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Gradually Gaining Traction
Overview of the Cambodian Economy
Investment Research June 2011
Graeme Cunningham, CFA firstname.lastname@example.org +855 77 990 769
Overview of the Cambodian Economy
Contents Executive Summary Economics: Gaining Momentum
i) Recovery: A short history of the Cambodian economy ii) Demographics:The hopeful generation iii) Rebound: Macroeconomic growth in Cambodia iv) Imbalance:The structure of the Cambodian economy v) External Pressure: Debt, reserves, currency, inﬂation vi) Trade and FDI: Advancing regional, global integration vii) Empirical Global Ranking: Corruption, prosperity
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8 9 13 16 22 27 33
Politics: Stabilizing Legal System: Framework in place Capital Markets: Nascent Financials: Crisis proven
i) Banks: Strong growth, healthy balance sheet ii) Microﬁnance: Agricultural focus iii) Insurance: Room for long-term growth
36 42 46 48
48 55 58
Agriculture: Untapped potential
i) Climate, geography:Well suited for agriculture ii) Rice:The key crop iii) Rubber and Timber: Important exports iv) Other crops: Showing potential on a smaller scale v) Fishery and livestock: Production ﬂattening vi) Constraints: Limited physical and ﬁnancial capital
61 63 65 66 67 69
Cambodia Capital Research
Overview of the Cambodian Economy
Contents Garments: Over concentration Tourism: Shift to Regional arrivals Energy, Utilities: Powering up
i) Electricity production: Defragmenting ii) Oil and Gas: Offshore and onshore potential iii) Water Utilities: Urban success, rural challenge
Page 71 75 79
79 84 88
Mining, Materials: Early days Transport Infrastructure: Connecting TMET: Energetic competition
i) Telecoms: Sustained intense competition ii) Media and Advertising: Strong competitive landscape iii) Gaming: Phnom Penh monopoly, rural competition
89 93 97
97 101 102
Manufacturing: Hints of diversiﬁcation Consumer: Early signs of modern retail Property: Oversupplied
104 106 108
Cambodia Capital Research
there is still. since the last armed battle in the capital city Phnom Penh in 1997. the country had a new constitution and elections supported by the United Nations Transitional Authority Cambodia (UNTAC). Viewed through the lens of an idealized model of a Westernized liberal democracy. we believe that this model may simply not be a realistic frame of comparison at this juncture in Cambodia’s development. a wide margin for improvement in terms of social welfare. political. the legal system. Cambodia is also seeing an increasingly transparent legal and regulatory regime. or the even more rapid improvements that have been made since the period of relative stability that began in 1997. We would rather focus on the continued incremental improvements the country has made since 1980. 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). 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. 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. Cambodia Capital Research 4 . but there was still factional political inﬁghting. Political stabilization under Hun Sen From the low point of the destructive totalitarian rule of the Khmer Rouge from 1975-1979. If we look for signs of gradual. Although still relatively early in its development. where there are signiﬁcant limits on foreign ownership. with the Cambodian People’s Party continuing to gain inﬂuence. By 1993. given the country’s history. On almost all measures. in contrast to other regional countries. marking the onset of the ﬁrst extended period of political stability after nearly 40 years of civil war. now having majority control of the government. of course. and we do not expect to see his power wane signiﬁcantly in the near to medium term. sustained progress we ﬁnd them in nearly every area. Open for business Cambodia has a pro-foreign business environment.Overview of the Cambodian Economy June 2011 EXECUTIVE SUMMARY: Gradually Gaining Ground Cambodia has made impressive strides over the last 13 years. and reliance on foreign ﬁnancial assistance. the country has seen dramatic improvements. economic and social welfare. Hun Sen is a relatively young 58. the country shifted to Vietnamese inﬂuenced rule through the 1980s under the State of Cambodia. with 100% foreign ownership of businesses permitted. However. Since then the political situation has stabilized.
with.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. and with some nations refusing to offer ﬁnancial assistance to the country in the decade following. economic progress in the 1980s was grinding. Myriad social issues still remain. if anything. Election results have shown the CPP consolidating power over the last 10 years and there has been no signiﬁcant strengthening of any second party. but still huge gains since the 1970s-1980s After the devastation of the Khmer Rouge and the political and legal confusion of the 1980s. economic. given the ruling Cambodia People’s Party (CPP) strong majority in both the national assembly and the senate. the current social system is a clear improvement on the tragedy of the late 1970s. leaving the economy heavily geared to the fortunes of the international clothing manufacturers and the whims of global tourists. economic. legal and social risks: Political Risk: Effectively a one party state We view near to medium term political risk as moderate. social. By the early 2000s. Social issues persist. giving a needed push to domestic businesses. Economic Risk (1): Heavy gearing to tourism and garments The economy is still heavily geared to agriculture. and it improves every year. The country is effectively a one party state. and a vibrant microﬁnance industry. However. while foreign ﬁnancial assistance from some key developed nations resumed. CPP leader Hun Sen is also a relatively young 58 years old and appears to be in good health. as well as foreign businesses. Although access to education and healthcare are still far from universal. it was only post-1993 that any clearly identiﬁable and globally recognized government emerged in Cambodia. with 35 banks currently operating. the country was enjoying an extended period of strong economic growth. Risk factors: Political. but we do not view reliance on this sector to be a risk. transition risk does remain. The risk lies more on the heavy weighting on the garment/textiles and tourism sectors. 2) massive growth in the tourist industry. rubber and timber products. Meanwhile. and 3) agriculture exports starting to reach critical mass. the ﬁnancial system had strengthened. especially rice. legal Although our outlook on Cambodia is bullish in the medium term. the relative chaos of the 1980s and the shaky new beginnings of the 1990s. a system for both is in place. for the average Cambodian citizen. Cambodia Capital Research 5 . progress will certainly not be without political. 1) a signiﬁcant garment/textile manufacturing base having developed. Political stabilization in the early 1990s helped draw back overseas Cambodians who had ﬂed the Khmer Rouge. 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). However.
a heavy hit to the garment or tourism sector in the short term could dramatically slow progress. where inﬂation is already running at an annualized rate of 20%. which brings the risk of doing so prematurely. many countries are facing severe ﬁscal crises of their own which could feasibly reduce their willingness to assist other nations. as we outline in this report. It could be within a short ﬁve years where Cambodia has reached a much higher proportion of agricultural exports in the economy. but not abundant foreign reserves. 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. compared to Vietnam. at 5 months of imports and 8x the level of short term external debt. We believe there is especially risk for the smaller investor. reaching just above 5% as of April 2011. Economic Risk (3): Currency. trade deﬁcits Cambodia is a dollarized economy. with around 90% of transactions taking place in the US currency. However as all these developments are in nascent stages. which in many cases are not properly compensated for the relocation. there is potential to expand agriculture and dramatically increase agricultural exports. Cambodia Capital Research 6 . or ineffectively executing the transition. Inﬂation is currently relatively benign. property or infrastructure. The country also continues to run large trade deﬁcits. Somewhat longer term are the possibilities for the development of mining and extraction. reserves. tax and property laws. agricultural. adding stability and sustainability to the export base. where the larger institutional investor may have more clout when dealing with the government and business groups. contract. Although we ﬁnd it unlikely that developed nations would abruptly withdraw ﬁnancial assistance to Cambodia given that it is so small in absolute terms.Overview of the Cambodian Economy June 2011 However. encroach on land and displace citizens. and therefore the country does not have recourse to monetary policy and is very exposed to any depreciation in the US$. oil and gas. Although most of the major laws are in place. inﬂation. many are yet to be tested in the court system. The country has adequate. Social Risk Rapid economic progress has led to a degree of social upheaval for many Cambodians. including commercial. and a modern consumer sector. but advancing. non-textile/garment manufacturing. Economic Risk (2): Heavy reliance on foreign assistance The country is also heavily reliant on foreign assistance. the country intends to eventually shift to the Riel. which accounted for the majority of the government’s budget deﬁcit ﬁnancing in 2009. However. Legal Risk The legal risk of investment in Cambodia remains signiﬁcant. the Chinese government is taking a greater interest in Cambodia in both economic and political terms (although we do recognize that China is also facing some growing macroeconomic imbalances of its own). However. However. be they in the energy. price increases are moderate. One of the most pressing issues is when developments. even with a pullback from Western or Japanese donors.
but a total disruption of the current rural way of life. and a handful of private equity funds that invest directly into Cambodia companies. relocation is not simply a matter of ﬁnding new employment. the country’s only deepwater port. investors may be able to get exposure to Cambodia more easily by the second half of this year. Sihanoukville Port. As we show in this report. There are three state owned enterprises currently considering listing. PPWSA. we would expect more ﬁrms to come to the market to raise capital to fund growth. as well as other domestic public and private organisations. Cambodia must also carefully manage the economy’s transition. with the planned opening of the Cambodian Stock Exchange slated for July 2011. Cambodia Capital Research 7 . A note on data sources in Cambodia: We rely on various data sources in this report including international organisations. Stock market could start trading by Q4/11 However. a conglomerate and an insurance company. ensuring continued investment in the economy. and Phnom Penh Water Supply Authority. In this way economic growth imposes an uneven tax on those unlucky enough to be residing in areas of heavy redevelopment. with three state owned enterprises to be listed. Telecom Cambodia. a ﬁxed line telecom. Avenues for investment There are currently only a few avenues to gain equity exposure to Cambodia. They include listed gaming and mining names in Hong Kong and Australia with 100% Cambodia exposure. including a bank. Failure to do so could lead to instability. There are also other large names considering listing.Overview of the Cambodian Economy June 2011 With 70% of the population still engaged in subsistence farming. the capital city’s water utility. Data collection in Cambodia is still developing and we have found there to be some discrepancies between sources. both domestic and foreign. creates sufﬁcient employment opportunities for the newly developing educated middle class. but also Cambodian government ministries. 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. with most sectors of the economy seeing continued rapid development over the next ﬁve years.
Cambodia Capital Research 8 . 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. disease or starvation. Of a reported 1975 population of over 7MM. which took over Phnom Penh in April of 1975. and oil and gas. The weakening Lon Nol government fell to the Khmer Rouge. virtually eliminating the education. Cambodia had enjoyed a peaceful period of Cold War neutrality. In 1970. emptying the cities and forcing the population to the countryside. 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. Cambodia has ﬁnally emerged from a nearly 40 year period of instability and civil war that clouded its history from 1970 until 1997-1998. However. increasingly well educated.5% since 1993. 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. Bombing raids into Cambodia related to the Vietnam conﬂict disrupted rural Cambodian life and dramatically strengthened the Khmer Rouge movement. The regime also speciﬁcally targeted the educated classes. the spillover of the Vietnam war across Cambodia’s borders dragged the nation into the conﬂict. led by Prince Sihanouk. between 1MM-2MM people were either executed by the Khmer Rouge. However. The economy was destroyed.Overview of the Cambodian Economy June 2011 Economics: Gaining Momentum • The hopeful generation: Sixty percent of the Cambodian population are under 30. From the time of independence from the French in 1953 until 1970. 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. Cambodia hits economic ground zero in 1978 The Khmer Rouge brought about a totalitarian agrarian regime. or died in the rural work camps from overwork. health and business professions as well as any modern agriculture. who subsequently sided with an opposition Communist movement based mainly in rural Cambodia. the military-backed Lon Nol government led a coup to oust the Prince. the Khmer Rouge. have no living memory of Khmer Rouge rule.
In 1993. 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. This occurred at the same time that there was a marked lack of capital available. both through grinding domestic effort. Regardless. assuming an average age range from 30 to 60 years old. 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.) Economic progress was therefore understandably gradual from 1980 to the mid-1990s. the United Nations Transitional Authority Cambodia (UNTAC) held elections. when armed conﬂict erupted between armed factions of the two parties in the ruling coalition which ended with the exile of Prince Ranariddh. and the consolidation of power by Hun Sen. First signs of the ‘new’ Cambodia by 1993 With the end of the cold war in 1989. and the eventual arrival of foreign businesses. Cambodia Capital Research 9 . the country was barely governed through a loose coalition of warring factions (ﬁguratively and literally). teachers or mentors in any sector other than in traditional agriculture.) ii) Demographics: The hopeful generation Slow grind to build human capital through the 1980s This meant that Cambodia’s leaders today. From 1979 until 1992. in conjunction with ex Khmer Rouge soldiers (including current Prime Minister Hun Sen) invaded Cambodia in January 1979. Malaysia and Indonesia which saw rapid growth during this period. which gave rise to a Constitutional Monarchy with a coalition government between current Prime Minister Hun Sen’s Cambodia People’s Party (CPP). the return of educated overseas Cambodians that had ﬂed the Khmer Rouge. with the military weight of Vietnam a key factor in maintaining stability. especially compared to the other industrializing regional economies like Thailand. to help them begin to redevelop the economy. experienced professionals. with a strong provincial voter backing and a Prince Norodom Ranariddh-led party FUNCINPEC. This uneasy coalition held until 1997. international assistance.Overview of the Cambodian Economy June 2011 This regime ﬁnally fell when the Vietnamese army. run mainly by French-educated royalists. and by 1991 the United Nations became more heavily involved in stabilizing Cambodia politically. This lead to the political situation that Cambodia has broadly maintained over the last 13 years. Cambodia was able to slowly rebuild its economy through the 1980s and 1990s. with some major Western nations not offering ﬁnancial assistance over the period (largely because of their resistance to Vietnamese inﬂuence in Cambodia.
The population has nearly doubled from just 7.3% of the population (with 9. The population is also heavily rural. with the government planning to grow beyond ‘Least Developed Country’ (LDC)-status by 2020.3MM in 1993 to 11. IMF The Cambodia population is very young. Building on the very heavy lifting of the generation coming of age in the 1980s-1990s. but there is a high urbanization rate. Figure 1 shows that the promise of increased political stability after UNTAC seems to have had an effect on birth rates.0MM in 2010. as shown in Figure 2. as shown in the map in Figure 5.9% in Phnom Penh. A young and growing population The most recent detailed population records are available only from 1998. 4). with the population jumping from 9.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. when the ﬁrst major modern census was undertaken.1 MM in 1994. with 65% under 30 years of age and 87% under 50 as of the 2008 census. We also have IMF estimates of total population. They are also be the ﬁrst generation since the 1970s in any signiﬁcant proportion to have the chance of achieving an education up to at least secondary school. Cambodia Capital Research 10 . A second census was taken in 2008. The population is heavily concentrated in the Southeast of the country with 36. which is shown in Figure 1. the capital city) and 24. 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. 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. with a minor baby boom occurring. up from just 16% in 1998 (Figures 3.3% in the Northwest. we believe that the current generation now entering the workforce will be the one to propel the country to new economic heights. 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.
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. Figure 2: Population by age group (MM persons) 3.9 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 . as a rising standard of living leads to increased demand for consumer goods.758. This will in turn drive.448 post secondary graduates as of 1998. as they leave their parents’ homes to start new families and purchase houses. Cambodia had only 4.8 0. increasing by a factor of 44x over the decade. Perhaps most interesting in terms of developing a new generation of technocrats to drive the economy. 1) further development of industrialization. There has been a 10% decline in the population with no education from 34% in 2008 to 24% in 2008. but now has 196. and we expect that this trend will continue as expanding employment and educational opportunities and access to a wider range of goods and services draw people into the cities. as labour becomes more concentrated in a given area. Figure 6 shows the signiﬁcant increases in education made just between 1998 and 2008.46MM. 3) The new urban generation The population is already becoming increasingly urban.50MM to 1. and creating a pool of more advanced human capital that industries can draw from.6 1. and 2) the growth of a modern consumer economy. 2) Rising proportion of young families drives consumption A rising proportion of young families in an economy has historically often driven economic growth.5 2. and is accessible to ﬁrms and government entities looking to employ workers. and the population completing lower secondary school has risen 200% from 0. vehicles and consumer goods.
86MM (36.68MM (12.9%) Kandal Takeo Prey Veng Svay Rieng Southeast 4.32 MM (17.10MM (9.3%) Pursat North 1.5%) Kampong Thom Kratie Northeast 2.3%) Kampong Som Kampot Source: Government Census 2008.3%) Mondolkiri Kampong Chhnang Koh Kong Kampong Cham Southwest 1.52MM (24.33MM (9.4: 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. Cambodia Capital Estimates Source: General Department of Mineral Resources Cambodia Capital Research 12 .Overview of the Cambodian Economy Figure 3.5%) Kampong Speu Phnom includes: Penh Phnom Penh 1.
for Cambodia. as shown in Figure 9. while the World Bank estimates 6. Figure 7: Real GDP (Riel TRN) 35. when a decline in the key garment/textiles exports segment and the collapse of an unsustainable real estate boom hit growth.0% and 6.7% for 2010 and 6. with only Myanmar growing more quickly.5 8. have already been translating into vibrant economic growth. 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. backed by foreign investment and ﬁnancial assistance.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 .5% for 2011 (Figure 8). and only seen a single year of below 5% annual GDP growth during the ﬁnancial crisis in 2009.0 26.3 17. Cambodia has seen the second highest growth in ASEAN since 1993. The IMF estimates GDP growth of 6.5% since 1993.Overview of the Cambodian Economy Figure 6: Highest level of schooling completed No Education Primary (Not Completed) Primary School Lower Secondary Secondary Beyond Secondary 0% 1998 Source: Government Census 1998. Real GDP has grown at a CAGR of 7. the economy has returned to rapid growth in 2010 and 2011. However. respectively.5% in 2010 and 2011.
