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Gradually Gaining Traction
Overview of the Cambodian Economy
Investment Research June 2011
Graeme Cunningham, CFA firstname.lastname@example.org +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
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Cambodia Capital Research
the country has seen dramatic improvements. We would rather focus on the continued incremental improvements the country has made since 1980. we believe that this model may simply not be a realistic frame of comparison at this juncture in Cambodia’s development. a wide margin for improvement in terms of social welfare. marking the onset of the ﬁrst extended period of political stability after nearly 40 years of civil war. If we look for signs of gradual. in contrast to other regional countries. sustained progress we ﬁnd them in nearly every area. of course. political. with the Cambodian People’s Party continuing to gain inﬂuence. 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). given the country’s history. 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. there is still. On almost all measures. the country had a new constitution and elections supported by the United Nations Transitional Authority Cambodia (UNTAC). but there was still factional political inﬁghting. economic and social welfare. Political stabilization under Hun Sen From the low point of the destructive totalitarian rule of the Khmer Rouge from 1975-1979. the legal system. 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. the country shifted to Vietnamese inﬂuenced rule through the 1980s under the State of Cambodia. or the even more rapid improvements that have been made since the period of relative stability that began in 1997. Cambodia is also seeing an increasingly transparent legal and regulatory regime. By 1993. Although still relatively early in its development. Open for business Cambodia has a pro-foreign business environment. and reliance on foreign ﬁnancial assistance. where there are signiﬁcant limits on foreign ownership.Overview of the Cambodian Economy June 2011 EXECUTIVE SUMMARY: Gradually Gaining Ground Cambodia has made impressive strides over the last 13 years. now having majority control of the government. since the last armed battle in the capital city Phnom Penh in 1997. and we do not expect to see his power wane signiﬁcantly in the near to medium term. Hun Sen is a relatively young 58. Cambodia Capital Research 4 . Since then the political situation has stabilized. Viewed through the lens of an idealized model of a Westernized liberal democracy. with 100% foreign ownership of businesses permitted. However.
legal and social risks: Political Risk: Effectively a one party state We view near to medium term political risk as moderate. Political stabilization in the early 1990s helped draw back overseas Cambodians who had ﬂed the Khmer Rouge. legal Although our outlook on Cambodia is bullish in the medium term. 2) massive growth in the tourist industry. CPP leader Hun Sen is also a relatively young 58 years old and appears to be in good health. Economic Risk (1): Heavy gearing to tourism and garments The economy is still heavily geared to agriculture. the current social system is a clear improvement on the tragedy of the late 1970s. and a vibrant microﬁnance industry. social. Social issues persist. leaving the economy heavily geared to the fortunes of the international clothing manufacturers and the whims of global tourists. rubber and timber products. The country is effectively a one party state. if anything. Election results have shown the CPP consolidating power over the last 10 years and there has been no signiﬁcant strengthening of any second party. it was only post-1993 that any clearly identiﬁable and globally recognized government emerged in Cambodia. 1) a signiﬁcant garment/textile manufacturing base having developed. Meanwhile. However. Risk factors: Political. the country was enjoying an extended period of strong economic growth. given the ruling Cambodia People’s Party (CPP) strong majority in both the national assembly and the senate. Although access to education and healthcare are still far from universal. Cambodia Capital Research 5 . economic progress in the 1980s was grinding. the relative chaos of the 1980s and the shaky new beginnings of the 1990s. The risk lies more on the heavy weighting on the garment/textiles and tourism sectors. with 35 banks currently operating. and it improves every year. economic. economic. with. and 3) agriculture exports starting to reach critical mass. transition risk does remain.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. for the average Cambodian citizen. especially rice. giving a needed push to domestic businesses. 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). but we do not view reliance on this sector to be a risk. as well as foreign businesses. and with some nations refusing to offer ﬁnancial assistance to the country in the decade following. However. progress will certainly not be without political. while foreign ﬁnancial assistance from some key developed nations resumed. Myriad social issues still remain. but still huge gains since the 1970s-1980s After the devastation of the Khmer Rouge and the political and legal confusion of the 1980s. the ﬁnancial system had strengthened. By the early 2000s. a system for both is in place.
Cambodia Capital Research 6 . However. or ineffectively executing the transition. which in many cases are not properly compensated for the relocation. inﬂation. price increases are moderate. Although we ﬁnd it unlikely that developed nations would abruptly withdraw ﬁnancial assistance to Cambodia given that it is so small in absolute terms. and therefore the country does not have recourse to monetary policy and is very exposed to any depreciation in the US$. including commercial. non-textile/garment manufacturing. Social Risk Rapid economic progress has led to a degree of social upheaval for many Cambodians. Inﬂation is currently relatively benign. even with a pullback from Western or Japanese donors. However. the country intends to eventually shift to the Riel.Overview of the Cambodian Economy June 2011 However. It could be within a short ﬁve years where Cambodia has reached a much higher proportion of agricultural exports in the economy. agricultural. contract. However as all these developments are in nascent stages. but not abundant foreign reserves. be they in the energy. compared to Vietnam. with around 90% of transactions taking place in the US currency. reaching just above 5% as of April 2011. where inﬂation is already running at an annualized rate of 20%. where the larger institutional investor may have more clout when dealing with the government and business groups. there is potential to expand agriculture and dramatically increase agricultural exports. Somewhat longer term are the possibilities for the development of mining and extraction. Legal Risk The legal risk of investment in Cambodia remains signiﬁcant. which brings the risk of doing so prematurely. adding stability and sustainability to the export base. and a modern consumer sector. Economic Risk (3): Currency. Although most of the major laws are in place. many countries are facing severe ﬁscal crises of their own which could feasibly reduce their willingness to assist other nations. reserves. 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). many are yet to be tested in the court system. 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. at 5 months of imports and 8x the level of short term external debt. We believe there is especially risk for the smaller investor. trade deﬁcits Cambodia is a dollarized economy. a heavy hit to the garment or tourism sector in the short term could dramatically slow progress. encroach on land and displace citizens. The country has adequate. One of the most pressing issues is when developments. However. The country also continues to run large trade deﬁcits. tax and property laws. but advancing. oil and gas. as we outline in this report. which accounted for the majority of the government’s budget deﬁcit ﬁnancing in 2009. Economic Risk (2): Heavy reliance on foreign assistance The country is also heavily reliant on foreign assistance. property or infrastructure.
There are also other large names considering listing. with most sectors of the economy seeing continued rapid development over the next ﬁve years. a conglomerate and an insurance company. including a bank. 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. ensuring continued investment in the economy. relocation is not simply a matter of ﬁnding new employment. Cambodia Capital Research 7 .Overview of the Cambodian Economy June 2011 With 70% of the population still engaged in subsistence farming. creates sufﬁcient employment opportunities for the newly developing educated middle class. They include listed gaming and mining names in Hong Kong and Australia with 100% Cambodia exposure. and a handful of private equity funds that invest directly into Cambodia companies. a ﬁxed line telecom. but also Cambodian government ministries. A note on data sources in Cambodia: We rely on various data sources in this report including international organisations. as well as other domestic public and private organisations. There are three state owned enterprises currently considering listing. Sihanoukville Port. and Phnom Penh Water Supply Authority. In this way economic growth imposes an uneven tax on those unlucky enough to be residing in areas of heavy redevelopment. with the planned opening of the Cambodian Stock Exchange slated for July 2011. both domestic and foreign. Stock market could start trading by Q4/11 However. but a total disruption of the current rural way of life. the capital city’s water utility. Telecom Cambodia. Data collection in Cambodia is still developing and we have found there to be some discrepancies between sources. the country’s only deepwater port. with three state owned enterprises to be listed. Failure to do so could lead to instability. Avenues for investment There are currently only a few avenues to gain equity exposure to Cambodia. Cambodia must also carefully manage the economy’s transition. investors may be able to get exposure to Cambodia more easily by the second half of this year. we would expect more ﬁrms to come to the market to raise capital to fund growth. PPWSA. As we show in this report.
Of a reported 1975 population of over 7MM.5% since 1993. who subsequently sided with an opposition Communist movement based mainly in rural Cambodia. Cambodia has ﬁnally emerged from a nearly 40 year period of instability and civil war that clouded its history from 1970 until 1997-1998. 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. led by Prince Sihanouk. Bombing raids into Cambodia related to the Vietnam conﬂict disrupted rural Cambodian life and dramatically strengthened the Khmer Rouge movement. or died in the rural work camps from overwork. The economy was destroyed. there are signiﬁcant prospects for a rebalancing of the economy towards higher agriculture exports and increased manufacturing medium term. emptying the cities and forcing the population to the countryside. virtually eliminating the education. and oil and gas. Cambodia Capital Research 8 . health and business professions as well as any modern agriculture. However. the spillover of the Vietnam war across Cambodia’s borders dragged the nation into the conﬂict. The weakening Lon Nol government fell to the Khmer Rouge. Cambodia had enjoyed a peaceful period of Cold War neutrality. 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. From the time of independence from the French in 1953 until 1970. In 1970. disease or starvation. the military-backed Lon Nol government led a coup to oust the Prince. increasingly well educated. The regime also speciﬁcally targeted the educated classes. continues to run large ﬁscal and trade deﬁcits and is heavily reliant on foreign assistance. However. have no living memory of Khmer Rouge rule. Cambodia hits economic ground zero in 1978 The Khmer Rouge brought about a totalitarian agrarian regime. which took over Phnom Penh in April of 1975. between 1MM-2MM people were either executed by the Khmer Rouge. 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.Overview of the Cambodian Economy June 2011 Economics: Gaining Momentum • The hopeful generation: Sixty percent of the Cambodian population are under 30. the Khmer Rouge.
First signs of the ‘new’ Cambodia by 1993 With the end of the cold war in 1989.) ii) Demographics: The hopeful generation Slow grind to build human capital through the 1980s This meant that Cambodia’s leaders today. the country was barely governed through a loose coalition of warring factions (ﬁguratively and literally). international assistance.) Economic progress was therefore understandably gradual from 1980 to the mid-1990s. 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. to help them begin to redevelop the economy. political tensions in the region eased. This lead to the political situation that Cambodia has broadly maintained over the last 13 years. From 1979 until 1992. the United Nations Transitional Authority Cambodia (UNTAC) held elections. and by 1991 the United Nations became more heavily involved in stabilizing Cambodia politically. This uneasy coalition held until 1997. in conjunction with ex Khmer Rouge soldiers (including current Prime Minister Hun Sen) invaded Cambodia in January 1979. and the consolidation of power by Hun Sen. Cambodia Capital Research 9 . assuming an average age range from 30 to 60 years old.Overview of the Cambodian Economy June 2011 This regime ﬁnally fell when the Vietnamese army. especially compared to the other industrializing regional economies like Thailand. which gave rise to a Constitutional Monarchy with a coalition government between current Prime Minister Hun Sen’s Cambodia People’s Party (CPP). Malaysia and Indonesia which saw rapid growth during this period. the return of educated overseas Cambodians that had ﬂed the Khmer Rouge. when armed conﬂict erupted between armed factions of the two parties in the ruling coalition which ended with the exile of Prince Ranariddh. run mainly by French-educated royalists. with a strong provincial voter backing and a Prince Norodom Ranariddh-led party FUNCINPEC. In 1993. with the military weight of Vietnam a key factor in maintaining stability. experienced professionals. Regardless. would have gone through their early to middle careers in the mid 1980s and 1990s facing an extremely limited pool of older. both through grinding domestic effort. and the eventual arrival of foreign businesses. This occurred at the same time that there was a marked lack of capital available. teachers or mentors in any sector other than in traditional agriculture. with some major Western nations not offering ﬁnancial assistance over the period (largely because of their resistance to Vietnamese inﬂuence in Cambodia. Cambodia was able to slowly rebuild its economy through the 1980s and 1990s.
Building on the very heavy lifting of the generation coming of age in the 1980s-1990s. and probably the largest generation ever to have the possibility to reach tertiary education. with a minor baby boom occurring.3% in the Northwest. with 20% of the population in urban areas in 2008.5MM in 1986 (or just above the estimated population of the mid-1970s) to just over 14.1 MM in 1994. The population is heavily concentrated in the Southeast of the country with 36.3MM in 1993 to 11. 4). 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. A second census was taken in 2008. 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. as shown in Figure 2. as shown in the map in Figure 5. up from just 16% in 1998 (Figures 3. The population has nearly doubled from just 7. A young and growing population The most recent detailed population records are available only from 1998. We also have IMF estimates of total population. we believe that the current generation now entering the workforce will be the one to propel the country to new economic heights. when the ﬁrst major modern census was undertaken. with 65% under 30 years of age and 87% under 50 as of the 2008 census. but there is a high urbanization rate.0MM in 2010. the capital city) and 24. Cambodia Capital Research 10 . with the population jumping from 9. The population is also heavily rural.9% in Phnom Penh. and has grown up with a gradually stabilizing political system and dramatically improving economy. which is shown in Figure 1. Figure 1 shows that the promise of increased political stability after UNTAC seems to have had an effect on birth rates.3% of the population (with 9. IMF The Cambodia population is very young. with the government planning to grow beyond ‘Least Developed Country’ (LDC)-status by 2020.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.
vehicles and consumer goods.8 0. There has been a 10% decline in the population with no education from 34% in 2008 to 24% in 2008. Figure 6 shows the signiﬁcant increases in education made just between 1998 and 2008.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. and 2) the growth of a modern consumer economy.448 post secondary graduates as of 1998.758.5 2.6 1.9 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 .50MM to 1. 3) The new urban generation The population is already becoming increasingly urban. 2) Rising proportion of young families drives consumption A rising proportion of young families in an economy has historically often driven economic growth. as a rising standard of living leads to increased demand for consumer goods. Perhaps most interesting in terms of developing a new generation of technocrats to drive the economy. and creating a pool of more advanced human capital that industries can draw from. and is accessible to ﬁrms and government entities looking to employ workers. Figure 2: Population by age group (MM persons) 3. and the population completing lower secondary school has risen 200% from 0. as labour becomes more concentrated in a given area. 1) further development of industrialization. as they leave their parents’ homes to start new families and purchase houses. increasing by a factor of 44x over the decade. Cambodia had only 4.46MM. but now has 196. This will in turn drive. 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.
Overview of the Cambodian Economy Figure 3.4: 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 Speu Phnom includes: Penh Phnom Penh 1.9%) Kandal Takeo Prey Veng Svay Rieng Southeast 4. Cambodia Capital Estimates Source: General Department of Mineral Resources Cambodia Capital Research 12 .32 MM (17.33MM (9.52MM (24.3%) Pursat North 1.86MM (36.10MM (9.3%) Mondolkiri Kampong Chhnang Koh Kong Kampong Cham Southwest 1.3%) Kampong Som Kampot Source: Government Census 2008.68MM (12.5%) Kampong Thom Kratie Northeast 2.
Figure 7: Real GDP (Riel TRN) 35. as shown in Figure 9.5% for 2011 (Figure 8). Real GDP has grown at a CAGR of 7. respectively.5% in 2010 and 2011. The IMF estimates GDP growth of 6. 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. However. Cambodia has seen the second highest growth in ASEAN since 1993.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. have already been translating into vibrant economic growth. with only Myanmar growing more quickly. and only seen a single year of below 5% annual GDP growth during the ﬁnancial crisis in 2009.8 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. while the World Bank estimates 6.3 17.5% since 1993. the economy has returned to rapid growth in 2010 and 2011.0% and 6.7% for 2010 and 6.5 8. for Cambodia. when a decline in the key garment/textiles exports segment and the collapse of an unsustainable real estate boom hit growth. backed by foreign investment and ﬁnancial assistance.
with Cambodia’s nominal GDP in the middle of the pack for developing Indochina. 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. relative to the size of their populations.0% Source: International Monetary Fund. Figure 10 shows nominal GDP since 1993. As we show throughout later sections of this report. Malaysia and Indonesia.3% 7. we see little reason why Cambodia.5% 2011 5.8% 2010 3. rather than pointing to an insurmountable gap.Overview of the Cambodian Economy Figure 8: Real GDP forecasts June 2011 IMF World Bank 0% 1. tracking Laos reasonably tightly until 2005 when its smaller neighbour began to speed ahead. the country has the second lowest nominal GDP (US$10. Laos was apparently more insulated from the ﬁnancial crisis.8BN) and nominal GDP/capita (US$795) versus the larger ASEAN nations plus China in 2009. it has been off a low base. Cambodia.World Bank Figure 9: Cambodia average real GDP CAGR versus the region. We believe that this gap between the newly industrialised countries of ASEAN (Malaysia and Thailand) and the developing economies of ASEAN (Vietnam. especially when compared to the region. Cambodia Capital Research 14 . while average living standards in Cambodia decreased in 2008. Laos) shows more where living standards for the latter could be headed in the future. Vietnam and Laos cannot eventually become as economically strong as Thailand. As shown in Figures 11 and 12.
