Cambodia Capital

Gradually Gaining Traction
Overview of the Cambodian Economy

Investment Research June 2011

Graeme Cunningham, CFA +855 77 990 769

Overview of the Cambodian Economy

June 2011

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

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Cambodia Capital Research


Overview of the Cambodian Economy

June 2011

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


political. sustained progress we find them in nearly every area. since the last armed battle in the capital city Phnom Penh in 1997. Hun Sen is a relatively young 58. the country has seen dramatic improvements. the country had a new constitution and elections supported by the United Nations Transitional Authority Cambodia (UNTAC). Political stabilization under Hun Sen From the low point of the destructive totalitarian rule of the Khmer Rouge from 1975-1979. and reliance on foreign financial assistance. However. or the even more rapid improvements that have been made since the period of relative stability that began in 1997. a wide margin for improvement in terms of social welfare. with the Cambodian People’s Party continuing to gain influence. with 100% foreign ownership of businesses permitted. If we look for signs of gradual. now having majority control of the government. We would rather focus on the continued incremental improvements the country has made since 1980. the country shifted to Vietnamese influenced rule through the 1980s under the State of Cambodia. Open for business Cambodia has a pro-foreign business environment. in contrast to other regional countries. and we do not expect to see his power wane significantly in the near to medium term. Viewed through the lens of an idealized model of a Westernized liberal democracy.Overview of the Cambodian Economy June 2011 EXECUTIVE SUMMARY: Gradually Gaining Ground Cambodia has made impressive strides over the last 13 years. the legal system. economic and social welfare. given the country’s history. Cambodia Capital Research 4 . By 1993. of course. 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). On almost all measures. marking the onset of the first extended period of political stability after nearly 40 years of civil war. where there are significant limits on foreign ownership. there is still. 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. Since then the political situation has stabilized. we believe that this model may simply not be a realistic frame of comparison at this juncture in Cambodia’s development. Although still relatively early in its development. 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. Cambodia is also seeing an increasingly transparent legal and regulatory regime. but there was still factional political infighting.

The risk lies more on the heavy weighting on the garment/textiles and tourism sectors. a system for both is in place. economic. CPP leader Hun Sen is also a relatively young 58 years old and appears to be in good health. 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. progress will certainly not be without political. economic. and it improves every year. Although access to education and healthcare are still far from universal. the relative chaos of the 1980s and the shaky new beginnings of the 1990s. and with some nations refusing to offer financial assistance to the country in the decade following. as well as foreign businesses. and 3) agriculture exports starting to reach critical mass. social. leaving the economy heavily geared to the fortunes of the international clothing manufacturers and the whims of global tourists. with 35 banks currently operating. 2) massive growth in the tourist industry. rubber and timber products. 1) a significant garment/textile manufacturing base having developed. the current social system is a clear improvement on the tragedy of the late 1970s. Election results have shown the CPP consolidating power over the last 10 years and there has been no significant strengthening of any second party. for the average Cambodian citizen. economic progress in the 1980s was grinding. By the early 2000s. However. legal Although our outlook on Cambodia is bullish in the medium term. The country is effectively a one party state. Social issues persist. if anything. Risk factors: Political. 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. However. Political stabilization in the early 1990s helped draw back overseas Cambodians who had fled the Khmer Rouge. especially rice. transition risk does remain. giving a needed push to domestic businesses. and a vibrant microfinance industry. given the ruling Cambodia People’s Party (CPP) strong majority in both the national assembly and the senate.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. legal and social risks: Political Risk: Effectively a one party state We view near to medium term political risk as moderate. it was only post-1993 that any clearly identifiable and globally recognized government emerged in Cambodia. the country was enjoying an extended period of strong economic growth. with. Meanwhile. Cambodia Capital Research 5 . the financial system had strengthened. Economic Risk (1): Heavy gearing to tourism and garments The economy is still heavily geared to agriculture. while foreign financial assistance from some key developed nations resumed.

Economic Risk (2): Heavy reliance on foreign assistance The country is also heavily reliant on foreign assistance. which accounted for the majority of the government’s budget deficit financing in 2009. reaching just above 5% as of April 2011. encroach on land and displace citizens. where inflation is already running at an annualized rate of 20%. oil and gas. which brings the risk of doing so prematurely. contract. adding stability and sustainability to the export base. price increases are moderate. Somewhat longer term are the possibilities for the development of mining and extraction. However. as we outline in this report. The country has adequate. there is potential to expand agriculture and dramatically increase agricultural exports. and a modern consumer sector. including commercial.Overview of the Cambodian Economy June 2011 However. but not abundant foreign reserves. non-textile/garment manufacturing. and therefore the country does not have recourse to monetary policy and is very exposed to any depreciation in the US$. be they in the energy. or ineffectively executing the transition. trade deficits Cambodia is a dollarized economy. Inflation is currently relatively benign. 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. with around 90% of transactions taking place in the US currency. 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 countries are facing severe fiscal crises of their own which could feasibly reduce their willingness to assist other nations. Although we find it unlikely that developed nations would abruptly withdraw financial assistance to Cambodia given that it is so small in absolute terms. where the larger institutional investor may have more clout when dealing with the government and business groups. but advancing. at 5 months of imports and 8x the level of short term external debt. However. a heavy hit to the garment or tourism sector in the short term could dramatically slow progress. Legal Risk The legal risk of investment in Cambodia remains significant. compared to Vietnam. It could be within a short five years where Cambodia has reached a much higher proportion of agricultural exports in the economy. Cambodia Capital Research 6 . One of the most pressing issues is when developments. many are yet to be tested in the court system. inflation. even with a pullback from Western or Japanese donors. Although most of the major laws are in place. which in many cases are not properly compensated for the relocation. tax and property laws. We believe there is especially risk for the smaller investor. The country also continues to run large trade deficits. However as all these developments are in nascent stages. Economic Risk (3): Currency. property or infrastructure. However. Social Risk Rapid economic progress has led to a degree of social upheaval for many Cambodians. the country intends to eventually shift to the Riel. agricultural.

but also Cambodian government ministries. the capital city’s water utility. 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. a conglomerate and an insurance company. including a bank. with most sectors of the economy seeing continued rapid development over the next five years. but a total disruption of the current rural way of life. They include listed gaming and mining names in Hong Kong and Australia with 100% Cambodia exposure.Overview of the Cambodian Economy June 2011 With 70% of the population still engaged in subsistence farming. Stock market could start trading by Q4/11 However. Data collection in Cambodia is still developing and we have found there to be some discrepancies between sources. and a handful of private equity funds that invest directly into Cambodia companies. There are three state owned enterprises currently considering listing. Sihanoukville Port. both domestic and foreign. a fixed line telecom. Telecom Cambodia. the country’s only deepwater port. investors may be able to get exposure to Cambodia more easily by the second half of this year. creates sufficient employment opportunities for the newly developing educated middle class. Cambodia Capital Research 7 . Cambodia must also carefully manage the economy’s transition. PPWSA. 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. relocation is not simply a matter of finding new employment. In this way economic growth imposes an uneven tax on those unlucky enough to be residing in areas of heavy redevelopment. we would expect more firms to come to the market to raise capital to fund growth. ensuring continued investment in the economy. with the planned opening of the Cambodian Stock Exchange slated for July 2011. Avenues for investment There are currently only a few avenues to gain equity exposure to Cambodia. Failure to do so could lead to instability. and Phnom Penh Water Supply Authority. with three state owned enterprises to be listed. As we show in this report. There are also other large names considering listing.

However. the military-backed Lon Nol government led a coup to oust the Prince. Cambodia Capital Research 8 . virtually eliminating the education. led by Prince Sihanouk. health and business professions as well as any modern agriculture. the Khmer Rouge. who subsequently sided with an opposition Communist movement based mainly in rural Cambodia. In 1970. Of a reported 1975 population of over 7MM. The economy was destroyed. However. Cambodia hits economic ground zero in 1978 The Khmer Rouge brought about a totalitarian agrarian regime. disease or starvation. 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. Cambodia had enjoyed a peaceful period of Cold War neutrality. have no living memory of Khmer Rouge rule. From the time of independence from the French in 1953 until 1970. emptying the cities and forcing the population to the countryside. 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.Overview of the Cambodian Economy June 2011 Economics: Gaining Momentum • The hopeful generation: Sixty percent of the Cambodian population are under 30.5% since 1993. Cambodia has finally emerged from a nearly 40 year period of instability and civil war that clouded its history from 1970 until 1997-1998. The regime also specifically targeted the educated classes. 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. 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. which took over Phnom Penh in April of 1975. there are significant prospects for a rebalancing of the economy towards higher agriculture exports and increased manufacturing medium term. continues to run large fiscal and trade deficits and is heavily reliant on foreign assistance. Bombing raids into Cambodia related to the Vietnam conflict disrupted rural Cambodian life and dramatically strengthened the Khmer Rouge movement. increasingly well educated. or died in the rural work camps from overwork. and oil and gas.

with some major Western nations not offering financial assistance over the period (largely because of their resistance to Vietnamese influence in Cambodia. which gave rise to a Constitutional Monarchy with a coalition government between current Prime Minister Hun Sen’s Cambodia People’s Party (CPP). and the eventual arrival of foreign businesses. This uneasy coalition held until 1997. 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. run mainly by French-educated royalists. in conjunction with ex Khmer Rouge soldiers (including current Prime Minister Hun Sen) invaded Cambodia in January 1979. Cambodia was able to slowly rebuild its economy through the 1980s and 1990s.) Economic progress was therefore understandably gradual from 1980 to the mid-1990s. with a strong provincial voter backing and a Prince Norodom Ranariddh-led party FUNCINPEC. This lead to the political situation that Cambodia has broadly maintained over the last 13 years.) ii) Demographics: The hopeful generation Slow grind to build human capital through the 1980s This meant that Cambodia’s leaders today. Regardless. the return of educated overseas Cambodians that had fled the Khmer Rouge. and by 1991 the United Nations became more heavily involved in stabilizing Cambodia politically. experienced professionals.Overview of the Cambodian Economy June 2011 This regime finally fell when the Vietnamese army. In 1993. to help them begin to redevelop the economy. political tensions in the region eased. would have gone through their early to middle careers in the mid 1980s and 1990s facing an extremely limited pool of older. the country was barely governed through a loose coalition of warring factions (figuratively and literally). Cambodia Capital Research 9 . Malaysia and Indonesia which saw rapid growth during this period. This occurred at the same time that there was a marked lack of capital available. the United Nations Transitional Authority Cambodia (UNTAC) held elections. and the consolidation of power by Hun Sen. From 1979 until 1992. international assistance. assuming an average age range from 30 to 60 years old. teachers or mentors in any sector other than in traditional agriculture. when armed conflict erupted between armed factions of the two parties in the ruling coalition which ended with the exile of Prince Ranariddh. with the military weight of Vietnam a key factor in maintaining stability. First signs of the ‘new’ Cambodia by 1993 With the end of the cold war in 1989. both through grinding domestic effort. especially compared to the other industrializing regional economies like Thailand.

A young and growing population The most recent detailed population records are available only from 1998. Figure 1 shows that the promise of increased political stability after UNTAC seems to have had an effect on birth rates. with 65% under 30 years of age and 87% under 50 as of the 2008 census.1 MM in 1994.3MM in 1993 to 11. we believe that the current generation now entering the workforce will be the one to propel the country to new economic heights. 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. Building on the very heavy lifting of the generation coming of age in the 1980s-1990s. as shown in the map in Figure 5. The population is heavily concentrated in the Southeast of the country with 36. and has grown up with a gradually stabilizing political system and dramatically improving economy. and probably the largest generation ever to have the possibility to reach tertiary education. the capital city) and 24. The population has nearly doubled from just 7. We also have IMF estimates of total population. 4). IMF The Cambodia population is very young. A second census was taken in 2008.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. as shown in Figure 2. 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. but there is a high urbanization rate. The population is also heavily rural. with the population jumping from 9.0MM in 2010.3% of the population (with 9. Cambodia Capital Research 10 . which is shown in Figure 1. 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.3% in the Northwest. up from just 16% in 1998 (Figures 3.9% in Phnom Penh. with a minor baby boom occurring. when the first major modern census was undertaken. with the government planning to grow beyond ‘Least Developed Country’ (LDC)-status by 2020.

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. 1) further development of industrialization. vehicles and consumer goods. as they leave their parents’ homes to start new families and purchase houses. This will in turn drive.50MM to 1. increasing by a factor of 44x over the decade.8 0.6 1. There has been a 10% decline in the population with no education from 34% in 2008 to 24% in 2008. Cambodia had only 4.758.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. 2) Rising proportion of young families drives consumption A rising proportion of young families in an economy has historically often driven economic growth. and the population completing lower secondary school has risen 200% from 0. and creating a pool of more advanced human capital that industries can draw from.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 . Figure 6 shows the significant increases in education made just between 1998 and 2008.448 post secondary graduates as of 1998. as a rising standard of living leads to increased demand for consumer goods.46MM. Perhaps most interesting in terms of developing a new generation of technocrats to drive the economy. and is accessible to firms and government entities looking to employ workers.5 2. 3) The new urban generation The population is already becoming increasingly urban. Figure 2: Population by age group (MM persons) 3. as labour becomes more concentrated in a given area. and 2) the growth of a modern consumer economy. but now has 196.

32 MM (17.52MM (24.10MM (9.9%) Kandal Takeo Prey Veng Svay Rieng Southeast 4.33MM (9.5%) Kampong Thom Kratie Northeast 2.3%) Mondolkiri Kampong Chhnang Koh Kong Kampong Cham Southwest 1.5%) Kampong Speu Phnom includes: Penh Phnom Penh 1.68MM (12.4: 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.Overview of the Cambodian Economy Figure 3.86MM (36.3%) Pursat North 1.3%) Kampong Som Kampot Source: Government Census 2008. Cambodia Capital Estimates Source: General Department of Mineral Resources Cambodia Capital Research 12 .

5 8. when a decline in the key garment/textiles exports segment and the collapse of an unsustainable real estate boom hit growth.5% since 1993. as shown in Figure 9. Figure 7: Real GDP (Riel TRN) 35. However. have already been translating into vibrant economic growth.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 . for Cambodia.3 17. Real GDP has grown at a CAGR of 7.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. and only seen a single year of below 5% annual GDP growth during the financial crisis in 2009.0 26.7% for 2010 and 6. The IMF estimates GDP growth of 6.5% in 2010 and 2011.0% and 6.5% for 2011 (Figure 8). 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. respectively. with only Myanmar growing more quickly. while the World Bank estimates 6. backed by foreign investment and financial assistance. the economy has returned to rapid growth in 2010 and 2011. Cambodia has seen the second highest growth in ASEAN since 1993.

we see little reason why Cambodia. relative to the size of their populations. Laos was apparently more insulated from the financial crisis. it has been off a low base. Laos) shows more where living standards for the latter could be headed in the future. 1993-2009 China Myanmar Cambodia Vietnam Laos Malaysia Philippines Indonesia Thailand 0% 3% 6% 8% 11% Source: International Monetary Fund Room for improved living standards versus ASEAN Although growth has been rapid. Figure 10 shows nominal GDP since 1993. the country has the second lowest nominal GDP (US$10. Cambodia. Malaysia and Indonesia. especially when compared to the region.8% 2010 3. tracking Laos reasonably tightly until 2005 when its smaller neighbour began to speed ahead. We believe that this gap between the newly industrialised countries of ASEAN (Malaysia and Thailand) and the developing economies of ASEAN (Vietnam.5% 2011 5. Vietnam and Laos cannot eventually become as economically strong as Thailand.8BN) and nominal GDP/capita (US$795) versus the larger ASEAN nations plus China in 2009.Overview of the Cambodian Economy Figure 8: Real GDP forecasts June 2011 IMF World Bank 0% 1. rather than pointing to an insurmountable gap. with Cambodia’s nominal GDP in the middle of the pack for developing Indochina. As shown in Figures 11 and 12. Cambodia Capital Research 14 . As we show throughout later sections of this report. while average living standards in Cambodia decreased in 2008.3% 7.0% Source: International Monetary Fund.World Bank Figure 9: Cambodia average real GDP CAGR versus the region.

