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Gradually Gaining Traction
Overview of the Cambodian Economy
Investment Research June 2011
Graeme Cunningham, CFA email@example.com +855 77 990 769
Overview of the Cambodian Economy
Contents Executive Summary Economics: Gaining Momentum
i) Recovery: A short history of the Cambodian economy ii) Demographics:The hopeful generation iii) Rebound: Macroeconomic growth in Cambodia iv) Imbalance:The structure of the Cambodian economy v) External Pressure: Debt, reserves, currency, inﬂation vi) Trade and FDI: Advancing regional, global integration vii) Empirical Global Ranking: Corruption, prosperity
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8 9 13 16 22 27 33
Politics: Stabilizing Legal System: Framework in place Capital Markets: Nascent Financials: Crisis proven
i) Banks: Strong growth, healthy balance sheet ii) Microﬁnance: Agricultural focus iii) Insurance: Room for long-term growth
36 42 46 48
48 55 58
Agriculture: Untapped potential
i) Climate, geography:Well suited for agriculture ii) Rice:The key crop iii) Rubber and Timber: Important exports iv) Other crops: Showing potential on a smaller scale v) Fishery and livestock: Production ﬂattening vi) Constraints: Limited physical and ﬁnancial capital
61 63 65 66 67 69
Cambodia Capital Research
Overview of the Cambodian Economy
Contents Garments: Over concentration Tourism: Shift to Regional arrivals Energy, Utilities: Powering up
i) Electricity production: Defragmenting ii) Oil and Gas: Offshore and onshore potential iii) Water Utilities: Urban success, rural challenge
Page 71 75 79
79 84 88
Mining, Materials: Early days Transport Infrastructure: Connecting TMET: Energetic competition
i) Telecoms: Sustained intense competition ii) Media and Advertising: Strong competitive landscape iii) Gaming: Phnom Penh monopoly, rural competition
89 93 97
97 101 102
Manufacturing: Hints of diversiﬁcation Consumer: Early signs of modern retail Property: Oversupplied
104 106 108
Cambodia Capital Research
with the Cambodian People’s Party continuing to gain inﬂuence. If we look for signs of gradual. Cambodia is also seeing an increasingly transparent legal and regulatory regime. Viewed through the lens of an idealized model of a Westernized liberal democracy. economic and social welfare. political. Political stabilization under Hun Sen From the low point of the destructive totalitarian rule of the Khmer Rouge from 1975-1979. with 100% foreign ownership of businesses permitted. Open for business Cambodia has a pro-foreign business environment. and reliance on foreign ﬁnancial assistance. The country plays a key role in both regional infrastructure plans and political organizations which continues to improve its links with the rest of the region. and we do not expect to see his power wane signiﬁcantly in the near to medium term. in contrast to other regional countries. now having majority control of the government. the country has seen dramatic improvements. sustained progress we ﬁnd them in nearly every area. Hun Sen is a relatively young 58. marking the onset of the ﬁrst extended period of political stability after nearly 40 years of civil war. We would rather focus on the continued incremental improvements the country has made since 1980. where there are signiﬁcant limits on foreign ownership. On almost all measures.Overview of the Cambodian Economy June 2011 EXECUTIVE SUMMARY: Gradually Gaining Ground Cambodia has made impressive strides over the last 13 years. given the country’s history. the country shifted to Vietnamese inﬂuenced rule through the 1980s under the State of Cambodia. Although still relatively early in its development. or the even more rapid improvements that have been made since the period of relative stability that began in 1997. but there was still factional political inﬁghting. The country also offers low labour cost and factor inputs and has an advantageous geographic location for manufacturers and other businesses at the center of ASEAN. we believe that this model may simply not be a realistic frame of comparison at this juncture in Cambodia’s development. there is still. a wide margin for improvement in terms of social welfare. of course. since the last armed battle in the capital city Phnom Penh in 1997. the legal system. Cambodia Capital Research 4 . Since then the political situation has stabilized. However. An uneasy truce between Hun Sen’s party and the Royalists existed until 1997 when a military conﬂict between the two parties led to Hun Sen taking full control of the country and effectively ended the civil war (around this time the Khmer Rouge was also ofﬁcially disbanded). By 1993. the country had a new constitution and elections supported by the United Nations Transitional Authority Cambodia (UNTAC).
1) a signiﬁcant garment/textile manufacturing base having developed. the ﬁnancial system had strengthened. By the early 2000s. Risk factors: Political. but still huge gains since the 1970s-1980s After the devastation of the Khmer Rouge and the political and legal confusion of the 1980s. transition risk does remain. and with some nations refusing to offer ﬁnancial assistance to the country in the decade following. Election results have shown the CPP consolidating power over the last 10 years and there has been no signiﬁcant strengthening of any second party. rubber and timber products. CPP leader Hun Sen is also a relatively young 58 years old and appears to be in good health. economic progress in the 1980s was grinding. 2) massive growth in the tourist industry. the current social system is a clear improvement on the tragedy of the late 1970s. the relative chaos of the 1980s and the shaky new beginnings of the 1990s. giving a needed push to domestic businesses. social. given the ruling Cambodia People’s Party (CPP) strong majority in both the national assembly and the senate. it was only post-1993 that any clearly identiﬁable and globally recognized government emerged in Cambodia. Meanwhile. Although access to education and healthcare are still far from universal. with 35 banks currently operating. legal Although our outlook on Cambodia is bullish in the medium term. Political stabilization in the early 1990s helped draw back overseas Cambodians who had ﬂed the Khmer Rouge. However. legal and social risks: Political Risk: Effectively a one party state We view near to medium term political risk as moderate. Economic Risk (1): Heavy gearing to tourism and garments The economy is still heavily geared to agriculture. The country is effectively a one party state.Overview of the Cambodian Economy June 2011 Economic rebound accelerating since early 2000s The Khmer Rouge completely destroyed the physical and human capital of the country. However. and a vibrant microﬁnance industry. The risk lies more on the heavy weighting on the garment/textiles and tourism sectors. Social issues persist. as well as foreign businesses. progress will certainly not be without political. a system for both is in place. the country was enjoying an extended period of strong economic growth. it acts as a social buffer (we saw a similar situation in Thailand during the 1997 Asian ﬁnancial crisis where the agriculture sector was able to reabsorb workers laid off from manufacturing). especially rice. economic. leaving the economy heavily geared to the fortunes of the international clothing manufacturers and the whims of global tourists. economic. while foreign ﬁnancial assistance from some key developed nations resumed. Cambodia Capital Research 5 . for the average Cambodian citizen. and it improves every year. but we do not view reliance on this sector to be a risk. and 3) agriculture exports starting to reach critical mass. if anything. with. Myriad social issues still remain.
or ineffectively executing the transition. Somewhat longer term are the possibilities for the development of mining and extraction. and a modern consumer sector. However as all these developments are in nascent stages. there is potential to expand agriculture and dramatically increase agricultural exports. oil and gas. which in many cases are not properly compensated for the relocation. tax and property laws. Although most of the major laws are in place. price increases are moderate. and therefore the country does not have recourse to monetary policy and is very exposed to any depreciation in the US$. adding stability and sustainability to the export base. contract. The country also continues to run large trade deﬁcits. However. but advancing. where inﬂation is already running at an annualized rate of 20%. including commercial. It could be within a short ﬁve years where Cambodia has reached a much higher proportion of agricultural exports in the economy. Legal Risk The legal risk of investment in Cambodia remains signiﬁcant. the Chinese government is taking a greater interest in Cambodia in both economic and political terms (although we do recognize that China is also facing some growing macroeconomic imbalances of its own). a heavy hit to the garment or tourism sector in the short term could dramatically slow progress. Social Risk Rapid economic progress has led to a degree of social upheaval for many Cambodians. but not abundant foreign reserves. inﬂation. reaching just above 5% as of April 2011. many are yet to be tested in the court system. Economic Risk (3): Currency. which will remain a medium term risk although we expect that these will contract as the country expands agricultural and other exports over the long term. trade deﬁcits Cambodia is a dollarized economy. agricultural. where the larger institutional investor may have more clout when dealing with the government and business groups. which accounted for the majority of the government’s budget deﬁcit ﬁnancing in 2009. as we outline in this report. Cambodia Capital Research 6 . compared to Vietnam. The country has adequate. be they in the energy. We believe there is especially risk for the smaller investor. Although we ﬁnd it unlikely that developed nations would abruptly withdraw ﬁnancial assistance to Cambodia given that it is so small in absolute terms. non-textile/garment manufacturing. Inﬂation is currently relatively benign. at 5 months of imports and 8x the level of short term external debt. even with a pullback from Western or Japanese donors. with around 90% of transactions taking place in the US currency. many countries are facing severe ﬁscal crises of their own which could feasibly reduce their willingness to assist other nations.Overview of the Cambodian Economy June 2011 However. the country intends to eventually shift to the Riel. property or infrastructure. encroach on land and displace citizens. However. reserves. which brings the risk of doing so prematurely. However. Economic Risk (2): Heavy reliance on foreign assistance The country is also heavily reliant on foreign assistance. One of the most pressing issues is when developments.
and a handful of private equity funds that invest directly into Cambodia companies. Sihanoukville Port. a ﬁxed line telecom. The Cambodia government could improve its position in both the eyes of its constituents as well as international investors by ensuring that residents affected by the inherent growing pains of rapid economic development are properly compensated for the adjustment. both domestic and foreign. we would expect more ﬁrms to come to the market to raise capital to fund growth. Failure to do so could lead to instability. and Phnom Penh Water Supply Authority. Cambodia Capital Research 7 . PPWSA. investors may be able to get exposure to Cambodia more easily by the second half of this year. with most sectors of the economy seeing continued rapid development over the next ﬁve years.Overview of the Cambodian Economy June 2011 With 70% of the population still engaged in subsistence farming. A note on data sources in Cambodia: We rely on various data sources in this report including international organisations. but also Cambodian government ministries. Data collection in Cambodia is still developing and we have found there to be some discrepancies between sources. relocation is not simply a matter of ﬁnding new employment. with three state owned enterprises to be listed. Avenues for investment There are currently only a few avenues to gain equity exposure to Cambodia. They include listed gaming and mining names in Hong Kong and Australia with 100% Cambodia exposure. but a total disruption of the current rural way of life. the capital city’s water utility. as well as other domestic public and private organisations. ensuring continued investment in the economy. creates sufﬁcient employment opportunities for the newly developing educated middle class. including a bank. As we show in this report. the country’s only deepwater port. Telecom Cambodia. In this way economic growth imposes an uneven tax on those unlucky enough to be residing in areas of heavy redevelopment. Stock market could start trading by Q4/11 However. There are three state owned enterprises currently considering listing. There are also other large names considering listing. with the planned opening of the Cambodian Stock Exchange slated for July 2011. a conglomerate and an insurance company. Cambodia must also carefully manage the economy’s transition.
the second highest in ASEAN after Myanmar • Potential to improve current structural imbalance: Cambodia’s economy is overly concentrated in the garment and tourism sectors currently. Of a reported 1975 population of over 7MM. In 1970. However. Cambodia has ﬁnally emerged from a nearly 40 year period of instability and civil war that clouded its history from 1970 until 1997-1998. disease or starvation. who subsequently sided with an opposition Communist movement based mainly in rural Cambodia.Overview of the Cambodian Economy June 2011 Economics: Gaining Momentum • The hopeful generation: Sixty percent of the Cambodian population are under 30. and have seen a continuous gradual improvement in the country throughout their lifetime • Impressive economic rebound since 1993: Cambodia’s real GDP has grown at an average CAGR of 7.5% since 1993. Bombing raids into Cambodia related to the Vietnam conﬂict disrupted rural Cambodian life and dramatically strengthened the Khmer Rouge movement. The economy was destroyed. Cambodia had enjoyed a peaceful period of Cold War neutrality. However. the military-backed Lon Nol government led a coup to oust the Prince. between 1MM-2MM people were either executed by the Khmer Rouge. virtually eliminating the education. The weakening Lon Nol government fell to the Khmer Rouge. have no living memory of Khmer Rouge rule. continues to run large ﬁscal and trade deﬁcits and is heavily reliant on foreign assistance. From the time of independence from the French in 1953 until 1970. led by Prince Sihanouk. and oil and gas. there are signiﬁcant prospects for a rebalancing of the economy towards higher agriculture exports and increased manufacturing medium term. Cambodia hits economic ground zero in 1978 The Khmer Rouge brought about a totalitarian agrarian regime. Cambodia Capital Research 8 . the Khmer Rouge. mining and other sectors longer term i) Recovery: A short history of the Cambodia economy More than a decade of stability after 38 years of civil war Over the last decade. the spillover of the Vietnam war across Cambodia’s borders dragged the nation into the conﬂict. increasingly well educated. health and business professions as well as any modern agriculture. The regime also speciﬁcally targeted the educated classes. or died in the rural work camps from overwork. emptying the cities and forcing the population to the countryside. which took over Phnom Penh in April of 1975.
which gave rise to a Constitutional Monarchy with a coalition government between current Prime Minister Hun Sen’s Cambodia People’s Party (CPP). both through grinding domestic effort. international assistance. with a strong provincial voter backing and a Prince Norodom Ranariddh-led party FUNCINPEC. Cambodia was able to slowly rebuild its economy through the 1980s and 1990s. First signs of the ‘new’ Cambodia by 1993 With the end of the cold war in 1989. This occurred at the same time that there was a marked lack of capital available. with some major Western nations not offering ﬁnancial assistance over the period (largely because of their resistance to Vietnamese inﬂuence in Cambodia. This uneasy coalition held until 1997. the country was barely governed through a loose coalition of warring factions (ﬁguratively and literally). From 1979 until 1992. with the military weight of Vietnam a key factor in maintaining stability. to help them begin to redevelop the economy. Regardless. This lead to the political situation that Cambodia has broadly maintained over the last 13 years. political tensions in the region eased. the return of educated overseas Cambodians that had ﬂed the Khmer Rouge. and the eventual arrival of foreign businesses. especially compared to the other industrializing regional economies like Thailand. the United Nations Transitional Authority Cambodia (UNTAC) held elections. run mainly by French-educated royalists. In 1993. when armed conﬂict erupted between armed factions of the two parties in the ruling coalition which ended with the exile of Prince Ranariddh. stability through an increasingly dominant Cambodia People’s Party and opposition parties with some small share of power (we give more detail on the parties in the Politics section.) Economic progress was therefore understandably gradual from 1980 to the mid-1990s. and by 1991 the United Nations became more heavily involved in stabilizing Cambodia politically. Cambodia Capital Research 9 . assuming an average age range from 30 to 60 years old. in conjunction with ex Khmer Rouge soldiers (including current Prime Minister Hun Sen) invaded Cambodia in January 1979. Malaysia and Indonesia which saw rapid growth during this period. would have gone through their early to middle careers in the mid 1980s and 1990s facing an extremely limited pool of older.) ii) Demographics: The hopeful generation Slow grind to build human capital through the 1980s This meant that Cambodia’s leaders today. experienced professionals.Overview of the Cambodian Economy June 2011 This regime ﬁnally fell when the Vietnamese army. and the consolidation of power by Hun Sen. teachers or mentors in any sector other than in traditional agriculture.
3MM in 1993 to 11. when the ﬁrst major modern census was undertaken. with the government planning to grow beyond ‘Least Developed Country’ (LDC)-status by 2020.3% of the population (with 9. as shown in the map in Figure 5. The population is also heavily rural. Building on the very heavy lifting of the generation coming of age in the 1980s-1990s.9% in Phnom Penh. the capital city) and 24.5MM in 1986 (or just above the estimated population of the mid-1970s) to just over 14. up from just 16% in 1998 (Figures 3. we believe that the current generation now entering the workforce will be the one to propel the country to new economic heights. 4). with 20% of the population in urban areas in 2008.3% in the Northwest. but there is a high urbanization rate.0MM in 2010. The population is heavily concentrated in the Southeast of the country with 36. IMF The Cambodia population is very young. with 65% under 30 years of age and 87% under 50 as of the 2008 census. as shown in Figure 2. The population has nearly doubled from just 7. with the population jumping from 9. and probably the largest generation ever to have the possibility to reach tertiary education. which is shown in Figure 1. with a minor baby boom occurring. A second census was taken in 2008. We also have IMF estimates of total population. They are also be the ﬁrst generation since the 1970s in any signiﬁcant proportion to have the chance of achieving an education up to at least secondary school.Overview of the Cambodian Economy June 2011 First generation in decades to enjoy stability The current generation that is now just turning twenty has no living memory of the Khmer Rouge period. Cambodia Capital Research 10 . Figure 1 shows that the promise of increased political stability after UNTAC seems to have had an effect on birth rates.1 MM in 1994. A young and growing population The most recent detailed population records are available only from 1998. Figure 1: Cambodian Population (MM persons) 16 12 8 4 0 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012E Source: Cambodia National Statistics Ofﬁce. and has grown up with a gradually stabilizing political system and dramatically improving economy.
5 2. but now has 196.8 0. This will in turn drive. and the population completing lower secondary school has risen 200% from 0.9 0 0-9 10-19 20-29 30-39 1998 Source: Cambodia National Institute of Statistics 40-49 50-59 60-69 2008 70-79 80-89 90+ Cambodia Capital Research 11 .758.50MM to 1. as labour becomes more concentrated in a given area. and we expect that this trend will continue as expanding employment and educational opportunities and access to a wider range of goods and services draw people into the cities. as they leave their parents’ homes to start new families and purchase houses. increasing by a factor of 44x over the decade. vehicles and consumer goods. 1) further development of industrialization. Perhaps most interesting in terms of developing a new generation of technocrats to drive the economy. 2) Rising proportion of young families drives consumption A rising proportion of young families in an economy has historically often driven economic growth. Cambodia had only 4.448 post secondary graduates as of 1998. There has been a 10% decline in the population with no education from 34% in 2008 to 24% in 2008. and creating a pool of more advanced human capital that industries can draw from. and 2) the growth of a modern consumer economy. as a rising standard of living leads to increased demand for consumer goods.46MM. Figure 2: Population by age group (MM persons) 3. and is accessible to ﬁrms and government entities looking to employ workers. Figure 6 shows the signiﬁcant increases in education made just between 1998 and 2008.6 1.Overview of the Cambodian Economy June 2011 1) First generation to be widely educated from childhood Political stability since 1993 and the associated increase in educational opportunities is driving the development of an increasingly skilled workforce. 3) The new urban generation The population is already becoming increasingly urban.
68MM (12.3%) Kampong Som Kampot Source: Government Census 2008.10MM (9.33MM (9.9%) Kandal Takeo Prey Veng Svay Rieng Southeast 4.52MM (24.5%) Kampong Speu Phnom includes: Penh Phnom Penh 1.3%) Mondolkiri Kampong Chhnang Koh Kong Kampong Cham Southwest 1.32 MM (17.4: Cambodian rural and urban population (%) 1998 2008 June 2011 16% 20% 84% 81% % Urban population Source: Cambodia National Institute of Statistics % Rural population Figure 5: Cambodia population by region Oddar Meanchay Preah Vihear Ratanakiri Bantay Meanchey Siem Reap Stung Treng Battambang Pailin Northwest 2.5%) Kampong Thom Kratie Northeast 2.3%) Pursat North 1. Cambodia Capital Estimates Source: General Department of Mineral Resources Cambodia Capital Research 12 .86MM (36.Overview of the Cambodian Economy Figure 3.
Overview of the Cambodian Economy Figure 6: Highest level of schooling completed No Education Primary (Not Completed) Primary School Lower Secondary Secondary Beyond Secondary 0% 1998 Source: Government Census 1998. The IMF estimates GDP growth of 6. while the World Bank estimates 6.3 17.5% in 2010 and 2011. respectively. with only Myanmar growing more quickly. as shown in Figure 9.8 0 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011E 15% 10% 5% 0% -5% GDP (LS) Source: International Monetary Fund % chg (RS) Cambodia Capital Research 13 .0 26.7% for 2010 and 6. backed by foreign investment and ﬁnancial assistance.5 8.5% for 2011 (Figure 8).0% and 6. when a decline in the key garment/textiles exports segment and the collapse of an unsustainable real estate boom hit growth. and only seen a single year of below 5% annual GDP growth during the ﬁnancial crisis in 2009. 2008 10% 20% 2008 30% June 2011 40% iii) Rebound: Macroeconomic growth in Cambodia Second fastest real GDP growth in ASEAN since 1993 These strong demographic trends.5% since 1993. the economy has returned to rapid growth in 2010 and 2011. However. have already been translating into vibrant economic growth. Figure 7: Real GDP (Riel TRN) 35. Cambodia has seen the second highest growth in ASEAN since 1993. for Cambodia. Real GDP has grown at a CAGR of 7.
0% Source: International Monetary Fund. Laos) shows more where living standards for the latter could be headed in the future. 1993-2009 China Myanmar Cambodia Vietnam Laos Malaysia Philippines Indonesia Thailand 0% 3% 6% 8% 11% Source: International Monetary Fund Room for improved living standards versus ASEAN Although growth has been rapid.Overview of the Cambodian Economy Figure 8: Real GDP forecasts June 2011 IMF World Bank 0% 1. Figure 10 shows nominal GDP since 1993. tracking Laos reasonably tightly until 2005 when its smaller neighbour began to speed ahead.8% 2010 3.World Bank Figure 9: Cambodia average real GDP CAGR versus the region. As shown in Figures 11 and 12. with Cambodia’s nominal GDP in the middle of the pack for developing Indochina. Cambodia. Laos was apparently more insulated from the ﬁnancial crisis. especially when compared to the region. Cambodia Capital Research 14 . while average living standards in Cambodia decreased in 2008. it has been off a low base.3% 7. we see little reason why Cambodia. rather than pointing to an insurmountable gap. As we show throughout later sections of this report. Malaysia and Indonesia. the country has the second lowest nominal GDP (US$10. relative to the size of their populations.5% 2011 5.8BN) and nominal GDP/capita (US$795) versus the larger ASEAN nations plus China in 2009. We believe that this gap between the newly industrialised countries of ASEAN (Malaysia and Thailand) and the developing economies of ASEAN (Vietnam. Vietnam and Laos cannot eventually become as economically strong as Thailand.