250 3. 2009 300 225 150 75 0 Thailand Malaysia Philippines Vietnam Myanmar Cambodia Laos Source: International Monetary Fund Cambodia Capital Research 15 .200 900 600 300 0 1993 1995 Cambodia Source: International Monetary Fund 1997 1999 Laos 2001 2003 Myanmar 2005 June 2011 2007 Vietnam 2009 Figure 11: Nominal GDP/Capita (US$).500 1. 2009 7.750 0 Malaysia Thailand China Indonesia Vietnam Laos Cambodia Myanmar Source: International Monetary Fund Figure 12: Nominal GDP (US$MM).000 5.Overview of the Cambodian Economy Figure 10: Cambodia Nominal GDP/capita versus region (US$) 1.
although this declined to 5. and the government continues to run large ﬁscal deﬁcits and is heavily reliant on foreign assistance. at 9. which leaves Cambodia overexposed to a decline in these sectors. currently there are clearly some signiﬁcant imbalances. 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).0% of GDP in 2008. 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.Overview of the Cambodian Economy June 2011 iv) Imbalance: The structure of the Cambodia economy Structural imbalances. and there is also the potential to develop human capital over time given the young population. agriculture will remain the primary source of income for the majority of the population. manufacturing around 22% in 2000 and 21% in 2009 and services 38% in 2000 and 39% in 2009. 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. Bulk of the economy is still subsistence agriculture Subsistence agriculture is the economic life of 70% of the Cambodia population. the composition of the economy has been stable over the last decade. Heavy dependence on garment exports. Although this chart suggests at ﬁrst glance a relatively balanced economy.5% in 2009. Opportunities exist to introduce modern agricultural methods to farmers that will raise incomes. 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. but none are insurmountable over time in our view. Cambodia Capital Research 16 . which offers both challenges and opportunities for the country. 5) Country runs large trade deﬁcits: The country continues to run large trade deﬁcits. 3) Tax revenues low: Tax revenues are still a small contributor to GDP versus other countries in the region. we expect that even as Cambodia’s economy modernises. with agriculture comprising 34% of the economy in both 2000 and 2009. As we see in both Thailand and Vietnam. 2) Over concentration in garment/textiles sector: There is a heavy dependence on garment/textiles exports to Western countries and the tourism sector. 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. tourism Figures 13 and 14 show the split in the Cambodia economy by major sector for the years 2000 and 2009. and modern farming is only beginning to take root.
at 63% in 2009. and that continuing to expand in these sectors is not necessarily the problem. just the two former sectors combined accounted for 38% of 2009 GDP. being 90% concentrated in EU and North America. we do acknowledge that Cambodia maintains a comparative advantage in textiles and tourism. tourism and agriculture as a proportion of GDP. However. Figure 16 shows garment/textiles/footwear exports. 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 represented by far the largest component. It is rather the heavy concentration in these sectors that creates the risk to the economy. Cambodia’s garment/textile exports are not particularly well diversiﬁed geographically (although Asia is slowly accounting for more of the mix). However. we expect that the growth of other sectors of the economy may outpace these sectors leading to a gradual rebalancing.Overview of the Cambodian Economy Figures 13. Cambodia Capital Research 17 .
Consumption has represented over 80% of the economy for the ﬁve years to 2009.275 850 425 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.Overview of the Cambodian Economy Figure 15: Cambodia Manufacturing GDP by segment (US$ MM) 1. I stable.700 1. Cambodia Capital Research 18 . Investment has remained stable at around 19%. G low and X-M continues in deﬁcit Figure 17 shows the breakdown of the economy in terms of consumption. Government spending is low. We believe that this is the area where we will see the largest structural shift in this data. especially roads and bridges. investment. government spending and net exports. with government increasingly gaining a role in providing public goods. like rural electricity and water provision. but also expanding its presence in public utilities. largely a function of very low tax intake versus the region. at just 5%-6% percent of the economy on average from 2005-2009.
although the deﬁcit fell to a ﬁve year low in 2009 of 5.430 2009 9.9% 8. 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% 2. although government revenue more than tripled from 2001 to 2009.6% 10.7% 125 1. The government sector still relatively small and in deﬁcit In addition to the trade deﬁcit.4% -561 -5. the deﬁcit is estimated to have contracted in 2010.1% 2. an increasing number of workers leaving the informal economy for the formal economy should also raise this ﬁgure.7% 7 0.4% 89 1.3% 1. and mineral exports.9% 1.4% -27 -0. it is well below Thailand. and in the long term.6% 7.0% 151 1.619 -15.1% 2.208 18.4% -567 -6.843 77. and runs large trade deﬁcits with its Asian trading partners.4% 2.9% in 2008 as the ﬁnancial crisis cut tax revenue at the same time as the government increased spending. mainly related to the garment industry.0% -171 -1.3% 1.8% 10. As shown in Figure 18. This is mainly because the country continues to rely heavily on imports for many industries.4% -940 -9.Overview of the Cambodian Economy Figure 17: Nominal Gross Domestic Expenditure (US$MM) BN Riels Consumption as % total Investment as % total Government as % total Inventory Changes as % total Net Exports as % total Other as % total GDP 2005 5.8% of GDP. which could help further ease this deﬁcit. The deﬁcit widened signiﬁcantly in 2009 to 6.4% -554 -8.3% of GDP from 2.191 21. Cambodia Capital Research 19 . This is not offset by the large trade surpluses it runs with the United States and the European Union.695 19.969 81.3% 1.855 June 2011 2008 8.4% 148 1. expenditure has steadily outpaced it. The government continues to generate very low tax revenues in a regional context.2% -548 -7.684 94.395 2006 5.427 19.373 2007 6.0% 1.5%.4% 258 2.575 21.391 84.962 19. Vietnam and Laos (Figure 20).494 23.3% 1.008 22. It is reported that improved tax collection methods should boost tax revenues in the medium term.5% -1.265 Source: Cambodia Ministry of Economy and Finance Large trade deﬁcits with Asia not offset by garment exports Cambodia continues to run large trade deﬁcits.4% 47 0. However.023 19.705 26. Longer term there is the possibility of both oil and gas. at only 4.822 84. the government continues to run large budget deﬁcits.1% 6.
500 1.000 1.0% 6.0% 4.0% 2.000 500 0 2001 2002 2003 Revenue Source: Ministry of Economy and Finance 2004 2005 2006 2007 June 2011 2008 2009 Expenditure Figure 19: Cambodia government deﬁcit (US$MM) 0 -175 -350 -525 -700 2001 2002 2003 2004 2005 2006 2007 2008 2009 8.Overview of the Cambodian Economy Figure 18: Cambodia government revenue and expenditure (US$MM) 2.0% 0% Deﬁcit (LS) Source: Ministry of Economy and Finance as % GDP (RS) Figure 20: Government revenue as a % of GDP Laos Thailand Vietnam Cambodia 0% 2% 4% 6% 8% Source: International Monetary Fund Cambodia Capital Research 20 .
following the continued conﬂict on the Thai border this year.05 0 2001 2002 Defense 2003 2004 2005 2006 2007 2008 2009 Public Health Education. we believe there may be the potential to see the defense proportion of expenditure rise in 2012. From 2004 until 2008.20 0. which been lauded as a good sign for overall improved social welfare. the budget for defense spending is lower as a percentage of total spending. foreign ﬁnancial assistance covered more than 100% of the total government deﬁcit.Youth.Overview of the Cambodian Economy June 2011 Room to grow education and public health spending Figure 21 shows three of the major categories of government expenditure. Figure 21: Key areas of government expenditure as % total expenditure 0. Sport Source: Ministry of Economy and Finance Still heavily reliant on foreign ﬁnancial assistance The Cambodian government is still heavily reliant on foreign ﬁnancial assistance to fund its budget deﬁcit. However. Figure 22: Financing of government budget deﬁcit (US$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 . and a higher weight has been given to the public health and education categories. with defense spending at 17% of total expenditure in 2009. public health at 7%. For the current year.15 0. as shown in Figure 22.10 0. youth and sport at 9%. and education.
The heavy weighting to agricultural employment offers a buffer against layoffs in the manufacturing and service sectors.42 as of 2009. a measure of how quickly the country could cover its foreign debt with its foreign earnings. currency. as migrant workers returned to family farms.64 in 2001 to 0.5%. However. Although still high. Cambodia Capital Research 22 . with 70% of the population still employed in subsistence farming (Figure 22). has also declined. unemployment is 5. the most economically advanced area of the country. from 1. We expect that Cambodia will have a similar economic cushion in the medium term. increases in unemployment were not as severe as expected. external debt to GDP has been declining over the last decade.67 in 2001 to 1. in Phnom Penh. given recent difﬁculties in the Vietnamese economy). which is higher than the just over 5. In the 1997 crisis. in Thailand. moderately indebted country.0% seen in urban Vietnam (this ﬁgure may have increased since. reserves.36BN in external debt according to World Bank estimates. inﬂation External debt to GDP and exports declining Cambodia currently owes US$4. and is classiﬁed as a low income. from 0. External debt to exports. 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.12 as of 2009 (Figure 24).Overview of the Cambodian Economy June 2011 Unemployment: Low from widespread subsistence farming Unemployment overall is a low 2% in Cambodia.
7% of the debt is short term. Russian Federation Debt Other bilateral Other multilateral 26% 17% Source: International Monetary Fund Cambodia Capital Research 23 . Third. it is still unclear when or if Cambodia will be required to pay back these loans. the Cambodian economy may be much larger. and Cambodia is negotiating with both countries. First. 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). and some may not need to be repaid The composition of Cambodia’s external debt makes it less onerous that it may initially appear. and more readily able to handle repayment than it is currently (Figure 26). Second.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. only 7.5%. and by the time of principal repayment. Figure 25: Composition of Cambodia external debt by country 7% 22% 28% ADB World Bank IDA US. so there is no medium term issue with the current debt. Neither of these debts is being serviced. better structured. the effective interest rate that Cambodia has been paying on the debt is a low 0.
and therefore the reserves to short term external debt ratio is strong at 12. which leaves the country with an adequate.6BN in foreign reserves as of end 2009. The National Bank of Cambodia reported US$2. As shown in Figure 25.Overview of the Cambodian Economy Figure 26: Composition of Cambodia external debt by duration 7.7% Short term Long term June 2011 92.0 9. Figure 27: Key foreign reserve ratios 13. but still well up on US$1. Ministry of Economy and Finance Reserves/Short Term External Debt Cambodia Capital Research 24 . down from a peak of US$2. Reserves to months of imports has risen from 4 in 2001 to near 5 as of 2008. short term external debt is a low 7.4x in 2009.1x in 2001.9BN in 2006. but not abundant Cambodia’s key foreign reserves ratios have been improving over the last few years.3 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Reserves/Month of Imports Source:World Bank.8 6.8BN in 2008.5 3. up from just 3.3% Source: International Monetary Fund Foreign reserves adequate. but not particularly robust ﬁnancial cushion (Figure 27).7% of total debt.
Imports: A large proportion of Cambodian imports are from Thailand.700 1. As shown in Figure 29.900 Jan 06 Oct 06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Cambodia Source: National Bank of Cambodia Capital Research 25 . so dollar depreciation does not give Cambodian exports an advantage here. On net we expect the currency effect on imports to be relatively neutral in the short term. with the Riel pegged to the dollar.350 4.Overview of the Cambodian Economy Figure 28: National Bank of Cambodia’s Foreign reserves (US$MM) 3. However.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.108/US$ since 2006. and an estimated 90% of transactions taking place in the dollar. There tends to be some seasonality also in the movement of the exchange rate related to the agricultural growing season.125 4. Figure 29: USD to Cambodia Riel 4. but the economy is effectively dollarized. so a depreciation of the US$ versus the Euro could potentially make Cambodia garments/textiles more attractive to EU buyers.238 4. but the majority are purchased in US$.241/US$).013 3. The Thai baht has appreciated versus the dollar.000/US$ and peak of KHR4. the Vietnamese Dong has depreciated signiﬁcantly over the last year and China is gradually allowing its currency to appreciate versus the dollar. the second largest purchaser of textile exports is the European Union (EU). 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. with a trough of KHR4. Movements in the dollar have a mixed effect on the economy: Textile exports: Garment/textile exports are priced in dollars.600 2. Vietnam and China.
000 2. mainly driven by the spike in global commodities prices (largely the result of rising food and oil prices). 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.000 3. Cambodian food price changes are especially correlated with Vietnam and Thailand. which pulled up the average for the decade. In Vietnam there has been the mixed effect of a currency depreciation offset by rapidly rising inﬂation. Increasing domestic production of food products should also help alleviate this risk over time. Figure 31: Cambodian inﬂation. Cambodia Capital Research 26 . There was a signiﬁcant spike in inﬂation just prior the the onset of the 2008 crisis to 25%.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. the global ﬁnancial crisis cut commodity prices and inﬂation subsequently subsided. However.2%.000 1. there have been hints lately that the current commodities bubble may be nearing its end. given the large amount of trading with the two economies. we do not expect to see a major transmission of food inﬂation to Cambodia from these neighbouring countries in the short term. In Thailand. the central bank is raising rates to curb inﬂation and its currency is still strengthening long term versus the dollar. averaging 4. and the latest reported April 2011 ﬁgures show inﬂation at 5. Meanwhile. prices still appear to be rising gradually. On net.8% over the decade from 2000 to 2010.Overview of the Cambodian Economy Figure 30: Money Supply (US$MM) 4.
Energy Source: Cambodian National Institute of Statistics vi) Trade and FDI: Advancing regional. Vietnam is a distant third. comprising just under 5% of exports in 2009.Overview of the Cambodian Economy June 2011 In a regional context. but growing rapidly from just 1. Cambodia’s other major regional trading partner. Cambodia’s exports are still comprised mainly of garments/ textiles and footwear exports to the United States and Europe. Figure 32: Inﬂation in a regional context 20% 15% 10% 5% 0% Myanmar Vietnam Indonesia Cambodia Laos Thailand Malaysia Source: International Monetary Fund Figure 33: Cambodia CPI Index by category 15% 10% 5% 0% -5% -10% Jan 10 Mar 10 May 10 Jul 10 Sept 10 Nov 10 Jan 11 Mar 11 Health CPI Transport Food beverages Communication Housing.5% in 2001. with inﬂation especially high in neighbouring Vietnam (which also saw an inﬂation spike in 2008 and may have transmitted some of that inﬂation to Cambodia through trade) but much lower in Thailand. respectively.5% in 2009. Cambodia Capital Research 27 . but deﬁcits persist Cambodia’s overall trade has surged by over 200% since 2001. which comprised 49% and 27%. global integration Trade surging. average Cambodian inﬂation from 2004-2009 has been in the middle of the pack. accounting for a combined 76% share of the country’s exports. although export growth continues to lag import growth and the country ran a trade deﬁcit of 5.
at 5% of the total. Imports from China.5% 2. which have soared to 29% and 21% of total imports. especially rice.500 5. has already stated its intentions to increase its imports of Cambodian rice.Overview of the Cambodian Economy Figure 34: Cambodia imports and exports (US$MM) 7. General Statistics Ofﬁce of Vietnam (GSOV). for example.0% 8. which comprised 14% of the total in 2009 and South Korea. are also signiﬁcant. China.750 1. 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.875 0 2001 2002 2003 2004 2005 2006 2007 2008 June 2011 11. The country runs large trade deﬁcits with these regional countries which is not offset by exports to the US and EU. Europa Cambodia Capital Research 28 . imports largely from East Asia The largest proportion of Cambodia’s imports are from Thailand and Vietnam. EU.8% 2009 0% Imports (LS) Exports (LS) Trade deﬁcit as % GDP (RS) Source: Ministry of Economy and Finance Exports mainly to US. for a combined 50% of imports in 2009 from just 29% in 2001.3% 5.625 3. that demand from the region will be high for these products and we may see these trade deﬁcits contract. respectively. we expect that as the country increases its agricultural exports. However.
and 3) being part of the Cambodia-Laos-Vietnam development triangle. further raising its regional proﬁle. Although the country did join ASEAN in 1999. 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. 1) joining the ﬁrst Ayeyawady Chao Phraya Mekong economic cooperation strategy (ACMECs) at its ﬁrst meeting in November 2003. CMLV Date joined April 1999 October 2004 November 2003 2004 November 2004 Opening to trade appears to have been beneﬁcial so far On net. for the ﬁrst time. CLV. Although the country is classiﬁed as a Least Developed Country (LDC). 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. CLMV and ACMECs summits in Phnom Penh. Cambodia MEC. and thus is offered some advantages in terms of trade because of this. 2) becoming part of the Cambodia Laos Vietnam Myanmar cooperation framework (CLMV) in November 2004. GSOV.WTO. the country simultaneously held the CLV. which comprises 13 provinces in these three countries. it has proved that it can compete reasonably well even where it does not have signiﬁcant trade advantage. it was only in October 2004 that it joined the World Trade Organisation.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. Cambodia Capital Research 29 . it has also been more active within the region. Since then. In November 2010. we believe that Cambodia has generally beneﬁted from its involvement in the various trade organizations.
