Yearender: Developing Asia leads global economic recovery

By Prime Sarmiento, Cai Ordinario

In the first quarter of the year, several Asian-based manufacturers had to cut production and their labor force, as orders from abroad dried up. In Cambodia, for instance, numerous garment companies closed shop owing to the sharp decline in garment exports to its main market -- the U.S.

MANILA, Dec. 22 (Xinhua) -- Developing Asian economies are leading the global recovery from the worst recession since the Second World War thanks to swift government response that allowed the region to keep most of its hard-won economic gains.

Multilateral lenders have upgraded their growth forecast for the region, impressed by its resiliency amid the meltdown. In its report issued December, the Asian Development Bank raised its GDP forecast for this year to 4.5 percent, up from the September forecast of 3.9 percent.

In November, the World Bank revised its projection for real GDP growth in developing East Asia to 6.7 percent, or 1.3 percentage points higher than its April forecast.

"Developing Asia, in general, is already on the way to recovery. The year 2010 should see faster growth compared to this year," Cayetano Paderanga, economics professor at the University of the Philippines and former Philippine Socio Economic Planning Secretary said in an interview with Xinhua.

The global recession, which started late 2008, slowed the U.S. and Western European economies, shrinking demand in these countries. This hurt Asia most as its economies were powered by its manufacturing sector that exports most of its produce -- from electronics to garments -- to industrialized economies.

In the first quarter of the year, several Asian-based manufacturers had to cut production and their labor force, as orders from abroad dried up. In Cambodia, for instance, numerous garment companies closed shop owing to the sharp decline in garment exports to its main market -- the U.S.

Thai automotive industry's exports and production fell 40 percent in the first quarter, pushing the car manufacturing firms to retrench 100,000 workers. In Malaysia, where electronics account for nearly 40 percent of total exports, electronics manufacturers laid off contract workers and reduced working hours to stay afloat amid declining shipments.

Joblessness, wage cuts and freeze hiring expanded poverty incidence and reduced demand. Consumers tightened their purse strings, dampening growth in consumption-driven Asian economies.

Thailand, Singapore and Malaysia fell in to recession. South Korea's GDP contracted to an 11-year low of 4.3 percent in the first quarter. The world's fastest growing economy -- China -- only expanded by 6.1 percent, its worst performance in nearly two decades.

Others may have been more resilient, as they're less dependent on exports, but growth rates slowed nonetheless. The Philippines registered a nearly flat growth, while India slowed to 6.1 percent.

The succeeding months, however, were a time for rebound. As Jong-Wha Lee, ADB's Chief Economist stressed in a statement issued December, the global economic situation is "changing rapidly."

"The prospects for much of the region look rosier than they did in September when we (ADB economists) last did a full study of the region. Fiscal and monetary stimulus policies and a moderate improvement in the G3 economies of Europe, Japan and the U.S. helped East Asia and Southeast Asia in particular," Lee said.

Increased public spending -- to finance big ticket infrastructure projects and social welfare programs -- provided jobs and much needed cash to those retrenched by the crisis.

This bode well for the mostly consumption-driven Asian economies. As the British banking giant HSBC noted in its Asian chartbook released December 8, "the Asian consumer is back."

"After a deep slump in growth and confidence, households have opened their wallets again and are becoming an important driver of economic growth for the region," the HSBC said.

This is evidenced by increasing retail and vehicle sales especially in Asia's biggest economies including China, India and South Korea. These three economies also laid down huge stimulus package and an accommodative monetary policy.

The slight recovery in exports also helped in the region's rebound. Companies in the U.S. and Europe had to replenish their dwindling inventories, spurring them to revive imports from Asia.

The growing economic power of China also saw a more dynamic intra-regional trade. Chinese manufacturing firms went on a buying spree as prices softened and stockpiled on electronics and raw materials they procured from South Korea and Southeast Asian countries.

"Developments in East Asia remain strongly influenced by China. Take China out of the equation, and the rest of the region is recovering with less vigor," the World Bank said in the East Asia and Pacific Update issued November.

"As companies began replenishing depleted inventories, those based in China as part of global supply chains restocked parts and components used for the assembly of electronics products bound primarily for the G-3 countries," the World Bank said.

The rebound in exports and domestic consumption pushed the region towards recovery. The ADB estimates that the combined gross domestic product (GDP) of the ten largest economies in emerging East Asia (including China, South Korea and Indonesia) grew 5 percent on year in the third quarter of 2009 -- well above growth rates in the previous three quarters.

But analysts noted that the early signs of growth won't necessarily translate to a long term recovery. As U.P.'s Paderanga noted, the growth of export-led Asian countries is still "hinged on the recovery of developed countries in 2010." There are no indications yet that the crisis that crippled U.S. and European economies is finally over.

"The recovery in the G3 is still soft and there are a number of downside risks," ADB economist Lee said.

Analysts are also concerned that Asian governments' may withdraw favorable policies even if their respective economies have not fully recovered. Fiscal stimulus packages are quite costly, and those with inadequate fiscal space may not be as willing to continue with the stimulus package.

"Developing Asia is heading towards full recovery. What could blunt this would be an early exit to stimulate fiscal and monetary policy," said Victor Abola, economics professor at the University of Asia and the Pacific.

ADB's Lee said that while a V-shaped recovery is now underway, it's essential that fiscal and monetary stimulus "remain accommodative where possible to put economies on a sound footing."

"A key challenge for each economy will be to carefully time when best to rollback the stimulus to ensure sustained recovery but avoid both excessive inflation and hefty fiscal shortfalls," he said.

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.

Country Must Be Ready for Downturn: Sam Rainsy

By Sok Khemara, VOA Khmer
Washington
24 April 2009

The government can implement three important plans to help stabilize the economy as the global downturn continues, opposition leader Sam Rainsy said Thursday.

The steps should be taken immediately, Sam Rainsy, a former finance minister, said, as a guest on “Hello VOA.”

First, the government should allot $500 million in a special package to increase expenditure on social programs that help the poor, bolster the health and education systems and prepare new investment sites to create jobs, he said.

Second, the National Bank should decrease interest rates, to avoid confiscation of land and homes of people who may be struggling under debt, while at the same time promoting more loans as people cope with the downturn.

And finally, the government should seek to decrease the prices of electricity and fuel, along with the price of tolls and other services.

The outlook for Cambodia’s economy has been downgraded by major financial institutions, with the economy now expected to shrink in 2009, at a rate of about half a percent, down from broad growth in previous years that reached as high as 10 percent.

Government officials have said they are preparing $2.5 billion as an emergency fund. The total budget is around $1.8 billion, most of it spent on defense.

The global downturn will continue and will have a serious impact on Cambodia, Sam Rainsy said, citing Asian Development Bank and World Food Program warnings that poverty and food insecurity will increase.

Farmers and workers are likely to see decreased incomes, as prices for agricultural products fall and demand for garments from factories decreases, forcing the closure or suspension of operations for factories, he said.

At the same time, small businesses are likely to see income lost through decreased revenue, he said.

All of this adds up to a need for action by the government, which must realize the troubles ahead and request aid from the international community, while preparing its own measures to mitigate the financial woes.

“If you don’t realize the severe impact, how can we get help?” he said.

International finance institutions stand ready to help, on request, he said, “but Cambodia has not recognized that.”

Election outcome ‘best case scenario’ for big business [and the worst case scenario for ordinary Cambodians]

Thursday, 31 July 2008
Craig Guthrie
The Mekong Times

The landslide victory which the Cambodian People’s Party (CPP) appears to have secured in last Sunday’s election will enhance the Kingdom’s reputation as an up-and-coming investment destination and bodes well for future economic stability, say foreign investors and business leaders.

“This election result was a best case scenario for investors,” said Douglas Clayton, the CEO of Leopard Capital, one of several private-equity funds which, in the last few months, have revealed plans to inject a total of US$500 million into the economy.

