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Cambodia - Opportunities, Potential and Challenges

Cambodia - Opportunities, Potential and Challenges

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Published by Mahathir Mohmed
Want to invest in Cambodia? Read this first! (this report focus more on extractive industries)
Want to invest in Cambodia? Read this first! (this report focus more on extractive industries)

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Published by: Mahathir Mohmed on Oct 04, 2010
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04/18/2013

 
CAMBODIA:OPPORTUNITIESPOTENTIAL& CHALLENGES
Current Economic Status of Cambodia 2Doing Business in Cambodia 3Natural Resources in Cambodia 5Energy Generation 9Steel Industries 12Related Issues 12October 2010
MM
 
 
2
Current Economic Status of Cambodia
1.
 
Cambodia’s GDP grew around 10% every year between 2004
-2007 due to expansion of garment industry (hiring one-third of the workforce and contribute 70% of the export),construction, agriculture and tourism.2.
 
GDP dropped below 7% from 2008 onwards due to global economic slowdown3.
 
In 2005, exploitable oil deposits were found beneath Cambodia's territorial waters,representing a new revenue stream for the government when commercial extractionbegins in 2011.4.
 
Mining also is attracting significant investor interest, particularly in the northern partsof the country. Opportunities exist for mining bauxite, gold, iron and gems5.
 
Cambodia’s economy was driven significantly by “informal economy” that is small or
mid-sized businesses that are household-based and not registered with thegovernment - so government was unable to tax them. The proponent of these system
(the business owners) said “
complicated licensing procedures and the high cost of registration lead most micro, small and medium enterprises to the conclusion that
participating in the formal economy is unaffordable … Tax evasion and a lack of trust inthe transparency of the government’s tax management are powerful arguments for
informality
”. Informal economy in Cambodia acco
unts for 52.2% of GDP and employs85% of the workforce in 2006.6.
 
There was a marked deterioration in the fiscal position in 2009 as spending exceededexpectations because of large increases in wages for civil servants and defencespending. The IMF estimated the budget deficit was 6.75% of GDP. Thus was wellabove the 4.25% original estimate. The IMF has urged the government to takemeasures to reduce the budget deficit which based on current spending and revenueprojections will rise to 7.5% of GDP in 2010. In discussions with the IMF, thegovernment has indicated it is considering additional measures to raise revenueincluding lifting excise taxes on truck sales, imposing a VAT on electricity imports andfurther strengthening tax administration. The IMF urged the government to containwage costs by limiting wage increases, freezing new hirings and enactingcomprehensive civil service reforms.7.
 
The major economic challenge for Cambodia over the next decade will be fashioningan economic environment in which the private sector can create enough jobs tohandle Cambodia's demographic imbalance. More than 50% of the population is lessthan 21 years old. The population lacks education and productive skills, particularly inthe poverty-ridden countryside, which suffers from an almost total lack of basicinfrastructure.
Economic indicators Previous data latest data
GDP (purchasing power parity) USD28.34b (2008) USD27.92b (2009)GDP (official exchange rate) n.a. USD10.9b (2009)GDP (real growth rate) -1% (2009) 3% (2010)GDP (per capita) USD693 (2009) USD735 (2010)population below poverty line 35% (2004) 27.4% (2009)live less than USD2 per day 78% (2007)life expectancy 58 years (2008)literacy 76.3% (2008)labour force 8.6m (2008)
 
3unemployment rate 3.5% (2007) < 3% (2010)investment (gross fixed) 21.2% of GDP (2009)inflation (customer prices) -1% (2009) 5.3% (2010)industrial production growth rate -6.5% (2009) 1.5% (2010)current account balance USD-218.1m (2003) USD-1.024b (2010)external debt USD2.4b (2002) USD4.157b (2010)exchange rates (against USD1) KHR4135.39 (2009) KHR4245.00 (2010)Imports USD5.374b (2009)Exports USD3.582b (2009)
From various sources, projected and official numbers
Doing Business in Cambodia
 1.
 
In 2010, Cambodia was ranked 131 out of 159 countries on corruption (third worst inASEAN behind Indonesia and Myanmar) by Transparency International2.
 
In 2010, Cambodia was ranked 145 out of 183 economies on ease of doing businessaccording to the World Bank/International Finance Corporation (down from 139 in2009 survey).3.
 
There are 9 procedures needed before starting the business. It takes 85 days tocomplete and it costs about 138.4% of the income per capita and require minimumcapital about 36.6% of income per capita. This may due to inefficient andunsynchronized authorities and lack of basic infrastructures.4.
 
Application for construction permits has about 23 procedures and it took up to 2 yearsto process. It also costs up to 53.6% of income per capita.5.
 
Property registration could take up to 2 months to be verified by local authorities.6.
 
Getting credits from local banks in Cambodia is rather difficult and complicated.However, rights of the customers were protected fairly well.7.
 
Laws of Cambodia protecting investor to the extent that is better than Laos andPhilippines but far worst than Thailand and Malaysia.8.
 
Tax policies in Cambodia were good. While number of tax payments is much greaterthan countries in East Asia and Pacific, it requires lesser hours (per year) to process (bythe companies and the government) and the rate was also substantially lower. Taxpolicies in Cambodia are better than Thailand, Indonesia, Philippines and Laos.9.
 
Import-exports activities require more documents in Cambodia than any othercountries in Asia Pacific. However cost of imports and exports (per container) is about30% cheaper than average East Asia and Pacific (cheaper than Laos and Philippines butmore expensive than Malaysia, Indonesia and Thailand). Time of imports and exportshas been cut almost half in the last two years, thanks to opening of new ports andupgrades of existing facilities.10.
 
Resolving commercial disputes through the courts in Cambodia is far below theinternational standards. The process required about 44 steps/procedures in 13 monthsand costs as much as and slightly higher than the claims.11.
 
There is no information regarding bankruptcy protection laws in Cambodia. It isassumed that business owners may got nothing when the business was closed(compared to average East Asia-Pacific of 30 cents per dollar recovery rate, 42.4 centsin Thailand and 38.6 cents in Malaysia)12.
 
Several human rights group reported when resource-rich areas are ready for
excavation, Cambodia’s government is suspected of dispatching soldiers and police to

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