Cambodia Capital Research 30 . This is the strongest version of the EU Generalized System of Preferences (GSP). This is under the EU’s Everything But Arms (EBA) initiative to promote imports from Least Developed Countries. especially for garment/textiles. which are mainly textiles/garments and footwear. but from a comparatively low base. At the time there were limiting quotas. with the country expanding its textile exports to the US rapidly since 2005. 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. The other beneﬁt of WTO accession is that Cambodia has needed to expand and strengthen its laws to meet the requirements. so the reduced tariffs within ASEAN over the last ten years have not really been a signiﬁcant boon for the country. The last ﬁve years have shown that concerns that Cambodia might have severe difﬁculty competing were unfounded. agricultural exports are also growing. Currently. 2005. a regulation that had previously allowed countries to apply quantitive restrictions of imports of clothing between WTO countries was abolished. However. without facing quotas. We expect therefore that Cambodia will beneﬁt from this program for the next decade at least. especially to the US. The EBA program currently has no ﬁxed end date. However. the country beneﬁted from the absence of non-WTO competition. which offers lower trade tariffs to many developing countries.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). comprising mainly garments/textiles and footwear. although it did face increased competition from other WTO members also enjoying quota-free garment/ textile exports within the organization. Cambodia has lost some market share. The ending of this regulation allowed nations within the WTO to export garments/textiles freely. 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%. This is because as of January 1. This external lever seems to have prompted more rapid development of the legal structure than otherwise might have been the case. although the US remains Cambodia’s largest single customer for exports. the country has gained somewhat easier access to the US market from its accession to the WTO. 90% of Cambodia’s exports are to non-ASEAN nations. While Cambodia currently exports mainly textiles/garments to the EU under this system. but this has been offset by the overall growth in the market for textiles/ garments exports to the US. Accession to WTO offset 2005 end of textile quotas Cambodia is not a country considered by the US for preferential exports. 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. With Cambodia already in the WTO.
However. Figure 38: Cambodia International Trade Taxes (US$MM) 1. could slow the growth of some newly developing agricultural sectors. The government generated 21% of its revenue from international trade taxes in 2009 (Figure 38). is a potential reduction in government revenue. FDI has since returned to what we view as a more sustainable level. the majority of agricultural sectors in Cambodia appear to be showing both a high increase in production as well as rising exports. Cambodia Capital Research 31 .125 750 375 0 2005 2006 2007 2008 2009 30% 23% 15% 8% 0% International Trade Taxes (LS) Total Government Revenue (LS) International Trade Taxes to Total Government Revenue (RS) Source: Ministry of Economy and Finance Foreign direct investment returning to sustainable level Foreign direct investment surged in 2007 and 2008. We believe a larger issue for Cambodia than domestic industry protection. notably agriculture products. We do not expect that reduced agricultural tariffs will lead to large imports in the sector sufﬁcient to squeeze out local producers and expect that global food demand will be sufﬁcient to allow Cambodia to grow in this area. with FDI as a percentage of GDP peaking at 10% in 2007 from a low of just 1. mainly led by investment in an overheating property market. and is directed more to sectors like infrastructure and agriculture that should improve the structural balance of the economy in the longer term.500 1. government revenue is already low in Cambodia relative to the region. And as we have shown above. and the gradual reduction in tariffs over the next four years could reduce revenue further.6% in 2003 (Figure 39).Overview of the Cambodian Economy June 2011 The question is whether reducing tariffs on some imports from ASEAN.
Overview of the Cambodian Economy Figure 39: Approved FDI (US$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 1.000 4. Relative to their economic size.000 7. which is catering mainly to tourists for Angkor Wat.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). 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). Tourism investment was the largest category for both years.500 3. Regional investment tends to dominate the proﬁle for Cambodia. EU and US direct investment in Cambodia has been relatively muted over the period. 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. Energy and agricultural investment have been the second and third largest investment categories over the last two years. Figure 41 shows the investment breakdown by sector for 2009 and 2010. Cambodia Capital Research 32 . with most of the major investment coming in recent years.500 6.
the subjective opinion of many Cambodians often do not match their objective ranking globally. 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. Prosperity Prosperity index gains. Cambodia remains well down on the list. it is unclear whether this has been funded yet. is that although Cambodia ranks low in many categories. 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. but we include them for comparison in Chart 42).901 665 457 235 146 456 5.698 * Nearly US$1BN of this is related to a planned new airport in Siem Reap. What is interesting. and thus could be considered tourism related.Overview of the Cambodian Economy Figure 41: Investment by sector 2009 Tourism centres Energy Agro-Industry Telecommunication Tourism Other Total Source: 3. however.859 Transportation Energy Agro-Industry Rubber Garments/textiles Other Total June 2011 2010 1. Cambodia Capital Research 33 . Also. Chart 43 shows the eight categories used in the index. The Legatum Prosperity Index ranked 110 countries in terms of overall prosperity. vii) Empirical Global Ranking: Corruption. as would be expected for a Least Developed Country. 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.059* 589 353 190 129 379 2. At 95 in 2010. and the ﬁndings of the survey for each.
and high in terms of start up costs. Cambodia Capital Research 34 . ranking a 2. although corruption is perceived as widespread Although the ranking relative to other nations is low. after actually worsening slightly in 2008 and 2009.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 . back up at its 2006-2007 rating. Opportunity 92 100 Detail Over half of Cambodians are satisﬁed with their standard of living.1 in 2010. Cambodians are extremely satisﬁed with their education system Cambodians report low health services satisfaction.Overview of the Cambodian Economy Figure 42: Legatum Prosperity Index 2008 Singapore Thailand Malaysia Indonesia Vietnam Cambodia Source: Legatum Properity Index (www. but Cambodians still view their country as offering a good environment for entrepreneurs 4 out of 5 Cambodians are satisﬁed with the national government. 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.prosperity. but political repression and human ﬂight are also high Although civil liberties are rated low in Cambodia.Legatum Prosperity Index 2010 Rank Economy Entrepreneurship. Cambodia does not fare well on this scale. which would be expected given the low ranking Personal safety is perceived as high by Cambodians. As shown in Figure 44. and has shown little improvement. 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. 94% of citizens report satisfaction with their freedom of choice In a 2009 survey only 12% of Cambodians thought others could be trusted. although this could indicate others outside the family unit.
5 2.0 1.9 2007 9.7 2.8 1.8 2.2 4.6 2.7 2.1 1.4 2.Overview of the Cambodian Economy 2006 Singapore Malaysia Thailand Indonesia Vietnam Laos Cambodia Myanmar 9.0 3.4 2.1 3.1 2.0 1.4 Figure 44:Transparency International Corruption Perceptions Index Rating Source:Transparency International Corruption Perceptions Index Cambodia Capital Research 35 .0 3.5 3.5 2.1 1.6 2.4 3.9 2008 9.1 1.3 4.3 2009 9.8 2.0 2.6 2.6 2.4 2.4 5.6 2.2 5.6 2.6 2.4 June 2011 2010 9.4 5.7 2.
and the Monarch. 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. The king has limited political power. 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. the head of government. Cambodia Capital Research 36 . the head of state. but not rule’. Hun Sen. with it declared that he shall ‘reign. the country was embroiled in 38 years of conﬂict. From 1998 to the early 2000s.000 years. there followed a period of uncertainty as to whether the new government would hold. another two by the National Assembly. 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. having joined the WTO in 2004. with the Prime Minister. but where Thailand prefers a bilateral solution. as the Cambodian People’s Party increasingly strengthened its hold on political power. Norodom Sihamoni. and the rest are chosen by voting in Cambodia’s 24 provinces.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. The 123 National Assembly members are elected for 5 years under proportional voting. Cambodia has gone to both ASEAN and the United Nations with the issue. A constitutional monarchy The Cambodian system of government is ofﬁcially a constitutional monarchy. with a National Assembly and Senate. 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. Two of the senate members are chosen by the King. as shown in Figure 45. We would emphasise that before 1998. This issue goes back as far as 1. and some factional inﬁghting. Currently the countries are trying to negotiate. prior to that.
with the opposition Sam Rainsy Party winning 26 seats. In the last National Assembly election on July 27. bombing raids in rural Cambodia lead to growth in Khmer Rouge movement Khmer Rouge. disarm the military operations of the four political factions. Eventually Khmer Rouge strengthens and wins battles with less Vietnamese support Khmer Rouge overtake Phnom Penh Khmer Rouge implement a totalitarian agrarian regime. By 1997. Cambodia Capital Research 37 . and holds elections. US army moves into Cambodia. Massive improvements made in developing the legal. both leaders are elected as co-prime ministers A uneasy alliance exists between the two ruling parties.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. at ﬁrst heavily backed by Vietnamese forces. which allows the UN to oversee a ceaseﬁre. The Paris Agreement is signed 1991. the country initially sees economic progress. Prince Sihanouk leaves for exile in Beijing. Hun Sen’s Cambodia People’s Party wins. repatriate Khmer citizens that had ﬂed to Thailand. Hun Sen’s Cambodia People’s Party (CPP) is far and away the dominant political force in the country. Khmer Rouge remains a danger. and maintains neutrality over US/Vietnam conﬂict. 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. The other smaller parties gained a combined 7 seats. Paris-educated leftists (eventual Khmer Rouge) and rightwing Lon Nol government Military coup installs Lon Nol government. 2008. 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. 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. allied with the United States. Khmer Rouge resurgence is still a threat. but Prince Rannariddh led FUNCINPEC also does well. with the UN still ofﬁcially recognizing the party as ruling the country from 1979 to 1982. and then North Korea. it won 90 of 123 seats. and establish free and fair elections The United Nations Transitional Authority Cambodia (UNTAC) arrives. begin battles with Lon Nol forces. Political split widens in 1960s between the Prince. 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’.
Also. Since these elections. However. but is especially strong in rural areas. has a broad base of support. with nine seats. is in exile in France after being convicted in absentia of defamation charges after accusing the government of corruption. Sam Rainsy Party (SRP): Founded in 1995 (originally the Khmer National Party from 1995-1998). winning 43 of 58 available seats in the 2006 senate election. 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. In the senate. with its platform originally based on a Marxist-Leninist single party system. Sam Rainsy.Overview of the Cambodian Economy June 2011 The CPP also dominates the Senate. the party’s leader. The party was formed from the Kampuchean People’s Revolutionary Party which was the only legally recognized party within Cambodia from 1981-1991. led by Hun Sen. the country was able to weather the ﬁnancial crisis without massive social upheaval. during the State of Cambodia period of 1989-1991 the party began to shift its ideology to adopt more free market principles. especially with the arrival of UNTAC. we have seen little to suggest that the CPP’s dominance is waning signiﬁcantly. It is unclear if there is a similarly charismatic second in charge to lead the party without the eponymous founder. and economic growth continues to be strong. Cambodia Capital Research 38 . and the establishment of constitutional monarchy. 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. FUNCINPEC is the next largest.
formed in in 2007. having won 9 out of 58 seats in the most recent 2006 senate election. has been growing.Overview of the Cambodian Economy June 2011 Human Rights Party (HRP): Is a relatively new party. generally the stronghold of the CPP. However. 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. Khmer Rouge: The Khmer Rouge orchestrated the complete economic collapse of the country from 1975 to 1979. The party’s current leader is Chhim Siek Leng. tend to be fraught with border issues. and involvement in anti-corruption law. in which CPP won decisively and the SRP became the second largest party. the Khmer Rouge began to lose power and any remaining credibility. Norodom Ranariddh Party (NRP): Another relatively new party. and the party again took his name. as it won only 2 seats of 123 in the National Assembly in the 2008 election. with the two much larger countries possessing both expansive military and economic might relative to much smaller Cambodia. and the party was renamed the Nationalist Party until the Prince announced a return to politics in December 2010. FUNCINPEC played an important part in government throughout the 1990s. 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. It has relatively more sway in the senate. Leader Kem Sokha has a history of humans rights activism. originally established in 1981 by Norodom Sihanouk as a counterbalance to then Vietnamese occupation of the country. Informal border trading is widespread with both countries. and by 1996 saw a mass defection of over half the remaining soldiers. including land and civil rights. The party’s popularity in rural areas. However. They remained strong militarily throughout the 1980s. Funcinpec: FUNCINPEC is a French acronym for National United Front for an Independent. who changed their name to incorporate the new leader. Bilateral relations with two largest neighbors Cambodia’s diplomatic relations with two of its closest neighbors. Peaceful and Cooperative Cambodia. while Thailand’s inﬂuence tends more to just the business sphere. and the still threatening Khmer Rouge. Vietnam and Thailand. Cambodia Capital Research 39 . by refusing to participate in the 1993 elections. Neutral. and won 43 of 123 seats in the 1998 elections. were a perpetual threat to stability and were recognized as the ofﬁcial Cambodian government by the United Nations as late as 1982. its popularity appears to have waned over the next ten years. Ranaridhh retired from politics in October 2008. Cambodia tends to thus view both Vietnam and Thailand with some degree of suspicion. If we were to characterize these relationships we would say that Vietnam has both a strong political and business inﬂuence in the country. The party is generally considered a Royalist party. The party appears to be a right leaning centrist party.
ﬁghting broke out at a second disputed area along the ThaiCambodian border in Oddar Meanchey province. but Cambodia would also have its preferred solution of the presence of ASEAN observers at the border. unrelated to Preah Vihear. with Thailand they became a hot war in February 2011 and then again in April 2011. but it was stated that Thailand would play an important role also in overseeing the temples. Fighting erupts in February 2011 near Preah Vihear This led to the placement of troops on either side of the border from mid-2008. but it was only in February 2011 that ﬁghting erupted. trade between the two countries continues to grow strongly. in far Northwestern Banteay Meanchey province. By comparison relations between Cambodia and its smaller neighbor Laos tend to be less conﬂictual. since 1979 there have generally been cordial relations between the two nations. However. 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. which has led to a cease ﬁre. on the whole. with some parties opposing what they view as encroachment on both Cambodia’s territory and sovereignty. In the north of Cambodia in Preah Vihear is a temple complex that was granted to Cambodia in 1962.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. 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 the party appears to still maintain close ties with the Vietnamese ofﬁcials. opposition to Vietnam’s inﬂuence issue still remains. However. and lasted for several days with military casualties on both sides. This event appears to be the trigger point. and ofﬁcially part of Cambodia. Following this battle. A deal was reached where Cambodia has agreed to talks through Thailand’s preferred channel. a meeting was brokered between the two countries mediated by ASEAN. the bilateral border committees. strong words on both sides suggest to us that this agreement is still very tentative. Cambodia Capital Research 40 . Second battle occurs in April 2011 at Oddar Meanchey In late April 2011.6 sq km area that is the center of the conﬂict. The ruling remains unclear especially on a 4. a decision that has been disputed by Thailand ever since. The complex was declared a World Heritage Site in 2008 by UNESCO. We expect that this issue will continue to weigh on ThaiCambodian political relations. but later reversed course and rejected the UNESCO plan. Relations with Thailand sour after border conﬂict If the border issues with Vietnam are more of a cold war. 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.
and inﬁghting between various factions meant that there was no globally recognized government in Cambodia until after the Cold War ended. 2) the World Trade Organisation in 2004. 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. it makes the bulk of its exports to the EU and the US. IMF and World 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. Cambodia Capital Research 41 . Since then the country has progressively integrated itself into the world system. setting the stage for eventual UNTAC-sponsored elections by 1993. 1) it joined ASEAN in 1999. 3) the country accepts guidance and funding from the Asian Development Bank. and its WTO accession.