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$).Overview of the Cambodian Economy Figure 10: Cambodia Nominal GDP/capita versus region (US$) 1.250 3.500 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. 2009 300 225 150 75 0 Thailand Malaysia Philippines Vietnam Myanmar Cambodia Laos Source: International Monetary Fund Cambodia Capital Research 15 .

but not insurmountable over time We believe that we will see a significant shift in the composition of the Cambodian economy over the coming years. and modern farming is only beginning to take root. manufacturing around 22% in 2000 and 21% in 2009 and services 38% in 2000 and 39% in 2009. we expect that even as Cambodia’s economy modernises. 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. agriculture will remain the primary source of income for the majority of the population. with agriculture comprising 34% of the economy in both 2000 and 2009. Although this chart suggests at first glance a relatively balanced economy. although this declined to 5. but none are insurmountable over time in our view. Cambodia Capital Research 16 . Bulk of the economy is still subsistence agriculture Subsistence agriculture is the economic life of 70% of the Cambodia population. and the government continues to run large fiscal deficits and is heavily reliant on foreign assistance.0% of GDP in 2008. 5) Country runs large trade deficits: The country continues to run large trade deficits. Opportunities exist to introduce modern agricultural methods to farmers that will raise incomes. tourism Figures 13 and 14 show the split in the Cambodia economy by major sector for the years 2000 and 2009. Heavy dependence on garment exports. which offers both challenges and opportunities for the country. currently there are clearly some significant imbalances.Overview of the Cambodian Economy June 2011 iv) Imbalance: The structure of the Cambodia economy Structural imbalances. As we see in both Thailand and Vietnam. the composition of the economy has been stable over the last decade. and there is also the potential to develop human capital over time given the young population. Challenges in that a large proportion of the population will not have the schooling or skills required for many positions that will need to be filled in this newly developing economy both in the private and public sectors (although we expect this to improve over time).5% in 2009. 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. at 9. 3) Tax revenues low: Tax revenues are still a small contributor to GDP versus other countries in the region. 2) Over concentration in garment/textiles sector: There is a heavy dependence on garment/textiles exports to Western countries and the tourism sector. 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. which leaves Cambodia overexposed to a decline in these sectors.

Cambodia Capital Research 17 . it represented by far the largest component. This leaves Cambodia overly exposed to the revenue movements and manufacturing location decisions of the major global clothing retailers. However. It is rather the heavy concentration in these sectors that creates the risk to the economy.Overview of the Cambodian Economy Figures 13. we expect that the growth of other sectors of the economy may outpace these sectors leading to a gradual rebalancing. at 63% in 2009. tourism and agriculture as a proportion of GDP. 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. However. Cambodia’s garment/textile exports are not particularly well diversified geographically (although Asia is slowly accounting for more of the mix). and that continuing to expand in these sectors is not necessarily the problem. we do acknowledge that Cambodia maintains a comparative advantage in textiles and tourism. Figure 16 shows garment/textiles/footwear exports. just the two former sectors combined accounted for 38% of 2009 GDP. being 90% concentrated in EU and North America.

Consumption has represented over 80% of the economy for the five years to 2009.Overview of the Cambodian Economy Figure 15: Cambodia Manufacturing GDP by segment (US$ MM) 1. G low and X-M continues in deficit Figure 17 shows the breakdown of the economy in terms of consumption.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. We believe that this is the area where we will see the largest structural shift in this data. largely a function of very low tax intake versus the region. Cambodia Capital Research 18 .700 1. especially roads and bridges. like rural electricity and water provision. investment. I stable. with government increasingly gaining a role in providing public goods. but also expanding its presence in public utilities. Government spending is low. government spending and net exports. at just 5%-6% percent of the economy on average from 2005-2009. Investment has remained stable at around 19%.

1% 2. and runs large trade deficits with its Asian trading partners.4% 258 2.855 June 2011 2008 8.9% in 2008 as the financial crisis cut tax revenue at the same time as the government increased spending.8% 10.494 23.619 -15.695 19. at only 4. the deficit is estimated to have contracted in 2010. The government continues to generate very low tax revenues in a regional context.4% 148 1. Longer term there is the possibility of both oil and gas.208 18.705 26. although government revenue more than tripled from 2001 to 2009.4% -567 -6. It is reported that improved tax collection methods should boost tax revenues in the medium term. and in the long term.0% 151 1.1% 6.191 21.4% -554 -8.2% -548 -7.6% 7.4% 89 1. mainly related to the garment industry.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.8% of GDP. The government sector still relatively small and in deficit In addition to the trade deficit.822 84.5% -1.4% -940 -9.391 84.6% 10.575 21.4% -561 -5.3% 1.684 94.4% 47 0.3% 1.962 19.373 2007 6.1% 2. and mineral exports.4% 2. This is not offset by the large trade surpluses it runs with the United States and the European Union.3% 1.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. an increasing number of workers leaving the informal economy for the formal economy should also raise this figure.3% of GDP from 2.4% -27 -0. Vietnam and Laos (Figure 20).023 19. Cambodia Capital Research 19 .427 19.0% 1.3% 1.5%. it is well below Thailand. which could help further ease this deficit. expenditure has steadily outpaced it. This is mainly because the country continues to rely heavily on imports for many industries.395 2006 5.969 81.430 2009 9. 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.7% 7 0.7% 125 1.008 22.6% 2.9% 1.843 77. although the deficit fell to a five year low in 2009 of 5. As shown in Figure 18.0% -171 -1.9% 8. the government continues to run large budget deficits. The deficit widened significantly in 2009 to 6. However.

500 1.0% 0% Deficit (LS) Source: Ministry of Economy and Finance as % GDP (RS) Figure 20: Government revenue as a % of GDP Laos Thailand Vietnam Cambodia 0% 2% 4% 6% 8% Source: International Monetary Fund Cambodia Capital Research 20 .0% 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$MM) 0 -175 -350 -525 -700 2001 2002 2003 2004 2005 2006 2007 2008 2009 8.0% 4.Overview of the Cambodian Economy Figure 18: Cambodia government revenue and expenditure (US$MM) 2.000 1.0% 6.

we believe there may be the potential to see the defense proportion of expenditure rise in 2012. 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 . However. 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. with defense spending at 17% of total expenditure in 2009. From 2004 until 2008. youth and sport at 9%. which been lauded as a good sign for overall improved social welfare. as shown in Figure 22. For the current year. public health at 7%.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. foreign financial assistance covered more than 100% of the total government deficit.10 0.05 0 2001 2002 Defense 2003 2004 2005 2006 2007 2008 2009 Public Health Education. the budget for defense spending is lower as a percentage of total spending.20 0. Figure 21: Key areas of government expenditure as % total expenditure 0. following the continued conflict on the Thai border this year.Youth. and a higher weight has been given to the public health and education categories. and education.15 0.

reserves. In the 1997 crisis. increases in unemployment were not as severe as expected.0% seen in urban Vietnam (this figure may have increased since.5%. Although still high.Overview of the Cambodian Economy June 2011 Unemployment: Low from widespread subsistence farming Unemployment overall is a low 2% in Cambodia. moderately indebted country.42 as of 2009. The heavy weighting to agricultural employment offers a buffer against layoffs in the manufacturing and service sectors. Cambodia Capital Research 22 . We expect that Cambodia will have a similar economic cushion in the medium term. unemployment is 5. However.36BN in external debt according to World Bank estimates.64 in 2001 to 0. in Phnom Penh. from 0. currency. 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. given recent difficulties in the Vietnamese economy).12 as of 2009 (Figure 24). with 70% of the population still employed in subsistence farming (Figure 22). the most economically advanced area of the country. as migrant workers returned to family farms. from 1. inflation External debt to GDP and exports declining Cambodia currently owes US$4.67 in 2001 to 1. external debt to GDP has been declining over the last decade. has also declined. in Thailand. a measure of how quickly the country could cover its foreign debt with its foreign earnings. External debt to exports. and is classified as a low income. which is higher than the just over 5.

Neither of these debts is being serviced. Second. the effective interest rate that Cambodia has been paying on the debt is a low 0.Overview of the Cambodian Economy Figure 24: Key external debt ratios 200% 150% 100% 50% 0% 2001 2002 2003 2004 2005 2006 2007 June 2011 2008 2009 External Debt/GDP Source:World Bank External Debt/Exports Debt of long duration. and by the time of principal repayment. 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). only 7. and Cambodia is negotiating with both countries.7% of the debt is short term.5%. so there is no medium term issue with the current debt. and some may not need to be repaid The composition of Cambodia’s external debt makes it less onerous that it may initially appear. the Cambodian economy may be much larger. better structured. it is still unclear when or if Cambodia will be required to pay back these loans. Third. and more readily able to handle repayment than it is currently (Figure 26). Russian Federation Debt Other bilateral Other multilateral 26% 17% Source: International Monetary Fund Cambodia Capital Research 23 . First. Figure 25: Composition of Cambodia external debt by country 7% 22% 28% ADB World Bank IDA US.

Reserves to months of imports has risen from 4 in 2001 to near 5 as of 2008. but not particularly robust financial cushion (Figure 27).1x in 2001. up from just 3. The National Bank of Cambodia reported US$2. Figure 27: Key foreign reserve ratios 13. and therefore the reserves to short term external debt ratio is strong at 12. but not abundant Cambodia’s key foreign reserves ratios have been improving over the last few years.8 6. short term external debt is a low 7.Overview of the Cambodian Economy Figure 26: Composition of Cambodia external debt by duration 7.6BN in foreign reserves as of end 2009.7% of total debt.3 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Reserves/Month of Imports Source:World Bank. down from a peak of US$2. As shown in Figure 25.8BN in 2008.4x in 2009. Ministry of Economy and Finance Reserves/Short Term External Debt Cambodia Capital Research 24 .5 3.0 9. but still well up on US$1. which leaves the country with an adequate.3% Source: International Monetary Fund Foreign reserves adequate.9BN in 2006.7% Short term Long term June 2011 92.

700 1. Imports: A large proportion of Cambodian imports are from Thailand. As shown in Figure 29.800 900 0 2001 2002 2003 2004 2005 2006 2007 June 2011 2008 2009 Source:World Bank Currency considerations: 90% of transactions still in the dollar Cambodia’s official currency is the Riel. the second largest purchaser of textile exports is the European Union (EU).350 4. the National Bank of Cambodia has kept the Riel trading within a relatively tight trading band versus the US$ (at an average rate of KHR4.108/US$ since 2006. so dollar depreciation does not give Cambodian exports an advantage here. but the economy is effectively dollarized. Figure 29: USD to Cambodia Riel 4.Overview of the Cambodian Economy Figure 28: National Bank of Cambodia’s Foreign reserves (US$MM) 3. There tends to be some seasonality also in the movement of the exchange rate related to the agricultural growing season. However.238 4.600 2. with the Riel pegged to the dollar. The Thai baht has appreciated versus the dollar.013 3. On net we expect the currency effect on imports to be relatively neutral in the short term.900 Jan 06 Oct 06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Cambodia Source: National Bank of Cambodia Capital Research 25 . and an estimated 90% of transactions taking place in the dollar.125 4. with a trough of KHR4. Movements in the dollar have a mixed effect on the economy: Textile exports: Garment/textile exports are priced in dollars.000/US$ and peak of KHR4. Vietnam and China. the Vietnamese Dong has depreciated significantly over the last year and China is gradually allowing its currency to appreciate versus the dollar.241/US$). so a depreciation of the US$ versus the Euro could potentially make Cambodia garments/textiles more attractive to EU buyers. but the majority are purchased in US$.

Overview of the Cambodian Economy Figure 30: Money Supply (US$MM) 4. and the latest reported April 2011 figures show inflation at 5.8% over the decade from 2000 to 2010.2%. which pulled up the average for the decade. Increasing domestic production of food products should also help alleviate this risk over time. the global financial crisis cut commodity prices and inflation subsequently subsided. we do not expect to see a major transmission of food inflation to Cambodia from these neighbouring countries in the short term. Figure 31: Cambodian inflation. There was a significant spike in inflation just prior the the onset of the 2008 crisis to 25%. Meanwhile. mainly driven by the spike in global commodities prices (largely the result of rising food and oil prices).000 1. Cambodian food price changes are especially correlated with Vietnam and Thailand. Cambodia Capital Research 26 . However. prices still appear to be rising gradually. On net.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. In Thailand.000 2.000 3. there have been hints lately that the current commodities bubble may be nearing its end. In Vietnam there has been the mixed effect of a currency depreciation offset by rapidly rising inflation. given the large amount of trading with the two economies. averaging 4. 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. the central bank is raising rates to curb inflation and its currency is still strengthening long term versus the dollar.

Vietnam is a distant third. Cambodia’s exports are still comprised mainly of garments/ textiles and footwear exports to the United States and Europe. Cambodia Capital Research 27 .Overview of the Cambodian Economy June 2011 In a regional context. which comprised 49% and 27%. but deficits persist Cambodia’s overall trade has surged by over 200% since 2001.5% in 2009. average Cambodian inflation from 2004-2009 has been in the middle of the pack. global integration Trade surging. 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. comprising just under 5% of exports in 2009. Figure 32: Inflation in a regional context 20% 15% 10% 5% 0% Myanmar Vietnam Indonesia Cambodia Laos Thailand Malaysia Source: International Monetary Fund Figure 33: Cambodia CPI Index by category 15% 10% 5% 0% -5% -10% Jan 10 Mar 10 May 10 Jul 10 Sept 10 Nov 10 Jan 11 Mar 11 Health CPI Transport Food beverages Communication Housing. Cambodia’s other major regional trading partner. accounting for a combined 76% share of the country’s exports. respectively. but growing rapidly from just 1. although export growth continues to lag import growth and the country ran a trade deficit of 5.5% in 2001. Energy Source: Cambodian National Institute of Statistics vi) Trade and FDI: Advancing regional.

Overview of the Cambodian Economy Figure 34: Cambodia imports and exports (US$MM) 7. at 5% of the total.625 3.875 0 2001 2002 2003 2004 2005 2006 2007 2008 June 2011 11. which comprised 14% of the total in 2009 and South Korea.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. respectively. The country runs large trade deficits with these regional countries which is not offset by exports to the US and EU. However.500 5. EU.8% 2009 0% Imports (LS) Exports (LS) Trade deficit as % GDP (RS) Source: Ministry of Economy and Finance Exports mainly to US. Imports from China. Europa Cambodia Capital Research 28 . General Statistics Office of Vietnam (GSOV).3% 5. are also significant. that demand from the region will be high for these products and we may see these trade deficits contract. has already stated its intentions to increase its imports of Cambodian rice. for example. we expect that as the country increases its agricultural exports. for a combined 50% of imports in 2009 from just 29% in 2001.0% 8. imports largely from East Asia The largest proportion of Cambodia’s imports are from Thailand and Vietnam. China. which have soared to 29% and 21% of total imports. especially rice.5% 2.

