Private equity investment, rather than securities markets, will likely dominate the next phase of Cambodia’s economic development, speakers said Wednesday at a conference on capital markets hosted by the Economic Institute of Cambodia.
In January, Cambodia got its first investment bank: Tong Yang Investment, a subsidiary of the South Korean Tong Yang group of companies, and it has already begun sniffing around for good venture capital investments.
Han Kyung Tae, Tong Yang Investment’s chief representative in Cambodia, said that Tong Yang is actively looking at business plans, especially in plantations and real estate.
The bank also plans to launch a $100-million real estate investment fund later this year, focused on Cambodia and Vietnam and marketed to South Korean investors, he said.
Marvin Yeo, a financing specialist from the Asian Development Bank’s Manila office, told the forum that Asia’s economic boom, coupled with historically high liquidity in international financial markets, could well draw investor dollars to Cambodia.
“The whole region has benefited from very positive sentiment,” he said.
In China, foreign direct investment has helped create jobs, expand trade, upgrade technology and increase productivity, said Jie Sun, deputy director of the Research Center for International Finance at Beijing’s Chinese Academy of Social Sciences.
But development driven by foreign funding is not entirely without risk. China, awash in foreign investment, has begun to wonder whether you can have too much of a good thing, said Jie Sun, adding that favorable tax treatment for foreign investors has recently been cut.
In Cambodia, FDI has brought limited benefits; much of the money that enters the country goes right back out, a phenomenon known as revenue leakage.
EIC Director Sok Hach said that Cambodia, where investment incentives favor large companies, should focus on improving financing mechanisms for small and medium sized enterprises, which can help create local jobs.
“In China, [foreign investors bring] only technology,” he said. “In Cambodia, they bring everything, even workers.”
In another cautionary tale from China, Jie Sun said that even though China has solid investor protection laws on the books, in practice, those laws are poorly enforced.
But he said the major lesson-and perhaps the most instructive for Cambodia-is that China has learned that capital markets can help a country with the slow and challenging work of improving its business environment.
“The Chinese have realized that the main function of the stock market is to improve corporate governance,” he said. “After 15 years, we have now come to the point.”
Conference attendee Lyaun Hay, the chief financial officer of administration for a consortium of pharmaceutical and palm wine companies in Cambodia, said in an interview that Cambodia’s business environment remains challenging.
Businesses are still built around family relationships, and an entrepreneurial culture has yet to take root, he said. “It’s still risky,” he said. “There’s no law. There’s no enforcement.”
Oil and gas also featured heavily in the conference.
Hing Thoraxy, a senior Cambodian economist, said that only a fraction-perhaps 10 percent-of the oil in Block A, an exploration area off the coast of Sihanoukville controlled by US oil giant Chevron, can be extracted.
“The reserve of Cambodia is not like in Thailand,” he said. “The wells of Cambodia are in many places, but small.”
He added that Chevron and the Cambodian National Petroleum Authority plan to release data on the findings of their exploration work in Block A soon.
Hing Thoraxy said that a national petroleum law had not yet been finalized.
“[The Cambodian National Petroleum Authority] has appealed for experts from other countries like Japan to help prepare the law,” he said.
In the meantime, the EIC has come up with its own estimate of how much money the Cambodian government could receive from oil and gas revenues: $2 to $3 billion a year over 20 years of production.
This figure might have to be revised downward if it turns out that only 10 percent of offshore resources could be extracted, Sok Hach said.
Oil revenues could be used to improve Cambodia’s poor infrastructure, which remains a major barrier to economic growth, Hing Thoraxy said.
He estimated that Cambodia, which currently gets about $500 million a year in development aid, needs roughly $1 billion a year to pay for the irrigation projects, roads, bridges, and dams it would like to construct.
Sok Hach emphasized the importance of using petrodollars to build up the nation’s human resources as well as its physical infrastructure.
“You need people first,” he said.