Most Economic Zones Still Waiting for Takers

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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