Since then. In November 2010. it was only in October 2004 that it joined the World Trade Organisation. Cambodia Capital Research 29 .WTO. which comprises 13 provinces in these three countries. CLMV and ACMECs summits in Phnom Penh. it has proved that it can compete reasonably well even where it does not have significant trade advantage. we believe that Cambodia has generally benefited from its involvement in the various trade organizations. Although the country did join ASEAN in 1999. Cambodia MEC. and thus is offered some advantages in terms of trade because of this. GSOV. CLV. 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. 1) joining the first Ayeyawady Chao Phraya Mekong economic cooperation strategy (ACMECs) at its first meeting in November 2003. it has also been more active within the region. Although the country is classified as a Least Developed Country (LDC). for the first time. further raising its regional profile.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. CMLV Date joined April 1999 October 2004 November 2003 2004 November 2004 Opening to trade appears to have been beneficial so far On net. 2) becoming part of the Cambodia Laos Vietnam Myanmar cooperation framework (CLMV) in November 2004. the country simultaneously held the CLV. 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. and 3) being part of the Cambodia-Laos-Vietnam development triangle.

the country has gained somewhat easier access to the US market from its accession to the WTO. 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. This is the strongest version of the EU Generalized System of Preferences (GSP). comprising mainly garments/textiles and footwear. the country benefited from the absence of non-WTO competition. However. At the time there were limiting quotas.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). However. This is because as of January 1. especially to the US. Accession to WTO offset 2005 end of textile quotas Cambodia is not a country considered by the US for preferential exports. The other benefit of WTO accession is that Cambodia has needed to expand and strengthen its laws to meet the requirements. 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. Cambodia has lost some market share. but this has been offset by the overall growth in the market for textiles/ garments exports to the US. although the US remains Cambodia’s largest single customer for exports. a regulation that had previously allowed countries to apply quantitive restrictions of imports of clothing between WTO countries was abolished. This is under the EU’s Everything But Arms (EBA) initiative to promote imports from Least Developed Countries. We expect therefore that Cambodia will benefit from this program for the next decade at least. without facing quotas. The ending of this regulation allowed nations within the WTO to export garments/textiles freely. This external lever seems to have prompted more rapid development of the legal structure than otherwise might have been the case. but from a comparatively low base. With Cambodia already in the WTO. The last five years have shown that concerns that Cambodia might have severe difficulty competing were unfounded. Currently. so the reduced tariffs within ASEAN over the last ten years have not really been a significant boon for the country. agricultural exports are also growing. which offers lower trade tariffs to many developing countries. 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%. 2005. While Cambodia currently exports mainly textiles/garments to the EU under this system. 90% of Cambodia’s exports are to non-ASEAN nations. with the country expanding its textile exports to the US rapidly since 2005. especially for garment/textiles. although it did face increased competition from other WTO members also enjoying quota-free garment/ textile exports within the organization. which are mainly textiles/garments and footwear. Cambodia Capital Research 30 . The EBA program currently has no fixed end date.

notably agriculture products. Cambodia Capital Research 31 . the majority of agricultural sectors in Cambodia appear to be showing both a high increase in production as well as rising exports.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. And as we have shown above. could slow the growth of some newly developing agricultural sectors. However. Figure 38: Cambodia International Trade Taxes (US$MM) 1. mainly led by investment in an overheating property market. and the gradual reduction in tariffs over the next four years could reduce revenue further.500 1. FDI has since returned to what we view as a more sustainable level. The government generated 21% of its revenue from international trade taxes in 2009 (Figure 38). We believe a larger issue for Cambodia than domestic industry protection. with FDI as a percentage of GDP peaking at 10% in 2007 from a low of just 1.6% in 2003 (Figure 39). 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. government revenue is already low in Cambodia relative to the region. and is directed more to sectors like infrastructure and agriculture that should improve the structural balance of the economy in the longer term. is a potential reduction in government revenue.Overview of the Cambodian Economy June 2011 The question is whether reducing tariffs on some imports from ASEAN.

with Korea and Malaysia the next largest. Regional investment tends to dominate the profile for Cambodia.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 1.500 6. EU and US direct investment in Cambodia has been relatively muted over the period. which is catering mainly to tourists for Angkor Wat. which shows that China is far and away the largest investor in Cambodia over the past fifteen years. if we consider that the transportation category in 2010 consisted mainly of South Korean investment to build a new airport in Siem Reap (although the funding source is still unclear).500 3.000 7. Relative to their economic size.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). Energy and agricultural investment have been the second and third largest investment categories over the last two years. Tourism investment was the largest category for both years.000 4. Cambodia Capital Research 32 . Figure 41 shows the investment breakdown by sector for 2009 and 2010. with most of the major investment coming in recent years.

however.901 665 457 235 146 456 5. Chart 43 shows the eight categories used in the index. the subjective opinion of many Cambodians often do not match their objective ranking globally. At 95 in 2010. 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. but we include them for comparison in Chart 42). 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. Cambodia Capital Research 33 .859 Transportation Energy Agro-Industry Rubber Garments/textiles Other Total June 2011 2010 1. it is unclear whether this has been funded yet. Prosperity Prosperity index gains.Overview of the Cambodian Economy Figure 41: Investment by sector 2009 Tourism centres Energy Agro-Industry Telecommunication Tourism Other Total Source: 3. What is interesting.698 * Nearly US$1BN of this is related to a planned new airport in Siem Reap. is that although Cambodia ranks low in many categories. Cambodia remains well down on the list. vii) Empirical Global Ranking: Corruption. The Legatum Prosperity Index ranked 110 countries in terms of overall prosperity. and thus could be considered tourism related. 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.059* 589 353 190 129 379 2. as would be expected for a Least Developed Country. Also. and the findings of the survey for each.

where ties seems strong Governance 72 Education 90 Health Safety and security Personal freedom 80 66 98 Social capital 97 Source: Legatum Properity Index 2010 Transparency International Corruption Perceptions Index gives a ranking from 1 (most corrupt) to 10 (least corrupt) for the perception of the public sector.Legatum Prosperity Index 2010 Rank Economy Entrepreneurship. but political repression and human flight are also high Although civil liberties are rated low in Cambodia. As shown in Figure 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 . Opportunity 92 100 Detail Over half of Cambodians are satisfied with their standard of living. 94% of citizens report satisfaction with their freedom of choice In a 2009 survey only 12% of Cambodians thought others could be trusted. after actually worsening slightly in 2008 and 2009. although this could indicate others outside the family unit. Cambodia Capital Research 34 . but Cambodians still view their country as offering a good environment for entrepreneurs 4 out of 5 Cambodians are satisfied with the national government. ranking a 2. although corruption is perceived as widespread Although the ranking relative to other nations is low.Overview of the Cambodian Economy Figure 42: Legatum Prosperity Index 2008 Singapore Thailand Malaysia Indonesia Vietnam Cambodia Source: Legatum Properity Index (www.1 in 2010.prosperity. Cambodia does not fare well on this scale. back up at its 2006-2007 rating. Cambodians are extremely satisfied with their education system Cambodians report low health services satisfaction. and high in terms of start up costs. employment rates are high C a m b o d i a r a n k s l ow i n t e r m s o f b u s i n e s s infrastructure. which would be expected given the low ranking Personal safety is perceived as high by Cambodians. and has shown little improvement.

8 2.7 2.3 2009 9.1 2.0 3.1 3.4 5.0 1.1 1.4 June 2011 2010 9.5 3.7 2.0 2.8 1.6 2.2 4.0 1.4 2.4 5.4 Figure 44:Transparency International Corruption Perceptions Index Rating Source:Transparency International Corruption Perceptions Index Cambodia Capital Research 35 .4 2.4 2.6 2.2 5.6 2.6 2.7 2.6 2.6 2.3 4.6 2.5 2.Overview of the Cambodian Economy 2006 Singapore Malaysia Thailand Indonesia Vietnam Laos Cambodia Myanmar 9.1 1.1 1.4 3.0 3.9 2007 9.5 2.8 2.9 2008 9.

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. with the Prime Minister. there followed a period of uncertainty as to whether the new government would hold. but where Thailand prefers a bilateral solution. From 1998 to the early 2000s. Norodom Sihamoni. Two of the senate members are chosen by the King.000 years. with it declared that he shall ‘reign. Currently the countries are trying to negotiate. and the Monarch. This issue goes back as far as 1. prior to that. 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. having joined the WTO in 2004. We would estimate that it was only really since around 2005 that the country could be said to fully stabilised politically. The king has limited political power. Cambodia has gone to both ASEAN and the United Nations with the issue. The 123 National Assembly members are elected for 5 years under proportional voting. but not rule’. the country was embroiled in 38 years of conflict. the head of government. 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. the head of state. another two by the National Assembly. Cambodia Capital Research 36 . We would emphasise that before 1998.Overview of the Cambodian Economy June 2011 Politics: Stabilizing • Improving political stability: The country has shown improving political stability since the Cambodia People’s Party led by Hun Sen took power in 1997 and have continued to consolidate their leading position since • Increasingly integrated into world system: Cambodia has become increasingly integrated politically both globally and regionally. as shown in Figure 45. as the Cambodian People’s Party increasingly strengthened its hold on political power. and some factional infighting. The system has a bicameral parliament. Hun Sen. A constitutional monarchy The Cambodian system of government is officially a constitutional monarchy. and the rest are chosen by voting in Cambodia’s 24 provinces.

begin battles with Lon Nol forces. Hun Sen’s Cambodia People’s Party (CPP) is far and away the dominant political force in the country. US army moves into Cambodia. Khmer Rouge remains a danger. 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. 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. with the opposition Sam Rainsy Party winning 26 seats. 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. it won 90 of 123 seats. 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. Prince Sihanouk leaves for exile in Beijing. bombing raids in rural Cambodia lead to growth in Khmer Rouge movement Khmer Rouge. In the last National Assembly election on July 27. and maintains neutrality over US/Vietnam conflict. and then North Korea. 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’. Hun Sen’s Cambodia People’s Party wins. The Paris Agreement is signed 1991. 2008. the country initially sees economic progress. By 1997. Cambodia Capital Research 37 . Political split widens in 1960s between the Prince. but Prince Rannariddh led FUNCINPEC also does well. both leaders are elected as co-prime ministers A uneasy alliance exists between the two ruling parties. Khmer Rouge resurgence is still a threat. repatriate Khmer citizens that had fled to Thailand. with the UN still officially recognizing the party as ruling the country from 1979 to 1982. and establish free and fair elections The United Nations Transitional Authority Cambodia (UNTAC) arrives.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. which allows the UN to oversee a ceasefire. Massive improvements made in developing the legal. allied with the United States. 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. and holds elections. at first heavily backed by Vietnamese forces.

the party’s leader. Since these elections. is in exile in France after being convicted in absentia of defamation charges after accusing the government of corruption. with nine seats. 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. with its platform originally based on a Marxist-Leninist single party system. during the State of Cambodia period of 1989-1991 the party began to shift its ideology to adopt more free market principles.Overview of the Cambodian Economy June 2011 The CPP also dominates the Senate. we have seen little to suggest that the CPP’s dominance is waning significantly. The party was formed from the Kampuchean People’s Revolutionary Party which was the only legally recognized party within Cambodia from 1981-1991. Sam Rainsy Party (SRP): Founded in 1995 (originally the Khmer National Party from 1995-1998). It is unclear if there is a similarly charismatic second in charge to lead the party without the eponymous founder. has a broad base of support. especially with the arrival of UNTAC. winning 43 of 58 available seats in the 2006 senate election. Also. and economic growth continues to be strong. FUNCINPEC is the next largest. led by Hun Sen. In the senate. and the establishment of constitutional monarchy. Cambodia Capital Research 38 . Sam Rainsy. 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. the country was able to weather the financial crisis without massive social upheaval. However. but is especially strong in rural areas.

were a perpetual threat to stability and were recognized as the official Cambodian government by the United Nations as late as 1982. while Thailand’s influence tends more to just the business sphere. However. formed in in 2007. and won 43 of 123 seats in the 1998 elections. the Khmer Rouge began to lose power and any remaining credibility.Overview of the Cambodian Economy June 2011 Human Rights Party (HRP): Is a relatively new party. The party’s current leader is Chhim Siek Leng. and the still threatening Khmer Rouge. and the party again took his name. Informal border trading is widespread with both countries. Cambodia Capital Research 39 . as it won only 2 seats of 123 in the National Assembly in the 2008 election. tend to be fraught with border issues. by refusing to participate in the 1993 elections. Ranaridhh retired from politics in October 2008. It has relatively more sway in the senate. Peaceful and Cooperative Cambodia. Norodom Ranariddh Party (NRP): Another relatively new party. and by 1996 saw a mass defection of over half the remaining soldiers. including land and civil rights. with the two much larger countries possessing both expansive military and economic might relative to much smaller Cambodia. who changed their name to incorporate the new leader. and the party was renamed the Nationalist Party until the Prince announced a return to politics in December 2010. The party appears to be a right leaning centrist party. Bilateral relations with two largest neighbors Cambodia’s diplomatic relations with two of its closest neighbors. 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. Cambodia tends to thus view both Vietnam and Thailand with some degree of suspicion. in which CPP won decisively and the SRP became the second largest party. having won 9 out of 58 seats in the most recent 2006 senate election. Neutral. Funcinpec: FUNCINPEC is a French acronym for National United Front for an Independent. its popularity appears to have waned over the next ten years. However. The party is generally considered a Royalist party. Vietnam and Thailand. Khmer Rouge: The Khmer Rouge orchestrated the complete economic collapse of the country from 1975 to 1979. 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’s popularity in rural areas. originally established in 1981 by Norodom Sihanouk as a counterbalance to then Vietnamese occupation of the country. They remained strong militarily throughout the 1980s. 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. has been growing. FUNCINPEC played an important part in government throughout the 1990s. Leader Kem Sokha has a history of humans rights activism. generally the stronghold of the CPP. and involvement in anti-corruption law.

opposition to Vietnam’s influence issue still remains. and the party appears to still maintain close ties with the Vietnamese officials. Although there has been some minor disruptions to border trade in the conflict areas and a marked decline in Thai tourism to Cambodia. Fighting erupts in February 2011 near Preah Vihear This led to the placement of troops on either side of the border from mid-2008. in far Northwestern Banteay Meanchey province. unrelated to Preah Vihear. Following this battle. the bilateral border committees. By comparison relations between Cambodia and its smaller neighbor Laos tend to be less conflictual. However. trade between the two countries continues to grow strongly. 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. We expect that this issue will continue to weigh on ThaiCambodian political relations. Relations with Thailand sour after border conflict If the border issues with Vietnam are more of a cold war. Thailand initially agreed. Second battle occurs in April 2011 at Oddar Meanchey In late April 2011. but it was stated that Thailand would play an important role also in overseeing the temples. This event appears to be the trigger point. strong words on both sides suggest to us that this agreement is still very tentative. but it was only in February 2011 that fighting erupted. since 1979 there have generally been cordial relations between the two nations. However. with Thailand they became a hot war in February 2011 and then again in April 2011. which has led to a cease fire. but later reversed course and rejected the UNESCO plan.6 sq km area that is the center of the conflict. Cambodia Capital Research 40 . The complex was declared a World Heritage Site in 2008 by UNESCO. In the north of Cambodia in Preah Vihear is a temple complex that was granted to Cambodia in 1962. 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. and lasted for several days with military casualties on both sides. fighting broke out at a second disputed area along the ThaiCambodian border in Oddar Meanchey province. on the whole. The ruling remains unclear especially on a 4. but Cambodia would also have its preferred solution of the presence of ASEAN observers at the border. 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. with some parties opposing what they view as encroachment on both Cambodia’s territory and sovereignty. a decision that has been disputed by Thailand ever since. and officially part of Cambodia.Overview of the Cambodian Economy June 2011 Vietnam appears to have political influence The early incarnations of Hun Sen’s CPP was effectively installed with Vietnamese help.