The government’s fresh mandate will ensure continuity in its investment policy and at the same time put the opposition in a stronger position to perform its monitoring function, he added.

Independent electoral watchdog the Committee for Free and Fair Elections (COMFREL), has preliminarily announced that the CPP won around 90 of the National Assembly’s 123 seats in the election, or 73 percent of the national vote.

“A lot of local business activity has been put on hold pending the elections, and things should get back to normal now that this is out of the way,” said Clayton, whose firm has so far raised more than a tenth of the US$100 million it plans for its Cambodia-dedicated fund, Leopard Cambodia.

The CPP wore its economic credentials on its sleeve during the campaign, with many voters choosing to support the party which has delivered double-digit growth figures in recent years and rising Foreign Direct Investment (FDI) levels.

“Businessmen like stability and predictability, and that is what the government delivered for the past five years, which has led to good economic growth,” said Bretton Sciaroni, the chairman of Cambodia’s International Business Club.

He said that the election process barely registered on investors’ horizons this year, in stark contrast to previous votes.

“Investors have kept coming to Cambodia regardless of the fact that the nation was heading into an election. At most, there might have been one to two months of slowdown, which is a far cry from the six months slowdown which the nation had during previous elections.”

Although international observers have said some aspects of the election failed to meet international standards, on the whole the vote has been described as “smooth,” and as having much lower levels of violence, intimidation and political interference than previous elections.

“The fact that the elections were well managed and peaceful demonstrates significant progress on Cambodia’s part — definitely very encouraging for foreign investors,” said Marvin Yeo, co-founder of Frontier Investment & Development Partners.

Yeo, whose firm plans to establish a US$250 million private-equity fund in Cambodia, says that there will “absolutely” be a positive reaction from investors to the government’s re-election.

The Cambodia Investment Board predicted this year that FDI levels are on track to reach US$5.4 billion in 2008, while the launch of a stock exchange in December 2009 is hoped will lead local companies down a newly forged path of transparency and financial maturity.

John Brinsden, vice chairman of Acleda Bank, which has set benchmarks for transparency levels in Cambodia and is widely expected to list on the stock exchange, said that the private sector had largely anticipated that the CPP would come out of the election with a workable majority.

“This is important in two ways,” said Brinsden. “Firstly, our customers have been telling us that for economic growth to continue there must be stability and continuity. Secondly, and as important in its own way, is that the new government’s performance in office will be under more detailed scrutiny.”

Ruling on their own will test the government’s leadership by exposing them to a much higher level of accountability, he said.

He added that the election has been good for the country as a whole, and business in particular, by demonstrating to the world that despite its difficult history and still high levels of poverty Cambodia is capable of running a generally democratic and peaceful election.

“This fact will dramatically change international perceptions and encourage foreign investment into Cambodia,” said Brinsden.

Can Cambodia become an Asian tiger?

Wed, Jul 30 2008
Money Matters

Neither very democratic nor well-run, the country has nevertheless seen economic growth of more than 10% a year since 2000

Cambodia’s ruling party won re-election in an imperfectly democratic ballot on 27 July. Corrupt, impoverished, with high population growth and poor infrastructure, the country might seem a basket case.

Yet, with Vietnamese backing and nearly 10% annual economic growth since 2000, it may be turning into another Asian Tiger.

Cambodia is neither very democratic nor very well-run. Its leader Hun Sen was backed by Vietnam when it overthrew the Khmer Rouge in 1979, and he has been prime minister since 1985.

Cambodia ranks at No. 162 on Transparency International’s 2007 Corruption Perceptions Index, well below the threshold at which normal business becomes difficult—a sale of land to foreign investors in 2007 seems to have benefited mostly the ruling elite.

Like its neighbour Vietnam, Cambodia is suffering an imported inflation problem because of rising food and fuel costs. The government’s solution has been to cease reporting the country’s consumer price index “to avert the possibility of disorder and turmoil”.

Nevertheless, there are signs of progress. Cambodia has enjoyed economic growth of more than 10% a year since 2000, led by its main export industry, garments.

Its annual population growth has declined from 2.3% in 2000 to 1.8%, facilitating rapid economic growth by reducing the strains that high population growth places on education and infrastructure.

Cambodia’s public sector absorbs only 12% of its gross domestic product (GDP), its budget and payments are close to balance, and it expects to open a stock exchange in 2009.

Foreign investment is the key, as it has been in Vietnam, where it totalled 65% of GDP in the first half of 2008. Cambodia permits 100% foreign ownership in most sectors, and foreign investment is expected to double in 2008 from $2.7 billion (Rs11,475 crore today) in 2007 (30% of GDP), with China and South Korea the leading investors.

Corruption and a lack of public sector transparency stand in the way.

But with rapid growth in Vietnam, greater prosperity in Thailand, its other neighbour, and the US market open to its exports, Cambodia could be set to become an Asian Tiger in its own right.

Good Morning…Cambodia?

Thursday, June 26, 2008
Money News

Vietnam, once the darling of international fund managers, is quickly losing its spot to another Asian nation probably best known by the West for political violence and poverty — Cambodia.

Cambodia’s young and inexpensive work force, rising productivity, a pro-business government, and 30 years of an isolating war have made the country "one of the best investor diversification plays around," says Cambodia Investment and Development Fund co-founder Marvin Yeo.

"Cambodia is where Vietnam was some 8 to 10 years ago," Yeo says

Managers of at least four new private equity funds clearly agree. The funds are preparing to pour upwards of $500 million into Cambodia as investors flee the troubled Vietnamese bourse.

Marc Faber and Jim Rogers are among those expressing great enthusiasm about Cambodian investment prospects — and both are advising some of the private equity firms that plan to invest there, in reports in the The New York Times and elsewhere.

"Cambodia offers an enormous potential for future capital gains," Faber recently wrote in an investment newsletter. The country, which plans to open stock and bond exchanges next year, also has the potential to produce two things the world now craves: rice and oil.

Twenty-two fund managers, most from the U.S., recently met in Cambodia to evaluate current investment opportunities there.

It’s a struggle. The country posted a miniscule gross domestic product of $8.4 billion last year. The Cambodian economy would fit in the back pocket of a normal U.S. large-cap stock.

China, in comparison, raked in 10 times that amount in foreign investment alone last year.

"The general principle is to go after those countries and companies that are unpopular and bombed out, and that are good value in terms of price-to-earnings, price-to-book and dividend yield," says Mark Mobius, president of Templeton Emerging Markets.

Some fund managers believe the trick to succeeding in Cambodia lies in staying small to avoid headaches caused by the country’s notoriously corrupt government, weak laws, and business secrecy.

"We want the small and medium-sized investments below the political radar screen," says Douglas Clayton, a managing partner of Leopard Asia, which is raising $100 million for its Cambodia fund.

"Cambodia needs several billion dollars of investment," Clayton says. "The challenge will be to build the businesses. Most are early-stage investments."

Clayton’s fund — which opened to subscribers in April and sees opportunities in food processing, the garments industry, agribusiness, and property — is targeting investments between $5 million and $15 million.

The projected return for the Leopard Asia's initial Cambodian investment, a minority stake in a $2.5 million, 250-unit condominium, is 60 percent — well above its normal 25 percent return target.

"As we dig deeper into this country and connect with the entrepreneurial class we are finding a lot of opportunities," says Cambodia Emerald Fund manager Peter Brimble, who is aiming to raise $100 million.

"Five hundred million dollars is really just a few golf courses and hotels," Douglas Broderick, United Nations Development Program's resident representative in Cambodia, told The Wall Street Journal. "A lot more could be absorbed."

Emerging markets are expected to experience an average gross domestic product growth of 7 percent this year, says Mobius, while developed markets are expected to grow at an average of a little more than two percent.

However, even after their recent tanking, Vietnamese shares still aren’t cheap enough for him to consider.

"If you're going to go there, you better think long-term," Mobius says. "Otherwise you can get stuck with a very illiquid security."