0% Source: International Monetary Fund.World Bank Figure 9: Cambodia average real GDP CAGR versus the region. especially when compared to the region. we see little reason why Cambodia. Laos) shows more where living standards for the latter could be headed in the future. it has been off a low base.Overview of the Cambodian Economy Figure 8: Real GDP forecasts June 2011 IMF World Bank 0% 1. while average living standards in Cambodia decreased in 2008. tracking Laos reasonably tightly until 2005 when its smaller neighbour began to speed ahead.3% 7. Vietnam and Laos cannot eventually become as economically strong as Thailand. We believe that this gap between the newly industrialised countries of ASEAN (Malaysia and Thailand) and the developing economies of ASEAN (Vietnam. rather than pointing to an insurmountable gap. with Cambodia’s nominal GDP in the middle of the pack for developing Indochina. Cambodia. Cambodia Capital Research 14 . As shown in Figures 11 and 12. Malaysia and Indonesia. relative to the size of their populations. 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. As we show throughout later sections of this report.5% 2011 5.8BN) and nominal GDP/capita (US$795) versus the larger ASEAN nations plus China in 2009. the country has the second lowest nominal GDP (US$10. Figure 10 shows nominal GDP since 1993. Laos was apparently more insulated from the ﬁnancial crisis.8% 2010 3.
2009 7.250 3.000 5.200 900 600 300 0 1993 1995 Cambodia Source: International Monetary Fund 1997 1999 Laos 2001 2003 Myanmar 2005 June 2011 2007 Vietnam 2009 Figure 11: Nominal GDP/Capita (US$).750 0 Malaysia Thailand China Indonesia Vietnam Laos Cambodia Myanmar Source: International Monetary Fund Figure 12: Nominal GDP (US$MM). 2009 300 225 150 75 0 Thailand Malaysia Philippines Vietnam Myanmar Cambodia Laos Source: International Monetary Fund Cambodia Capital Research 15 .Overview of the Cambodian Economy Figure 10: Cambodia Nominal GDP/capita versus region (US$) 1.500 1.
Although this chart suggests at ﬁrst glance a relatively balanced economy. As we see in both Thailand and Vietnam. although this declined to 5. we expect that even as Cambodia’s economy modernises. Heavy dependence on garment exports. with agriculture comprising 34% of the economy in both 2000 and 2009. 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). at 9. which leaves Cambodia overexposed to a decline in these sectors.5% in 2009. 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. 5) Country runs large trade deﬁcits: The country continues to run large trade deﬁcits. which offers both challenges and opportunities for the country. Opportunities exist to introduce modern agricultural methods to farmers that will raise incomes. 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. 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. the composition of the economy has been stable over the last decade. agriculture will remain the primary source of income for the majority of the population. 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. manufacturing around 22% in 2000 and 21% in 2009 and services 38% in 2000 and 39% in 2009.0% of GDP in 2008. 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. currently there are clearly some signiﬁcant imbalances. In the following sections we address each of these issues: 1) 70% of population are subsistence farmers: Currently 70% of the population are still involved in subsistence agriculture.Overview of the Cambodian Economy June 2011 iv) Imbalance: The structure of the Cambodia economy Structural imbalances. but none are insurmountable over time in our view. tourism Figures 13 and 14 show the split in the Cambodia economy by major sector for the years 2000 and 2009. Cambodia Capital Research 16 .
just the two former sectors combined accounted for 38% of 2009 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. being 90% concentrated in EU and North America. we expect that the growth of other sectors of the economy may outpace these sectors leading to a gradual rebalancing. and that continuing to expand in these sectors is not necessarily the problem. at 63% in 2009. Cambodia Capital Research 17 . Cambodia’s garment/textile exports are not particularly well diversiﬁed geographically (although Asia is slowly accounting for more of the mix).Overview of the Cambodian Economy Figures 13. This leaves Cambodia overly exposed to the revenue movements and manufacturing location decisions of the major global clothing retailers. we do acknowledge that Cambodia maintains a comparative advantage in textiles and tourism. Figure 16 shows garment/textiles/footwear exports. tourism and agriculture as a proportion of GDP. However. it represented by far the largest component. It is rather the heavy concentration in these sectors that creates the risk to the economy. However.
like rural electricity and water provision. investment. I stable. but also expanding its presence in public utilities.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.700 1. Government spending is low.Overview of the Cambodian Economy Figure 15: Cambodia Manufacturing GDP by segment (US$ MM) 1. Cambodia Capital Research 18 . Consumption has represented over 80% of the economy for the ﬁve years to 2009. with government increasingly gaining a role in providing public goods. at just 5%-6% percent of the economy on average from 2005-2009. government spending and net exports. Investment has remained stable at around 19%. 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. G low and X-M continues in deﬁcit Figure 17 shows the breakdown of the economy in terms of consumption. especially roads and bridges.
191 21.0% 151 1.1% 6. the government continues to run large budget deﬁcits.843 77. and runs large trade deﬁcits with its Asian trading partners.4% 47 0. at only 4.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. Longer term there is the possibility of both oil and gas.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.3% 1.6% 10.208 18.4% -567 -6.4% -561 -5. an increasing number of workers leaving the informal economy for the formal economy should also raise this ﬁgure.695 19.494 23. 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.4% -940 -9. and mineral exports.9% 8. It is reported that improved tax collection methods should boost tax revenues in the medium term.3% of GDP from 2.4% 148 1. the deﬁcit is estimated to have contracted in 2010.1% 2.023 19. Cambodia Capital Research 19 .6% 7. However. mainly related to the garment industry.2% -548 -7.430 2009 9.3% 1.9% in 2008 as the ﬁnancial crisis cut tax revenue at the same time as the government increased spending.619 -15. The government sector still relatively small and in deﬁcit In addition to the trade deﬁcit. expenditure has steadily outpaced it.008 22.5%. This is mainly because the country continues to rely heavily on imports for many industries.705 26.575 21.969 81.822 84.684 94.4% 258 2.4% -27 -0. although government revenue more than tripled from 2001 to 2009.0% 1. The deﬁcit widened signiﬁcantly in 2009 to 6.8% 10.0% -171 -1.373 2007 6.7% 125 1.3% 1.8% of GDP.427 19. This is not offset by the large trade surpluses it runs with the United States and the European Union.4% 89 1.4% -554 -8. Vietnam and Laos (Figure 20). and in the long term.5% -1. The government continues to generate very low tax revenues in a regional context.9% 1.6% 2. it is well below Thailand. although the deﬁcit fell to a ﬁve year low in 2009 of 5.855 June 2011 2008 8.1% 2.391 84.4% 2.395 2006 5.3% 1.962 19.7% 7 0. which could help further ease this deﬁcit. As shown in Figure 18.
0% 4.0% 6.000 500 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 8.000 1.0% 2.0% 0% Deﬁcit (LS) Source: Ministry of Economy and Finance as % GDP (RS) Figure 20: Government revenue as a % of GDP Laos Thailand Vietnam Cambodia 0% 2% 4% 6% 8% Source: International Monetary Fund Cambodia Capital Research 20 .500 1.Overview of the Cambodian Economy Figure 18: Cambodia government revenue and expenditure (US$MM) 2.
From 2004 until 2008.20 0. Figure 21: Key areas of government expenditure as % total expenditure 0. foreign ﬁnancial assistance covered more than 100% of the total government deﬁcit. Sport Source: Ministry of Economy and Finance Still heavily reliant on foreign ﬁnancial assistance The Cambodian government is still heavily reliant on foreign ﬁnancial assistance to fund its budget deﬁcit.05 0 2001 2002 Defense 2003 2004 2005 2006 2007 2008 2009 Public Health Education. However.Overview of the Cambodian Economy June 2011 Room to grow education and public health spending Figure 21 shows three of the major categories of government expenditure. For the current year. we believe there may be the potential to see the defense proportion of expenditure rise in 2012. as shown in Figure 22. and education. with defense spending at 17% of total expenditure in 2009. following the continued conﬂict on the Thai border this year.10 0. which been lauded as a good sign for overall improved social welfare.15 0. public health at 7%.Youth. Figure 22: Financing of government budget deﬁcit (US$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 . the budget for defense spending is lower as a percentage of total spending. youth and sport at 9%. and a higher weight has been given to the public health and education categories.
5%. from 1.Overview of the Cambodian Economy June 2011 Unemployment: Low from widespread subsistence farming Unemployment overall is a low 2% in Cambodia. inﬂation External debt to GDP and exports declining Cambodia currently owes US$4.42 as of 2009. given recent difﬁculties in the Vietnamese economy).64 in 2001 to 0. from 0.12 as of 2009 (Figure 24). as migrant workers returned to family farms. The heavy weighting to agricultural employment offers a buffer against layoffs in the manufacturing and service sectors. In the 1997 crisis. unemployment is 5. increases in unemployment were not as severe as expected. reserves. in Phnom Penh. currency. in Thailand. moderately indebted country. a measure of how quickly the country could cover its foreign debt with its foreign earnings. Figure 23: Regional unemployment rate (2008) Vietnam (Total) Vietnam (Urban) Vietnam (Rural) Cambodia (Total) Cambodia (Phnom Penh) Thailand Laos Malaysia 0% Source: Cambodia Capital Research 2% 3% 5% 6% v: External pressure: Debt. We expect that Cambodia will have a similar economic cushion in the medium term. However. Cambodia Capital Research 22 . the most economically advanced area of the country. External debt to exports. has also declined.0% seen in urban Vietnam (this ﬁgure may have increased since. and is classiﬁed as a low income. Although still high. with 70% of the population still employed in subsistence farming (Figure 22). which is higher than the just over 5.36BN in external debt according to World Bank estimates. external debt to GDP has been declining over the last decade.67 in 2001 to 1.
Neither of these debts is being serviced.7% of the debt is short term. better structured. it is still unclear when or if Cambodia will be required to pay back these loans. and some may not need to be repaid The composition of Cambodia’s external debt makes it less onerous that it may initially appear. Figure 25: Composition of Cambodia external debt by country 7% 22% 28% ADB World Bank IDA US. the Cambodian economy may be much larger. 26% is legacy debt owed to the US mainly from the 1970s Lon Nol government and the Russian Federation mainly from the 1980s (Figure 25). and by the time of principal repayment. so there is no medium term issue with the current debt.5%. Third. and Cambodia is negotiating with both countries. 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. only 7. First. Russian Federation Debt Other bilateral Other multilateral 26% 17% Source: International Monetary Fund Cambodia Capital Research 23 . and more readily able to handle repayment than it is currently (Figure 26).
9BN in 2006. As shown in Figure 25. which leaves the country with an adequate.5 3.4x in 2009.7% of total debt.Overview of the Cambodian Economy Figure 26: Composition of Cambodia external debt by duration 7. up from just 3.6BN in foreign reserves as of end 2009.8BN in 2008. but still well up on US$1.8 6.3 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Reserves/Month of Imports Source:World Bank.1x in 2001. The National Bank of Cambodia reported US$2. Figure 27: Key foreign reserve ratios 13. Reserves to months of imports has risen from 4 in 2001 to near 5 as of 2008. down from a peak of US$2.7% Short term Long term June 2011 92. but not particularly robust ﬁnancial cushion (Figure 27).0 9. but not abundant Cambodia’s key foreign reserves ratios have been improving over the last few years. short term external debt is a low 7.3% Source: International Monetary Fund Foreign reserves adequate. and therefore the reserves to short term external debt ratio is strong at 12. Ministry of Economy and Finance Reserves/Short Term External Debt Cambodia Capital Research 24 .
Overview of the Cambodian Economy Figure 28: National Bank of Cambodia’s Foreign reserves (US$MM) 3.000/US$ and peak of KHR4. and an estimated 90% of transactions taking place in the dollar. so dollar depreciation does not give Cambodian exports an advantage here. As shown in Figure 29.900 Jan 06 Oct 06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Cambodia Source: National Bank of Cambodia Capital Research 25 .700 1.800 900 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. Vietnam and China.350 4. with the Riel pegged to the dollar. the National Bank of Cambodia has kept the Riel trading within a relatively tight trading band versus the US$ (at an average rate of KHR4.013 3. but the economy is effectively dollarized. However. the second largest purchaser of textile exports is the European Union (EU). Movements in the dollar have a mixed effect on the economy: Textile exports: Garment/textile exports are priced in dollars. On net we expect the currency effect on imports to be relatively neutral in the short term.125 4.108/US$ since 2006.600 2.238 4. There tends to be some seasonality also in the movement of the exchange rate related to the agricultural growing season. the Vietnamese Dong has depreciated signiﬁcantly over the last year and China is gradually allowing its currency to appreciate versus the dollar. with a trough of KHR4. The Thai baht has appreciated versus the dollar. Imports: A large proportion of Cambodian imports are from Thailand.241/US$). Figure 29: USD to Cambodia Riel 4. so a depreciation of the US$ versus the Euro could potentially make Cambodia garments/textiles more attractive to EU buyers. but the majority are purchased in US$.
000 3. Figure 31: Cambodian inﬂation.000 2. which pulled up the average for the decade.000 1. there have been hints lately that the current commodities bubble may be nearing its end. Cambodian food price changes are especially correlated with Vietnam and Thailand. averaging 4. However. the global ﬁnancial crisis cut commodity prices and inﬂation subsequently subsided. the central bank is raising rates to curb inﬂation and its currency is still strengthening long term versus the dollar. In Vietnam there has been the mixed effect of a currency depreciation offset by rapidly rising inﬂation. Increasing domestic production of food products should also help alleviate this risk over time.Overview of the Cambodian Economy Figure 30: Money Supply (US$MM) 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. Meanwhile.2%.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.8% over the decade from 2000 to 2010. prices still appear to be rising gradually. Cambodia Capital Research 26 . mainly driven by the spike in global commodities prices (largely the result of rising food and oil prices). we do not expect to see a major transmission of food inﬂation to Cambodia from these neighbouring countries in the short term. and the latest reported April 2011 ﬁgures show inﬂation at 5. There was a signiﬁcant spike in inﬂation just prior the the onset of the 2008 crisis to 25%. In Thailand. On net. given the large amount of trading with the two economies.
although export growth continues to lag import growth and the country ran a trade deﬁcit of 5. respectively. but growing rapidly from just 1. average Cambodian inﬂation from 2004-2009 has been in the middle of the pack.Overview of the Cambodian Economy June 2011 In a regional context. Cambodia Capital Research 27 . Vietnam is a distant third. global integration Trade surging.5% in 2001. with inﬂation especially high in neighbouring Vietnam (which also saw an inﬂation spike in 2008 and may have transmitted some of that inﬂation to Cambodia through trade) but much lower in Thailand. which comprised 49% and 27%. but deﬁcits persist Cambodia’s overall trade has surged by over 200% since 2001. Energy Source: Cambodian National Institute of Statistics vi) Trade and FDI: Advancing regional. comprising just under 5% of exports in 2009.5% in 2009. Cambodia’s exports are still comprised mainly of garments/ textiles and footwear exports to the United States and Europe. Cambodia’s other major regional trading partner. 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. accounting for a combined 76% share of the country’s exports.
5% 2. imports largely from East Asia The largest proportion of Cambodia’s imports are from Thailand and Vietnam. for example. are also signiﬁcant. we expect that as the country increases its agricultural exports. General Statistics Ofﬁce of Vietnam (GSOV). which have soared to 29% and 21% of total imports. Imports from China.Overview of the Cambodian Economy Figure 34: Cambodia imports and exports (US$MM) 7.8% 2009 0% Imports (LS) Exports (LS) Trade deﬁcit as % GDP (RS) Source: Ministry of Economy and Finance Exports mainly to US. China.875 0 2001 2002 2003 2004 2005 2006 2007 2008 June 2011 11.3% 5. at 5% of the total.0% 8. that demand from the region will be high for these products and we may see these trade deﬁcits contract. which comprised 14% of the total in 2009 and South Korea. for a combined 50% of imports in 2009 from just 29% in 2001. especially rice. Europa Cambodia Capital Research 28 .625 3. EU.750 1. However. 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.500 5. respectively. has already stated its intentions to increase its imports of Cambodian rice. The country runs large trade deﬁcits with these regional countries which is not offset by exports to the US and EU.
we believe that Cambodia has generally beneﬁted from its involvement in the various trade organizations. Cambodia MEC. GSOV. the country simultaneously held the CLV.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. 1) joining the ﬁrst Ayeyawady Chao Phraya Mekong economic cooperation strategy (ACMECs) at its ﬁrst meeting in November 2003. and thus is offered some advantages in terms of trade because of this. In November 2010. it has also been more active within the region. 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. further raising its regional proﬁle. and 3) being part of the Cambodia-Laos-Vietnam development triangle. Since then. 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. which comprises 13 provinces in these three countries. CLV.WTO. for the ﬁrst time. 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. Although the country did join ASEAN in 1999. it was only in October 2004 that it joined the World Trade Organisation. Although the country is classiﬁed as a Least Developed Country (LDC). Cambodia Capital Research 29 . 2) becoming part of the Cambodia Laos Vietnam Myanmar cooperation framework (CLMV) in November 2004.
With Cambodia already in the WTO. This is because as of January 1. This is under the EU’s Everything But Arms (EBA) initiative to promote imports from Least Developed Countries. The last ﬁve years have shown that concerns that Cambodia might have severe difﬁculty competing were unfounded. which offers lower trade tariffs to many developing countries. The EBA program currently has no ﬁxed end date. However. and only as countries reach high income status for three consecutive years and have sufﬁciently diversiﬁed their export base are they no longer eligible for the beneﬁts. but this has been offset by the overall growth in the market for textiles/ garments exports to the US. although it did face increased competition from other WTO members also enjoying quota-free garment/ textile exports within the organization. although the US remains Cambodia’s largest single customer for exports. the country beneﬁted from the absence of non-WTO competition. 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. which are mainly textiles/garments and footwear. Accession to WTO offset 2005 end of textile quotas Cambodia is not a country considered by the US for preferential exports. but from a comparatively low base. Cambodia Capital Research 30 . with the country expanding its textile exports to the US rapidly since 2005. Currently. a regulation that had previously allowed countries to apply quantitive restrictions of imports of clothing between WTO countries was abolished. However. so the reduced tariffs within ASEAN over the last ten years have not really been a signiﬁcant boon for the country. the country has gained somewhat easier access to the US market from its accession to the WTO. Cambodia has lost some market share. 90% of Cambodia’s exports are to non-ASEAN nations. agricultural exports are also growing. especially to the US. especially for garment/textiles. This is the strongest version of the EU Generalized System of Preferences (GSP). This external lever seems to have prompted more rapid development of the legal structure than otherwise might have been the case. The ending of this regulation allowed nations within the WTO to export garments/textiles freely. comprising mainly garments/textiles and footwear. without facing 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). We expect therefore that Cambodia will beneﬁt from this program for the next decade at least. At the time there were limiting quotas. The other beneﬁt of WTO accession is that Cambodia has needed to expand and strengthen its laws to meet the requirements. 2005. While Cambodia currently exports mainly textiles/garments to the EU under this system. 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%.