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. Since then the country has progressively integrated itself into the world system. 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 . it makes the bulk of its exports to the EU and the US. setting the stage for eventual UNTAC-sponsored elections by 1993. and infighting between various factions meant that there was no globally recognized government in Cambodia until after the Cold War ended. and its WTO accession. 3) the country accepts guidance and funding from the Asian Development Bank. 2) the World Trade Organisation in 2004. 1) it joined ASEAN in 1999. 4) with special privileges for least developed countries. IMF and World Bank.

although some key preexisting laws are still in use. With the overthrow by the Lon Nol government. many have not been thoroughly tested in the courts. gradually improving legal system Cambodia has a basic legal system in place. as many of the laws were promulgated over the last ten years. from 1953-1975 the Cambodia legal system was based on the French system under rule by Prince Norodom Sihanouk. However. many important laws were promulgated only in the last 10 years. tax (2003) commercial (2005). a new constitution was adopted from 1970-1975. including banking (1999). but it was not until the current constitution was adopted in 1993 that a clear separation between the legislative. with the major business laws now written. legislative and judiciary branches. there had been no split between these three bodies.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. Prior to the Khmer Rouge. so have not been well tested in the courts • Major business laws promulgated: The country has the key legislation for business in place. with power entirely concentrated in the National Assembly. This was replaced by the 1979 constitution when the Vietnamese overthrew the Khmer Rouge. This constitution led to the establishment of separate executive. A series of constitutions since the 1950s Cambodia has been through a series of constitutions since the 1950s. The legal system is supportive of foreign investment. 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. and Cambodia’s current set of laws. is somewhat of a hybrid from the various periods of the country’s history since independence from France in 1953. However. which was based on the Vietnamese system. with 100% foreign ownership of businesses permitted Foreign-investment friendly. with 100% foreign ownership of businesses permitted. with the most recent a version of the 1993 document with some amendments made in 1998 (Figure 48). 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. We believe that an improving and increasingly transparent legal and regulatory regime will further encourage future foreign investment. from 1979 to 1992. this document itself. Liberalization of this system occurred as early 1989. However. Cambodia Capital Research 42 . executive and judicial functions of government was stipulated. The Khmer Rouge adopted their own constitution. and now has a functioning legal framework. which was ostensibly ‘peasant rule’ but effectively totalitarian agrarianism. insurance (2000).

but not govern Amendments are made to the 1993 constitution. executive and judicial branches are to be separate. Cambodia Capital Research 43 . increasing the National Assembly seats to 122 and allowing for the creation of a 61-seat appointed senate. There was existing contract law. which has largely remained intact to the present. and 2001. By the mid to late 1990s important laws for business were written. with an amendment written in 1999 (Figure 50). promulgated in 1988. an independent judiciary. The establishment of this legal framework coincides with the start of rapid growth in the Cambodian economy. appoints people’s courts to administer justice All power resides at the National Assembly A Constitutional Monarchy is established where the legislative. executive and judicial power coming from the monarch All power derived from the people. with all legislative. peasants and all other labourers. with parliament making laws. in our view. should. The King is head of state for life. serve to support ongoing growth and investment. and a Supreme Court A state of the people. workers.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. respectively. but this is not really brought into effect until around 1998. The tax law was issued in 1997. but were eventually superseded by new laws in 1997. and shall reign. Tax and property/land laws were also in place prior to the current constitution in 1993. the law on banking and financial institutions promulgated in 1999 and an insurance law written in 2000. the country began to further develop its legal structure. The people’s representative assembly determines legislation. with the Law on commercial rules and commercial register coming into effect in 1995. Continued improvement in the legal framework coupled with increased testing of the same. 1976-1978 1979-1993 1993 1998-1999 Source: Cambodia Capital Research Current legal system takes shape in 1993 With the constitution in place by 1993.

and is the basis of the present system. the country shifted to a more liberalised form of Communism. Almost no legal professionals remaining in the country by the end of this period. Although this system was abolished by the Khmer Rouge. Cambodia Capital Research 44 . and given that the key business laws were established only as of the late 1990s. 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. we view getting the capital markets up and running in just a decade as a reasonably quick turn around.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. its influence re-emerges in the drafting of the 1993 constitution Complete elimination of any modern legal system. which included property rights A constitutional monarchy was established by the constitution of 1993. The new constitution was again based largely on the French system. It also allowed for any laws previously written that did not contradict new laws to remain. Current contract law of Cambodia promulgated during this period From 1989-1993. 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. 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.

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). amendment (2003) Law on banking and financial institutions (1999). supersedes 1992 Land law 1988 Cambodia adopted has adopted the regulations of the major trade bodies it has joined. Law on financial leases (2009) Land law (2001). 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 issuance and trading of nongovernment securities (2007). Law on negotiable instruments and payment transactions (2005). the ASEAN Free Trade Area (1999) and the World Trade Organisation (2004) Labour law 1997 replaces 1992 Labour law Law concerning marks. Insurance law (2000). Law on commercial enterprises (2005) Law on tax (1997).

the government will soon look towards developing the debt market. 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.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. and we expect to see trading by late 2011. the CSX is housed and rolling out its systems. Now it is an issue of the level of preparedness of the three SEOs currently planning to list. which allowed for the development of a bond market in Cambodia. The tight lending standards of Cambodian banks (which we view as prudent. 1) granting credit 2) taking deposits or 3) offering payment processing. . particularly from China. establishing the Cambodia Stock Exchange has clearly taken precedence over the bond market in the last several years. through 35 banks (including specialised banks*). Therefore there are still no government or corporate bonds issued in Cambodia. there is also growing international interest in lending to Cambodia from private and policy banks. 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. there are 13 microfinance institutions that are a key source of capital. was promulgated well before the equity market laws. Public equity market to open this year. 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. and that a Cambodian sovereign issue could be seen within the next 2-5 years. However. and especially to small agricultural businesses. These institutions support many projects that cross borders in the Greater Mekong Sub Region. For rural lending. given the market risk) limits the growth of many riskier ventures that could potentially be funded by more risk tolerant equity investors. 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. or only a single component of each of the three services. and the securities and support firms have all been licensed. but the related legislation has been drafted. The required regulations have been issued by the SECC. given the presence of a handful of domestically based funds. private equity investment in Cambodia is growing. as well as interest from regional funds. Banks loans currently the key source of capital The main source of capital in Cambodia is bank lending. private equity growing The public equity market is very near opening. Bond law written but no market yet Although the Law on the Issuance of Government Securities. We estimate that the first trade could happen by Q4/2011. we expect that with the equity market nearly up and running. but they represent a small proportion of total lending. In addition.

dealers. underwriters. SBI Securities for SAP. it may take 5-6 more months for the underwriters to ready the SEOs for listing. Settlements will be undertaken separately by commercial banks which were awarded their licenses on February 28. and has been actively promulgating regulations over the last two years. 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. and underwriters chosen (Figure 51). all state-owned enterprises. 2011 planned opening. brokers. 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. For more detail. the Securities Exchange Commission of Cambodia (SECC) has been established since 2007. Sihanoukville Autonomous Port (SAP). are being rolled out The securities firms officially received their licenses in early Nov. 2) the trading. Other private companies are contemplating listing. CSX and securities firms should be prepared for the official July 11. 2011. Auditors and clearing agents also were licensed at this ceremony Three state owned enterprises. 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. The SECC has a staff of 70 employees 55% owned by the Cambodian government and 45% by the Korean Stock Exchange (KRX). where actual trading followed the official opening of the exchange by about 3-4 months. We could see trading by late Q4/2011 Although the SECC. advisors and settlement banks. has promulgated most of the major regulations we estimate will be required prior to opening the CSX.’ Cambodia Capital Research 47 . based on the KRX. have been selected. 4) the first three companies to be listed. 2011 report ‘Approaching a Final Frontier: Progress on the Road to Opening the Cambodia Stock Exchange. please see our April 27. 1) the regulator. 2 dealers and 2 advisors permitted to operate. and Tong Yang Securities for PPWSA and TC. clearing agents. 2010. A location in Canadia Tower is secured and the systems. with 7 underwriters. The underwriters have been chosen. and auditors have all been licensed. This is similar to what was seen in the Laos exchange.

With 70% of the population engaging in subsistence farming.2010. while the interest rate on US $ 12-month deposits has averaged around 5%. As shown in Figure 52. i) Banks: Strong growth. 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$25MM in 2010. even with these myriad institutions. Deposit Rates Riel 20% 15% 10% 5% 0% Jan 07 July 07 Jan 08 July 08 Jan 09 July 09 Jan 10 July 10 Jan 11 Source: National Bank of Cambodia Although we expect that the availability of quality credit will increase as the economy and especially housing sector develops. but we believe that they also accurately Cambodia Capital Research 48 . while balance sheets remain healthy • Microfinance supporting agriculture: The microfinance sector continues to grow rapidly and is especially important in funding the key agricultural sector.There is no life insurance given a high regulatory capital requirement Cambodian financial system increasingly well developed The Cambodian financial system is becoming increasingly well developed. 13 key microfinance institutions and 6 insurance companies. plus 1 new entrant since). There remains excess liquidity in the system and banks compete for quality creditors. 5 specialized banks. and the risk to financial institutions will keep interest rates high. there are still large hurdles to growing lending. However. healthy balance sheets Figure 52: Interest. it will remain a major constraint over the medium term.Overview of the Cambodian Economy June 2011 Financials: Crisis proven • Strengthening banking system: The banking system in Cambodia continues to improve. the interest rate on US$ 12month loans has averaged about 16% since 2007. with only spartan housing. having weathered the 2008-2009 financial crisis and returned to strong growth in 2010. there are 30 banks (the 29 reported by the National Bank of Cambodia at end. limited assets available for collateral and lack of a credit bureau. access to capital is still relatively limited for many businesses and the majority of the population. while claims have been decreasing over the last several years. The high interest rates from banks are an impediment to growth.

deposits. 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. We believe that as the economy develops we will see the spread on loans versus deposits contract. Figure 53: Cambodian banks’ loans*. leaving a total 5 specialized banks .

Interest rates in Laos have historically been the highest. The individual banks in this group had between US$285MM and US$727MM in loans in 2010. as it is the most developed economy of the group (Figure 54). these issues are not uncommon to the region. domestically owned banking institution) and ANZ Royal (controlled by Australia’s ANZ). 3) The smaller banks: Similar to the middle banks. this will also limit mergers in the sector. Cambodia Capital Research 50 . The larger institutions in this group will compete with the big four. Canadia Bank (a strong. these banks will tend to have a business group as a dedicated customer. accounting for 67% of total loans and 69% of total deposits. They are: Cambodia Public Bank (partnered with Malaysia’s Public Bank). at first glance it would appear that mergers will be a likelihood in the sector. and in Thailand the lowest. which illustrates banking sector loans and deposits. We expect that in this segment. as shown in Figure 53. With such a large number of banks. and between US$491MM and US$860 in deposits. but the smaller institutions may mainly be servicing the local needs of a specific foreign business group with which they are associated. ACLEDA (a local bank that started as a microfinance institution. 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. either domestic or foreign. 2) The middle 12 banks: The middle 12 banks comprise 26% of the loans in the banking sector and 27% of the deposits. Cambodia’s interest rates are near the average for the ACMECS region at around 16%. we believe that in many cases these links to business groups may hold back merger activity between rival groups in home countries.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. These banks comprise just 6% of loans and 3% of deposits. However.

the Industrial and Commercial Bank of China (ICBC) is also considering entering the market. especially the dominance of the current top 4. Canadia. Cambodia’s six specialized banks account for less than 2% of total loans in the banking system. or payment systems) or a single component of each of the three. with a total 21 (13 Phnom Penh/8 provincial). 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 . The first was Vietnam Agribank in mid 2010. It had 14 branches in Phnom Penh and 220 in the provinces as of end-2010 for a total 234 branches (Figure 55). deposits. and the Bank of China (BOC) in Q2/11. in line with its business model catering to smaller rural customers. Meanwhile. CIMB in late 2010. which was small enough that it was not expected to disrupt the market. Two heavyweight new entrants: Bank of China. Only ACLEDA has an extensive country-wide network. a third large bank. far more than the next largest.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. and less than 1% of the deposits. More recently. All three have strong parent operations with ample capital bases. with a total 27 branches (13 Phnom Penh/14 provincial) and Campu. We believe that they could shake up the market. however. CIMB There have been three new entrants to the banking sector since 2009. given its roots in microfinance. there have been two heavyweight entrants to the banking industry.

especially in light of the problems experienced at some major global financial institutions. If we view the financial crisis as a test of the Cambodian banking system. Cambodia Capital Research 52 . 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$3. After loan growth increases of as high as 77% in the lead up to the crisis.000 3. from a 2006 high of 9. it appears to have passed with flying colours.000 1. Loan growth did not turn negative even during the global financial crisis.000 0 2005 2006 Loans (LS) Source: National Bank of Cambodia 2007 2008 2009 June 2011 80% 60% 40% 20% 2010 0% Loan Growth % (RS) Banks looking stronger on most measures The story over the last five years for Cambodian banking has broadly been one of increasing strength. the 22% loan growth seen in 2010 seems to us a more sustainable.0% in 2010 (Figure 57).6%.000 2.Overview of the Cambodian Economy Figure 56: Aggregate bank loans (US$MM).5% gain in 2009. growth in bank loans (%) 4. to a low of 3. 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. but also able to grow through the period. still eking out a 3.000 as of 2010 (Figure 56).

Cambodia Capital Research 53 .31 as of 2009 (Figure 59).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. and Singapore are 8. this may take years. Vietnam.24 in 2007 to 0. 8.5%. the required total capital adequacy ratio in Malaysia. However.95 but had declined to 0.750 2.0%. Thailand.500 1. The National Bank of Cambodia continues to gradually move towards the Basel 2 standards. helping to offset the decline in aggregate net interest income. This remains well in excess of the National Bank of Cambodia’s required total capital ratio of 15%. banks have been growing fee income over the last five years.000 3.75 as of 2010. 9. and 10%. As shown in Figure 55. For comparison. Figure 58: Loans to deposits 5. which also peaked in 2007 at 0. the banking system has strengthened its capital base over the last two years. which well is above the 8% required by Basel 1. but lending rates remained relatively flat (Figure 60.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. with the solvency ratio (or total capital adequacy ratio) rising from a recent low of 0.0%.) This is reflected in the decline in net interest income seen in Figure 61 in 2009. as deposit rates rose with increasing banking competition. as deposit growth outpaced loan growth (Figure 58). but with the market still in the relatively early days of development. respectively.

Storage Personal Consumption Other 18% 5% 5% 7% 9% 10% 12% 35% Source: National Bank of Cambodia Cambodia Capital Research 54 . Public Utilities Hotels. Media.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. Restaurants Manufacturing Agriculture. microfinance loans to the agricultural interests. 1) retail and wholesale operations. Figure 62: Bank lending by sector Retail. Net fee income. we expect that this sector is likely to represent an increasing proportion of lending as it develops. 2) construction and real estate. Forestry. 3) hotels and restaurants and 4) manufacturing. agricultural lending was just 7% of lending in 2010. Interestingly. Real Estate. Wholesale Construction. Transport. IT. are a key support for the sector. Four segments accounted for over 66% of lending. Fishing Telecom. especially through sector-leading ACLEDA. 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. As we show in the next section.

although at least one small bank. but still remained above 40% even in a trough year. as shown in Figure 62. in the hire purchase loan market for vehicles. Aggregate bank sector lending for personal consumption was 5. up 59% yoy.1% of the total.0MM.5MM from the previous US$12. but this has risen quickly from just 2. (having fallen from a 7. High risk still remains in the segment for banks. total personal consumption lending by Thai commercial banks in 2010 was 22.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. at only 0. where the capital requirements are lower. Property and construction are still heavily weighted in banks’ loan books. or the support of large foreign partners. up from 5.2% in 2009 (Figure 62). for instance. Some of these have dealt with their limited capital by downgrading to specialized bank status.003 cards having been issued in 2010. microfinance growth rates saw a decline in in 2009. which represent 94% of the loans in the system. Lending for owner-occupied housing as a percentage of total lending was 3. but also growing rapidly. Cambodia Capital Research 55 . For comparison. and loan growth has rebounded dramatically in 2010. property exposure remains a risk.4% in 2004.6% in 2010. versus 11.279 as of 2006.3% peak in 2008). For most of the top 16 banks. With the many large projects in various stages of completion. 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). 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. banks face the possibility of collateral simply disappearing. This has really only been an issue for a few small banks so far. Similar to the banking sector. Some larger banks have severely restricted credit given to the property sector. they have either more than sufficient capital. Cambodia Development Bank. went into liquidation in March 2011. The credit card segment is still tiny.6% on average in Thailand for 2010. with 14. New capital requirements have caused few downgrades The National Bank of Cambodia introduced requirements for banks to increase their capital to US$37. and the sector especially in Phnom Penh in a degree of oversupply currently.2% of total 2010 lending.

agricultural loans are by far the largest category of loans. microfinance NPLs did spike in the crisis from just 0. 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. 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. Although this figure has declined to 1. it is still well above mid-2000s average. In contrast to what we have seen in the banking sector. at 42% of the total in 2010 (Figure 67).Overview of the Cambodian Economy Figure 63: Aggregate microfinance loans.8% by 2009 (Figure 66).134MM. Agricultural loans were actually much larger in 2010 in absolute terms in the microfinance sector (42% of US$648MM.3% in 2010. Microfinance will continue to be extremely important in Cambodia in allowing the agricultural sector access to credit. where there was not a major increase in NPLs during the global financial crisis. The loans of the main microfinance institutions (excluding ACLEDA) are shown in Figure 65. or US$219MM). with its ‘small loans’ portfolio comprising 34% of total microfinance loans. ALCEDA bank by far dominates the sector. Agricultural loans the largest for the sector Also in contrast to the main banking system. or US$272MM) than the banking sector (7% of US $3.4% in 2008 to 2. Figure 64: ACLEDA ‘small’ loans are 34% of microfinance ACLEDA ‘Small Loans’ Other Microfinance 34% 66% Source: Cambodian Microfinance Association Cambodia Capital Research 56 . for microfinance.