200 900 600 300 0 1993 1995 Cambodia Source: International Monetary Fund 1997 1999 Laos 2001 2003 Myanmar 2005 June 2011 2007 Vietnam 2009 Figure 11: Nominal GDP/Capita (US$). 2009 7. 2009 300 225 150 75 0 Thailand Malaysia Philippines Vietnam Myanmar Cambodia Laos Source: International Monetary Fund Cambodia Capital Research 15 .250 3.Overview of the Cambodian Economy Figure 10: Cambodia Nominal GDP/capita versus region (US$) 1.500 1.750 0 Malaysia Thailand China Indonesia Vietnam Laos Cambodia Myanmar Source: International Monetary Fund Figure 12: Nominal GDP (US$MM).000 5.
currently there are clearly some signiﬁcant imbalances. 5) Country runs large trade deﬁcits: The country continues to run large trade deﬁcits. which offers both challenges and opportunities for the country. 4) Dollarised economy: The country is effectively dollarised and therefore does not have direct recourse to monetary policy as a tool to steer the economy. and there is also the potential to develop human capital over time given the young population. Although this chart suggests at ﬁrst glance a relatively balanced economy. we expect that even as Cambodia’s economy modernises. but none are insurmountable over time in our view. and the government continues to run large ﬁscal deﬁcits and is heavily reliant on foreign assistance. manufacturing around 22% in 2000 and 21% in 2009 and services 38% in 2000 and 39% in 2009. the composition of the economy has been stable over the last decade. Heavy dependence on garment exports.5% in 2009. Cambodia Capital Research 16 . 2) Over concentration in garment/textiles sector: There is a heavy dependence on garment/textiles exports to Western countries and the tourism sector. 3) Tax revenues low: Tax revenues are still a small contributor to GDP versus other countries in the region. As we see in both Thailand and Vietnam. with agriculture comprising 34% of the economy in both 2000 and 2009. although this declined to 5. it hides the fact that the manufacturing segment is heavily dominated by one sub-segment (garment/textiles and footwear) and that service industry is heavily dependent on tourism. Opportunities exist to introduce modern agricultural methods to farmers that will raise incomes. which leaves Cambodia overexposed to a decline in these sectors. agriculture will remain the primary source of income for the majority of the population. but not insurmountable over time We believe that we will see a signiﬁcant shift in the composition of the Cambodian economy over the coming years. and modern farming is only beginning to take root.0% of GDP in 2008. tourism Figures 13 and 14 show the split in the Cambodia economy by major sector for the years 2000 and 2009. Bulk of the economy is still subsistence agriculture Subsistence agriculture is the economic life of 70% of the Cambodia population. Challenges in that a large proportion of the population will not have the schooling or skills required for many positions that will need to be ﬁlled in this newly developing economy both in the private and public sectors (although we expect this to improve over time). In the following sections we address each of these issues: 1) 70% of population are subsistence farmers: Currently 70% of the population are still involved in subsistence agriculture.Overview of the Cambodian Economy June 2011 iv) Imbalance: The structure of the Cambodia economy Structural imbalances. at 9.
at 63% in 2009. we expect that the growth of other sectors of the economy may outpace these sectors leading to a gradual rebalancing. 14: Cambodia Economy composition by sector 2001 2009 June 2011 5% 34% 38% 22% 39% 6% 34% 21% Agriculture Manufacturing Service Other Source: Ministry of Economy and Finance Figure 15 shows garments/textiles and footwear as a percentage of total manufacturing in Cambodia. This leaves Cambodia overly exposed to the revenue movements and manufacturing location decisions of the major global clothing retailers. It is rather the heavy concentration in these sectors that creates the risk to the economy. Cambodia Capital Research 17 . Cambodia’s garment/textile exports are not particularly well diversiﬁed geographically (although Asia is slowly accounting for more of the mix). and that continuing to expand in these sectors is not necessarily the problem. However. it represented by far the largest component. tourism and agriculture as a proportion of GDP. Figure 16 shows garment/textiles/footwear exports. we do acknowledge that Cambodia maintains a comparative advantage in textiles and tourism. being 90% concentrated in EU and North America. just the two former sectors combined accounted for 38% of 2009 GDP.Overview of the Cambodian Economy Figures 13. However.
but also expanding its presence in public utilities.Overview of the Cambodian Economy Figure 15: Cambodia Manufacturing GDP by segment (US$ MM) 1. Consumption has represented over 80% of the economy for the ﬁve years to 2009. with government increasingly gaining a role in providing public goods. We believe that this is the area where we will see the largest structural shift in this data. largely a function of very low tax intake versus the region. especially roads and bridges. Government spending is low. I stable.700 1.275 850 425 0 2001 2002 2003 2004 2005 2006 2007 June 2011 2008 2009 Food & Beverages & Tobacco Wood Paper & Publishing Other Manufacturing Source: Cambodian Ministry of Economics and Finance Garment/Textiles/Footwear Rubber Manufacturing Figure 16: Key sectors as percentage of economy 40% 30% 20% 10% 0% 2007 Garment/Footwear Exports Source: Cambodia Ministry of Economics of Finance 2008 Tourism Agriculture 2009 C high. investment. Investment has remained stable at around 19%. like rural electricity and water provision. at just 5%-6% percent of the economy on average from 2005-2009. government spending and net exports. Cambodia Capital Research 18 . G low and X-M continues in deﬁcit Figure 17 shows the breakdown of the economy in terms of consumption.
We believe that the trade deﬁcit may be reduced in the medium term as the country increases agricultural exports and improves infrastructure to facilitate these exports.6% 7.4% -940 -9.023 19.Overview of the Cambodian Economy Figure 17: Nominal Gross Domestic Expenditure (US$MM) BN Riels Consumption as % total Investment as % total Government as % total Inventory Changes as % total Net Exports as % total Other as % total GDP 2005 5.391 84.5%.8% 10.008 22. This is not offset by the large trade surpluses it runs with the United States and the European Union. The government continues to generate very low tax revenues in a regional context.8% of GDP. Longer term there is the possibility of both oil and gas.427 19.822 84.3% 1. However.430 2009 9.684 94.4% 47 0.6% 10. Vietnam and Laos (Figure 20).4% -27 -0.7% 7 0.2% -548 -7.695 19. expenditure has steadily outpaced it.4% 148 1. although government revenue more than tripled from 2001 to 2009. and mineral exports.1% 6.0% -171 -1. at only 4.191 21.395 2006 5.0% 1. the government continues to run large budget deﬁcits.1% 2. The government sector still relatively small and in deﬁcit In addition to the trade deﬁcit. As shown in Figure 18.6% 2.5% -1. It is reported that improved tax collection methods should boost tax revenues in the medium term.4% -567 -6. Cambodia Capital Research 19 .705 26.4% 89 1.843 77.4% 258 2. and runs large trade deﬁcits with its Asian trading partners.1% 2.9% 8.373 2007 6.265 Source: Cambodia Ministry of Economy and Finance Large trade deﬁcits with Asia not offset by garment exports Cambodia continues to run large trade deﬁcits. although the deﬁcit fell to a ﬁve year low in 2009 of 5.4% 2.494 23.3% 1.0% 151 1.969 81.4% -561 -5.208 18.3% 1. which could help further ease this deﬁcit.9% in 2008 as the ﬁnancial crisis cut tax revenue at the same time as the government increased spending. mainly related to the garment industry. The deﬁcit widened signiﬁcantly in 2009 to 6.4% -554 -8.575 21.962 19. This is mainly because the country continues to rely heavily on imports for many industries. the deﬁcit is estimated to have contracted in 2010.3% of GDP from 2.7% 125 1.619 -15.855 June 2011 2008 8. it is well below Thailand.3% 1.9% 1. an increasing number of workers leaving the informal economy for the formal economy should also raise this ﬁgure. and in the long term.
0% 2.0% 4.000 500 0 2001 2002 2003 Revenue Source: Ministry of Economy and Finance 2004 2005 2006 2007 June 2011 2008 2009 Expenditure Figure 19: Cambodia government deﬁcit (US$MM) 0 -175 -350 -525 -700 2001 2002 2003 2004 2005 2006 2007 2008 2009 8.500 1.Overview of the Cambodian Economy Figure 18: Cambodia government revenue and expenditure (US$MM) 2.0% 0% Deﬁcit (LS) Source: Ministry of Economy and Finance as % GDP (RS) Figure 20: Government revenue as a % of GDP Laos Thailand Vietnam Cambodia 0% 2% 4% 6% 8% Source: International Monetary Fund Cambodia Capital Research 20 .0% 6.000 1.
public health at 7%. youth and sport at 9%.20 0. Sport Source: Ministry of Economy and Finance Still heavily reliant on foreign ﬁnancial assistance The Cambodian government is still heavily reliant on foreign ﬁnancial assistance to fund its budget deﬁcit. From 2004 until 2008.15 0.Overview of the Cambodian Economy June 2011 Room to grow education and public health spending Figure 21 shows three of the major categories of government expenditure. Figure 21: Key areas of government expenditure as % total expenditure 0. For the current year. Figure 22: Financing of government budget deﬁcit (US$MM) 750 558 367 175 -17 -208 -400 2001 2002 2003 2004 2005 2006 2007 2008 2009 Foreign Financing Source: Ministry of Economy and Finance Domestic Financing Errors/Omissions Cambodia Capital Research 21 .Youth. following the continued conﬂict on the Thai border this year. foreign ﬁnancial assistance covered more than 100% of the total government deﬁcit. which been lauded as a good sign for overall improved social welfare. the budget for defense spending is lower as a percentage of total spending. as shown in Figure 22.05 0 2001 2002 Defense 2003 2004 2005 2006 2007 2008 2009 Public Health Education. with defense spending at 17% of total expenditure in 2009. and a higher weight has been given to the public health and education categories.10 0. and education. However. we believe there may be the potential to see the defense proportion of expenditure rise in 2012.
in Thailand. reserves. with 70% of the population still employed in subsistence farming (Figure 22). external debt to GDP has been declining over the last decade. in Phnom Penh. and is classiﬁed as a low income. moderately indebted country. In the 1997 crisis. increases in unemployment were not as severe as expected.0% seen in urban Vietnam (this ﬁgure may have increased since. Although still high. as migrant workers returned to family farms. unemployment is 5. a measure of how quickly the country could cover its foreign debt with its foreign earnings. inﬂation External debt to GDP and exports declining Cambodia currently owes US$4. Figure 23: Regional unemployment rate (2008) Vietnam (Total) Vietnam (Urban) Vietnam (Rural) Cambodia (Total) Cambodia (Phnom Penh) Thailand Laos Malaysia 0% Source: Cambodia Capital Research 2% 3% 5% 6% v: External pressure: Debt. We expect that Cambodia will have a similar economic cushion in the medium term. The heavy weighting to agricultural employment offers a buffer against layoffs in the manufacturing and service sectors. currency.Overview of the Cambodian Economy June 2011 Unemployment: Low from widespread subsistence farming Unemployment overall is a low 2% in Cambodia.64 in 2001 to 0. from 0. External debt to exports. has also declined. from 1. the most economically advanced area of the country.42 as of 2009. Cambodia Capital Research 22 .36BN in external debt according to World Bank estimates. given recent difﬁculties in the Vietnamese economy). which is higher than the just over 5.5%. However.67 in 2001 to 1.12 as of 2009 (Figure 24).
Third. and more readily able to handle repayment than it is currently (Figure 26). and by the time of principal repayment. only 7. First. Neither of these debts is being serviced.5%. the Cambodian economy may be much larger. it is still unclear when or if Cambodia will be required to pay back these loans. 26% is legacy debt owed to the US mainly from the 1970s Lon Nol government and the Russian Federation mainly from the 1980s (Figure 25).Overview of the Cambodian Economy Figure 24: Key external debt ratios 200% 150% 100% 50% 0% 2001 2002 2003 2004 2005 2006 2007 June 2011 2008 2009 External Debt/GDP Source:World Bank External Debt/Exports Debt of long duration. and Cambodia is negotiating with both countries.7% of the debt is short term. and some may not need to be repaid The composition of Cambodia’s external debt makes it less onerous that it may initially appear. better structured. Second. Figure 25: Composition of Cambodia external debt by country 7% 22% 28% ADB World Bank IDA US. the effective interest rate that Cambodia has been paying on the debt is a low 0. so there is no medium term issue with the current debt. Russian Federation Debt Other bilateral Other multilateral 26% 17% Source: International Monetary Fund Cambodia Capital Research 23 .
8 6.3 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Reserves/Month of Imports Source:World Bank. but still well up on US$1. but not particularly robust ﬁnancial cushion (Figure 27). Figure 27: Key foreign reserve ratios 13.7% Short term Long term June 2011 92. Reserves to months of imports has risen from 4 in 2001 to near 5 as of 2008.0 9.9BN in 2006.8BN in 2008.7% of total debt.5 3.4x in 2009.6BN in foreign reserves as of end 2009.1x in 2001.3% Source: International Monetary Fund Foreign reserves adequate. down from a peak of US$2. up from just 3. The National Bank of Cambodia reported US$2. and therefore the reserves to short term external debt ratio is strong at 12. As shown in Figure 25.Overview of the Cambodian Economy Figure 26: Composition of Cambodia external debt by duration 7. Ministry of Economy and Finance Reserves/Short Term External Debt Cambodia Capital Research 24 . short term external debt is a low 7. but not abundant Cambodia’s key foreign reserves ratios have been improving over the last few years. which leaves the country with an adequate.
Movements in the dollar have a mixed effect on the economy: Textile exports: Garment/textile exports are priced in dollars. but the majority are purchased in US$.241/US$). with the Riel pegged to the dollar. Vietnam and China. However.700 1. but the economy is effectively dollarized.Overview of the Cambodian Economy Figure 28: National Bank of Cambodia’s Foreign reserves (US$MM) 3. the Vietnamese Dong has depreciated signiﬁcantly over the last year and China is gradually allowing its currency to appreciate versus the dollar. so a depreciation of the US$ versus the Euro could potentially make Cambodia garments/textiles more attractive to EU buyers.600 2. As shown in Figure 29.800 900 0 2001 2002 2003 2004 2005 2006 2007 June 2011 2008 2009 Source:World Bank Currency considerations: 90% of transactions still in the dollar Cambodia’s ofﬁcial currency is the Riel.900 Jan 06 Oct 06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Cambodia Source: National Bank of Cambodia Capital Research 25 .350 4. On net we expect the currency effect on imports to be relatively neutral in the short term. so dollar depreciation does not give Cambodian exports an advantage here.238 4.013 3. Figure 29: USD to Cambodia Riel 4. and an estimated 90% of transactions taking place in the dollar. The Thai baht has appreciated versus the dollar. There tends to be some seasonality also in the movement of the exchange rate related to the agricultural growing season.125 4. the National Bank of Cambodia has kept the Riel trading within a relatively tight trading band versus the US$ (at an average rate of KHR4.000/US$ and peak of KHR4.108/US$ since 2006. the second largest purchaser of textile exports is the European Union (EU). Imports: A large proportion of Cambodian imports are from Thailand. with a trough of KHR4.
Cambodian food price changes are especially correlated with Vietnam and Thailand. the global ﬁnancial crisis cut commodity prices and inﬂation subsequently subsided. mainly driven by the spike in global commodities prices (largely the result of rising food and oil prices). Meanwhile. which pulled up the average for the decade. averaging 4.000 1. However. we do not expect to see a major transmission of food inﬂation to Cambodia from these neighbouring countries in the short term. given the large amount of trading with the two economies. the central bank is raising rates to curb inﬂation and its currency is still strengthening long term versus the dollar. yoy % chg in CPI 30% 20% 10% 0% -10% 1995 1998 2001 2004 2007 2010 Source: National Bank of Cambodia Although global governments are increasingly hawkish on inﬂation. Increasing domestic production of food products should also help alleviate this risk over time. In Thailand.000 2. There was a signiﬁcant spike in inﬂation just prior the the onset of the 2008 crisis to 25%.Overview of the Cambodian Economy Figure 30: Money Supply (US$MM) 4. In Vietnam there has been the mixed effect of a currency depreciation offset by rapidly rising inﬂation. there have been hints lately that the current commodities bubble may be nearing its end.000 0 2003 2004 2005 2006 Demand deposits 2007 June 2011 2008 2009 Currency outside banks Foreign currency deposits Source: Ministry of Economy and Finance Time savings deposits Inﬂation remains benign (for now) Inﬂation has generally been benign in Cambodia of late. Cambodia Capital Research 26 .8% over the decade from 2000 to 2010. and the latest reported April 2011 ﬁgures show inﬂation at 5.000 3. On net. Figure 31: Cambodian inﬂation. prices still appear to be rising gradually.2%.
Cambodia’s exports are still comprised mainly of garments/ textiles and footwear exports to the United States and Europe.5% in 2001. which comprised 49% and 27%. although export growth continues to lag import growth and the country ran a trade deﬁcit of 5. Cambodia’s other major regional trading partner. Energy Source: Cambodian National Institute of Statistics vi) Trade and FDI: Advancing regional. comprising just under 5% of exports in 2009. with inﬂation especially high in neighbouring Vietnam (which also saw an inﬂation spike in 2008 and may have transmitted some of that inﬂation to Cambodia through trade) but much lower in Thailand. respectively. but deﬁcits persist Cambodia’s overall trade has surged by over 200% since 2001. global integration Trade surging. Vietnam is a distant third. accounting for a combined 76% share of the country’s exports. but growing rapidly from just 1. Cambodia Capital Research 27 .Overview of the Cambodian Economy June 2011 In a regional context. average Cambodian inﬂation from 2004-2009 has been in the middle of the pack.5% in 2009. Figure 32: Inﬂation in a regional context 20% 15% 10% 5% 0% Myanmar Vietnam Indonesia Cambodia Laos Thailand Malaysia Source: International Monetary Fund Figure 33: Cambodia CPI Index by category 15% 10% 5% 0% -5% -10% Jan 10 Mar 10 May 10 Jul 10 Sept 10 Nov 10 Jan 11 Mar 11 Health CPI Transport Food beverages Communication Housing.
that demand from the region will be high for these products and we may see these trade deﬁcits contract. which have soared to 29% and 21% of total imports.3% 5.875 0 2001 2002 2003 2004 2005 2006 2007 2008 June 2011 11. Figure 35: % of Cambodia’s exports by key trading partners 100% 75% 50% 25% 0% 2001 2002 2003 US 2004 2005 EU 2006 2007 2008 Vietnam 2009 2010 Source: US Census Bureau. Europa Cambodia Capital Research 28 .Overview of the Cambodian Economy Figure 34: Cambodia imports and exports (US$MM) 7. EU. However. for example.0% 8.500 5.8% 2009 0% Imports (LS) Exports (LS) Trade deﬁcit as % GDP (RS) Source: Ministry of Economy and Finance Exports mainly to US.5% 2. imports largely from East Asia The largest proportion of Cambodia’s imports are from Thailand and Vietnam. Imports from China. which comprised 14% of the total in 2009 and South Korea. at 5% of the total. for a combined 50% of imports in 2009 from just 29% in 2001. has already stated its intentions to increase its imports of Cambodian rice.625 3. especially rice. are also signiﬁcant. China. respectively.750 1. we expect that as the country increases its agricultural exports. General Statistics Ofﬁce of Vietnam (GSOV). The country runs large trade deﬁcits with these regional countries which is not offset by exports to the US and EU.
CLMV and ACMECs summits in Phnom Penh. GSOV. it has proved that it can compete reasonably well even where it does not have signiﬁcant trade advantage.Overview of the Cambodian Economy Figure 36: % of Cambodia’s imports by key trading partners 40% 30% 20% 10% 0% 2001 2002 2003 2004 2005 2006 2007 China 2008 June 2011 2009 Korea 2010 Thailand Vietnam Source:Thai Customs Department. KITA Increasingly integrated into regional and global trade It has only been relatively recently that Cambodia has become more integrated into the regional and global trading blocks. Since then. it was only in October 2004 that it joined the World Trade Organisation. Although the country did join ASEAN in 1999. which comprises 13 provinces in these three countries. we believe that Cambodia has generally beneﬁted from its involvement in the various trade organizations. further raising its regional proﬁle. Figure 37: Cambodia’s joining date of regional/global organisations Trade Organisation or Agreement Association of Southeast Asian Nations (ASEAN) World Trade Organisation (WTO) Ayeyawady-Chao Phraya Mekong economic cooperation strategy (ACMECS) Cambodia-Laos-Vietnam development triangle (CLV) Cambodia-Laos-Vietnam-Myanmar cooperation framework (CMLV) Source: ACMECS. it has also been more active within the region. 1) joining the ﬁrst Ayeyawady Chao Phraya Mekong economic cooperation strategy (ACMECs) at its ﬁrst meeting in November 2003. CLV.WTO. for the ﬁrst time. 2) becoming part of the Cambodia Laos Vietnam Myanmar cooperation framework (CLMV) in November 2004. Cambodia MEC. CMLV Date joined April 1999 October 2004 November 2003 2004 November 2004 Opening to trade appears to have been beneﬁcial so far On net. Although the country is classiﬁed as a Least Developed Country (LDC). and 3) being part of the Cambodia-Laos-Vietnam development triangle. the country simultaneously held the CLV. and thus is offered some advantages in terms of trade because of this. Cambodia Capital Research 29 . In November 2010.
The last ﬁve years have shown that concerns that Cambodia might have severe difﬁculty competing were unfounded. Cambodia has lost some market share. We expect therefore that Cambodia will beneﬁt from this program for the next decade at least. but this has been offset by the overall growth in the market for textiles/ garments exports to the US. This external lever seems to have prompted more rapid development of the legal structure than otherwise might have been the case. The ending of this regulation allowed nations within the WTO to export garments/textiles freely. The EBA program currently has no ﬁxed end date. 2005. a regulation that had previously allowed countries to apply quantitive restrictions of imports of clothing between WTO countries was abolished. EBA is a version of the GSP that offers LDCs a reduction of import duties to the EU to zero on all products except for armaments. However. but from a comparatively low base. While Cambodia currently exports mainly textiles/garments to the EU under this system. especially to the US. Currently. However. and only as countries reach high income status for three consecutive years and have sufﬁciently diversiﬁed their export base are they no longer eligible for the beneﬁts. although it did face increased competition from other WTO members also enjoying quota-free garment/ textile exports within the organization. comprising mainly garments/textiles and footwear. Accession to WTO offset 2005 end of textile quotas Cambodia is not a country considered by the US for preferential exports. AFTA to be fully implemented by 2015: It is still unclear as to the full effect that the ASEAN Free Trade Agreement (AFTA) will have on Cambodia over the next ﬁve years as the country aims to reduce all tariffs on imports from ASEAN to between 0%-5%. the country beneﬁted from the absence of non-WTO competition. The other beneﬁt of WTO accession is that Cambodia has needed to expand and strengthen its laws to meet the requirements. Cambodia Capital Research 30 . which offers lower trade tariffs to many developing countries. This is under the EU’s Everything But Arms (EBA) initiative to promote imports from Least Developed Countries. 90% of Cambodia’s exports are to non-ASEAN nations. This is because as of January 1. with the country expanding its textile exports to the US rapidly since 2005. without facing quotas. although the US remains Cambodia’s largest single customer for exports. so the reduced tariffs within ASEAN over the last ten years have not really been a signiﬁcant boon for the country. especially for garment/textiles. At the time there were limiting quotas. the country has gained somewhat easier access to the US market from its accession to the WTO. This is the strongest version of the EU Generalized System of Preferences (GSP). With Cambodia already in the WTO. which are mainly textiles/garments and footwear. agricultural exports are also growing.Overview of the Cambodian Economy June 2011 Beneﬁts from EU’s Everything-But-Arms for LDCs Cambodia currently beneﬁts from a lack of restrictions on its exports to the European Union (EU).
and is directed more to sectors like infrastructure and agriculture that should improve the structural balance of the economy in the longer term.125 750 375 0 2005 2006 2007 2008 2009 30% 23% 15% 8% 0% International Trade Taxes (LS) Total Government Revenue (LS) International Trade Taxes to Total Government Revenue (RS) Source: Ministry of Economy and Finance Foreign direct investment returning to sustainable level Foreign direct investment surged in 2007 and 2008. notably agriculture products.Overview of the Cambodian Economy June 2011 The question is whether reducing tariffs on some imports from ASEAN. And as we have shown above. FDI has since returned to what we view as a more sustainable level. Figure 38: Cambodia International Trade Taxes (US$MM) 1. We believe a larger issue for Cambodia than domestic industry protection. Cambodia Capital Research 31 . We do not expect that reduced agricultural tariffs will lead to large imports in the sector sufﬁcient to squeeze out local producers and expect that global food demand will be sufﬁcient to allow Cambodia to grow in this area. and the gradual reduction in tariffs over the next four years could reduce revenue further. The government generated 21% of its revenue from international trade taxes in 2009 (Figure 38). is a potential reduction in government revenue. mainly led by investment in an overheating property market.6% in 2003 (Figure 39). government revenue is already low in Cambodia relative to the region. could slow the growth of some newly developing agricultural sectors. with FDI as a percentage of GDP peaking at 10% in 2007 from a low of just 1. However. the majority of agricultural sectors in Cambodia appear to be showing both a high increase in production as well as rising exports.500 1.