Government moves to end price gouging as gasoline prices hit record highs

Pump prices remain at records highs, hovering just below 6,000 riels per liter. (Photo: Tracey Shelton)

Friday, 06 June 2008
Written by Kay Kimsong
The Phnom Penh Post

Finance Minister Keat Chhon has ordered a special ministry committee to be formed to monitor the price of gasoline amid fears the fuel companies were gouging prices, which have crept towards record highs of 6,000 riels ($1.50) a liter during the past few days, a ministry official said.

The move, announced June 4, was the first time the government has intervened directly to try and ease spiraling gas prices, which have also driven up the cost of food and other consumer goods.

Finance Secretary of State Chea Peng Chheang told the Post that the ministry was worried that fuel companies were taking advantage of skyrocketing global oil costs to unfairly raise local pump prices

The new committee, while not putting caps on prices, would "work closely" with the fuel companies to determine how much should be charged for gasoline and diesel.

“Petroleum companies need not ask the ministry how much to raise prices, but they need to make sure they are not charging over market value,” he said.

The committee will also assess the cost of other consumer goods, which have risen sharply.

"The ministry just wants to understand why a company decides to raise prices for this or that, but the ministry will never interfere with a company's pricing decisions ... it is a free market in Cambodia," Chheang said.

Officials from fuel companies participating in the June 4 meeting with the finance minister said they welcomed the creation of the committee.

“I think the ministry wants to know the price of gasoline to make sure that petroleum companies are not overcharging,” said Hour Heng, vice president of the Cambodian fuel giant Sokimex.

“We accept the request of the ministry to control the price of gasoline and diesel,” he said. “It is an acceptable idea."

But they also pointed out that their pricing decisions were driven largely by international oil prices.

“We can’t predict future international oil prices and are not sure if the price of fuel in Cambodia will increase," Heng said, while Stephane Dion, managing director for Total Cambodge, wrote an email on June 5: “This is a simple question of supply and demand."

The government has already tried to curb the price of gasoline by not raising the tariff on imported fuel – a move that officials say will cost the government $300 million in uncollected tax revenue.

Diesel is currently taxed at $103 per ton, while the per ton tax on gasoline is $254.

Some one million tons of petroleum products, including gasoline and diesel, are imported each year into Cambodia, according to industry officials.

Even with this measure in place, fuel company officials say they are making very little money.

According to a senior official at Tela Kampuchea Company who did not want to be named, global oil costs have reduced the company's profits to about 200 riels per liter.

“We only make a little profit – many people do not know that," he said.

Sam Rainsy: Hun Sen must reign in corruption if he wants to see inflation decrease

Hun Sen Urges Curbing of Inflation

By Chiep Mony, VOA Khmer
Original report from Phnom Penh
30 May 2008

Prime Minister Hun Sen on Thursday called for his government officials to work to curb inflation that has seen the price of goods increasing daily.

The price of rice has reached 3,800 riel per kilogram and fuel 5,600 riel per liter at some stations, biting into the low salaries of many workers.

“I would like to appeal to all institutions of the government to try their best to carry out the measures being taken out in order to curb inflation,” Hun Sen said, speaking at a national conference on livelihood improvement.

The government has been facing inflation since mid-2007, he said.

Opposition leader Sam Rainsy said Thursday Hun Sen must reign in corruption if he wants to see inflation decrease.

For investors, Cambodia could be the next Vietnam

A young Cambodian work force is gaining the purchasing power to buy goods like motorcycles, which have contributed to thick traffic on the streets of Phnom Penh. (Robert James Elliott/Bloomberg News)

Friday, May 30, 2008
By Erika Kinetz
International Herald Tribune (Paris, France)

If private equity interest is the bellwether for the hot investments of the future, consider this: At least four new private equity funds, backed by brand-name investors, are aiming to bring $475 million of foreign investment into Cambodia.

"Eventually, Vietnam worked out well," Marc Faber, a fund manager and investment adviser known for his "Gloom, Boom, & Doom Report," said by telephone from Switzerland. "I think the same may happen to Cambodia."

Faber, who is on the boards of two of the new private equity firms in Cambodia - Frontier Investment & Development Partners and Leopard Capital - is not the only one who thinks so.

Jim Rogers, a commodities specialist who founded the profitable Quantum Fund with George Soros in the 1970s, and Robert Ash, former chief executive of AIG Asset Management Services, are also on the board of Frontier.

Heinrich Looser, the retired chief of private banking at Bank Julius Baer in Zurich, and Jim Walker, a former director and chief economist of CLSA Securities, are on the Leopard board as well.

The surge in interest is part of a general turn toward so-called frontier markets as investors seek shelter from the global credit crisis and diminishing returns in developed markets. It is also one more sign that aid-dependent Cambodia, with a gross domestic product of just $8.4 billion last year, could finally be inching out of the shadow of its chaotic past.

For many in the West, Cambodia remains tainted by the communist crackdown after the end of the Indochina wars. Yet China, South Korea and Malaysia have been pouring in investment. In 2006, foreign direct investment totaled $2.6 billion, up from just $340 million in 2004, according to the International Monetary Fund.

A rising segment of Cambodians - a third of whom still live on the equivalent of less than $1 a day - are snapping up Honda Dream motorbikes and KFC chicken drumsticks. Cambodia, which plans to open stock and bond exchanges next year, also has the potential to produce two things the world now craves: more rice and oil.

But take a drive out of the capital, Phnom Penh, where the first skyscrapers are rising in the country, and you return quickly to a landscape of water buffalo and thatch huts, governed by the rhythm of the rains.

That looks like opportunity to Marvin Yeo, who recently quit as a syndicate manager at the Asian Development Bank to co-found Frontier, which manages the Cambodia Investment and Development Fund, with a Singaporean economist, Kim Song Tan. They hope to raise $250 million by the end of the year.

Cambodia, Yeo said, "is where Vietnam was some 8 to 10 years ago." He likes a lot about Cambodia: its location in a fast-growing region, a young and inexpensive work force, rising productivity, a pro-business government, stable politics and strong GDP growth, which peaked at 13.5 percent in 2005 but was expected to mellow to 7 percent or 8 percent in coming years.

Thirty years of an isolating war, he added, have made Cambodia "one of the best investor diversification plays around."

But as Han Kyung Tae, the chief Cambodia representative of Tong Yang Investment, part of the South Korean Tong Yang Group, points out, promise and pretty macroeconomics are one thing; closing good deals on the ground are quite another.

Han has been trying to start an Indochina investment fund for more than a year. He said he had reviewed 30 to 40 business plans, but had yet to close a single deal. Tong Yang has scaled back its venture capital aspirations and now hopes to invest $25 million in a Cambodian information technology company, as part of a Vietnam-Cambodia fund, Han said.

His search, he said, was complicated by lack of transparency in a business culture built around sealed family empires. "It's hard for us to get the information we need to invest," Han said. "It's totally new to them. Some feel offended if I ask for financial information."

Investors also say that the weak legal system, immature accounting standards and corruption in Cambodia remain challenges. An anti-corruption law has been foundering for more than a decade, and Cambodia ranks near the bottom of Transparency International's corruption perceptions index.

Kathleen Ng, the managing director of the Center for Asia Private Equity Research, which is based in Hong Kong, sees private equity interest in Cambodia as largely "spillover" from a still-emerging Vietnam.

A second wave of private equity investment in Vietnam - the Asian financial crisis of 1997 and 1998 obliterated the first - began to crest in 2006, rising to $2.0 billion in 2007, up from $166.5 million in 2005, according to the center.

The Ho Chi Minh stock exchange opened in 2000, and despite some recent trouble with expensive initial public offerings is beginning to build a track record of profitable exits, Ng said.

In December 2007, Vietnam Manufacturing & Export Processing Holdings became the first company based in Vietnam to be listed on the Hong Kong exchange; Merrill Lynch invested $22 million and realized $13.06 million through the sale of a third of its holdings, according to the private equity center.