5% 0.Overview of the Cambodian Economy Figure 65: Largest microfinance companies by loans. Commerce Services Transportation Construction Household Others 11% 3% 4% 9% 29% Source: Cambodian Microfinance Association Cambodia Capital Research 57 .3% 1.0% 2. 2010 2% 42% Agriculture Trade.8% 0% 2005 2006 2007 2008 2009 2010 Source: Cambodian Microfinance Association Figure 67: Microfinance loans by sector. 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.

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.9MM in 2010 (Figure 68).0 22. the trend in growth is strong.Overview of the Cambodian Economy June 2011 iii) Insurance: Room for long term growth The insurance industry is relatively small in Cambodia. Cambodia Capital Research 58 . a figure which we would expect to rise given the increasing popularity of insurance and overall economic growth.3 1.5 15. However. with the country having the lowest insurance density to GDP in the region (Figure 70). 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 10.7MM in 2002 to US$24. with industry gross premiums more than quintupling from just US$4. as would be expected with much of the population still engaged in subsistence farming.0 7. Figure 68: Gross insurance premiums in Cambodia 30. as shown in Figure 69.5 0.5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 90% 68% 45% 23% 0% -23% Insurance Gross Premiums (US$ MM) (LS) Source: MEF Insurance Division Growth (%) (RS) Figure 69: Gross claims 3. Meanwhile claims have been falling in recent years.41 MM 2.

they will be required to have an additional US$7MM in capital. however. We note. which so far appears to have been effective. 7% personal accident and 9% health and safety as shown in Figure 68. Cambodia Capital Research 59 . to enter the life insurance business. motor (23%). Existing insurers that are public limited companies are already required to have a minimum US$7MM in capital. the level of claims in 2009 were 34% fire. Given this.7% 1. Figure 70: Insurance density to GDP (2008) 2. One of the main reasons behind the law was to help develop a domestic industry. 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. For comparison. for example.2% 0. health and safety (15%) and personal accident insurance (8%) representing nearly 75% of industry premiums.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. 42% motor.3% 1.6% 0% Malaysia Singapore Thailand Brunei Indonesia Philippines Cambodia Source: MEF Insurance Division Figure 71 shows industry premiums written for 2009. with key categories comprising fire (31%). the massive fire claims in 2007 (Figure 69). infrastructure and new property development should be very good for the industry. This is mainly because of the considerable capital requirement to enter the segment in Cambodia. that this 2009 proportion of claims cannot be considered indicative and the shifts can be volatile.

given the currently low potential commissions. 23%. Forte had a market share of 29%. Infinity. there is little incentive for domestic players to enter the industry. and the 4-5 year period life insurance businesses can require before generating a profit. There are five large competitors. 10%. and one small operator. all with significant market shares as of 2009. 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. However. Asia Insurance.Overview of the Cambodian Economy June 2011 Add to this the lack of domestic expertise in the sector. 20%. that could easily meet the capital requirements. and have sufficient financial flexibility to take a long term view on the market. Caminco. and Cambodia Vietnam insurance commanded less than a percent of the market. Campu 17%. we believe that there may be the possibility of a large foreign player entering the life insurance business within the next few years. 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 . the high upfront costs.

but it is still relatively limited. However. much of this subsistence farming. with loans to the agricultural sector rising from both the banking system. soybean. The country has a large. tobacco. There are also issues of limited processing capacity. cashews. a need for improved irrigation and transport infrastructure. Unmilled production has risen 185% since 1993. even these loans are not sufficient for the agriculture sector to take advantage of the current demand. and Cambodia is now a net exporter. i) Climate. Until recently. 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. Cambodia Capital Research 61 . It also has mountainous regions.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. but official exports have begun to increase in the last five years for many products. in addition to its key rice crop. coffee). with lowland rice making up the majority the country. the Cambodian government and multilateral institutions like the World Bank and ADB. the country was exporting very little formally (although there is clearly informal traffic in agricultural goods across the borders with its neighbors). with 70% of the population subsistence farmers. 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. that although relatively sparsely vegetated. and access to capital to purchase equipment and fertilizer. 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. This situation is gradually improving. that is slowing Cambodia’s progress in becoming a major exporter of agricultural products. Figure 74 shows the main type of vegetation by area. The country has an ample supply of natural resources and labour. sugarcane. using over 80% of agricultural land. Modern farming is beginning to develop. cassava. 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. Gradual improvement is being made in all of these areas. are specifically suited for cultivation of some crops (eg. it is mainly supply side issues. in terms of both physical and financial capital. Sustainable growth sector that is key to balancing economy Agriculture in Cambodia represents the livelihood of the majority the country. coffee. mung and soya beans. but lacks the modern farming methods. cotton and corn maize. Cambodia already cultivates. rubber. With high demand and soaring prices for most agricultural commodities currently.

with the monsoon season running from roughly May to November each year.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. with 32% and Thailand. Only Vietnam. with 30% had a higher ratio than Cambodia at 24%. 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 .

There are an estimated 2.0% 10. with planting from May-July and a harvest in December. 1) a longer wet season crop. and 2) a dry season crop. Figure 76: Rice cultivation by type 8% Lowland Wet Season Deepwater.0% 30.Overview of the Cambodian Economy Figure 75: Percentage of arable land to total land 40. The lowland wet season rice production represents the majority of rice production. with dry season irrigated rice 8%. at 86%. comprising over 80% of agricultural land.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.0% 20. Cambodia has two main rice crops per year (versus three in Thailand and between two and three in Vietnam). and rain fed upland rice 2% (Figure 76). Floating Rice Rainfed Upland Dry Season Irrigated 2% 4% 86% Source: Food security atlas Cambodia Capital Research 63 . and is the key crop cultivated in Cambodia. deepwater rice 4%.7MM hectares of land currently dedicated to rice farming in Cambodia. with planting in November and a January-February harvest.

We believe that Cambodia will eventually hit this target. but that the current timeline may be a bit aggressive. We note that there is significant informal cash-based cross border trade of unmilled rice with Vietnam and Thailand which could put the actual figure much higher.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. 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. Figure 77: Cambodia rice production. 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 . from 15k tonnes in 2009 to 100k tonnes in 2010.000 5.000 tonnes as of 2008 (Figure 77). remain tiny. consumption (‘000 tonnes) 7.250 3. from 2. although they are growing very rapidly. in contrast. and by 2008. The government currently targets one millions tonnes of milled rice exports by 2015.381. but growth targets aggressive Milled rice exports.800. Figure 78: Cambodia unmilled rice imports.Overview of the Cambodian Economy June 2011 Unmilled rice production rises 185% since 1993 Unmilled rice production in Cambodia has risen 185% since 1993. We outline further the constraints that currently limit Cambodian agriculture at the end of this section.500 1. the USDA estimated that 400MM tonnes of unmilled rice were officially exported. These exports became material around 2003 (Figure 78).000 tonnes to 6.

0MM sq. With rubber a key product of ASEAN. at just US$30MM in 2009 (Figure 79). km in 1994 to just 10. Wood product exports were far lower in value terms compared to rubber. Figure 79: Key exports (excluding Textiles and Animal/Vegetable products) US$MM 225 169 113 56 0 Rubber 2006 Source: National Bank of Cambodia 2007 Wood Products 2008 Beverages.3MM sq. reaching 160k hectares in 2010 (Figure 80). and beverages/tobacco. and regional producers expressing more interest in Cambodia as a production base. we expect that the rubber industry will continue to expand. rubber and timber are Cambodia’s largest exports. Land dedicated to rubber cultivation has increased steadily over the last several years driven by rising global prices. Cambodia Capital Research 65 .Overview of the Cambodian Economy June 2011 iii) Rubber and timber: Important exports Rubber industry continues to expand After garments/textiles. animal/vegetable products (including rice). and rubber exports were US$147MM in 2009 (Figure 79). but unsustainable deforestation has hurt the long term potential with forested land declining from 12. 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. km in 2007 (Figure 81).

Figure 83 gives a basic overview of some of Cambodia’s key crops apart from rice. ESCAP 2004 Cassava 2005 2006 Mung Bean 2007 Soya 2008 Cambodia Capital Research 66 .000 3.500 7.000 10.Overview of the Cambodian Economy Figure 81: Forested land (‘000 sq km) 14.500 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. with maize and cassava showing the strongest growth. Figure 82: Cultivated land by crop (‘000 hectares) 160 128 96 64 32 0 2002 2003 Maize Source: MAFF. and mung bean and soya in decline as of the most recently available 2008 statistics.

there is the possibility for increased coffee production longer term A key ingredient in animal feed production. In recent years.8MM tons for 2010 (cultivated hectares in 2008 was 160k). the source of much inland fishing (Figure 84). is highly suitable for coffee production. 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. 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’. the large inland fisheries in the country have seen a decline due to lower water levels along the Tonle Sap and Mekong rivers. however. 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). 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. Seladamex. Fish and seafood are a key ingredient in the Cambodian diet. Cambodia exports cassava mainly to Vietnam and Thailand (the world’s leading starch exporter) currently. and has become increasingly important over the last several years (see Figure 76). comprising as much of 80% of domestic protein consumption. vanilla and other specialty herbs.Overview of the Cambodian Economy Figure 83: Crops cultivated in Cambodia Crop Cassava June 2011 Detail Production is estimated at 3. The product is used mainly for starch. As infrastructure and improved agricultural methods reach this more remote area. the growth in livestock and fisheries production in Cambodia has been reasonably flat to downward trending. Cambodia Capital Research 67 . which is the main export market for the nut. but at least one company. but also in energy production. but the northeastern mountainous climate. with domestic consumption limited Coffee production is still low. for example in Mondulkiri province.

Poultry represents far and away the majority of livestock production (Figure 85). However. with many small farmers raising and selling chickens to supplement rice farming incomes. long term. and 9 are planned in Laos. Most livestock production currently small scale There is little in the way of modern livestock farming. but informal exports likely much higher.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. are 11 planned dams on the lower Mekong that could lower water levels further. Laos has agreed to postpone work on the first major dam Xayaburi. Only two of the dams are in Cambodia. but more importantly disrupt fish migration and reproduction patterns. and as with rice. and most production is small scale by individual farms. Figure 85: Livestock production (MM head) 25 20 15 10 5 0 2004 Bovine Source: MAFF. leaving Cambodia limited influence in the outcome. the dams could further lower water levels and reduce fishing stocks. recorded exports are low. We believe that there is large long term potential for expansion into the country by the large agricultural companies in Thailand. Fortunately. ESCAP Aquaculture Planned dams may exacerbate the problem Potentially exacerbating these current problems. There is demand from Thailand and Vietnam for bovine imports. until further studies are conducted on the potential environmental effects of the dams. but that rice will likely be the main focus for some time to come. ESCAP 2005 2006 Poultry 2007 Swine 2008 Cambodia Capital Research 68 .

6%). especially given rapidly rising global demand and prices for agricultural goods.0% 3.5% 1. there are still major constraints on the sector.3% in 2000 (Figure 86). This includes a lack of access to both physical and financial capital. Vietnam (4.3% 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. Lending by both microfinance and development finance institutions has bridged the gap on this issue to some degree.0% as of 2008 versus neighbors like Thailand (2. but also rice millers that face a lack of access to capital. with limited or no land title. but still limited It is not just farmers. Figure 86: Rice yield. but it still far from completely solved.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. However.3%) and Laos (3. although these issues continue to weigh on the sector. small farms and little other collateral. tonne/hectare 5. fertilizer and machinery. With demand from local millers lows. the incentive is still high for farmers to sell their unmilled rice to Cambodia Capital Research 69 . 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. This would encourage and allow for the purchase of better seed. Rice millers’ access to capital improving. given that the rice yield was a meager 1. which has probably truncated growth in the sector over the last few years. The solution will likely have to come from increased economies of scale in the sector.8% 2. and allow financial institutions to see collateral and be more willing to lend. at just 2. and ensure that farmers have clear title to their land. 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. which makes expansion or refurbishment difficult. possibly through government intervention or cooperatives. banks simply cannot lend to many farmers and still maintain basic lending requirements. they have all improved over the last decade.1%). to increase the effective size of the farms.

and improved roads and the option of rail transport will materially lower the cost of agricultural exports. related logistics and port infrastructure. We believe that downstream development (ie. it would still represent a 10-fold increase in milled rice exports from the current level. the railway system has only recently begun its first refurbishment in about 40 years. mills) will help drive farming efficiency and agricultural development. the railway is being rebuilt. Road and bridge infrastructure in the more remote provinces is still limited. roads and bridges are being developed. The heavily reliance currently on trucking for transportation for goods in Cambodia keeps costs high. banks and microfinance institutions have been increasing the credit available to domestic millers. major forward motion on all these issues has already taken place. Although these actions will take at least 3-5 years to complete. even if Cambodia only reaches half this target in the allotted time. but it is still at a relatively low level when compared against the government’s one million tonne target. 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. storage and warehousing facilities need modernizing and the two main ports need expansion. where there are only about 5 major rice mills currently. The government. and the port expansions are currently underway. which have huge demand for the product. On the upside.Overview of the Cambodian Economy June 2011 Thailand and Vietnam. Nevertheless. Agricultural officials have reported that it would take 30-40 modern rice mills to reach the one million tonne target. multilateral institutions. Cambodia Capital Research 70 . mainly using older technology. road. once finished they could help facilitate major growth in the development of Cambodia’s agriculture exports.

The sector is almost wholly reliant on the fate of the global clothing retailers. The country’s least developed nation status allows it duty free exports to the EU. The sector represented 60% of 2009 exports.5 2. and currently it is a point of structural instability in the economy. the garments/textiles manufacturing industry is the most important single sector for the Cambodian economy.3 5. we do not necessarily see this sector as key to sustainable long term growth. however. In contrast to agriculture. 63% of 2009 total manufacturing output. 88). even compared to other countries historically following a similar textiles-led growth path.0 8. representing 63% of total manufacturing (2009). which together comprise the bulk of the Cambodian textile industry’s customers (Figure 89). and 24% of GDP (Figures 87. especially in the United States (which represented 69% of garment exports from Cambodia for 9M/10) and the European Union (25%). but ended quickly. while textile exports accounted for 60% of total exports.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. 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. and 24% of GDP • Over concentration: We believe that there is an over concentration in the sector. Figure 87:Textile exports to GDP 11. We believe that agitation for higher wages would be the result of rising food prices Economy heavily geared to garment sector After agriculture.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 . and the country’s membership in the WTO allows it quota free exports to other WTO members.

is the fact that the global clothing retailers are notoriously fickle in shifting between countries in terms of placing manufacturing orders. Beyond just the overexposure to global clothing demand.Overview of the Cambodian Economy Figure 88:Textiles/Garments as a % of exports 5. but in the short to medium term it leaves the country highly exposed to the vagaries of this single industry. and this is mainly based on wage rates.000 3. 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. 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.500 1.250 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. We expect that Cambodia could also follow this path longer term. Cambodia Capital Research 72 .750 2. a decline in the fortunes of the global apparel retailers will mean a major hit to GDP in Cambodia.

global commodities and food prices have been soaring.15 0. The unions had been agitating for US$93.6% of exports from 1995 to 2009.23 0. Although inflation has been relatively benign in Cambodia (apart from a short term spike in 2008). The strike ended peacefully with workers returning to the factories. which comprises the majority of the consumption basket for the average Cambodian garment/textiles worker.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 2010.23 0.30 0. with unions striking for just under a week. Figure 90: Thailand textile exports as % of total exports. The main issue for workers agitating for higher wages will be rising foods costs.08 0 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 Source: Bank of Thailand Figure 91:Vietnam textile exports as % of total exports.15 0. 1980-1990 0. 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. As figures 90 and 91 show.Overview of the Cambodian Economy June 2011 However. Cambodia Capital Research 73 .30 0. We expect that strong food price inflation would be the trigger to see further unrest in the garment manufacturing sector. 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. 1995-2009 0.

between US$117-US$147 in the coastal cities. As shown in Figure 92. if the union’s target of US$93/month were to be achieved. and higher wage China. However. Cambodia currently ranks in the middle of the pack at US $61/month between lowest-regional-wages-in-the-industry Bangladesh. the official rate for the Vietnamese Dong to the US$ has depreciated more than 6%. However. likely making the smaller cities less costly in labour terms versus Cambodia. although still leaving it competitive versus China. it would make Cambodia less competitive versus Vietnam. 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 . at US $43/month. Cambodia still offers far less expensive labour than the larger cities in Vietnam. even taking into account the devaluation. ranging from US$63/month in smaller cities to US$93/month in larger ones. Since these figures were issued. however.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. The most recently reported wage figures from Vietnam we have are from late 2010.