Tourism investment was the largest category for both years. with most of the major investment coming in recent years.500 3.500 6. which is catering mainly to tourists for Angkor Wat.Overview of the Cambodian Economy Figure 39: Approved FDI (US$MM) 900 675 450 225 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 June 2011 30% 23% 15% 8% 2010 0% FDI (LS) Source: Cambodia Ministry of Economy and Finance % growth (RS) Figure 40: Aggregate investment by country 1994-2009 (US$MM) China Korea Malaysia EU US Thailand Taiwan Singapore Vietnam Hong Kong Japan 0 1. EU and US direct investment in Cambodia has been relatively muted over the period. Regional investment tends to dominate the proﬁle for Cambodia.000 4. if we consider that the transportation category in 2010 consisted mainly of South Korean investment to build a new airport in Siem Reap (although the funding source is still unclear).500 Source: Council for the Development of Cambodia China is largest source of FDI since 1993 Figure 40 shows aggregate investment (as reported by the Council for the Development of Cambodia).000 7. Cambodia Capital Research 32 . with Korea and Malaysia the next largest. which shows that China is far and away the largest investor in Cambodia over the past ﬁfteen years. Relative to their economic size. Figure 41 shows the investment breakdown by sector for 2009 and 2010. Energy and agricultural investment have been the second and third largest investment categories over the last two years.
901 665 457 235 146 456 5. We believe this supports our view of the ‘hopeful generation’ which is less concerned with absolute conditions and more with relative gains given the country’s history. Prosperity Prosperity index gains. the subjective opinion of many Cambodians often do not match their objective ranking globally. Cambodia Capital Research 33 . but not for corruption perception Two global surveys give some independent and empirical judgement on where Cambodia stands in terms of both prosperity and transparency of the business environment.698 * Nearly US$1BN of this is related to a planned new airport in Siem Reap. vii) Empirical Global Ranking: Corruption. it is unclear whether this has been funded yet. Chart 43 shows the eight categories used in the index. The Legatum Prosperity Index ranked 110 countries in terms of overall prosperity. Cambodia remains well down on the list. Also. and the ﬁndings of the survey for each. as would be expected for a Least Developed Country.859 Transportation Energy Agro-Industry Rubber Garments/textiles Other Total June 2011 2010 1. At 95 in 2010. is that although Cambodia ranks low in many categories. but we include them for comparison in Chart 42). What is interesting. with a value of one being the most prosperous (the 2009 and 2008 surveys rated just 104 countries and so may not be perfectly comparable. and thus could be considered tourism related.059* 589 353 190 129 379 2. however.Overview of the Cambodian Economy Figure 41: Investment by sector 2009 Tourism centres Energy Agro-Industry Telecommunication Tourism Other Total Source: 3.
94% of citizens report satisfaction with their freedom of choice In a 2009 survey only 12% of Cambodians thought others could be trusted. which would be expected given the low ranking Personal safety is perceived as high by Cambodians. although this could indicate others outside the family unit. Cambodia Capital Research 34 .prosperity. Cambodians are extremely satisﬁed with their education system Cambodians report low health services satisfaction.1 in 2010. back up at its 2006-2007 rating. although corruption is perceived as widespread Although the ranking relative to other nations is low. but political repression and human ﬂight are also high Although civil liberties are rated low in Cambodia. Opportunity 92 100 Detail Over half of Cambodians are satisﬁed with their standard of living. Cambodia does not fare well on this scale. after actually worsening slightly in 2008 and 2009. but Cambodians still view their country as offering a good environment for entrepreneurs 4 out of 5 Cambodians are satisﬁed with the national government.Overview of the Cambodian Economy Figure 42: Legatum Prosperity Index 2008 Singapore Thailand Malaysia Indonesia Vietnam Cambodia Source: Legatum Properity Index (www. As shown in Figure 44.com) 4 35 29 71 80 98 2009 23 44 39 61 77 93 June 2011 2010 17 52 43 70 61 95 Figure 43: Cambodia results . ranking a 2. and high in terms of start up costs. employment rates are high C a m b o d i a r a n k s l ow i n t e r m s o f b u s i n e s s infrastructure. and has shown little improvement. where ties seems strong Governance 72 Education 90 Health Safety and security Personal freedom 80 66 98 Social capital 97 Source: Legatum Properity Index 2010 Transparency International Corruption Perceptions Index gives a ranking from 1 (most corrupt) to 10 (least corrupt) for the perception of the public sector.Legatum Prosperity Index 2010 Rank Economy Entrepreneurship.
4 Figure 44:Transparency International Corruption Perceptions Index Rating Source:Transparency International Corruption Perceptions Index Cambodia Capital Research 35 .6 2.4 5.1 3.1 1.1 1.9 2008 9.9 2007 9.2 4.4 2.4 June 2011 2010 9.5 2.0 1.2 5.1 1.6 2.8 2.7 2.0 3.4 3.5 3.8 1.4 2.7 2.0 2.4 5.5 2.6 2.6 2.Overview of the Cambodian Economy 2006 Singapore Malaysia Thailand Indonesia Vietnam Laos Cambodia Myanmar 9.7 2.6 2.3 4.1 2.6 2.8 2.4 2.3 2009 9.0 3.6 2.0 1.
as the Cambodian People’s Party increasingly strengthened its hold on political power. but not rule’. with a National Assembly and Senate. the country was embroiled in 38 years of conﬂict. and becoming more involved in ASEAN and other regional groups • Relations with Thailand strained: Cambodia and Thailand have undergone two military conﬂicts at two disputed border areas since the beginning of 2011. We would emphasise that before 1998. A constitutional monarchy The Cambodian system of government is ofﬁcially a constitutional monarchy. Cambodia has gone to both ASEAN and the United Nations with the issue. Currently the countries are trying to negotiate. Hun Sen. there was little in the way of substantial law or a solid system holding the country together and therefore little capacity for the country to develop human or technological capital. Two of the senate members are chosen by the King. Norodom Sihamoni. prior to that. and some factional inﬁghting.000 years. Cambodia Capital Research 36 . the head of state. From 1998 to the early 2000s. the head of government. another two by the National Assembly.Overview of the Cambodian Economy June 2011 Politics: Stabilizing • Improving political stability: The country has shown improving political stability since the Cambodia People’s Party led by Hun Sen took power in 1997 and have continued to consolidate their leading position since • Increasingly integrated into world system: Cambodia has become increasingly integrated politically both globally and regionally. as shown in Figure 45. having joined the WTO in 2004. This issue goes back as far as 1. and the rest are chosen by voting in Cambodia’s 24 provinces. The king has limited political power. with it declared that he shall ‘reign. with the Prime Minister. and there is a high probability that it will cloud bilateral relations for some time Period of increasing political stability since 1998 The ﬁrst hints of political stabilisation started to appear in Cambodia by 1998. We would estimate that it was only really since around 2005 that the country could be said to fully stabilised politically. The system has a bicameral parliament. and the Monarch. but where Thailand prefers a bilateral solution. The 123 National Assembly members are elected for 5 years under proportional voting. there followed a period of uncertainty as to whether the new government would hold.
Cambodia Capital Research 37 . Prince Sihanouk leaves for exile in Beijing. at ﬁrst heavily backed by Vietnamese forces. with the opposition Sam Rainsy Party winning 26 seats. both leaders are elected as co-prime ministers A uneasy alliance exists between the two ruling parties. bombing raids in rural Cambodia lead to growth in Khmer Rouge movement Khmer Rouge. Massive improvements made in developing the legal. and maintains neutrality over US/Vietnam conﬂict. Hun Sen is established as sole Prime Minister after a battle in Phnom Penh between FUNCINPEC and CPP forces leads to exile of Prince Ranariddh Cambodia enjoys its ﬁrst decade of politic and economic stability in nearly 40 years. Hun Sen’s Cambodia People’s Party (CPP) is far and away the dominant political force in the country. with the UN still ofﬁcially recognizing the party as ruling the country from 1979 to 1982. it won 90 of 123 seats. and holds elections. which allows the UN to oversee a ceaseﬁre. Hun Sen’s Cambodia People’s Party wins. US army moves into Cambodia. allied with the United States.Overview of the Cambodian Economy Figure 45: An overview of modern Cambodian political history Year(s) 1953 1954-1970 Key Events Cambodia gains independence from France June 2011 Ruled under Prince Sihanouk. Khmer Rouge resurgence is still a threat. The Paris Agreement is signed 1991. The other smaller parties gained a combined 7 seats. By 1997. Eventually Khmer Rouge strengthens and wins battles with less Vietnamese support Khmer Rouge overtake Phnom Penh Khmer Rouge implement a totalitarian agrarian regime. The government is a pseudo-communist regime based roughly on the Vietnamese system The end of the cold war changes the political dynamics in SE Asia. repatriate Khmer citizens that had ﬂed to Thailand. begin battles with Lon Nol forces. disarm the military operations of the four political factions. Khmer Rouge remains a danger. the country initially sees economic progress. economy is destroyed and an estimated 15% or more of population perish Vietnam army enters Cambodia with help of ex-Khmer Rouge soldiers and topples the regime Cambodia is barely governed by a loose coalition dubbed ‘The State of Cambodia’. economic and educational system King Sihanouk leaves the throne and his son Norodom Sihamoni becomes King 1970 1970-1975 1975 1975-1979 1979 1979-1989 1990-1992 1993 1994-1998 1999-2010 2004 Source: Cambodia Capital Research Cambodia People’s Party dominates government As shown in Figures 46 and Figure 47. 2008. and then North Korea. Political split widens in 1960s between the Prince. but Prince Rannariddh led FUNCINPEC also does well. and establish free and fair elections The United Nations Transitional Authority Cambodia (UNTAC) arrives. In the last National Assembly election on July 27. Paris-educated leftists (eventual Khmer Rouge) and rightwing Lon Nol government Military coup installs Lon Nol government.
with its platform originally based on a Marxist-Leninist single party system. It is unclear if there is a similarly charismatic second in charge to lead the party without the eponymous founder. Since these elections. with nine seats. but is especially strong in rural areas. Sam Rainsy. FUNCINPEC is the next largest. Cambodia Capital Research 38 . we have not seen strong political moves from either the Sam Rainsy Party or FUNCINCPEC that would suggest that these parties are gaining popularity versus the CPP. has a broad base of support. However. we have seen little to suggest that the CPP’s dominance is waning signiﬁcantly. and the establishment of constitutional monarchy. The party was formed from the Kampuchean People’s Revolutionary Party which was the only legally recognized party within Cambodia from 1981-1991. Figure 46: National Assembly 90 68 45 23 0 CPP SRP HRP NRP Funcinpec Source: Cambodian National Election Committee Figure 47: Senate seats 50 38 25 13 0 CPP Funcinpec SRP Royal Appointees NAC Source: Cambodian National Election Committee Cambodia People’s Party (CPP): Cambodia’s dominant political party. during the State of Cambodia period of 1989-1991 the party began to shift its ideology to adopt more free market principles. is in exile in France after being convicted in absentia of defamation charges after accusing the government of corruption. winning 43 of 58 available seats in the 2006 senate election. led by Hun Sen. In the senate. the country was able to weather the ﬁnancial crisis without massive social upheaval. Sam Rainsy Party (SRP): Founded in 1995 (originally the Khmer National Party from 1995-1998). and economic growth continues to be strong. Also. especially with the arrival of UNTAC.Overview of the Cambodian Economy June 2011 The CPP also dominates the Senate. the party’s leader.
by refusing to participate in the 1993 elections. The party’s popularity in rural areas.Overview of the Cambodian Economy June 2011 Human Rights Party (HRP): Is a relatively new party. If we were to characterize these relationships we would say that Vietnam has both a strong political and business inﬂuence in the country. Leader Kem Sokha has a history of humans rights activism. including land and civil rights. Bilateral relations with two largest neighbors Cambodia’s diplomatic relations with two of its closest neighbors. and by 1996 saw a mass defection of over half the remaining soldiers. were a perpetual threat to stability and were recognized as the ofﬁcial Cambodian government by the United Nations as late as 1982. The party appears to be a right leaning centrist party. Peaceful and Cooperative Cambodia. Informal border trading is widespread with both countries. originally established in 1981 by Norodom Sihanouk as a counterbalance to then Vietnamese occupation of the country. as it won only 2 seats of 123 in the National Assembly in the 2008 election. its popularity appears to have waned over the next ten years. has been growing. However. Neutral. The party is generally considered a Royalist party. having won 9 out of 58 seats in the most recent 2006 senate election. Funcinpec: FUNCINPEC is a French acronym for National United Front for an Independent. and involvement in anti-corruption law. FUNCINPEC played an important part in government throughout the 1990s. It has relatively more sway in the senate. and the still threatening Khmer Rouge. and won 43 of 123 seats in the 1998 elections. They remained strong militarily throughout the 1980s. and the party again took his name. The party’s current leader is Chhim Siek Leng. Ranaridhh retired from politics in October 2008. in which CPP won decisively and the SRP became the second largest party. who changed their name to incorporate the new leader. Khmer Rouge: The Khmer Rouge orchestrated the complete economic collapse of the country from 1975 to 1979. the Khmer Rouge began to lose power and any remaining credibility. it was formed in November 2006 when the second son of previous king Norodom Sihanouk was elected by members of the Khmer National Front Party. Vietnam and Thailand. formed in in 2007. Cambodia tends to thus view both Vietnam and Thailand with some degree of suspicion. and the party was renamed the Nationalist Party until the Prince announced a return to politics in December 2010. Norodom Ranariddh Party (NRP): Another relatively new party. Cambodia Capital Research 39 . while Thailand’s inﬂuence tends more to just the business sphere. In 1998 party leader Pol Pot died and by 1999 the remaining Khmer Rouge had surrendered or been captured and the party effectively ceased to exist. However. generally the stronghold of the CPP. tend to be fraught with border issues. with the two much larger countries possessing both expansive military and economic might relative to much smaller Cambodia.
Although there has been some minor disruptions to border trade in the conﬂict areas and a marked decline in Thai tourism to Cambodia. Thailand initially agreed. and ofﬁcially part of Cambodia. but it was stated that Thailand would play an important role also in overseeing the temples. a meeting was brokered between the two countries mediated by ASEAN. Fighting erupts in February 2011 near Preah Vihear This led to the placement of troops on either side of the border from mid-2008. a decision that has been disputed by Thailand ever since. The complex was declared a World Heritage Site in 2008 by UNESCO. trade between the two countries continues to grow strongly. unrelated to Preah Vihear.6 sq km area that is the center of the conﬂict. and lasted for several days with military casualties on both sides. which has led to a cease ﬁre. In the north of Cambodia in Preah Vihear is a temple complex that was granted to Cambodia in 1962. However. By comparison relations between Cambodia and its smaller neighbor Laos tend to be less conﬂictual. ﬁghting broke out at a second disputed area along the ThaiCambodian border in Oddar Meanchey province. with some parties opposing what they view as encroachment on both Cambodia’s territory and sovereignty. in far Northwestern Banteay Meanchey province. opposition to Vietnam’s inﬂuence issue still remains. Following this battle. The key current issue that could cause future discord between the two countries is the building of major dams on the Mekong in Laos which could have serious environmental effects downriver in Cambodia.Overview of the Cambodian Economy June 2011 Vietnam appears to have political inﬂuence The early incarnations of Hun Sen’s CPP was effectively installed with Vietnamese help. Relations with Thailand sour after border conﬂict If the border issues with Vietnam are more of a cold war. but Cambodia would also have its preferred solution of the presence of ASEAN observers at the border. but later reversed course and rejected the UNESCO plan. However. since 1979 there have generally been cordial relations between the two nations. on the whole. A deal was reached where Cambodia has agreed to talks through Thailand’s preferred channel. We expect that this issue will continue to weigh on ThaiCambodian political relations. The ruling remains unclear especially on a 4. the bilateral border committees. Second battle occurs in April 2011 at Oddar Meanchey In late April 2011. This event appears to be the trigger point. with Thailand they became a hot war in February 2011 and then again in April 2011. strong words on both sides suggest to us that this agreement is still very tentative. This was shortly after some Thai activists had been jailed in Cambodia for reportedly illegally entering the country without visas at another area of border dispute. Cambodia Capital Research 40 . but it was only in February 2011 that ﬁghting erupted. and the party appears to still maintain close ties with the Vietnamese ofﬁcials.
2) the World Trade Organisation in 2004. IMF and World Bank. Since then the country has progressively integrated itself into the world system. 4) with special privileges for least developed countries.Overview of the Cambodian Economy June 2011 Increasingly integrated into the regional and world system Cambodia had been completely isolated from the world from 1975 to 1979. Cambodia Capital Research 41 . 1) it joined ASEAN in 1999. it makes the bulk of its exports to the EU and the US. setting the stage for eventual UNTAC-sponsored elections by 1993. and inﬁghting between various factions meant that there was no globally recognized government in Cambodia until after the Cold War ended. and its WTO accession. 3) the country accepts guidance and funding from the Asian Development Bank. 5) it held the Cambodia Vietnam Laos (CLV) and Cambodia Vietnam Laos Myanmar (CLVM) as well as the ACMECS (CLVM plus Thailand) summits in November 2010.
with the major business laws now written. many important laws were promulgated only in the last 10 years. with 100% foreign ownership of businesses permitted Foreign-investment friendly. there had been no split between these three bodies. This was replaced by the 1979 constitution when the Vietnamese overthrew the Khmer Rouge. However. However. and bond and equity market (2007) laws • System open to foreign businesses: Cambodia is open to foreign investment compared to other countries in the region. The Khmer Rouge adopted their own constitution.Overview of the Cambodian Economy June 2011 Legal System: Framework in place • Basic legal system in place: Cambodia has slowly developed its current legal system since the introduction of the 1993 constitution. With the overthrow by the Lon Nol government. tax (2003) commercial (2005). Basis of current legal system is the 1993 constitution We date the current legal system in Cambodia to the 1993 creation of the current constitution under the guidance of UNTAC. executive and judicial functions of government was stipulated. and Cambodia’s current set of laws. Cambodia Capital Research 42 . which was based on the Vietnamese system. many have not been thoroughly tested in the courts. but it was not until the current constitution was adopted in 1993 that a clear separation between the legislative. gradually improving legal system Cambodia has a basic legal system in place. a new constitution was adopted from 1970-1975. A series of constitutions since the 1950s Cambodia has been through a series of constitutions since the 1950s. insurance (2000). so have not been well tested in the courts • Major business laws promulgated: The country has the key legislation for business in place. from 1979 to 1992. with the most recent a version of the 1993 document with some amendments made in 1998 (Figure 48). Prior to the Khmer Rouge. this document itself. The legal system is supportive of foreign investment. Liberalization of this system occurred as early 1989. from 1953-1975 the Cambodia legal system was based on the French system under rule by Prince Norodom Sihanouk. as many of the laws were promulgated over the last ten years. is somewhat of a hybrid from the various periods of the country’s history since independence from France in 1953. legislative and judiciary branches. although some key preexisting laws are still in use. with 100% foreign ownership of businesses permitted. However. We believe that an improving and increasingly transparent legal and regulatory regime will further encourage future foreign investment. with power entirely concentrated in the National Assembly. including banking (1999). which was ostensibly ‘peasant rule’ but effectively totalitarian agrarianism. This constitution led to the establishment of separate executive. and now has a functioning legal framework.
an independent judiciary. and 2001. serve to support ongoing growth and investment. Continued improvement in the legal framework coupled with increased testing of the same. 1976-1978 1979-1993 1993 1998-1999 Source: Cambodia Capital Research Current legal system takes shape in 1993 With the constitution in place by 1993. executive and judicial power coming from the monarch All power derived from the people. the law on banking and ﬁnancial institutions promulgated in 1999 and an insurance law written in 2000. but not govern Amendments are made to the 1993 constitution. promulgated in 1988. with all legislative. By the mid to late 1990s important laws for business were written. but this is not really brought into effect until around 1998. The people’s representative assembly determines legislation. Tax and property/land laws were also in place prior to the current constitution in 1993. and shall reign. increasing the National Assembly seats to 122 and allowing for the creation of a 61-seat appointed senate.Overview of the Cambodian Economy Figure 48: Constitutions adopted through Cambodian history Constitution 1953-1970 1970-1975 Details June 2011 The king held all power. the country began to further develop its legal structure. Cambodia Capital Research 43 . appoints people’s courts to administer justice All power resides at the National Assembly A Constitutional Monarchy is established where the legislative. The King is head of state for life. The establishment of this legal framework coincides with the start of rapid growth in the Cambodian economy. The tax law was issued in 1997. and a Supreme Court A state of the people. should. in our view. workers. which has largely remained intact to the present. executive and judicial branches are to be separate. peasants and all other labourers. respectively. but were eventually superseded by new laws in 1997. with parliament making laws. with the Law on commercial rules and commercial register coming into effect in 1995. There was existing contract law. with an amendment written in 1999 (Figure 50).
