October investment sees downward trend continue

Friday, 04 December 2009
Chun Sophal
The Phnom Penh Post

Analyst says monthly drop does not necessarily paint full picture

THE number of approved investment projects in Cambodia fell dramatically in October compared with the same month in 2008, according to figures from the Centre for the Development of Cambodia (CDC) released Thursday, as large projects failed to materialise following the economic downturn.

Only US$15.5 million in projects were approved in October, a 98 percent drop compared with the $869.8 million in projects given the green light during the same month in 2008.

According to the CDC’s statistics, four major “tourism” projects worth a total of $704 million provided the majority of last October’s approvals.

The first 10 months of the year has seen approvals totalling only $1.624 billion, a far cry from the $9.928 projects certified during the same period last year.

An official from the CDC, who spoke on condition of anonymity, said the drop in investment projects resulted from a lack of capital flow from foreign countries.

“Most investors borrow money from banks, and the downfall of big banks around the world has systematically affected the flow of capital into Cambodia,” said the official.

During October the Cambodian government gave the go-ahead to only two projects: a shoe factory and a lightweight manufacturing development.

Kang Chandararoth, president of the Cambodian Centre for Study and Development, said October’s downturn in investment into Cambodia was not necessarily cause for alarm.

“We cannot evaluate investment each month because it is meaningless in evaluating change in the direction of an economic structure. We should make the comparison on a quarterly or yearly basis,” he said.

Sam Rainsy Party lawmaker Son Chhay said there were underlying problems in attracting capital to the Kingdom beyond the global financial crisis, namely high electricity prices, inadequate human resources and bureaucracy.

Wealth management for "Dummy" ... a lesson from Hun Sen

From rags to riches: Cambodia's oldest family of "nouveau" rich

Hun Sen reminding the country’s nouveau rich not to be overjoyed

Thursday, March 13, 2008
Everyday.com.kh
Translated from Khmer by Socheata

Prime minister Hun Sen reminded the country’s nouveau rich who amassed their fortune from selling lands, not to be overjoyed with the easy money they obtained, but that they have to make this money multiply itself further more. During a speech given at a diploma distribution ceremony in Kandal province, on Wednesday, Hun Sen said that, regardless of whether the lands they sold came from their ancestors, or they were lands distributed to them by the CPP in 1979, they are now turned into a valuable assets, but after the sale of these lands, people should know how to put this money to use to generate more money honestly. Hun Sen’s declaration was aimed at the country’s nouveau rich people from the sale of their lands, he told them to use the money with clear aim, then it will bring in more wealth to them.

Corruption Could Cost Millions in Abandoned Investment

Workers construct the giant Sokha Angkor Hotel in Siem Reap, August 24, 2004. Siem Reap, home to the famous Angkor temple complex and Cambodia's cultural capital, has become cluttered with construction and tourists.

Sok Khemara, VOA Khmer
Original report from Washington
10 August 2007

Franklin Ly, a Cambodian-American who estimates his worth is at least $1 million, had a plan to invest in Cambodia. He aborted it, he said, because of corruption and a weak rule of law.

"We wished to invest in Cambodia, in water, real estate, buying and selling land, whatever," Ly said recently. "But the fear and concern is that, because a plot of land sells to five owners, with just a land ownership certificate, the rule of law is not clear or consistent. So we were fearful." Ly's concerns for his homeland are a continuing story as Cambodian-Americans make wealth abroad and consider investing back home.

"We really want to go there," to invest, he said. "Because it's our homeland, and you always want to go back."

So far, though, Cambodians abroad, as well as many other potential investors, have found it hard to do so, despite assurances from the government to donors and the international community it is trying to tackle its endemic corruption.

Commerce Minister Cham Prasidh on a recent trip to the US claimed he and the government were working to curb corruption by reducing processing time on documents and to computerize files for businessmen to apply online to "reduce bribery." He said the system would go online at the end of the year.

And when Prime Minister Hun Sen recently met with new World Bank head Robert Zoellick last week, Hun Sen promised he was fighting corruption.

Not everyone is so sure there is much behind these promises.

Speaking to a group of Cambodian-Americans while on a visit to the US last week, US Ambassador Joseph Mussomeli said there was little political will among officials to fight corruption or to tackle investment as Thailand and Vietnam had.

"If they want Cambodia to gain its former glory, then it's going to have to really do some thing about corruption," he said. "But the political will, like the will to actually diet and exercise, it's much harder.

"Cambodian officials, I think, realize that corruption is so bad that something has to be done about it. But to do some thing about it is very painful. It will take great discipline, great focus and great sacrifice."

More and more US companies are looking to invest, he said, for the first time since the 1970s.

For Cambodian investors like Franklin Ly, who knows investment interest is out there, the situation is frustrating. Even more so, he said, because it is his home country.

