Special Economic Zones Struggle To Meet Expectations

Touted by the government as a tool for development, many special economic zones in Cambodia still have a long way to go in terms of in­fra­structure and attracting inves­tors, according to experts and SEZ developers.

Though neighboring countries have enjoyed success with SEZs, which offer special incentives—such as tax holidays—to businesses to set up factories, Cambodia is struggling to live up to government claims that the zones will create tens of thousands of jobs.

Now, more than two years after the government began approving SEZs, only one out of 10 special ec­on­omic zones has any operating factories, though five others have signed deals with businesses, ac­cording to developers and the Ministry of Commerce. And developers are currently seeking approval for six more SEZs, which offer tax-free profits, duty-free imports of eq­uipment, long-term leases and easy access to government taxation and custom services.

Some SEZ developers say that setting up a zone takes time, though Thon Virak, deputy director-general of the Commerce Ministry’s Foreign Trade Department, said site developers simply aren’t building the necessary infrastructure they need for success.

“If you set up nothing in the zone, who is going to set up a factory?” Thon Virak asked, adding that most SEZ developers have not come close to spending

the estimated $100 million needed to ready zones for foreign investment.

However, Sok Chenda, secretary-general of the Council for the Development of Cambodia, said that some SEZs need the security of guaranteed factory contracts before they can begin investing their money and building infrastructure.

“SEZs can’t complete their infrastructure and then sit around waiting for clients. They will die first,” he said.

SEZs have been successful in Thailand and Vietnam but will need more time in Cambodia, which requires better infrastructure, said Chan Sophal, president of the Cambodian Economic Association.

“I think promoting the SEZ is a good idea in the long run, but right now it’s not a target of [foreign] investors,” he said.

Nguon Meng Tech, director general for the Cambodia Chamber of Commerce, said there are as­surances beyond infrastructure that foreign investors need before they invest in the SEZs.

The country needs an independent arbitration center and reliable commercial court, he said.

“Based on my knowledge, I see that the court has not been enforcing [the law] to international standards. Without a good court system the [European Union], US, and Japan aren’t interested.”

And for developers themselves, the experience of establishing an SEZ has been somewhat hit and miss.

In the capital, the Phnom Penh SEZ will open this year and provide more than 100,000 jobs, said Nang Sothy, managing director of the PPSEZ, adding that the site has reached agreements with 50 factories for its opening first phase.

“I can disclose to you that our company is already making a profit,” he said.

Commodities tycoon Mong Reththy, chairman of the Mong Reththy Group, owns a 200-hec­tare SEZ in Koh Kong pro­vince, and admits he’s having trouble getting investments.

Having spent $20 million al­ready on roads, a school, and a medical clinic inside the SEZ, Mong Reth­thy said that so far he still can’t guarantee water, electricity and all im­portant labor.

“I don’t know about all the developers, but my zone is facing a huge problem,” he said, but added that he is still optimistic that with further investment of his own mo­ney projects will come online.

The Koh Kong SEZ, he added, could benefit from a proposed power plant that is to be built in Sihanoukville, though for now, he said, the situation doesn’t provide the answers that foreign investors are looking for.

By contrast, Wing Hour, managing director of City Power Group Corp, said his Kampot province SEZ has a lot of potential, as it is located close to the Kampot International Seaport, which is due to open within the year.

So far, he said, his SEZ has signed agreements with two shoe factories, one motorbike assembling plant, one sewing machine assembly plant and four garment factories from Korea.

“I will build everything the factories need. I can assure them electricity, labor and a set of government administrators inside the compound,” Wing Hour said.

(Additional reporting by Tim Sturrock)

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