They are meant to create jobs and to invigorate Cambodia’s economy.
They will eventually occupy some 3,000 hectares of land and, according to the Ministry of Commerce, are currently or will eventually be located in Kampot, Svay Rieng, Takeo, Kompong Cham, Koh Kong and Banteay Meanchey provinces, as well as Sihanoukville municipality.
Thailand has more than 30 and they are the envy of the region, and in Vietnam, which has over 60, they are soaking up foreign investment.
For the time being, however, Cambodia’s Special Economic Zones remain largely untapped.
Of the 13 economic zones planned for Cambodia, only two are in operation: Keo Phus in Koh Kong province and Bavet Industrial Estate in Svay Rieng province. Three others are close to completion, but six are in the early stages of construction and two have yet to be registered with the government, operators said.
Nevertheless, some of Cambodia’s best-connected business chieftains, such as casino magnate Ly Yong Phat and agricultural commodities kingpin Mong Reththy, have sunk millions of dollars into them, or plan to.
Others planning to do the same include Oum Chhay, owner of Chhay Chhay Investment Co, Lim Chhiv Ho, owner of Attwood Import Export Co, Vinh Hour, owner of City Power Group Corp, and Keo Maly, owner of Keo Maly Export Import Co.
The expected capital investments required are considerable.
According to the December sub-decree establishing the zones, operating concessionaires must provide electricity and clean water in the zones, as well as access to the postal and telecommunications systems and job training. Also required are land and lodging for employees and employers, hospitals, parks and systems for the abatement of floods and fires, as well as the management of sewage.
Zone investors will be entitled to tax holidays on profits, duty-free imports of construction, production and transportation equipment, free repatriation of profit and long-term leases on land.
But the government has not provided tax incentives for zone investors that are significantly different from those available to start-up businesses elsewhere in Cambodia, business leaders note.
“Economic inducements were really stripped out [of the zones] by the World Bank and the IMF,” said Bretton Sciaroni, chairman of the International Business Club.
“I don’t know that there’s anything different that you get [inside the zones],” he said.
Garment manufacturers would likely be the keenest to invest in the zones, but not just yet, said Van Sou Ieng, chairman of the Garment Manufacturers Association of Cambodia.
But he added that the advantages of the zones have not yet materialized.
“We don’t know if the owner of the [zone] is actually going to provide all the infrastructure they promise,” he said.
“It’s chicken and egg, you know. The owner must invest in infrastructure first.”
However, two garment factories are planning to set up shop at the Bavet economic zone on the Vietnamese border, Van Sou Ieng said.
Another factor holding the zones back is the domestic cost of doing business in Cambodia, said Tim Smyth of Indochina Research.
Expensive, unreliable electricity and insufficient road networks make Cambodia’s cost of production less than appetizing, he said. Improvements may be on the way, he said, “but not in the timeframe to have a return on investments.”
Cheap Cambodian labor may be a draw, however.
Cambodia’s minimum wage for factory workers, which is $45 per month, is significantly below the minimum wage in Thailand of about $4.75 per day, and is about the same as the prevailing wage in Vietnam.
Since the UN recognizes it as a “least-developed country,” Cambodia enjoys quota- and duty-free access to European Union markets for all products other than weapons, rice and sugar. The status also gives it preferential access to the US markets.
Garments marked “Made in Cambodia” and made in foreign-owned factories in zones skirting the Thai and Vietnamese borders can be shipped out of those countries using their superior transportation infrastructure.
An official at the Council for the Development of Cambodia, which administers the zones, confirmed that the zones offered no special tax abatements.
Though official taxes remain, other, under-the-table payments may be reduced, as all necessary government officials will be on-site and will increase efficiency, he said.
“Your documents will all be approved right inside each zone,” he said, adding that customs, CamControl and tax officials, as well as border police, will all be on site.
Vietnamese and Thai industrial estates also offer similar “one-stop shop” functions, but they cannot offer what may be Cambodia’s greatest amenity: preferential access to the US and EU markets.
Ly Yong Phat says his company, Hero King Co Ltd, plans to invest $30 million in his 339-hectare economic zone along the Thai border. A road leading to the zone will be completed in 2007, and he expects to have garment factories, sugar refineries and hotels as tenants.
“First…we need a good road. Then investors will come,” he said.
At the Keo Phus Special Economic Zone in Koh Kong, Mong Reththy says he hopes to host a US speedboat company and has two factories producing palm oil and sugar.
He also intends to offer low-cost electricity using bio-diesel generators run on palm oil produced on his own farms.
“If I don’t offer investors low-cost operations, they won’t be interested in investing,” he said.
On March 20, Finance Minister Keat Chhon spoke of his “optimism” in announcing a $2.7 million loan from the Japan Bank for International Cooperation to finance the paving of roads at a 70-hectare flagship zone scheduled to open in 2008 by the deep-water seaport at Sihanoukville municipality.
A statement from the Finance Ministry released at the March 20 signing cited a study by the Japan International Cooperation Agency and spoke of the potential for creating more such zones in the municipality in the coming years—possibly employing a combined workforce of 1 million by the year 2020.
JICA officials did not respond to requests for comment.
In April, the Chhay Chhay Investment Company plans to open a 386-hectare industrial park in Poipet town in Banteay Meanchey province. The company plans to invite companies from Macao, Hong Kong, Malaysia, Thailand and Singapore to occupy zones in the site, which can accommodate 250 factories averaging 800 employees each.
Chhay Chhay has already spent $2 million on infrastructure, such as roads, electricity, drainage, loading docks, and plans to spend a further $60 million, said Thon Virak, deputy director of the Commerce Ministry’s export department.
“I’m sure that Chinese investors will set up shop there,” Thon Virak said.
However, he noted that many improvements in the zones are still necessary before entrepreneurs will settle in them.
Sciaroni concurred. “As far as I can tell, they’re in the planning stages [and] it’s going to take some capital to get these things up and running,” he said.
“We need to wait and see how efficient they are,” he added. “We need to give them a chance.”
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