It also allowed for any laws previously written that did not contradict new laws to remain. Current contract law of Cambodia promulgated during this period From 1989-1993. and had to adopt (or commit to adopt) many laws to meet WTO requirements 1975-1979 Khmer Rouge 1979-1989 Communist (Vietnamese inﬂuenced) 1989-1993 Liberalized Communism 1993-Present Constitutional Monarchy World Trade Organisation Source: Cambodia Capital Research Stock market laws promulgated in 2007 Stock market legislation was only promulgated in the form of the Law on the Issuance and Trading of Non-Government Securities as recently as 2007. and therefore integrated the inﬂuence of all the preceding systems In 2005 the country joined the World Trade Organisation. which included property rights A constitutional monarchy was established by the constitution of 1993. All power commanded by totalitarian Khmer Rouge ofﬁcials Country adopts a Communist system under the Vietnamese model after the Vietnamese overthrow the Khmer Rouge from 1979-1989. Given the current target of a 2011 opening.Overview of the Cambodian Economy Figure 49: History of legal systems in Cambodia Date/System 1953-1975 French Civil Details June 2011 Cambodia adopted the French legal system. Cambodia Capital Research 44 . Although this system was abolished by the Khmer Rouge. the country shifted to a more liberalised form of Communism. and given that the key business laws were established only as of the late 1990s. and is the basis of the present system. we view getting the capital markets up and running in just a decade as a reasonably quick turn around. The new constitution was again based largely on the French system. Almost no legal professionals remaining in the country by the end of this period. its inﬂuence re-emerges in the drafting of the 1993 constitution Complete elimination of any modern legal system.
the ASEAN Free Trade Area (1999) and the World Trade Organisation (2004) Labour law 1997 replaces 1992 Labour law Law concerning marks. Insurance law (2000). Law on secured transactions (2007). supersedes 1992 Land law 1988 Cambodia adopted has adopted the regulations of the major trade bodies it has joined. Law on negotiable instruments and payment transactions (2005). Law on issuance and trading of nongovernment securities (2007). amendment (2003) Law on banking and ﬁnancial institutions (1999). Law on ﬁnancial leases (2009) Land law (2001). Law on commercial enterprises (2005) Law on tax (1997). trade names and acts of unfair competition (2002) Tax Financial System Property Contract Law Trade Labour Intellectual property Source: DFDL Mekong Cambodia Capital Research 45 .Overview of the Cambodian Economy Figure 50: Major Cambodian Laws Laws Commercial Details June 2011 Law on commercial rules and commercial register (1995) and amendment (1999).
given the market risk) limits the growth of many riskier ventures that could potentially be funded by more risk tolerant equity investors. was promulgated well before the equity market laws. The required regulations have been issued by the SECC. For rural lending. Banks loans currently the key source of capital The main source of capital in Cambodia is bank lending. Cambodia Capital Research 46 *Specialised banks have limited scope and by law can perform only one of three activities carried out by a fully licensed bank. and we expect to see trading by late 2011. or only a single component of each of the three services. We give more detail on the progress with regards to the stock exchange below. private equity investment in Cambodia is growing. . Now it is an issue of the level of preparedness of the three SEOs currently planning to list. but they represent a small proportion of total lending. Public equity market to open this year. Therefore there are still no government or corporate bonds issued in Cambodia. In addition. establishing the Cambodia Stock Exchange has clearly taken precedence over the bond market in the last several years. there is also growing international interest in lending to Cambodia from private and policy banks. but the related legislation has been drafted. We estimate that the ﬁrst trade could happen by Q4/2011. particularly from China. although private equity funds already investing in the country and the planned new stock market will increase the availability of equity capital for ﬁrms • No bond market: There is currently no bond market in Cambodia. given the presence of a handful of domestically based funds. 1) granting credit 2) taking deposits or 3) offering payment processing. the CSX is housed and rolling out its systems. and that a Cambodian sovereign issue could be seen within the next 2-5 years. The tight lending standards of Cambodian banks (which we view as prudent. the government will soon look towards developing the debt market. and especially to small agricultural businesses. and the securities and support ﬁrms have all been licensed. These institutions support many projects that cross borders in the Greater Mekong Sub Region. private equity growing The public equity market is very near opening.Overview of the Cambodian Economy June 2011 Capital markets: Nascent • Banks the main source of capital: Banks remain the key source of capital in Cambodia. as well as interest from regional funds. which allowed for the development of a bond market in Cambodia. there are 13 microﬁnance institutions that are a key source of capital. We would expect to see a sovereign issue from Cambodia within the next 2-5 years • Expect trading on CSX by Q4/2011: The Cambodia Stock Exchange (CSX) is in the late stages of preparation for opening. we expect that with the equity market nearly up and running. However. However. Bond law written but no market yet Although the Law on the Issuance of Government Securities. Foreign lending in the country increasing The longest running international lending to Cambodia has been from multilateral institutions such as the World Bank and the Asian Development Bank and national institutions such as the Japan International Cooperation Agency. through 35 banks (including specialised banks*).
4) the ﬁrst three companies to be listed. and auditors have all been licensed. and underwriters chosen (Figure 51). 2) the trading. brokers. 2011. underwriters. have been selected. and Tong Yang Securities for PPWSA and TC.’ Cambodia Capital Research 47 . 2011 planned opening. 2011 report ‘Approaching a Final Frontier: Progress on the Road to Opening the Cambodia Stock Exchange. This is similar to what was seen in the Laos exchange. are being rolled out The securities ﬁrms ofﬁcially received their licenses in early Nov. 2010. advisors and settlement banks. the Securities Exchange Commission of Cambodia (SECC) has been established since 2007. SBI Securities for SAP. We could see trading by late Q4/2011 Although the SECC.Overview of the Cambodian Economy Figure 51:The ‘four pillars’ involved in establishing the CSX Details 1) SECC June 2011 Established in 2007. but may wait until the market proves itself 2) CSX 3) Securities Firms 4) Listed Companies Source: Respective organisations and companies Progress being made in all key area of CSX The major pillars are in place to establish the stock exchange in Cambodia. with 7 underwriters. based on the KRX. Sihanoukville Autonomous Port (SAP). For more detail. all state-owned enterprises. 2 dealers and 2 advisors permitted to operate. A location in Canadia Tower is secured and the systems. Other private companies are contemplating listing. Auditors and clearing agents also were licensed at this ceremony Three state owned enterprises. please see our April 27. depository and settlement platforms for the CSX (which was recently certiﬁed to operate the exchange) are being rolled out under the management of the Korean Stock Exchange (45% shareholding in the CSX) and the Cambodian government (55%) 3) the securities ﬁrms. CSX and securities ﬁrms should be prepared for the ofﬁcial July 11. The underwriters have been chosen. Telecom Cambodia (TC) and Phnom Penh Water Supply Authority (PPWSA) have been selected to list on the exchange. and has been actively promulgating regulations over the last two years. it may take 5-6 more months for the underwriters to ready the SEOs for listing. clearing agents. The SECC has a staff of 70 employees 55% owned by the Cambodian government and 45% by the Korean Stock Exchange (KRX). 5 brokers. Settlements will be undertaken separately by commercial banks which were awarded their licenses on February 28. dealers. has promulgated most of the major regulations we estimate will be required prior to opening the CSX. 1) the regulator. where actual trading followed the ofﬁcial opening of the exchange by about 3-4 months.
and the risk to ﬁnancial institutions will keep interest rates high. while claims have been decreasing over the last several years. 5 specialized banks. while the interest rate on US $ 12-month deposits has averaged around 5%. the interest rate on US$ 12month loans has averaged about 16% since 2007. it will remain a major constraint over the medium term. there are still large hurdles to growing lending. 13 key microﬁnance institutions and 6 insurance companies. limited assets available for collateral and lack of a credit bureau. there are 30 banks (the 29 reported by the National Bank of Cambodia at end. The high interest rates from banks are an impediment to growth.There is no life insurance given a high regulatory capital requirement Cambodian ﬁnancial system increasingly well developed The Cambodian ﬁnancial system is becoming increasingly well developed. even with these myriad institutions. However. As shown in Figure 52. There remains excess liquidity in the system and banks compete for quality creditors.2010. but we believe that they also accurately Cambodia Capital Research 48 . Deposit Rates Riel 20% 15% 10% 5% 0% Jan 07 July 07 Jan 08 July 08 Jan 09 July 09 Jan 10 July 10 Jan 11 Source: National Bank of Cambodia Although we expect that the availability of quality credit will increase as the economy and especially housing sector develops. having weathered the 2008-2009 ﬁnancial crisis and returned to strong growth in 2010. healthy balance sheets Figure 52: Interest. while balance sheets remain healthy • Microﬁnance supporting agriculture: The microﬁnance sector continues to grow rapidly and is especially important in funding the key agricultural sector. with only spartan housing. access to capital is still relatively limited for many businesses and the majority of the population. where a lack of collateral and credit history by farmers makes it difﬁcult for them to obtain bank loans • Insurance small but growing: The insurance sector is small but growing rapidly with premiums quintupling to US$25MM in 2010. i) Banks: Strong growth. With 70% of the population engaging in subsistence farming. plus 1 new entrant since).Overview of the Cambodian Economy June 2011 Financials: Crisis proven • Strengthening banking system: The banking system in Cambodia continues to improve.
leaving a total 5 specialized banks .Overview of the Cambodian Economy June 2011 reﬂect the high risk of lending in the country. We believe that as the economy develops we will see the spread on loans versus deposits contract. Figure 53: Cambodian banks’ loans*. end 2010 (US$MM) 1) Acleda 2) Campu 3) Canadia 4) ANZ Royal 5) BIDC 6) FTB 7) Maybank 8) Union Commercial 9) First Commercial 10) Advanced Bank 11) Saigon Thuong 12) Vattanac 13) Cambodia Commercial 14) Shinhan 16) OSK Indochina 15) Rural Development (Specialized) 17) Singapore Banking 18) Krung Thai 19) Cambodia Asia 20) Phnom Penh Commercial 21) Camko 22) Cambodia Mekong 23) Angkor Capital 24) Kookmin 25) Maruhan 26) Vietnam Agribank 27) Anco Specialized 28) PHSME Specialized 29) Hwang DBS 30) Best Specialized 31) First Investment Specialized 32) Booyoung 33) Bank of India 34) Cambodia Development Specialized** 35) CIMB 0 Loans Source: National Bank of Cambodia 230 460 Deposits 690 920 Cambodia Capital Research 49 *2011 entrant Bank of China **Cambodia Development Specialized Bank is now closed. deposits.
With such a large number of banks. these issues are not uncommon to the region. Figure 54: Lending rates (%) 40% 30% 20% 10% 0% 2000 2001 2002 2003 Laos 2004 2005 2006 2007 2008 2009 Cambodia Source:World Bank Myanmar Thailand Vietnam The four tiers of Cambodian banking We categorize the banking sector in Cambodia roughly into four tiers: 1) The 4 major banks: These are the largest banks by a signiﬁcant margin. 2) The middle 12 banks: The middle 12 banks comprise 26% of the loans in the banking sector and 27% of the deposits. However. and in Thailand the lowest. as shown in Figure 53. We expect that in this segment. ACLEDA (a local bank that started as a microﬁnance institution. Cambodia Capital Research 50 . 3) The smaller banks: Similar to the middle banks. accounting for 67% of total loans and 69% of total deposits.Overview of the Cambodian Economy June 2011 Lending rate not excessive in a regional context Although there are issues of both access to capital and high interest rates for business in Cambodia. as it is the most developed economy of the group (Figure 54). we believe that in many cases these links to business groups may hold back merger activity between rival groups in home countries. The individual banks in this group had between US$285MM and US$727MM in loans in 2010. but the smaller institutions may mainly be servicing the local needs of a speciﬁc foreign business group with which they are associated. which illustrates banking sector loans and deposits. The larger institutions in this group will compete with the big four. Canadia Bank (a strong. These banks comprise just 6% of loans and 3% of deposits. domestically owned banking institution) and ANZ Royal (controlled by Australia’s ANZ). They are: Cambodia Public Bank (partnered with Malaysia’s Public Bank). at ﬁrst glance it would appear that mergers will be a likelihood in the sector. these banks will tend to have a business group as a dedicated customer. Interest rates in Laos have historically been the highest. Cambodia’s interest rates are near the average for the ACMECS region at around 16%. this will also limit mergers in the sector. either domestic or foreign. and between US$491MM and US$860 in deposits.
far more than the next largest. there have been two heavyweight entrants to the banking industry. given its roots in microﬁnance. We believe that they could shake up the market. Two heavyweight new entrants: Bank of China. a third large bank. Figure 55: Bank branches in Cambodia (2010) Phnom Penh Branches ACLEDA Canadia Campu ANZ Royal Singapore Banking May Bank OSK Indochina Advanced Bank Cambodia Mekong Union Commercial BIDC Cambodia Commercial Others Total Source: National Bank of Cambodia 14 13 13 11 10 6 5 6 2 2 2 1 26 111 Provincial Branches 220 14 8 8 5 3 4 2 4 3 2 3 3 279 Total Branches 234 27 21 19 15 9 9 8 6 5 4 4 29 390 Cambodia Capital Research 51 . Only ACLEDA has an extensive country-wide network. The ﬁrst was Vietnam Agribank in mid 2010. and the Bank of China (BOC) in Q2/11. Meanwhile. It had 14 branches in Phnom Penh and 220 in the provinces as of end-2010 for a total 234 branches (Figure 55). CIMB There have been three new entrants to the banking sector since 2009. and less than 1% of the deposits. the Industrial and Commercial Bank of China (ICBC) is also considering entering the market.Overview of the Cambodian Economy June 2011 4) The specialized banks: These banks are allowed to undertake either just one of the three main banking business lines (lending. or payment systems) or a single component of each of the three. CIMB in late 2010. in line with its business model catering to smaller rural customers. Canadia. which was small enough that it was not expected to disrupt the market. More recently. especially the dominance of the current top 4. All three have strong parent operations with ample capital bases. Cambodia’s six specialized banks account for less than 2% of total loans in the banking system. with a total 21 (13 Phnom Penh/8 provincial). deposits. with a total 27 branches (13 Phnom Penh/14 provincial) and Campu. however.
000 0 2005 2006 Loans (LS) Source: National Bank of Cambodia 2007 2008 2009 June 2011 80% 60% 40% 20% 2010 0% Loan Growth % (RS) Banks looking stronger on most measures The story over the last ﬁve years for Cambodian banking has broadly been one of increasing strength.000 as of 2010 (Figure 56). growth in bank loans (%) 4. Loan growth did not turn negative even during the global ﬁnancial crisis. Figure 57: Aggregate NPLs 10% 8% 5% 3% 0% 2005 2006 2007 2008 2009 2010 Source: National Bank of Cambodia Declining system NPLs and loan to deposit ratios Banking system non performing loans (NPLs) have seen a declining trend over the last 5 years.5% gain in 2009. Outstanding bank loans have soared ﬁvefold since 2005 from just over US$600M to over US$3. with banking system not only successfully weathering the 2008/2009 global ﬁnancial crisis. After loan growth increases of as high as 77% in the lead up to the crisis. yet still healthy level of growth. but also able to grow through the period. still eking out a 3. the 22% loan growth seen in 2010 seems to us a more sustainable. it appears to have passed with ﬂying colours. to a low of 3. Cambodia Capital Research 52 .000 2.6%.0% in 2010 (Figure 57). especially in light of the problems experienced at some major global ﬁnancial institutions.000 3.000 1. If we view the ﬁnancial crisis as a test of the Cambodian banking system.Overview of the Cambodian Economy Figure 56: Aggregate bank loans (US$MM). from a 2006 high of 9.
the required total capital adequacy ratio in Malaysia. The National Bank of Cambodia continues to gradually move towards the Basel 2 standards. Thailand. which also peaked in 2007 at 0. but lending rates remained relatively ﬂat (Figure 60.000 3.75 as of 2010. Figure 58: Loans to deposits 5. This remains well in excess of the National Bank of Cambodia’s required total capital ratio of 15%. 9.250 0 2006 Deposits (LS) Source: National Bank of Cambodia 2007 2008 Loans (LS) 2009 2010 100% 75% 50% 25% 0% Loan/Deposit Ratio (RS) Figure 59: Solvency Ratio 34% 31% 27% 24% 20% 2006 2007 2008 2009 2010 Source: National Bank of Cambodia The banking system has seen some pressure on net interest margin over the last two years.5%. respectively. banks have been growing fee income over the last ﬁve years. 8.) This is reﬂected in the decline in net interest income seen in Figure 61 in 2009.750 2.500 1. as deposit rates rose with increasing banking competition. which well is above the 8% required by Basel 1. As shown in Figure 55. but with the market still in the relatively early days of development. However.Overview of the Cambodian Economy June 2011 The lending practices of the Cambodia banking system appear to be adequately stringent and banks look healthy based on loan to deposit ratio. as deposit growth outpaced loan growth (Figure 58). and Singapore are 8. helping to offset the decline in aggregate net interest income.95 but had declined to 0. For comparison.24 in 2007 to 0. Cambodia Capital Research 53 . this may take years. Vietnam. and 10%. with the solvency ratio (or total capital adequacy ratio) rising from a recent low of 0.0%.0%.31 as of 2009 (Figure 59). the banking system has strengthened its capital base over the last two years.
we expect that this sector is likely to represent an increasing proportion of lending as it develops. Interestingly. agricultural lending was just 7% of lending in 2010. 2) construction and real estate. IT. are a key support for the sector. Net fee income. microﬁnance loans to the agricultural interests. Media. As we show in the next section. Fee Income as % Operating Income 250 188 125 63 0 2006 2007 2008 2009 2010 28% 21% 14% 7% 0% Source: National Bank of Cambodia Figure 62 shows lending by the banking system by sector in 2010. Real Estate. Wholesale Construction.Storage Personal Consumption Other 18% 5% 5% 7% 9% 10% 12% 35% Source: National Bank of Cambodia Cambodia Capital Research 54 . 1) retail and wholesale operations. Restaurants Manufacturing Agriculture. Four segments accounted for over 66% of lending. Forestry. especially through sector-leading ACLEDA. Transport. 3) hotels and restaurants and 4) manufacturing.Overview of the Cambodian Economy Figure 60: Net interest margin 11% 10% 9% 8% 7% June 2011 2006 2007 2008 2009 2010 Source: National Bank of Cambodia Figure 61: Net interest income. Fishing Telecom. Figure 62: Bank lending by sector Retail. Public Utilities Hotels.
Similar to the banking sector. property exposure remains a risk. where the capital requirements are lower. Early stage growth in personal ﬁnance market The development of the consumer lending and credit card businesses are still in the very early stages in Cambodia.4% in 2004.5MM from the previous US$12. but also growing rapidly. versus 11. For most of the top 16 banks. ii) Microﬁnance: Agricultural focus Key for agricultural lending Cambodia has an important and rapidly growing microﬁnance industry with total sector loans reaching US$648MM in 2010 (Figure 53).6% in 2010. microﬁnance growth rates saw a decline in in 2009. and the sector especially in Phnom Penh in a degree of oversupply currently. as shown in Figure 62.1% of the total. up from 5.0MM. and loan growth has rebounded dramatically in 2010. with 14. (having fallen from a 7. for instance. in the hire purchase loan market for vehicles. or the support of large foreign partners. Some larger banks have severely restricted credit given to the property sector. High risk still remains in the segment for banks. Property and construction are still heavily weighted in banks’ loan books. but still remained above 40% even in a trough year.279 as of 2006. up 59% yoy.Overview of the Cambodian Economy June 2011 Banks’ property exposure still remains extensive The heady loan growth of the mid to late 2000s and the resultant 2009 slowdown was driven in part by property speculation. For comparison.6% on average in Thailand for 2010. The credit card segment is still tiny.3% peak in 2008). they have either more than sufﬁcient capital. total personal consumption lending by Thai commercial banks in 2010 was 22.003 cards having been issued in 2010. but this has risen quickly from just 2. This has really only been an issue for a few small banks so far. Cambodia Capital Research 55 . New capital requirements have caused few downgrades The National Bank of Cambodia introduced requirements for banks to increase their capital to US$37. banks face the possibility of collateral simply disappearing.2% in 2009 (Figure 62). Lending for owner-occupied housing as a percentage of total lending was 3. Aggregate bank sector lending for personal consumption was 5. which represent 94% of the loans in the system. went into liquidation in March 2011.2% of total 2010 lending. although at least one small bank. Cambodia Development Bank. Some of these have dealt with their limited capital by downgrading to specialized bank status. at only 0. With the many large projects in various stages of completion.
Although this ﬁgure has declined to 1. and demonstrates clearly the higher the degree of risk in extending microﬁnance loans compared to the rest of the banking system in adverse economic conditions. Figure 64: ACLEDA ‘small’ loans are 34% of microﬁnance ACLEDA ‘Small Loans’ Other Microﬁnance 34% 66% Source: Cambodian Microﬁnance Association Cambodia Capital Research 56 . or US$272MM) than the banking sector (7% of US $3. agricultural loans are by far the largest category of loans. Microﬁnance will continue to be extremely important in Cambodia in allowing the agricultural sector access to credit.4% in 2008 to 2. microﬁnance NPLs did spike in the crisis from just 0. Agricultural loans the largest for the sector Also in contrast to the main banking system.Overview of the Cambodian Economy Figure 63: Aggregate microﬁnance loans. The loans of the main microﬁnance institutions (excluding ACLEDA) are shown in Figure 65. Agricultural loans were actually much larger in 2010 in absolute terms in the microﬁnance sector (42% of US$648MM.3% in 2010. it is still well above mid-2000s average. for microﬁnance. with its ‘small loans’ portfolio comprising 34% of total microﬁnance loans. at 42% of the total in 2010 (Figure 67). where there was not a major increase in NPLs during the global ﬁnancial crisis.134MM. or US$219MM). loan growth (US$ MM) 700 467 233 0 June 2011 90% 68% 45% 23% 2005 2006 Loans 2007 2008 2009 % growth 2010 0% Source: Cambodia Microﬁnance Association ACLEDA the largest player in microﬁnance As shown in Figure 64. ALCEDA bank by far dominates the sector. In contrast to what we have seen in the banking sector.8% by 2009 (Figure 66).
8% 0% 2005 2006 2007 2008 2009 2010 Source: Cambodian Microﬁnance Association Figure 67: Microﬁnance loans by sector.5% 0.Overview of the Cambodian Economy Figure 65: Largest microﬁnance companies by loans.3% 1. 2010 (US$MM) Prasac Amret Sathapana HKL Credit AMK Vision Fund TPC Seilanithih SAMIC 0 28 55 83 June 2011 110 Source: Cambodian Microﬁnance Association (excludes ACLEDA’s ‘smaller loans’) Figure 66: Microﬁnance NPLs 3. Commerce Services Transportation Construction Household Others 11% 3% 4% 9% 29% Source: Cambodian Microﬁnance Association Cambodia Capital Research 57 .0% 2. 2010 2% 42% Agriculture Trade.
5 0. Figure 68: Gross insurance premiums in Cambodia 30.3 1.0 10. Cambodia Capital Research 58 .0 7.9MM in 2010 (Figure 68).41 MM 2. with the country having the lowest insurance density to GDP in the region (Figure 70).0 22. as shown in Figure 69.7MM in 2002 to US$24. a ﬁgure which we would expect to rise given the increasing popularity of insurance and overall economic growth. the trend in growth is strong.Overview of the Cambodian Economy June 2011 iii) Insurance: Room for long term growth The insurance industry is relatively small in Cambodia.8 0 2007 Fire Auto 2008 Personal Accident Health & Safety 2009 Other Source: MEF Insurance Division The long term picture for growth looks strong for the sector.5 15. However. as would be expected with much of the population still engaged in subsistence farming. with industry gross premiums more than quintupling from just US$4. Another driver for the industry will be the current lack of compulsory third party insurance and the fact that it is expected to be introduced soon by government.5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 90% 68% 45% 23% 0% -23% Insurance Gross Premiums (US$ MM) (LS) Source: MEF Insurance Division Growth (%) (RS) Figure 69: Gross claims 3. Meanwhile claims have been falling in recent years.