Texas Pacific Group and Intel Capital, the venture capital arm of Intel, together invested $36.5 million in the Vietnamese Corporation for Financing and Promoting Technologies. Two months after it went public, Texas Pacific, which invested $21.5 million, sold less than a quarter of its holdings, booking a cash return of $22.17 million, according to the center.

"There's a level of confidence but Vietnam still needs to prove itself," Ng said. "You cannot just use a few divestment results to say, 'Hey, a place is doing well."'

She added that it might be too early yet for thriving private-sector equity investment in Cambodia, but that the country was ripe for development-finance institutions.

Proparco, the financing subsidiary of the French Development Agency, is "studying the possibility" of investing $5 million to $15 million in a Cambodia-focused private equity fund, according to Julien Kinic, an investment officer at Proparco. The French firm is already a shareholder in Dragon Capital, a Vietnamese asset management group, and has provided direct financing to several prominent Cambodian businesses, Kinic said. "Our interest in Cambodia is not new," he said. "What is new is the rising of the economy and the strong need for financing."

Douglas Clayton, who founded Leopard Capital last year, said that Leopard's Cambodia Fund had raised $10 million of its $100 million target since its inception in April, mostly from wealthy individuals and private banking institutions. He expects to close on Leopard's first project, a 250-unit condo project in the Cambodian tourist hub of Siem Reap, in the next few weeks.

"Cambodia needs several billion dollars of investment," said Clayton, who used to head the Thailand office of CLSA Securities. "Part of that can be private equity. The challenge will be to build the businesses. Most are early-stage investments. This is building basic industries and services."

Cambodia Emerald, which split off from Leopard in November, also aims to raise $100 million, said Peter Brimble, who directs Emerald with Bradley Gordon, a former corporate lawyer.

The funds are targeting investment in tourism, agribusiness, infrastructure, real estate, manufacturing and financial services, among other sectors.

Of course, what goes up can come tumbling down. Take Vietnam: After rising 500-fold from 2003 through the end of 2007, its stock market fell by nearly half in the first quarter.

Cham Prasidh, Cambodia's minister of commerce, said he was not worried about wading into the increasingly foreboding tides of global capital markets.

"Even if there is a world recession, if you develop the capacity to create an enabling environment for doing business and investment in Cambodia, you will survive," he said.

Besides, he added, Cambodia is ready to ride the waves: "We're surfers."

New road will benefit Trat, Koh Kong

Visitors walk along a platform in a mangrove forest on Koh Kong, Cambodia.

Monday May 26, 2008
CHATRUDEE THEPARAT
Bangkok Post

KOH KONG, CAMBODIA : Tourism between Thailand and Cambodia is expected to flourish now that road transport has been improved, said Sasithara Pichaichannrong, the permanent secretary of Tourism and Sports Ministry.

Work was completed last month on the route known as the Southern Coastal Sub-corridor, linking Thailand's Eastern Seaboard provinces and Trat with Koh Kong and Sihanoukville in Cambodia, and onward to Nam Can in Vietnam.

According to Ms Sasithara, foreign visitor numbers are also expected to increase because Thailand and Cambodia have agreed to offer a single visa for travel to both countries.

However, tourism flows between Thailand and Cambodia could grow more if immigration procedures were relaxed by the Thai government, said Bun Beav, director of the tourism unit at Koh Kong province.

Cambodian visitors to Thailand totalled 108,776 last year but only 35,796 Thais visited Cambodia.

He proposed that the Thai government allow Cambodian visitors who hold border passes to travel in Trat province. Currently, Cambodian visitors must seek a visa in Phnom Penh if they want to travel to Trat. According to Mr Bun Beav, the improved road increased the number of foreign daily visitors to Koh Kong by 50% in April from an average of 400 a day in March. Koh Kong has six hotels and 12 guesthouses with a total of 780 rooms.

Sakol Sunate of the Trat Tourist Association said Thailand would gain the most benefit from the route because visitors from Phnom Penh liked to travel to Trat and other eastern provinces in Thailand.

He agreed that the Thai government should consider issuing visas on arrival for Cambodian visitors at the border of Bann Haad Lek in Trat. The two countries also should allow tourist buses to cross the border, he said.

Currently, caravan tours are allowed to drive in the cities but general tourists are required to change buses at the border.

Mr Sakol said Trat had potential to become the gateway for foreign visitors from third countries to Cambodia. However, the Thai government should consider attracting longer-stays in Thailand, rather than just transit at Suvarnabhumi airport.

Tourism packages to link eastern Thailand and Cambodia thus needed to be developed, he added.

At last, the Hun Sen regime understands the importance of Khmer "white gold" (rice) export

Rice seller in Phnom Penh (Photo: AP)

Cambodia hopes to export 8 million tons of rice by 2015

Friday, 25 April 2008
Chun Sophal
The Mekong Times

Despite the chaos wreaked in the region by skyrocketing rice prices and concerns over inadequate supplies, Cambodia expects to export 8 million tons of rice by 2015.

Chan Sarun, minister of agriculture, forestry and fisheries, made the claim at an exhibition of natural agricultural products held Thursday in Kompong Tralach district, Kompong Chhnang province.

“We will encourage farmers to crop twice or three times per season and we will further strengthen irrigation systems in order to increase rice production,” he said, stressing the potential of Cambodia’s 3 million hectares of agricultural land.

Yang Saing Koma, executive director of the Cambodian Center for Study and Development in Agriculture (CEDAC), agreed that rice harvests could be boosted.

“Cambodia has vast tracts of land and current rice output is still low. We believe that Cambodia can achieve the goal. I understand that Cambodia could soon become the second or third [largest] rice exporter in the world.But the government must invest more in the agricultural sector so that farmers have resources and techniques to increase rice yields.”

In fact, Yang Saing Koma said the Kingdom could produce up to 10 million tons of rice in the four or five years.

Prime Minister Hun Sen declared Wednesday during the 13th government-private sector forum that Cambodia wants to become the world’s biggest exporter of rice or “white gold” as he referred to it, by 2015. “Rice is like platinum in Cambodian soil,” he claimed. “We must produce rice to do business and sell in markets.”

Cambodia had a surplus of more than 2 million tons of rice from a total harvest of 6.7 million tons in 2007. Around 1.5 million tons was exported.

Chan Sarun stressed that multiple rice crops and new seeds would be needed to boost exports. Cambodian farmers normally plant only one or two rice crops per year because of a lack of irrigation.

A report by the Ministry of Agriculture claimed that Cambodia has only 30 percent of the irrigation systems it needs, though a number of irrigation systems are under construction.

Cambodia eyes lucrative European, Chinese tourist trade

Apr 21, 2008

Phnom Penh - Cambodia will seek to increase direct flights between China and European Union (EU) nations to boost its booming tourism industry, Tourism Minister Thong Khon said Monday.

His comments came as Cambodia announced a 17 percent increase in tourist arrivals at about about 400,000 during the first two months of 2008. Tourism is a mainstay of the economy.

'Cambodia needs more flights from the big cities in southern China and they need to be daily,' he said by telephone. 'The EU is also a market that is under tapped due to a lack of direct flights.'

'By 2020 an estimated 100 million Chinese are expected to travel the world. If we can snare just 5 percent, we've got 5 million Chinese tourists,' Thong Khon said.

Siem Reap International Airport, 300 kilometres north of the capital and the gateway to the Angkor Wat temple complex, currently accommodates 37 international flights per day, he said.

But the private French-Malaysian concession company Société Concessionnaire de l'Aéroport managing the airport has announced expansion plans, and the government is keen to capitalize.

Phnom Penh International Airport handles about 30 international flights a day, and the Sihanoukville airport, 240 kilometres from the capital which services the south-western beach resorts is also being set for major expansion.