This constitution led to the establishment of separate executive. We believe that an improving and increasingly transparent legal and regulatory regime will further encourage future foreign investment. tax (2003) commercial (2005). This was replaced by the 1979 constitution when the Vietnamese overthrew the Khmer Rouge. However. there had been no split between these three bodies. and Cambodia’s current set of laws. so have not been well tested in the courts • Major business laws promulgated: The country has the key legislation for business in place. 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. gradually improving legal system Cambodia has a basic legal system in place. With the overthrow by the Lon Nol government. However. 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. Cambodia Capital Research 42 . with the major business laws now written. with 100% foreign ownership of businesses permitted. The Khmer Rouge adopted their own constitution. A series of constitutions since the 1950s Cambodia has been through a series of constitutions since the 1950s. insurance (2000). Prior to the Khmer Rouge. with power entirely concentrated in the National Assembly. However. from 1953-1975 the Cambodia legal system was based on the French system under rule by Prince Norodom Sihanouk. from 1979 to 1992. executive and judicial functions of government was stipulated. a new constitution was adopted from 1970-1975. which was ostensibly ‘peasant rule’ but effectively totalitarian agrarianism. Liberalization of this system occurred as early 1989. The legal system is supportive of foreign investment. legislative and judiciary branches.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. although some key preexisting laws are still in use. as many of the laws were promulgated over the last ten years. this document itself. with 100% foreign ownership of businesses permitted Foreign-investment friendly. with the most recent a version of the 1993 document with some amendments made in 1998 (Figure 48). many important laws were promulgated only in the last 10 years. including banking (1999). which was based on the Vietnamese system. many have not been thoroughly tested in the courts. and now has a functioning legal framework. but it was not until the current constitution was adopted in 1993 that a clear separation between the legislative. is somewhat of a hybrid from the various periods of the country’s history since independence from France in 1953.
in our view. should. respectively. Continued improvement in the legal framework coupled with increased testing of the same. but not govern Amendments are made to the 1993 constitution. executive and judicial branches are to be separate. and a Supreme Court A state of the people. 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. the law on banking and ﬁnancial institutions promulgated in 1999 and an insurance law written in 2000. There was existing contract law. Tax and property/land laws were also in place prior to the current constitution in 1993. appoints people’s courts to administer justice All power resides at the National Assembly A Constitutional Monarchy is established where the legislative. workers. peasants and all other labourers. The tax law was issued in 1997. with parliament making laws. with an amendment written in 1999 (Figure 50). The King is head of state for life. with the Law on commercial rules and commercial register coming into effect in 1995. The establishment of this legal framework coincides with the start of rapid growth in the Cambodian economy. an independent judiciary. the country began to further develop its legal structure. which has largely remained intact to the present. Cambodia Capital Research 43 . and shall reign. The people’s representative assembly determines legislation. with all legislative. By the mid to late 1990s important laws for business were written. but were eventually superseded by new laws in 1997.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. increasing the National Assembly seats to 122 and allowing for the creation of a 61-seat appointed senate. but this is not really brought into effect until around 1998. serve to support ongoing growth and investment. and 2001. promulgated in 1988. executive and judicial power coming from the monarch All power derived from the people.
Current contract law of Cambodia promulgated during this period From 1989-1993. 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. Although this system was abolished by the Khmer Rouge. and is the basis of the present system. which included property rights A constitutional monarchy was established by the constitution of 1993. its inﬂuence re-emerges in the drafting of the 1993 constitution Complete elimination of any modern legal system. Given the current target of a 2011 opening. and therefore integrated the inﬂuence of all the preceding systems In 2005 the country joined the World Trade Organisation. we view getting the capital markets up and running in just a decade as a reasonably quick turn around. the country shifted to a more liberalised form of Communism. 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. Cambodia Capital Research 44 .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. 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 given that the key business laws were established only as of the late 1990s. It also allowed for any laws previously written that did not contradict new laws to remain.
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 . Law on secured transactions (2007). Law on commercial enterprises (2005) Law on tax (1997). Insurance law (2000). Law on negotiable instruments and payment transactions (2005). supersedes 1992 Land law 1988 Cambodia adopted has adopted the regulations of the major trade bodies it has joined.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). Law on ﬁnancial leases (2009) Land law (2001). amendment (2003) Law on banking and ﬁnancial institutions (1999). Law on issuance and trading of nongovernment securities (2007). the ASEAN Free Trade Area (1999) and the World Trade Organisation (2004) Labour law 1997 replaces 1992 Labour law Law concerning marks.
These institutions support many projects that cross borders in the Greater Mekong Sub Region. 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. establishing the Cambodia Stock Exchange has clearly taken precedence over the bond market in the last several years. as well as interest from regional funds. 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. In addition. We estimate that the ﬁrst trade could happen by Q4/2011. private equity investment in Cambodia is growing. 1) granting credit 2) taking deposits or 3) offering payment processing. given the market risk) limits the growth of many riskier ventures that could potentially be funded by more risk tolerant equity investors. However. We give more detail on the progress with regards to the stock exchange below. 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. private equity growing The public equity market is very near opening. particularly from China.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. Therefore there are still no government or corporate bonds issued in Cambodia. Public equity market to open this year. but the related legislation has been drafted. . For rural lending. and we expect to see trading by late 2011. Banks loans currently the key source of capital The main source of capital in Cambodia is bank lending. we expect that with the equity market nearly up and running. 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. Now it is an issue of the level of preparedness of the three SEOs currently planning to list. the CSX is housed and rolling out its systems. The tight lending standards of Cambodian banks (which we view as prudent. Bond law written but no market yet Although the Law on the Issuance of Government Securities. However. the government will soon look towards developing the debt market. through 35 banks (including specialised banks*). and that a Cambodian sovereign issue could be seen within the next 2-5 years. but they represent a small proportion of total lending. there is also growing international interest in lending to Cambodia from private and policy banks. which allowed for the development of a bond market in Cambodia. and especially to small agricultural businesses. or only a single component of each of the three services. and the securities and support ﬁrms have all been licensed. The required regulations have been issued by the SECC. given the presence of a handful of domestically based funds. there are 13 microﬁnance institutions that are a key source of capital. was promulgated well before the equity market laws.
Auditors and clearing agents also were licensed at this ceremony Three state owned enterprises. the Securities Exchange Commission of Cambodia (SECC) has been established since 2007. The underwriters have been chosen. and Tong Yang Securities for PPWSA and TC. based on the KRX. has promulgated most of the major regulations we estimate will be required prior to opening the CSX. 2011 planned opening. 2011 report ‘Approaching a Final Frontier: Progress on the Road to Opening the Cambodia Stock Exchange. have been selected. The SECC has a staff of 70 employees 55% owned by the Cambodian government and 45% by the Korean Stock Exchange (KRX). are being rolled out The securities ﬁrms ofﬁcially received their licenses in early Nov. A location in Canadia Tower is secured and the systems. dealers. clearing agents. and auditors have all been licensed. all state-owned enterprises. 4) the ﬁrst three companies to be listed. 2011. CSX and securities ﬁrms should be prepared for the ofﬁcial July 11. and underwriters chosen (Figure 51). Other private companies are contemplating listing. it may take 5-6 more months for the underwriters to ready the SEOs for listing. SBI Securities for SAP. brokers. Settlements will be undertaken separately by commercial banks which were awarded their licenses on February 28. This is similar to what was seen in the Laos exchange. For more detail.’ Cambodia Capital Research 47 . Telecom Cambodia (TC) and Phnom Penh Water Supply Authority (PPWSA) have been selected to list on the exchange. 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. 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. with 7 underwriters. and has been actively promulgating regulations over the last two years. please see our April 27. 5 brokers.Overview of the Cambodian Economy Figure 51:The ‘four pillars’ involved in establishing the CSX Details 1) SECC June 2011 Established in 2007. where actual trading followed the ofﬁcial opening of the exchange by about 3-4 months. advisors and settlement banks. 1) the regulator. Sihanoukville Autonomous Port (SAP). We could see trading by late Q4/2011 Although the SECC. 2 dealers and 2 advisors permitted to operate. 2) the trading. underwriters. 2010.
and the risk to ﬁnancial institutions will keep interest rates high. it will remain a major constraint over the medium term. while the interest rate on US $ 12-month deposits has averaged around 5%. while claims have been decreasing over the last several years. with only spartan housing.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.Overview of the Cambodian Economy June 2011 Financials: Crisis proven • Strengthening banking system: The banking system in Cambodia continues to improve. The high interest rates from banks are an impediment to growth. limited assets available for collateral and lack of a credit bureau. even with these myriad institutions.2010. but we believe that they also accurately Cambodia Capital Research 48 . 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$25MM in 2010. there are still large hurdles to growing lending. Deposit Rates Riel 20% 15% 10% 5% 0% Jan 07 July 07 Jan 08 July 08 Jan 09 July 09 Jan 10 July 10 Jan 11 Source: National Bank of Cambodia Although we expect that the availability of quality credit will increase as the economy and especially housing sector develops. However. i) Banks: Strong growth. With 70% of the population engaging in subsistence farming. 13 key microﬁnance institutions and 6 insurance companies. the interest rate on US$ 12month loans has averaged about 16% since 2007. 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. there are 30 banks (the 29 reported by the National Bank of Cambodia at end. 5 specialized banks. plus 1 new entrant since). access to capital is still relatively limited for many businesses and the majority of the population. As shown in Figure 52. There remains excess liquidity in the system and banks compete for quality creditors. having weathered the 2008-2009 ﬁnancial crisis and returned to strong growth in 2010. healthy balance sheets Figure 52: Interest.
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.Overview of the Cambodian Economy June 2011 reﬂect the high risk of lending in the country. Figure 53: Cambodian banks’ loans*. We believe that as the economy develops we will see the spread on loans versus deposits contract. leaving a total 5 specialized banks . deposits.
With such a large number of banks. at ﬁrst glance it would appear that mergers will be a likelihood in the sector.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. accounting for 67% of total loans and 69% of total deposits. domestically owned banking institution) and ANZ Royal (controlled by Australia’s ANZ). and in Thailand the lowest. These banks comprise just 6% of loans and 3% of deposits. as it is the most developed economy of the group (Figure 54). these issues are not uncommon to the region. these banks will tend to have a business group as a dedicated customer. Cambodia Capital Research 50 . We expect that in this segment. and between US$491MM and US$860 in deposits. we believe that in many cases these links to business groups may hold back merger activity between rival groups in home countries. as shown in Figure 53. Canadia Bank (a strong. The larger institutions in this group will compete with the big four. this will also limit mergers in the sector. Cambodia’s interest rates are near the average for the ACMECS region at around 16%. 2) The middle 12 banks: The middle 12 banks comprise 26% of the loans in the banking sector and 27% of the deposits. The individual banks in this group had between US$285MM and US$727MM in loans in 2010. Interest rates in Laos have historically been the highest. 3) The smaller banks: Similar to the middle banks. However. They are: Cambodia Public Bank (partnered with Malaysia’s Public Bank). either domestic or foreign. ACLEDA (a local bank that started as a microﬁnance institution. which illustrates banking sector loans and deposits. 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. but the smaller institutions may mainly be servicing the local needs of a speciﬁc foreign business group with which they are associated.
and the Bank of China (BOC) in Q2/11. however. 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. which was small enough that it was not expected to disrupt the market. Only ACLEDA has an extensive country-wide network. We believe that they could shake up the market. there have been two heavyweight entrants to the banking industry. Two heavyweight new entrants: Bank of China. 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 . a third large bank. and less than 1% of the deposits. or payment systems) or a single component of each of the three. in line with its business model catering to smaller rural customers. with a total 27 branches (13 Phnom Penh/14 provincial) and Campu. Meanwhile. Canadia. CIMB There have been three new entrants to the banking sector since 2009. deposits. All three have strong parent operations with ample capital bases. The ﬁrst was Vietnam Agribank in mid 2010. CIMB in late 2010. More recently. far more than the next largest. given its roots in microﬁnance. especially the dominance of the current top 4. 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). It had 14 branches in Phnom Penh and 220 in the provinces as of end-2010 for a total 234 branches (Figure 55).
000 1.000 as of 2010 (Figure 56).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. If we view the ﬁnancial crisis as a test of the Cambodian banking system.000 3. it appears to have passed with ﬂying colours. still eking out a 3.5% gain in 2009. especially in light of the problems experienced at some major global ﬁnancial institutions. from a 2006 high of 9.000 2. After loan growth increases of as high as 77% in the lead up to the crisis.Overview of the Cambodian Economy Figure 56: Aggregate bank loans (US$MM). the 22% loan growth seen in 2010 seems to us a more sustainable.0% in 2010 (Figure 57). with banking system not only successfully weathering the 2008/2009 global ﬁnancial crisis. Outstanding bank loans have soared ﬁvefold since 2005 from just over US$600M to over US$3.6%. but also able to grow through the period. yet still healthy level of growth. 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. Cambodia Capital Research 52 . growth in bank loans (%) 4. to a low of 3. Loan growth did not turn negative even during the global ﬁnancial crisis.
and 10%. 8.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.75 as of 2010. Vietnam. As shown in Figure 55. the required total capital adequacy ratio in Malaysia.95 but had declined to 0. The National Bank of Cambodia continues to gradually move towards the Basel 2 standards. this may take years.500 1. as deposit rates rose with increasing banking competition.5%.) This is reﬂected in the decline in net interest income seen in Figure 61 in 2009. For comparison.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. This remains well in excess of the National Bank of Cambodia’s required total capital ratio of 15%.750 2. banks have been growing fee income over the last ﬁve years. which well is above the 8% required by Basel 1.31 as of 2009 (Figure 59). but lending rates remained relatively ﬂat (Figure 60. with the solvency ratio (or total capital adequacy ratio) rising from a recent low of 0. Figure 58: Loans to deposits 5. Thailand.0%. as deposit growth outpaced loan growth (Figure 58). respectively. but with the market still in the relatively early days of development.0%. However. which also peaked in 2007 at 0. the banking system has strengthened its capital base over the last two years. helping to offset the decline in aggregate net interest income. 9. Cambodia Capital Research 53 .000 3.24 in 2007 to 0. and Singapore are 8.
Figure 62: Bank lending by sector Retail. microﬁnance loans to the agricultural interests. 2) construction and real estate. Real Estate. Fishing Telecom. especially through sector-leading ACLEDA. Restaurants Manufacturing Agriculture. IT. 1) retail and wholesale operations. 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.Storage Personal Consumption Other 18% 5% 5% 7% 9% 10% 12% 35% Source: National Bank of Cambodia Cambodia Capital Research 54 . Interestingly. Media. are a key support for the sector. agricultural lending was just 7% of lending in 2010. Public Utilities Hotels. Forestry. Transport. Net fee income. 3) hotels and restaurants and 4) manufacturing. Wholesale Construction.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. Four segments accounted for over 66% of lending. we expect that this sector is likely to represent an increasing proportion of lending as it develops.
Some larger banks have severely restricted credit given to the property sector. Property and construction are still heavily weighted in banks’ loan books. which represent 94% of the loans in the system. High risk still remains in the segment for banks.0MM. 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. went into liquidation in March 2011. they have either more than sufﬁcient capital. (having fallen from a 7. With the many large projects in various stages of completion.2% of total 2010 lending. at only 0. in the hire purchase loan market for vehicles. although at least one small bank. and the sector especially in Phnom Penh in a degree of oversupply currently.5MM from the previous US$12.003 cards having been issued in 2010. and loan growth has rebounded dramatically in 2010. for instance. Some of these have dealt with their limited capital by downgrading to specialized bank status. Cambodia Capital Research 55 . but still remained above 40% even in a trough year. total personal consumption lending by Thai commercial banks in 2010 was 22. property exposure remains a risk. banks face the possibility of collateral simply disappearing. where the capital requirements are lower. Cambodia Development Bank. but this has risen quickly from just 2. microﬁnance growth rates saw a decline in in 2009.6% on average in Thailand for 2010. but also growing rapidly. New capital requirements have caused few downgrades The National Bank of Cambodia introduced requirements for banks to increase their capital to US$37.2% in 2009 (Figure 62). 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). as shown in Figure 62. up from 5. with 14. This has really only been an issue for a few small banks so far.279 as of 2006.4% in 2004.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. The credit card segment is still tiny. Similar to the banking sector. For comparison. versus 11. up 59% yoy.3% peak in 2008). Lending for owner-occupied housing as a percentage of total lending was 3.6% in 2010. or the support of large foreign partners.1% of the total. Aggregate bank sector lending for personal consumption was 5. For most of the top 16 banks.
ALCEDA bank by far dominates the sector. with its ‘small loans’ portfolio comprising 34% of total microﬁnance loans. where there was not a major increase in NPLs during the global ﬁnancial crisis. at 42% of the total in 2010 (Figure 67).4% in 2008 to 2. or US$272MM) than the banking sector (7% of US $3.3% in 2010. Microﬁnance will continue to be extremely important in Cambodia in allowing the agricultural sector access to credit. 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. microﬁnance NPLs did spike in the crisis from just 0.Overview of the Cambodian Economy Figure 63: Aggregate microﬁnance loans.8% by 2009 (Figure 66). or US$219MM). Figure 64: ACLEDA ‘small’ loans are 34% of microﬁnance ACLEDA ‘Small Loans’ Other Microﬁnance 34% 66% Source: Cambodian Microﬁnance Association Cambodia Capital Research 56 . Agricultural loans the largest for the sector Also in contrast to the main banking system. Although this ﬁgure has declined to 1.134MM. agricultural loans are by far the largest category of loans. for microﬁnance. it is still well above mid-2000s average. In contrast to what we have seen in the banking sector. and demonstrates clearly the higher the degree of risk in extending microﬁnance loans compared to the rest of the banking system in adverse economic conditions. loan growth (US$ 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.
