Cambodia finally experienced its first year of peace in over 30 years. This may look attractive to many investors. In this profile report, Cambodias demographics, economy, political environment, investment laws, socio-cultural risk, and technological environments will be discussed. The EUI estimates the population was around 11. 3 million in 1998 based on a UN Population Fund/ Cambodian government survey in December 1996.
Estimates for this country take into account the effects of excess mortality due to AIDS; this can result in lower life expectancy, higher infant mortality and death rates, lower population and growth rates, and changes in the distribution of population by age and sex than would otherwise be expected (CIA Factbook 2000). The annual per head income in 1997 is estimated at $243 (EIU Country Profile). According to the Central Intelligence Agency in 2000, it is estimated that 42% of the population are under15 years of age.
This suggests that the future population growth rate will be high. Most of the population, about 90%, is of Khmer ethnic origin (EIU Country Profile). In the highlands there are several other groups. The three largest are the Vietnamese (around 500,000), the Chinese (around 300,000), and the Cham & Malay Muslims (around 130,000). Racism against the Vietnamese is common (EIU Country Profile). The ethnic Chinese have re-established themselves during the 1990s as a major economic force, after having suffered persecution at the hands of the Khmer Rough (EIU Country Profile).
Cambodias education is one of the lowest in the world. At the end of the Pol Pot era formal education had ceased, and many educated Cambodians had left the country or had been killed (EIU Country Profile). 65% of people over the age of 15 cannot read or write (CIA World Factbook 2000). Higher educational level opportunities are inadequate, resulting in shortages of skilled labor. The lack of skilled workers is a problem both for investors and for government efforts to improve public administration. Budgetary constraints limit the scope for developing education.
In 2000 the EIU is forecasting GDP growth of 5. 5%, rising to 6% in 2001 (EUI Country Report 2000). This may be because of continued political stability, a stronger regional economy that will support stronger export growth and sustained inflows of foreign aid (EUI Country Report 2000). Garments will remain the main industry, although new sectors are emerging such as agro-processing (EUI Country Report 2000). Cotton factories supplying the garment industry have been established in recent months (EUI Country Report 2000).
In the service sector, growth will be driven by tourism, which hit record highs in 1999, and is forecast by the government to grow by 35% in 2000 (EUI Country Report 2000). As a result higher growth in construction will follow (EUI Country Report 2000). Agriculture is the least predictable component due to bad weather pests (EUI Country Report 2000). Cambodia is currently experiencing minimal inflationary pressures. The inflation rate averaged 5. 6% because of the weak demand following the 1997-98 economic downturn.
The good 1999-2000 harvest will keep food prices down this year. In 1999 the riel was largely stable. During 2000-01, there is no expected change. Private foreign and domestic investment fell by 44. 8% in 1999, because of the Asian financial crises and precautions taken as to whether political stability was likely to be maintained (EUI Country Report 2000). When both factors improve, private investment is likely to strengthen during 2000-01. Red tape, corruption and hidden costs are generally less of a problem than neighboring Vietnam and Laos (EUI Country Report 2000). 9 Political parties competed in the July 1998 election (EUI Country Report). Only three parties, the CPP, FUNCINPEC and the Sam Rainsy Party, won seats. Lengthy negotiations followed but the opposition parties accused the CCP of election-related fraud (EIU Country Profile). Before a coalition could take place, political tensions erupted in September 1998 when the opposition took to the streets (EUI Country Report). King Sihanouk intervened and in November 1998 a coalition was agreed between the CCP and FUNCINPEC (EIU Country Profile).
The CPP is politically the more dominant of the parties (EUI Country Report). The coalition government brought renewed political stability and the surrender of remaining Khmer Rouge forces. Many still doubt the prospects for political stability in Cambodia (EUI Country Profile). This law governs all investments projects made by investors who are Cambodian citizens and/or foreigners within the Kingdom of Cambodia. Investor can be either a natural person of a legal entity. CHAPTER 2 Council for the Development of Cambodia
The Council for the Development of Cambodia is the sole and one-stop service organization responsible for the rehabilitation, development and investment activities. The Council for the Development of Cambodia is the Royal Government’s headquarter responsible for the evaluation and the decision-making on all rehabilitation and development, and investment project activities. Investors have to submit investment applications to the Council for the Development of Cambodia for review and decision. Response as to its decision to all investors/applicants within a period of forty five (45) days of submission of the complete investment application.
Any Government officials who, without proper justification, refuse to review and respond to investor’s application past the above mentioned period of time shall be punished by law. This ensures equal investment opportunity. Investors shall be treated in a non-discriminatory manner as set by law, except for ownership of land as set forth in the Constitution of the Kingdom of Cambodia. The Royal Government shall not undertake nationalization policy which shall adversely affect private properties of investors in the Kingdom of Cambodia.
The Royal Government shall not impose price control on the products or services of investors who have received prior approval from the Government. The Royal Government shall permit investors to purchase foreign currencies through the banking system and to remit abroad these currencies for the discharge of financial obligations incurred in connection with their investments. Article 12: The Royal Government shall make available incentives to encourage investments in such important fields as: (1). Pioneer and/or high technology industries, (5).