And as we have shown above. notably agriculture products. However.6% in 2003 (Figure 39). We believe a larger issue for Cambodia than domestic industry protection. FDI has since returned to what we view as a more sustainable level.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. mainly led by investment in an overheating property market. Figure 38: Cambodia International Trade Taxes (US$MM) 1. could slow the growth of some newly developing agricultural sectors. is a potential reduction in government revenue. government revenue is already low in Cambodia relative to the region. We do not expect that reduced agricultural tariffs will lead to large imports in the sector sufﬁcient to squeeze out local producers and expect that global food demand will be sufﬁcient to allow Cambodia to grow in this area. and is directed more to sectors like infrastructure and agriculture that should improve the structural balance of the economy in the longer term. with FDI as a percentage of GDP peaking at 10% in 2007 from a low of just 1. the majority of agricultural sectors in Cambodia appear to be showing both a high increase in production as well as rising exports. and the gradual reduction in tariffs over the next four years could reduce revenue further.Overview of the Cambodian Economy June 2011 The question is whether reducing tariffs on some imports from ASEAN. The government generated 21% of its revenue from international trade taxes in 2009 (Figure 38).500 1. Cambodia Capital Research 31 .
Cambodia Capital Research 32 .500 6. Regional investment tends to dominate the proﬁle for Cambodia.000 7.500 3.500 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). Figure 41 shows the investment breakdown by sector for 2009 and 2010. 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). which is catering mainly to tourists for Angkor Wat. with most of the major investment coming in recent years. EU and US direct investment in Cambodia has been relatively muted over the period. with Korea and Malaysia the next largest. which shows that China is far and away the largest investor in Cambodia over the past ﬁfteen years.000 4. Energy and agricultural investment have been the second and third largest investment categories over the last two years. Relative to their economic size.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. Tourism investment was the largest category for both years.
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.059* 589 353 190 129 379 2. Cambodia Capital Research 33 . Cambodia remains well down on the list.859 Transportation Energy Agro-Industry Rubber Garments/textiles Other Total June 2011 2010 1. 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. What is interesting. Chart 43 shows the eight categories used in the index. as would be expected for a Least Developed Country.Overview of the Cambodian Economy Figure 41: Investment by sector 2009 Tourism centres Energy Agro-Industry Telecommunication Tourism Other Total Source: 3. the subjective opinion of many Cambodians often do not match their objective ranking globally. Prosperity Prosperity index gains. 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. Also. is that although Cambodia ranks low in many categories. The Legatum Prosperity Index ranked 110 countries in terms of overall prosperity. and thus could be considered tourism related. At 95 in 2010. it is unclear whether this has been funded yet. and the ﬁndings of the survey for each.698 * Nearly US$1BN of this is related to a planned new airport in Siem Reap. but we include them for comparison in Chart 42).901 665 457 235 146 456 5. however. vii) Empirical Global Ranking: Corruption.
prosperity.Legatum Prosperity Index 2010 Rank Economy Entrepreneurship. although this could indicate others outside the family unit. but Cambodians still view their country as offering a good environment for entrepreneurs 4 out of 5 Cambodians are satisﬁed with the national government.Overview of the Cambodian Economy Figure 42: Legatum Prosperity Index 2008 Singapore Thailand Malaysia Indonesia Vietnam Cambodia Source: Legatum Properity Index (www. Cambodia does not fare well on this scale. Opportunity 92 100 Detail Over half of Cambodians are satisﬁed with their standard of living. Cambodia Capital Research 34 .1 in 2010. employment rates are high C a m b o d i a r a n k s l ow i n t e r m s o f b u s i n e s s infrastructure. and high in terms of start up costs.com) 4 35 29 71 80 98 2009 23 44 39 61 77 93 June 2011 2010 17 52 43 70 61 95 Figure 43: Cambodia results . 94% of citizens report satisfaction with their freedom of choice In a 2009 survey only 12% of Cambodians thought others could be trusted. although corruption is perceived as widespread Although the ranking relative to other nations is low. Cambodians are extremely satisﬁed with their education system Cambodians report low health services satisfaction. but political repression and human ﬂight are also high Although civil liberties are rated low in Cambodia. which would be expected given the low ranking Personal safety is perceived as high by Cambodians. back up at its 2006-2007 rating. 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. ranking a 2. As shown in Figure 44. after actually worsening slightly in 2008 and 2009. and has shown little improvement.
6 2.6 2.5 2.9 2008 9.8 2.1 1.2 5.9 2007 9.0 1.4 June 2011 2010 9.7 2.0 2.4 2.0 1.6 2.4 5.3 2009 9.5 3.1 3.Overview of the Cambodian Economy 2006 Singapore Malaysia Thailand Indonesia Vietnam Laos Cambodia Myanmar 9.4 3.6 2.5 2.0 3.3 4.6 2.6 2.2 4.1 1.0 3.1 2.6 2.7 2.7 2.8 1.4 2.4 2.4 Figure 44:Transparency International Corruption Perceptions Index Rating Source:Transparency International Corruption Perceptions Index Cambodia Capital Research 35 .4 5.8 2.1 1.
The 123 National Assembly members are elected for 5 years under proportional voting. but where Thailand prefers a bilateral solution. with a National Assembly and Senate. the head of state. We would emphasise that before 1998. prior to that. with the Prime Minister. This issue goes back as far as 1. there followed a period of uncertainty as to whether the new government would hold. and the Monarch. as shown in Figure 45. as the Cambodian People’s Party increasingly strengthened its hold on political power. the country was embroiled in 38 years of conﬂict. another two by the National Assembly. Hun Sen. the head of government. The king has limited political power. and the rest are chosen by voting in Cambodia’s 24 provinces.000 years. The system has a bicameral parliament. From 1998 to the early 2000s. We would estimate that it was only really since around 2005 that the country could be said to fully stabilised politically. 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. A constitutional monarchy The Cambodian system of government is ofﬁcially a constitutional monarchy. 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.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. and some factional inﬁghting. 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. Two of the senate members are chosen by the King. with it declared that he shall ‘reign. Norodom Sihamoni. Currently the countries are trying to negotiate. but not rule’. Cambodia Capital Research 36 . having joined the WTO in 2004. Cambodia has gone to both ASEAN and the United Nations with the issue.
and maintains neutrality over US/Vietnam conﬂict. bombing raids in rural Cambodia lead to growth in Khmer Rouge movement Khmer Rouge. begin battles with Lon Nol forces. The Paris Agreement is signed 1991. and establish free and fair elections The United Nations Transitional Authority Cambodia (UNTAC) arrives. US army moves into Cambodia. allied with the United States. Paris-educated leftists (eventual Khmer Rouge) and rightwing Lon Nol government Military coup installs Lon Nol government. 2008. and holds elections. Massive improvements made in developing the legal. Hun Sen’s Cambodia People’s Party (CPP) is far and away the dominant political force in the country. Khmer Rouge remains a danger. but Prince Rannariddh led FUNCINPEC also does well. Hun Sen’s Cambodia People’s Party wins. 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. it won 90 of 123 seats.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. and then North Korea. repatriate Khmer citizens that had ﬂed to Thailand. By 1997. the country initially sees economic progress. Prince Sihanouk leaves for exile in Beijing. Political split widens in 1960s between the Prince. with the opposition Sam Rainsy Party winning 26 seats. The other smaller parties gained a combined 7 seats. Khmer Rouge resurgence is still a threat. which allows the UN to oversee a ceaseﬁre. 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. 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. Eventually Khmer Rouge strengthens and wins battles with less Vietnamese support Khmer Rouge overtake Phnom Penh Khmer Rouge implement a totalitarian agrarian regime. at ﬁrst heavily backed by Vietnamese forces. 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’. with the UN still ofﬁcially recognizing the party as ruling the country from 1979 to 1982. both leaders are elected as co-prime ministers A uneasy alliance exists between the two ruling parties. disarm the military operations of the four political factions. Cambodia Capital Research 37 . In the last National Assembly election on July 27.
Sam Rainsy. Since these elections. we have seen little to suggest that the CPP’s dominance is waning signiﬁcantly. the party’s leader. and the establishment of constitutional monarchy. Sam Rainsy Party (SRP): Founded in 1995 (originally the Khmer National Party from 1995-1998).Overview of the Cambodian Economy June 2011 The CPP also dominates the Senate. with its platform originally based on a Marxist-Leninist single party system. It is unclear if there is a similarly charismatic second in charge to lead the party without the eponymous founder. led by Hun Sen. but is especially strong in rural areas. and economic growth continues to be strong. The party was formed from the Kampuchean People’s Revolutionary Party which was the only legally recognized party within Cambodia from 1981-1991. In the senate. during the State of Cambodia period of 1989-1991 the party began to shift its ideology to adopt more free market principles. However. 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. is in exile in France after being convicted in absentia of defamation charges after accusing the government of corruption. with nine seats. 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. especially with the arrival of UNTAC. winning 43 of 58 available seats in the 2006 senate election. Also. Cambodia Capital Research 38 . the country was able to weather the ﬁnancial crisis without massive social upheaval. FUNCINPEC is the next largest. has a broad base of support.
However. the Khmer Rouge began to lose power and any remaining credibility. originally established in 1981 by Norodom Sihanouk as a counterbalance to then Vietnamese occupation of the country. Vietnam and Thailand. formed in in 2007. and the party was renamed the Nationalist Party until the Prince announced a return to politics in December 2010. Cambodia tends to thus view both Vietnam and Thailand with some degree of suspicion. 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. The party’s current leader is Chhim Siek Leng. generally the stronghold of the CPP. its popularity appears to have waned over the next ten years. as it won only 2 seats of 123 in the National Assembly in the 2008 election. They remained strong militarily throughout the 1980s. were a perpetual threat to stability and were recognized as the ofﬁcial Cambodian government by the United Nations as late as 1982. with the two much larger countries possessing both expansive military and economic might relative to much smaller Cambodia. and won 43 of 123 seats in the 1998 elections. Ranaridhh retired from politics in October 2008. Norodom Ranariddh Party (NRP): Another relatively new party. and the still threatening Khmer Rouge. in which CPP won decisively and the SRP became the second largest party. Funcinpec: FUNCINPEC is a French acronym for National United Front for an Independent. 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. FUNCINPEC played an important part in government throughout the 1990s. However. Leader Kem Sokha has a history of humans rights activism. who changed their name to incorporate the new leader. while Thailand’s inﬂuence tends more to just the business sphere. and by 1996 saw a mass defection of over half the remaining soldiers. Neutral.Overview of the Cambodian Economy June 2011 Human Rights Party (HRP): Is a relatively new party. including land and civil rights. by refusing to participate in the 1993 elections. The party is generally considered a Royalist party. 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. Bilateral relations with two largest neighbors Cambodia’s diplomatic relations with two of its closest neighbors. and involvement in anti-corruption law. It has relatively more sway in the senate. having won 9 out of 58 seats in the most recent 2006 senate election. Cambodia Capital Research 39 . The party appears to be a right leaning centrist party. and the party again took his name. Peaceful and Cooperative Cambodia. tend to be fraught with border issues. Informal border trading is widespread with both countries. Khmer Rouge: The Khmer Rouge orchestrated the complete economic collapse of the country from 1975 to 1979.
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. on the whole. and ofﬁcially part of Cambodia. Following this battle. By comparison relations between Cambodia and its smaller neighbor Laos tend to be less conﬂictual. which has led to a cease ﬁre. The ruling remains unclear especially on a 4. but later reversed course and rejected the UNESCO plan. since 1979 there have generally been cordial relations between the two nations. However. Fighting erupts in February 2011 near Preah Vihear This led to the placement of troops on either side of the border from mid-2008.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. Cambodia Capital Research 40 . and the party appears to still maintain close ties with the Vietnamese ofﬁcials. a meeting was brokered between the two countries mediated by ASEAN. in far Northwestern Banteay Meanchey province. This event appears to be the trigger point. strong words on both sides suggest to us that this agreement is still very tentative. but Cambodia would also have its preferred solution of the presence of ASEAN observers at the border. Thailand initially agreed. and lasted for several days with military casualties on both sides. a decision that has been disputed by Thailand ever since. ﬁghting broke out at a second disputed area along the ThaiCambodian border in Oddar Meanchey province. unrelated to Preah Vihear. opposition to Vietnam’s inﬂuence issue still remains. The complex was declared a World Heritage Site in 2008 by UNESCO. with Thailand they became a hot war in February 2011 and then again in April 2011. 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. the bilateral border committees. trade between the two countries continues to grow strongly. We expect that this issue will continue to weigh on ThaiCambodian political relations. 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. Relations with Thailand sour after border conﬂict If the border issues with Vietnam are more of a cold war. Although there has been some minor disruptions to border trade in the conﬂict areas and a marked decline in Thai tourism to Cambodia. A deal was reached where Cambodia has agreed to talks through Thailand’s preferred channel. In the north of Cambodia in Preah Vihear is a temple complex that was granted to Cambodia in 1962. but it was only in February 2011 that ﬁghting erupted.6 sq km area that is the center of the conﬂict. However.
2) the World Trade Organisation in 2004. IMF and World Bank. and inﬁghting between various factions meant that there was no globally recognized government in Cambodia until after the Cold War ended. 1) it joined ASEAN in 1999. and its WTO accession. 4) with special privileges for least developed countries. it makes the bulk of its exports to the EU and the US. setting the stage for eventual UNTAC-sponsored elections by 1993. 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. 3) the country accepts guidance and funding from the Asian Development Bank.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. Cambodia Capital Research 41 .
this document itself. This constitution led to the establishment of separate executive. there had been no split between these three bodies. legislative and judiciary branches. with the most recent a version of the 1993 document with some amendments made in 1998 (Figure 48). and now has a functioning legal framework. from 1979 to 1992. Liberalization of this system occurred as early 1989. tax (2003) commercial (2005). This was replaced by the 1979 constitution when the Vietnamese overthrew the Khmer Rouge. a new constitution was adopted from 1970-1975. although some key preexisting laws are still in use. from 1953-1975 the Cambodia legal system was based on the French system under rule by Prince Norodom Sihanouk. insurance (2000). The Khmer Rouge adopted their own constitution.Overview of the Cambodian Economy June 2011 Legal System: Framework in place • Basic legal system in place: Cambodia has slowly developed its current legal system since the introduction of the 1993 constitution. Prior to the Khmer Rouge. which was based on the Vietnamese system. but it was not until the current constitution was adopted in 1993 that a clear separation between the legislative. executive and judicial functions of government was stipulated. including banking (1999). so have not been well tested in the courts • Major business laws promulgated: The country has the key legislation for business in place. A series of constitutions since the 1950s Cambodia has been through a series of constitutions since the 1950s. many have not been thoroughly tested in the courts. is somewhat of a hybrid from the various periods of the country’s history since independence from France in 1953. with power entirely concentrated in the National Assembly. which was ostensibly ‘peasant rule’ but effectively totalitarian agrarianism. many important laws were promulgated only in the last 10 years. 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. with 100% foreign ownership of businesses permitted Foreign-investment friendly. with the major business laws now written. and Cambodia’s current set of laws. as many of the laws were promulgated over the last ten years. Cambodia Capital Research 42 . 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. with 100% foreign ownership of businesses permitted. gradually improving legal system Cambodia has a basic legal system in place. With the overthrow by the Lon Nol government. However. However. However. The legal system is supportive of foreign investment. We believe that an improving and increasingly transparent legal and regulatory regime will further encourage future foreign investment.
increasing the National Assembly seats to 122 and allowing for the creation of a 61-seat appointed senate. with all legislative. Cambodia Capital Research 43 . By the mid to late 1990s important laws for business were written. Continued improvement in the legal framework coupled with increased testing of the same. in our view. workers. an independent judiciary. respectively. appoints people’s courts to administer justice All power resides at the National Assembly A Constitutional Monarchy is established where the legislative. promulgated in 1988. 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. but not govern Amendments are made to the 1993 constitution. but were eventually superseded by new laws in 1997. the law on banking and ﬁnancial institutions promulgated in 1999 and an insurance law written in 2000. which has largely remained intact to the present. with an amendment written in 1999 (Figure 50). serve to support ongoing growth and investment. should. The tax law was issued in 1997. with parliament making laws. executive and judicial branches are to be separate. executive and judicial power coming from the monarch All power derived from the people. Tax and property/land laws were also in place prior to the current constitution in 1993. The people’s representative assembly determines legislation. but this is not really brought into effect until around 1998. and 2001. with the Law on commercial rules and commercial register coming into effect in 1995. There was existing contract law. and a Supreme Court A state of the people. The King is head of state for life.Overview of the Cambodian Economy Figure 48: Constitutions adopted through Cambodian history Constitution 1953-1970 1970-1975 Details June 2011 The king held all power. The establishment of this legal framework coincides with the start of rapid growth in the Cambodian economy. and shall reign. the country began to further develop its legal structure. peasants and all other labourers.
Given the current target of a 2011 opening. The new constitution was again based largely on the French system. its inﬂuence re-emerges in the drafting of the 1993 constitution Complete elimination of any modern legal system. Current contract law of Cambodia promulgated during this period From 1989-1993. Almost no legal professionals remaining in the country by the end of this period. and had to adopt (or commit to adopt) many laws to meet WTO requirements 1975-1979 Khmer Rouge 1979-1989 Communist (Vietnamese inﬂuenced) 1989-1993 Liberalized Communism 1993-Present Constitutional Monarchy World Trade Organisation Source: Cambodia Capital Research Stock market laws promulgated in 2007 Stock market legislation was only promulgated in the form of the Law on the Issuance and Trading of Non-Government Securities as recently as 2007. and given that the key business laws were established only as of the late 1990s. and is the basis of the present system. Although this system was abolished by the Khmer Rouge. Cambodia Capital Research 44 . we view getting the capital markets up and running in just a decade as a reasonably quick turn around. 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. and therefore integrated the inﬂuence of all the preceding systems In 2005 the country joined the World Trade Organisation. the country shifted to a more liberalised form of Communism. It also allowed for any laws previously written that did not contradict new laws to remain.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. which included property rights A constitutional monarchy was established by the constitution of 1993.