Annual arrivals have risen from just 0. Korea and China.Overview of the Cambodian Economy June 2011 Tourism: Shift to regional arrivals • Tourism is third largest sector of economy: Tourism receipts represented 14. and for other destinations over the longer term • Regional arrivals increasingly important: Regional arrivals are an increasing proportion of the total.000 1. the capital Phnom Penh and Siem Reap.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. The industry is still concentrated mainly in two cities so far.2MM in 1995 to 2. making it the third largest single sector of the Cambodian economy.500 1. especially from Vietnam. Figure 93: Cambodia tourism receipts and tourism receipts/GDP 2. and accounted for 14.4% of GDP in 2009 (Figure 93). Other areas of the country also have potential. the location of the World Heritage Site Angkor Wat. However.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 . including other ancient temples and potential eco-tourism sites.4% of 2009 GDP. this has led to a decline in revenue/arrival/day in real terms. the tourism industry is the third largest single sector of the economy. and as road infrastructure gradually improves they will be more easily accessed by tourists (Figure 94). 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.

but we expect this to happen in the next few years. Beyond the three key cities there are also other areas ripe for tourism development in the longer run. 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. virtually untouched islands. mix of business and tourist arrivals Angkor Wat is key attraction. mainly tourist arrivals Beach town near port and commercial facilities Beach lined coast. as shown in Figure 91.9 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 . where development is just starting. 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. 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) 2.6 1.7 0.

015.837 4.9% 11) Laos 23.6% 63.0% 9) Australia 83.181 4.168 4.539 6.286 6.7% 2010 466.9% 72.9% 266.277 3.517 4.6% 289.4% 3) China 161. Given the high number of tourist arrivals we see for other Southeast Asian nations (14.5% 2008 209.0% Source: Cambodian Ministry of Tourism Cambodia Capital Research 77 .973 7.1% Total Arrivals % growth 2.949 4.285 4.7% 84.128 18.005 5.8MM to Vietnam).8% 163.6% 148.079 6. we expect that as Cambodia’s reputation as a destination continues to improve.7% 161.298 16.1% 84.806 7. 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.957 4.180 5.6% 98.9% 60.702 11.525 12.6% 197.6% 145.9% 5) US 137. with arrival growth averaging 19.0% 4) Japan 158.577 1.4% 2.9% 106.1% 146.2% 8) Thailand 101.8% 146.0% 83.465 5.933 2. it will be able to gain share from other regional markets.3% per year from 1995-2010 (Figure 95).5% 2009 316.8% 97.5% 7) UK 84.3% 94.353 7.9% 102.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. Figure 96: Cambodia arrivals by country and as percentage of total arrivals (‘000) 1) Vietnam 2007 125.8% 113.1% 96.020 5.725 9.695 18.5% 151.9% 105.8% 93.067 4.1% 146.581 3.6MM to Malaysia and 3.590 5. 23.437 4.8% 6) France 90.286 5.7% 91.5% 2.806 7.161.516 9.598 3.9% 2.229 3.5MM in 2010.103 4.000 3.795 6.909 16.6% 109.5% 103.2% 2) Korean 329.508.2MM in 1995 as Cambodian began to stabilise politically to over 2.202 14.1MM arrivals to Thailand in 2009.5% 163.311 2.125.093 4.018 4.442 6.973 8.2% 10) Taiwan 118.119 3.482 6.060 1.

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. long-term opportunities. For more detail on the Cambodian tourism industry. if Mekong arrivals continue to increase at a rapid rate. we may see the volume growth offset the lower receipt per average arrival. leading to rising aggregate tourism receipts. As shown in Figure 97. and political conflict with Thailand. we may no longer be able to take the arrival growth rate as corresponding to the growth of tourist receipts. We believe that this could mean that arrival figures could become more cushioned to the downside. Declining real revenue per arrival per day over last few years On the downside.5% of arrivals in 2006 to 24. 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). we may see some short term slow down in arrivals from neighbouring nations. Historically Cambodia had been weighted (especially in revenue terms) to tourist arrivals from more distant locations including the US. real revenue per arrival per day had been maintained above US$70/day from 2001 to 2007. This is because in economic downturns. However. but there has seen a significant decline in the figure to below US$60/ day in 2010. as it has been for the last few years. and this could lower the average spending per tourist.9% of arrivals in 2010. please see our January 5. especially due to a surge in arrivals from Vietnam and Laos over the past few years (Figure 96). Europe and Japan. Vietnam and Laos alone have increased from just 9. tourists from far abroad may choose to reduce their budgets and travel more locally. We note that with the current economic difficulty in Vietnam. but we expect that the secular long term trend is for an increase from the Mekong region. 2011 report: ‘Short-term hurdles.’ Figure 97: Average real revenue per arrival per day US$ 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 . Arrivals from the country’s three neighbours Thailand. Therefore.

less so in provinces: The Phnom Penh Water Supply Authority now supplies water to 100% of the city.000 4. 2009 (kWh) Malaysia Thailand Vietnam Indonesia Cambodia Myanmar 0 Source: ASEAN 1. Figure 98: Per capita energy consumption. with an accompanying major expansion towards a national grid • Large oil and gas potential: The country is wholly reliant on oil imports currently.000 3. although there are possible large reserves both on and offshore which are in the early stages of exploration • Water supply reliable in Phnom Penh. the state owned utility Electricite Du Cambodge (EDC).235MM kWh in 2009. given comparably limited development.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. understandably very low versus the region in both absolute and per capita terms. Cambodia Capital Research 79 . supplying just 8. Cambodia ranks second lowest with 94 kWh annual consumption per capita in 2009.000 Extremely fragmented power industry Cambodia’s energy industry is still extremely fragmented and currently has no country-wide power grid.1% of the energy generated in 2009. Among the major ASEAN nations. The electricity supplied by EDC has actually declined significantly in absolute terms since the early-2000s (Figure 101). 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. Thailand per capita energy consumption was over 20x this figure and Malaysia over 35x (Figure 98).000 2. with even the largest single player.

which supplied 5% (Figure 100). which supplied 7% of Cambodia’s energy in 2009. indicating just how limited energy use is outside this single city. are still very dependent on electricity imports from Vietnam.Overview of the Cambodian Economy June 2011 Given this lack of country-wide electricity distribution. especially along the borders. 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. at 67% of the total. with demand clearly still concentrated heavily in the capital. Generation from Phnom Penh still dominates total electricity supply. 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 . and Thailand. parts of Cambodia.

As the country expanded generating capacity to accommodate rapid growth.10-0.18 US cents/kWh. while there is also energy supplied from Vietnam. least developed region.484MM kWH.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. the most sparsely populated. Kirirom. with much of the energy going to Phnom Penh. the grid will still not reach Northeast. and consumers cannot be guaranteed consistency or quality of service. meaning that the industry is not taking advantage of economics of scale. However. and in the Northeast. Figure 101: Electricity sent out by supplier (MM kWh) 1.5% of 2009 domestic production. In the Northwest. paving the way for further investment in generating capacity. Three power plants. there is power to Stung Treng supplied by Laos. the country mainly depends on small scale independent power producers for energy. power is supplied both from Thailand and from Battambang Hydro. domestic generation declined significantly in the 2009 recession. by 2016.4%. The IPPs are generally very small and high in number. domestic energy production from 2003 to 2008 grew 130% from 636MM kWh to 1. Outside these small systems. with only Singapore having higher prices (Figure 102). We note that even after this expansion. while producers with consolidated licenses produced 3. However. as shown by the blue lines on the map.200 800 400 0 2003 IPPs Source: EAC 2004 2005 2006 2007 2008 2009 Consolidated licenses Electricity Du Cambodge Cambodia Capital Research 81 . the grid is expected to be expanded to link the northwest and the Southeast. Independent power producers accounted for 88. with a major contraction in supply from both the IPPs and EDC. This industry structure has kept the energy tariff in Cambodia the second highest in the region.600 1. at between 0. Kamchay and SHV Thermal service the south. IPPs account for nearly 90% of domestic power production Figure 101 shows domestic electricity production and therefore excludes imports from Thailand and Vietnam.

Figure 103: Electricity sent out by type of generation (MM kWh) 1.22 Heavy fuel oil main power source Domestic generation of electricity is mainly done through burning heavy fuel oil. which leaves the country heavily dependent on oil.200 800 400 0 2003 Hydropower 2004 Diesel/HFO 2005 2006 2007 Coal 2008 2009 Wood. Of the total 1. from 583 MW currently to around 2400 MW (for comparison. while hydropower generated 3. Figure 100 shows the total electricity supply by type of generation. for its energy needs. is estimated to come from hydro electric projects and 600 MW from new coal power generating projects (Figure 105).8% and coal just 2. 2011 (US cents/kwh) Singapore Cambodia Indonesia Malaysia Philippines Laos Thailand Vietnam Brunei Myanmar 0 0.3%.Overview of the Cambodian Economy Figure 102: Residential electricity tariff.06 Low Source: ASEAN 0.527 MW expected capacity growth.4% of domestic energy generation in Cambodia in 2009. or 61%. Cambodia Capital Research 82 . given plans currently underway to diversify into hydroelectric and coal power. 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. 927 MW.17 June 2011 0.11 High 0. capacity rose 200% from 2003 to 2010). 100% of which is imported. Heavy fuel oil accounted for 93. generating capacity is expected to rise 300% by 2016.600 1. Under current plans.

Overview of the Cambodian Economy Figure 104: Installed capacity (MW) 2. as it would likely be heavily polluting due to the low quality. On net. disruption of the river environment is a significant issue for the country. The other issue in using the local coal is environmental.875 1. Cambodian coal is relatively low quality with a low thermal value. they pose a serious environmental risk as we mentioned in our agriculture section. but it is unclear to what extent it can be used for cost-effective and efficient domestic power generation. With much of the population existing on subsistence agriculture. 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. we expect that imported coal will still be used to a large degree in the new coal-fired plants. 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. and a large proportion of the protein in the Cambodian diet consisting of fish.534 3.250 625 0 June 2011 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Hydropower Diesel/HFO Wood. On the upside.527 539 2.073 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.500 1. Dams pose environmental risk Although the planned hydroelectric dams will massively increase baseload generation capacity in the country. there have been delays Cambodia Capital Research 83 .

However. production is at least five years away. to allow time for further study on potential environmental damage.7BN bbls of oil. but installed capacity is low. and this source is not yet very cost effective. exploration has only commenced in earnest in the last decade. with estimates of 500MM bbls of oil and 3. Offshore potential. 13. ii) Oil and Gas: Offshore and onshore potential Wholly reliant on imports currently. and only four producing test wells have been developed in recent years. Cambodia also has the possibility of domestic oil production. and the actual resources may prove Cambodia Capital Research 84 . hydro and coal power generation should help alleviate this oil import dependence over the next five years. the available information is summarized in Figure 106. 1) Chevron-Moeco-GS Caltex holds Block A.000BN cubic feet of gas. but limited visibility so far Publicly available information regarding development in the upstream oil industry is limited. this has been divided into six blocks (A to F) and awarded to various international oil companies (Figures 106. planned in Laos. Studies have suggested that there are significant potential oil deposits in Cambodia’s offshore territory. 108). with 227MM bbls of oil and 496BN cubic feet of gas. Xayaburi.727MM bbls of oil and 13.000BN cubic feet of gas. Biomass energy consumption could be considered very high given that many subsistence farmers burn a large amount of wood and other plant sources. As noted above. and there is no domestic production. With the average duration of sunshine at 6-9 hours/day. Given that most of the current electricity supplied is generated by heavy fuel oil. Biogas and biofuel development are also undertaken in Cambodia on a small scale.5BN cubic feet gas Potential reserves estimates have been released for only three of the blocks. although the sector is not without promise over the very long term. but importantly. especially around the southern part of the Tonle Sap lake. However. there is capacity for solar energy. but may have oil reserves Oil in Cambodia is 100% imported currently. the mountainous area of the southwest and the coastal regions. This would be a total 2. if even half of the currently estimated reserves were brought into production. and CNOOC’s Block F. 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. it would greatly cut oil import demand and boost GDP.496BN cubic feet of gas reserves. However. 2) China Petrotech held Block D. The government is currently attempting to promote the development of these resources. as the country has potential offshore and onshore oil reserves. these estimates are subject to criticism by some. this has left the country with little flexibility in terms of energy production. Nonetheless. even on a aggressive timeline. Potential reserves of 2. with 2.Overview of the Cambodian Economy June 2011 recently in the construction of a major dam. There is also some capacity for wind energy generation.000MM bbls of oil and 10.

Overview of the Cambodian Economy June 2011 to be much lower. given that the find was only a single well. possibly by 50% or more. Meanwhile. JHL (7. but political wrangling between the two countries over the area continues. Kuwait Energy (30%). there are estimated to be significant potential oil and gas reserves in an offshore block that is jointly claimed by Thailand and Cambodia.0%). Cambodia Capital Research 85 . one in the early 1970s by Elf. SPC (33.3%). there were two previous waves of drilling. 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. (Historically. CNPA (40. 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 2.000 Gas (BN cubic feet) 3. with the time from the initial oil discovery to the start of extraction taking on average 5-10 years.3%) Polytec (100%) China Petrotech (100%) Medco (60%).3%). and nine wells drilled in the mid 1990s by British and Japanese oil exploration companies). JHL (10%) CNOOC Source: EIC. and occurred 5 years ago. the recent deterioration in bilateral ties between the countries related to the border conflict will surely not assist negotiation on the oil issue. this deadline may prove overly aggressive. 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 (52.000 Companies Involved Chevron(55%). Note: Oil.5%) Petrovietnam (100%) JOGMEC (100%) Source: EIC Joint claims area very promising. Resourceful Petroleum (33. There is also limited transparency on the expected quality of the reserves. GS Caltex (15%) PTTEP (33. However.000 n/a n/a 496 n/a 10. Moeco (30%). or risk losing its concession.5%). with oil documented in four test wells drilled by Chevron in Block A. The prime minister has pressed Chevron to develop the field and start pumping oil by 2012. but politics a hurdle In addition to blocks A-F. This block has been targeted as the most promising of the Cambodia offshore areas.

the countries signed a 2001 memorandum of understanding with the aim to eventually undertake joint development of the area. Cambodian National Petroleum Authority regulates industry The oil and gas industry is regulated under the Petroleum Regulations Act. but then amended in 1998 in 1999. given that the expected location of the oil is around the Tonle Sap river basin. 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.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.Onshore and Offshore Oil Blocks Until the political issues are resolved. originally promulgated in 1991. even though the CNPA 40% latter looks potentially more promising at this stage. the costs to do seismic studies of the area will apparently be moderate given the terrain. To the upside.5% Onshore oil potential around Tonle Sap basin The onshore region with the most potential is the Tonle Sap river basin.5% CNPA 40. 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. The country has been divided into 19 onshore blocks. 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. the Cambodian National Petroleum Authority (CNPA) was established as the industry regulator. There were reports of ‘oil seeps’ in the area as early as a 1958 Chinese study (which was followed up in 2002). however there are four main blocks located nearest to the basin currently expected to have the highest potential for significant oil finds (Figures 107. For the joint claims area with Thailand.5%) Block XV (Petrovietnam) Block III (Total) Block B Source: EIC 2. 109).5% claims area.0% JHL7. JHL 7. but there is still no reliable documented proof of this. Cambodia Capital Research 86 Block XV Pe Block III and XXVI TOTAL . In 1998. The CNPA handles all petroleum related bidding and contracts. Similar to the development of hydropower. However. let alone a move to full production in the joint claims area. We believe that we are more likely to see Cambodia’s wholly Block before the joint owned blocks start producing XII Medco 52. we do not expect to even see a ramp up JOGMEC Block XVII in exploration and testing.

kerosene and oil lubricants Estimated 15% market share. industrial and aviation fuels. has 38 gas service stations. distributes jet fuel at Siem Reap airport. There is also a substantial informal sector. the second largest player is Tela. A large proportion of the imports are sourced from refineries in Thailand. liquified petroleum gas and oil lubricants Six gas service stations. mainly by Sokimex and Tela. has 184 gas service stations. commanding a 15% share. Company has its own jetty able to accommodate 46. fuel oil and lubricant to industrial sector. produces liquified natural gas. The other three players are foreign operators. 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.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 . with this channel comprising between 60%-75% of Cambodia’s oil imports. 1) the country’s only deepwater seaport at Sihanoukville. Estimated 10% market share. especially gasoline. sells liquefied petroleum gas. and 5 storage terminals Estimated market share of 25%-30%. and Thailand’s PTT with a small market share (Figure 110). 2) via Vietnam through the Mekong River delta to Phnom Penh. estimated as high as 20-30% of imports. The market leader is domestically owned operator Sokimex.000 ton ships. 2006 (Total: 1. supplies high speed diesel. which has an approximate 25%-30% of the market. Caltex. across the Thai and Vietnamese borders with Cambodia. Total with about 10% of the market.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. supplies jet fuel to military and government aircraft. has 32 gas service stations. which have terminal facilities at the port. which we estimate has a 30% share. Figure 110: Overview of players on downstream oil industry Company Sokimex Details Estimated market share of about 30%. sells road fuels. fuel oil. power diesel. and sells petrol and engine oils. It also sells fuel to inland industrial customers.has 25 gas service stations. Figure 111: Oil imports by type. gasoline.