2% 0. Existing insurers that are public limited companies are already required to have a minimum US$7MM in capital. Figure 70: Insurance density to GDP (2008) 2. health and safety (15%) and personal accident insurance (8%) representing nearly 75% of industry premiums. One of the main reasons behind the law was to help develop a domestic industry. infrastructure and new property development should be very good for the industry. however. with key categories comprising ﬁre (31%). 42% motor. For comparison. that this 2009 proportion of claims cannot be considered indicative and the shifts can be volatile. for example. the level of claims in 2009 were 34% ﬁre. motor (23%). Cambodia Capital Research 59 . This is mainly because of the considerable capital requirement to enter the segment in Cambodia.6% 0% Malaysia Singapore Thailand Brunei Indonesia Philippines Cambodia Source: MEF Insurance Division Figure 71 shows industry premiums written for 2009. Given this. Figure 71: Distribution of gross premium by sector (2009) Fire Auto Health & Safety Personal Accident Engineering Marine Other 16% 2% 6% 8% 14% 23% 31% Source: MEF Insurance Division No life insurance as capital requirement a barrier to entry There is also no life insurance currently offered in the market.7% 1. to enter the life insurance business. which so far appears to have been effective. the massive ﬁre claims in 2007 (Figure 69).Overview of the Cambodian Economy June 2011 Industry growth is also protected by the fact that Cambodian citizens and Cambodia-based businesses must purchase all insurance domestically and cannot buy any insurance abroad. 7% personal accident and 9% health and safety as shown in Figure 68. We note.3% 1. they will be required to have an additional US$7MM in capital.
Forte had a market share of 29%. 10%. Campu 17%. and Cambodia Vietnam insurance commanded less than a percent of the market. Inﬁnity. and the 4-5 year period life insurance businesses can require before generating a proﬁt. there is little incentive for domestic players to enter the industry. Figure 72: Market Share by ﬁrm (2009) 0% 10% 17% Forte Asia Inﬁnity Campu Caminco Cam-VN 29% 20% 23% Source: MEF Insurance Division Cambodia Capital Research 60 . There are ﬁve large competitors. and one small operator. and have sufﬁcient ﬁnancial ﬂexibility to take a long term view on the market. all with signiﬁcant market shares as of 2009.Overview of the Cambodian Economy June 2011 Add to this the lack of domestic expertise in the sector. Asia Insurance. the high upfront costs. However. that could easily meet the capital requirements. 23%. given the currently low potential commissions. Five competitors all with signiﬁcant market share The industry comprises 6 insurance ﬁrms and 1 reinsurance ﬁrm (Figure 72) and is a direct market with no real broker presence. we believe that there may be the possibility of a large foreign player entering the life insurance business within the next few years. Caminco. 20%.
The country has an ample supply of natural resources and labour. but ofﬁcial exports have begun to increase in the last ﬁve years for many products. cotton and corn maize. it is mainly supply side issues. in terms of both physical and ﬁnancial capital. much of this subsistence farming. However. using over 80% of agricultural land. heavily vegetated alluvial plain that runs from the northwest to the southeast (the light green area in Figure 73) and is the rice growing heartland. with lowland rice making up the majority the country. cashews. that although relatively sparsely vegetated. tobacco. i) Climate. The country has a large. that is slowing Cambodia’s progress in becoming a major exporter of agricultural products. in addition to its key rice crop.Overview of the Cambodian Economy June 2011 Agriculture: Untapped potential • Livelihood of the majority of the population: Agriculture represents the livelihood of 70% of the population. coffee). and Cambodia is now a net exporter. but lacks the modern farming methods. are speciﬁcally suited for cultivation of some crops (eg. With high demand and soaring prices for most agricultural commodities currently. even these loans are not sufﬁcient for the agriculture sector to take advantage of the current demand. sugarcane. Sustainable growth sector that is key to balancing economy Agriculture in Cambodia represents the livelihood of the majority the country. Gradual improvement is being made in all of these areas. the country was exporting very little formally (although there is clearly informal trafﬁc in agricultural goods across the borders with its neighbors). soybean. and access to capital to purchase equipment and fertilizer. It also has mountainous regions. coffee. with loans to the agricultural sector rising from both the banking system. Figure 74 shows the main type of vegetation by area. Modern farming is beginning to develop. with 70% of the population subsistence farmers. rubber. cassava. while milled rice exports are small but rapidly growing • Supply side constraints: The main constraints in the sector are limited education on and adoption of modern farming methods and a lack of ﬁnancial and physical capital. a need for improved irrigation and transport infrastructure. Cambodia Capital Research 61 . Cambodia already cultivates. There are also issues of limited processing capacity. but it is still relatively limited. geography: Well suited for agriculture Varied climate and high percentage of arable land Cambodia’s climate and geography are well suited to further agricultural development. the Cambodian government and multilateral institutions like the World Bank and ADB. Unmilled production has risen 185% since 1993. Until recently. This situation is gradually improving. mung and soya beans. We believe that a gradual shift of these workers to modern agricultural methods in the formal sector is key for the development of the country • Abundant natural resources: The country has a high percentage of arable land and a varied geography that allows for the cultivation of a variety of crops • Rice is the key crop: Rice is Cambodia’s key crop.
Cambodia sees more than adequate rainfall to drive agriculture. Figure 73: Cambodian agricultural geography (% vegetated land) 0-60% >60% Water Source: Food and Agriculture Organization of the United Nations (FAO) Figure 74: Major farming systems Lowland Rice Sparse (forest) Treecrop Mixed Upland intensive mix Source: FAO Cambodia Capital Research 62 . with 32% and Thailand. with 30% had a higher ratio than Cambodia at 24%. with the monsoon season running from roughly May to November each year. Only Vietnam.Overview of the Cambodian Economy June 2011 Figure 75 shows arable land as a percentage of total land versus the region.
Figure 76: Rice cultivation by type 8% Lowland Wet Season Deepwater.0% 30. There are an estimated 2. Cambodia has two main rice crops per year (versus three in Thailand and between two and three in Vietnam). and is the key crop cultivated in Cambodia. and rain fed upland rice 2% (Figure 76). and 2) a dry season crop.0% 20.0% 10. 1) a longer wet season crop. comprising over 80% of agricultural land. deepwater rice 4%. at 86%. with dry season irrigated rice 8%. with planting from May-July and a harvest in December.0% 0% 2000 2001 2002 2003 2004 2005 June 2011 2006 2007 Cambodia Malaysia Source: World Bank Thailand Myanmar Vietnam Laos Indonesia ii) Rice: The key crop Rice is the main staple of the Cambodia diet. Floating Rice Rainfed Upland Dry Season Irrigated 2% 4% 86% Source: Food security atlas Cambodia Capital Research 63 . with planting in November and a January-February harvest.7MM hectares of land currently dedicated to rice farming in Cambodia. The lowland wet season rice production represents the majority of rice production.Overview of the Cambodian Economy Figure 75: Percentage of arable land to total land 40.
250 3. We outline further the constraints that currently limit Cambodian agriculture at the end of this section.381.800. although they are growing very rapidly. from 2. exports (US$MM) 500 375 250 125 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Exports Source: USDA Imports Cambodia Capital Research 64 .We believe that Cambodia will eventually hit this target. These exports became material around 2003 (Figure 78). consumption (‘000 tonnes) 7. remain tiny. in contrast. The government currently targets one millions tonnes of milled rice exports by 2015. but growth targets aggressive Milled rice exports. from 15k tonnes in 2009 to 100k tonnes in 2010.750 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Production (Rough Rice) Source: USDA Consumption (Milled Rice) Milled rice exports still small. Figure 78: Cambodia unmilled rice imports. but that the current timeline may be a bit aggressive. We note that there is signiﬁcant informal cash-based cross border trade of unmilled rice with Vietnam and Thailand which could put the actual ﬁgure much higher.000 tonnes to 6.000 5.000 tonnes as of 2008 (Figure 77). the USDA estimated that 400MM tonnes of unmilled rice were ofﬁcially exported. and by 2008.Overview of the Cambodian Economy June 2011 Unmilled rice production rises 185% since 1993 Unmilled rice production in Cambodia has risen 185% since 1993. With milled rice consumption rising only 160% in the same period the country has begun to generate a surplus of unmilled rice and started to export.500 1. Figure 77: Cambodia rice production.
km in 2007 (Figure 81). we expect that the rubber industry will continue to expand. animal/vegetable products (including rice). km in 1994 to just 10. Figure 79: Key exports (excluding Textiles and Animal/Vegetable products) US$MM 225 169 113 56 0 Rubber 2006 Source: National Bank of Cambodia 2007 Wood Products 2008 Beverages. reaching 160k hectares in 2010 (Figure 80). and beverages/tobacco. but unsustainable deforestation has hurt the long term potential with forested land declining from 12.0MM sq. Cambodia Capital Research 65 . Wood product exports were far lower in value terms compared to rubber. Tobacco 2009 Figure 80: Land for rubber cultivation (‘000 hectares) 200 150 100 50 0 2007 2008 2009 2010 Source: Department of Cambodian Rubber Timber industry hit by unsustainable deforestation The timber industry has been important for Cambodia in the past. Land dedicated to rubber cultivation has increased steadily over the last several years driven by rising global prices. and rubber exports were US$147MM in 2009 (Figure 79). rubber and timber are Cambodia’s largest exports.3MM sq. With rubber a key product of ASEAN. at just US$30MM in 2009 (Figure 79). and regional producers expressing more interest in Cambodia as a production base.Overview of the Cambodian Economy June 2011 iii) Rubber and timber: Important exports Rubber industry continues to expand After garments/textiles.
500 0 June 2011 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source:World Bank iv) Other crops: Showing potential on smaller scale Cultivation of other crops show promise Figure 82 shows land under cultivation for other key crops. Figure 83 gives a basic overview of some of Cambodia’s key crops apart from rice. ESCAP 2004 Cassava 2005 2006 Mung Bean 2007 Soya 2008 Cambodia Capital Research 66 . with maize and cassava showing the strongest growth. Figure 82: Cultivated land by crop (‘000 hectares) 160 128 96 64 32 0 2002 2003 Maize Source: MAFF. and mung bean and soya in decline as of the most recently available 2008 statistics.500 7.000 3.Overview of the Cambodian Economy Figure 81: Forested land (‘000 sq km) 14.000 10.
comprising as much of 80% of domestic protein consumption. is highly suitable for coffee production. for example in Mondulkiri province. the growth in livestock and ﬁsheries production in Cambodia has been reasonably ﬂat to downward trending. and has become increasingly important over the last several years (see Figure 76). spices and fruits Cashews Coffee Corn (Maize) Sugarcane Cotton Tobacco Specialty agriculture Source: Cambodia Capital Research v) Fishery and livestock production ﬂattening Fishery growth ﬂat due to low water levels Compared to the rapid growth seen in rice and some other crops. but at least one company. however. the source of much inland ﬁshing (Figure 84).8MM tons for 2010 (cultivated hectares in 2008 was 160k). The product is used mainly for starch. was exporting cotton and cotton seeds as of mid 2010 Farmers have been shifting back towards tobacco as prices rise and Vietnam reintroduced duty free quotas in late 2010 after a one year pause Cambodia produces the globally recognised ‘Kampot Pepper’. feed producers in Thailand and Vietnam import maize from Cambodia Sugar producers from both Thailand and Vietnam have operations in Cambodia to grow sugarcane There is still limited cotton production in Cambodia (it was a major crop prior to the 1970s). Fish and seafood are a key ingredient in the Cambodian diet.Overview of the Cambodian Economy Figure 83: Crops cultivated in Cambodia Crop Cassava June 2011 Detail Production is estimated at 3. vanilla and other specialty herbs. Cambodia Capital Research 67 . the large inland ﬁsheries in the country have seen a decline due to lower water levels along the Tonle Sap and Mekong rivers. As infrastructure and improved agricultural methods reach this more remote area. there is the possibility for increased coffee production longer term A key ingredient in animal feed production. Cambodia exports cassava mainly to Vietnam and Thailand (the world’s leading starch exporter) currently. which is the main export market for the nut. Seladamex. In recent years. but the northeastern mountainous climate. but Chinese FDI and interest in importing the product has been strong in the sector recently Cashew nut cultivation is mainly concentrated in provinces bordering Vietnam. but also in energy production. with domestic consumption limited Coffee production is still low.
leaving Cambodia limited inﬂuence in the outcome. Laos has agreed to postpone work on the ﬁrst major dam Xayaburi. Only two of the dams are in Cambodia. until further studies are conducted on the potential environmental effects of the dams. recorded exports are low. with many small farmers raising and selling chickens to supplement rice farming incomes. We believe that there is large long term potential for expansion into the country by the large agricultural companies in Thailand. Fortunately. but informal exports likely much higher. are 11 planned dams on the lower Mekong that could lower water levels further. long term. Most livestock production currently small scale There is little in the way of modern livestock farming. and 9 are planned in Laos. Poultry represents far and away the majority of livestock production (Figure 85). but more importantly disrupt ﬁsh migration and reproduction patterns. but that rice will likely be the main focus for some time to come. and most production is small scale by individual farms. ESCAP 2005 2006 Poultry 2007 Swine 2008 Cambodia Capital Research 68 . However. the dams could further lower water levels and reduce ﬁshing stocks. and as with rice. Figure 85: Livestock production (MM head) 25 20 15 10 5 0 2004 Bovine Source: MAFF. ESCAP Aquaculture Planned dams may exacerbate the problem Potentially exacerbating these current problems.Overview of the Cambodian Economy Figure 84: Fisheries production (‘000 tonnes) 600 480 360 240 120 0 2004 2005 2006 Marine Fisheries 2007 June 2011 2008 Inland Fisheries Source: MAFF. There is demand from Thailand and Vietnam for bovine imports.
Vietnam (4. to increase the effective size of the farms. they have all improved over the last decade. fertilizer and machinery. especially given rapidly rising global demand and prices for agricultural goods. This would encourage and allow for the purchase of better seed. The solution will likely have to come from increased economies of scale in the sector. This includes a lack of access to both physical and ﬁnancial capital. but also rice millers that face a lack of access to capital. possibly through government intervention or cooperatives. However. Figure 86: Rice yield. there are still major constraints on the sector.0% as of 2008 versus neighbors like Thailand (2.Overview of the Cambodian Economy June 2011 v) Constraints: Limited physical and ﬁnancial capital Several constraints truncate growth in the sector Although agricultural production of rice and many other crops is clearly showing improvement. at just 2. Low rice yield an indicator of less productive methods A lack of modern farming methods is demonstrated by Cambodia’s low rice yield versus the region. and ensure that farmers have clear title to their land. which has probably truncated growth in the sector over the last few years. although these issues continue to weigh on the sector. Rice millers’ access to capital improving.3% in 2000 (Figure 86). which makes expansion or refurbishment difﬁcult.1%). with limited or no land title. given that the rice yield was a meager 1.8% 2. and allow ﬁnancial institutions to see collateral and be more willing to lend. small farms and little other collateral.0% 3. but it still far from completely solved. the incentive is still high for farmers to sell their unmilled rice to Cambodia Capital Research 69 .6%). but still limited It is not just farmers. Lending by both microﬁnance and development ﬁnance institutions has bridged the gap on this issue to some degree.3%) and Laos (3. The issues include a lack of access to breeding-seed stock and fertilizer and limited interest by many farmers in developing their land thoroughly given that many do not have ofﬁcial title to the land they farm. banks simply cannot lend to many farmers and still maintain basic lending requirements.5% 1. tonne/hectare 5. With demand from local millers lows.3% 0% 2000 2001 2002 2003 Thailand 2004 2005 Vietnam 2006 2007 Laos 2008 Cambodia Source: US Department of Agriculture (USDA) Farmers have limited access to capital Part of the problem is that farmers have a limited access to capital.
road. Road and bridge infrastructure in the more remote provinces is still limited. On the upside. it would still represent a 10-fold increase in milled rice exports from the current level. Agricultural ofﬁcials have reported that it would take 30-40 modern rice mills to reach the one million tonne target. multilateral institutions. even if Cambodia only reaches half this target in the allotted time. and the port expansions are currently underway. The heavily reliance currently on trucking for transportation for goods in Cambodia keeps costs high. and improved roads and the option of rail transport will materially lower the cost of agricultural exports. where there are only about 5 major rice mills currently. major forward motion on all these issues has already taken place. related logistics and port infrastructure. Cambodia Capital Research 70 . mainly using older technology. We believe that downstream development (ie. the railway is being rebuilt. which have huge demand for the product. Nevertheless. banks and microﬁnance institutions have been increasing the credit available to domestic millers. once ﬁnished they could help facilitate major growth in the development of Cambodia’s agriculture exports. storage and warehousing facilities need modernizing and the two main ports need expansion. The government.Overview of the Cambodian Economy June 2011 Thailand and Vietnam. Although these actions will take at least 3-5 years to complete. mills) will help drive farming efﬁciency and agricultural development. the railway system has only recently begun its ﬁrst refurbishment in about 40 years. but it is still at a relatively low level when compared against the government’s one million tonne target. roads and bridges are being developed. Transport infrastructure a key constraint medium term Another key current impediment to growing both rice and other agricultural exports is the current limits of rail.
and currently it is a point of structural instability in the economy. and 24% of GDP (Figures 87. We believe that agitation for higher wages would be the result of rising food prices Economy heavily geared to garment sector After agriculture. however. even compared to other countries historically following a similar textiles-led growth path.Overview of the Cambodian Economy June 2011 Garments: Over concentration • Second most important sector after agriculture: Garment/textile manufacturing is the most important single sector for Cambodia after agriculture. The country’s least developed nation status allows it duty free exports to the EU. Figure 87:Textile exports to GDP 11. especially in the United States (which represented 69% of garment exports from Cambodia for 9M/10) and the European Union (25%). representing 63% of total manufacturing (2009).5 2. while textile exports accounted for 60% of total exports. the garments/textiles manufacturing industry is the most important single sector for the Cambodian economy. The sector is almost wholly reliant on the fate of the global clothing retailers.0 8. and 24% of GDP • Over concentration: We believe that there is an over concentration in the sector.3 5. The sector represented 60% of 2009 exports. which together comprise the bulk of the Cambodian textile industry’s customers (Figure 89). and the country’s membership in the WTO allows it quota free exports to other WTO members. we do not necessarily see this sector as key to sustainable long term growth. 88).8 0 2007 Textile Exports (LS) 2008 Nominal GDP (LS) 2009 40% 30% 20% 10% 0% Textile Exports/GDP (RS) Source: Ministry of Economy and Finance Cambodia Capital Research 71 . 63% of 2009 total manufacturing output. In contrast to agriculture. but ended quickly. Eventual diversiﬁcation is key to reducing the country’s exposure to the manufacturing base decisions and demand swings of the global apparel ﬁrms • Further labour disputes remain a risk: Labour disputes erupted in the garment sector in September 2010 following the establishment of a new minimum wage.
Figure 89: Cambodia textile export destinations (9M/10) US EU Other 16% 25% 59% Source: CamControl Comparison with Thailand/Vietnam shows over concentration Countries like Thailand and Vietnam both began their industrial expansion with a heavy component of garment/textiles manufacturing and then diversiﬁed their economic base over time.750 2. We believe that the garment/textiles manufacturing sector will remain a large part of the economy in the medium term and investors in Cambodia should be well aware of the disproportionate effect that downturns in global clothing retailing can have on the domestic economy. and this is mainly based on wage rates.Overview of the Cambodian Economy Figure 88:Textiles/Garments as a % of exports 5. We expect that Cambodia could also follow this path longer term. Beyond just the overexposure to global clothing demand.000 3. but in the short to medium term it leaves the country highly exposed to the vagaries of this single industry.500 1. Cambodia Capital Research 72 . is the fact that the global clothing retailers are notoriously ﬁckle in shifting between countries in terms of placing manufacturing orders. a decline in the fortunes of the global apparel retailers will mean a major hit to GDP in Cambodia.250 0 2007 Total Exports (US$MM) Source: Ministry of Economy and Finance 2008 Textiles Exports (US$MM) 2009 June 2011 100% 75% 50% 25% 0% Textiles/Total (%) As we have seen in 2009.
Although inﬂation has been relatively benign in Cambodia (apart from a short term spike in 2008). The strike was partly in reaction to the setting of the minimum wage rate for sector at US $61/month.23 0. The strike ended peacefully with workers returning to the factories. As ﬁgures 90 and 91 show.23 0.15 0. Thailand in the 1980s had an average garments/textiles to total exports ratio of 15% from 1980-1990 (the ﬁgure dropped continuously following this period as the economy diversiﬁed into other sectors) and Vietnam saw textiles/garments comprise an average 24.08 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Source: Bank of Thailand Figure 91:Vietnam textile exports as % of total exports.15 0. The unions had been agitating for US$93. 1980-1990 0. The main issue for workers agitating for higher wages will be rising foods costs.08 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 Source: General Statistics Ofﬁce of Vietnam Garment wage dispute in September 2010 The garment industry in Cambodia most recently saw a wage dispute in September 2010. which comprises the majority of the consumption basket for the average Cambodian garment/textiles worker.6% of exports from 1995 to 2009. the Cambodian concentration of garment/textiles to total GDP at 60% still looks extreme if compared to its neighbors going through similar comparable periods in their long term economic growth cycles.Overview of the Cambodian Economy June 2011 However.30 0. We expect that strong food price inﬂation would be the trigger to see further unrest in the garment manufacturing sector. Figure 90: Thailand textile exports as % of total exports.30 0. 1995-2009 0. with unions striking for just under a week. global commodities and food prices have been soaring. Cambodia Capital Research 73 .
although still leaving it competitive versus China. The most recently reported wage ﬁgures from Vietnam we have are from late 2010. Cambodia currently ranks in the middle of the pack at US $61/month between lowest-regional-wages-in-the-industry Bangladesh. However. it would make Cambodia less competitive versus Vietnam. However. the ofﬁcial rate for the Vietnamese Dong to the US$ has depreciated more than 6%. and higher wage China. if the union’s target of US$93/month were to be achieved. As shown in Figure 92. ranging from US$63/month in smaller cities to US$93/month in larger ones.Overview of the Cambodian Economy June 2011 Cambodia maintains low wage advantage This is important because the key competitive advantages for Cambodia continue to be a mix of low wage rates coupled with a capable workforce. likely making the smaller cities less costly in labour terms versus Cambodia. at US $43/month. between US$117-US$147 in the coastal cities. Since these ﬁgures were issued. Figure 92: Regional minimum wage for garment workers (US$/month) China Coastal Cities (Low) China Coastal Cities (High) Cambodia (Actual) Cambodia (Union Target) Vietnam (Low) Vietnam (High) Bangladesh 0 Source: Cambodia Capital Research 38 75 113 150 Cambodia Capital Research 74 . even taking into account the devaluation. however. Cambodia still offers far less expensive labour than the larger cities in Vietnam.