Law on commercial enterprises (2005) Law on tax (1997). supersedes 1992 Land law 1988 Cambodia adopted has adopted the regulations of the major trade bodies it has joined.Overview of the Cambodian Economy Figure 50: Major Cambodian Laws Laws Commercial Details June 2011 Law on commercial rules and commercial register (1995) and amendment (1999). 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 ﬁnancial leases (2009) Land law (2001). Insurance law (2000). Law on issuance and trading of nongovernment securities (2007). the ASEAN Free Trade Area (1999) and the World Trade Organisation (2004) Labour law 1997 replaces 1992 Labour law Law concerning marks. Law on secured transactions (2007). amendment (2003) Law on banking and ﬁnancial institutions (1999). Law on negotiable instruments and payment transactions (2005).
given the presence of a handful of domestically based funds. Bond law written but no market yet Although the Law on the Issuance of Government Securities. 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. . However. and that a Cambodian sovereign issue could be seen within the next 2-5 years. the CSX is housed and rolling out its systems. In addition. we expect that with the equity market nearly up and running. For rural lending. 1) granting credit 2) taking deposits or 3) offering payment processing. establishing the Cambodia Stock Exchange has clearly taken precedence over the bond market in the last several years. We give more detail on the progress with regards to the stock exchange below. given the market risk) limits the growth of many riskier ventures that could potentially be funded by more risk tolerant equity investors. or only a single component of each of the three services. but the related legislation has been drafted. 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. private equity growing The public equity market is very near opening. the government will soon look towards developing the debt market. Public equity market to open this year. through 35 banks (including specialised banks*). and we expect to see trading by late 2011. there is also growing international interest in lending to Cambodia from private and policy banks. but they represent a small proportion of total lending. Now it is an issue of the level of preparedness of the three SEOs currently planning to list. However. The required regulations have been issued by the SECC. which allowed for the development of a bond market in Cambodia. and especially to small agricultural businesses. These institutions support many projects that cross borders in the Greater Mekong Sub Region.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. The tight lending standards of Cambodian banks (which we view as prudent. 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. as well as interest from regional funds. there are 13 microﬁnance institutions that are a key source of capital. Banks loans currently the key source of capital The main source of capital in Cambodia is bank lending. although private equity funds already investing in the country and the planned new stock market will increase the availability of equity capital for ﬁrms • No bond market: There is currently no bond market in Cambodia. private equity investment in Cambodia is growing. and the securities and support ﬁrms have all been licensed. was promulgated well before the equity market laws. Therefore there are still no government or corporate bonds issued in Cambodia. We estimate that the ﬁrst trade could happen by Q4/2011. particularly from China.
Other private companies are contemplating listing. it may take 5-6 more months for the underwriters to ready the SEOs for listing. are being rolled out The securities ﬁrms ofﬁcially received their licenses in early Nov. 2 dealers and 2 advisors permitted to operate.’ Cambodia Capital Research 47 . Auditors and clearing agents also were licensed at this ceremony Three state owned enterprises. and underwriters chosen (Figure 51). clearing agents. This is similar to what was seen in the Laos 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. Settlements will be undertaken separately by commercial banks which were awarded their licenses on February 28. 5 brokers. We could see trading by late Q4/2011 Although the SECC. 2011. has promulgated most of the major regulations we estimate will be required prior to opening the CSX. 2011 planned opening. 2) the trading. underwriters. The SECC has a staff of 70 employees 55% owned by the Cambodian government and 45% by the Korean Stock Exchange (KRX). A location in Canadia Tower is secured and the systems. all state-owned enterprises. CSX and securities ﬁrms should be prepared for the ofﬁcial July 11. For more detail. advisors and settlement banks. please see our April 27. the Securities Exchange Commission of Cambodia (SECC) has been established since 2007. with 7 underwriters. and auditors have all been licensed. based on the KRX. 2010. brokers. 2011 report ‘Approaching a Final Frontier: Progress on the Road to Opening the Cambodia Stock Exchange. and Tong Yang Securities for PPWSA and TC. 1) the regulator. Sihanoukville Autonomous Port (SAP). have been selected. dealers. where actual trading followed the ofﬁcial opening of the exchange by about 3-4 months.Overview of the Cambodian Economy Figure 51:The ‘four pillars’ involved in establishing the CSX Details 1) SECC June 2011 Established in 2007. and has been actively promulgating regulations over the last two years. SBI Securities for SAP. Telecom Cambodia (TC) and Phnom Penh Water Supply Authority (PPWSA) have been selected to list on the exchange. 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. 4) the ﬁrst three companies to be listed. The underwriters have been chosen.
Overview of the Cambodian Economy June 2011 Financials: Crisis proven • Strengthening banking system: The banking system in Cambodia continues to improve. healthy balance sheets Figure 52: Interest. with only spartan housing. 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. access to capital is still relatively limited for many businesses and the majority of the population. having weathered the 2008-2009 ﬁnancial crisis and returned to strong growth in 2010. As shown in Figure 52. There remains excess liquidity in the system and banks compete for quality creditors. where a lack of collateral and credit history by farmers makes it difﬁcult for them to obtain bank loans • Insurance small but growing: The insurance sector is small but growing rapidly with premiums quintupling to US$25MM in 2010. there are still large hurdles to growing lending. it will remain a major constraint over the medium term. limited assets available for collateral and lack of a credit bureau. the interest rate on US$ 12month loans has averaged about 16% since 2007. However.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.2010. and the risk to ﬁnancial institutions will keep interest rates high. i) Banks: Strong growth. but we believe that they also accurately Cambodia Capital Research 48 . 5 specialized banks. 13 key microﬁnance institutions and 6 insurance companies. With 70% of the population engaging in subsistence farming. while the interest rate on US $ 12-month deposits has averaged around 5%. 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. The high interest rates from banks are an impediment to growth. there are 30 banks (the 29 reported by the National Bank of Cambodia at end. plus 1 new entrant since). while claims have been decreasing over the last several years. even with these myriad institutions.
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. leaving a total 5 specialized banks . 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. Figure 53: Cambodian banks’ loans*.
as shown in Figure 53. but the smaller institutions may mainly be servicing the local needs of a speciﬁc foreign business group with which they are associated. The individual banks in this group had between US$285MM and US$727MM in loans in 2010. 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. and between US$491MM and US$860 in deposits. these issues are not uncommon to the region. They are: Cambodia Public Bank (partnered with Malaysia’s Public Bank). as it is the most developed economy of the group (Figure 54). domestically owned banking institution) and ANZ Royal (controlled by Australia’s ANZ). these banks will tend to have a business group as a dedicated customer. Interest rates in Laos have historically been the highest. which illustrates banking sector loans and deposits. Canadia Bank (a strong. at ﬁrst glance it would appear that mergers will be a likelihood in the sector. The larger institutions in this group will compete with the big four. With such a large number of banks. ACLEDA (a local bank that started as a microﬁnance institution. Cambodia’s interest rates are near the average for the ACMECS region at around 16%. However. accounting for 67% of total loans and 69% of total deposits. this will also limit mergers in the sector. 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. These banks comprise just 6% of loans and 3% of deposits. 3) The smaller banks: Similar to the middle banks. we believe that in many cases these links to business groups may hold back merger activity between rival groups in home countries. and in Thailand the lowest.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. Cambodia Capital Research 50 . We expect that in this segment.
which was small enough that it was not expected to disrupt the market. in line with its business model catering to smaller rural customers. or payment systems) or a single component of each of the three. Canadia. Meanwhile. a third large bank. given its roots in microﬁnance. The ﬁrst was Vietnam Agribank in mid 2010. deposits. All three have strong parent operations with ample capital bases. and less than 1% of the deposits. the Industrial and Commercial Bank of China (ICBC) is also considering entering the market. CIMB There have been three new entrants to the banking sector since 2009.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. Cambodia’s six specialized banks account for less than 2% of total loans in the banking system. It had 14 branches in Phnom Penh and 220 in the provinces as of end-2010 for a total 234 branches (Figure 55). there have been two heavyweight entrants to the banking industry. 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 . More recently. CIMB in late 2010. Only ACLEDA has an extensive country-wide network. and the Bank of China (BOC) in Q2/11. with a total 27 branches (13 Phnom Penh/14 provincial) and Campu. We believe that they could shake up the market. however. especially the dominance of the current top 4. with a total 21 (13 Phnom Penh/8 provincial). far more than the next largest. Two heavyweight new entrants: Bank of China.
to a low of 3. from a 2006 high of 9. 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.000 3.000 as of 2010 (Figure 56). After loan growth increases of as high as 77% in the lead up to the crisis.000 2.000 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. with banking system not only successfully weathering the 2008/2009 global ﬁnancial crisis.0% in 2010 (Figure 57). the 22% loan growth seen in 2010 seems to us a more sustainable. growth in bank loans (%) 4. yet still healthy level of growth. Loan growth did not turn negative even during the global ﬁnancial crisis. especially in light of the problems experienced at some major global ﬁnancial institutions.5% gain in 2009.Overview of the Cambodian Economy Figure 56: Aggregate bank loans (US$MM). still eking out a 3. it appears to have passed with ﬂying colours. Cambodia Capital Research 52 . If we view the ﬁnancial crisis as a test of the Cambodian banking system. but also able to grow through the period. Outstanding bank loans have soared ﬁvefold since 2005 from just over US$600M to over US$3.000 1.6%.
8. but with the market still in the relatively early days of development.) This is reﬂected in the decline in net interest income seen in Figure 61 in 2009. Thailand.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.000 3. but lending rates remained relatively ﬂat (Figure 60. with the solvency ratio (or total capital adequacy ratio) rising from a recent low of 0.24 in 2007 to 0.31 as of 2009 (Figure 59).0%. Vietnam. and Singapore are 8.750 2. as deposit rates rose with increasing banking competition. Figure 58: Loans to deposits 5.75 as of 2010. which also peaked in 2007 at 0. Cambodia Capital Research 53 . For comparison.500 1. this may take years. 9. as deposit growth outpaced loan growth (Figure 58). which well is above the 8% required by Basel 1.0%. The National Bank of Cambodia continues to gradually move towards the Basel 2 standards. helping to offset the decline in aggregate net interest income. As shown in Figure 55. This remains well in excess of the National Bank of Cambodia’s required total capital ratio of 15%.5%. banks have been growing fee income over the last ﬁve years. However. respectively. the banking system has strengthened its capital base over the last two years.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.95 but had declined to 0. the required total capital adequacy ratio in Malaysia. and 10%.
are a key support for the sector. Fishing Telecom. Figure 62: Bank lending by sector Retail. As we show in the next section. Net fee income. agricultural lending was just 7% of lending in 2010. Media. 3) hotels and restaurants and 4) manufacturing. Real Estate.Storage Personal Consumption Other 18% 5% 5% 7% 9% 10% 12% 35% Source: National Bank of Cambodia Cambodia Capital Research 54 . 2) construction and real estate. 1) retail and wholesale operations. Wholesale Construction. Restaurants Manufacturing Agriculture. Forestry. Four segments accounted for over 66% of lending.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. especially through sector-leading ACLEDA. Transport. 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. we expect that this sector is likely to represent an increasing proportion of lending as it develops. microﬁnance loans to the agricultural interests. Public Utilities Hotels. IT. Interestingly.
0MM. Cambodia Capital Research 55 .2% of total 2010 lending. Similar to the banking sector. (having fallen from a 7. but this has risen quickly from just 2. 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. and the sector especially in Phnom Penh in a degree of oversupply currently. they have either more than sufﬁcient capital. microﬁnance growth rates saw a decline in in 2009. and loan growth has rebounded dramatically in 2010. although at least one small bank. or the support of large foreign partners.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. but still remained above 40% even in a trough year.6% on average in Thailand for 2010.2% in 2009 (Figure 62). which represent 94% of the loans in the system. This has really only been an issue for a few small banks so far. High risk still remains in the segment for banks. with 14. 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). Cambodia Development Bank. but also growing rapidly. For comparison. Some larger banks have severely restricted credit given to the property sector. as shown in Figure 62.279 as of 2006. in the hire purchase loan market for vehicles. Some of these have dealt with their limited capital by downgrading to specialized bank status. where the capital requirements are lower.5MM from the previous US$12. Property and construction are still heavily weighted in banks’ loan books. Aggregate bank sector lending for personal consumption was 5. Lending for owner-occupied housing as a percentage of total lending was 3. property exposure remains a risk. The credit card segment is still tiny.1% of the total. New capital requirements have caused few downgrades The National Bank of Cambodia introduced requirements for banks to increase their capital to US$37. up from 5.3% peak in 2008). For most of the top 16 banks. total personal consumption lending by Thai commercial banks in 2010 was 22. went into liquidation in March 2011. up 59% yoy. banks face the possibility of collateral simply disappearing. for instance.4% in 2004. versus 11. at only 0.003 cards having been issued in 2010. With the many large projects in various stages of completion.6% in 2010.
3% in 2010. for microﬁnance. Agricultural loans the largest for the sector Also in contrast to the main banking system. loan growth (US$ 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. or US$219MM). Figure 64: ACLEDA ‘small’ loans are 34% of microﬁnance ACLEDA ‘Small Loans’ Other Microﬁnance 34% 66% Source: Cambodian Microﬁnance Association Cambodia Capital Research 56 . Although this ﬁgure has declined to 1. ALCEDA bank by far dominates the sector. it is still well above mid-2000s average.8% by 2009 (Figure 66). agricultural loans are by far the largest category of loans. at 42% of the total in 2010 (Figure 67). with its ‘small loans’ portfolio comprising 34% of total microﬁnance loans. In contrast to what we have seen in the banking sector.Overview of the Cambodian Economy Figure 63: Aggregate microﬁnance loans. where there was not a major increase in NPLs during the global ﬁnancial crisis.134MM. Agricultural loans were actually much larger in 2010 in absolute terms in the microﬁnance sector (42% of US$648MM.4% in 2008 to 2. 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. Microﬁnance will continue to be extremely important in Cambodia in allowing the agricultural sector access to credit. or US$272MM) than the banking sector (7% of US $3. microﬁnance NPLs did spike in the crisis from just 0. The loans of the main microﬁnance institutions (excluding ACLEDA) are shown in Figure 65.
3% 1. 2010 2% 42% Agriculture Trade.8% 0% 2005 2006 2007 2008 2009 2010 Source: Cambodian Microﬁnance Association Figure 67: Microﬁnance loans by sector.0% 2.Overview of the Cambodian Economy Figure 65: Largest microﬁnance companies by loans. 2010 (US$MM) Prasac Amret Sathapana HKL Credit AMK Vision Fund TPC Seilanithih SAMIC 0 28 55 83 June 2011 110 Source: Cambodian Microﬁnance Association (excludes ACLEDA’s ‘smaller loans’) Figure 66: Microﬁnance NPLs 3.5% 0. Commerce Services Transportation Construction Household Others 11% 3% 4% 9% 29% Source: Cambodian Microﬁnance Association Cambodia Capital Research 57 .
as shown in Figure 69.5 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. a ﬁgure which we would expect to rise given the increasing popularity of insurance and overall economic growth. Meanwhile claims have been falling in recent years.9MM in 2010 (Figure 68). However.Overview of the Cambodian Economy June 2011 iii) Insurance: Room for long term growth The insurance industry is relatively small in Cambodia. with the country having the lowest insurance density to GDP in the region (Figure 70).5 15. Figure 68: Gross insurance premiums in Cambodia 30.7MM in 2002 to US$24.41 MM 2. as would be expected with much of the population still engaged in subsistence farming.0 7.0 10. with industry gross premiums more than quintupling from just US$4.0 22.3 1.8 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. Cambodia Capital Research 58 . the trend in growth is strong. Another driver for the industry will be the current lack of compulsory third party insurance and the fact that it is expected to be introduced soon by government.5 0.
for example. We note. to enter the life insurance business. Cambodia Capital Research 59 . 7% personal accident and 9% health and safety as shown in Figure 68. One of the main reasons behind the law was to help develop a domestic industry. Figure 70: Insurance density to GDP (2008) 2. Given this. For comparison. with key categories comprising ﬁre (31%). 42% motor. Existing insurers that are public limited companies are already required to have a minimum US$7MM in capital. that this 2009 proportion of claims cannot be considered indicative and the shifts can be volatile.7% 1. Figure 71: Distribution of gross premium by sector (2009) Fire Auto Health & Safety Personal Accident Engineering Marine Other 16% 2% 6% 8% 14% 23% 31% Source: MEF Insurance Division No life insurance as capital requirement a barrier to entry There is also no life insurance currently offered in the market. motor (23%).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. which so far appears to have been effective. the massive ﬁre claims in 2007 (Figure 69). however. the level of claims in 2009 were 34% ﬁre. 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.6% 0% Malaysia Singapore Thailand Brunei Indonesia Philippines Cambodia Source: MEF Insurance Division Figure 71 shows industry premiums written for 2009. health and safety (15%) and personal accident insurance (8%) representing nearly 75% of industry premiums.2% 0.3% 1. they will be required to have an additional US$7MM in capital.
Figure 72: Market Share by ﬁrm (2009) 0% 10% 17% Forte Asia Inﬁnity Campu Caminco Cam-VN 29% 20% 23% Source: MEF Insurance Division Cambodia Capital Research 60 . Forte had a market share of 29%. there is little incentive for domestic players to enter the industry. all with signiﬁcant market shares as of 2009. and Cambodia Vietnam insurance commanded less than a percent of the market. Campu 17%. However. 20%. Asia Insurance. There are ﬁve large competitors. and the 4-5 year period life insurance businesses can require before generating a proﬁt. we believe that there may be the possibility of a large foreign player entering the life insurance business within the next few years. Inﬁnity. and one small operator. given the currently low potential commissions.Overview of the Cambodian Economy June 2011 Add to this the lack of domestic expertise in the sector. that could easily meet the capital requirements. Caminco. 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. and have sufﬁcient ﬁnancial ﬂexibility to take a long term view on the market. 23%. the high upfront costs. 10%.