'The EU is also a place with great tourism potential. At present we have direct charter flights from Finland and Italy, but we would like to see that grow as 60 per cent of our tourists arrive by air,' he said.

'To attract more tourists, we have to put Cambodia on the map.'

Rocketing inflation hurting Cambodia's poor, World Bank says

Tue, 01 Apr 2008
DPA

Phnom Penh - Double-digit inflation would not hurt the Cambodian economy overall but could have a dire affect on the country's millions of poor, a World Bank economist said Tuesday. Like most of East Asia and the Pacific, Cambodia had been badly hit by inflation with the year-on-year rate at the end of 2007 reaching a nine-year high of 10.8 per cent, Huot Chea said.

However, the bank said Cambodia's economy continued to grow rapidly with gross domestic product (GDP) up an estimated 9.6 per cent last year.

"High inflation rates will not pose a serious threat to the Cambodian economy but will impact on the poor," Chea told journalists.

"About 25 per cent of poor people spend 70 per cent of their income on food," the economist said. "As long as food prices keep rising, this will automatically impact on the poor."

He said inflation had pushed the price of the national staple, rice, up so far that what would have once bought 3 kilograms in some cases now just bought 1 kilo.

Hikes in international oil prices, which have put the cost of petrol up to 1.25 dollars a litre in a country where millions earn less than a dollar a day had also contributed, he said.

The bank also expressed concern about Cambodia's growing trade deficit, which it estimated would grow from 6.8 per cent to 7.3 per cent of GDP this year.

However, overall, it said Cambodia's economy was in good shape and was mainly being impacted by outside factors, including the rising world price of oil and the crisis in the US economy.

"Although risks have increased, economic prospects for 2008 remain strong," the bank said in a press release.

Rice Exports Halted Amid Price Worries

A Cambodian vendor, left, counts U.S. currency after selling rice at a roadside store in Phnom Penh, Cambodia, Wednesday, March 26, 2008. Cambodia's prime minister ordered a ban on rice export Wednesday to neighboring Thailand and Vietnam in a bid to curb rising price on the country's most important staple on the domestic market. (AP Photo/Heng Sinith)
A Cambodian vendor cleans her rice as she prepares it to sell at a roadside store in Phnom Penh, Cambodia, Wednesday, March 26, 2008. Cambodia's prime minister ordered a ban on rice export Wednesday to neighboring Thailand and Vietnam in a bid to curb rising price on the country's most important staple on the domestic market. (AP Photo/Heng Sinith)

By Ros Sothea, VOA Khmer
Original report from Phnom Penh
26 March 2008

The Ministry of Commerce will halt the export of rice for two months, following a price spike nearly nationwide that has left many Cambodians worried.

Minister of Commerce Cham Prasidh issued a statement late Wednesday declaring a halt to the export.

The ministry earlier in the day provided 200 tons of state-owned rice to sell to Phnom Penh, Siem Reap and Kampong Thom province, which have been hardest hit by high prices.

High-quality rice has climbed from 3,000 riel to 4,500 riel per kilogram in the capital. Poor-quality rice has gone from 1,800 riel to 2,500 riel per kilogram.

For Cambodians below the poverty line, 1 kilogram of rice per day is all they can afford, leaving them lacking in other food.

"A salary of only 400,000 riel per month is not enough for living, considering the price of rice is rising," said Phrum Phearun, a high school teacher in Phnom Penh. "I cannot teach well, because my mind sticks to a concern over the price of rice."

In Phnom Penh Wednesday, the Commerce Ministry sold 20 tons of rice directly to consumers at 1,800 riel per kilogram.

In a public speech Tuesday, Hun Sen sought to quell rumors of a rice shortage, which has led to a price increase. Hun Sen said at an opening ceremony for a pagoda in Kampong Thom province that the price hike was due to an increase in international demand.

The Philippines and Malaysia are considering importing rice from Cambodia, and Thailand and Vietnam already buy rice from Cambodia, he said.

The rising price of oil worldwide can affect the cost of rice, he added, blaming "saboteurs" for driving up the market price, as well.

The rising price has made farmers happy, but Kong Chandararoth, an economist and director of the Cambodian Institute for Development Studies, said the unusual price rise can lead to inflation and a decrease in investment.

This can disrupt the economic system, he warned.

UN expert slams India, Cambodia, Thailand over sex tourism

GENEVA (AFP) — India, Cambodia and Thailand are not doing enough to protect children against the risks associated with sex tourism for fear of damaging their economies, a UN human rights expert charged on Friday.

Juan Miguel Petit, the UN special rapporteur on the rights of children, said authorities in these countries are often not willing to tackle the issue of children's sexual exploitation for tourists' benefit.

"Sometimes there are big pressures on governments, explicitly or implicitly, when there are enormous touristic activities going on, making millions of dollars," he told journalists.

"Some interests see the limitation on the sexual market as a limitation for their earning of money," he added.

He denounced this "insane tourism that puts at risk the lives of hundreds and hundreds of children," saying it was against the public interest in such countries.

In general, Asia "continues to be a very difficult, alarming place" as far as human trafficking is concerned, Petit said.

Police often appear unconcerned about the scale and gravity of the problem, he charged.

"They accept this kind of crime in a passive way, as if their job was only to chase bank robbers," he said.

Many convicted Western sex offenders are drawn to Southeast Asia for its perceived laxness in terms of child sex.

British former pop star Gary Glitter, whose real name is Paul Gadd, was jailed for three years in Vietnam in 2005 for molesting girls aged 11 and 12.

He fled Britain for Southeast Asia, initially Cambodia, in 1999 after serving half of a four-month prison term for possession of child pornography.

No more double digit growth in 2008? [-Cambodia yearly trade deficit: $1.5 billion]

Cambodia expects 2008 growth of 7.3 percent - PM

PHNOM PENH, Feb 28 (Reuters) - Cambodia's economy is expected to expand by 7.3 percent this year, a slower rate than in 2007 due to the pressure of high world oil prices, Prime Minister Hun Sen said on Thursday.

However, a blossoming private sector, overseas aid, sustained foreign investment and continued political stability should ensure healthy growth in the key garment, tourism, construction and agriculture sectors, he said.

"Cambodia needs to sustain this growth to catch up with and keep pace with neighbouring countries," Hun Sen said at a economic conference for international investors.

Cambodia's economy struggled during the 1990s to shake off the legacy of decades of civil war and upheaval, including the atrocities of the Khmer Rouge "Killing Fields".

However, it has taken off in the last few years, and expanded at an estimated 9.6 percent last year, making it one of the fastest-growing economies in the world.

Its gross domestic product is $8.4 billion, giving a per- capita annual income of more than $500.

The garment sector, valued at $3.8 billion last year, represents the lion's share of exports, a government report showed.

The Southeast Asian nation also received 1.7 million tourists last year and expects a 25 percent increase in 2008.

The report said reserves had increased by $600 million last year to $1.7 billion, but said the country ran a trade deficit of $1.5 billion, mainly due to the increase in value of petroleum imports.

World fears knock-on effects as China inflation soars [-Cambodia could benefit from this economic situation]

Monday, 25 February, 2008
AFP

SHANGHAI: As China's factory floors feel the pressure from spiralling costs, there is growing nervousness in the rest of the world that the Asian giant's next big export could be inflation.

From air-conditioned US shopping malls to bustling African street markets and remote Asian villages, shoppers have become accustomed over recent years to the vast array of ultra-cheap Chinese goods on offer.

China's trade surplus last year reached $262.2bn, a more than 10-fold rise from 2003.

But now a confluence of factors, led by soaring domestic inflation that hit an 11-year high of 7.1% in January, is ramping up the costs of doing business in China, with potential knock-on effects for the rest of the world.

As China's currency has strengthened sharply against the dollar, the government has scrapped export tax rebates, while more stringent labour laws and even the ice and snow storms in southern and central China have further driven up costs.

