Large investments have plunged in the first six months of 2004 compared to last year, but the country’s garment industry growth has been steady, according to figures obtained Tuesday from the Council for the Development of Cambodia.
The CDC approved 17 projects worth about $47 million in fixed assets through the first six months, down from 30 projects worth about $152 million during the same period last year.
Sok Chenda, secretary-general of the CDC, said he was too busy to comment Tuesday. Analysts have attributed the decline to the ongoing political deadlock and expect investment to increase in the second half of the year.
The garment sector, which accounts for about 40 percent of the economy and more than 95 percent of exports, saw 12 factories approved by the CDC this year, up one from the same period last year.
Though the number of garment factories approved is similar, other investments, like hotels, agro-processing plants and light manufacturing, have fallen substantially.
Garment factories comprised about 66 percent of fixed assets approved through the first six months. During the same period last year, they accounted for just 10 percent.
More garment factories are expanding operations this year, the figures show. The CDC approved expansion projects for seven factories during the first six months, compared with three expansion projects last year.
“Buyers are consolidating,” said Ken Loo, secretary-general of the Garment Manufacturers Association in Cambodia. “They don’t want to deal with 50 factories anymore, they want to deal with 10. So factories need more capacity.”
Though investment in other large projects has dropped considerably, business analysts were optimistic that investors would sign off on new projects once the government is in place.
“We’re as busy as we can be with work, and that’s a fair indication that things will be better in the second half of the year,” said Tim Smyth, managing director of Indochina Research, which deals mostly with multinational corporations.
Multinational companies operating across Southeast Asia are “seeing blank spots on the radar when they hit Cambodia and Laos,” where they are exploring opportunities, Smyth said.
The main deterrents for foreign investors, Smyth said, are market size and information. Since Cambodia’s population is still relatively small compared to neighboring countries, some companies think it is not worth investing in.
“Nobody is to blame for that,” Smyth said. “That can only be solved with time.”
As for market information, Smyth said companies are unsure of the costs because the supply chain “is shrouded in mystery.” A World Bank draft report written late last year said that corruption, lengthy bureaucratic delays and monopolies have contributed to a poor investment climate.
As a result of the report, the government created a high-level trade facilitation committee to improve investor confidence, said Bretton Sciaroni, head of the International Business Club.
“The latter part of the year should see an increase” in foreign investment, Sciaroni said.
New investors seem particularly interested in hotels, cement facilities, infrastructure improvements and other forms of construction, Sciaroni said. The formation of the government, plus the expected ratification of Cambodia’s entry into the World Trade Organization, should spur investors to put their money down.
“For the big investors who were holding back, now they can move forward,” Sciaroni said.