There are also issues of limited processing capacity. that although relatively sparsely vegetated. soybean. i) Climate. Unmilled production has risen 185% since 1993. in terms of both physical and ﬁnancial capital. but lacks the modern farming methods. coffee. but ofﬁcial exports have begun to increase in the last ﬁve years for many products. Figure 74 shows the main type of vegetation by area. cassava. using over 80% of agricultural land. while milled rice exports are small but rapidly growing • Supply side constraints: The main constraints in the sector are limited education on and adoption of modern farming methods and a lack of ﬁnancial and physical capital. a need for improved irrigation and transport infrastructure. 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. and access to capital to purchase equipment and fertilizer. cashews. are speciﬁcally suited for cultivation of some crops (eg. The country has an ample supply of natural resources and labour. with 70% of the population subsistence farmers. with lowland rice making up the majority the country. sugarcane. the country was exporting very little formally (although there is clearly informal trafﬁc in agricultural goods across the borders with its neighbors). the Cambodian government and multilateral institutions like the World Bank and ADB. 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. coffee). The country has a large. even these loans are not sufﬁcient for the agriculture sector to take advantage of the current demand. with loans to the agricultural sector rising from both the banking system.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. Modern farming is beginning to develop. and Cambodia is now a net exporter. However. Cambodia Capital Research 61 . Sustainable growth sector that is key to balancing economy Agriculture in Cambodia represents the livelihood of the majority the country. much of this subsistence farming. Cambodia already cultivates. Until recently. With high demand and soaring prices for most agricultural commodities currently. tobacco. in addition to its key rice crop. that is slowing Cambodia’s progress in becoming a major exporter of agricultural products. rubber. cotton and corn maize. 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. mung and soya beans. but it is still relatively limited. it is mainly supply side issues. This situation is gradually improving. It also has mountainous regions. Gradual improvement is being made in all of these areas.
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 30% had a higher ratio than Cambodia at 24%. with 32% and Thailand. Only Vietnam. with the monsoon season running from roughly May to November each year. 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 .
7MM hectares of land currently dedicated to rice farming in Cambodia.Overview of the Cambodian Economy Figure 75: Percentage of arable land to total land 40. with planting in November and a January-February harvest. There are an estimated 2. comprising over 80% of agricultural land. deepwater rice 4%. Figure 76: Rice cultivation by type 8% Lowland Wet Season Deepwater.0% 10.0% 30. and is the key crop cultivated in Cambodia. and 2) a dry season crop. Floating Rice Rainfed Upland Dry Season Irrigated 2% 4% 86% Source: Food security atlas Cambodia Capital Research 63 . The lowland wet season rice production represents the majority of rice production. and rain fed upland rice 2% (Figure 76). with planting from May-July and a harvest in December.0% 0% 2000 2001 2002 2003 2004 2005 June 2011 2006 2007 Cambodia Malaysia Source: World Bank Thailand Myanmar Vietnam Laos Indonesia ii) Rice: The key crop Rice is the main staple of the Cambodia diet. 1) a longer wet season crop. with dry season irrigated rice 8%.0% 20. Cambodia has two main rice crops per year (versus three in Thailand and between two and three in Vietnam). at 86%.
We note that there is signiﬁcant informal cash-based cross border trade of unmilled rice with Vietnam and Thailand which could put the actual ﬁgure much higher. remain tiny.Overview of the Cambodian Economy June 2011 Unmilled rice production rises 185% since 1993 Unmilled rice production in Cambodia has risen 185% since 1993.000 5. from 2. in contrast. 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. and by 2008. These exports became material around 2003 (Figure 78). although they are growing very rapidly.250 3.750 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. from 15k tonnes in 2009 to 100k tonnes in 2010. but that the current timeline may be a bit aggressive. the USDA estimated that 400MM tonnes of unmilled rice were ofﬁcially exported.We believe that Cambodia will eventually hit this target. 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 . Figure 78: Cambodia unmilled rice imports. but growth targets aggressive Milled rice exports.500 1. We outline further the constraints that currently limit Cambodian agriculture at the end of this section. consumption (‘000 tonnes) 7. Figure 77: Cambodia rice production.000 tonnes as of 2008 (Figure 77).000 tonnes to 6.381. The government currently targets one millions tonnes of milled rice exports by 2015.800.
and beverages/tobacco. but unsustainable deforestation has hurt the long term potential with forested land declining from 12. at just US$30MM in 2009 (Figure 79). Land dedicated to rubber cultivation has increased steadily over the last several years driven by rising global prices. Wood product exports were far lower in value terms compared to rubber. and rubber exports were US$147MM in 2009 (Figure 79). reaching 160k hectares in 2010 (Figure 80). Tobacco 2009 Figure 80: Land for rubber cultivation (‘000 hectares) 200 150 100 50 0 2007 2008 2009 2010 Source: Department of Cambodian Rubber Timber industry hit by unsustainable deforestation The timber industry has been important for Cambodia in the past.Overview of the Cambodian Economy June 2011 iii) Rubber and timber: Important exports Rubber industry continues to expand After garments/textiles. With rubber a key product of ASEAN. and regional producers expressing more interest in Cambodia as a production base.3MM sq. Figure 79: Key exports (excluding Textiles and Animal/Vegetable products) US$MM 225 169 113 56 0 Rubber 2006 Source: National Bank of Cambodia 2007 Wood Products 2008 Beverages. Cambodia Capital Research 65 . km in 2007 (Figure 81). animal/vegetable products (including rice). km in 1994 to just 10.0MM sq. we expect that the rubber industry will continue to expand. rubber and timber are Cambodia’s largest exports.
Overview of the Cambodian Economy Figure 81: Forested land (‘000 sq km) 14.000 3. with maize and cassava showing the strongest growth.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.500 7. 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 10. 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.
The product is used mainly for starch. however. comprising as much of 80% of domestic protein consumption. with domestic consumption limited Coffee production is still low. 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’. which is the main export market for the nut. the source of much inland ﬁshing (Figure 84). the large inland ﬁsheries in the country have seen a decline due to lower water levels along the Tonle Sap and Mekong rivers. 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 also in energy production. but the northeastern mountainous climate. In recent years. 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. As infrastructure and improved agricultural methods reach this more remote area. and has become increasingly important over the last several years (see Figure 76). for example in Mondulkiri province. 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.8MM tons for 2010 (cultivated hectares in 2008 was 160k).Overview of the Cambodian Economy Figure 83: Crops cultivated in Cambodia Crop Cassava June 2011 Detail Production is estimated at 3. but Chinese FDI and interest in importing the product has been strong in the sector recently Cashew nut cultivation is mainly concentrated in provinces bordering Vietnam. but at least one company. Seladamex. there is the possibility for increased coffee production longer term A key ingredient in animal feed production. the growth in livestock and ﬁsheries production in Cambodia has been reasonably ﬂat to downward trending. Cambodia Capital Research 67 . vanilla and other specialty herbs.
We believe that there is large long term potential for expansion into the country by the large agricultural companies in Thailand. 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. with many small farmers raising and selling chickens to supplement rice farming incomes. ESCAP Aquaculture Planned dams may exacerbate the problem Potentially exacerbating these current problems. recorded exports are low. However.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. Only two of the dams are in Cambodia. There is demand from Thailand and Vietnam for bovine imports. but that rice will likely be the main focus for some time to come. until further studies are conducted on the potential environmental effects of the dams. ESCAP 2005 2006 Poultry 2007 Swine 2008 Cambodia Capital Research 68 . but informal exports likely much higher. and as with rice. Most livestock production currently small scale There is little in the way of modern livestock farming. leaving Cambodia limited inﬂuence in the outcome. and 9 are planned in Laos. Figure 85: Livestock production (MM head) 25 20 15 10 5 0 2004 Bovine Source: MAFF. and most production is small scale by individual farms. but more importantly disrupt ﬁsh migration and reproduction patterns. the dams could further lower water levels and reduce ﬁshing stocks. long term. Poultry represents far and away the majority of livestock production (Figure 85). Fortunately.
they have all improved over the last decade. Vietnam (4. small farms and little other collateral. The solution will likely have to come from increased economies of scale in the sector. but it still far from completely solved. 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. fertilizer and machinery.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. there are still major constraints on the sector. and ensure that farmers have clear title to their land. 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. especially given rapidly rising global demand and prices for agricultural goods. possibly through government intervention or cooperatives. but still limited It is not just farmers. at just 2. tonne/hectare 5.5% 1.3%) and Laos (3. Rice millers’ access to capital improving. to increase the effective size of the farms.6%). With demand from local millers lows. although these issues continue to weigh on the sector. with limited or no land title.0% 3. but also rice millers that face a lack of access to capital. the incentive is still high for farmers to sell their unmilled rice to Cambodia Capital Research 69 . given that the rice yield was a meager 1. Lending by both microﬁnance and development ﬁnance institutions has bridged the gap on this issue to some degree. This would encourage and allow for the purchase of better seed. banks simply cannot lend to many farmers and still maintain basic lending requirements. which makes expansion or refurbishment difﬁcult.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.1%).0% as of 2008 versus neighbors like Thailand (2. and allow ﬁnancial institutions to see collateral and be more willing to lend.3% in 2000 (Figure 86). Figure 86: Rice yield.8% 2. which has probably truncated growth in the sector over the last few years. This includes a lack of access to both physical and ﬁnancial capital. However.
it would still represent a 10-fold increase in milled rice exports from the current level. and the port expansions are currently underway. mills) will help drive farming efﬁciency and agricultural development. but it is still at a relatively low level when compared against the government’s one million tonne target. road. roads and bridges are being developed. which have huge demand for the product. Nevertheless. once ﬁnished they could help facilitate major growth in the development of Cambodia’s agriculture exports. multilateral institutions. On the upside. The government. We believe that downstream development (ie. Agricultural ofﬁcials have reported that it would take 30-40 modern rice mills to reach the one million tonne target. Cambodia Capital Research 70 .Overview of the Cambodian Economy June 2011 Thailand and Vietnam. major forward motion on all these issues has already taken place. Road and bridge infrastructure in the more remote provinces is still limited. the railway is being rebuilt. 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. mainly using older technology. storage and warehousing facilities need modernizing and the two main ports need expansion. where there are only about 5 major rice mills currently. related logistics and port infrastructure. even if Cambodia only reaches half this target in the allotted time. Although these actions will take at least 3-5 years to complete. banks and microﬁnance institutions have been increasing the credit available to domestic millers. The heavily reliance currently on trucking for transportation for goods in Cambodia keeps costs high. and improved roads and the option of rail transport will materially lower the cost of agricultural exports. the railway system has only recently begun its ﬁrst refurbishment in about 40 years.
3 5.8 0 2007 Textile Exports (LS) 2008 Nominal GDP (LS) 2009 40% 30% 20% 10% 0% Textile Exports/GDP (RS) Source: Ministry of Economy and Finance Cambodia Capital Research 71 . 63% of 2009 total manufacturing output. and 24% of GDP • Over concentration: We believe that there is an over concentration in the sector.5 2. and 24% of GDP (Figures 87. the garments/textiles manufacturing industry is the most important single sector for the Cambodian economy.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. which together comprise the bulk of the Cambodian textile industry’s customers (Figure 89). The sector is almost wholly reliant on the fate of the global clothing retailers. 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. but ended quickly. Figure 87:Textile exports to GDP 11. The sector represented 60% of 2009 exports. even compared to other countries historically following a similar textiles-led growth path. and currently it is a point of structural instability in the economy. The country’s least developed nation status allows it duty free exports to the EU. we do not necessarily see this sector as key to sustainable long term growth. and the country’s membership in the WTO allows it quota free exports to other WTO members.0 8. We believe that agitation for higher wages would be the result of rising food prices Economy heavily geared to garment sector After agriculture. In contrast to agriculture. 88). while textile exports accounted for 60% of total exports. representing 63% of total manufacturing (2009). especially in the United States (which represented 69% of garment exports from Cambodia for 9M/10) and the European Union (25%). however.
a decline in the fortunes of the global apparel retailers will mean a major hit to GDP in Cambodia.Overview of the Cambodian Economy Figure 88:Textiles/Garments as a % of exports 5. but in the short to medium term it leaves the country highly exposed to the vagaries of this single industry.750 2. Beyond just the overexposure to global clothing demand. is the fact that the global clothing retailers are notoriously ﬁckle in shifting between countries in terms of placing manufacturing orders. 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.000 3. and this is mainly based on wage rates. Cambodia Capital Research 72 . We expect that Cambodia could also follow this path longer term.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 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.500 1.
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 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. 1980-1990 0.08 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.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 2010.15 0. We expect that strong food price inﬂation would be the trigger to see further unrest in the garment manufacturing sector. Although inﬂation has been relatively benign in Cambodia (apart from a short term spike in 2008). 1995-2009 0. Cambodia Capital Research 73 .23 0. The strike ended peacefully with workers returning to the factories.30 0. with unions striking for just under a week. The strike was partly in reaction to the setting of the minimum wage rate for sector at US $61/month. The main issue for workers agitating for higher wages will be rising foods costs. The unions had been agitating for US$93. As ﬁgures 90 and 91 show.30 0. global commodities and food prices have been soaring.6% of exports from 1995 to 2009.Overview of the Cambodian Economy June 2011 However. Figure 90: Thailand textile exports as % of total exports.15 0. which comprises the majority of the consumption basket for the average Cambodian garment/textiles worker.23 0.
at US $43/month. the ofﬁcial rate for the Vietnamese Dong to the US$ has depreciated more than 6%. it would make Cambodia less competitive versus Vietnam. 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. between US$117-US$147 in the coastal cities. Figure 92: Regional minimum wage for garment workers (US$/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 . ranging from US$63/month in smaller cities to US$93/month in larger ones. Cambodia currently ranks in the middle of the pack at US $61/month between lowest-regional-wages-in-the-industry Bangladesh. and higher wage China. However. even taking into account the devaluation. although still leaving it competitive versus China. if the union’s target of US$93/month were to be achieved. likely making the smaller cities less costly in labour terms versus Cambodia. As shown in Figure 92. The most recently reported wage ﬁgures from Vietnam we have are from late 2010. Cambodia still offers far less expensive labour than the larger cities in Vietnam. Since these ﬁgures were issued. however.
The industry is still concentrated mainly in two cities so far. the location of the World Heritage Site Angkor Wat. especially from Vietnam.Overview of the Cambodian Economy June 2011 Tourism: Shift to regional arrivals • Tourism is third largest sector of economy: Tourism receipts represented 14. Figure 93: Cambodia tourism receipts and tourism receipts/GDP 2.2MM in 1995 to 2. making it the third largest single sector of the Cambodian economy. and as road infrastructure gradually improves they will be more easily accessed by tourists (Figure 94).500 1. However. Annual arrivals have risen from just 0. this has led to a decline in revenue/arrival/day in real terms. but this appears to be offset by the increased volume as total tourism receipts have risen Strong long term trend in tourist arrivals After agriculture and garments/textiles. and accounted for 14.000 500 0 1995 1998 2001 2004 2007 2010E 20% 15% 10% 5% 0% Tourism Receipts US$MM (LS) Source: Cambodia Ministry of Tourism Tourism Receipts ot GDP (%) (RS) Cambodia Capital Research 75 . the capital Phnom Penh and Siem Reap.4% of 2009 GDP. and for other destinations over the longer term • Regional arrivals increasingly important: Regional arrivals are an increasing proportion of the total.000 1. including other ancient temples and potential eco-tourism sites.4% of GDP in 2009 (Figure 93). the tourism industry is the third largest single sector of the economy. Korea and China.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. Other areas of the country also have potential.
and the surrounding. as shown in Figure 91. where development is just starting. Beyond the three key cities there are also other areas ripe for tourism development in the longer run.Overview of the Cambodian Economy June 2011 Sihanoukville the most promising new location The most promising location for further development in the short to medium term is Sihanoukville. mix of business and tourist arrivals Angkor Wat is key attraction.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 . 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. but we expect this to happen in the next few years. 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. mainly tourist arrivals Beach town near port and commercial facilities Beach lined coast. virtually untouched islands.7 0.6 1. 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.
525 12.8% 146.1% 96.973 8.508.1% 146.5% 103.229 3.6% 145.277 3.6% 109.1% Total Arrivals % growth 2. with arrival growth averaging 19.9% 106.015.285 4.9% 102.103 4.286 5.128 18.9% 72.0% 4) Japan 158.Overview of the Cambodian Economy June 2011 Surge in arrivals over last decade Tourist arrivals have surged more than tenfold in Cambodia from just 0.0% Source: Cambodian Ministry of Tourism Cambodia Capital Research 77 .6% 98.060 1.8% 97.7% 2010 466. 23. we expect that as Cambodia’s reputation as a destination continues to improve.1% 146.093 4.949 4.6% 63.442 6.5% 7) UK 84.957 4.8MM to Vietnam). Figure 96: Cambodia arrivals by country and as percentage of total arrivals (‘000) 1) Vietnam 2007 125.465 5.590 5.581 3.0% 83.7% 91.933 2.1% 84.517 4.7% 161.9% 105.6% 148.353 7.018 4.7% 84.598 3.1MM arrivals to Thailand in 2009.3% per year from 1995-2010 (Figure 95).5% 163.6% 289.181 4.806 7.6% 197.202 14.5MM in 2010.079 6.5% 2009 316.125.8% 163.2% 8) Thailand 101.437 4. 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.119 3.482 6.9% 60.539 6.837 4.9% 266.2% 2) Korean 329.9% 11) Laos 23.5% 2.695 18.311 2.702 11.725 9.3% 94. Given the high number of tourist arrivals we see for other Southeast Asian nations (14.286 6.516 9.795 6.8% 113.577 1.806 7.298 16.973 7. it will be able to gain share from other regional markets.4% 3) China 161.067 4.8% 93.5% 2008 209.2% 10) Taiwan 118.000 3.4% 2.161.020 5.9% 2.0% 9) Australia 83.5% 151.9% 5) US 137.8% 6) France 90.909 16.180 5.2MM in 1995 as Cambodian began to stabilise politically to over 2.005 5.6MM to Malaysia and 3.168 4.