"China's inflation is having a domino effect on worldwide inflation, especially in the US,"‌ Li Huiyong, an analyst from Shanghai-based SYWG Research and Consulting, told AFP.

"In the past, (outside) inflation pressures in the US mainly came from oil prices because the US economy is highly dependent on crude oil. Cheap products from China and other developing countries helped to alleviate that pressure.

"Now Chinese goods are no longer as cheap it adds to the inflation pressure in the US."‌

Nevertheless, while it is clear that doing business in China is getting more expensive, there is no consensus among economists about how much that will translate into higher price tags for Chinese-made products overseas.

Wang Qing, chief China economist at Morgan Stanley, stressed that Chinese competitiveness was not about to disappear and goods from Asia's most populous nation would remain cheap for years.

This would be the case as products moved up the value chain from toys and clothes to cars and high-tech machinery, according to Wang.

"I don't think the days of cheap Chinese goods are over. The inflation that China is experiencing now has a cyclical component. By that I mean the high inflation won't be sustainable,"‌ he said.

"What's more important is that you should not just focus on nominal wage growth, you also need to pay attention to labour productivity growth. That's why I think we shouldn't be too alarmed about this."‌ And given the long and complex business chain between suppliers in China and overseas consumers, a rise in manufacturing costs does not mean that shoppers will immediately have to pay more for Chinese products.

Aside from cutting their own margins, factories and traders can first look to their clients, many of whom charge huge mark-ups on the wholesale price, to take on more of the financial burden.

For instance, the price of making a branded T-shirt in China may be just a few dollars, but they are typically sold in US malls for 10 or more times that price.

Companies intent on paying bottom dollar for their products could move operations to nations with cheaper overhead costs, such as Vietnam, Sri Lanka or Cambodia.

Alarm bells are definitely ringing in boardrooms across China.

Eating into exporters' profit margins, producer prices jumped 6.1% last month to a three-year high. Meanwhile, labour wages last year rose 20% and the yuan has appreciated more than 9% against the US dollar in the past 14 months. This has meant that more exporters face bankruptcy unless they lift prices to salvage their disappearing margins, which is just what most plan to do.

According to a survey by brokerage and research firm CLSA, 80 % of Chinese exporters intend to raise prices this year in response to higher raw material costs.

"The appreciation of the renminbi (yuan) against the US dollar is a secondary factor driving these price hikes,"‌ Shanghai-based CLSA economist Andy Rothman said in the survey.

Yatta Mao, a trade manager at Shanghai-based chemical trading firm Hanren, told AFP the tighter business conditions that have emerged over the past year were making it difficult to survive.

"The yuan appreciation has a huge impact on our business. It costs us much more in the production and delivery costs. What's worse, the export tax rebates of 13% were cancelled so our total costs are up 20%,"‌ she said. And in China's southern province of Guangdong, which borders Hong Kong and is one of the nation's main export hubs, there are deep feelings of pessimism.

Thousands of Hong Kong- and Taiwan-owned factories based in Guangdong are likely to close soon as they seek cheaper overheads elsewhere, said Alexandra Poon, director of policy research at the Federation of Hong Kong Industries.

How to Stimulate Tourism in Cambodia

Wednesday, February 13, 2008
Op-Ed by KJE
Originally posted at http://about-cambodia.blogspot.com

Prime Minister Hun Sen once said that Cambodia ought to develop other industries in order to ease its dependence on the volatile garment and tourist industries. Both are very susceptible to fluctuations caused by economic problems in Cambodia’s export partners or main tourist markets. The recent downturn of 46% of garment exports in the last quarter of 2007 proved him very much on target with his assessment. It would now be time to let actions follow words, to implement a policy for creating a secure base for at least one of those two industries.

But since these industries form the basis for Cambodia’s badly needed foreign exchange, there is not a whole lot the government can do to develop other sectors of the economy in the short run to balance these foreign exchange earners for Cambodia. They can only try to deflect the adverse impacts of foreign economic downturns or even recessions. Again, with the garment sector it will prove difficult to counter a slackening foreign demand.

The picture for the tourist sector, however, is very much different, as it has been shown that especially European tourists, even in the face of economic hardships in their countries, do not like to forgo their annual vacation. Southeast Asia has long been a very attractive market for Europeans, except for the periods of political unrest or instabilities, or natural catastrophes, e.g. the tsunami in Thailand and Indonesia. A look at recent events in Kenya, which is heavily dependent on tourism, is a case in point what political strife can do to this industry.

So first and foremost, political stability is the number one priority in attracting tourists from all over the world. The 1997 power struggle and the 2003 anti-Thai riots were recent events in Cambodia that undid all previous efforts in a budding growth industry. Tourists react instantaneously and choose other destinations nearby. And, tourists are not so much influenced by the form of government or ideologies as both Cuba and Vietnam prove as by a good price/product ratio and an environment with little crime. Cambodia has two formidable rivals in SE Asia when it comes to tourism, one is Thailand, and the other is Vietnam. Thailand can hardly be outdone by Cambodia, and Vietnam might prove difficult since is has many more excellent beaches along its coastline than Cambodia.

Besides its famous Angkor Wat, Cambodia currently seems to emphasize Casino resorts to lure Thai and Vietnamese high-rollers to Cambodia, apparently forgetting that these casinos don’t contribute to the economy overall. The government collected about $18.7 million in 2007 from casinos in taxes, and an undisclosed amount on the land leases. It can’t be too much since in 2007 the budget indicated only$8.5 million revenue for all government land leases. The casinos' profits probably exceeded that by a multiple of that amount. No money lost at the gambling table is ploughed back into the economy.

Normal package tourists, however, not only spend money on room and board but on excursions, restaurants, souvenirs, and last but not least on drinks. On average Western package tourists spend about $2000 (€1500) per capita in their host country including the cost of hotel accommodations. So-called backpackers are an entirely different story though.

Another aspect is length of stay. The minister of tourism stated in January that the average stay per tourist is between 3 and 4 days. They spend about $770 each. This is a far cry from what tourists spend in Thailand and how long they stay.

On researching the possibilities for an investment in the Sihanoukville area this writer’s agent also spoke with the director of the regional airport. This airport can at this time already accommodate jet airplanes up to Boeings 757/767 or the Airbus 330. The airport announced plans to lengthen the runway for 747s and larger airplanes, thinking a bigger airport would automatically attract direct international flights. When negotiating with international airlines, however, the airport management quickly found out that the future for those direct international flights is somewhat far off in view of the lack of a sufficient tourist infrastructure in the area. We learned that the announcement may have been a bit premature and the issue will be revisited in 2009, when new planned projects have at least been started.

Though there is an abundance of hotels they lack international standard with the exception of the three 5-star resort hotels operating there. The rest caters to the economy and local tourists. Besides room and board they don’t have much to offer. Western package tourist expect more, and this is what we are talking about – package tourists, because they are the ones spending the big bucks and leaving them in the country.

Airlines need to operate at an approximately 65% load factor in order to be profitable. Looking at 3 weekly flights of 250 seats each at an average load factor of 65% this will result in 25,350 arrivals per year. In introducing new routes airlines must also look at the airport facilities. Sihanoukville does not offer any technical assistance, ground operations, etc. at this time. Airlines need to have a support system in place to handle their flights. To put this on the ground they will need those 3 flights a week to make it affordable. Besides tourists, Sihanoukville airport will probably see only few other arrivals, such as businesspeople.

This translates into roughly 1,000 hotel rooms required to accommodate those arrivals. Currently there are about 252 rooms or suites in the 5-star category with full amenities, and about 200 rooms in the medium category without much in the way of amenities.

There is talk about another project for 1000 rooms by the Sokha group and just recently a Greek casino operator announced a resort with an undisclosed number of rooms near Ream Beach, but judging from the investment amount of $10 million it is a safe assumption that it will not have more than 50 to 80 rooms. In other words, you are still lacking about 500 rooms for just those 3 flights. But it is as yet unclear when these projects will begin, let alone be completed.