With too much corruption and no law, these investors are "frightened," he said. "If so, it affects whom? Cambodians and Cambodia's economy. Because there are no jobs for people. If more people come to invest, more factories will mean more jobs, and that is of interest to Cambodia and its economy."

Cambodia: Flaws in the Investment Picture

June 20, 2007
Stratfor

Summary

With business costs rising in China, East Asian investors are eager to find the next big thing. At first glance, Cambodia's stable pro-business government, cheap labor and numerous resources make it seem like the ideal location. But, despite progress in the trials of former Khmer Rouge leaders and significant increases in official development assistance, Cambodia's corrupt legal system will continue to hinder efforts to attract large-scale, high-value foreign direct investment and to solidify economic gains.

Analysis

With rising labor costs, increasingly saturated manufacturing markets and the gradual reduction of tax concessions in China, investors and manufacturers in East Asia are eager to find the next big destination for foreign direct investment (FDI). In many ways, Cambodia should provide such an ideal investment environment. It boasts an attractive pool of cheap labor; lucrative cash crops such as rubber, rice and tobacco; and large, though disputed, offshore oil reserves.

Since beginning to consolidate power, Prime Minister Hun Sen and the Cambodian People's Party have worked hard to create a stable, firmly pro-business environment with low taxes. Geographically, Cambodia is ideally positioned to absorb new investment and serve as a bridge between two of Asia's star economies, well-established Thailand and booming Vietnam. Cambodia's lesser-developed economy status also gives its exports less-restricted access to major economies, in contrast to trade restrictions levied against China by the United States and the European Union.

Following Cambodia's recent progress in the long-delayed Khmer Rouge genocide trials and the prime minister's promises to battle corruption, Cambodia has received a strong vote of confidence from international aid donors. Its top donors gathered at the Cambodian Development Cooperation Forum in Phnom Penh on June 19-20 to offer significant increases to Cambodia's official development assistance (ODA). At a meeting that included representatives from the United States, Japan, Europe, International Monetary Fund, World Bank and the United Nations, the annual forum offered a few well-worn critiques before pledging $690 million in ODA, a 15 percent increase since 2006.

ODA, which accounts for more than half the Cambodian government's budget, is a great boon for the Southeast Asian country's people and economy. Potential ODA increases will be limited in size, however, and in the long term it is FDI, not aid, that will allow Cambodia to solidify its economic gains. ODA can certainly help in terms of expanding infrastructure, but FDI is far more useful in developing a local economy, transferring skills and technology, generating sustainable government revenues and nurturing local business. Less liquid than loans or aid, FDI represents a strategic, long-term wager, banking on a region's potential, not its pitfalls. While FDI flows increased to $381 million in 2005, up 34 percent year-on-year, investment remains relatively small and isolated to a few key sectors. Industries such as garment products and tourism account for most foreign investment, benefiting as they do from low taxes and the ability to utilize urban infrastructure.

Despite its strong profile, critical hurdles remain for FDI in Cambodia. Cambodia's well-known, widespread corruption and weak legal and financial systems deter all but the most speculative investors. For any sound, significant investment to occur, companies must have some guarantee that their rights to ownership and profits will be protected in the long run. Despite other incentives, no such guarantee exists in Cambodia's system. Corrupt, inconsistent legal administration and lengthy, costly and unclear arbitration systems plague business activity nationwide. All this is no secret; Cambodia ranked 151st out of 163 countries in Transparency International's Corruption Perceptions Index for 2006, a worse showing than Tajikistan and Nigeria.

In addition, groups such as Human Rights Watch and Global Witness continue to direct heavy criticism toward Cambodia regarding political freedom, environmental and human rights issues. These groups will keep many Western investors sensitive to activist pressure and public image out of Cambodia.

Although the progress of the genocide tribunal has been lauded by the international community, likely leading to increased ODA and moderately better public relations for Cambodia, these gains are not enough to produce sound and sustainable investment in the domestic economy. Vietnam and the Philippines, which have more reliable laws, better infrastructure and fewer international hot-button issues, have proven more attractive for potential FDI. As long as the legal system remains unreliable and opaque, large investors interested in long-term profit will stay out, unwilling to gamble valuable investments on the whims of corrupt officials. For now, Cambodia will attract mostly highly speculative smaller investments from sources immune to social pressures and lacking in sound strategic investment techniques.

There are a few distant glimmers of hope. New arbitration and anti-corruption laws, as well as proposals to establish a legal framework to ensure the equitable distribution of potential oil and natural gas revenues, are reportedly in the works. Until pressure for reform builds significant momentum, however, Cambodia has an awfully long way to go before it can meet sound investor standards, top stiff regional competition and open the floodgates to large-scale mainstream FDI.

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