Europe and Japan. we may no longer be able to take the arrival growth rate as corresponding to the growth of tourist receipts.5% of arrivals in 2006 to 24. We note that with the current economic difﬁculty in Vietnam. 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). and political conﬂict with Thailand.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. 2011 report: ‘Short-term hurdles. 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. we may see the volume growth offset the lower receipt per average arrival. We believe that this could mean that arrival ﬁgures could become more cushioned to the downside. if Mekong arrivals continue to increase at a rapid rate. tourists from far abroad may choose to reduce their budgets and travel more locally. Vietnam and Laos alone have increased from just 9. please see our January 5. real revenue per arrival per day had been maintained above US$70/day from 2001 to 2007. long-term opportunities. For more detail on the Cambodian tourism industry. As shown in Figure 97.9% of arrivals in 2010. Declining real revenue per arrival per day over last few years On the downside. leading to rising aggregate tourism receipts. This is because in economic downturns. especially due to a surge in arrivals from Vietnam and Laos over the past few years (Figure 96). Historically Cambodia had been weighted (especially in revenue terms) to tourist arrivals from more distant locations including the US. However. and this could lower the average spending per tourist. Therefore. we may see some short term slow down in arrivals from neighbouring nations. Arrivals from the country’s three neighbours Thailand. but we expect that the secular long term trend is for an increase from the Mekong region.’ Figure 97: Average real revenue per arrival per day US$ 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 .
Cambodia Capital Research 79 .000 2. 2009 (kWh) Malaysia Thailand Vietnam Indonesia Cambodia Myanmar 0 Source: ASEAN 1.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 2016.235MM kWh in 2009. understandably very low versus the region in both absolute and per capita terms. although there are possible large reserves both on and offshore which are in the early stages of exploration • Water supply reliable in Phnom Penh.000 3.000 Extremely fragmented power industry Cambodia’s energy industry is still extremely fragmented and currently has no country-wide power grid. with even the largest single player. the state owned utility Electricite Du Cambodge (EDC).1% of the energy generated in 2009. with an accompanying major expansion towards a national grid • Large oil and gas potential: The country is wholly reliant on oil imports currently. but rural rates of water supply and cleanliness still need dramatic improvement i) Electricity Production: Defragmenting Electricity consumption second lowest in the region Cambodia’s total energy consumption was 1. given comparably limited development. Cambodia ranks second lowest with 94 kWh annual consumption per capita in 2009.000 4. The electricity supplied by EDC has actually declined signiﬁcantly in absolute terms since the early-2000s (Figure 101). supplying just 8. less so in provinces: The Phnom Penh Water Supply Authority now supplies water to 100% of the city. Thailand per capita energy consumption was over 20x this ﬁgure and Malaysia over 35x (Figure 98). Figure 98: Per capita energy consumption. Among the major ASEAN nations.
with demand clearly still concentrated heavily in the capital. which supplied 5% (Figure 100). Generation from Phnom Penh still dominates total electricity supply.Overview of the Cambodian Economy June 2011 Given this lack of country-wide electricity distribution. are still very dependent on electricity imports from Vietnam. especially along the borders. indicating just how limited energy use is outside this single city. at 67% of the total. Figure 99: Cambodia’s existing and planned electricity grid by 2016 to Laos to Thailand Banteay Meanchay Preah Vihear Stung Treng Ratanakiri Siem Reap Battambang Kompong Thom Pursat Battambang Hydro Kratie Mondulkiri Kompong Chhang Osom Phnom Penh Koh Kong Kompong Speu Kompong Cham Prey Veng Takhmau to Vietnam City. 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 . which supplied 7% of Cambodia’s energy in 2009. and Thailand. parts of Cambodia.
However.5% of 2009 domestic production. Kirirom. As the country expanded generating capacity to accommodate rapid growth. meaning that the industry is not taking advantage of economics of scale. Three power plants. with a major contraction in supply from both the IPPs and EDC.484MM kWH. Independent power producers accounted for 88. with only Singapore having higher prices (Figure 102).18 US cents/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 grid is expected to be expanded to link the northwest and the Southeast. However. IPPs account for nearly 90% of domestic power production Figure 101 shows domestic electricity production and therefore excludes imports from Thailand and Vietnam. Figure 101: Electricity sent out by supplier (MM kWh) 1. domestic generation declined signiﬁcantly in the 2009 recession. power is supplied both from Thailand and from Battambang Hydro. as shown by the blue lines on the map.4%. In the Northwest. and consumers cannot be guaranteed consistency or quality of service.600 1. while there is also energy supplied from Vietnam. paving the way for further investment in generating capacity. there is power to Stung Treng supplied by Laos. by 2016. the grid will still not reach Northeast.200 800 400 0 2003 IPPs Source: EAC 2004 2005 2006 2007 2008 2009 Consolidated licenses Electricity Du Cambodge Cambodia Capital Research 81 . domestic energy production from 2003 to 2008 grew 130% from 636MM kWh to 1. The IPPs are generally very small and high in number. while producers with consolidated licenses produced 3.10-0. This industry structure has kept the energy tariff in Cambodia the second highest in the region. at between 0. the country mainly depends on small scale independent power producers for energy. We note that even after this expansion. Kamchay and SHV Thermal service the south. with much of the energy going to Phnom Penh. Outside these small systems. the most sparsely populated. least developed region. and in the Northeast.
17 June 2011 0.06 Low Source: ASEAN 0. while hydropower generated 3. generating capacity is expected to rise 300% by 2016. Figure 103: Electricity sent out by type of generation (MM kWh) 1. 927 MW. given plans currently underway to diversify into hydroelectric and coal power.11 High 0. Of the total 1. Figure 100 shows the total electricity supply by type of generation. 100% of which is imported. Cambodia Capital Research 82 . capacity rose 200% from 2003 to 2010).22 Heavy fuel oil main power source Domestic generation of electricity is mainly done through burning heavy fuel oil. Under current plans.527 MW expected capacity growth.Overview of the Cambodian Economy Figure 102: Residential electricity tariff. Heavy fuel oil accounted for 93.200 800 400 0 2003 Hydropower 2004 Diesel/HFO 2005 2006 2007 Coal 2008 2009 Wood. which leaves the country heavily dependent on oil. 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.8% and coal just 2.3%.4% of domestic energy generation in Cambodia in 2009. 2011 (US cents/kwh) Singapore Cambodia Indonesia Malaysia Philippines Laos Thailand Vietnam Brunei Myanmar 0 0.600 1. for its energy needs. from 583 MW currently to around 2400 MW (for comparison. is estimated to come from hydro electric projects and 600 MW from new coal power generating projects (Figure 105). or 61%.
Overview of the Cambodian Economy Figure 104: Installed capacity (MW) 2. there have been delays Cambodia Capital Research 83 . we expect that imported coal will still be used to a large degree in the new coal-ﬁred plants. Cambodian coal is relatively low quality with a low thermal value.250 625 0 June 2011 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Hydropower Diesel/HFO Wood. 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. disruption of the river environment is a signiﬁcant issue for the country. On the upside.534 3.073 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. With much of the population existing on subsistence agriculture. but it is unclear to what extent it can be used for cost-effective and efﬁcient domestic power generation. as it would likely be heavily polluting due to the low quality. they pose a serious environmental risk as we mentioned in our agriculture section. and would likely need to be mixed with imported coal to raise the average caloriﬁc value before it can be readily used in power generation.875 1.527 539 2. On net. Dams pose environmental risk Although the planned hydroelectric dams will massively increase baseload generation capacity in the country.500 1. and a large proportion of the protein in the Cambodian diet consisting of ﬁsh. The other issue in using the local coal is environmental.
and there is no domestic production. There is also some capacity for wind energy generation. but limited visibility so far Publicly available information regarding development in the upstream oil industry is limited. and only four producing test wells have been developed in recent years. to allow time for further study on potential environmental damage. production is at least ﬁve years away. as the country has potential offshore and onshore oil reserves. Studies have suggested that there are signiﬁcant potential oil deposits in Cambodia’s offshore territory. hydro and coal power generation should help alleviate this oil import dependence over the next ﬁve years. 13. 1) Chevron-Moeco-GS Caltex holds Block A. Offshore potential.000BN cubic feet of gas. this has left the country with little ﬂexibility in terms of energy production. the mountainous area of the southwest and the coastal regions. With the average duration of sunshine at 6-9 hours/day. Biomass energy consumption could be considered very high given that many subsistence farmers burn a large amount of wood and other plant sources. even on a aggressive timeline. 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. exploration has only commenced in earnest in the last decade. but installed capacity is low. and the actual resources may prove Cambodia Capital Research 84 . especially around the southern part of the Tonle Sap lake. This would be a total 2. there is capacity for solar energy. However.000MM bbls of oil and 10. Given that most of the current electricity supplied is generated by heavy fuel oil.7BN bbls of oil. this has been divided into six blocks (A to F) and awarded to various international oil companies (Figures 106. with 2.Overview of the Cambodian Economy June 2011 recently in the construction of a major dam. these estimates are subject to criticism by some.727MM bbls of oil and 13. although the sector is not without promise over the very long term. However. Biogas and biofuel development are also undertaken in Cambodia on a small scale. if even half of the currently estimated reserves were brought into production. and this source is not yet very cost effective. Potential reserves of 2. 108). with estimates of 500MM bbls of oil and 3. but importantly. ii) Oil and Gas: Offshore and onshore potential Wholly reliant on imports currently.000BN cubic feet of gas. As noted above. but may have oil reserves Oil in Cambodia is 100% imported currently. Nonetheless.496BN cubic feet of gas reserves. planned in Laos.5BN cubic feet gas Potential reserves estimates have been released for only three of the blocks. 2) China Petrotech held Block D. Cambodia also has the possibility of domestic oil production. the available information is summarized in Figure 106. and CNOOC’s Block F. it would greatly cut oil import demand and boost GDP. Xayaburi. with 227MM bbls of oil and 496BN cubic feet of gas. However. The government is currently attempting to promote the development of these resources.
but political wrangling between the two countries over the area continues. 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.Overview of the Cambodian Economy June 2011 to be much lower. 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. possibly by 50% or more. but politics a hurdle In addition to blocks A-F. JHL (10%) CNOOC Source: EIC. one in the early 1970s by Elf. this deadline may prove overly aggressive.3%) Polytec (100%) China Petrotech (100%) Medco (60%). CNPA (40. 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. Cambodia Capital Research 85 .000 Companies Involved Chevron(55%). Meanwhile.3%). the recent deterioration in bilateral ties between the countries related to the border conﬂict will surely not assist negotiation on the oil issue.5%). However.000 Gas (BN cubic feet) 3. JHL (7.000 n/a n/a 496 n/a 10. Resourceful Petroleum (33.0%). there are estimated to be signiﬁcant potential oil and gas reserves in an offshore block that is jointly claimed by Thailand and Cambodia. (Historically. The prime minister has pressed Chevron to develop the ﬁeld and start pumping oil by 2012. This block has been targeted as the most promising of the Cambodia offshore areas. and nine wells drilled in the mid 1990s by British and Japanese oil exploration companies). with oil documented in four test wells drilled by Chevron in Block A. there were two previous waves of drilling. There is also limited transparency on the expected quality of the reserves. SPC (33. Note: Oil. and occurred 5 years ago.5%) Petrovietnam (100%) JOGMEC (100%) Source: EIC Joint claims area very promising. GS Caltex (15%) PTTEP (33. or risk losing its concession. Kuwait Energy (30%). with the time from the initial oil discovery to the start of extraction taking on average 5-10 years.3%). given that the ﬁnd was only a single well. Moeco (30%).
Overview of the Cambodian Economy Figure 108: Offshore Oil Blocks June 2011 Figure 109: Key Onshore Oil Blocks Block E Block F Block D Block C Block A Sihanoukville Block XVII (JOGMEC) Block XII (Medco 52. but then amended in 1998 in 1999. given that the expected location of the oil is around the Tonle Sap river basin. we do not expect to even see a ramp up JOGMEC Block XVII in exploration and testing. Cambodia Capital Research 86 Block XV Pe Block III and XXVI TOTAL . 109). onshore oil development poses serious environmental risks. Similar to the development of hydropower. 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. originally promulgated in 1991.5% claims area.5% Onshore oil potential around Tonle Sap basin The onshore region with the most potential is the Tonle Sap river basin. and acts an inspector both of the ﬁnancial and physical capital in the industry. JHL 7. We believe that we are more likely to see Cambodia’s wholly Block before the joint owned blocks start producing XII Medco 52. the costs to do seismic studies of the area will apparently be moderate given the terrain. 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. The country has been divided into 19 onshore blocks.0% JHL7. let alone a move to full production in the joint claims area. the countries signed a 2001 memorandum of understanding with the aim to eventually undertake joint development of the area. the Cambodian National Petroleum Authority (CNPA) was established as the industry regulator. However. but there is still no reliable documented proof of this.5%) Block XV (Petrovietnam) Block III (Total) Block B Source: EIC 2. In 1998. even though the CNPA 40% latter looks potentially more promising at this stage. To the upside. Cambodian National Petroleum Authority regulates industry The oil and gas industry is regulated under the Petroleum Regulations Act. the area is still in the very early days of exploration and production would at best be ﬁve years away.5% CNPA 40. to administer the six offshore blocks and the 19 onshore blocks.Onshore and Offshore Oil Blocks Until the political issues are resolved. The CNPA handles all petroleum related bidding and contracts. There were reports of ‘oil seeps’ in the area as early as a 1958 Chinese study (which was followed up in 2002).
which we estimate has a 30% share. supplies jet fuel to military and government aircraft.Overview of the Cambodian Economy June 2011 Five ﬁrms in retail oil industry The retail oil industry in Cambodia is an oligopoly with ﬁve ﬁrms.000 ton ships. has 32 gas service stations. which have terminal facilities at the port. Caltex.400 KTOE) Diesel Gasoline Kerosene LPG Fuel Oil Jet Fuel 1% 5% 12% 13% 48% 21% Source: Ministry of Mines Industry and Energy Cambodia Capital Research 87 . The market leader is domestically owned operator Sokimex. supplies high speed diesel. fuel oil and lubricant to industrial sector. sells liqueﬁed petroleum gas. and Thailand’s PTT with a small market share (Figure 110). 2) via Vietnam through the Mekong River delta to Phnom Penh. Figure 110: Overview of players on downstream oil industry Company Sokimex Details Estimated market share of about 30%. A large proportion of the imports are sourced from reﬁneries in Thailand. has 38 gas service stations. kerosene and oil lubricants Estimated 15% market share. distributes jet fuel at Siem Reap airport. has 184 gas service stations.has 25 gas service stations. Total with about 10% of the market. 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. commanding a 15% share. Estimated 10% market share. sells road fuels. across the Thai and Vietnamese borders with Cambodia. Company has its own jetty able to accommodate 46. the second largest player is Tela. especially gasoline. fuel oil. produces liquiﬁed natural gas. power diesel. 1) the country’s only deepwater seaport at Sihanoukville. Figure 111: Oil imports by type. liquiﬁed petroleum gas and oil lubricants Six gas service stations. and 5 storage terminals Estimated market share of 25%-30%. gasoline. The other three players are foreign operators. and sells petrol and engine oils. There is also a substantial informal sector. mainly by Sokimex and Tela. It also sells fuel to inland industrial customers. 2006 (Total: 1. industrial and aviation fuels. estimated as high as 20-30% of imports. with this channel comprising between 60%-75% of Cambodia’s oil imports. which has an approximate 25%-30% of the market.
Overview of the Cambodian Economy
There are currently no up to date statistics on petroleum import volumes, but as a basic indicator the Ministry of Industry, Mines and Energy estimated that in 2006, the country imported 1,400 kilo tonnes of oil equivalent. The split by product is shown in Figure 111, with the key categories comprising diesel (48% of fuel related imports), LPG (21%), gasoline (13%) and fuel oil (12%). First study on developing reﬁnery capacity Although there is currently no oil reﬁning capacity in Cambodia, the country recently took some early steps towards developing this industry over the longer term. In mid-June 2011, The Cambodian National Petroleum Authority (CNPA) announced that Cambodian Petrochemical Company and the China National Automation Control System Corporation will conduct a feasibility study for an oil reﬁnery in Kampot province. Initial estimates are for a US $600MM reﬁnery with a 5MM tonne annual capacity.
iii) Water utilities: Urban success, rural challenge
Phnom Penh fully covered by PPWSA The capital city has reliable and clean water provided by the Phnom Penh Water Supply Authority (PPWSA). The state-owned enterprise has gone from supplying water just 10 hours a day with high levels of non-revenue water 15 years ago to 24 hours/day supply and nearly 100% revenue recovery currently. The company has also been noted globally as a model to emulate for other developing markets. PPWSA is also one of the three SEOs planned to be listed on the Stock Exchange of Cambodia. Clean rural water supply still remains an issue While water supply in Phnom Penh has been a great success story, there is still dramatic need for improvement in the provision of clean water supply in the rural areas. The World Health Organisation/UNICEF estimates that overall water supply coverage was 64% in urban areas in Cambodia and just 35% in rural areas, while urban sanitation coverage was 53%, but in rural areas a very low 8%. Provincial areas generally have good access to surface river water, but there is still limited availability of safe, clean piped or well water. National policy developed, foreign donors providing funding A National Policy on Water Supply and Sanitation was issued in 2004 by the Ministry of Industry, Mines and Energy and the Ministry of Rural Development (with the latter responsible for the provision of rural drinking water), which targets universal access to safe water and sanitation for Cambodians by 2025. Several projects targeting improved rural sanitation and water supply are being undertaken, with funding from the Asian Development Bank, World Bank, Japan International Cooperation Agency, and others.
