Cam­bo­dia Un­der the Spot­light: The road ahead of­fer many op­por­tu­ni­ties.

A strong eco­nomic out­look is driv­ing re­newed in­ter­est and new in­vest­ments to Cam­bo­dia.

Norway-Asia Business Review - - Contents - HENRI VIIRALT

SWith stiff reg­u­la­tory en­vi­ron­ments, un­sta­ble in­ter­nal po­lit­i­cal sit­u­a­tions and a gen­eral dry­ing up of op­por­tu­ni­ties in some of the largest South­east Asian coun­tries, in­vestors are slowly start­ing to ven­ture out into fron­tier mar­kets in search of new ones, and it seems it may be time to shine for of­ten over­looked na­tions like Cam­bo­dia.

“There are a cou­ple of things that make Cam­bo­dia rel­a­tively at­trac­tive to in­vestors,” says Mr Morten Kvam­men, the Prin­ci­pal En­tre­pre­neur at Lo­tus Cap­i­tal, a fi­nan­cial ad­vi­sory and busi­ness devel­op­ment firm in the Greater Mekong Re­gion. “One of the main rea­sons is that most of the wealth is con­cen­trated in the cap­i­tal, Ph­nom Penh. There was a re­port pub­lished by the Econ­o­mist In­tel­li­gence Unit last year, with a re­view of all Asian cities, show­ing that the av­er­age house­hold in­come here is al­most as high as Bangkok, with just over US$10,000 per an­num. And it’s not just that the wealth is in the hands of a few wealthy in­di­vid­u­als ei­ther, around 50% of house­holds are above that thresh­old.”

In terms of ac­cess, the coun­try is sand­wiched be­tween Thai­land and Viet­nam, mak­ing it a strate­gi­cally vi­able ex­ten­sion mar­ket for those with ac­tiv­i­ties in ei­ther of those larger mar­kets.

“Ph­nom Penh’s 200,000 house­holds that qual­ify as mid­dle in­come makes it an easy to pen­e­trate mar­ket ge­o­graph­i­cally, and the econ­omy as a whole has been de­vel­op­ing quite rapidly, with GDP an­nual growth rate at over 10% per an­num up un­til 2009, but it’s still churn­ing at a rate of 7% to­day.”

In­ter­est­ingly, the same re­port by the Econ­o­mist ex­pects mid­dle in­come house­holds to reach half a mil­lion by 2030, with in­come lev­els sur­pass­ing Bangkok.

What makes Cam­bo­dia unique in com­par­i­son to Thai­land and Viet­nam is that it’s a dol­lar-based econ­omy – banks op­er­ate in USD and most goods can be bought and sold in it – which cir­cum­vents any is­sues with lo­cal cur­rency hedg­ing and large ex­po­sures.

Cor­po­rate taxes hover around 20% and for ven­tures re­quir­ing USD 2 mil­lion and more in in­vest­ment, there is an op­tion to ap­ply for ap­proval as a qual­i­fied in­vest­ment project from the Coun­cil for the Devel­op­ment of Cam­bo­dia, for the ex­emp­tion on im­port du­ties and im­port VAT on cap­i­tal equip­ment that is re­quired for set­ting up op­er­a­tions, and in most cases com­pa­nies can also ap­ply for ex­emp­tion on profit tax for a pe­riod of 3-7 years.

For­eign­ers can also own 100% of com­pa­nies in Cam­bo­dia and there is no pro­tec­tion­ism or re­stric­tions like bank­ing and fi­nance, and tele­coms, which fur­ther sets it apart from coun­tries like Thai­land.

The only re­stric­tion is on land own­er­ship whereby a per­son can own 49% of a com­pany that owns a piece of land, al­though in re­al­ity it’s fully le­gal to

have a long-time lease for 50 or 99 years, which, ac­cord­ing to Kvam­men, is the equiv­a­lent of full own­er­ship.

Cam­bo­dia is still a fairly ba­sic econ­omy, so most of op­por­tu­ni­ties are cen­tred around tra­di­tional sec­tors, such as gar­ment man­u­fac­tur­ing, tourism, and gen­eral trade, es­pe­cially any­thing to do with the lo­cal con­sumer mar­ket, which has ex­panded tremen­dously in re­cent years. Mr Kvam­men notes that they are wit­ness­ing a pro­fes­sion­al­i­sa­tion of the en­tire goods dis­tri­bu­tion and the move away from non-branded, cheap qual­ity knock­offs to higher qual­ity goods, so branded re­tail­ing and fran­chise devel­op­ment is def­i­nitely hav­ing its hey­day.

“It’s also worth men­tion­ing that there’s a lot less com­pe­ti­tion here, whereas Thai­land has a very well de­vel­oped lo­cal busi­ness com­mu­nity. Usu­ally larger com­pa­nies tend to skip over Cam­bo­dia much the same way as they skip over Laos, in favour of Myan­mar, which has a huge mar­ket op­por­tu­nity, but is not yet ready for prime­time.”

