.

Financing shortfalls also strain the Kingdom’s garment manufacturing industry, Garment Manufacturers Association of Cambodia president Van Sou Ieng said yesterday.

The industry’s annual export value of about $3 billion is nearly equal to the commercial bank loan capacity in Cambodia, he said, leaving a dearth of local trade insurance and financing.

Where domestic financing has fallen short, the World Bank and the Export-Import Bank of the United States have not come to the industry’s aid despite lobbying efforts, he said.

“All [the two banks] needed to do is check the credit of the buyer: Gap, Levi's . . . For such an easy task, they still have a problem. I do not know what the problem is,” Van Sou Ieng said.

According to the WTO trade policy report on Cambodia issued last week, the inaccessibility of finance abroad may be connected to the significant increases in labour and land disputes, as well as unenforced or inadequate regulation.

In early August, the World Bank halted new country loans to Cambodia because of ongoing land disputes at Boeung Kak lake in Phnom Penh.

Garment manufacturers – largely with support from parent companies in Hong Kong and Taiwan – finance themselves, Van Sou Ieng told the Post yesterday, adding that smaller local companies without ties abroad often find themselves without resources.

While Cambodian banks and the Ministry of Economy and Finance need to increase dialogue with the World Bank and the US Ex-Im Bank, stronger sources of credit need to be developed domestically, he said.

“For local companies and the future of Cambodia, the finance system needs to be anchored in Cambodia,” Van Sou Ieng said.

While Cham Prasidh offered the establishment of an export-import bank for Cambodia as a possible solution to the finance deficit, WTO deputy director-general Valentine Sendanyoye Rugwabiza said there should not be contention over the credit records of garment importers in the United States.

At the discussion yesterday, she said the WTO can discuss what she called “the very least risky finance” with Asia Development Bank for future financing solutions.

A local solution, however, is already developing for rice finance as banks do away with a collateral system based entirely on land titles, Canadia Bank vice president Dieter Billmeier said yesterday.

Loans based on land titles are being replaced by the financing of equipment and warehouses, as well as leasing, Billmeier said.

“In the past, banks in Cambodia only gave loans against land titles. But this is going to change,” he said, adding that during the past 15 months Canadia’s agriculture financing has increased by $100 million. 

But the change is coming slowly, Billmeier said.

While some of Cambodia’s bigger banks, as well as a few Malaysian banks, have reconsidered their financing strategies, many smaller banks have yet to take up the unfamiliar practice, he said.

Consolidation among rice millers is also needed to amass collateral, Ung San Ol, senior vice president of trade finance at ACLEDA Bank, said yesterday.

“Every rice miller wants to export individually, but if they want finance they must get together,” he said.