Agro-industry and Transformation industry, (6). Physical infrastructure and energy, (7). Provincial and rural development, (8). Environmental protection, and (9). Investments in Special Promotion Zone (SPZ) as shall be created by law. Incentives shall include the exemption, in whole or in part, of duties and taxes. Investors shall be free to hire Cambodian nationals and foreign nationals of their choosing in compliance with the labor and immigration law. Investors shall have the obligation to provide adequate and consistent training to Cambodian employees.
CHAPTER 8 Disputes and Dissolution Any dispute relating to a promoted investment established in the Kingdom by a Cambodian or a foreign national concerning its rights and obligations set forth in the Law shall be settled amicably as possible through consultation between the parties in dispute. Investment authorized under the previous “Law on Investment” of the State of Cambodia and its Sub-Degree shall be subject to the same benefits and obligations as stated under this law. This law is not retroactive. Source: American Embassy, Phnom Penh
Ordinarily, handshakes are not used in the Buddhist culture. A person greeting someone will clasp his/her hands in front of one’s chest and would bow his/her head to show respect (McLellan). Cambodia is primarily a male dominated society. In initiating a conversation it would be deemed proper to address the head of the household (McLellan). Should a female feel uneasy speaking to a male in authority, efforts should be made to have a female speak to her thereby removing the risk of intimidation and possible anxiety (McLellan).
In Cambodia the police are viewed as ‘nasty’, they do not ordinarily show respect to their citizens (McLellan). Managers may be viewed in the same way unless proper precautions are taken. When dealing with Cambodian people, use sensitivity, politeness and respect. Aggressiveness breeds anger, intimidation, and anxiety (McLellan). In general, issues of family stress are kept within the privacy of the Cambodian family, and any public disclosure is considered a source of shame and family dishonor (McLellan). Problems at the workplace may go unnoticed.
In general, Cambodian women remain afraid to go places on their own, to take public transport, to walk in the racially mixed neighborhoods, to go out during the cold weather, and to meet and socialize with other women (McLellan). Colonial rule strengthened class divisions among minority ethnic groups and Khmer (McLellan). Vietnamese were encouraged to assume administrative functions and vocational occupations, Chinese to pursue financial and commercial activities and Khmer to remain in agricultural and intensive labor roles (fishing, construction, carpentry, weaving) (McLellan).
Care should be taken when assigning duties at the workplace. Khmers practice what is called Theravada Buddhism (McLellan). An estimated 80% of the population has adopted this religion (McLellan). The ultimate goal of Buddhism is to attain “Nirvana”, a state in which all desire and individual consciousness, including suffering, are abolished (McLellan). Khmer Buddhists believe that how they live their lives in this lifetime affects how they are reborn in the next life. Some Khmers may not strive for achievement in the workplace.
They are generally ascriptive oriented. Cambodias transport and communications infrastructure is in a serious state of disrepair (EIU Country Profile). Cambodia has about 3,200 km of national roads, 3,100km of provincial roads and 28,000km of rural roads (EIU Country Profile). Less than 2% are paved (EIU Country Profile). Cambodias two main ports are at Phnom Penh on the Mekong River and at Sihanoukville, the only deepwater seaport (EIU Country Profile). Both suffer from siltation and have aging cargo-handling equipment.
Cambodias main airports are at Phnom Penh and Siem Reap (EIU Country Profile). Cambodia has 385km of railway running from Phnom Penh to Poipet on the Thai border, which is in urgent need of repair (EIU Country Profile). Telephone density is extremely low at 0. 5 telephone per 100 people, compared with 0. 7 in Laos and 1. 4 in Vietnam (EIU Country Profile). Cellular phones are widely used in urban areas to bypass deficiencies in the fixed-line telecom network (EIU Country Profile).
The government wishes to attract private sector investment in power generation (EIU Country Profile). However, regional financial difficulties and the lack of a fully developed regulator framework hamper efforts to attract investment (EIU Country Profile). Some are willing to invest in power generation. A subsidiary of Hawaiian Electric Industries Inc. will build a 60-megawatt power plant in Phnom Penh, Cambodia, in partnership with a Massachusetts corporation specializing in development projects in Southeast Asia (Honolulu Star Bulletin).
The subsidiary, HEI Power Corp. , will invest $11. 5 million for a 50 percent ownership of the $74 million plant and take the lead in building, operating and maintaining it (Honolulu Star Bulletin). The plant will be powered by naphtha, a byproduct of the petroleum distillation process (Honolulu Star Bulletin). The textile industry had been around for years but after trade privileges have been awarded by the US and EU, export in garments rose by 264% in 1996 and by 174% in 1997 (EIU Country Profile). Skilled workforce in the garment industry is available.
This could possibly be a promising candidate for investment. There are several factors to take into account when deciding whether to invest in Cambodia. The majority of Cambodias population is young and illiterate. This would rule out in investing in highly technical industries. The investment laws practically invite investors guaranteeing non-discrimination and issuing investment incentives on taxation. Social and cultural clashes can be minimize by proper education and careful interaction. The only difficulty may lie in breaking class distinctions.
Transportation and communication is in disarray but will soon attended to because of the recent political stabilization. Investment on new power plants is slowly rising. This is good for power hungry factories. The three growing industries are textiles, tourism, and construction. Textiles looks like the most promising because of the already present skilled workforce. But the most importing factor in investing in this country is political stability. Cambodia has just only recently attained political stability. There is still tension between the political parties. My recommendation would be to wait a year or two.