The Japanese are coming.
After years of providing millions of dollars in aid, firms from the world’s third-largest economy are now starting to enter the Cambodian marketplace.
Japan is still Cambodia’s most generous foreign donor—last year, overseas development assistance reached $146 million. But while companies from countries like China, Vietnam, Malaysia and Thailand have been looking to Cambodia as an investment opportunity for almost a decade, Japanese companies have not seemed quite as interested.
That is about to change.
In 2009, there were just four investment projects carried out by Japanese firms totaling $12 million. One of those firms included Ajinomoto Inc, one of Japan’s largest food processing companies with net profits of $384 million last year.
The following year, there were six new investments totaling $35 million dollars, including one from Minebea Co Ltd, a manufacturer of electronic components for appliances like mobile phones and video cameras.
This year, however, Japan has already had 20 investments approved in Cambodia for industries like home appliances, car parts, electronics and garments. Four additional projects are also pending approval, which will bring total investment for this year to $120 million.
“This is only the beginning, I think,” Japanese Ambassador to Cambodia Masafumi Kuroki said this week.
“We want more Japanese companies to come. I think that Cambodia should not be satisfied only with this volume. They have to make efforts to attract more Japanese investment.”
There is a culmination of reasons behind Japan’s recent push into Cambodia. Japan’s currency has strengthened this year as investors buy up the yen as a safe haven against the US dollar. This is making Japanese exports less competitive and companies are looking abroad for new production bases.
There is also now a labor shortage in more developed countries in the region such as China, Vietnam and Thailand, where costs for manufacturers are also increasing.
While most of Japan’s new investments to Cambodia are in the manufacturing sector, there are also firms specializing in retail and financial services. AEON Mall Co Ltd, a property firm that builds shopping centers has recently bought a 6.8-hectare plot of land in Phnom Penh’s Chamkar Mon district on the banks of the Tonle Bassac River where it plans to build an upmarket retail park.
The Bank of Tokyo-Mitsubishi UFJ, one of Japan’s largest banks, has also decided to open an office in Phnom Penh. And SBI Securities, a Japanese securities firm started business in Cambodia last year to tap into the recently launched stock market. It has since joined forces with Cambodia Capital Securities, a local firm owned by Royal Group, Cambodia’s largest conglomerate.
Economists say that the gradual improvement of Cambodia’s roads and the construction of special economic zones (SEZs) in key locations has played a role in attracting companies from Japan – many of Japan’s new investments are inside SEZs.
And with most developed countries grappling with poor economic conditions at home, investors are looking for new investment destinations.
“I think this will be a long-term trend and not just a short term shift,” said Kang Chandararot, president of the Cambodia Development Research Institute. “Tough economic times have forced some countries to look for different locations to diversify their investments or business activities.”
Mr Chandararot added that the size of Cambodia’s domestic market is growing as spending power for those living in urban areas increases. He also said that the quality of Japanese investments would help train the country’s labor force to a higher standard.
Ambassador Kuroki said that since he took up his post in Cambodia two years ago he has put a lot of effort into trying to convince Japanese companies to set up in Cambodia. But longstanding hurdles such as high energy costs, limited numbers of locally trained technicians and engineers, and poor infrastructure still deter some of the larger companies from coming.
In other words, there is little chance that we are about to see the likes of Honda or Toyota establish a presence here just yet.
“But they could come in the future,” the ambassador said.
“Two years ago, when I arrived in this country, I saw that the ODA and the NGO assistance is very big, but the private investment is very small,” he said.
“For the real economic development of a country, whether it is Cambodia or any other country, I think assistance is not enough. They need private sector development.”