3% 1.5% 0.8% 0% 2005 2006 2007 2008 2009 2010 Source: Cambodian Microﬁnance Association Figure 67: Microﬁnance loans by sector. 2010 2% 42% Agriculture Trade.Overview of the Cambodian Economy Figure 65: Largest microﬁnance companies by loans. 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 3.0% 2. Commerce Services Transportation Construction Household Others 11% 3% 4% 9% 29% Source: Cambodian Microﬁnance Association Cambodia Capital Research 57 .
Figure 68: Gross insurance premiums in Cambodia 30.41 MM 2. However. as would be expected with much of the population still engaged in subsistence farming. Meanwhile claims have been falling in recent years.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. with industry gross premiums more than quintupling from just US$4.3 1.0 7. a ﬁgure which we would expect to rise given the increasing popularity of insurance and overall economic growth. as shown in Figure 69. with the country having the lowest insurance density to GDP in the region (Figure 70). the trend in growth is strong. Cambodia Capital Research 58 .0 10.7MM in 2002 to US$24.5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 90% 68% 45% 23% 0% -23% Insurance Gross Premiums (US$ MM) (LS) Source: MEF Insurance Division Growth (%) (RS) Figure 69: Gross claims 3. 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.0 22.Overview of the Cambodian Economy June 2011 iii) Insurance: Room for long term growth The insurance industry is relatively small in Cambodia.9MM in 2010 (Figure 68).5 0.
for example.3% 1. 7% personal accident and 9% health and safety as shown in Figure 68. however. the massive ﬁre claims in 2007 (Figure 69). which so far appears to have been effective. One of the main reasons behind the law was to help develop a domestic industry. health and safety (15%) and personal accident insurance (8%) representing nearly 75% of industry premiums. We note. Given this. the level of claims in 2009 were 34% ﬁre.7% 1.2% 0. This is mainly because of the considerable capital requirement to enter the segment in Cambodia. infrastructure and new property development should be very good for the industry. to enter the life insurance business. Cambodia Capital Research 59 . with key categories comprising ﬁre (31%).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. For comparison. that this 2009 proportion of claims cannot be considered indicative and the shifts can be volatile. 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. motor (23%). Existing insurers that are public limited companies are already required to have a minimum US$7MM in capital.6% 0% Malaysia Singapore Thailand Brunei Indonesia Philippines Cambodia Source: MEF Insurance Division Figure 71 shows industry premiums written for 2009. they will be required to have an additional US$7MM in capital. Figure 70: Insurance density to GDP (2008) 2. 42% motor.
23%. there is little incentive for domestic players to enter the industry. that could easily meet the capital requirements. There are ﬁve large competitors. 20%. and have sufﬁcient ﬁnancial ﬂexibility to take a long term view on the market. 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 . Forte had a market share of 29%. and one small operator. However. the high upfront costs. 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. all with signiﬁcant market shares as of 2009. Caminco. we believe that there may be the possibility of a large foreign player entering the life insurance business within the next few years. 10%. Campu 17%. and Cambodia Vietnam insurance commanded less than a percent of the market.Overview of the Cambodian Economy June 2011 Add to this the lack of domestic expertise in the sector. and the 4-5 year period life insurance businesses can require before generating a proﬁt. Asia Insurance. Inﬁnity.
but it is still relatively limited. even these loans are not sufﬁcient for the agriculture sector to take advantage of the current demand. Modern farming is beginning to develop. a need for improved irrigation and transport infrastructure. that although relatively sparsely vegetated. cashews. the Cambodian government and multilateral institutions like the World Bank and ADB. with 70% of the population subsistence farmers. 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. the country was exporting very little formally (although there is clearly informal trafﬁc in agricultural goods across the borders with its neighbors). 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. It also has mountainous regions. cassava. However. i) Climate. Figure 74 shows the main type of vegetation by area. Sustainable growth sector that is key to balancing economy Agriculture in Cambodia represents the livelihood of the majority the country. rubber. 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. much of this subsistence farming. with loans to the agricultural sector rising from both the banking system. that is slowing Cambodia’s progress in becoming a major exporter of agricultural products. With high demand and soaring prices for most agricultural commodities currently. Unmilled production has risen 185% since 1993. The country has a large.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. soybean. Gradual improvement is being made in all of these areas. mung and soya beans. and access to capital to purchase equipment and fertilizer. but lacks the modern farming methods. with lowland rice making up the majority the country. coffee). cotton and corn maize. are speciﬁcally suited for cultivation of some crops (eg. 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. The country has an ample supply of natural resources and labour. and Cambodia is now a net exporter. This situation is gradually improving. coffee. sugarcane. in terms of both physical and ﬁnancial capital. in addition to its key rice crop. it is mainly supply side issues. Cambodia already cultivates. There are also issues of limited processing capacity. using over 80% of agricultural land. tobacco. Cambodia Capital Research 61 . but ofﬁcial exports have begun to increase in the last ﬁve years for many products. Until recently.
Overview of the Cambodian Economy June 2011 Figure 75 shows arable land as a percentage of total land versus the region. Cambodia sees more than adequate rainfall to drive agriculture. Only Vietnam. with 30% had a higher ratio than Cambodia at 24%. with 32% and Thailand. 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 the monsoon season running from roughly May to November each year.
There are an estimated 2. and is the key crop cultivated in Cambodia. with dry season irrigated rice 8%. Floating Rice Rainfed Upland Dry Season Irrigated 2% 4% 86% Source: Food security atlas Cambodia Capital Research 63 . and 2) a dry season crop. 1) a longer wet season crop.0% 10.0% 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. deepwater rice 4%. Cambodia has two main rice crops per year (versus three in Thailand and between two and three in Vietnam). with planting in November and a January-February harvest. with planting from May-July and a harvest in December. and rain fed upland rice 2% (Figure 76). at 86%. 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 40.7MM hectares of land currently dedicated to rice farming in Cambodia.0% 20. comprising over 80% of agricultural land. Figure 76: Rice cultivation by type 8% Lowland Wet Season Deepwater.0% 30.
381. consumption (‘000 tonnes) 7. and by 2008. but growth targets aggressive Milled rice exports. These exports became material around 2003 (Figure 78). 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. remain tiny.Overview of the Cambodian Economy June 2011 Unmilled rice production rises 185% since 1993 Unmilled rice production in Cambodia has risen 185% since 1993.800.500 1. from 2.000 tonnes as of 2008 (Figure 77). Figure 77: Cambodia rice production. from 15k tonnes in 2009 to 100k tonnes in 2010. The government currently targets one millions tonnes of milled rice exports by 2015.We believe that Cambodia will eventually hit this target. Figure 78: Cambodia unmilled rice imports. 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. the USDA estimated that 400MM tonnes of unmilled rice were ofﬁcially exported.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.000 tonnes to 6. 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 .250 3. We outline further the constraints that currently limit Cambodian agriculture at the end of this section.000 5. but that the current timeline may be a bit aggressive. in contrast. although they are growing very rapidly.
we expect that the rubber industry will continue to expand. Cambodia Capital Research 65 . Wood product exports were far lower in value terms compared to rubber. at just US$30MM in 2009 (Figure 79). and regional producers expressing more interest in Cambodia as a production base. rubber and timber are Cambodia’s largest exports. and beverages/tobacco. but unsustainable deforestation has hurt the long term potential with forested land declining from 12. Figure 79: Key exports (excluding Textiles and Animal/Vegetable products) US$MM 225 169 113 56 0 Rubber 2006 Source: National Bank of Cambodia 2007 Wood Products 2008 Beverages.3MM sq. km in 1994 to just 10. and rubber exports were US$147MM in 2009 (Figure 79). km in 2007 (Figure 81).Overview of the Cambodian Economy June 2011 iii) Rubber and timber: Important exports Rubber industry continues to expand After garments/textiles. reaching 160k hectares in 2010 (Figure 80).0MM sq. animal/vegetable products (including rice). Land dedicated to rubber cultivation has increased steadily over the last several years driven by rising global prices. With rubber a key product of ASEAN. 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.
500 7. ESCAP 2004 Cassava 2005 2006 Mung Bean 2007 Soya 2008 Cambodia Capital Research 66 .000 3. and mung bean and soya in decline as of the most recently available 2008 statistics.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 82: Cultivated land by crop (‘000 hectares) 160 128 96 64 32 0 2002 2003 Maize Source: MAFF.Overview of the Cambodian Economy Figure 81: Forested land (‘000 sq km) 14. with maize and cassava showing the strongest growth.000 10. Figure 83 gives a basic overview of some of Cambodia’s key crops apart from rice.
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. for example in Mondulkiri province. the growth in livestock and ﬁsheries production in Cambodia has been reasonably ﬂat to downward trending. but at least one company. Fish and seafood are a key ingredient in the Cambodian diet. with domestic consumption limited Coffee production is still low. comprising as much of 80% of domestic protein consumption. the large inland ﬁsheries in the country have seen a decline due to lower water levels along the Tonle Sap and Mekong rivers. The product is used mainly for starch. there is the possibility for increased coffee production longer term A key ingredient in animal feed production. and has become increasingly important over the last several years (see Figure 76). the source of much inland ﬁshing (Figure 84). As infrastructure and improved agricultural methods reach this more remote area. which is the main export market for the nut. 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. vanilla and other specialty herbs. is highly suitable for coffee production. 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’.8MM tons for 2010 (cultivated hectares in 2008 was 160k). but the northeastern mountainous climate. however. Seladamex. 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). Cambodia Capital Research 67 .Overview of the Cambodian Economy Figure 83: Crops cultivated in Cambodia Crop Cassava June 2011 Detail Production is estimated at 3. Cambodia exports cassava mainly to Vietnam and Thailand (the world’s leading starch exporter) currently. In recent years. but also in energy production.
Only two of the dams are in Cambodia. but informal exports likely much higher. However. We believe that there is large long term potential for expansion into the country by the large agricultural companies in Thailand. ESCAP 2005 2006 Poultry 2007 Swine 2008 Cambodia Capital Research 68 . with many small farmers raising and selling chickens to supplement rice farming incomes. but more importantly disrupt ﬁsh migration and reproduction patterns. There is demand from Thailand and Vietnam for bovine imports. are 11 planned dams on the lower Mekong that could lower water levels further. and 9 are planned in Laos. Fortunately. ESCAP Aquaculture Planned dams may exacerbate the problem Potentially exacerbating these current problems. Figure 85: Livestock production (MM head) 25 20 15 10 5 0 2004 Bovine Source: MAFF. but that rice will likely be the main focus for some time to come. and as with rice. Most livestock production currently small scale There is little in the way of modern livestock farming. Poultry represents far and away the majority of livestock production (Figure 85). and most production is small scale by individual farms. recorded exports are low. the dams could further lower water levels and reduce ﬁshing stocks. long term. until further studies are conducted on the potential environmental effects of the dams. Laos has agreed to postpone work on the ﬁrst major dam Xayaburi.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. leaving Cambodia limited inﬂuence in the outcome.
given that the rice yield was a meager 1. and ensure that farmers have clear title to their land. This includes a lack of access to both physical and ﬁnancial capital.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. and allow ﬁnancial institutions to see collateral and be more willing to lend. tonne/hectare 5. but it still far from completely solved.6%). with limited or no land title. 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.5% 1.3% in 2000 (Figure 86). possibly through government intervention or cooperatives. Figure 86: Rice yield. Vietnam (4. 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.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.8% 2. although these issues continue to weigh on the sector.0% 3. they have all improved over the last decade.1%). to increase the effective size of the farms. small farms and little other collateral. Rice millers’ access to capital improving. banks simply cannot lend to many farmers and still maintain basic lending requirements. there are still major constraints on the sector. but also rice millers that face a lack of access to capital. at just 2. Lending by both microﬁnance and development ﬁnance institutions has bridged the gap on this issue to some degree. especially given rapidly rising global demand and prices for agricultural goods. However. The solution will likely have to come from increased economies of scale in the sector. With demand from local millers lows. the incentive is still high for farmers to sell their unmilled rice to Cambodia Capital Research 69 .3%) and Laos (3. which has probably truncated growth in the sector over the last few years. but still limited It is not just farmers. which makes expansion or refurbishment difﬁcult. This would encourage and allow for the purchase of better seed.0% as of 2008 versus neighbors like Thailand (2. fertilizer and machinery.
mainly using older technology. 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. related logistics and port infrastructure. The government. multilateral institutions. but it is still at a relatively low level when compared against the government’s one million tonne target. mills) will help drive farming efﬁciency and agricultural development. the railway is being rebuilt. which have huge demand for the product.Overview of the Cambodian Economy June 2011 Thailand and Vietnam. roads and bridges are being developed. Although these actions will take at least 3-5 years to complete. it would still represent a 10-fold increase in milled rice exports from the current level. where there are only about 5 major rice mills currently. The heavily reliance currently on trucking for transportation for goods in Cambodia keeps costs high. We believe that downstream development (ie. On the upside. the railway system has only recently begun its ﬁrst refurbishment in about 40 years. and improved roads and the option of rail transport will materially lower the cost of agricultural exports. even if Cambodia only reaches half this target in the allotted time. Agricultural ofﬁcials have reported that it would take 30-40 modern rice mills to reach the one million tonne target. and the port expansions are currently underway. Nevertheless. once ﬁnished they could help facilitate major growth in the development of Cambodia’s agriculture exports. road. Cambodia Capital Research 70 . major forward motion on all these issues has already taken place. Road and bridge infrastructure in the more remote provinces is still limited. banks and microﬁnance institutions have been increasing the credit available to domestic millers. storage and warehousing facilities need modernizing and the two main ports need expansion.
63% of 2009 total manufacturing output. 88). especially in the United States (which represented 69% of garment exports from Cambodia for 9M/10) and the European Union (25%). even compared to other countries historically following a similar textiles-led growth path. 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.3 5.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 sector is almost wholly reliant on the fate of the global clothing retailers.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 .0 8. The sector represented 60% of 2009 exports. representing 63% of total manufacturing (2009). We believe that agitation for higher wages would be the result of rising food prices Economy heavily geared to garment sector After agriculture. which together comprise the bulk of the Cambodian textile industry’s customers (Figure 89). while textile exports accounted for 60% of total exports. and 24% of GDP (Figures 87.5 2. the garments/textiles manufacturing industry is the most important single sector for the Cambodian economy. and the country’s membership in the WTO allows it quota free exports to other WTO members. The country’s least developed nation status allows it duty free exports to the EU. and currently it is a point of structural instability in the economy. however. In contrast to agriculture. we do not necessarily see this sector as key to sustainable long term growth. but ended quickly. and 24% of GDP • Over concentration: We believe that there is an over concentration in the sector. Figure 87:Textile exports to GDP 11.
000 3. Cambodia Capital Research 72 . We expect that Cambodia could also follow this path longer term. and this is mainly based on wage rates. 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. 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.Overview of the Cambodian Economy Figure 88:Textiles/Garments as a % of exports 5.500 1. 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. but in the short to medium term it leaves the country highly exposed to the vagaries of this single industry. Beyond just the overexposure to global clothing demand.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.
Figure 90: Thailand textile exports as % of total exports.23 0.Overview of the Cambodian Economy June 2011 However. global commodities and food prices have been soaring. The unions had been agitating for US$93.30 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. The strike was partly in reaction to the setting of the minimum wage rate for sector at US $61/month. 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. The strike ended peacefully with workers returning to the factories.6% of exports from 1995 to 2009.30 0. The main issue for workers agitating for higher wages will be rising foods costs. Cambodia Capital Research 73 .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 2010.08 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. 1980-1990 0.15 0. We expect that strong food price inﬂation would be the trigger to see further unrest in the garment manufacturing sector.15 0. with unions striking for just under a week. 1995-2009 0. which comprises the majority of the consumption basket for the average Cambodian garment/textiles worker. Although inﬂation has been relatively benign in Cambodia (apart from a short term spike in 2008).23 0. As ﬁgures 90 and 91 show.
between US$117-US$147 in the coastal cities. at US $43/month. it would make Cambodia less competitive versus Vietnam. if the union’s target of US$93/month were to be achieved. likely making the smaller cities less costly in labour terms versus Cambodia. Cambodia currently ranks in the middle of the pack at US $61/month between lowest-regional-wages-in-the-industry Bangladesh. Since these ﬁgures were issued. The most recently reported wage ﬁgures from Vietnam we have are from late 2010. ranging from US$63/month in smaller cities to US$93/month in larger ones. although still leaving it competitive versus China. However. and higher wage China. However. Cambodia still offers far less expensive labour than the larger cities in Vietnam. As shown in Figure 92. however. the ofﬁcial rate for the Vietnamese Dong to the US$ has depreciated more than 6%.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. even taking into account the devaluation. Figure 92: Regional minimum wage for garment workers (US$/month) China Coastal Cities (Low) China Coastal Cities (High) Cambodia (Actual) Cambodia (Union Target) Vietnam (Low) Vietnam (High) Bangladesh 0 Source: Cambodia Capital Research 38 75 113 150 Cambodia Capital Research 74 .