As outlined in another article previously a destination needs have the full complement of hotel categories to be competitive internationally, particularly with Thailand in Cambodia’s case. Ideally, this would roughly break down into 20% 1-2 star, 50 % 3-5 star, and 30% 4 –5 star accommodations. Amenities required include all kinds of beach activity, evening entertainment, and facilities for children.

Cambodia is now a destination for sightseeing tourists, backpackers, and, unfortunately, sex tourists. This needs to change. The goal must be to attract families as package tourists to complement the sightseeing tourists to Angkor Wat. After all, even those 25,000 projected package tourists, once the flights have been started, would spend about an additional $50 million in Cambodia. In comparison to the $1.4 billion spent by the 2 million tourists that came to Cambodia in 2007 this is a rather modest amount. But it would only be the beginning. Eventually, the goal should be to have an equal share of package and sightseeing tourists. The outlook by the World Bank projects the number of tourists at 3 million by the year 2011, so the majority of them should be combination sightseeing/beach resort tourists.

Again in comparison: in 2007 Thailand posted $16.13 billion in revenues from tourism. Each tourist spent $1,135, not including miscellaneous expenses, such as souvenirs, outside restaurants, etc. Thailand, however, is still recovering from the effects of numerous bombings in the South, and the military take-over of the government. One can clearly see what the situation could be like for Cambodia.

Currently there are approximately 100,000 visitors to the beaches in Sihanoukville, although one can sometimes read estimates of up to 200,000. If the majority of the foreign tourists could be converted into package tourists the area would need a lot more upgraded and new hotel rooms than the 1,000, and revenue would rise accordingly. Package tourists would be an addition rather than a replacement for existing tourist arrivals.

But to change this, hotels in the right category must be available. Giving present hotel operators incentives to upgrade their hotels to meet international standards can do this. Some of them have ideal locations in Sihanoukville, especially on Ochheuteal Beach. It would be for the government to encourage the private sector to either build more resort hotels, or convert the existing ones. Those incentives could be a lower tax rate for a number of years, no tax on foodstuffs, combined or collective advertising with the tourism ministry abroad.

There is large number of guesthouses in the $10 to $20 a night category, many of them operated by foreigners that cater to backpackers. Some of them are located right on the beach. Prime locations ought to be reserved for beachfront medium-priced, upscale and high-end properties in order to generate the better revenue for the country. That is not to say they should be evicted, but since they usually rent the premises, the owners of the properties must be encouraged to upgrade as well. As far as tourism goes Cambodia must lose its image as a ‘cheap’ destination, rather it should elevate its image to an ‘affordable’ destination.

Another problem area is the sex tourist business. Since this part of the business cannot never be completely eliminated the local government must nonetheless clean up the city and assign special sections of town, perhaps out of town, to those businesses – the ‘red light district’. Establishments in which prostitution is openly tolerated and conducted only deter family tourists.

In order to avoid inflicting material damage on present owners and small businesspeople those conversion should be done in phases, or by normal attrition, something like the gentrification in inner cities in the developed world.

The emphasis on casinos must be abandoned. Casinos attract a certain clientele, which normally is not in line with the development of regular recreational tourism. The city of Las Vegas started as a pure gambling Mecca before it changed its marketing thrust to encompass families as guests. Why should casinos occupy valuable beachfront land? Casinos can be located at any place in or outside town. People who want to gamble and take in a show will go where the action is, no matter where it is located.

It is vital for the development of a viable tourism industry to attract not only big hotel corporations with luxury properties but also individual and local hotel owners that can give the property a special touch and local ambience. The Sheratons and the Holiday Inns are interchangeable, the medium-sized local resort, in contrast, should preserve its Cambodian character. This segment mostly makes up the 40 – 50 % of the 3-4 star categories. And, being the entrepreneurs whose bottom-line is directly determined by their own management, they will put their maximum effort into marketing and running their property. It is a well-know axiom that private enterprise is always a lot better at promoting businesses than a government ever can.

One big obstacle for the development of the important segment of mid-market properties is the outrageous land prices in Sihanoukville. Although beachfront properties are irreplaceable, and can, therefore, command premium prices, second or third line properties are still priced at around $200 a m2 for smaller lots. Cambodia must get away from its concept of ‘bigger is better’. Yes, the individual land owner, and in essence as such is a speculator, loves the multinationals. They fork over millions of dollars into his pocket in one single drop.

But there are many smaller companies in Europe and North America that would be interested in developing family-style resorts. For them those exorbitant land prices are prohibitive. After all, if the cost of land is $2.0 million, and the cost of the resort itself is $2.0 million, that split of 50/50 in cost makes it unprofitable. In comparison for luxury resorts in the U. S. and the Caribbean land prices make up only 13 – 15 % of the total cost of the resort.

Some regulatory work might be advisable in this respect, in fact is necessary. It might even make good and sensible policy for the government to buy back or expropriate valuable beach front property in the public interest, or offer incentives, such as subsidized or fixed, reasonable prices for land purchases targeted for tourism development, tax exemption for imported furniture, fixtures, and equipment (FFE), tax rebates for vehicles, e. g. minivans, used in the business.

There is plenty of ocean-side land available but it seems to be in the hands of a few select people. These people usually own a large chunk of land they want to sell in one piece. But smaller properties do not need 30 ha or so. They can do with 1, 2, or 3 ha. In fact, many of the smaller Thai resorts occupy less 1 ha (e. g. on Koh Samui). Though Cambodia enjoys a free-market economy where the government should not interfere with the mechanisms of the marketplace, it should nonetheless implement at least some regulations through which the impact of development would benefit the Cambodian people as a whole and not just a few. After all, wouldn’t quite a few jobs be better than having rich people getting richer through originally government-owned land.

The Cambodian embassies abroad should network with local chambers of commerce to publicize Cambodia’s need for foreign tourism investments, targeting small, medium, as well as big business.

Of course, last but not least, access roads need to be built and electrification is just as vital as diesel-powered generators are not really environment friendly and too costly to operate. In general, environmental concerns must be addressed. Solar or wind power should be encouraged with tax breaks or tax moratoria as well as import duty exemptions.

Most of the countryside is still not electrified. This leaves only Sihanoukville as a site for further immediate development, but there is a natural limit imposed by the availability of suitable land.

Once the foundations for a greater number of package tourists have been laid the government needs to create a tourist board that markets Cambodia as a destination in overseas countries. There are many trade shows, from Berlin to Las Vegas, where this can be done very effectively. Representative offices in the main markets to support tour operators and travel agents are another effective tool for this. The Internet offers proven avenues of promoting Cambodia.

Though this catalogue certainly is not all-inclusive with every measure Cambodia’s government should or is able to take, it could be a rough blueprint. It was written by a tourism expert with 20 years of experience in the industry.

Made in China loses appeal

January 30, 2008
John Garnaut, Tokyo
The Age (Australia)

MULTINATIONAL corporations are diversifying their new investments away from "the world's factory", China, in response to rapidly rising labour costs, shaky legal protections and fear of anti-Japanese sentiment.

While China remains by far the favourite direct-investment destination, India, Vietnam and other South-East Asian countries are gaining ground.

Foreign direct investment from the European Union into China fell 29.4% last year, Japanese investment fell 24.6% and US investment fell 12.8%, according to the website of the Department for Foreign Investment Administration, part of China's Ministry of Commerce.

The shift partly reflects Chinese Government policy, which now seeks strategic investors rather than just capital, but also reflects rising concerns among foreign governments and CEOs.

Atsuo Kuroda, who heads the China division of Japan's Ministry of Economy, Trade and Industry, told BusinessDay that China's advantage over southern and South-East Asia was being eroded by rapidly rising wages, a tough new labour law and legal problems involving intellectual property and arbitrary local government decisions.