Cambodia Capital Research
Overview of the Cambodian Economy
Mining, Materials: Early days
• Mineral extraction currently limited to construction materials: Current mineral extraction of any scale in Cambodia is limited to construction materials including cement, gravel, sand and stone • Potential for metallic mineral wealth, but high risk: Historical surveys suggest the potential for large mineral wealth including precious metals and gems. However, there are high risks of exploration including undetonated ordnance and mineﬁelds, minimal infrastructure and a long rainy season • Very early days for modern exploration: Large scale exploration has been undertaken only in the last ﬁve years, especially with investment from Chinese, Korean,Thai, and Australian (including four ASX-listed companies) interests All extraction so far limited to non-precious metals Large scale mineral extraction in Cambodia is still limited to the building materials shown in Figure 112; cement, gravel, sand, stone, and salt. However, the promise of potential future extraction is far greater, as shown in Figure 115, which outlines the potential mineral deposits by province, as reported by the General Department of Mineral Resources. Potential deposits include gold, bauxite, gems, silica, lignite, iron ore, coal, phosphate and antimony. Figure 112: Mineral commodity production in Cambodia
Mineral Commodity (metric tons) Cement Gravel Laterite (blocks) Salt Sand, construction material Stone: Basic material Stone: Limestone Source: USGS 2005 n/a 22,500 n/a n/a 763,900 1,079,400 n/a 2006 n/a 45,625 n/a 59,000 2,043,500 676,832 n/a 2007 86,990 36,250 312,718 76,651 329,028 2008 772,029 37,500 454,750 78,000 6,581,500 2009 774,305 41,875 631,000 N/A 14,035,790 2,819,817 1,000,000
1,433,086 2,039,336 1,000,000 1,000,000
Periodic exploration on a small scale since the 1970s In the early 1970s, there had been some mineral exploration of Cambodia, and reports of deposits. However, with some degree of civil war running from 1970 to 1998, along with the limited infrastructure of country, there was no real possibility for modern exploration. The country was also heavily landmined during this period, making the exploration process risky for prospectors. However, some foreign ﬁrms were undergoing some exploration by the early 1990s, even prior to the true end of the Cambodian civil war around 1997.
Cambodia Capital Research
Overview of the Cambodian Economy
Large scale modern exploration only in last ﬁve years The early entrants, however, were small scale operations, while micro-scale domestic artisanal miners were also perpetually present, often in teams as small as one or two. Modern exploration methods have really only been introduced very recently. As shown in Figure 113, mining investment has only ramped up in the last ﬁve years; prior to this investment had been at its maximum about US$2MM per year, but since 2005 has been above US$50MM per year, and reached a peak of over US$100MM in 2007. So it is only very recently that extensive modern exploration has begun in earnest in Cambodia. Figure 113: Mining investment (US$MM) as % of total Industry investment
112 75 37 0 10% 8% 5% 3% 2001 2002 2003 2004 2005 2006 2007 2008 2009 0%
Mining investment (US$MM) (LS) Source: Cambodia Ministry of Economy and Finance
as % of total industry investment (RS)
Figure 114: Mineral exploration/extraction in Cambodia
Material Metallic Minerals Non Metallic Minerals Gemstones Coal Detail Currently at least 63 ﬁrms, both domestic and foreign (with China, Korea, and Australia particularly heavy investors) undertaking exploration for gold, copper, iron, bauxite, antimony and chromium in several provinces across the country At least six ﬁrms (including joint ventures with Thailand) involved in building materials extraction including cement/limestone, all located in Kampot province, as well as one ﬁrm extracting granite in Kratie province Three ﬁrms are exploring for gemstones in Ratanakiri province and Pailin City 5 companies focussed on the coal industry, concentrated in Oddar Meanchey, Svay Rieng, Stung Treng and Kratie province
Source: MIME General Department of Mineral Resources, USGS
Growing interest in mineral exploration Figure 114 gives an overview of the scope of mining exploration currently undertaken in Cambodia, as compiled from the Ministry of Industry, Mines and Energy (MIME) and USGS (these lists may not be exhaustive, but we believe they cover the major operators). There is especially growing interest in metallic minerals exploration, with 63 ﬁrms now reported as licensed by MIME. The non-metallic and industrial mineral sector is mainly focussed on cement, limestone and granite, with Thai investment prominent; production levels are shown in Figure 112. There are three ﬁrms reportedly undertaking gemstone exploration and the coal industry has at least 5 major players. Cambodia Capital Research
with their tenements centred in the mountainous North Eastern provinces of Kratie. the company’s only operations are in the country. Mondulkiri and Rattanakiri. but also have reasonably large scale exploration activities in Cambodia. and thus are not pure Cambodia/Indochina plays. although ﬁrms are beginning to report small potential ﬁnds. 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 . all of the ﬁrms are still early in the exploration phase and extraction is at least ﬁve years away in a best case scenario. widely available estimates on the potential reserves for the precious metals. 3) OZ Minerals and Southern Gold already have extensive mining operations already in the production stage in Australia. there are four Australian Stock Exchange (ASX) listed companies undertaking exploration in Cambodia currently. There are no public. with the company holding tenements in both countries. 2) Indochine Mining is a play on both Cambodia and Laos mining. mainly focussed on gold.Overview of the Cambodian Economy June 2011 Most ﬁrms are still in the early exploration phase Other than the construction materials segment. 1) Brighton Mining is a pure play on Cambodia mining. ASX-listed ﬁrms mainly focussed on gold exploration For investors looking to gain exposure to Cambodian mining.
Unusually high risks in Cambodian mining In addition to the opaque regulatory environment. Legal regime established. which maintain that information related to mineral concessions is to remain private. Resources to be consumed locally. The key risk is that there is still a large amount of undetonated ordnance and heavily mined areas all across the country. there are also other major risks to the industry in Cambodia. and do not require a local partner. limiting both exploration and extraction. although the key legislation is in place. compared to other countries. foreign investors in the mining sector face a somewhat loose and untested regulatory regime. This is an issue given that the raw materials must clearly be processed and there is no reﬁning capacity in Cambodia currently. As with other sectors.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. not public information. it is not completely clear which ‘competent institution’ holds sway. while displacement a problem Also. Other risks. many average Cambodians do not possess land titles. which are also faced by Cambodia’s neighbours. 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. are a long wet season. it is currently illegal to export mineral wealth from the country. still left from several decades of civil war. the 2001 Law on the Management and Extraction of Mineral Resources. foreign companies can own 100% of their investment.‘ However. Fees involved not transparent. in Thailand. First is an article that states that mineral resource licenses are to be granted by a ‘competent institution. given the extended timeline before we can expect signiﬁcant extraction. there is a window to develop this capacity. even with these advantages. for example. However. The law has been criticised as leaving signiﬁcant gaps in interpretation. but remains opaque The legal framework for mineral extraction in Cambodia is not completely clear. We expect that this law will be amended as the industry matures. comprising two laws. 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. the exact extent of all the fees and duties collected from mining companies are not yet transparent. The government also applies exemptions on customs duties for the mining sector. Generally. But it is unclear why such development would occur in advance of evidence of mines coming close to extraction. However. Additionally. This is another issue with the laws. 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. and the 1996 Law on Environment Protection and Natural Resources Management. Cambodia Capital Research 92 . This makes exploration in Cambodia a far more risky venture than it would be.
Both domestic and international transport plans underway There are several large scale transport plans that guide transport development in Cambodia. Cambodia also plays a key role in regional transport development plans. China.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. Foreign funding of transport projects have been crucial Government spending on infrastructure remains low versus the region. and is currently implementing its master plan for waterborne transport. The government is broadly on track with a countrywide road development plan covering the period from 2006-2020. 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. while a new major airport is planned for Siem Reap. including multilateral initiatives for the Greater Mekong Subregion. Vietnam. Malaysia and Japan (through the Japan International Cooperation Agency and Japan Bank for International Cooperation) and. with major extensions into the provinces to be completed by 2015. with the combined effect of the new changes beginning to have a sizeable effect on the economy by that time. China. Thailand. and is set to be completed by 2012 • Seaports set for expansion. Plans have also been announced for a new Siem Reap airport. as well as country funding from South Korea. Cambodia Capital Research 93 . and a rail line running from Singapore to Kunming. plans for new Siem Reap airport: Both the Sihanoukville deepwater seaport and the Phnom Penh river port are undergoing signiﬁcant expansions. Cambodia has now begun to rebuild its roads. Although the projects have varied timelines we expect to see a very different Cambodia in terms of transport infrastructure by 2015. 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. 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. These include funding from multilateral institutions including the World Bank and Asian Development Bank. from Chinese policy banks. Multiple road development and bridge projects are being undertaken and a revamp of the railway system has already opened its ﬁrst leg. The country's two main ports are also undergoing major expansions. bridges and railway. and most of the major infrastructure projects are supported by international funding. A major rail refurbishment has already completed its ﬁrst phase. both domestic and regional. expected to be completed by 2014. increasingly. both through domestic initiatives and as part of regional projects.
052 km. while rural roads total 18. Royal Toll Railway Roads and Bridges: Pushing towards the economic periphery Modern roads now reach each of the major regions of Cambodia.Overview of the Cambodian Economy Figure 116: Cambodia transport infrastructure June 2011 Thailand Laos 56 Preah Vihear 68 67 Poipet Sisophon Ratanakiri Stung Treng 78 Phase 4 57B 66 Siem Reap Battambang 57 59 6 64 7 Kampong Tom 76 5 Pursat 71 Mondulkiri Phase 3 11 73 Koh Kong Phnom Penh 48 4 Phase 1 Phase 2 3 Vietnam 2 1 Sihanoukville Kampot City International Airport Major National Road Minor National Road Railway Source: Ministry of Public Works and Transport. and limits the development of these more remote areas. where limited road development adds immensely to transportation time and cost. with examples of current developments.391 km of road between 2006 and 2020. and the minor national roads another 2. but still not every province. Figures 116 and 117 give detail on the major road systems in the country. The Ministry of Public Works and Transport are undertaking rehabilitation of 30. Provincial roads are another 6. The major national roads in Figure 113 comprise a total 2. Cambodia Capital Research 94 .615 km.643 km. of which more than 4.948 km. where new bridges will cut travel times signiﬁcantly. There are currently several areas where travel routes are very indirect.000 km have already been completed.
helping link the area with Phnom Penh National road 57 is almost complete. leading to rising trafﬁc. Figure 118 shows the timeline for the completion of the additional sections. with some lines used for small scale cement and oil transport. Access to neighbouring Ratanakiri province is limited by a dirt road. 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. as it contains the capital city Phnom Penh. 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. 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. commercial operation date (COD) October 2010 Rehabilitation of 146 km Sihanoukville Port to Kampot. and is currently handling freight. COD mid-2011 Rehabilitation of 338 km Phnom Penh to Sisophon. with all major roads leading to this center Road development in this region is important to improve and expand links between Sihanoukville Port and Phnom Penh This an important rice growing region and contains the second largest city in Cambodia. 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. Battambang. Road development here is key for further agricultural development and market access This largely mountainous region bordering on Vietnam could be viewed as the most remote in the c o u n t r y. a joint venture between Toll Railway of Australia and Cambodia's Royal Group began a project to refurbish the railway in 2009. COD February 2012 Construction of 48 km Sisophon to Poipet. a n d i s t h e l e a s t populated. and citizens in the provinces using makeshift carriages for short haul journeys. COD January 2012 Source: Royal Toll Railway Cambodia Capital Research 95 . and the ﬁrst section was completed in October 2010. 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.Overview of the Cambodian Economy Figure 117: Road and bridge development by region Region Southeast Detail This region has the most extensive road system. it is expected that Cambodia should have its major rail lines up and running by 2012. However. more on the way There had been only limited use of Cambodia’s aging railway system since the 1970s until recently.
Korean developers in conjunction with the Cambodian government have announced that they planning to develop a US$1BN new airport for Siem Reap. which will expand its capacity 150%. 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 Port is centred in the middle of the capital city Phnom Penh. The Sihanoukville Autonomous Port is also expanding by 300k tonnes (versus 2. Neither of the airports is currently planning major expansions. Sihanoukville Autonomous Port. Both ports are facing some capacity restraints. Cambodia Capital Research 96 . the Phnom Penh Autonomous Port. but it appears that SCA will no longer maintain a monopoly if this new airport is open. There are also several small domestic airports in the second tier cities. respectively) to access international markets. This is expected to change as the city develops its 5 star hotel supply further. Ports: Expansions will help ease current limitations Cambodia has two major ports. However. we will see increased private sector involvement in both hard and soft infrastructure projects. and do not yet appear to be reaching capacity. Phnom Penh and Siem Reap. The current Toll Royal railway project is one of the ﬁrst major projects to test this new law. a river port on the Tonle Sap. and increasing the capacity of ships it can handle to 20k dead weight tonnes (dwt) from 10k dwt. However. We believe that in the medium term. subject to improved liquidity in capital markets. with a new container terminal port 30 km outside of the city. to 200k twenty foot equivalent units (TEUs). and this had restricted its expansion. although the expansion will help the ports accommodate larger ships. but are undergoing expansions. There is also a third international airport in Sihanoukville which is operating. it has recently begun an expansion.Overview of the Cambodian Economy June 2011 Airports: Second airport for Siem Reap? There are two large international airports operating Cambodia. and a seaport. but no international ﬂights yet land there. from the current 80k TEUs. However.The situation is still unclear. This law is fundamental to private sector participation in the infrastructure sector. Both are run by the Societe Concessionaire de L’Aerport with parent Vinci.217k tonnes shipped in 2010). improved local government credit worthiness and continued evolution of the legal system and enforcement of laws. in the major cities. 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.
7MM cellular subscribers as of end 2010.0 7. Entertainment. Technology 97 . Cambodia was still in the early days of rebuilding its economy. ﬁbre optics developing Wireless telecoms dominate the Cambodian market. and had only minimal ﬁxed line development. with 35k of this ﬁgure serviced by the state-owned Telecom Cambodia.2% penetration (Figure 119). We expect to see minimal investment in traditional copper wire technology.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. or 61. competition in other centres: Nagaworld holds a gaming monopoly within a 200 km radius of Phnom Penh. Media. Figure 119: Mobile telephone reported subscribers. with ﬁxed line investment concentrated in ﬁbre optic networks. while competition is rife in towns at the borders with Thailand and Vietnam.5 5. 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.0 2. but there have been only limited signs of consolidation to date • Diverse media sector: The media sector is diverse with multiple television channels. with estimates of 8. as casinos vie to attract foreign gamblers (it is illegal for Cambodians to gamble) i) Telecoms: Sustained intense competition Telecoms mainly wireless.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. compared to just 40k ﬁxed line subscribers. penetration rate (MM) 10. radio stations and newspapers with varying political views tolerated to some degree • Gaming monopoly in Phnom Penh.
and the other smaller operators.7MM subscribers as of end 2010.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. 2010 (MM) Metfone (Viettel) CamGSM (Mobitel) Hello (Axiata) Mfone (Thaicom) 0 1. With 99% of the market still prepaid subscribers and with both voice and data prepaid services available. 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. qb and Excell) have an aggregate negative 100k subscribers. This market was good for customers. subscribers are reported in their respective parent’s quarterly releases (Figure 120).8 5. However. This would imply that the remaining players (Beeline. New entrants used promotion such as free SIMs and low pricing plans to draw subscribers.5 3. Some discrepancy between sources in reported subscribers There is a clear mismatch between the statistics reported by the MPTC.3 2. Cambodia Capital Research 98 . it was not good for the mobile telephone companies which have faced pressure on revenue and margins. there are low barriers to users switching between networks.8MM subscribers. Generally. release any detail on revenue or proﬁtability. Only 2 of the 8 operators.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. 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. Figure 120: Top 4 Mobile operators reported subscribers. and 2) subscriber numbers as reported by the operators to the press for market leaders Mobitel and Viettel. For Hello (Axiata) and Metfone (Thaicom). Hello and Mfone. 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. Smart Mobile/Star Cell. which clearly can’t be the case. which show market subscribers at 8. we have only two sources: 1) Ministry of Post and Telecommunications reported ﬁgures. which may not represent sustainable cash ﬂow for the operators.
eventually we expect to see the Cambodia wireless market consolidate to a similar structure to other regional markets. Cambodia Capital Research 99 .68MM subscribers reportedly gained in December (as there is limited proof that these are long-term active subs). suggesting that another round of heavy price competition may just be starting. which grew by a dramatic 1. This may have been the number of SIMs distributed. which support between 2-5 major operators. but this may not happen until well into 2012. with the 336k subs on average for the 5 remaining players.2MM ﬁgure. Ezecom (which recently acquired Telcotech. Currently in the market mobile operators vary in their deﬁnition of subscriber. Star Cell and Smart Mobile. Fibre roll out continues There are currently several ﬁrms rolling out ﬁbre networks in Cambodia. The competition has also driven operators to outsource operating expenses.68MM in a single month from 2.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. and 2) the ﬁrst merger in the sector had been announced. We believe that the very rapid increase in Viettel’s reported subscribers puts them well towards the aggressive end of the scale.84MM as of end-November 2010 to 4.7MM. We expect that we will see either M&A in the sector. or the exit of several operators. which is not guaranteed. recently Hello has introduced a very low price on-network promotion. and estimate active SIMs at only 6MM. especially cellular towers. between two of the smaller operators. Adjusting Viettel ﬁgures after December 2010 surge If we were to assume that the MPTC ﬁgure of total market subscribers is correct. we are not convinced that these should be considered active subscribers until a several month track record for a given subscriber has been established. Fibre optic networks now reach to most of the larger cities and towns.2MM subscribers for the top 4 players. which will ease competitive pressures at least marginally. and adjust the Viettel reported number down by the 1. We note that this rough estimate relies heavily on the idea that the MPTC adjusts its ﬁgures for active subscribers. However. However. However. with some removing subscribers after 2 months of inactivity (conservative) and others retaining inactive subscribers indeﬁnitely.52MM as of end-December 2010. but we had seen two recent indicators that seem upbeat. which has complementary ﬁbre network) and CFOCN (Figure 121). holder of the America Asia Gateway license. Some industry players would set the active subscriber base lower than our 7. we arrive at a total 7. but the three leaders in the industry are Viettel. Price competition may be heating up again It is difﬁcult to gauge whether the market has permanently exited a period of destructive competition. 1) the communications CPI has ﬁnally moved out of deﬂation for the ﬁrst time at least a year. and ﬁbre to the home is increasingly available in the Phnom Penh and Siem Reap. at 8.