Overview of the Cambodian Economy

June 2011

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

June 2011

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

June 2011

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


There are no public. 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. 2) Indochine Mining is a play on both Cambodia and Laos mining. with the company holding tenements in both countries. ASX-listed firms mainly focussed on gold exploration For investors looking to gain exposure to Cambodian mining. 1) Brighton Mining is a pure play on Cambodia mining. there are four Australian Stock Exchange (ASX) listed companies undertaking exploration in Cambodia currently. and thus are not pure Cambodia/Indochina plays. 3) OZ Minerals and Southern Gold already have extensive mining operations already in the production stage in Australia. but also have reasonably large scale exploration activities in Cambodia.Overview of the Cambodian Economy June 2011 Most firms are still in the early exploration phase Other than the construction materials segment. widely available estimates on the potential reserves for the precious metals. 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 . Mondulkiri and Rattanakiri. with their tenements centred in the mountainous North Eastern provinces of Kratie. the company’s only operations are in the country. although firms are beginning to report small potential finds.

the exact extent of all the fees and duties collected from mining companies are not yet transparent. foreign investors in the mining sector face a somewhat loose and untested regulatory regime. it is currently illegal to export mineral wealth from the country. This is another issue with the laws. in Thailand. for example. There have been reports of displacement of citizens and lack of access to land by the local population as the mining firms set up concessions. Cambodia Capital Research 92 . foreign companies can own 100% of their investment. Legal regime established. many average Cambodians do not possess land titles. it appears that MIME issues an opinion on a given project and after it passes through preliminary and exploration stages then it is passed to the CDC for the granting of the license. but no refining capacity Yet another issue is that all mineral resource wealth once extracted is to be consumed in Cambodia. the 2001 Law on the Management and Extraction of Mineral Resources. The government also applies exemptions on customs duties for the mining sector. We expect that this law will be amended as the industry matures. Resources to be consumed locally. Fees involved not transparent. it is not completely clear which ‘competent institution’ holds sway. even with these advantages. although the legislation states that private land owners should be compensated for any disturbance to their land from mining concessions. as both MIME and the Council for Development of Cambodia are involved in granting mineral resource licenses. But it is unclear why such development would occur in advance of evidence of mines coming close to extraction. although the key legislation is in place. which are also faced by Cambodia’s neighbours. However. and do not require a local partner. there is a window to develop this capacity. and the 1996 Law on Environment Protection and Natural Resources Management.‘ However. This is an issue given that the raw materials must clearly be processed and there is no refining capacity in Cambodia currently. Generally. compared to other countries. Additionally. As with other sectors. still left from several decades of civil war. there are also other major risks to the industry in Cambodia. are a long wet season. but remains opaque The legal framework for mineral extraction in Cambodia is not completely clear.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. The key risk is that there is still a large amount of undetonated ordnance and heavily mined areas all across the country. However. limiting both exploration and extraction. given the extended timeline before we can expect significant extraction. Unusually high risks in Cambodian mining In addition to the opaque regulatory environment. The law has been criticised as leaving significant gaps in interpretation. not public information. This makes exploration in Cambodia a far more risky venture than it would be. comprising two laws. while displacement a problem Also. Other risks. First is an article that states that mineral resource licenses are to be granted by a ‘competent institution. which maintain that information related to mineral concessions is to remain private.

including multilateral initiatives for the Greater Mekong Subregion. while a new major airport is planned for Siem Reap. The country's two main ports are also undergoing major expansions. with major extensions into the provinces to be completed by 2015. both domestic and regional. and is set to be completed by 2012 • Seaports set for expansion. Foreign funding of transport projects have been crucial Government spending on infrastructure remains low versus the region. China. 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. with the combined effect of the new changes beginning to have a sizeable effect on the economy by that time. and a rail line running from Singapore to Kunming. These include funding from multilateral institutions including the World Bank and Asian Development Bank. Both domestic and international transport plans underway There are several large scale transport plans that guide transport development in Cambodia. Vietnam. Cambodia also plays a key role in regional transport development plans. bridges and railway. Cambodia Capital Research 93 . expected to be completed by 2014. both through domestic initiatives and as part of regional projects. increasingly. from Chinese policy banks. Cambodia has now begun to rebuild its roads. and is currently implementing its master plan for waterborne transport. 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. Although the projects have varied timelines we expect to see a very different Cambodia in terms of transport infrastructure by 2015. Multiple road development and bridge projects are being undertaken and a revamp of the railway system has already opened its first leg. Malaysia and Japan (through the Japan International Cooperation Agency and Japan Bank for International Cooperation) and. A major rail refurbishment has already completed its first phase. The government is broadly on track with a countrywide road development plan covering the period from 2006-2020. plans for new Siem Reap airport: Both the Sihanoukville deepwater seaport and the Phnom Penh river port are undergoing significant expansions. China. 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. Plans have also been announced for a new Siem Reap airport.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. and most of the major infrastructure projects are supported by international funding. as well as country funding from South Korea.

The Ministry of Public Works and Transport are undertaking rehabilitation of 30. Provincial roads are another 6. and limits the development of these more remote areas.948 km. with examples of current developments. where limited road development adds immensely to transportation time and cost.000 km have already been completed. while rural roads total 18. but still not every province. Cambodia Capital Research 94 .052 km. and the minor national roads another 2. Royal Toll Railway Roads and Bridges: Pushing towards the economic periphery Modern roads now reach each of the major regions of Cambodia. There are currently several areas where travel routes are very indirect.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.643 km. The major national roads in Figure 113 comprise a total 2. of which more than 4. Figures 116 and 117 give detail on the major road systems in the country. where new bridges will cut travel times significantly.391 km of road between 2006 and 2020.615 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. it is expected that Cambodia should have its major rail lines up and running by 2012. 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. Battambang. and the first section was completed in October 2010. a n d i s t h e l e a s t populated. and is currently handling freight. 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. Figure 118 shows the timeline for the completion of the additional sections. commercial operation date (COD) October 2010 Rehabilitation of 146 km Sihanoukville Port to Kampot.Overview of the Cambodian Economy Figure 117: Road and bridge development by region Region Southeast Detail This region has the most extensive road system. 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. COD January 2012 Source: Royal Toll Railway Cambodia Capital Research 95 . and citizens in the provinces using makeshift carriages for short haul journeys. a joint venture between Toll Railway of Australia and Cambodia's Royal Group began a project to refurbish the railway in 2009. as it contains the capital city Phnom Penh. more on the way There had been only limited use of Cambodia’s aging railway system since the 1970s until recently. 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. COD mid-2011 Rehabilitation of 338 km Phnom Penh to Sisophon. helping link the area with Phnom Penh National road 57 is almost complete. 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. Access to neighbouring Ratanakiri province is limited by a dirt road. with some lines used for small scale cement and oil transport. COD February 2012 Construction of 48 km Sisophon to Poipet. However. leading to rising traffic. 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.

Sihanoukville Autonomous Port. from the current 80k TEUs. Neither of the airports is currently planning major expansions. 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. and increasing the capacity of ships it can handle to 20k dead weight tonnes (dwt) from 10k dwt. improved local government credit worthiness and continued evolution of the legal system and enforcement of laws.217k tonnes shipped in 2010). This is expected to change as the city develops its 5 star hotel supply further. respectively) to access international markets. but it appears that SCA will no longer maintain a monopoly if this new airport is open. Korean developers in conjunction with the Cambodian government have announced that they planning to develop a US$1BN new airport for Siem Reap. 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. Phnom Penh and Siem Reap. but are undergoing expansions. we will see increased private sector involvement in both hard and soft infrastructure projects. although the expansion will help the ports accommodate larger ships. the Phnom Penh Autonomous Port. The Sihanoukville Autonomous Port is also expanding by 300k tonnes (versus 2. it has recently begun an expansion. the country will still need to use secondary ports in Singapore and Vietnam (which can handle 75k and 150k dwt ships. which until recently was thought to have a monopoly on the operation of airports in Cambodia. and this had restricted its expansion. This law is fundamental to private sector participation in the infrastructure sector. and do not yet appear to be reaching capacity. subject to improved liquidity in capital markets. with a new container terminal port 30 km outside of the city. However. However. to 200k twenty foot equivalent units (TEUs). However. in the major cities. which will expand its capacity 150%. Cambodia Capital Research 96 .Overview of the Cambodian Economy June 2011 Airports: Second airport for Siem Reap? There are two large international airports operating Cambodia. There are also several small domestic airports in the second tier cities. and a seaport.The situation is still unclear. a river port on the Tonle Sap. We believe that in the medium term. There is also a third international airport in Sihanoukville which is operating. Phnom Penh Port is centred in the middle of the capital city Phnom Penh. but no international flights yet land there. Both ports are facing some capacity restraints. Ports: Expansions will help ease current limitations Cambodia has two major ports.

0 2. while competition is rife in towns at the borders with Thailand and Vietnam. penetration rate (MM) 10. compared to just 40k fixed line subscribers. with 35k of this figure serviced by the state-owned Telecom Cambodia.7MM cellular subscribers as of end 2010. or 61. Figure 119: Mobile telephone reported subscribers.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. but there have been only limited signs of consolidation to date • Diverse media sector: The media sector is diverse with multiple television channels. 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. as casinos vie to attract foreign gamblers (it is illegal for Cambodians to gamble) i) Telecoms: Sustained intense competition Telecoms mainly wireless. competition in other centres: Nagaworld holds a gaming monopoly within a 200 km radius of Phnom Penh. radio stations and newspapers with varying political views tolerated to some degree • Gaming monopoly in Phnom Penh. with fixed line investment concentrated in fibre optic networks. with estimates of 8. Technology 97 .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.2% penetration (Figure 119). Media. fibre optics developing Wireless telecoms dominate the Cambodian market.0 7. Cambodia was still in the early days of rebuilding its economy.5 5. and had only minimal fixed line development. Entertainment.

8 5. Hello and Mfone. Only 2 of the 8 operators. Smart Mobile/Star Cell. For Hello (Axiata) and Metfone (Thaicom). release any detail on revenue or profitability. subscribers are reported in their respective parent’s quarterly releases (Figure 120). and the other smaller operators. there are low barriers to users switching between networks. 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. However. which show market subscribers at 8. which clearly can’t be the case.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. New entrants used promotion such as free SIMs and low pricing plans to draw subscribers. This would imply that the remaining players (Beeline. it was not good for the mobile telephone companies which have faced pressure on revenue and margins.8MM subscribers. and 2) subscriber numbers as reported by the operators to the press for market leaders Mobitel and Viettel. we have only two sources: 1) Ministry of Post and Telecommunications reported figures. Cambodia Capital Research 98 . which may not represent sustainable cash flow for the operators. and the combined subscribers reported individually by just the top 4 players (before taking into account the other 4 smaller players) already a total 8.0 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.5 3. Generally.7MM subscribers as of end 2010. 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.3 2. qb and Excell) have an aggregate negative 100k subscribers. Some discrepancy between sources in reported subscribers There is a clear mismatch between the statistics reported by the MPTC. With 99% of the market still prepaid subscribers and with both voice and data prepaid services available. 2010 (MM) Metfone (Viettel) CamGSM (Mobitel) Hello (Axiata) Mfone (Thaicom) 0 1. This market was good for customers. Figure 120: Top 4 Mobile operators reported subscribers.

We believe that the very rapid increase in Viettel’s reported subscribers puts them well towards the aggressive end of the scale. or the exit of several operators.2MM figure. we arrive at a total 7.68MM in a single month from 2. which will ease competitive pressures at least marginally. and 2) the first merger in the sector had been announced. between two of the smaller operators.2MM subscribers for the top 4 players. which support between 2-5 major operators. Price competition may be heating up again It is difficult to gauge whether the market has permanently exited a period of destructive competition. Cambodia Capital Research 99 . but we had seen two recent indicators that seem upbeat. Currently in the market mobile operators vary in their definition of subscriber.68MM subscribers reportedly gained in December (as there is limited proof that these are long-term active subs). Fibre roll out continues There are currently several firms rolling out fibre networks in Cambodia.52MM as of end-December 2010. which is not guaranteed. Fibre optic networks now reach to most of the larger cities and towns.7MM. at 8. Some industry players would set the active subscriber base lower than our 7. However. with the 336k subs on average for the 5 remaining players. eventually we expect to see the Cambodia wireless market consolidate to a similar structure to other regional markets. but this may not happen until well into 2012. This may have been the number of SIMs distributed. recently Hello has introduced a very low price on-network promotion. which grew by a dramatic 1. which has complementary fibre network) and CFOCN (Figure 121). but the three leaders in the industry are Viettel. holder of the America Asia Gateway license. However. We note that this rough estimate relies heavily on the idea that the MPTC adjusts its figures for active subscribers. we are not convinced that these should be considered active subscribers until a several month track record for a given subscriber has been established. and fibre to the home is increasingly available in the Phnom Penh and Siem Reap. 1) the communications CPI has finally moved out of deflation for the first time at least a year. with some removing subscribers after 2 months of inactivity (conservative) and others retaining inactive subscribers indefinitely. Ezecom (which recently acquired Telcotech. Adjusting Viettel figures after December 2010 surge If we were to assume that the MPTC figure of total market subscribers is correct. suggesting that another round of heavy price competition may just be starting. and adjust the Viettel reported number down by the 1. especially cellular towers.84MM as of end-November 2010 to 4. We expect that we will see either M&A in the sector. and estimate active SIMs at only 6MM. Star Cell and Smart Mobile.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. However. The competition has also driven operators to outsource operating expenses.