"For high-tech industries it's a risk investing in China because partner companies can easily steal their technology and set up a factory next door," Mr Kuroda said. Nobuhiko Sasaki, who heads the ministry's South-East Asia division, said Japanese companies had been setting up factories in places such as Vietnam, India and Cambodia since anti-Japanese tensions boiled over in 2005.

"The anti-Japanese movement gave an impression that China may not be a long-lasting, reliable investment destination," he said.

China's Ministry of Commerce says foreign direct investment rose 13.6% to $US74.7 billion ($A84.1 billion) last year, but that figure appears to be grossly inflated by mainland Chinese money being routed through offshore tax havens to exploit generous tax incentives for foreign investors.

Figures from the DFIA show investments channelled through the British Virgin Islands, Cayman Islands, Mauritius and Samoa surged 37% to account for more than a quarter of all foreign direct investment last year. The British Virgin Islands alone accounted for $US16.6 billion. Investments through Hong Kong surged 37% to $US27.7 billion.

"If you add Hong Kong, then almost two-thirds is from tax havens," Mr Kuroda said. "This is all Chinese people."

These round-robin investments expose a gaping money-laundering hole in China's cross-border financial controls. But such investments are expected to drop away this year because China recently removed tax and other foreign investor privileges.

Japanese companies poured 25% more direct investment capital into countries of the Association of South-East Asian Nations than China in the first half of last year, Japanese officials say.

"This is the turning point," Mr Sasaki said.

A survey last year by the Japan External Trade Organisation showed Japanese companies were more worried by intellectual property theft, tax risks and problems with legal systems in China than any other country. It showed nine companies shifting factories in China to Vietnam and two companies shifting to Thailand. But the organisation's president, Tadashi Izawa, said China's many problems were still outweighed by its benefits. "The Chinese are very good at manufacturing everything. And the opportunities are too great to ignore.," he said.

Japanese companies are reducing their cheap labour, export-focused manufacturing in China but building factories with more advanced technology there to serve the country's growing middle class.

Japanese companies poured 25% more direct investment capital into countries of the Association of South-East Asian Nations than China in the first half of last year, Japanese officials say.

"This is the turning point," Mr Sasaki said.

A survey last year by the Japan External Trade Organisation showed Japanese companies were more worried by intellectual property theft, tax risks and problems with legal systems in China than any other country. It showed nine companies shifting factories in China to Vietnam and two companies shifting to Thailand. But the organisation's president, Tadashi Izawa, said China's many problems were still outweighed by its benefits. "The Chinese are very good at manufacturing everything. And the opportunities are too great to ignore.," he said.

Japanese companies are reducing their cheap labour, export-focused manufacturing in China but building factories with more advanced technology there to serve the country's growing middle class.

Cambodia's boom depends on USA

By David J. Lynch USA TODAY

PHNOM PENH, Cambodia — The streets of this riverside capital are thick with traffic, sport-utility vehicles favored by foreign aid workers as well as the more modest cars piloted by locals. Scaffolded construction sites dot the dusty downtown and locals spy Western investment bankers with the enthusiasm reserved elsewhere for celebrity sightings.

"It seems like a frontier town, with all of the excitement, all of the energy," says Nisha Agrawal, the World Bank's country manager.

The notion of a Cambodian boom may seem incongruous, if not slightly absurd. This remote corner of Southeast Asia, after all, remains best known for its "killing fields," where the genocidal Khmer Rouge slaughtered or starved at least 1.5 million of their countrymen.

But after a generation spent slumbering in the shadows of its fast-rising neighbors, Cambodia is on the move. The economy this year is expected to expand at a robust annual rate of 9.5% after three consecutive years of double-digit growth, the World Bank says.

U.S. brands fuel boom

Americans have fueled the boom with their purchases of Levi jeans, Gap (GPS) clothes and Nike (NKE) athletic shoes, all bearing made-in-Cambodia labels. Whether consumers will continue doing so, however, now depends on the complexities of U.S. trade law.

Cambodia's thriving garments industry has been protected since 2005 by U.S. restrictions on imports of clothing from China. But those limits expire by the end of 2008, potentially opening the door for China to seize market share at the expense of Cambodian producers.

China could grab 68% of the world apparel market, up from 50% today, says Roland Eng, the country's leading diplomat and a former Cambodian ambassador to the United States. "They will kill everybody," he says.

The government here is pinning its hopes on proposed U.S. legislation that would eliminate tariffs on products from the world's poorest countries, including Cambodia. This year, Cambodian clothing shipments to the USA are running at an annualized value of $2.6 billion, about twice the 2003 level, according to Commerce Department data. Without preferential access to the U.S. market, orders for Cambodian goods will plunge 35% as Chinese shipments soar, says Van Sou Ieng, chairman of the Garment Manufacturers' Association in Cambodia.

Factories here supply clothing to some of the USA's best-known brands, including Disney, (DIS) Sears (SHLD)and Wal-Mart. (WMT) They've been drawn to Cambodia, despite sky-high electricity costs, inadequate roads and pervasive corruption, because of an innovative program promoting good labor standards that began nine years ago with U.S. help.

The United States guaranteed Cambodia a specified amount of sales every year, encouraging the country's push to position itself as the sweatshop-free producer in a fiercely competitive global clothing market. "Cambodia is a special country," says Michael Kobori, vice president for global code of conduct at Levi Strauss, which buys its Signature model jeans from a Cambodian producer.

The San Francisco-based clothing company, which plans to continue relying on local suppliers after the limits on Chinese products are lifted, supports the tariff-elimination bill.

Prospects for approval of the measure, introduced by Rep. Jim McDermott, D-Wash., are cloudy. Rep. Charles Rangel, D-N.Y., the chairman of the House Ways and Means Committee, has endorsed the proposal, aimed at helping the world's poorest countries develop. But with public support for trade ebbing, and the economy weakening, lawmakers may shy in an election year from being seen as helping foreign workers.

The stakes for Cambodia's 14 million people in the coming U.S. debate are enormous. Even after the current boom, what the typical Cambodian earns in a year wouldn't buy a decent TV in the USA. (Per-capita income is just $550.) There are only 1,000 miles of paved roads in the entire country, which is roughly the size of Missouri, and only 10% of the population has access to electricity.
Scars remain from turmoil

Scars from the 1975-79 Khmer Rouge era remain vivid. Under radical leader Pol Pot, black-clad guerillas systematically murdered lawyers, doctors, teachers — sometimes even those wearing eyeglasses — in a demented bid to return Cambodia to a pristine, agricultural existence. The Khmer Rouge ultimately were ousted by a Vietnamese invasion.

Only in 1999 did the country enjoy its first entirely peaceful year in three decades. Today, a surge in tourism is clear evidence of the turnaround. For the first 10 months of this year, Cambodia recorded 1.6 million foreign visitors vs. 286,524 in 1998.

The stunning temples of Angkor Wat are the country's principal draw. On typical days, the extraordinary 12th-century monuments are packed shoulder to shoulder with hordes of South Korean, Japanese and American tourists.

Heart and soul of economy

While the country harbors long-term hopes of developing possible offshore oil deposits, the garments industry is the heart and soul of its economy. From virtually nothing in 1994, the industry has grown to an estimated $3 billion in exports and directly employs 355,000 workers. They in turn support an estimated 1.7 million people with regular payments to family members, who often live in poor rural villages with little economic activity, according to the International Finance Corp.

Sokla Sem, 29, came to the capital to find factory work 11 years ago after the death of her father. Working for a Chinese-owned shirt factory, she and her sister made a combined monthly salary of $150. Of that amount, they sent two-thirds to their mother to pay for the education of an older brother. Sem, like many young women here, has only a fourth-grade education.

After being fired in a dispute over pay, she became a labor activist. But she hasn't forgotten the economic imperative that drives the country's leading industry.

"It was very difficult for me when I started working in the factory," she says. "But I didn't care about the difficulty; I cared about making money that I could send home."