5MM as of 2010 • Room for further development: So far tourism has been heavily focussed on Phnom Penh and Siem Reap (the site of Angkor Wat) but there is a new frontier for development in the virtually untouched islands off Sihanoukville in the medium term. especially from Vietnam. Figure 93: Cambodia tourism receipts and tourism receipts/GDP 2. and for other destinations over the longer term • Regional arrivals increasingly important: Regional arrivals are an increasing proportion of the total. the location of the World Heritage Site Angkor Wat. making it the third largest single sector of the Cambodian economy. and accounted for 14. including other ancient temples and potential eco-tourism sites. the capital Phnom Penh and Siem Reap.4% of 2009 GDP. Other areas of the country also have potential.Overview of the Cambodian Economy June 2011 Tourism: Shift to regional arrivals • Tourism is third largest sector of economy: Tourism receipts represented 14. The industry is still concentrated mainly in two cities so far.000 500 0 1995 1998 2001 2004 2007 2010E 20% 15% 10% 5% 0% Tourism Receipts US$MM (LS) Source: Cambodia Ministry of Tourism Tourism Receipts ot GDP (%) (RS) Cambodia Capital Research 75 . Korea and China.000 1. However.4% of GDP in 2009 (Figure 93). the tourism industry is the third largest single sector of the economy.500 1. this has led to a decline in revenue/arrival/day in real terms. and as road infrastructure gradually improves they will be more easily accessed by tourists (Figure 94).2MM in 1995 to 2. 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. Annual arrivals have risen from just 0.
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.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. 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. where development is just starting. virtually untouched islands.7 0. mix of business and tourist arrivals Angkor Wat is key attraction.6 1. Beyond the three key cities there are also other areas ripe for tourism development in the longer run. as shown in Figure 91. but we expect this to happen in the next few years.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 . 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. and the surrounding. mainly tourist arrivals Beach town near port and commercial facilities Beach lined coast.
5% 2009 316.806 7.3% per year from 1995-2010 (Figure 95).5MM in 2010.353 7.577 1. 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.093 4.7% 91.6% 63.286 6. it will be able to gain share from other regional markets.9% 102.168 4.119 3.7% 161.2% 10) Taiwan 118.508.539 6.9% 106.8MM to Vietnam).4% 2.286 5.933 2.202 14.298 16.8% 93.9% 2.2% 2) Korean 329. with arrival growth averaging 19.015.1% 146.020 5.598 3.806 7.229 3.9% 72.6% 145.6% 109.1MM arrivals to Thailand in 2009.837 4.7% 84.8% 146.103 4.0% Source: Cambodian Ministry of Tourism Cambodia Capital Research 77 .285 4.795 6.311 2.1% 146.128 18.5% 2.702 11.695 18.8% 163.8% 113.1% Total Arrivals % growth 2.7% 2010 466.2% 8) Thailand 101.6% 148.6% 289.957 4.465 5.725 9.000 3.8% 6) France 90. Given the high number of tourist arrivals we see for other Southeast Asian nations (14.060 1.949 4.018 4.5% 163.973 8.973 7.482 6. we expect that as Cambodia’s reputation as a destination continues to improve.079 6.0% 9) Australia 83.9% 11) Laos 23.0% 83.8% 97.3% 94.181 4.525 12.005 5.516 188.8.131.527 4.9% 266.Overview of the Cambodian Economy June 2011 Surge in arrivals over last decade Tourist arrivals have surged more than tenfold in Cambodia from just 0.5% 2008 209.1% 84.909 16.180 5.4% 3) China 161.9% 105.6% 98.0% 4) Japan 158.581 3.9% 60. 23.5% 151.6% 197.590 5.2MM in 1995 as Cambodian began to stabilise politically to over 2.442 6.6MM to Malaysia and 3.517 4.9% 5) US 137.1% 96.277 3.5% 7) UK 84.067 4.5% 103. Figure 96: Cambodia arrivals by country and as percentage of total arrivals (‘000) 1) Vietnam 2007 125.
we may no longer be able to take the arrival growth rate as corresponding to the growth of tourist receipts. Therefore.5% of arrivals in 2006 to 24. but there has seen a signiﬁcant decline in the ﬁgure to below US$60/ day in 2010. For more detail on the Cambodian tourism industry. However. and this could lower the average spending per tourist. 2011 report: ‘Short-term hurdles. leading to rising aggregate tourism receipts. we may see some short term slow down in arrivals from neighbouring nations. and political conﬂict with Thailand. please see our January 5. Vietnam and Laos alone have increased from just 9. Declining real revenue per arrival per day over last few years On the downside.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. we may see the volume growth offset the lower receipt per average arrival. 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). but we expect that the secular long term trend is for an increase from the Mekong region. long-term opportunities. Arrivals from the country’s three neighbours Thailand. as it has been for the last few years. We note that with the current economic difﬁculty in Vietnam. 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$70/day from 2001 to 2007. Europe and Japan. Historically Cambodia had been weighted (especially in revenue terms) to tourist arrivals from more distant locations including the US. As shown in Figure 97. especially due to a surge in arrivals from Vietnam and Laos over the past few years (Figure 96). if Mekong arrivals continue to increase at a rapid rate. We believe that this could mean that arrival ﬁgures could become more cushioned to the downside.’ Figure 97: Average real revenue per arrival per day US$ 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 . This is because in economic downturns.9% of arrivals in 2010.
the state owned utility Electricite Du Cambodge (EDC). less so in provinces: The Phnom Penh Water Supply Authority now supplies water to 100% of the city. supplying just 8. Cambodia Capital Research 79 . Thailand per capita energy consumption was over 20x this ﬁgure and Malaysia over 35x (Figure 98).235MM kWh in 2009.000 2.000 4. with even the largest single player. given comparably limited development. The electricity supplied by EDC has actually declined signiﬁcantly in absolute terms since the early-2000s (Figure 101).000 3. understandably very low versus the region in both absolute and per capita terms.1% of the energy generated in 2009. 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. 2009 (kWh) Malaysia Thailand Vietnam Indonesia Cambodia Myanmar 0 Source: ASEAN 1.000 Extremely fragmented power industry Cambodia’s energy industry is still extremely fragmented and currently has no country-wide power grid. Figure 98: Per capita energy consumption. Among the major ASEAN nations. 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. with an accompanying major expansion towards a national grid • Large oil and gas potential: The country is wholly reliant on oil imports currently. although there are possible large reserves both on and offshore which are in the early stages of exploration • Water supply reliable in Phnom Penh.
with demand clearly still concentrated heavily in the capital. indicating just how limited energy use is outside this single city. which supplied 7% of Cambodia’s energy in 2009. 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. are still very dependent on electricity imports from Vietnam. which supplied 5% (Figure 100).Overview of the Cambodian Economy June 2011 Given this lack of country-wide electricity distribution. Generation from Phnom Penh still dominates total electricity supply. and Thailand. at 67% of the total. 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 . parts of Cambodia. especially along the borders.
domestic energy production from 2003 to 2008 grew 130% from 636MM kWh to 1. least developed region. domestic generation declined signiﬁcantly in the 2009 recession.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 99.10-0.4%. power is supplied both from Thailand and from Battambang Hydro.200 800 400 0 2003 IPPs Source: EAC 2004 2005 2006 2007 2008 2009 Consolidated licenses Electricity Du Cambodge Cambodia Capital Research 81 . at between 0.18 US cents/kWh.600 1. Kamchay and SHV Thermal service the south.5% of 2009 domestic production. and consumers cannot be guaranteed consistency or quality of service. As the country expanded generating capacity to accommodate rapid growth. the country mainly depends on small scale independent power producers for energy. and in the Northeast. Independent power producers accounted for 88. Figure 101: Electricity sent out by supplier (MM kWh) 1. by 2016. Three power plants. However. The IPPs are generally very small and high in number. However. with much of the energy going to Phnom Penh. This industry structure has kept the energy tariff in Cambodia the second highest in the region. there is power to Stung Treng supplied by Laos. the most sparsely populated. paving the way for further investment in generating capacity. Kirirom. while producers with consolidated licenses produced 3. Outside these small systems. the grid will still not reach Northeast. with a major contraction in supply from both the IPPs and EDC. as shown by the blue lines on the map. IPPs account for nearly 90% of domestic power production Figure 101 shows domestic electricity production and therefore excludes imports from Thailand and Vietnam.484MM kWH. In the Northwest. meaning that the industry is not taking advantage of economics of scale. We note that even after this expansion. while there is also energy supplied from Vietnam. the grid is expected to be expanded to link the northwest and the Southeast. with only Singapore having higher prices (Figure 102).
which leaves the country heavily dependent on oil. 100% of which is imported. Cambodia Capital Research 82 . Figure 100 shows the total electricity supply by type of generation. from 583 MW currently to around 2400 MW (for comparison.3%.17 June 2011 0.Overview of the Cambodian Economy Figure 102: Residential electricity tariff. 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. Of the total 1.8% and coal just 2.06 Low Source: ASEAN 0. 2011 (US cents/kwh) Singapore Cambodia Indonesia Malaysia Philippines Laos Thailand Vietnam Brunei Myanmar 0 0.11 High 0. while hydropower generated 3. Under current plans. Heavy fuel oil accounted for 93. generating capacity is expected to rise 300% by 2016. given plans currently underway to diversify into hydroelectric and coal power.600 1. capacity rose 200% from 2003 to 2010). or 61%.200 800 400 0 2003 Hydropower 2004 Diesel/HFO 2005 2006 2007 Coal 2008 2009 Wood. for its energy needs.4% of domestic energy generation in Cambodia in 2009. Figure 103: Electricity sent out by type of generation (MM kWh) 1. is estimated to come from hydro electric projects and 600 MW from new coal power generating projects (Figure 105).22 Heavy fuel oil main power source Domestic generation of electricity is mainly done through burning heavy fuel oil. 927 MW.527 MW expected capacity growth.
Overview of the Cambodian Economy Figure 104: Installed capacity (MW) 2. disruption of the river environment is a signiﬁcant issue for the country. Dams pose environmental risk Although the planned hydroelectric dams will massively increase baseload generation capacity in the country. Cambodian coal is relatively low quality with a low thermal value. they pose a serious environmental risk as we mentioned in our agriculture section. 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 1.073 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. we expect that imported coal will still be used to a large degree in the new coal-ﬁred plants. but it is unclear to what extent it can be used for cost-effective and efﬁcient domestic power generation.527 539 2. On the upside. there have been delays Cambodia Capital Research 83 . With much of the population existing on subsistence agriculture.534 3. 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.875 1. and a large proportion of the protein in the Cambodian diet consisting of ﬁsh. as it would likely be heavily polluting due to the low quality.500 1.250 625 0 June 2011 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Hydropower Diesel/HFO Wood. The other issue in using the local coal is environmental. On net.
and this source is not yet very cost effective. Biomass energy consumption could be considered very high given that many subsistence farmers burn a large amount of wood and other plant sources. Biogas and biofuel development are also undertaken in Cambodia on a small scale. and CNOOC’s Block F. planned in Laos. However. with 2. and only four producing test wells have been developed in recent years. there is capacity for solar energy. Cambodia also has the possibility of domestic oil production. these estimates are subject to criticism by some. this has left the country with little ﬂexibility in terms of energy production. 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.496BN cubic feet of gas reserves. as the country has potential offshore and onshore oil reserves. but limited visibility so far Publicly available information regarding development in the upstream oil industry is limited. and there is no domestic production.000BN cubic feet of gas. the available information is summarized in Figure 106. the mountainous area of the southwest and the coastal regions. but installed capacity is low. However.Overview of the Cambodian Economy June 2011 recently in the construction of a major dam. Xayaburi. Given that most of the current electricity supplied is generated by heavy fuel oil. to allow time for further study on potential environmental damage. even on a aggressive timeline. 2) China Petrotech held Block D. Potential reserves of 2. hydro and coal power generation should help alleviate this oil import dependence over the next ﬁve years. if even half of the currently estimated reserves were brought into production.000MM bbls of oil and 10. with 227MM bbls of oil and 496BN cubic feet of gas. although the sector is not without promise over the very long term. with estimates of 500MM bbls of oil and 3. this has been divided into six blocks (A to F) and awarded to various international oil companies (Figures 106. 1) Chevron-Moeco-GS Caltex holds Block A. There is also some capacity for wind energy generation. Nonetheless. but may have oil reserves Oil in Cambodia is 100% imported currently. and the actual resources may prove Cambodia Capital Research 84 . ii) Oil and Gas: Offshore and onshore potential Wholly reliant on imports currently. production is at least ﬁve years away. Offshore potential.000BN cubic feet of gas. 13.727MM bbls of oil and 13.5BN cubic feet gas Potential reserves estimates have been released for only three of the blocks. 108). exploration has only commenced in earnest in the last decade. but importantly.7BN bbls of oil. This would be a total 2. it would greatly cut oil import demand and boost GDP. As noted above. Studies have suggested that there are signiﬁcant potential oil deposits in Cambodia’s offshore territory. With the average duration of sunshine at 6-9 hours/day. The government is currently attempting to promote the development of these resources. especially around the southern part of the Tonle Sap lake. However.
0%). with oil documented in four test wells drilled by Chevron in Block A. There is also limited transparency on the expected quality of the reserves.000 Companies Involved Chevron(55%). or risk losing its concession. Resourceful Petroleum (33. 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. Meanwhile.3%) Polytec (100%) China Petrotech (100%) Medco (60%). there are estimated to be signiﬁcant potential oil and gas reserves in an offshore block that is jointly claimed by Thailand and Cambodia. 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. this deadline may prove overly aggressive. there were two previous waves of drilling.3%). However. one in the early 1970s by Elf. (Historically. JHL (10%) CNOOC Source: EIC. 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. but politics a hurdle In addition to blocks A-F. The prime minister has pressed Chevron to develop the ﬁeld and start pumping oil by 2012.000 Gas (BN cubic feet) 3.3%).Overview of the Cambodian Economy June 2011 to be much lower. This block has been targeted as the most promising of the Cambodia offshore areas. but political wrangling between the two countries over the area continues.000 n/a n/a 496 n/a 10. Kuwait Energy (30%). Moeco (30%). CNPA (40. given that the ﬁnd was only a single well. 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. and nine wells drilled in the mid 1990s by British and Japanese oil exploration companies). Note: Oil. with the time from the initial oil discovery to the start of extraction taking on average 5-10 years. and occurred 5 years ago.5%) Petrovietnam (100%) JOGMEC (100%) Source: EIC Joint claims area very promising.5%). Cambodia Capital Research 85 . GS Caltex (15%) PTTEP (33. SPC (33.
