Foreign Investment Plunges 53 Percent in Second Quarter

A sharp drop in hotel investment from April to June cut overall  foreign investment by more than half from the first quarter of 2003, a Cambo­dian Develop­ment Re­source Institute report said.

The total foreign investment approved by the Council for the De­velopment of Cambodia amounted to $48.3 million in the second quarter, the report noted, a 53 percent drop from the first quarter. Hotel in­vestment plunged from $71.9 million to zero.

While hotel investments de­clined dramatically, investment approvals by the Council for the garment sector increased by

62 percent in the second quarter. But the garment factories, fi­nanced by investors in China, Sing­a­pore, Malaysia and South Korea, represent just a small portion of the total amount of foreign investment since they cost only about $1 million each to set up.

We need foreign direct in­vest­ment, said Hing Thoraxy, director of the Council’s project monitoring department, in an interview Wednesday. With more foreign  direct investment, “we can develop the country. We can­not depend on donor aid. Domestic investment is good, but we need” foreign direct investment.

The decline in foreign investment during the second quarter, combined with a substantial drop in tourism due to severe acute respir­atory syndrome, took dollars out of the economy, economists say. As a result, the riel has lost value. On July 17, the riel sold for 3,995 per dollar, according to the foreign currency exchange. On Wednesday, the riel sold for 4,045 per dollar, a devaluation of about 1 percent in that time.

Economists worry that the longer the new government takes to form, the more investors will stay away and the devaluation of the riel will continue.

“Investors have no confidence doing business here with the current instability,” said Sok Hach, director of the Cambodian Eco­no­mic Institute. “If the political situation worsens, in about three months riel inflation will meet a serious flood.”

In July, the consumer price index showed that prices re­mained relatively stable. In the past two weeks, however, prices have jumped, said Khin Song, deputy director of the general statistics department in the Ministry of Planning.

The price of gasoline rose

50 riel per liter, and 1 kg of rice now costs 150 riel more than it did two weeks ago. Taxi and bus rates in­creased 25 percent in that time, he added.

Economists pin the recent de­cline in foreign investment on last month’s national election. They say investors, wary of the violence that plagued the last two elections, are waiting for a calm political environment.

One economist on faculty at the Institute of Technology and Man­agement said one of the most tell­ing economic indicators is that foreign currency deposits dropped 3.4 percent from June to July.

“That is a reflection of a declining interest among investors to operate businesses in Cambo­dia,” he said. “The implication is that Cambodian businesses and banks have less capital to put into the economy.”

At the Council, Hing Thoraxy en­couraged people to put their money back into the domestic economy. “I notice people spend their wealth on luxury cars,” he said. “This is not advantageous for the economy. Money needs to be used for development and investment.”

 

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