Set­ting up a lo­cal en­tity can be done in as lit­tle as a week, but re­al­is­ti­cally it’s a 2-4-week process if it’s done by the book and in a trans­par­ent way, and even the afore­men­tioned ap­proval for qual­i­fied in­vest­ment projects that is sup­posed to take 28 days, may take any­where from 3-6 months if no short­cuts are taken, but Kvam­men as­sures there are enough qual­i­fied le­gal ad­vi­sors that can help nav­i­gate bu­reau­cracy and avoid hot wa­ters later on.

Scan­di­na­vian pres­ence in Cam­bo­dia is still na­cent, but there is a well-es­tab­lished Nor­we­gian car dis­trib­u­tor with a na­tion­wide ser­vice net­work of re­pair shops and the owner also has a pro­tec­tive cloth­ing man­u­fac­tur­ing com­pany, but most en­trepreneurs are fo­cus­ing on hospi­tal­ity and food & bev­er­age sec­tors.

Apart from fron­tier en­trepreneurs, big busi­ness is also start­ing to take no­tice of the coun­try’s var­i­ous op­por­tu­ni­ties.

In Fe­bru­ary, a US del­e­ga­tion com­pris­ing 14 com­pa­nies, in­clud­ing Gen­eral Elec­tric, 3M and Coca-Cola em­barked on a two-day visit with lo­cal gov­ern­ment of­fi­cials to gauge the chal­lenges and op­por­tu­ni­ties the coun­try af­fords.

Mr Michael Micha­lak, re­gional man­ag­ing di­rec­tor of the US-ASEAN Busi­ness Coun­cil, said in a state­ment to the me­dia that the com­pa­nies, rep­re­sent­ing sec­tors rang­ing from agri­cul­ture to au­to­mo­tive, “gen­er­ally came away op­ti­mistic”, al­though an­other rep­re­sen­ta­tive for the del­e­ga­tion con­sid­ered Cam­bo­dia’s suit­abil­ity for in­vest­ment as a “mixed bag”, con­trast­ing heavy spending on in­fras­truc­ture and a grow­ing fo­cus on IT with slow in­te­gra­tion with Asean, cor­rup­tion and high en­ergy prices.

Mr Kvam­men points out that while in­fras­truc­ture has defin­tely been an is­sue in the past – with elec­tric­ity be­ing ex­or­bi­tantly ex­pen­sive and black­outs a com­mon oc­cur­rence – the gov­ern­ment has stepped up their game con­sid­er­ably over the past 4-5 years in de­vel­op­ing large amounts of lo­cally gen­er­ated power along with much im­proved power dis­tri­bu­tion.

Road in­fras­truc­ture, too, has been get­ting bet­ter, in­creas­ing the speed at which goods can be moved around the coun­try.

Cor­rup­tion, un­for­tu­nately, is still part of every­day life, and most busi­nesses are sub­ject to re­quests for “fa­cil­i­ta­tions pay­ments”, in other words small kick­backs to gov­ern­ment of­fi­cials to ac­tu­ally do their jobs, e.g. fil­ing the pro­cess­ing the pa­per­work for set­ting up a com­pany or do­ing monthly tax fil­ings.

“While the sums are in­signif­i­cant, they would of course be a hin­drance for peo­ple that have zero tol­er­ance for cor­rup­tion. To avoid this, you need to set your stan­dards right up front and it is pos­si­ble to do busi­ness here with­out en­gag­ing in cor­rupt prac­tices, it just means that things take a bit longer.”

The es­tab­lish­ment of the An­ti­Cor­rup­tion Unit a few years back has been seen as a step in the right di­rec­tion and a lot of multi­na­tion­als use it to re­port var­i­ous shady prac­tices. Mr Kvam­men’s ad­vice is to push back to the ini­tial fa­cil­i­ta­tion pay­ment re­quests, which may slow things down a bit even­tu­ally, but that they should con­tinue smoother from that point on­wards.

Cam­bo­dia’s pro-busi­ness gov­ern­ment seems to be at least aware of the is­sues with elec­tric­ity prices and cor­rup­tion. Some min­istries are re­port­edly even work­ing on digi­tis­ing their ser­vices, a move that should in­crease trans­parency and fur­ther re­duce op­por­tu­ni­ties for graft. The Ed­u­ca­tion Min­istry plans to add more se­condary schools ready to de­velop a highly skilled work­force of the fu­ture, should also not be over­looked.

For in­vestors with some pa­tience and the abil­ity to look at the big­ger pic­ture, may in­deed fi­nally pro­vide Cam­bo­dia its mo­ment in the sun.



Above left: Map of Cam­bo­dia and neigh­bour­ing coun­tries. Above: Sky­line of Ph­nom Penh in­clud­ing Cen­tral Mar­ket.

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