000 1.Overview of the Cambodian Economy June 2011 Tourism: Shift to regional arrivals • Tourism is third largest sector of economy: Tourism receipts represented 14.4% of 2009 GDP. Korea and China. including other ancient temples and potential eco-tourism sites. and for other destinations over the longer term • Regional arrivals increasingly important: Regional arrivals are an increasing proportion of the total. and as road infrastructure gradually improves they will be more easily accessed by tourists (Figure 94). especially from Vietnam.2MM in 1995 to 2. this has led to a decline in revenue/arrival/day in real terms.4% of GDP in 2009 (Figure 93). Figure 93: Cambodia tourism receipts and tourism receipts/GDP 2.000 500 0 1995 1998 2001 2004 2007 2010E 20% 15% 10% 5% 0% Tourism Receipts US$MM (LS) Source: Cambodia Ministry of Tourism Tourism Receipts ot GDP (%) (RS) Cambodia Capital Research 75 . the capital Phnom Penh and Siem Reap. the tourism industry is the third largest single sector of the economy. However.5MM as of 2010 • Room for further development: So far tourism has been heavily focussed on Phnom Penh and Siem Reap (the site of Angkor Wat) but there is a new frontier for development in the virtually untouched islands off Sihanoukville in the medium term. Annual arrivals have risen from just 0. and accounted for 14. making it the third largest single sector of the Cambodian economy.500 1. but this appears to be offset by the increased volume as total tourism receipts have risen Strong long term trend in tourist arrivals After agriculture and garments/textiles. The industry is still concentrated mainly in two cities so far. Other areas of the country also have potential. the location of the World Heritage Site Angkor Wat.
Figure 94: Main destinations in Cambodia Destination Phnom Penh Siem Reap Sihanoukville Greater Sihanoukville Sihanoukville area islands Other Islands Other historical sites Eco-tourism sites Source: Cambodia Capital Research Details Capital city. Sihanoukville has its own airport (although no major airlines yet ﬂy there) but it still needs to build up more ﬁve star accommodation before major airlines will open routes there. Beyond the three key cities there are also other areas ripe for tourism development in the longer run.Overview of the Cambodian Economy June 2011 Sihanoukville the most promising new location The most promising location for further development in the short to medium term is Sihanoukville. but we expect this to happen in the next few years. as shown in Figure 91. and the surrounding. virtually untouched islands. where development is just starting. limited facilities but development potential Over 20 untouched islands could be developed More than 20 other islands along Cambodia’s coast Several Cambodian provinces have Angkor-era ruins Eco-tourism can be developed in the northern provinces Figure 95: Cambodia international tourist arrivals (MM) 2.7 0.9 0 60% 38% 15% -8% 1995 1998 2001 2004 2007 % growth (RS) 2010 -30% Arrivals (LS) Source: Cambodia Ministry of Tourism Cambodia Capital Research 76 . mix of business and tourist arrivals Angkor Wat is key attraction.6 1. mainly tourist arrivals Beach town near port and commercial facilities Beach lined coast.
202 14.539 6.079 6.437 4.060 1.949 4.909 16.6% 98.9% 266.7% 2010 466.000 3. Figure 96: Cambodia arrivals by country and as percentage of total arrivals (‘000) 1) Vietnam 2007 125.581 3.9% 11) Laos 23.005 5.590 5.1% 84.837 4.1MM arrivals to Thailand in 2009.577 1.9% 60.3% 94.285 4. 23.1% 146.018 4.125.6MM to Malaysia and 3.5% 7) UK 84.8% 163.5% 2008 209.0% 9) Australia 83.702 11.8MM to Vietnam).0% Source: Cambodian Ministry of Tourism Cambodia Capital Research 77 .181 4.Overview of the Cambodian Economy June 2011 Surge in arrivals over last decade Tourist arrivals have surged more than tenfold in Cambodia from just 0.2MM in 1995 as Cambodian began to stabilise politically to over 2.6% 109.6% 145.6% 289.1% 146.517 4.8% 6) France 90.8% 113.7% 91.103 4.695 18.5% 2009 316.8% 93.482 6.5% 163. we expect that as Cambodia’s reputation as a destination continues to improve.7% 161.3% per year from 1995-2010 (Figure 95).933 2.525 12.9% 72.465 5.161.9% 106.6% 197.067 4.806 7.5% 151.229 3.9% 2.5MM in 2010.0% 83.311 2.298 16.4% 3) China 161.6% 148.4% 2.1% Total Arrivals % growth 2.973 8.973 7.2% 8) Thailand 101.5% 2.119 3.8% 146.8% 97.5% 103. We expect that economic development will only continue to drive up this number as more areas of the country are more easily accessible by tourists.7% 84.2% 2) Korean 329.508.093 4.353 7.1% 96.725 9.180 5.128 18.442 6.2% 10) Taiwan 118.598 3.957 4.168 4.0% 4) Japan 158.277 3.286 5. it will be able to gain share from other regional markets.795 6. Given the high number of tourist arrivals we see for other Southeast Asian nations (14.806 7.015.020 5.9% 5) US 137.516 9.9% 105.6% 63. with arrival growth averaging 19.286 6.9% 102.
We believe that this could mean that arrival ﬁgures could become more cushioned to the downside. we may see some short term slow down in arrivals from neighbouring nations. but there has seen a signiﬁcant decline in the ﬁgure to below US$60/ day in 2010. we may see the volume growth offset the lower receipt per average arrival. as it has been for the last few years. Declining real revenue per arrival per day over last few years On the downside. This is because in economic downturns. the Mekong region countries have a lower GDP per capita compared to the other countries topping Cambodia’s arrivals (though this gap will narrow in the longer-term). long-term opportunities. However. As shown in Figure 97. tourists from far abroad may choose to reduce their budgets and travel more locally. real revenue per arrival per day had been maintained above US$70/day from 2001 to 2007. We note that with the current economic difﬁculty in Vietnam. Vietnam and Laos alone have increased from just 9. 2011 report: ‘Short-term hurdles. Arrivals from the country’s three neighbours Thailand. Europe and Japan.Overview of the Cambodian Economy June 2011 Shift towards regional arrivals There has been a key shift of late in the composition of arrivals towards ASEAN nations.’ Figure 97: Average real revenue per arrival per day US$ 85 68 51 34 17 0 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Source: Cambodia Ministry of Tourism Cambodia Capital Research 78 . if Mekong arrivals continue to increase at a rapid rate. please see our January 5.9% of arrivals in 2010. Historically Cambodia had been weighted (especially in revenue terms) to tourist arrivals from more distant locations including the US. Therefore. For more detail on the Cambodian tourism industry. but we expect that the secular long term trend is for an increase from the Mekong region. and political conﬂict with Thailand. leading to rising aggregate tourism receipts. especially due to a surge in arrivals from Vietnam and Laos over the past few years (Figure 96). we may no longer be able to take the arrival growth rate as corresponding to the growth of tourist receipts. and this could lower the average spending per tourist.5% of arrivals in 2006 to 24.
less so in provinces: The Phnom Penh Water Supply Authority now supplies water to 100% of the city. Cambodia ranks second lowest with 94 kWh annual consumption per capita in 2009.Overview of the Cambodian Economy June 2011 Energy and Utilities: Powering Up • Signiﬁcant expansion in electricity production by 2016: Cambodia’s installed power capacity is estimated to rise by fourfold from 2011 to 2016.1% of the energy generated in 2009. with even the largest single player.000 4. Among the major ASEAN nations. with an accompanying major expansion towards a national grid • Large oil and gas potential: The country is wholly reliant on oil imports currently. but rural rates of water supply and cleanliness still need dramatic improvement i) Electricity Production: Defragmenting Electricity consumption second lowest in the region Cambodia’s total energy consumption was 1.000 Extremely fragmented power industry Cambodia’s energy industry is still extremely fragmented and currently has no country-wide power grid. 2009 (kWh) Malaysia Thailand Vietnam Indonesia Cambodia Myanmar 0 Source: ASEAN 1. although there are possible large reserves both on and offshore which are in the early stages of exploration • Water supply reliable in Phnom Penh. given comparably limited development. supplying just 8. The electricity supplied by EDC has actually declined signiﬁcantly in absolute terms since the early-2000s (Figure 101).235MM kWh in 2009. Thailand per capita energy consumption was over 20x this ﬁgure and Malaysia over 35x (Figure 98). Cambodia Capital Research 79 . understandably very low versus the region in both absolute and per capita terms. the state owned utility Electricite Du Cambodge (EDC).000 2. Figure 98: Per capita energy consumption.000 3.
which supplied 7% of Cambodia’s energy in 2009. indicating just how limited energy use is outside this single city. Generation from Phnom Penh still dominates total electricity supply. and Thailand. with demand clearly still concentrated heavily in the capital.Overview of the Cambodian Economy June 2011 Given this lack of country-wide electricity distribution. parts of Cambodia. are still very dependent on electricity imports from Vietnam. especially along the borders. which supplied 5% (Figure 100). Town Kirirom Takeo Svay Rieng Power Plant 115 KV Existing (2011) Kamchay SHV Thermal Sihanoukville Kompot to Vietnam to Vietnam 230 KV Existing (2011) 115 KV Planned 230 KV Planned Source: Electricity Authority of Cambodia (EAC) Figure 100:Total 2009 electricity supply by generating system 9% Phnom Penh Banteay Meanchey Kampong Cham Imports from Vietnam Imports from Thailand Isolated Systems 67% 5% 7% 1% 11% Source: EAC Cambodia Capital Research 80 . at 67% of the total. Figure 99: Cambodia’s existing and planned electricity grid by 2016 to Laos to Thailand Banteay Meanchay Preah Vihear Stung Treng Ratanakiri Siem Reap Battambang Kompong Thom Pursat Battambang Hydro Kratie Mondulkiri Kompong Chhang Osom Phnom Penh Koh Kong Kompong Speu Kompong Cham Prey Veng Takhmau to Vietnam City.
Kirirom. with much of the energy going to Phnom Penh. IPPs account for nearly 90% of domestic power production Figure 101 shows domestic electricity production and therefore excludes imports from Thailand and Vietnam. while producers with consolidated licenses produced 3.10-0. at between 0. with a major contraction in supply from both the IPPs and EDC. the grid will still not reach Northeast. as shown by the blue lines on the map. Outside these small systems.600 1. Three power plants.Overview of the Cambodian Economy June 2011 Signiﬁcant extension of grid expected by 2016 Cambodia’s planned power grid as of end-2011 is shown by the green lines in the map in Figure 99. This industry structure has kept the energy tariff in Cambodia the second highest in the region. paving the way for further investment in generating capacity. Independent power producers accounted for 88. In the Northwest. domestic generation declined signiﬁcantly in the 2009 recession. Figure 101: Electricity sent out by supplier (MM kWh) 1.4%. domestic energy production from 2003 to 2008 grew 130% from 636MM kWh to 1. by 2016.5% of 2009 domestic production. there is power to Stung Treng supplied by Laos. and consumers cannot be guaranteed consistency or quality of service. and in the Northeast. least developed region. the grid is expected to be expanded to link the northwest and the Southeast. We note that even after this expansion. However. power is supplied both from Thailand and from Battambang Hydro. meaning that the industry is not taking advantage of economics of scale. the country mainly depends on small scale independent power producers for energy. However. Kamchay and SHV Thermal service the south. the most sparsely populated.18 US cents/kWh. The IPPs are generally very small and high in number.484MM kWH. with only Singapore having higher prices (Figure 102).200 800 400 0 2003 IPPs Source: EAC 2004 2005 2006 2007 2008 2009 Consolidated licenses Electricity Du Cambodge Cambodia Capital Research 81 . while there is also energy supplied from Vietnam. As the country expanded generating capacity to accommodate rapid growth.
Heavy fuel oil accounted for 93. 927 MW.06 Low Source: ASEAN 0. generating capacity is expected to rise 300% by 2016. or 61%.8% and coal just 2.Overview of the Cambodian Economy Figure 102: Residential electricity tariff. which leaves the country heavily dependent on oil.4% of domestic energy generation in Cambodia in 2009.17 June 2011 0. other bio mass Steam (Burn HFO) Source: EAC Planned projects to boost generating capacity by 300% by 2016 We expect that this reliance on heavy fuel oil as the key energy source may change signiﬁcantly over the next ﬁve years. capacity rose 200% from 2003 to 2010). for its energy needs. Under current plans. given plans currently underway to diversify into hydroelectric and coal power. Figure 100 shows the total electricity supply by type of generation. Cambodia Capital Research 82 . 2011 (US cents/kwh) Singapore Cambodia Indonesia Malaysia Philippines Laos Thailand Vietnam Brunei Myanmar 0 0. while hydropower generated 3.11 High 0. is estimated to come from hydro electric projects and 600 MW from new coal power generating projects (Figure 105). from 583 MW currently to around 2400 MW (for comparison.600 1. Of the total 1.22 Heavy fuel oil main power source Domestic generation of electricity is mainly done through burning heavy fuel oil. Figure 103: Electricity sent out by type of generation (MM kWh) 1.3%. 100% of which is imported.200 800 400 0 2003 Hydropower 2004 Diesel/HFO 2005 2006 2007 Coal 2008 2009 Wood.527 MW expected capacity growth.
527 539 2. they pose a serious environmental risk as we mentioned in our agriculture section. The other issue in using the local coal is environmental. On the upside. and would likely need to be mixed with imported coal to raise the average caloriﬁc value before it can be readily used in power generation. Cambodian coal is relatively low quality with a low thermal value.073 Annual Energy Generated (Gwh) Sihanoukville (Coal power) 700 MW Plant (Coal Power) Total probable projects (Coal power) Existing (Hydro power) Committed projects (Hydro power) Total probable projects (Hydro power) Total increase in capacity Source: EAC Low quality coal in Cambodia There is coal in Cambodia. other bio mass Coal Steam (Burn HFO) Source: EAC Figure 105: Planned and potential hydroelectricity and coal projects by 2016 Project # Capacity (MW) 1 1 2 3 4 7 200 400 600 205 722 927 1. as it would likely be heavily polluting due to the low quality.500 1. With much of the population existing on subsistence agriculture. but it is unclear to what extent it can be used for cost-effective and efﬁcient domestic power generation. there have been delays Cambodia Capital Research 83 . Dams pose environmental risk Although the planned hydroelectric dams will massively increase baseload generation capacity in the country. and a large proportion of the protein in the Cambodian diet consisting of ﬁsh.534 3. we expect that imported coal will still be used to a large degree in the new coal-ﬁred plants. disruption of the river environment is a signiﬁcant issue for the country. On net.Overview of the Cambodian Economy Figure 104: Installed capacity (MW) 2.250 625 0 June 2011 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Hydropower Diesel/HFO Wood.875 1.
Biogas and biofuel development are also undertaken in Cambodia on a small scale. and there is no domestic production. although the sector is not without promise over the very long term. but importantly. the available information is summarized in Figure 106. However. Xayaburi. Initial inroads into renewable energy We believe that the total supply of energy from renewable sources will remain a tiny proportion of the total energy generated in Cambodia in the medium term. Biomass energy consumption could be considered very high given that many subsistence farmers burn a large amount of wood and other plant sources. and CNOOC’s Block F.Overview of the Cambodian Economy June 2011 recently in the construction of a major dam. ii) Oil and Gas: Offshore and onshore potential Wholly reliant on imports currently. This would be a total 2. to allow time for further study on potential environmental damage. with 2. Offshore potential.7BN bbls of oil. with 227MM bbls of oil and 496BN cubic feet of gas.727MM bbls of oil and 13.5BN cubic feet gas Potential reserves estimates have been released for only three of the blocks. Given that most of the current electricity supplied is generated by heavy fuel oil. Nonetheless.496BN cubic feet of gas reserves. as the country has potential offshore and onshore oil reserves. However. planned in Laos.000BN cubic feet of gas. the mountainous area of the southwest and the coastal regions. there is capacity for solar energy. and this source is not yet very cost effective. Cambodia also has the possibility of domestic oil production. 1) Chevron-Moeco-GS Caltex holds Block A. As noted above. and only four producing test wells have been developed in recent years. this has been divided into six blocks (A to F) and awarded to various international oil companies (Figures 106. especially around the southern part of the Tonle Sap lake. if even half of the currently estimated reserves were brought into production. but installed capacity is low. hydro and coal power generation should help alleviate this oil import dependence over the next ﬁve years. The government is currently attempting to promote the development of these resources. There is also some capacity for wind energy generation. Potential reserves of 2. and the actual resources may prove Cambodia Capital Research 84 . but limited visibility so far Publicly available information regarding development in the upstream oil industry is limited. However. production is at least ﬁve years away. it would greatly cut oil import demand and boost GDP. even on a aggressive timeline.000BN cubic feet of gas.000MM bbls of oil and 10. these estimates are subject to criticism by some. 108). with estimates of 500MM bbls of oil and 3. With the average duration of sunshine at 6-9 hours/day. this has left the country with little ﬂexibility in terms of energy production. but may have oil reserves Oil in Cambodia is 100% imported currently. 2) China Petrotech held Block D. 13. exploration has only commenced in earnest in the last decade. Studies have suggested that there are signiﬁcant potential oil deposits in Cambodia’s offshore territory.
and occurred 5 years ago. there were two previous waves of drilling.000 Gas (BN cubic feet) 3. Resourceful Petroleum (33. given that the ﬁnd was only a single well. there are estimated to be signiﬁcant potential oil and gas reserves in an offshore block that is jointly claimed by Thailand and Cambodia. Only conclusive ﬁnd was Chevron well in Block A in 2005 The only decisive recent ﬁnd so far in this area was publicly reported in January 2005.0%). possibly by 50% or more. gas ﬁgures are estimates only Figure 107: Cambodian Key Onshore Oil Block Details Key Onshore Blocks Block III Block XII Block XV Block XVII Companies Involved Total (100%) Medco (52.5%) Petrovietnam (100%) JOGMEC (100%) Source: EIC Joint claims area very promising. Cambodia Capital Research 85 . JHL (10%) CNOOC Source: EIC.5%). GS Caltex (15%) PTTEP (33. Meanwhile. There is also limited transparency on the expected quality of the reserves. However. with the time from the initial oil discovery to the start of extraction taking on average 5-10 years. Moeco (30%). SPC (33. CNPA (40.3%). but politics a hurdle In addition to blocks A-F. the recent deterioration in bilateral ties between the countries related to the border conﬂict will surely not assist negotiation on the oil issue. JHL (7.Overview of the Cambodian Economy June 2011 to be much lower. The prime minister has pressed Chevron to develop the ﬁeld and start pumping oil by 2012. Note: Oil.000 n/a n/a 496 n/a 10. This block has been targeted as the most promising of the Cambodia offshore areas. Figure 106: Cambodian Offshore Oil Block Details Offshore Block A B C D E F BBLs (MM) 500 n/a n/a 227 n/a 2.3%). this deadline may prove overly aggressive.3%) Polytec (100%) China Petrotech (100%) Medco (60%).000 Companies Involved Chevron(55%). (Historically. with oil documented in four test wells drilled by Chevron in Block A. one in the early 1970s by Elf. Kuwait Energy (30%). and nine wells drilled in the mid 1990s by British and Japanese oil exploration companies). or risk losing its concession. but political wrangling between the two countries over the area continues.
to administer the six offshore blocks and the 19 onshore blocks. JHL 7. There were reports of ‘oil seeps’ in the area as early as a 1958 Chinese study (which was followed up in 2002). onshore oil development poses serious environmental risks. The country has been divided into 19 onshore blocks.Onshore and Offshore Oil Blocks Until the political issues are resolved. the area is still in the very early days of exploration and production would at best be ﬁve years away. but there is still no reliable documented proof of this. 109). originally promulgated in 1991. the countries signed a 2001 memorandum of understanding with the aim to eventually undertake joint development of the area.0% JHL7. let alone a move to full production in the joint claims area.5% claims area.Overview of the Cambodian Economy Figure 108: Offshore Oil Blocks June 2011 Figure 109: Key Onshore Oil Blocks Block E Block F Block D Block C Block A Sihanoukville Block XVII (JOGMEC) Block XII (Medco 52. the costs to do seismic studies of the area will apparently be moderate given the terrain. For the joint claims area with Thailand. however there are four main blocks located nearest to the basin currently expected to have the highest potential for signiﬁcant oil ﬁnds (Figures 107. we do not expect to even see a ramp up JOGMEC Block XVII in exploration and testing.5%) Block XV (Petrovietnam) Block III (Total) Block B Source: EIC 2. To the upside. In 1998. We believe that we are more likely to see Cambodia’s wholly Block before the joint owned blocks start producing XII Medco 52. the Cambodian National Petroleum Authority (CNPA) was established as the industry regulator. given that the expected location of the oil is around the Tonle Sap river basin. even though the CNPA 40% latter looks potentially more promising at this stage.5% Onshore oil potential around Tonle Sap basin The onshore region with the most potential is the Tonle Sap river basin. Cambodian National Petroleum Authority regulates industry The oil and gas industry is regulated under the Petroleum Regulations Act. and acts an inspector both of the ﬁnancial and physical capital in the industry. Cambodia Capital Research 86 Block XV Pe Block III and XXVI TOTAL . but then amended in 1998 in 1999. Similar to the development of hydropower. The CNPA handles all petroleum related bidding and contracts. However. There have been some initial studies of the area (including an airborne gravity and magnetic survey by the Japan National Oil Corporation in the 1990s) that have shown evidence that the geology there has a reasonable chance of having oil.5% CNPA 40.
A large proportion of the imports are sourced from reﬁneries in Thailand.400 KTOE) Diesel Gasoline Kerosene LPG Fuel Oil Jet Fuel 1% 5% 12% 13% 48% 21% Source: Ministry of Mines Industry and Energy Cambodia Capital Research 87 . The other three players are foreign operators. Figure 111: Oil imports by type. industrial and aviation fuels. the second largest player is Tela. and wholesales to dealers and oil companies at Ream Oil Terminal Tela Caltex Total Cambodge PTT Source: Companies Oil imported mainly from neighbouring countries Oil is imported to Cambodia through two main channels. fuel oil. sells liqueﬁed petroleum gas. which has an approximate 25%-30% of the market. Company has its own jetty able to accommodate 46. supplies high speed diesel. 1) the country’s only deepwater seaport at Sihanoukville. commanding a 15% share. and Thailand’s PTT with a small market share (Figure 110). sells road fuels. supplies jet fuel to military and government aircraft.Overview of the Cambodian Economy June 2011 Five ﬁrms in retail oil industry The retail oil industry in Cambodia is an oligopoly with ﬁve ﬁrms. has 32 gas service stations. power diesel. estimated as high as 20-30% of imports. produces liquiﬁed natural gas. and 5 storage terminals Estimated market share of 25%-30%.000 ton ships.has 25 gas service stations. 2006 (Total: 1. mainly by Sokimex and Tela. The market leader is domestically owned operator Sokimex. kerosene and oil lubricants Estimated 15% market share. Caltex. across the Thai and Vietnamese borders with Cambodia. There is also a substantial informal sector. fuel oil and lubricant to industrial sector. 2) via Vietnam through the Mekong River delta to Phnom Penh. has 38 gas service stations. liquiﬁed petroleum gas and oil lubricants Six gas service stations. which we estimate has a 30% share. especially gasoline. Figure 110: Overview of players on downstream oil industry Company Sokimex Details Estimated market share of about 30%. gasoline. It also sells fuel to inland industrial customers. Estimated 10% market share. which have terminal facilities at the port. Total with about 10% of the market. with this channel comprising between 60%-75% of Cambodia’s oil imports. and sells petrol and engine oils. has 184 gas service stations. distributes jet fuel at Siem Reap airport.
