Despite government efforts to attract more private investment, Cambodia is struggling to draw investors, receiving $213 million in pledged capital in the first nine months of this year—the lowest figures since 1994.
The investment board for the Council for the Development of Cambodia, a government agency, has approved 83 projects so far this year. During the same period last year, 64 projects worth
$230.4 million were pledged.
The figures for the first nine months of 2000—the lowest recorded since the CDC was established six years ago—are about one-fourth the amount pledged in the same period of 1998.
Cambodia’s investment peak came in 1995 when 126 projects worth $2.2 billion were approved for that entire year. Investment remained between $750 million and $850 million in the following three years, according to CDC figures. Last year pledged investments dropped to less than $470 million.
Chea Vuthy, CDC’s information director, downplayed this year’s figures, noting the number of projects has increased compared to the same period last year.
“Even though we do not receive big investment projects, small- and medium-scale projects are increasing,” he said. “It shows investors feel confident enough to invest in Cambodia.”
However, economists and business observers say the continuous decline reflects the socio-economic situation of Cambodia.
Sok Hach, a macro-economist with the Cambodian Development and Research Institute, noted that investors cannot regain confidence to invest in Cambodia when no significant progress in key reforms has been made. He said the country needs to commit to reforms, such as reducing the number of civil servants and revamping the judicial system.
“Without these reforms, there is no significant improvement in the rule of law, and then, confidence of good investors would not be improved,” he said.
Paul Freer, an economic observer with the International Management and Investment Consultant, pointed out that slow recovery in investment reflects changes in the international trade environment—such as China’s bid to enter the World Trade Organization and Cambodia’s entry to the Asean Free Trade Agreement, which required Cambodia to eliminate its trade taxes by 2015.
But the biggest drawbacks, he said, are weak infrastructure and a lack of financing for long-term investment.
“Almost none of the banks are willing to finance long-term investment in a country like Cambodia,” Freer said.
Such concerns were repeatedly voiced by foreign investors at public forums hosted by Prime Minister Hun Sen last December and July to show his government’s commitment to attracting long-term investors.
Observers say investor-friendly legislation, such as commercial laws, should be pushed forward and more efforts should be made to fight corruption. Otherwise, they say, Cambodia won’t be able to draw the attentions of international investors and financial institutions that would funnel cash into Cambodia.
But finance experts do see some see some promising trends in investment here, recognizing remarkable progress in garment and tourism industries.
According to the latest report from CDC, 73 of the 83 approved projects are in manufacturing industries and account for $130.1 million, or 61 percent, of the investment capital. Garment factories remain a leading sector, receiving 44 projects worth $71.1 million. And six projects worth $62.1 million were pledged in tourism.
Investment in the garment industry showed a 38 percent increase from the same period last year, almost hitting the same level of the entire 1999 garment projects. Garment investment peaked in 1998 with 86 garment projects worth $126.5 million.
“Progress in the garment industry reflects the US policy in easing the quota export from Cambodia,” Sok Hach said.
The US increased its quota by 15 percent this year—6 percent automatically, 5 percent in May and 4 percent in September—a result of seemingly improved working conditions in the industry.
A boom in hotel construction is another positive indicator for Cambodia’s economic recovery. Last year, Cambodia approved only two projects worth $25 million in tourism.
This year, Indonesia’s Holiday Palace Hotel Co. plans to build a 360-room, $15million hotel in Phnom Penh, and Angkor Century Group, a Singaporean-Cambodian joint venture, will spend $12.1 million for a four-star hotel with 190 rooms. Korean-funded ABC International Co. has pledged to invest $9.3 million in a modern tourism center in the Angkor Archaeological Park.
Eric Lim, project director with Asia-Pacific Resources, sees the emergence of new players in investment promising.
While Asia-Pacific countries continue to be main players in Cambodia’s foreign investment—with 50 of this year’s pledged projects—European countries have become more involved. According to the CDC reports, European countries, which in the past constituted a small fraction of foreign investors, took up more than 10 percent of pledged investments this year.
“Europe is far apart from Asia,” Lim said. “It is very interesting to see the new emergence of full investors. It’s very encouraging.”