5% claims area. The country has been divided into 19 onshore blocks.5% CNPA 40. To the upside.Onshore and Offshore Oil Blocks Until the political issues are resolved. There were reports of ‘oil seeps’ in the area as early as a 1958 Chinese study (which was followed up in 2002). In 1998. 109). the costs to do seismic studies of the area will apparently be moderate given the terrain. JHL 7. let alone a move to full production in the joint claims area. Similar to the development of hydropower. the area is still in the very early days of exploration and production would at best be ﬁve years away. onshore oil development poses serious environmental risks. even though the CNPA 40% latter looks potentially more promising at this stage. but there is still no reliable documented proof of this.0% JHL7. and acts an inspector both of the ﬁnancial and physical capital in the industry. to administer the six offshore blocks and the 19 onshore blocks. Cambodian National Petroleum Authority regulates industry The oil and gas industry is regulated under the Petroleum Regulations Act.5% Onshore oil potential around Tonle Sap basin The onshore region with the most potential is the Tonle Sap river basin. For the joint claims area with Thailand. the Cambodian National Petroleum Authority (CNPA) was established as the industry regulator. We believe that we are more likely to see Cambodia’s wholly Block before the joint owned blocks start producing XII Medco 52. Cambodia Capital Research 86 Block XV Pe Block III and XXVI TOTAL . however there are four main blocks located nearest to the basin currently expected to have the highest potential for signiﬁcant oil ﬁnds (Figures 107. However.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. but then amended in 1998 in 1999. the countries signed a 2001 memorandum of understanding with the aim to eventually undertake joint development of the area. 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. 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. originally promulgated in 1991. given that the expected location of the oil is around the Tonle Sap river basin. The CNPA handles all petroleum related bidding and contracts.
and 5 storage terminals Estimated market share of 25%-30%. kerosene and oil lubricants Estimated 15% market share. 2) via Vietnam through the Mekong River delta to Phnom Penh.000 ton ships. across the Thai and Vietnamese borders with Cambodia. sells road fuels. sells liqueﬁed petroleum gas. Company has its own jetty able to accommodate 46. The other three players are foreign operators. 2006 (Total: 1.has 25 gas service stations. Total with about 10% of the market. commanding a 15% share. Estimated 10% market share. and sells petrol and engine oils.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 38 gas service stations. The market leader is domestically owned operator Sokimex. with this channel comprising between 60%-75% of Cambodia’s oil imports. Figure 110: Overview of players on downstream oil industry Company Sokimex Details Estimated market share of about 30%. fuel oil and lubricant to industrial sector. has 32 gas service stations. A large proportion of the imports are sourced from reﬁneries in Thailand. Figure 111: Oil imports by type. which have terminal facilities at the port. liquiﬁed petroleum gas and oil lubricants Six gas service stations. especially gasoline. the second largest player is Tela. which has an approximate 25%-30% of the market. produces liquiﬁed natural gas. 1) the country’s only deepwater seaport at Sihanoukville. Caltex. power diesel. industrial and aviation fuels. and Thailand’s PTT with a small market share (Figure 110). It also sells fuel to inland industrial customers. distributes jet fuel at Siem Reap airport. which we estimate has a 30% share. has 184 gas service stations. supplies jet fuel to military and government aircraft. gasoline. estimated as high as 20-30% of imports. There is also a substantial informal sector. supplies high speed diesel. fuel oil.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 . mainly by Sokimex and 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.
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
and thus are not pure Cambodia/Indochina plays. 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 . 2) Indochine Mining is a play on both Cambodia and Laos mining. 3) OZ Minerals and Southern Gold already have extensive mining operations already in the production stage in Australia. the company’s only operations are in the country. but also have reasonably large scale exploration activities in Cambodia. Mondulkiri and Rattanakiri. 1) Brighton Mining is a pure play on Cambodia mining. although ﬁrms are beginning to report small potential ﬁnds. with their tenements centred in the mountainous North Eastern provinces of Kratie. widely available estimates on the potential reserves for the precious metals. ASX-listed ﬁrms mainly focussed on gold exploration For investors looking to gain exposure to Cambodian mining. with the company holding tenements in both countries. mainly focussed on gold. all of the ﬁrms are still early in the exploration phase and extraction is at least ﬁve years away in a best case scenario. there are four Australian Stock Exchange (ASX) listed companies undertaking exploration in Cambodia currently. There are no public.Overview of the Cambodian Economy June 2011 Most ﬁrms are still in the early exploration phase Other than the construction materials segment.
However. Other risks. We expect that this law will be amended as the industry matures. in Thailand. Cambodia Capital Research 92 . not public information. for example. As with other sectors. foreign companies can own 100% of their investment. First is an article that states that mineral resource licenses are to be granted by a ‘competent institution. still left from several decades of civil war. many average Cambodians do not possess land titles. Resources to be consumed locally. are a long wet season. limiting both exploration and extraction. 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. compared to other countries. Fees involved not transparent. although the legislation states that private land owners should be compensated for any disturbance to their land from mining concessions. However. given the extended timeline before we can expect signiﬁcant extraction. Generally.‘ However. Unusually high risks in Cambodian mining In addition to the opaque regulatory environment. Additionally. which maintain that information related to mineral concessions is to remain private. the 2001 Law on the Management and Extraction of Mineral Resources. Legal regime established. But it is unclear why such development would occur in advance of evidence of mines coming close to extraction. while displacement a problem Also. the exact extent of all the fees and duties collected from mining companies are not yet transparent. This makes exploration in Cambodia a far more risky venture than it would be. The government also applies exemptions on customs duties for the mining sector. there is a window to develop this capacity. The key risk is that there is still a large amount of undetonated ordnance and heavily mined areas all across the country. and the 1996 Law on Environment Protection and Natural Resources Management. as both MIME and the Council for Development of Cambodia are involved in granting mineral resource licenses. but remains opaque The legal framework for mineral extraction in Cambodia is not completely clear. there are also other major risks to the industry in Cambodia. and do not require a local partner. This is another issue with the laws. even with these advantages. 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. it is currently illegal to export mineral wealth from the country. The law has been criticised as leaving signiﬁcant gaps in interpretation.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. which are also faced by Cambodia’s neighbours. comprising two laws. it is not completely clear which ‘competent institution’ holds sway. This is an issue given that the raw materials must clearly be processed and there is no reﬁning capacity in Cambodia currently. but no reﬁning capacity Yet another issue is that all mineral resource wealth once extracted is to be consumed in Cambodia. foreign investors in the mining sector face a somewhat loose and untested regulatory regime. although the key legislation is in place.
as well as country funding from South Korea. Although the projects have varied timelines we expect to see a very different Cambodia in terms of transport infrastructure by 2015. Both domestic and international transport plans underway There are several large scale transport plans that guide transport development in Cambodia. Plans have also been announced for a new Siem Reap airport. expected to be completed by 2014. Vietnam. and most of the major infrastructure projects are supported by international funding. increasingly. 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. from Chinese policy banks. and a rail line running from Singapore to Kunming. 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. Cambodia Capital Research 93 . Malaysia and Japan (through the Japan International Cooperation Agency and Japan Bank for International Cooperation) and. Cambodia also plays a key role in regional transport development plans. The government is broadly on track with a countrywide road development plan covering the period from 2006-2020. A major rail refurbishment has already completed its ﬁrst phase. China. 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. Thailand. Foreign funding of transport projects have been crucial Government spending on infrastructure remains low versus the region. bridges and railway. both through domestic initiatives and as part of regional projects. and is set to be completed by 2012 • Seaports set for expansion. with the combined effect of the new changes beginning to have a sizeable effect on the economy by that time. and is currently implementing its master plan for waterborne transport. These include funding from multilateral institutions including the World Bank and Asian Development Bank. including multilateral initiatives for the Greater Mekong Subregion. The country's two main ports are also undergoing major expansions. China. while a new major airport is planned for Siem Reap.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. with major extensions into the provinces to be completed by 2015. Multiple road development and bridge projects are being undertaken and a revamp of the railway system has already opened its ﬁrst leg. Cambodia has now begun to rebuild its roads. plans for new Siem Reap airport: Both the Sihanoukville deepwater seaport and the Phnom Penh river port are undergoing signiﬁcant expansions. both domestic and regional.
and limits the development of these more remote areas.391 km of road between 2006 and 2020. Figures 116 and 117 give detail on the major road systems in the country.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. of which more than 4.643 km. The major national roads in Figure 113 comprise a total 2. The Ministry of Public Works and Transport are undertaking rehabilitation of 30. while rural roads total 18.052 km. Provincial roads are another 6. and the minor national roads another 2.000 km have already been completed. but still not every province. There are currently several areas where travel routes are very indirect. where limited road development adds immensely to transportation time and cost.948 km. with examples of current developments. Cambodia Capital Research 94 . Royal Toll Railway Roads and Bridges: Pushing towards the economic periphery Modern roads now reach each of the major regions of Cambodia. where new bridges will cut travel times signiﬁcantly.615 km.
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. 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. 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. a joint venture between Toll Railway of Australia and Cambodia's Royal Group began a project to refurbish the railway in 2009. However. it is expected that Cambodia should have its major rail lines up and running by 2012. leading to rising trafﬁc. and citizens in the provinces using makeshift carriages for short haul journeys. commercial operation date (COD) October 2010 Rehabilitation of 146 km Sihanoukville Port to Kampot. a n d i s t h e l e a s t populated. COD February 2012 Construction of 48 km Sisophon to Poipet. and the ﬁrst section was completed in October 2010. 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. 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. 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. helping link the area with Phnom Penh National road 57 is almost complete. more on the way There had been only limited use of Cambodia’s aging railway system since the 1970s until recently.Overview of the Cambodian Economy Figure 117: Road and bridge development by region Region Southeast Detail This region has the most extensive road system. COD mid-2011 Rehabilitation of 338 km Phnom Penh to Sisophon. 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. as it contains the capital city Phnom Penh. Battambang. COD January 2012 Source: Royal Toll Railway Cambodia Capital Research 95 . with some lines used for small scale cement and oil transport. Figure 118 shows the timeline for the completion of the additional sections. and is currently handling freight. Access to neighbouring Ratanakiri province is limited by a dirt road.
However. Neither of the airports is currently planning major expansions. improved local government credit worthiness and continued evolution of the legal system and enforcement of laws.Overview of the Cambodian Economy June 2011 Airports: Second airport for Siem Reap? There are two large international airports operating Cambodia. a river port on the Tonle Sap. from the current 80k TEUs. to 200k twenty foot equivalent units (TEUs). However. The Sihanoukville Autonomous Port is also expanding by 300k tonnes (versus 2. Ports: Expansions will help ease current limitations Cambodia has two major ports. Cambodia Capital Research 96 . we will see increased private sector involvement in both hard and soft infrastructure projects. This is expected to change as the city develops its 5 star hotel supply further. it has recently begun an expansion. and a seaport. which until recently was thought to have a monopoly on the operation of airports in Cambodia. and do not yet appear to be reaching capacity. There are also several small domestic airports in the second tier cities. respectively) to access international markets.217k tonnes shipped in 2010). 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. Both ports are facing some capacity restraints. and this had restricted its expansion. There is also a third international airport in Sihanoukville which is operating. the country will still need to use secondary ports in Singapore and Vietnam (which can handle 75k and 150k dwt ships. Korean developers in conjunction with the Cambodian government have announced that they planning to develop a US$1BN new airport for Siem Reap. although the expansion will help the ports accommodate larger ships. the Phnom Penh Autonomous Port. Phnom Penh and Siem Reap. Phnom Penh Port is centred in the middle of the capital city Phnom Penh. and increasing the capacity of ships it can handle to 20k dead weight tonnes (dwt) from 10k dwt. Sihanoukville Autonomous Port. which will expand its capacity 150%. but it appears that SCA will no longer maintain a monopoly if this new airport is open.The situation is still unclear. This law is fundamental to private sector participation in the infrastructure sector. However. with a new container terminal port 30 km outside of the city. We believe that in the medium term. Both are run by the Societe Concessionaire de L’Aerport with parent Vinci. The current Toll Royal railway project is one of the ﬁrst major projects to test this new law. subject to improved liquidity in capital markets. but are undergoing expansions. in the major cities. but no international ﬂights yet land there.
Entertainment.5 5.2% penetration (Figure 119). penetration rate (MM) 10. ﬁbre optics developing Wireless telecoms dominate the Cambodian market. with estimates of 8. competition in other centres: Nagaworld holds a gaming monopoly within a 200 km radius of Phnom Penh. with ﬁxed line investment concentrated in ﬁbre optic networks. but there have been only limited signs of consolidation to date • Diverse media sector: The media sector is diverse with multiple television channels. compared to just 40k ﬁxed line subscribers. with 35k of this ﬁgure serviced by the state-owned Telecom Cambodia.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. We expect to see minimal investment in traditional copper wire technology. Media.0 2. and had only minimal ﬁxed line development. 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. Cambodia was still in the early days of rebuilding its economy. or 61. while competition is rife in towns at the borders with Thailand and Vietnam.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. as casinos vie to attract foreign gamblers (it is illegal for Cambodians to gamble) i) Telecoms: Sustained intense competition Telecoms mainly wireless. Technology 97 .0 7.7MM cellular subscribers as of end 2010. Figure 119: Mobile telephone reported subscribers. radio stations and newspapers with varying political views tolerated to some degree • Gaming monopoly in Phnom Penh.
8 5.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. which may not represent sustainable cash ﬂow for the operators. With 99% of the market still prepaid subscribers and with both voice and data prepaid services available. Figure 120: Top 4 Mobile operators reported subscribers.7MM subscribers as of end 2010. Smart Mobile/Star Cell. 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. This would imply that the remaining players (Beeline. This market was good for customers. which show market subscribers at 8.0 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. Generally. 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. subscribers are reported in their respective parent’s quarterly releases (Figure 120).5 3. and the other smaller operators. and 2) subscriber numbers as reported by the operators to the press for market leaders Mobitel and Viettel.8MM subscribers. 2010 (MM) Metfone (Viettel) CamGSM (Mobitel) Hello (Axiata) Mfone (Thaicom) 0 1. For Hello (Axiata) and Metfone (Thaicom).3 2. which clearly can’t be the case. it was not good for the mobile telephone companies which have faced pressure on revenue and margins. Only 2 of the 8 operators. Cambodia Capital Research 98 . Some discrepancy between sources in reported subscribers There is a clear mismatch between the statistics reported by the MPTC. Hello and Mfone. qb and Excell) have an aggregate negative 100k subscribers. However. 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. we have only two sources: 1) Ministry of Post and Telecommunications reported ﬁgures. there are low barriers to users switching between networks. release any detail on revenue or proﬁtability. New entrants used promotion such as free SIMs and low pricing plans to draw subscribers.
1) the communications CPI has ﬁnally moved out of deﬂation for the ﬁrst time at least a year. suggesting that another round of heavy price competition may just be starting. with the 336k subs on average for the 5 remaining players. which grew by a dramatic 1. but this may not happen until well into 2012.52MM as of end-December 2010. between two of the smaller operators. with some removing subscribers after 2 months of inactivity (conservative) and others retaining inactive subscribers indeﬁnitely. we are not convinced that these should be considered active subscribers until a several month track record for a given subscriber has been established. or the exit of several operators. Fibre optic networks now reach to most of the larger cities and towns. However. Cambodia Capital Research 99 . recently Hello has introduced a very low price on-network promotion. and estimate active SIMs at only 6MM. We expect that we will see either M&A in the sector.2MM subscribers for the top 4 players.2MM ﬁgure. and adjust the Viettel reported number down by the 1.7MM. We note that this rough estimate relies heavily on the idea that the MPTC adjusts its ﬁgures for active subscribers. at 8.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.84MM as of end-November 2010 to 4. Adjusting Viettel ﬁgures after December 2010 surge If we were to assume that the MPTC ﬁgure of total market subscribers is correct. but the three leaders in the industry are Viettel. especially cellular towers. we arrive at a total 7. Fibre roll out continues There are currently several ﬁrms rolling out ﬁbre networks in Cambodia. which will ease competitive pressures at least marginally. but we had seen two recent indicators that seem upbeat. and 2) the ﬁrst merger in the sector had been announced. However. Price competition may be heating up again It is difﬁcult to gauge whether the market has permanently exited a period of destructive competition. Some industry players would set the active subscriber base lower than our 7.68MM in a single month from 2. which has complementary ﬁbre network) and CFOCN (Figure 121). The competition has also driven operators to outsource operating expenses. Ezecom (which recently acquired Telcotech. Star Cell and Smart Mobile. which support between 2-5 major operators. holder of the America Asia Gateway license. We believe that the very rapid increase in Viettel’s reported subscribers puts them well towards the aggressive end of the scale. However. which is not guaranteed. eventually we expect to see the Cambodia wireless market consolidate to a similar structure to other regional markets.68MM subscribers reportedly gained in December (as there is limited proof that these are long-term active subs). This may have been the number of SIMs distributed. Currently in the market mobile operators vary in their deﬁnition of subscriber. and ﬁbre to the home is increasingly available in the Phnom Penh and Siem Reap.