Overview of the Cambodian Economy
There are currently no up to date statistics on petroleum import volumes, but as a basic indicator the Ministry of Industry, Mines and Energy estimated that in 2006, the country imported 1,400 kilo tonnes of oil equivalent. The split by product is shown in Figure 111, with the key categories comprising diesel (48% of fuel related imports), LPG (21%), gasoline (13%) and fuel oil (12%). First study on developing reﬁnery capacity Although there is currently no oil reﬁning capacity in Cambodia, the country recently took some early steps towards developing this industry over the longer term. In mid-June 2011, The Cambodian National Petroleum Authority (CNPA) announced that Cambodian Petrochemical Company and the China National Automation Control System Corporation will conduct a feasibility study for an oil reﬁnery in Kampot province. Initial estimates are for a US $600MM reﬁnery with a 5MM tonne annual capacity.
iii) Water utilities: Urban success, rural challenge
Phnom Penh fully covered by PPWSA The capital city has reliable and clean water provided by the Phnom Penh Water Supply Authority (PPWSA). The state-owned enterprise has gone from supplying water just 10 hours a day with high levels of non-revenue water 15 years ago to 24 hours/day supply and nearly 100% revenue recovery currently. The company has also been noted globally as a model to emulate for other developing markets. PPWSA is also one of the three SEOs planned to be listed on the Stock Exchange of Cambodia. Clean rural water supply still remains an issue While water supply in Phnom Penh has been a great success story, there is still dramatic need for improvement in the provision of clean water supply in the rural areas. The World Health Organisation/UNICEF estimates that overall water supply coverage was 64% in urban areas in Cambodia and just 35% in rural areas, while urban sanitation coverage was 53%, but in rural areas a very low 8%. Provincial areas generally have good access to surface river water, but there is still limited availability of safe, clean piped or well water. National policy developed, foreign donors providing funding A National Policy on Water Supply and Sanitation was issued in 2004 by the Ministry of Industry, Mines and Energy and the Ministry of Rural Development (with the latter responsible for the provision of rural drinking water), which targets universal access to safe water and sanitation for Cambodians by 2025. Several projects targeting improved rural sanitation and water supply are being undertaken, with funding from the Asian Development Bank, World Bank, Japan International Cooperation Agency, and others.
Cambodia Capital Research
Overview of the Cambodian Economy
Mining, Materials: Early days
• Mineral extraction currently limited to construction materials: Current mineral extraction of any scale in Cambodia is limited to construction materials including cement, gravel, sand and stone • Potential for metallic mineral wealth, but high risk: Historical surveys suggest the potential for large mineral wealth including precious metals and gems. However, there are high risks of exploration including undetonated ordnance and mineﬁelds, minimal infrastructure and a long rainy season • Very early days for modern exploration: Large scale exploration has been undertaken only in the last ﬁve years, especially with investment from Chinese, Korean,Thai, and Australian (including four ASX-listed companies) interests All extraction so far limited to non-precious metals Large scale mineral extraction in Cambodia is still limited to the building materials shown in Figure 112; cement, gravel, sand, stone, and salt. However, the promise of potential future extraction is far greater, as shown in Figure 115, which outlines the potential mineral deposits by province, as reported by the General Department of Mineral Resources. Potential deposits include gold, bauxite, gems, silica, lignite, iron ore, coal, phosphate and antimony. Figure 112: Mineral commodity production in Cambodia
Mineral Commodity (metric tons) Cement Gravel Laterite (blocks) Salt Sand, construction material Stone: Basic material Stone: Limestone Source: USGS 2005 n/a 22,500 n/a n/a 763,900 1,079,400 n/a 2006 n/a 45,625 n/a 59,000 2,043,500 676,832 n/a 2007 86,990 36,250 312,718 76,651 329,028 2008 772,029 37,500 454,750 78,000 6,581,500 2009 774,305 41,875 631,000 N/A 14,035,790 2,819,817 1,000,000
1,433,086 2,039,336 1,000,000 1,000,000
Periodic exploration on a small scale since the 1970s In the early 1970s, there had been some mineral exploration of Cambodia, and reports of deposits. However, with some degree of civil war running from 1970 to 1998, along with the limited infrastructure of country, there was no real possibility for modern exploration. The country was also heavily landmined during this period, making the exploration process risky for prospectors. However, some foreign ﬁrms were undergoing some exploration by the early 1990s, even prior to the true end of the Cambodian civil war around 1997.
Cambodia Capital Research
Overview of the Cambodian Economy
Large scale modern exploration only in last ﬁve years The early entrants, however, were small scale operations, while micro-scale domestic artisanal miners were also perpetually present, often in teams as small as one or two. Modern exploration methods have really only been introduced very recently. As shown in Figure 113, mining investment has only ramped up in the last ﬁve years; prior to this investment had been at its maximum about US$2MM per year, but since 2005 has been above US$50MM per year, and reached a peak of over US$100MM in 2007. So it is only very recently that extensive modern exploration has begun in earnest in Cambodia. Figure 113: Mining investment (US$MM) as % of total Industry investment
112 75 37 0 10% 8% 5% 3% 2001 2002 2003 2004 2005 2006 2007 2008 2009 0%
Mining investment (US$MM) (LS) Source: Cambodia Ministry of Economy and Finance
as % of total industry investment (RS)
Figure 114: Mineral exploration/extraction in Cambodia
Material Metallic Minerals Non Metallic Minerals Gemstones Coal Detail Currently at least 63 ﬁrms, both domestic and foreign (with China, Korea, and Australia particularly heavy investors) undertaking exploration for gold, copper, iron, bauxite, antimony and chromium in several provinces across the country At least six ﬁrms (including joint ventures with Thailand) involved in building materials extraction including cement/limestone, all located in Kampot province, as well as one ﬁrm extracting granite in Kratie province Three ﬁrms are exploring for gemstones in Ratanakiri province and Pailin City 5 companies focussed on the coal industry, concentrated in Oddar Meanchey, Svay Rieng, Stung Treng and Kratie province
Source: MIME General Department of Mineral Resources, USGS
Growing interest in mineral exploration Figure 114 gives an overview of the scope of mining exploration currently undertaken in Cambodia, as compiled from the Ministry of Industry, Mines and Energy (MIME) and USGS (these lists may not be exhaustive, but we believe they cover the major operators). There is especially growing interest in metallic minerals exploration, with 63 ﬁrms now reported as licensed by MIME. The non-metallic and industrial mineral sector is mainly focussed on cement, limestone and granite, with Thai investment prominent; production levels are shown in Figure 112. There are three ﬁrms reportedly undertaking gemstone exploration and the coal industry has at least 5 major players. Cambodia Capital Research
Figure 115: Key mineral resource deposits of Cambodia by province Oddar Meanchay Preah Vihear Bantay Meanchey Limestone Phosphate Gems Gold Iron Ore Ratanakiri Stung Treng Coal Iron Ore Gold Siem Reap Lignite Battambang Bauxite Pailin Gems Gems Limestone Kampong Thom Gold Mondolkiri Kratie Lignite Bauxite Gems Gold Pursat Antimony Chrome Kampong Chhnang Kampong Cham Gold Koh Kong Silica Gems Kampong Speu Phnom Penh Kandal Prey Veng Svay Rieng Kampot Limestone Takeo Gems Sihanoukville Phosphate Lignite Source: General Department of Mineral Resources Source: Cambodian General Department of Mineral Resources Cambodia Capital Research 91 . There are no public. the company’s only operations are in the country. with the company holding tenements in both countries. ASX-listed ﬁrms mainly focussed on gold exploration For investors looking to gain exposure to Cambodian mining. there are four Australian Stock Exchange (ASX) listed companies undertaking exploration in Cambodia currently. but also have reasonably large scale exploration activities in Cambodia. although ﬁrms are beginning to report small potential ﬁnds. Mondulkiri and Rattanakiri. widely available estimates on the potential reserves for the precious metals. 2) Indochine Mining is a play on both Cambodia and Laos mining. with their tenements centred in the mountainous North Eastern provinces of Kratie. mainly focussed on gold. and thus are not pure Cambodia/Indochina plays. all of the ﬁrms are still early in the exploration phase and extraction is at least ﬁve years away in a best case scenario.Overview of the Cambodian Economy June 2011 Most ﬁrms are still in the early exploration phase Other than the construction materials segment. 1) Brighton Mining is a pure play on Cambodia mining. 3) OZ Minerals and Southern Gold already have extensive mining operations already in the production stage in Australia.
there are also other major risks to the industry in Cambodia. although the key legislation is in place. Additionally. foreign companies can own 100% of their investment. as both MIME and the Council for Development of Cambodia are involved in granting mineral resource licenses. The key risk is that there is still a large amount of undetonated ordnance and heavily mined areas all across the country. We expect that this law will be amended as the industry matures. Unusually high risks in Cambodian mining In addition to the opaque regulatory environment. for example. foreign investors in the mining sector face a somewhat loose and untested regulatory regime. This is another issue with the laws. given the extended timeline before we can expect signiﬁcant extraction. the 2001 Law on the Management and Extraction of Mineral Resources. it is currently illegal to export mineral wealth from the country. There have been reports of displacement of citizens and lack of access to land by the local population as the mining ﬁrms set up concessions. Cambodia Capital Research 92 . Fees involved not transparent. limiting both exploration and extraction. Generally. Legal regime established. which are also faced by Cambodia’s neighbours. This is an issue given that the raw materials must clearly be processed and there is no reﬁning capacity in Cambodia currently. However. and do not require a local partner. Other risks. compared to other countries. This makes exploration in Cambodia a far more risky venture than it would be. Resources to be consumed locally. The government also applies exemptions on customs duties for the mining sector. The law has been criticised as leaving signiﬁcant gaps in interpretation. while displacement a problem Also. not public information. there is a window to develop this capacity. but no reﬁning capacity Yet another issue is that all mineral resource wealth once extracted is to be consumed in Cambodia.‘ However. it appears that MIME issues an opinion on a given project and after it passes through preliminary and exploration stages then it is passed to the CDC for the granting of the license. But it is unclear why such development would occur in advance of evidence of mines coming close to extraction. comprising two laws. and the 1996 Law on Environment Protection and Natural Resources Management. still left from several decades of civil war. As with other sectors. the exact extent of all the fees and duties collected from mining companies are not yet transparent. which maintain that information related to mineral concessions is to remain private. although the legislation states that private land owners should be compensated for any disturbance to their land from mining concessions. However. in Thailand.Overview of the Cambodian Economy June 2011 Generally supportive framework for foreign investment The government has established a generally supportive framework for foreign mining investment. even with these advantages. but remains opaque The legal framework for mineral extraction in Cambodia is not completely clear. it is not completely clear which ‘competent institution’ holds sway. First is an article that states that mineral resource licenses are to be granted by a ‘competent institution. are a long wet season. many average Cambodians do not possess land titles.
both through domestic initiatives and as part of regional projects. Cambodia has now begun to rebuild its roads. Malaysia and Japan (through the Japan International Cooperation Agency and Japan Bank for International Cooperation) and. major progress is expected to be achieved by 2016 • Road and rail upgrades already underway: The government is 5 years into its 15 year road and bridge improvement plan.Overview of the Cambodian Economy June 2011 Transport Infrastructure: Connecting • Major infrastructure improvements by 2016: Cambodia is currently undergoing a major push to rebuild and refurbish its infrastructure. bridges and railway. and is set to be completed by 2012 • Seaports set for expansion. A major rail refurbishment has already completed its ﬁrst phase. China. Cambodia Capital Research 93 . both domestic and regional. plans for new Siem Reap airport: Both the Sihanoukville deepwater seaport and the Phnom Penh river port are undergoing signiﬁcant expansions. but details are still unclear Many major developments to be completed by 2015 Although much of the country’s infrastructure was left in disrepair following nearly 40 years of civil war. Multiple road development and bridge projects are being undertaken and a revamp of the railway system has already opened its ﬁrst leg. including multilateral initiatives for the Greater Mekong Subregion. The government is broadly on track with a countrywide road development plan covering the period from 2006-2020. from Chinese policy banks. Both domestic and international transport plans underway There are several large scale transport plans that guide transport development in Cambodia. with major extensions into the provinces to be completed by 2015. increasingly. Vietnam. These include funding from multilateral institutions including the World Bank and Asian Development Bank. Plans have also been announced for a new Siem Reap airport. Foreign funding of transport projects have been crucial Government spending on infrastructure remains low versus the region. expected to be completed by 2014. Domestically the sector is overseen by the Ministry of Public Works and Transport as well as the Ministry of Rural Development for the more remote provincial areas. Although the projects have varied timelines we expect to see a very different Cambodia in terms of transport infrastructure by 2015. with the combined effect of the new changes beginning to have a sizeable effect on the economy by that time. Cambodia also plays a key role in regional transport development plans. and most of the major infrastructure projects are supported by international funding. China. The country's two main ports are also undergoing major expansions. Thailand. and is currently implementing its master plan for waterborne transport. as well as country funding from South Korea. while a new major airport is planned for Siem Reap. and a rail line running from Singapore to Kunming.
643 km.052 km. The major national roads in Figure 113 comprise a total 2. where limited road development adds immensely to transportation time and cost. with examples of current developments.948 km. of which more than 4.000 km have already been completed. The Ministry of Public Works and Transport are undertaking rehabilitation of 30. Cambodia Capital Research 94 . There are currently several areas where travel routes are very indirect. and the minor national roads another 2. where new bridges will cut travel times signiﬁcantly. Figures 116 and 117 give detail on the major road systems in the country. Provincial roads are another 6. while rural roads total 18.615 km.391 km of road between 2006 and 2020. and limits the development of these more remote areas. but still not every province. Royal Toll Railway Roads and Bridges: Pushing towards the economic periphery Modern roads now reach each of the major regions of Cambodia.Overview of the Cambodian Economy Figure 116: Cambodia transport infrastructure June 2011 Thailand Laos 56 Preah Vihear 68 67 Poipet Sisophon Ratanakiri Stung Treng 78 Phase 4 57B 66 Siem Reap Battambang 57 59 6 64 7 Kampong Tom 76 5 Pursat 71 Mondulkiri Phase 3 11 73 Koh Kong Phnom Penh 48 4 Phase 1 Phase 2 3 Vietnam 2 1 Sihanoukville Kampot City International Airport Major National Road Minor National Road Railway Source: Ministry of Public Works and Transport.
Figure 118: Planned phases of Toll Royal Railway rehabilitation Rail Line Phase 1 Phase 2 Phase 3 Phase 4 Timeline/detail Rehabilitation of 118 km Kampot to Phnom Penh. a n d i s t h e l e a s t populated. leading to rising trafﬁc. a joint venture between Toll Railway of Australia and Cambodia's Royal Group began a project to refurbish the railway in 2009. it is expected that Cambodia should have its major rail lines up and running by 2012. with some lines used for small scale cement and oil transport. and is in need of road improvements June 2011 Examples of current development The US$131MM Neak Leoung bridge on National Road 1 is currently being built. while national roads 57B and 59 along the border with Thailand are now under construction Southwest Northwest Northeast 127 km of National Road 76 in Mondulkiri province have been refurbished. and the ﬁrst section was completed in October 2010. Battambang. Road development here is key for further agricultural development and market access This largely mountainous region bordering on Vietnam could be viewed as the most remote in the c o u n t r y. commercial operation date (COD) October 2010 Rehabilitation of 146 km Sihanoukville Port to Kampot. Access to neighbouring Ratanakiri province is limited by a dirt road. with all major roads leading to this center Road development in this region is important to improve and expand links between Sihanoukville Port and Phnom Penh This an important rice growing region and contains the second largest city in Cambodia. and is currently handling freight.Overview of the Cambodian Economy Figure 117: Road and bridge development by region Region Southeast Detail This region has the most extensive road system. and citizens in the provinces using makeshift carriages for short haul journeys. allowing for quicker transport of goods to Vietnam US$46MM Chinese-funded extension of Road 41 (not shown in Figure 113) on the Southwest coast. However. COD January 2012 Source: Royal Toll Railway Cambodia Capital Research 95 . Figure 118 shows the timeline for the completion of the additional sections. helping link the area with Phnom Penh National road 57 is almost complete. COD mid-2011 Rehabilitation of 338 km Phnom Penh to Sisophon. COD February 2012 Construction of 48 km Sisophon to Poipet. more on the way There had been only limited use of Cambodia’s aging railway system since the 1970s until recently. as it contains the capital city Phnom Penh. but the Prime Minister has announced plans to build a major road linking the two provinces Source: Cambodia Capital Research Rail: First line now open.
and do not yet appear to be reaching capacity. improved local government credit worthiness and continued evolution of the legal system and enforcement of laws.217k tonnes shipped in 2010). and this had restricted its expansion.Overview of the Cambodian Economy June 2011 Airports: Second airport for Siem Reap? There are two large international airports operating Cambodia. to 200k twenty foot equivalent units (TEUs). There is also a third international airport in Sihanoukville which is operating. The Sihanoukville Autonomous Port is also expanding by 300k tonnes (versus 2. but it appears that SCA will no longer maintain a monopoly if this new airport is open.The situation is still unclear. Neither of the airports is currently planning major expansions. Both ports are facing some capacity restraints. However. and a seaport. the country will still need to use secondary ports in Singapore and Vietnam (which can handle 75k and 150k dwt ships. but are undergoing expansions. from the current 80k TEUs. Phnom Penh Port is centred in the middle of the capital city Phnom Penh. This law is fundamental to private sector participation in the infrastructure sector. Cambodia Capital Research 96 . in the major cities. with a new container terminal port 30 km outside of the city. which until recently was thought to have a monopoly on the operation of airports in Cambodia. Both are run by the Societe Concessionaire de L’Aerport with parent Vinci. and increasing the capacity of ships it can handle to 20k dead weight tonnes (dwt) from 10k dwt. The current Toll Royal railway project is one of the ﬁrst major projects to test this new law. Infrastructure concessions laws Cambodia passed a Law on Concessions in 2007 which allows for government organisations to enter into concessions with private organisations for various types of infrastructure projects. We believe that in the medium term. a river port on the Tonle Sap. we will see increased private sector involvement in both hard and soft infrastructure projects. which will expand its capacity 150%. Ports: Expansions will help ease current limitations Cambodia has two major ports. However. Sihanoukville Autonomous Port. Phnom Penh and Siem Reap. subject to improved liquidity in capital markets. There are also several small domestic airports in the second tier cities. but no international ﬂights yet land there. Korean developers in conjunction with the Cambodian government have announced that they planning to develop a US$1BN new airport for Siem Reap. This is expected to change as the city develops its 5 star hotel supply further. although the expansion will help the ports accommodate larger ships. However. it has recently begun an expansion. the Phnom Penh Autonomous Port. respectively) to access international markets.
2% penetration (Figure 119). and had only minimal ﬁxed line development. ﬁbre optics developing Wireless telecoms dominate the Cambodian market. or 61. while competition is rife in towns at the borders with Thailand and Vietnam. penetration rate (MM) 10. compared to just 40k ﬁxed line subscribers. Entertainment. with 35k of this ﬁgure serviced by the state-owned Telecom Cambodia.0 2.Overview of the Cambodian Economy June 2011 TMET*: Energetic competition • Intense competition continues in wireless telecoms: The wireless telecoms market is still undergoing a period of intense competition with over 9 operators in a market that will likely only accommodate 3-4 players long term. Figure 119: Mobile telephone reported subscribers. with estimates of 8.7MM cellular subscribers as of end 2010. with ﬁxed line investment concentrated in ﬁbre optic networks. Media. Technology 97 . but there have been only limited signs of consolidation to date • Diverse media sector: The media sector is diverse with multiple television channels. competition in other centres: Nagaworld holds a gaming monopoly within a 200 km radius of Phnom Penh. radio stations and newspapers with varying political views tolerated to some degree • Gaming monopoly in Phnom Penh.5 0 2004 2005 2006 2007 2008 2009 2010 65% 49% 33% 16% 0% Penetration Rate (RS) Subscribers (reported) (LS) Source: Cambodia Ministry of Posts and Telecommunications (MPTC) Cambodia Capital Research *TMET: Telecoms.0 7. We expect to see minimal investment in traditional copper wire technology. Cambodia was still in the early days of rebuilding its economy. Where other markets in the region had some major development of ﬁxed line telephony in the 1980s and 1990s before the mid 1990s mobile revolution.5 5. as casinos vie to attract foreign gamblers (it is illegal for Cambodians to gamble) i) Telecoms: Sustained intense competition Telecoms mainly wireless.
This would imply that the remaining players (Beeline.3 2. which clearly can’t be the case. Some discrepancy between sources in reported subscribers There is a clear mismatch between the statistics reported by the MPTC. Generally. What had been a cozy oligopoly up until about 2008 became intensely competitive with several new entrants driving the total number of operators up to nine.8 5. Only 2 of the 8 operators. Smart Mobile/Star Cell.7MM subscribers as of end 2010. subscribers are reported in their respective parent’s quarterly releases (Figure 120). qb and Excell) have an aggregate negative 100k subscribers. With 99% of the market still prepaid subscribers and with both voice and data prepaid services available. release any detail on revenue or proﬁtability. and the other smaller operators.8MM subscribers. New entrants used promotion such as free SIMs and low pricing plans to draw subscribers. there are low barriers to users switching between networks. it was not good for the mobile telephone companies which have faced pressure on revenue and margins. which may not represent sustainable cash ﬂow for the operators. 2010 (MM) Metfone (Viettel) CamGSM (Mobitel) Hello (Axiata) Mfone (Thaicom) 0 1. and the combined subscribers reported individually by just the top 4 players (before taking into account the other 4 smaller players) already a total 8. with a generation of ‘SIMhoppers’ able to get a free SIM and use up promotional minutes on one network and then move on to the next. which show market subscribers at 8. This market was good for customers. Cambodia Capital Research 98 . Hello and Mfone.5 3.0 Source: Cambodia Ministry of Posts and Telecommunications Reported subscribers in some cases based on distributed SIMs Reported subscriber numbers for Cambodia in some cases appear to be based simply on the SIM cards distributed. For Hello (Axiata) and Metfone (Thaicom).Overview of the Cambodian Economy June 2011 Mobile Telecoms: Competition remains intense The mobile telephone sector has experienced aggressive price competition since 2009 as new entrants with arguably irrational competitive practices attempted to attract subscribers. we have only two sources: 1) Ministry of Post and Telecommunications reported ﬁgures. and 2) subscriber numbers as reported by the operators to the press for market leaders Mobitel and Viettel. Figure 120: Top 4 Mobile operators reported subscribers. However.
suggesting that another round of heavy price competition may just be starting. eventually we expect to see the Cambodia wireless market consolidate to a similar structure to other regional markets.Overview of the Cambodian Economy June 2011 Deﬁning a subscriber in Cambodia We believe that part of the discrepancy may be related to Viettel’s reported subscribers. recently Hello has introduced a very low price on-network promotion. This may have been the number of SIMs distributed. 1) the communications CPI has ﬁnally moved out of deﬂation for the ﬁrst time at least a year. especially cellular towers. or the exit of several operators. However. but this may not happen until well into 2012. Fibre roll out continues There are currently several ﬁrms rolling out ﬁbre networks in Cambodia. which is not guaranteed. but the three leaders in the industry are Viettel. with the 336k subs on average for the 5 remaining players. which will ease competitive pressures at least marginally.84MM as of end-November 2010 to 4. However.68MM subscribers reportedly gained in December (as there is limited proof that these are long-term active subs). We believe that the very rapid increase in Viettel’s reported subscribers puts them well towards the aggressive end of the scale. The competition has also driven operators to outsource operating expenses.68MM in a single month from 2. we arrive at a total 7. between two of the smaller operators. Adjusting Viettel ﬁgures after December 2010 surge If we were to assume that the MPTC ﬁgure of total market subscribers is correct. and 2) the ﬁrst merger in the sector had been announced. However. which grew by a dramatic 1. Some industry players would set the active subscriber base lower than our 7. holder of the America Asia Gateway license. and adjust the Viettel reported number down by the 1. we are not convinced that these should be considered active subscribers until a several month track record for a given subscriber has been established. We note that this rough estimate relies heavily on the idea that the MPTC adjusts its ﬁgures for active subscribers.2MM subscribers for the top 4 players. which support between 2-5 major operators. and estimate active SIMs at only 6MM. Star Cell and Smart Mobile. at 8.7MM. We expect that we will see either M&A in the sector. Cambodia Capital Research 99 . Price competition may be heating up again It is difﬁcult to gauge whether the market has permanently exited a period of destructive competition.2MM ﬁgure. with some removing subscribers after 2 months of inactivity (conservative) and others retaining inactive subscribers indeﬁnitely.52MM as of end-December 2010. Fibre optic networks now reach to most of the larger cities and towns. Currently in the market mobile operators vary in their deﬁnition of subscriber. which has complementary ﬁbre network) and CFOCN (Figure 121). Ezecom (which recently acquired Telcotech. but we had seen two recent indicators that seem upbeat. and ﬁbre to the home is increasingly available in the Phnom Penh and Siem Reap.
