SEZs prepare for ‘post-Covid’ era recoil, expansion

ALTHOUGH Cambodia’s economic growth is widely forecast to contract this year, several factories in the Phnom Penh Special Economic Zone (PPSEZ), the Kingdom’s second-largest industrial zone after Sihanoukville SEZ, are preparing for expansion.

PPSEZ managing director Hiroshi Uematsu told The Post on Thursday that although many factories have been affected by the spread of coronavirus, some are preparing for Post-Covid-19 comebacks.

At the end of last month, he said, the total number of workers at PPSEZ was 20,540, a 2.68 per cent decrease from January.

However, he said, some companies like Japaneseowned automotive components manufacturer Denso (Cambodia) Co Ltd and New York-based Tiffany & Co subsidiary Laurelton Diamonds (Cambodia) Co Ltd are preparing to boost hiring once the pandemic subsides.

Chinese clothing manufacturer Shenzhou International

Group Holdings Ltd’s Cambodian arm Marvel Garment Co Ltd and Tokyo-based conglomerate Sumitomo Group subsidiary Sumi (Cambodia) Wiring Systems Co Ltd, are also keen to start hiring again, he said.

Uematsu said: “From our experience in Phnom Penh and the Poipet SEZ, we can see that automobile parts like Denso, and Sumi Wiring Systems are expanding operations . . . Electronics manufacturers like Minebea and Sumitronics are operating at high productivity rates.

“We have also seen an increase in food and beverage and other consumer goods like Ajinomoto, Coca-Cola, Angkor Milk, [hard candy producer] Aprati Foods, [sanitary goods manufacturer] Winsun, [paint and coating products producer] TOA for the domestic market,” he said.

The World Bank expects further recoil on Cambodia’s gross domestic product (GDP) growth to between minus one and minus 2.9 per cent for this year, as its main growth drivers – tourism, manufacturing exports and construction – are hammered by the pandemic, its latest economic update said.

The collapse of the three drivers, accounting for over 70 per cent of the Kingdom’s growth and nearly 40 per cent of employment, has constrained economic expansion, which puts 1.76 million jobs at risk.

It also warned that capital inflows are tapering and could in turn trigger the easing of real estate market prices, likely ending the construction boom.

As such, non-performing loans could rise on the back of large outstanding credit to the construction, real estate and mortgage sector.

Stephen Higgins, a managing partner at investment and advisory firm Mekong Strategic Partners Co Ltd (MSP) said the Kingdom’s manufacturing sector will be fast to recover from the Covid-19 pandemic.

“Post-Covid, I’m very optimistic about the outlook for manufacturing in Cambodia. The problem is determining when it will be ‘post-Covid’,” he said.

We think that minus one per cent for GDP is very much the optimistic case and we would expect it to be worse than that

However, he added, the reality is that for much of the Cambodian economy, things will not return to normal this year and for some sectors such as tourism, it will likely take until 2022 before things start returning to normal.

“Garments should be returning towards normal by the end of this year, while construction is likely to have a steady decline over the next couple of years.”

“We think that minus one per cent for GDP is very much the optimistic case and we would expect it to be worse than that,” said Higgins.

PPSEZ’s Uematsu suggested to the government to revise the Law on Investment and Law on Special Economic Zones to draw in more investors.

The laws should be adopted “in a way that supports these kinds of industries so that Cambodia can diversify industry, which it must.

“I suggest the government identify priority industries and use attractive incentives to ‘welcome’ them to the country,” he said.