5G and beyond and the much faster speed of service that this entails.Overview of the Cambodian Economy Figure 121: Fibre optic network operators in Cambodia Operator Ezecom/Telcotech Viettel CFOCN Other Source: Companies.900 km countrywide network including GEPON. with browsing enabled handsets much more accessible in price terms compared to computers for the average citizen. However. With the majority of the population still engaged in subsistence farming with at best intermittent access to electricity.000 km countrywide network 4. but even adjusted downward by 50%.000 km each Figure 122: Internet subscribers (‘000).000 km countrywide network leased by telecom operators and ISPs including Ezecom and Mfone Telecom Cambodia. with voice service still to comprise the dominant proportion of revenue for the next several years. As with telecoms. home computer penetration will remain low and we expect that internet user growth through this medium will be truncated. Mekong Net and Online have smaller scale ﬁbre networks well below 3. as internet tariffs declined and ﬁbre optic network access continued to expand (Figure 122). metro ﬁbre. we do estimate that the shift will be gradual in Cambodia. We expect that data demand through wireless devices will be increasingly signiﬁcant. Cambodia Capital Research 100 . with penetration jumping from 2% to 12% and users rising nearly sixfold to over 173k. MPTC Details of network June 2011 4. in-line with the global trend. and will account for a rising proportion of wireless telecom revenue. with additional 3.000 km planned over the next year 16. Data growth will be driven by network upgrades to 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. these ﬁgures may be somewhat exaggerated. Growth is much more likely to be a wireless story in Cambodia. they would show a breakout year in 2010.
broadcasts within 150km of base station Founded in 1996. Generally the newspapers are backed by one political faction. Achieves one of the highest ratings in Phnom Penh. 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. Pursat and Sihanoukville through network of provincial government stations Privately owned. but it tends to be mainly concentrated in Phnom Penh. but the two strongest competitors are the leading paper Rasmei Kampuchea (Light of Cambodia) which started publishing in 1993. Broadcasts nationwide. comedies. competing with CTN. Battambang. and began color broadcasts in 1986. There are also two pay TV operators who install satellite dishes at hotels. broadcasts nationwide Owned by Phnom Penh city and private investors.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. Bokor and Siem Reap. Of 25 major radio stations. but the Rasmei Kampuchea reportedly has the highest. broadcasted from 1966 until 1975. Television is also Phnom Penhcentric. Also published are Chinese language papers and two English language daily papers. Cambodia Cable Television and Phnom Penh Municipal Cable Television. with only 3 of the 7 major television stations providing country wide coverage. restaurants and higher end apartments and offer access to international television stations. Battambang. and Kampuchea Thmei Daily. at 18. Cambodia Capital Research 101 . There are 7 major Khmer language newspapers. and their editorial policy tends to reﬂect the political leanings of the backer. 17 operate out of the capital. High ratings in Phnom Penh. also broadcasts to Rattanakiri. Launched in 1992. Most of the stations provide locally produced content. has been broadcasting since 2002. conservative station that broadcasts to Phnom Penh and surrounding provinces Owned by the ruling Cambodia People’s Party. 100% privately owned. competing with TV5 Cambodia Television Network (CTN) Source: Respective stations Active press with 20 regular newspapers There are myriad registered newspapers in Cambodia. including drama. was re-established in 1979. music and game shows (Figure 123). but less than 20 have a regular reliable issuance (Figure 124).000. coverage in Phnom Penh. Thai-Cambodian owned. There is some question as to the accuracy of reported circulation numbers. the Phnom Penh Post and the Cambodia Daily.
Figure 125: Advertising by sector. these are the the most recently publicly reported data and they do give us a basic indicator of the size of the market. The government does have the ability however. Ad-spend is heavily weighted to beverages.3MM) Beverages Telecommunications Other 17% 14% 68% Source: Indochina Research iii) Gaming: Phnom Penh monopoly. Q1/10 (total US$20.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. Siem Reap. as reported by Indochina Research. Cambodia Capital Research 102 . rural competition Cambodians are not allowed to gamble or enter gambling establishments. and telecommunications.000 Second most popular paper. Although admitted this data is dated. estimated circulation of 18. respectively. since the introduction of the 1996 Gambling Suppression Law. to permit gambling in certain provinces. we would arrive at a full year estimate close to US$90MM. 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. holding a monopoly in the city). 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. in which countries gaming is illegal (Figure 126). This has meant that the gambling industry is set up to cater mainly to foreigners. at 14% and 17% of the total spending. and several towns on the borders with Thailand and Vietnam. and is concentrated therefore in Phnom Penh (with one casino. Nagaworld.
servicing customers mainly from Vietnam Bavet Source: Cambodia Capital Research.World Casino Directory Strong competition in gaming outside of Phnom Penh Outside of Phnom Penh in the cities where gaming is permitted. earlier in the decade.Overview of the Cambodian Economy June 2011 Nagaworld monopoly within 200 km radius of Phnom Penh Nagaworld has held a license since 1995. However. lasting until 2035. but also because of a major revamp of its strategy. with revenues growing 28%. This has been reﬂected in the share price of NagaWorld (3918. However. on the border with Vietnam and Poipet on the border with Thailand. Cambodia Capital Research 103 . that gives it a monopoly on casino operations within 200 km of Phnom Penh. However. This has paid off in 2010. The company in 2009 shifted away from a reliance on the low margin junket business. 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. We expect to see closures and consolidation continue in the gambling sector outside of Phnom Penh. the reduction in both customers and gambling revenue per customer hit the less competitive casinos. the government undertook a major crackdown on gaming machines in the capital. by February 2009. leaving Nagaworld the only gaming venue in the city.HK). Larger cities such as Siem Reap and Sihanoukville also have gaming businesses. and invested more in expanding its public ﬂoor and gaming stations. but could not be considered full casinos. Nagaworld had a difﬁcult 2009. but they do not dominate commerce the way they do in the gambling-focussed border towns. driven by the strategy shift as well as a rebound in tourist arrivals. hit by the economic downturn. the intense competitive situation lies in stark contract to NagaWorld’s monopoly in the capital city. and therefore were not in breach of Naga’s agreement. some entertainment establishments had featured gaming machines. many of which have been driven out of business. there were many new entrants into gaming cities on the border such as Bavet. after a decline of 39% in 2009. with the onset of 2008 ﬁnancial crisis. In the boom period leading up to the late 2008 bust.
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.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. Figure 92) is an indicator for relative wage competitiveness in other industries. there is continued incremental progress. but just enough progress has been made that foreign companies are now starting to see the growing opportunity in the country. We expect that. In recent years. especially by foreign investors Initial signs of manufacturing moving beyond textiles Manufacturing is still concentrated heavily in the garments/textiles and footwear sectors. Even ﬁve years ago.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.700 1. a lack of infrastructure may have dissuaded manufacturers from locating in Cambodia. This sector has remained remarkably steady as a proportion of the economy for the last decade. which represented 63% of total manufacturing in Cambodia in 2009 (Figure 127). Figure 127: Cambodia manufacturing GDP by segment 1. Cambodia will be able to diversify its manufacturing base over time. Cambodia Capital Research 104 . similar to its neighbours. inexpensive labour and concessionary export market access may remain a very attractive factor for international manufacturers looking for a new base of operations.
Both China’s Beijing Autoworks and Southern Korea’s Hyundai are locating car assembly plants in Cambodia. with 8 adjacent to Vietnam (3 in Svay Rieng province. Japan’s Minebea. 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. including small motors. or near Sihanoukville. The establishment of Special Economic Zones In an effort to further encourage this growing foreign participation in the manufacturing sector in Cambodia. a manufacturer of electronic components. Cambodia Capital Research 105 . Meanwhile. RM Asia is also currently assembling Ford vehicles in the country. The remaining SEZ is in Kandal province. Phnom Penh and Sihanoukville expected to be the largest The two largest zones are expected to be the Phnom Penh and Sihanoukville economic zones. The zones are effectively large industrial estates. the government has established 22 Special Economic Zones (SEZ). and the second phase beginning in February 2011.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. 6 of which have started operations. but it is key as it lies adjacent to the Sihanoukville Autonomous Port. The Sihanoukville SEZ is still under development. broke ground on a new factory in May 2011 in the Phnom Penh Special Economic Zone. Cambodia’s only deepwater seaport. A large part of the funding is being provided by the Japanese government. 2) customs (full duty exemption on raw materials and equipment) and 3) VAT (0% to pay). the SEZs also have independent power supplies. Other SEZs focussed near Thailand. with the government providing incentives to operate out of these areas with privileges in the areas of. Vietnam or Sihanoukville The other SEZs are mainly concentrated on the borders. and the latter is expected to soon start. 1) tax (up to 9 years tax exempt and no export tax). With the cost of electricity still high in Cambodia compared to the region. with 58 factory lots fully accounted for. with the ﬁrst Phase complete. Activity at the Phnom Penh SEZ is well underway. the former has already begun selling cars to the local market. or are positioned near the Thai or Vietnamese border to source less costly power from these countries. 2 in Bavet and 1 each in Takeo. Kampot and Kampong Cham) and 5 near Thailand (1 in Bantaey Meanchey province and 4 in Koh Kong province).
versus 31. 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. minimarts and shopping malls appearing Phnom Penh now sports a series of smaller shopping complexes. We would characterise the modern retail market as still highly fragmented. However. Cambodia Capital Research 106 . the bulk of retail in Cambodia is still very traditional. alcoholic beverages. quick service restaurants.9 in Thailand. although some players are beginning to gain critical mass. including local licensees of Thailand’s Minor Group (Swensen’s. but just this year a modern mall has opened in Battambang. Beer market competition intensifying The beer and spirits industry appears to have signiﬁcant room for growth in Cambodia. and one is planned for Sihanoukville.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. brand name clothing and electronic goods. 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. consumer electronics and auto sales all seeing rapid expansion. Supermarkets. We note that illegal imports and smuggling are also still a large part of this market. and Cambodia Brewery (partnered with Singapore’s Asia Paciﬁc Brewery.8 litres/year. There are currently two main beer producers Cambrew (partnered with Carlsberg). Khmer Breweries. including wet markets and mainly small family operated retail outlets for distribution. 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. There is also growing international development in the sector. Development outside of Phnom Penh is still limited. backed by local conglomerate Chip Mong Group. it is occurring. Given the generally high prices of QSR compared to local meals. with a level of capacity sufﬁcient to challenge the incumbents. a major new domestic entrant is expected to hit the market this year. with most established only in the last decade. with small shopping malls.6 in Laos. riding the development of a new urban consumer class Traditional retail still dominates With 70% of the country still subsistence farmers. 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. luxury clothing. However. producer of the Tiger Beer brand). Pizza Company) and KFC. 19. with Phnom Penh the heart of the change. Both local and foreign brands have been expanding in the country.
Larger electronics companies are also beginning to take a more direct interest in the country. Although this is only on a very small scale compared to other regional capitals including Bangkok and Ho Chi Minh City. Automotive sales shift from foreign to domestic buyers The new motor vehicle sales market in Cambodia is estimated at about 2.500-3. The newly developing middle class is also driving an active used car market. with unit sales around 20. Coke enters non-alcoholic space The spirits market is dominated by Attwood Industry. for example. Luxury clothing brand ﬂagship stores appearing in the capital Some luxury clothing brands have opened ﬂagship branches in Phnom Penh. A challenge may come from India’s United Spirits. What was at the start of the 2000s mainly a market for foreign businesses and NGOs. Electronics goods widely available Electronics goods are reasonable widely available through local distributors including many smaller family owned shops. Growth in the property market has also helped drive a considerable expansion of the electronic goods sector. bought a majority stake of Cambodia Beverage Company in 2004. Cambodia Capital Research 107 .000 units.000/year.Overview of the Cambodian Economy June 2011 Attwood leads spirits market. some large foreign brands have begun to establish a presence in the country. Coca Cola. including Mango and Axara. which has a 70% market share and imports Johnnie Walker and Hennesey. has now shifted towards a customer base more of wealthy Cambodia citizens over the last few years. In non-alcoholic beverages. where they now distribute their products through local distributor Vimpex. there were almost no such outlets in the capital just ﬁve years ago. with Japan’s Panasonic opening it ﬁrst representative ofﬁce in Cambodia in January 2011. which is planning to open domestic operations in Cambodia. the second largest spirits distiller in the world. with major players including Toyota (the company targets 600 units sales for 2011). Nissan (500 units) and Ford (400 units).
mainly of hotels and guest houses catering to tourists. Other major provincial cities like Battambang are still in the early stages of developing their property markets. 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. as the boom turned to bust.000/sq m at the peak of the boom in mid 2008. and declining to around US$4. 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. and eked out only a small gain in 2010 yoy. and appear to have been spared the oversupply of the capital city. rising from just US$500/sq m to US$5. 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. (Figure 129). and the ﬁrst Grade A commercial ofﬁce building in the capital. there had been little in the way of high rise buildings in the capital. but there was also extensive building in Siem Reap. booming investment began to peak by 2007. even taking into account this reduction.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. Cambodia Capital Research 108 . Canadia Tower. Prime land prices down to US$4k/sq m from US$5k peak Prime land Phnom Penh prices shown in Figure 128 are indicative of just how rapid and severe the boom was. was only completed in 2009.000 according to the most recent estimates by the National Valuers Association of Cambodia. It appears that a best case scenario for the property sector would involve ﬂat prices. Large investment boom peaked in 2007 Prior to this boom. However. However. The US$ value of Phnom Penh housing approvals was nearly halved from 2008 to 2009. many major projects were either put on hold or cancelled as funding dried up during the crisis. 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. but has shown some signs of stabilisation in 2011 • Oversupply still an issue: Although demand appears to be recovering in 2011. However. driven by a wave of foreign investment and a lack of other investment alternatives for domestic capital. 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. This was mainly concentrated in Phnom Penh. but a more bearish scenario could see further price declines.
000 4.375 0 2003 2008 2009 June 2011 2010 Source: Cambodia Department of Land Management.000 6.125 2.750 1. 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 . Urban Planning and Construction Figure 129: Phnom Penh housing project approvals 8.Overview of the Cambodian Economy Figure 128: Phnom Penh prime land price (US$MM) 5.000 0 2008 # project approvals (LS) 2009 2010 Value US$MM (RS) 400 300 200 100 0 Source: Cambodia Department of Land Management.000 2.500 4.
is only expected to see it ﬁrst major housing development. Flat growth in rural home construction as 2010 Provincial housing growth has remained relatively ﬂat as of the latest ﬁgures. However.100 1. limited access to mortgage ﬁnancing. However. no credit bureau and only a small housing stock.184 residences valued at US$221MM from 1. Limited availability of parking in the city centre is also an issue. completed in 2011.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). but the majority of retail space is still mainly limited to stalls in traditional markets. to 1.102 residences worth US$219MM over 9M/09. which although being the second largest city in the country. Homes approved for construction outside of Phnom Penh rose rose only 0. In many cases in the capital. Ofﬁce occupancy rates have reportedly declined from around 80% at the peak of the boom to around the 66% currently. these shophouses have been combined to create larger retail space. one that is unlikely to be relieved soon. the US$7MM. and there is little indication that prices have seen a signiﬁcant rebound in the six months since. or 2-3 story shophouses. any modern form of provincial housing is very much in its early stages. further conﬁrming that oversupply remains an issue. but constrained by high electricity/land cost There are now three modern shopping centres in Phnom Penh. we could view the lack of decline in the ﬁgures as a positive.400 700 0 Q4/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Retail developing. 126 house. the housing market is still in the very early stages of development. given the high cost of land. Rural housing market still in early stages of development In the provinces away from Phnom Penh. given the recent falls seen for the construction industry in Phnom Penh.77% yoy for 9M/10. according to the latest ﬁgures reported to the press by the National Valuer’s Association. with 70% of the population still surviving on subsistence agriculture.800 2. An example is Battambang. With no collateral. 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). Mahatep City. Cambodia Capital Research 110 .
General Disclaimer. used for the creation of derivative works. Cambodia Capital or its afﬁliates. without the prior written consent of Cambodia Capital. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients. distributed.Overview of the Cambodian Economy June 2011 Analyst certiﬁcation. ofﬁcers. performance of recommendations. which includes the overall proﬁtability of investment banking services. This report is produced under copyright by Cambodia Capital and may not reproduced. However. takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of. or personalised investment advice. accuracy of earnings estimates. Information may be available to Cambodia Capital or its afﬁliates that is not reﬂected in this report. this report or its contents. or reliance on. Cambodia Capital makes no representation or warranty. The reader should assume that Cambodia Capital or its afﬁliates may have a conﬂict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein. including investment banking services. estimates and projections contained in this report are those of Cambodia Capital as of the date of this report and are subject to change without notice. and service to clients. or will be. futures or other derivative instruments based thereon. The analyst(s) named on this report certify that the views expressed in this report accurately reﬂect their own personal views about the subject. Cambodia Capital endeavours to ensure that the contents have been compiled or derived from public sources that we believe are reliable and contain information and opinions that are accurate and complete. express or implied. Cambodia Capital Research 111 . The opinions. modiﬁed. related securities or in options. related to the speciﬁc recommendations or views expressed in this report. The analyst(s) also certify that no part of their compensation was. unless stated otherwise in the report. directors or employees may have a long or short position in many of the securities discussed herein. to companies mentioned in this report. and forms no part of any contract with Cambodia Capital. Cambodia Capital or its afﬁliates may provide remunerated services. This material is not and should not be interpreted as an offer or solicitation to buy or sell securities. directly or indirectly. in respect thereof. The analyst(s) named on this report conﬁrm that they do not personally hold positions in any of the companies or securities mentioned in the report. in whole or in part. The analyst(s) who prepared this report are compensated based upon (among other factors) the overall proﬁtability of Cambodian Capital Securities Limited ("Cambodia Capital" or “CamCap") and its afﬁliates. is. copied.
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