However. metro ﬁbre. We expect that data demand through wireless devices will be increasingly signiﬁcant.000 km each Figure 122: Internet subscribers (‘000). we do estimate that the shift will be gradual in Cambodia. Growth is much more likely to be a wireless story in Cambodia. but even adjusted downward by 50%. Cambodia Capital Research 100 .000 km planned over the next year 16. these ﬁgures may be somewhat exaggerated. home computer penetration will remain low and we expect that internet user growth through this medium will be truncated. as internet tariffs declined and ﬁbre optic network access continued to expand (Figure 122). they would show a breakout year in 2010. With the majority of the population still engaged in subsistence farming with at best intermittent access to electricity. with penetration jumping from 2% to 12% and users rising nearly sixfold to over 173k. As with telecoms. with voice service still to comprise the dominant proportion of revenue for the next several years. and will account for a rising proportion of wireless telecom revenue.Overview of the Cambodian Economy Figure 121: Fibre optic network operators in Cambodia Operator Ezecom/Telcotech Viettel CFOCN Other Source: Companies. in-line with the global trend.5G and beyond and the much faster speed of service that this entails. Data growth will be driven by network upgrades to 3.000 km countrywide network leased by telecom operators and ISPs including Ezecom and Mfone Telecom Cambodia. with browsing enabled handsets much more accessible in price terms compared to computers for the average citizen. MPTC Details of network June 2011 4. with additional 3. penetration rate (%) 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 15% 11% 8% 4% 0% Subscribers (LS) Penetration Rate (RS) Source: Cambodia Ministry of Posts and Telecommunications (MPTC) Internet penetration will be driven by wireless Internet penetration saw a dramatic surge in 2010.900 km countrywide network including GEPON. Mekong Net and Online have smaller scale ﬁbre networks well below 3.000 km countrywide network 4.
Broadcasts nationwide. was re-established in 1979. 17 operate out of the capital. music and game shows (Figure 123). Of 25 major radio stations. Figure 123: Main television station in Cambodia Television Station National Television of Cambodia (TVK) Royal Cambodia Armed Forces Television (TV5) Cambodia Television (CTV9) Apsara Television (TV11) Bayon Television (TV27) Phnom Penh Television (TV3) Details The original Cambodian television station. broadcasts nationwide Owned by Phnom Penh city and private investors. also broadcasts to Rattanakiri. and began color broadcasts in 1986. There are also two pay TV operators who install satellite dishes at hotels. Television is also Phnom Penhcentric. competing with TV5 Cambodia Television Network (CTN) Source: Respective stations Active press with 20 regular newspapers There are myriad registered newspapers in Cambodia. competing with CTN. High ratings in Phnom Penh. Pursat and Sihanoukville through network of provincial government stations Privately owned. Battambang. but it tends to be mainly concentrated in Phnom Penh. Battambang. has been broadcasting since 2002. and their editorial policy tends to reﬂect the political leanings of the backer. Cambodia Cable Television and Phnom Penh Municipal Cable Television. coverage in Phnom Penh. There are 7 major Khmer language newspapers. comedies. broadcasted from 1966 until 1975. broadcasts within 150km of base station Founded in 1996.Overview of the Cambodian Economy June 2011 ii) Media and advertising: Strong competitive landscape Reasonably wide spectrum of television and radio content There is a reasonably wide range of both radio and television content in Cambodia. Cambodia Capital Research 101 . Generally the newspapers are backed by one political faction. and Kampuchea Thmei Daily. There is some question as to the accuracy of reported circulation numbers. at 18. restaurants and higher end apartments and offer access to international television stations. Achieves one of the highest ratings in Phnom Penh. Launched in 1992. but the two strongest competitors are the leading paper Rasmei Kampuchea (Light of Cambodia) which started publishing in 1993.000. 100% privately owned. with only 3 of the 7 major television stations providing country wide coverage. but the Rasmei Kampuchea reportedly has the highest. but less than 20 have a regular reliable issuance (Figure 124). Bokor and Siem Reap. Most of the stations provide locally produced content. Thai-Cambodian owned. the Phnom Penh Post and the Cambodia Daily. including drama. conservative station that broadcasts to Phnom Penh and surrounding provinces Owned by the ruling Cambodia People’s Party. Also published are Chinese language papers and two English language daily papers.
Although admitted this data is dated. and several towns on the borders with Thailand and Vietnam. focuses on business and politics CPP focussed paper Published by Sam Rainsy Party Leisure based paper Summary of weekly press stories from the NGO Open Forum of Cambodia Advertising heavy on beverages and telecoms Figure 125 shows advertising ﬁgures for Q1/10.3MM) Beverages Telecommunications Other 17% 14% 68% Source: Indochina Research iii) Gaming: Phnom Penh monopoly. Siem Reap. to permit gambling in certain provinces. respectively. Figure 125: Advertising by sector. estimated circulation of 18. if we were to extrapolate from the Q1/10 and add a 5% rise qoq to account for the general improvement in economy in 2010.Overview of the Cambodian Economy Figure 124: Major Khmer language newspapers in Cambodia Newspaper Rasmei Kampuchea (Light of Cambodia) Kampuchea Thmei Daily Koh Santepheap (Island of Peace) Daily Moneaksekar (Conscience) Khmer Pracheaprey (Popular Magazine) Kanychok Sangkhum (The Mirror) Source: Respective newspapers Details June 2011 Leading daily in Cambodia. we would arrive at a full year estimate close to US$90MM. at 14% and 17% of the total spending. holding a monopoly in the city). and telecommunications. Q1/10 (total US$20. Nagaworld. Ad-spend is heavily weighted to beverages. these are the the most recently publicly reported data and they do give us a basic indicator of the size of the market. Cambodia Capital Research 102 . This has meant that the gambling industry is set up to cater mainly to foreigners. in which countries gaming is illegal (Figure 126). and is concentrated therefore in Phnom Penh (with one casino. since the introduction of the 1996 Gambling Suppression Law. rural competition Cambodians are not allowed to gamble or enter gambling establishments. as reported by Indochina Research. The government does have the ability however.000 Second most popular paper.
but could not be considered full casinos. However. However. many of which have been driven out of business. some entertainment establishments had featured gaming machines. with revenues growing 28%. with the onset of 2008 ﬁnancial crisis. and therefore were not in breach of Naga’s agreement. and invested more in expanding its public ﬂoor and gaming stations. the reduction in both customers and gambling revenue per customer hit the less competitive casinos. but also because of a major revamp of its strategy. earlier in the decade. lasting until 2035. by February 2009. on the border with Vietnam and Poipet on the border with Thailand. Larger cities such as Siem Reap and Sihanoukville also have gaming businesses. the government undertook a major crackdown on gaming machines in the capital. leaving Nagaworld the only gaming venue in the city. driven by the strategy shift as well as a rebound in tourist arrivals. the intense competitive situation lies in stark contract to NagaWorld’s monopoly in the capital city. but they do not dominate commerce the way they do in the gambling-focussed border towns. This has been reﬂected in the share price of NagaWorld (3918.World Casino Directory Strong competition in gaming outside of Phnom Penh Outside of Phnom Penh in the cities where gaming is permitted. Nagaworld had a difﬁcult 2009.HK). that gives it a monopoly on casino operations within 200 km of Phnom Penh. there were many new entrants into gaming cities on the border such as Bavet.Overview of the Cambodian Economy June 2011 Nagaworld monopoly within 200 km radius of Phnom Penh Nagaworld has held a license since 1995. Figure 126: Major gambling centres in Cambodia City/town Phnom Penh Sihanoukville Poipet Detail Nagaworld holds casino monopoly with 200km of Phnom Penh At least two major casinos in the coastal tourist resort town At eight least major casinos and other smaller gaming operations with mainly Thai customer base given location at the Thai border At least ten casinos in this town on the Vietnamese border. However. This has paid off in 2010. The company in 2009 shifted away from a reliance on the low margin junket business. Cambodia Capital Research 103 . In the boom period leading up to the late 2008 bust. We expect to see closures and consolidation continue in the gambling sector outside of Phnom Penh. hit by the economic downturn. after a decline of 39% in 2009. servicing customers mainly from Vietnam Bavet Source: Cambodia Capital Research.
In recent years. Even ﬁve years ago. which represented 63% of total manufacturing in Cambodia in 2009 (Figure 127). a lack of infrastructure may have dissuaded manufacturers from locating in Cambodia. but just enough progress has been made that foreign companies are now starting to see the growing opportunity in the country. This sector has remained remarkably steady as a proportion of the economy for the last decade. there is continued incremental progress. inexpensive labour and concessionary export market access may remain a very attractive factor for international manufacturers looking for a new base of operations.Overview of the Cambodian Economy June 2011 Manufacturing: Hints of diversiﬁcation • Non-garment related manufacturing small but growing: Although the non-garment/textiles manufacturing sector as a proportion of total manufacturing is still low. Cambodia will be able to diversify its manufacturing base over time.275 850 425 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Food & Beverages & Tobacco Wood Paper & Publishing Other Manufacturing Source: Ministry of Economy and Finance Textile Apparel Footwear Rubber Manufacturing If we can assume the wage rate for the garment industry (as shown in the Garments section. Cambodia Capital Research 104 . with foreign ﬁrms increasingly interested in establishing operations in Cambodia • Special economic zones to support manufacturing growth: Cambodia has established 21 special economic zones in several different provinces to encourage manufacturing development. we have begun to see foreign businesses outside the garments/textiles/footwear sectors become increasingly interested in basing new operations in the country. especially by foreign investors Initial signs of manufacturing moving beyond textiles Manufacturing is still concentrated heavily in the garments/textiles and footwear sectors.700 1. Figure 127: Cambodia manufacturing GDP by segment 1. We expect that. Figure 92) is an indicator for relative wage competitiveness in other industries. similar to its neighbours.
broke ground on a new factory in May 2011 in the Phnom Penh Special Economic Zone. a manufacturer of electronic components. the former has already begun selling cars to the local market. or near Sihanoukville. Meanwhile.Overview of the Cambodian Economy June 2011 Auto and electronic component manufacturers arrive Announcements of foreign ﬁrms basing manufacturing in Cambodia continue to trickle in over the past year. Vietnam or Sihanoukville The other SEZs are mainly concentrated on the borders. 2) customs (full duty exemption on raw materials and equipment) and 3) VAT (0% to pay). Kampot and Kampong Cham) and 5 near Thailand (1 in Bantaey Meanchey province and 4 in Koh Kong province). Both China’s Beijing Autoworks and Southern Korea’s Hyundai are locating car assembly plants in Cambodia. RM Asia is also currently assembling Ford vehicles in the country. Phnom Penh and Sihanoukville expected to be the largest The two largest zones are expected to be the Phnom Penh and Sihanoukville economic zones. and the latter is expected to soon start. with 6 in total (in addition to the Sihanoukville SEZ) to take advantage of the close proximity to the port and the potential for industrial expansion there. 1) tax (up to 9 years tax exempt and no export tax). Japan’s Minebea. Cambodia’s only deepwater seaport. 2 in Bavet and 1 each in Takeo. Cambodia Capital Research 105 . with 8 adjacent to Vietnam (3 in Svay Rieng province. 6 of which have started operations. The remaining SEZ is in Kandal province. With the cost of electricity still high in Cambodia compared to the region. or are positioned near the Thai or Vietnamese border to source less costly power from these countries. including small motors. the SEZs also have independent power supplies. but it is key as it lies adjacent to the Sihanoukville Autonomous Port. with 58 factory lots fully accounted for. the government has established 22 Special Economic Zones (SEZ). Activity at the Phnom Penh SEZ is well underway. The zones are effectively large industrial estates. A large part of the funding is being provided by the Japanese government. The Sihanoukville SEZ is still under development. with the ﬁrst Phase complete. and the second phase beginning in February 2011. The establishment of Special Economic Zones In an effort to further encourage this growing foreign participation in the manufacturing sector in Cambodia. with the government providing incentives to operate out of these areas with privileges in the areas of. Other SEZs focussed near Thailand.
consumer electronics and auto sales all seeing rapid expansion. riding the development of a new urban consumer class Traditional retail still dominates With 70% of the country still subsistence farmers. it is occurring. including local licensees of Thailand’s Minor Group (Swensen’s. including a recently announced transaction by Hong Kong Land. Quick service restaurants a ‘luxury good’ The rise of the quick service restaurant (QSR) had tended to be a sign of a developing upper middle class consumer base in Southeast Asia. with small shopping malls. with most established only in the last decade. We note that illegal imports and smuggling are also still a large part of this market. The massive shift to modern retail seen in neighbouring countries like Thailand and Malaysia over last twenty years is only at the inception stages in Cambodia. Beer market competition intensifying The beer and spirits industry appears to have signiﬁcant room for growth in Cambodia. There is also growing international development in the sector. modern retail is only in the very initial stages and has large room for expansion • Luxury end of market growing: The luxury end of the market appears to be growing along with the increased fortunes of wealthy Cambodians. with Phnom Penh the heart of the change. the bulk of retail in Cambodia is still very traditional. including wet markets and mainly small family operated retail outlets for distribution. but just this year a modern mall has opened in Battambang. luxury clothing. Supermarkets. Cambodia Capital Research 106 . minimarts and shopping malls appearing Phnom Penh now sports a series of smaller shopping complexes. and one is planned for Sihanoukville. backed by local conglomerate Chip Mong Group.Overview of the Cambodian Economy June 2011 Consumer: First signs of modern retail • Traditional retail still dominant: Cambodian retail is still dominated by traditional wet markets and small family run outlets.6 in Laos. Khmer Breweries. Both local and foreign brands have been expanding in the country. these restaurants tend to be a viewed as luxury consumption and status signalling that is accessible to a much wider market than other large ticket items such as vehicles. with per capita consumption of alcohol at just 11. quick service restaurants. We would characterise the modern retail market as still highly fragmented. brand name clothing and electronic goods. versus 31. producer of the Tiger Beer brand). Given the generally high prices of QSR compared to local meals.8 litres/year. alcoholic beverages. a major new domestic entrant is expected to hit the market this year.9 in Thailand. and Cambodia Brewery (partnered with Singapore’s Asia Paciﬁc Brewery. However. Pizza Company) and KFC. with a level of capacity sufﬁcient to challenge the incumbents. There are currently two main beer producers Cambrew (partnered with Carlsberg). However. 19. although some players are beginning to gain critical mass. Development outside of Phnom Penh is still limited.
for example. there were almost no such outlets in the capital just ﬁve years ago. has now shifted towards a customer base more of wealthy Cambodia citizens over the last few years. Coca Cola. Although this is only on a very small scale compared to other regional capitals including Bangkok and Ho Chi Minh City. In non-alcoholic beverages. which has a 70% market share and imports Johnnie Walker and Hennesey. the second largest spirits distiller in the world. with Japan’s Panasonic opening it ﬁrst representative ofﬁce in Cambodia in January 2011. Growth in the property market has also helped drive a considerable expansion of the electronic goods sector. Automotive sales shift from foreign to domestic buyers The new motor vehicle sales market in Cambodia is estimated at about 2.000 units. some large foreign brands have begun to establish a presence in the country.Overview of the Cambodian Economy June 2011 Attwood leads spirits market. Electronics goods widely available Electronics goods are reasonable widely available through local distributors including many smaller family owned shops. Coke enters non-alcoholic space The spirits market is dominated by Attwood Industry. The newly developing middle class is also driving an active used car market. where they now distribute their products through local distributor Vimpex. Cambodia Capital Research 107 . What was at the start of the 2000s mainly a market for foreign businesses and NGOs. A challenge may come from India’s United Spirits. which is planning to open domestic operations in Cambodia. Larger electronics companies are also beginning to take a more direct interest in the country. Luxury clothing brand ﬂagship stores appearing in the capital Some luxury clothing brands have opened ﬂagship branches in Phnom Penh.000/year.500-3. Nissan (500 units) and Ford (400 units). including Mango and Axara. bought a majority stake of Cambodia Beverage Company in 2004. with major players including Toyota (the company targets 600 units sales for 2011). with unit sales around 20.
but has shown some signs of stabilisation in 2011 • Oversupply still an issue: Although demand appears to be recovering in 2011. and declining to around US$4. Canadia Tower. mainly of hotels and guest houses catering to tourists. even taking into account this reduction. rising from just US$500/sq m to US$5.000/sq m at the peak of the boom in mid 2008. It appears that a best case scenario for the property sector would involve ﬂat prices. as the boom turned to bust. Reasonable probability of ﬂattening prices The reduction in oncoming supply may have been a blessing in disguise as the market is now suffering from a glut in nearly every category and sale and rental prices have declined signiﬁcantly from the mid-2008 peak. with modern housing and retail outlets in the second tier cities like Battambang only just starting to be developed Market ﬂattening after 2009-2010 dip The property market in Cambodia is still recovering very slowly from an unsustainable boom that lasted roughly from 2003 to 2008. Cambodia Capital Research 108 . many major projects were either put on hold or cancelled as funding dried up during the crisis. The US$ value of Phnom Penh housing approvals was nearly halved from 2008 to 2009. and appear to have been spared the oversupply of the capital city. Prime land prices down to US$4k/sq m from US$5k peak Prime land Phnom Penh prices shown in Figure 128 are indicative of just how rapid and severe the boom was. was only completed in 2009. there had been little in the way of high rise buildings in the capital. However. Large investment boom peaked in 2007 Prior to this boom. signiﬁcant new supply continues to come on market in Phnom Penh leading to an expected ﬂattening of land and houses prices and apartment and retail rentals • Development outside Phnom Penh still limited: The property market outside of Phnom Penh is still in the early stages of growth. This was mainly concentrated in Phnom Penh. However. and the ﬁrst Grade A commercial ofﬁce building in the capital. but there was also extensive building in Siem Reap. (Figure 129).Overview of the Cambodian Economy June 2011 Property: Oversupplied • Flattening after unsustainable boom: After a major foreign and domestic-lending driven boom from 2005-2008. and eked out only a small gain in 2010 yoy. booming investment began to peak by 2007. Other major provincial cities like Battambang are still in the early stages of developing their property markets. However. driven by a wave of foreign investment and a lack of other investment alternatives for domestic capital. the property market declined abruptly in 2009 and 2010. with especially South Korean investors taking a large bet on the development of major new ofﬁce and residential properties.000 according to the most recent estimates by the National Valuers Association of Cambodia. but a more bearish scenario could see further price declines. the new supply expected to come online over the next two three years is still large and it is questionable whether corresponding demand will be sufﬁcient.
000 0 2008 # project approvals (LS) 2009 2010 Value US$MM (RS) 400 300 200 100 0 Source: Cambodia Department of Land Management.125 2.000 6.500 4.000 2. Urban Planning and Construction Figure 129: Phnom Penh housing project approvals 8.375 0 2003 2008 2009 June 2011 2010 Source: Cambodia Department of Land Management. Urban Planning and Construction Figure 130: Ofﬁce Rental Price per sq m 40 30 20 10 0 Q3/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Cambodia Capital Research 109 .000 4.750 1.Overview of the Cambodian Economy Figure 128: Phnom Penh prime land price (US$MM) 5.
An example is Battambang. or 2-3 story shophouses. Flat growth in rural home construction as 2010 Provincial housing growth has remained relatively ﬂat as of the latest ﬁgures. these shophouses have been combined to create larger retail space. any modern form of provincial housing is very much in its early stages. However. is only expected to see it ﬁrst major housing development. no credit bureau and only a small housing stock. according to the latest ﬁgures reported to the press by the National Valuer’s Association. With no collateral. one that is unlikely to be relieved soon. given the high cost of land.102 residences worth US$219MM over 9M/09. Limited availability of parking in the city centre is also an issue. the US$7MM. the housing market is still in the very early stages of development. Mahatep City.800 2.100 1. given the recent falls seen for the construction industry in Phnom Penh.400 700 0 Q4/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Retail developing. to 1. completed in 2011. but constrained by high electricity/land cost There are now three modern shopping centres in Phnom Penh.77% yoy for 9M/10.Overview of the Cambodian Economy June 2011 Ofﬁce and apartment rentals still declining as of late 2010 Ofﬁce rental prices and Class A apartment rental prices continued to decline in Q3/10 (Figures 130 and 131). which although being the second largest city in the country. Ofﬁce occupancy rates have reportedly declined from around 80% at the peak of the boom to around the 66% currently. with 70% of the population still surviving on subsistence agriculture. but the majority of retail space is still mainly limited to stalls in traditional markets. In many cases in the capital.184 residences valued at US$221MM from 1. Cambodia Capital Research 110 . Homes approved for construction outside of Phnom Penh rose rose only 0. further conﬁrming that oversupply remains an issue. and there is little indication that prices have seen a signiﬁcant rebound in the six months since. However. we could view the lack of decline in the ﬁgures as a positive. limited access to mortgage ﬁnancing. Figure 131: Class A apartment prices monthly rental 2. growth in this segment of the market is especially limited by the upfront cost of mechanical and electrical equipment installation (especially as relates to air conditioning). 126 house. Rural housing market still in early stages of development In the provinces away from Phnom Penh.
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