Growth is much more likely to be a wireless story in Cambodia.000 km each Figure 122: Internet subscribers (‘000).5G and beyond and the much faster speed of service that this entails. Data growth will be driven by network upgrades to 3. MPTC Details of network June 2011 4. with penetration jumping from 2% to 12% and users rising nearly sixfold to over 173k. in-line with the global trend. with additional 3. we do estimate that the shift will be gradual in Cambodia. Mekong Net and Online have smaller scale fibre networks well below 3.900 km countrywide network including GEPON.Overview of the Cambodian Economy Figure 121: Fibre optic network operators in Cambodia Operator Ezecom/Telcotech Viettel CFOCN Other Source: Companies.000 km planned over the next year 16. 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. home computer penetration will remain low and we expect that internet user growth through this medium will be truncated. Cambodia Capital Research 100 . but even adjusted downward by 50%. metro fibre. As with telecoms. as internet tariffs declined and fibre optic network access continued to expand (Figure 122). with voice service still to comprise the dominant proportion of revenue for the next several years.000 km countrywide network leased by telecom operators and ISPs including Ezecom and Mfone Telecom Cambodia. with browsing enabled handsets much more accessible in price terms compared to computers for the average citizen. and will account for a rising proportion of wireless telecom revenue. With the majority of the population still engaged in subsistence farming with at best intermittent access to electricity. We expect that data demand through wireless devices will be increasingly significant. However. these figures may be somewhat exaggerated.000 km countrywide network 4. they would show a breakout year in 2010.

but less than 20 have a regular reliable issuance (Figure 124). Most of the stations provide locally produced content. restaurants and higher end apartments and offer access to international television stations. 100% privately owned. 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. Cambodia Capital Research 101 . and began color broadcasts in 1986. but the Rasmei Kampuchea reportedly has the highest. including drama. and their editorial policy tends to reflect the political leanings of the backer. also broadcasts to Rattanakiri. competing with TV5 Cambodia Television Network (CTN) Source: Respective stations Active press with 20 regular newspapers There are myriad registered newspapers in Cambodia. Of 25 major radio stations. Bokor and Siem Reap. There is some question as to the accuracy of reported circulation numbers. Battambang. at 18. has been broadcasting since 2002. Battambang. 17 operate out of the capital. the Phnom Penh Post and the Cambodia Daily. Achieves one of the highest ratings in Phnom Penh. comedies. with only 3 of the 7 major television stations providing country wide coverage. Broadcasts nationwide. broadcasts within 150km of base station Founded in 1996. but it tends to be mainly concentrated in Phnom Penh. coverage in Phnom Penh. There are also two pay TV operators who install satellite dishes at hotels. There are 7 major Khmer language newspapers. Launched in 1992. was re-established in 1979. High ratings in Phnom Penh. and Kampuchea Thmei Daily. Cambodia Cable Television and Phnom Penh Municipal Cable Television. competing with CTN. but the two strongest competitors are the leading paper Rasmei Kampuchea (Light of Cambodia) which started publishing in 1993. conservative station that broadcasts to Phnom Penh and surrounding provinces Owned by the ruling Cambodia People’s Party. music and game shows (Figure 123). Generally the newspapers are backed by one political faction. broadcasted from 1966 until 1975. Television is also Phnom Penhcentric. Also published are Chinese language papers and two English language daily papers.000. Thai-Cambodian owned. 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. Pursat and Sihanoukville through network of provincial government stations Privately owned.

holding a monopoly in the city). Figure 125: Advertising by sector. and is concentrated therefore in Phnom Penh (with one casino.3MM) Beverages Telecommunications Other 17% 14% 68% Source: Indochina Research iii) Gaming: Phnom Penh monopoly. in which countries gaming is illegal (Figure 126). Siem Reap. we would arrive at a full year estimate close to US$90MM. 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. to permit gambling in certain provinces. since the introduction of the 1996 Gambling Suppression Law. Nagaworld. and several towns on the borders with Thailand and Vietnam. estimated circulation of 18. and telecommunications.000 Second most popular paper. respectively. these are the the most recently publicly reported data and they do give us a basic indicator of the size of the market. Cambodia Capital Research 102 . This has meant that the gambling industry is set up to cater mainly to foreigners. The government does have the ability however.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. as reported by Indochina Research. Although admitted this data is dated. rural competition Cambodians are not allowed to gamble or enter gambling establishments. Q1/10 (total US$20. Ad-spend is heavily weighted to beverages. at 14% and 17% of the total spending. 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.

and invested more in expanding its public floor and gaming stations. there were many new entrants into gaming cities on the border such as Bavet.Overview of the Cambodian Economy June 2011 Nagaworld monopoly within 200 km radius of Phnom Penh Nagaworld has held a license since 1995. after a decline of 39% in 2009. and therefore were not in breach of Naga’s agreement. but also because of a major revamp of its strategy. with revenues growing 28%. the reduction in both customers and gambling revenue per customer hit the less competitive casinos. 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. In the boom period leading up to the late 2008 bust. some entertainment establishments had featured gaming machines. Nagaworld had a difficult 2009. with the onset of 2008 financial crisis. earlier in the decade. Cambodia Capital Research 103 . lasting until 2035. However. This has been reflected in the share price of NagaWorld (3918. However. but could not be considered full casinos. leaving Nagaworld the only gaming venue in the city. However. We expect to see closures and consolidation continue in the gambling sector outside of Phnom Penh. This has paid off in 2010. The company in 2009 shifted away from a reliance on the low margin junket business. servicing customers mainly from Vietnam Bavet Source: Cambodia Capital Research.HK). Larger cities such as Siem Reap and Sihanoukville also have gaming businesses.World Casino Directory Strong competition in gaming outside of Phnom Penh Outside of Phnom Penh in the cities where gaming is permitted. the intense competitive situation lies in stark contract to NagaWorld’s monopoly in the capital city. that gives it a monopoly on casino operations within 200 km of Phnom Penh. many of which have been driven out of business. by February 2009. the government undertook a major crackdown on gaming machines in the capital. hit by the economic downturn. driven by the strategy shift as well as a rebound in tourist arrivals. but they do not dominate commerce the way they do in the gambling-focussed border towns. on the border with Vietnam and Poipet on the border with Thailand.

Figure 92) is an indicator for relative wage competitiveness in other industries. a lack of infrastructure may have dissuaded manufacturers from locating in Cambodia. 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. In recent years. Figure 127: Cambodia manufacturing GDP by segment 1.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. This sector has remained remarkably steady as a proportion of the economy for the last decade. Cambodia Capital Research 104 . inexpensive labour and concessionary export market access may remain a very attractive factor for international manufacturers looking for a new base of operations. especially by foreign investors Initial signs of manufacturing moving beyond textiles Manufacturing is still concentrated heavily in the garments/textiles and footwear sectors. we have begun to see foreign businesses outside the garments/textiles/footwear sectors become increasingly interested in basing new operations in the country. Cambodia will be able to diversify its manufacturing base over time. Even five years ago. which represented 63% of total manufacturing in Cambodia in 2009 (Figure 127). similar to its neighbours. We expect that.700 1. there is continued incremental progress.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. but just enough progress has been made that foreign companies are now starting to see the growing opportunity in the country.

Vietnam or Sihanoukville The other SEZs are mainly concentrated on the borders. The remaining SEZ is in Kandal province. 2) customs (full duty exemption on raw materials and equipment) and 3) VAT (0% to pay).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. Both China’s Beijing Autoworks and Southern Korea’s Hyundai are locating car assembly plants in Cambodia. 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. but it is key as it lies adjacent to the Sihanoukville Autonomous Port. and the second phase beginning in February 2011. 1) tax (up to 9 years tax exempt and no export tax). Kampot and Kampong Cham) and 5 near Thailand (1 in Bantaey Meanchey province and 4 in Koh Kong province). Activity at the Phnom Penh SEZ is well underway. the SEZs also have independent power supplies. Phnom Penh and Sihanoukville expected to be the largest The two largest zones are expected to be the Phnom Penh and Sihanoukville economic zones. including small motors. the government has established 22 Special Economic Zones (SEZ). 2 in Bavet and 1 each in Takeo. a manufacturer of electronic components. A large part of the funding is being provided by the Japanese government. with 8 adjacent to Vietnam (3 in Svay Rieng province. 6 of which have started operations. The Sihanoukville SEZ is still under development. Cambodia Capital Research 105 . with the government providing incentives to operate out of these areas with privileges in the areas of. The establishment of Special Economic Zones In an effort to further encourage this growing foreign participation in the manufacturing sector in Cambodia. Meanwhile. the former has already begun selling cars to the local market. Japan’s Minebea. Other SEZs focussed near Thailand. broke ground on a new factory in May 2011 in the Phnom Penh Special Economic Zone. Cambodia’s only deepwater seaport. with 58 factory lots fully accounted for. with the first Phase complete. With the cost of electricity still high in Cambodia compared to the region. or are positioned near the Thai or Vietnamese border to source less costly power from these countries. The zones are effectively large industrial estates. RM Asia is also currently assembling Ford vehicles in the country. and the latter is expected to soon start. or near Sihanoukville.

although some players are beginning to gain critical mass. backed by local conglomerate Chip Mong Group. a major new domestic entrant is expected to hit the market this year. There are currently two main beer producers Cambrew (partnered with Carlsberg). versus 31. Both local and foreign brands have been expanding in the country. luxury clothing.8 litres/year. with a level of capacity sufficient to challenge the incumbents. quick service restaurants. with small shopping malls. with most established only in the last decade. 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 Phnom Penh the heart of the change. 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. Beer market competition intensifying The beer and spirits industry appears to have significant room for growth in Cambodia. alcoholic beverages. and Cambodia Brewery (partnered with Singapore’s Asia Pacific Brewery. There is also growing international development in the sector. However. 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. including local licensees of Thailand’s Minor Group (Swensen’s. including a recently announced transaction by Hong Kong Land. Khmer Breweries. Quick service restaurants a ‘luxury good’ The rise of the quick service restaurant (QSR) had tended to be a sign of a developing upper middle class consumer base in Southeast Asia. with per capita consumption of alcohol at just 11. riding the development of a new urban consumer class Traditional retail still dominates With 70% of the country still subsistence farmers. it is occurring.6 in Laos. and one is planned for Sihanoukville.9 in Thailand. but just this year a modern mall has opened in Battambang. Cambodia Capital Research 106 . We note that illegal imports and smuggling are also still a large part of this market. Supermarkets. Pizza Company) and KFC.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. Given the generally high prices of QSR compared to local meals. consumer electronics and auto sales all seeing rapid expansion. We would characterise the modern retail market as still highly fragmented. producer of the Tiger Beer brand). including wet markets and mainly small family operated retail outlets for distribution. the bulk of retail in Cambodia is still very traditional. However. brand name clothing and electronic goods. minimarts and shopping malls appearing Phnom Penh now sports a series of smaller shopping complexes. Development outside of Phnom Penh is still limited. 19.

Growth in the property market has also helped drive a considerable expansion of the electronic goods sector. Nissan (500 units) and Ford (400 units). there were almost no such outlets in the capital just five years ago. Cambodia Capital Research 107 . A challenge may come from India’s United Spirits. has now shifted towards a customer base more of wealthy Cambodia citizens over the last few years. for example.000 units. Larger electronics companies are also beginning to take a more direct interest in the country.Overview of the Cambodian Economy June 2011 Attwood leads spirits market. some large foreign brands have begun to establish a presence in the country. where they now distribute their products through local distributor Vimpex. What was at the start of the 2000s mainly a market for foreign businesses and NGOs. the second largest spirits distiller in the world. which has a 70% market share and imports Johnnie Walker and Hennesey.500-3. with Japan’s Panasonic opening it first representative office in Cambodia in January 2011. with major players including Toyota (the company targets 600 units sales for 2011).000/year. Coke enters non-alcoholic space The spirits market is dominated by Attwood Industry. The newly developing middle class is also driving an active used car market. Luxury clothing brand flagship stores appearing in the capital Some luxury clothing brands have opened flagship branches in Phnom Penh. bought a majority stake of Cambodia Beverage Company in 2004. including Mango and Axara. In non-alcoholic beverages. Electronics goods widely available Electronics goods are reasonable widely available through local distributors including many smaller family owned shops. with unit sales around 20. Coca Cola. which is planning to open domestic operations in Cambodia. Automotive sales shift from foreign to domestic buyers The new motor vehicle sales market in Cambodia is estimated at about 2. Although this is only on a very small scale compared to other regional capitals including Bangkok and Ho Chi Minh City.

(Figure 129). Prime land prices down to US$4k/sq m from US$5k peak Prime land Phnom Penh prices shown in Figure 128 are indicative of just how rapid and severe the boom was. driven by a wave of foreign investment and a lack of other investment alternatives for domestic capital. The US$ value of Phnom Penh housing approvals was nearly halved from 2008 to 2009. there had been little in the way of high rise buildings in the 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. However. booming investment began to peak by 2007. but a more bearish scenario could see further price declines. and eked out only a small gain in 2010 yoy. It appears that a best case scenario for the property sector would involve flat prices. This was mainly concentrated in Phnom Penh. and the first Grade A commercial office building in the capital. as the boom turned to bust. and appear to have been spared the oversupply of the capital city.000 according to the most recent estimates by the National Valuers Association of Cambodia. 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. but has shown some signs of stabilisation in 2011 • Oversupply still an issue: Although demand appears to be recovering in 2011. was only completed in 2009. Large investment boom peaked in 2007 Prior to this boom. However. many major projects were either put on hold or cancelled as funding dried up during the crisis. but there was also extensive building in Siem Reap. Other major provincial cities like Battambang are still in the early stages of developing their property markets. However. Canadia Tower. rising from just US$500/sq m to US$5. mainly of hotels and guest houses catering to tourists. the property market declined abruptly in 2009 and 2010. 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. with especially South Korean investors taking a large bet on the development of major new office and residential properties. 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. and declining to around US$4.000/sq m at the peak of the boom in mid 2008. Cambodia Capital Research 108 . 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.

750 1.Overview of the Cambodian Economy Figure 128: Phnom Penh prime land price (US$MM) 5.125 2.000 0 2008 # project approvals (LS) 2009 2010 Value US$MM (RS) 400 300 200 100 0 Source: Cambodia Department of Land Management.000 2.000 6. Urban Planning and Construction Figure 129: Phnom Penh housing project approvals 8.375 0 2003 2008 2009 June 2011 2010 Source: Cambodia Department of Land Management.000 4. 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 .500 4.

any modern form of provincial housing is very much in its early stages. further confirming that oversupply remains an issue. 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). according to the latest figures reported to the press by the National Valuer’s Association. Office occupancy rates have reportedly declined from around 80% at the peak of the boom to around the 66% currently. However. Homes approved for construction outside of Phnom Penh rose rose only 0. with 70% of the population still surviving on subsistence agriculture. Mahatep City. but constrained by high electricity/land cost There are now three modern shopping centres in Phnom Penh. Rural housing market still in early stages of development In the provinces away from Phnom Penh. Limited availability of parking in the city centre is also an issue. the US$7MM. given the recent falls seen for the construction industry in Phnom Penh. limited access to mortgage financing. no credit bureau and only a small housing stock. 126 house. Cambodia Capital Research 110 . which although being the second largest city in the country. to 1. and there is little indication that prices have seen a significant rebound in the six months since. but the majority of retail space is still mainly limited to stalls in traditional markets.184 residences valued at US$221MM from 1. However. or 2-3 story shophouses. these shophouses have been combined to create larger retail space. Figure 131: Class A apartment prices monthly rental 2.77% yoy for 9M/10.800 2.100 1.102 residences worth US$219MM over 9M/09. one that is unlikely to be relieved soon. the housing market is still in the very early stages of development. completed in 2011. Flat growth in rural home construction as 2010 Provincial housing growth has remained relatively flat as of the latest figures.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). In many cases in the capital. With no collateral. given the high cost of land.400 700 0 Q4/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Retail developing. we could view the lack of decline in the figures as a positive. is only expected to see it first major housing development. An example is Battambang.

officers. takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of. used for the creation of derivative works. distributed. modified. or reliance on. copied. express or implied. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients. is. related to the specific recommendations or views expressed in this report. The opinions. Cambodia Capital or its affiliates. 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. unless stated otherwise in the report.   Cambodia Capital or its affiliates may provide remunerated services. directors or employees may have a long or short position in many of the securities discussed herein. futures or other derivative instruments based thereon. directly or  indirectly. The analyst(s) named on this report  certify that the views expressed in this report accurately reflect their own personal views about the subject. in respect thereof.Overview of the Cambodian Economy June 2011 Analyst certification. related securities or in options. or personalised investment advice. to companies mentioned in this report. this report or its contents. in whole or in part.  Cambodia Capital Research 111 . This report is produced under copyright by Cambodia Capital and may not reproduced. accuracy of earnings estimates. or will be. This material is not and should not be interpreted as an offer or solicitation to buy or sell securities. Cambodia Capital makes no representation or warranty. The analyst(s) also certify that no part of their compensation was. However. 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. 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. which includes the overall profitability of investment banking services. performance of recommendations. 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. including investment banking services.  Information may be available to Cambodia Capital or its affiliates that is not reflected in this report. without the prior written consent of  Cambodia Capital. General Disclaimer. and forms no part of any contract with Cambodia Capital. and service to clients. 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.

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