metro ﬁbre. with penetration jumping from 2% to 12% and users rising nearly sixfold to over 173k.5G and beyond and the much faster speed of service that this entails. However.900 km countrywide network including GEPON. Cambodia Capital Research 100 . Data growth will be driven by network upgrades to 3.Overview of the Cambodian Economy Figure 121: Fibre optic network operators in Cambodia Operator Ezecom/Telcotech Viettel CFOCN Other Source: Companies. Growth is much more likely to be a wireless story in Cambodia. they would show a breakout year in 2010. penetration rate (%) 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 15% 11% 8% 4% 0% Subscribers (LS) Penetration Rate (RS) Source: Cambodia Ministry of Posts and Telecommunications (MPTC) Internet penetration will be driven by wireless Internet penetration saw a dramatic surge in 2010. these ﬁgures may be somewhat exaggerated. we do estimate that the shift will be gradual in Cambodia. with browsing enabled handsets much more accessible in price terms compared to computers for the average citizen. With the majority of the population still engaged in subsistence farming with at best intermittent access to electricity. As with telecoms. and will account for a rising proportion of wireless telecom revenue. MPTC Details of network June 2011 4. in-line with the global trend.000 km countrywide network leased by telecom operators and ISPs including Ezecom and Mfone Telecom Cambodia.000 km each Figure 122: Internet subscribers (‘000). with voice service still to comprise the dominant proportion of revenue for the next several years.000 km countrywide network 4.000 km planned over the next year 16. but even adjusted downward by 50%. We expect that data demand through wireless devices will be increasingly signiﬁcant. with additional 3. home computer penetration will remain low and we expect that internet user growth through this medium will be truncated. Mekong Net and Online have smaller scale ﬁbre networks well below 3. as internet tariffs declined and ﬁbre optic network access continued to expand (Figure 122).
but it tends to be mainly concentrated in Phnom Penh. broadcasted from 1966 until 1975. Thai-Cambodian owned. There is some question as to the accuracy of reported circulation numbers. Also published are Chinese language papers and two English language daily papers. Television is also Phnom Penhcentric. at 18. Broadcasts nationwide. broadcasts nationwide Owned by Phnom Penh city and private investors. Battambang. and Kampuchea Thmei Daily. Cambodia Capital Research 101 .000. Launched in 1992. High ratings in Phnom Penh. has been broadcasting since 2002. and their editorial policy tends to reﬂect the political leanings of the backer. restaurants and higher end apartments and offer access to international television stations. the Phnom Penh Post and the Cambodia Daily. 100% privately owned. coverage in Phnom Penh. and began color broadcasts in 1986. Generally the newspapers are backed by one political faction. comedies. music and game shows (Figure 123). but less than 20 have a regular reliable issuance (Figure 124). Of 25 major radio stations. Achieves one of the highest ratings in Phnom Penh. including drama. 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 Cable Television and Phnom Penh Municipal Cable Television. There are 7 major Khmer language newspapers. 17 operate out of the capital. but the Rasmei Kampuchea reportedly has the highest. competing with TV5 Cambodia Television Network (CTN) Source: Respective stations Active press with 20 regular newspapers There are myriad registered newspapers in Cambodia. Most of the stations provide locally produced content. Pursat and Sihanoukville through network of provincial government stations Privately owned. was re-established in 1979. Battambang. with only 3 of the 7 major television stations providing country wide coverage. but the two strongest competitors are the leading paper Rasmei Kampuchea (Light of Cambodia) which started publishing in 1993. broadcasts within 150km of base station Founded in 1996. Bokor and Siem Reap.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. also broadcasts to Rattanakiri. conservative station that broadcasts to Phnom Penh and surrounding provinces Owned by the ruling Cambodia People’s Party. There are also two pay TV operators who install satellite dishes at hotels. competing with CTN.
in which countries gaming is illegal (Figure 126). at 14% and 17% of the total spending. and several towns on the borders with Thailand and Vietnam.000 Second most popular paper. Figure 125: Advertising by sector. these are the the most recently publicly reported data and they do give us a basic indicator of the size of the market. Ad-spend is heavily weighted to beverages. since the introduction of the 1996 Gambling Suppression Law. Cambodia Capital Research 102 . respectively. 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. 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. Nagaworld. Although admitted this data is dated. as reported by Indochina Research. Siem Reap. This has meant that the gambling industry is set up to cater mainly to foreigners. 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. estimated circulation of 18. and telecommunications. rural competition Cambodians are not allowed to gamble or enter gambling establishments. Q1/10 (total US$20.3MM) Beverages Telecommunications Other 17% 14% 68% Source: Indochina Research iii) Gaming: Phnom Penh monopoly. and is concentrated therefore in Phnom Penh (with one casino. holding a monopoly in the city). we would arrive at a full year estimate close to US$90MM. to permit gambling in certain provinces.
earlier in the decade. the intense competitive situation lies in stark contract to NagaWorld’s monopoly in the capital city. with revenues growing 28%. However. The company in 2009 shifted away from a reliance on the low margin junket business. We expect to see closures and consolidation continue in the gambling sector outside of Phnom Penh. some entertainment establishments had featured gaming machines. but also because of a major revamp of its strategy. However. driven by the strategy shift as well as a rebound in tourist arrivals. with the onset of 2008 ﬁnancial crisis. many of which have been driven out of business. that gives it a monopoly on casino operations within 200 km of Phnom Penh. the reduction in both customers and gambling revenue per customer hit the less competitive casinos. after a decline of 39% in 2009. In the boom period leading up to the late 2008 bust. Cambodia Capital Research 103 . However. and invested more in expanding its public ﬂoor and gaming stations. the government undertook a major crackdown on gaming machines in the capital.HK). Larger cities such as Siem Reap and Sihanoukville also have gaming businesses.Overview of the Cambodian Economy June 2011 Nagaworld monopoly within 200 km radius of Phnom Penh Nagaworld has held a license since 1995.World Casino Directory Strong competition in gaming outside of Phnom Penh Outside of Phnom Penh in the cities where gaming is permitted. 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. by February 2009. but could not be considered full casinos. hit by the economic downturn. 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. leaving Nagaworld the only gaming venue in the city. there were many new entrants into gaming cities on the border such as Bavet. lasting until 2035. This has paid off in 2010. Nagaworld had a difﬁcult 2009. and therefore were not in breach of Naga’s agreement. servicing customers mainly from Vietnam Bavet Source: Cambodia Capital Research. This has been reﬂected in the share price of NagaWorld (3918.
we have begun to see foreign businesses outside the garments/textiles/footwear sectors become increasingly interested in basing new operations in the country. This sector has remained remarkably steady as a proportion of the economy for the last decade. similar to its neighbours.700 1. Figure 92) is an indicator for relative wage competitiveness in other industries. inexpensive labour and concessionary export market access may remain a very attractive factor for international manufacturers looking for a new base of operations. there is continued incremental progress. which represented 63% of total manufacturing in Cambodia in 2009 (Figure 127).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. a lack of infrastructure may have dissuaded manufacturers from locating in Cambodia. Figure 127: Cambodia manufacturing GDP by segment 1. Cambodia will be able to diversify its manufacturing base over time. but just enough progress has been made that foreign companies are now starting to see the growing opportunity in the country. 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.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. We expect that. Even ﬁve years ago. In recent years. Cambodia Capital Research 104 . especially by foreign investors Initial signs of manufacturing moving beyond textiles Manufacturing is still concentrated heavily in the garments/textiles and footwear sectors.
or near Sihanoukville. with 58 factory lots fully accounted for. Kampot and Kampong Cham) and 5 near Thailand (1 in Bantaey Meanchey province and 4 in Koh Kong province). 2) customs (full duty exemption on raw materials and equipment) and 3) VAT (0% to pay). Japan’s Minebea. Activity at the Phnom Penh SEZ is well underway. The establishment of Special Economic Zones In an effort to further encourage this growing foreign participation in the manufacturing sector in Cambodia. the government has established 22 Special Economic Zones (SEZ). The remaining SEZ is in Kandal province. with the government providing incentives to operate out of these areas with privileges in the areas of. the former has already begun selling cars to the local market. RM Asia is also currently assembling Ford vehicles in the country. including small motors. 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. Other SEZs focussed near Thailand.Overview of the Cambodian Economy June 2011 Auto and electronic component manufacturers arrive Announcements of foreign ﬁrms basing manufacturing in Cambodia continue to trickle in over the past year. Vietnam or Sihanoukville The other SEZs are mainly concentrated on the borders. the SEZs also have independent power supplies. with 8 adjacent to Vietnam (3 in Svay Rieng province. Cambodia’s only deepwater seaport. a manufacturer of electronic components. 6 of which have started operations. and the latter is expected to soon start. and the second phase beginning in February 2011. The zones are effectively large industrial estates. 2 in Bavet and 1 each in Takeo. Cambodia Capital Research 105 . A large part of the funding is being provided by the Japanese government. Meanwhile. 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. with the ﬁrst Phase complete. Phnom Penh and Sihanoukville expected to be the largest The two largest zones are expected to be the Phnom Penh and Sihanoukville economic zones. broke ground on a new factory in May 2011 in the Phnom Penh Special Economic Zone. The Sihanoukville SEZ is still under development. Both China’s Beijing Autoworks and Southern Korea’s Hyundai are locating car assembly plants in Cambodia. 1) tax (up to 9 years tax exempt and no export tax). but it is key as it lies adjacent to the Sihanoukville Autonomous Port.
9 in Thailand. Both local and foreign brands have been expanding in the country. There are currently two main beer producers Cambrew (partnered with Carlsberg). 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. We would characterise the modern retail market as still highly fragmented. and Cambodia Brewery (partnered with Singapore’s Asia Paciﬁc Brewery. Pizza Company) and KFC. Cambodia Capital Research 106 . including wet markets and mainly small family operated retail outlets for distribution. We note that illegal imports and smuggling are also still a large part of this market. riding the development of a new urban consumer class Traditional retail still dominates With 70% of the country still subsistence farmers. consumer electronics and auto sales all seeing rapid expansion. a major new domestic entrant is expected to hit the market this year. with per capita consumption of alcohol at just 11. producer of the Tiger Beer brand). 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. minimarts and shopping malls appearing Phnom Penh now sports a series of smaller shopping complexes. There is also growing international development in the sector. with most established only in the last decade. but just this year a modern mall has opened in Battambang. However. 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. versus 31. backed by local conglomerate Chip Mong Group.Overview of the Cambodian Economy June 2011 Consumer: First signs of modern retail • Traditional retail still dominant: Cambodian retail is still dominated by traditional wet markets and small family run outlets. the bulk of retail in Cambodia is still very traditional. Development outside of Phnom Penh is still limited. Given the generally high prices of QSR compared to local meals. brand name clothing and electronic goods. luxury clothing. Supermarkets. with small shopping malls.8 litres/year. it is occurring. Khmer Breweries. However. quick service restaurants. and one is planned for Sihanoukville.6 in Laos. including a recently announced transaction by Hong Kong Land. although some players are beginning to gain critical mass. alcoholic beverages. Beer market competition intensifying The beer and spirits industry appears to have signiﬁcant room for growth in Cambodia. with Phnom Penh the heart of the change. 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. with a level of capacity sufﬁcient to challenge the incumbents. including local licensees of Thailand’s Minor Group (Swensen’s. 19.
000 units. Growth in the property market has also helped drive a considerable expansion of the electronic goods sector. What was at the start of the 2000s mainly a market for foreign businesses and NGOs. with major players including Toyota (the company targets 600 units sales for 2011). bought a majority stake of Cambodia Beverage Company in 2004. Larger electronics companies are also beginning to take a more direct interest in the country. with Japan’s Panasonic opening it ﬁrst representative ofﬁce in Cambodia in January 2011.Overview of the Cambodian Economy June 2011 Attwood leads spirits market. with unit sales around 20. which has a 70% market share and imports Johnnie Walker and Hennesey.500-3. Coca Cola. A challenge may come from India’s United Spirits. Automotive sales shift from foreign to domestic buyers The new motor vehicle sales market in Cambodia is estimated at about 2. the second largest spirits distiller in the world. 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. In non-alcoholic beverages. there were almost no such outlets in the capital just ﬁve years ago. which is planning to open domestic operations in Cambodia. Electronics goods widely available Electronics goods are reasonable widely available through local distributors including many smaller family owned shops. Luxury clothing brand ﬂagship stores appearing in the capital Some luxury clothing brands have opened ﬂagship branches in Phnom Penh. including Mango and Axara. Cambodia Capital Research 107 . Nissan (500 units) and Ford (400 units). where they now distribute their products through local distributor Vimpex. has now shifted towards a customer base more of wealthy Cambodia citizens over the last few years. some large foreign brands have begun to establish a presence in the country. for example.000/year. Although this is only on a very small scale compared to other regional capitals including Bangkok and Ho Chi Minh City.
as the boom turned to bust. and eked out only a small gain in 2010 yoy.000 according to the most recent estimates by the National Valuers Association of Cambodia. However. Cambodia Capital Research 108 . It appears that a best case scenario for the property sector would involve ﬂat prices. driven by a wave of foreign investment and a lack of other investment alternatives for domestic capital. was only completed in 2009. but a more bearish scenario could see further price declines. booming investment began to peak by 2007. However. there had been little in the way of high rise buildings in the capital. even taking into account this reduction. Large investment boom peaked in 2007 Prior to this boom. and declining to around US$4. However. (Figure 129). and the ﬁrst Grade A commercial ofﬁce building in the capital. The US$ value of Phnom Penh housing approvals was nearly halved from 2008 to 2009.Overview of the Cambodian Economy June 2011 Property: Oversupplied • Flattening after unsustainable boom: After a major foreign and domestic-lending driven boom from 2005-2008.000/sq m at the peak of the boom in mid 2008. This was mainly concentrated in Phnom Penh. and appear to have been spared the oversupply of the capital city. Other major provincial cities like Battambang are still in the early stages of developing their property markets. many major projects were either put on hold or cancelled as funding dried up during the crisis. 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. the property market declined abruptly in 2009 and 2010. with especially South Korean investors taking a large bet on the development of major new ofﬁce and residential properties. 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. rising from just US$500/sq m to US$5. signiﬁcant new supply continues to come on market in Phnom Penh leading to an expected ﬂattening of land and houses prices and apartment and retail rentals • Development outside Phnom Penh still limited: The property market outside of Phnom Penh is still in the early stages of growth. but has shown some signs of stabilisation in 2011 • Oversupply still an issue: Although demand appears to be recovering in 2011. mainly of hotels and guest houses catering to tourists. with modern housing and retail outlets in the second tier cities like Battambang only just starting to be developed Market ﬂattening after 2009-2010 dip The property market in Cambodia is still recovering very slowly from an unsustainable boom that lasted roughly from 2003 to 2008. the new supply expected to come online over the next two three years is still large and it is questionable whether corresponding demand will be sufﬁcient. Canadia Tower. but there was also extensive building in Siem Reap.
000 6.500 4.000 2.125 2.000 4.000 0 2008 # project approvals (LS) 2009 2010 Value US$MM (RS) 400 300 200 100 0 Source: Cambodia Department of Land Management. Urban Planning and Construction Figure 130: Ofﬁce Rental Price per sq m 40 30 20 10 0 Q3/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Cambodia Capital Research 109 .Overview of the Cambodian Economy Figure 128: Phnom Penh prime land price (US$MM) 5.750 1.375 0 2003 2008 2009 June 2011 2010 Source: Cambodia Department of Land Management. Urban Planning and Construction Figure 129: Phnom Penh housing project approvals 8.
Homes approved for construction outside of Phnom Penh rose rose only 0. given the recent falls seen for the construction industry in Phnom Penh.184 residences valued at US$221MM from 1.100 1. to 1. further conﬁrming that oversupply remains an issue. but constrained by high electricity/land cost There are now three modern shopping centres in Phnom Penh. and there is little indication that prices have seen a signiﬁcant rebound in the six months since. 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. no credit bureau and only a small housing stock. is only expected to see it ﬁrst major housing development. or 2-3 story shophouses. Figure 131: Class A apartment prices monthly rental 2. Limited availability of parking in the city centre is also an issue. given the high cost of land.77% yoy for 9M/10. limited access to mortgage ﬁnancing.400 700 0 Q4/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Retail developing. With no collateral.800 2. with 70% of the population still surviving on subsistence agriculture. the US$7MM. the housing market is still in the very early stages of development. Ofﬁce occupancy rates have reportedly declined from around 80% at the peak of the boom to around the 66% currently. Mahatep City. one that is unlikely to be relieved soon.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). However. In many cases in the capital. these shophouses have been combined to create larger retail space. but the majority of retail space is still mainly limited to stalls in traditional markets. which although being the second largest city in the country. 126 house. However.102 residences worth US$219MM over 9M/09. we could view the lack of decline in the ﬁgures as a positive. Rural housing market still in early stages of development In the provinces away from Phnom Penh. Flat growth in rural home construction as 2010 Provincial housing growth has remained relatively ﬂat as of the latest ﬁgures. An example is Battambang. Cambodia Capital Research 110 . completed in 2011. any modern form of provincial housing is very much in its early stages.
unless stated otherwise in the report.Overview of the Cambodian Economy June 2011 Analyst certiﬁcation. Information may be available to Cambodia Capital or its afﬁliates that is not reﬂected in this report. or will be. ofﬁcers. Cambodia Capital or its afﬁliates may provide remunerated services. or personalised investment advice. without the prior written consent of Cambodia Capital. 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. takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients. modiﬁed. Cambodia Capital or its afﬁliates. used for the creation of derivative works. distributed. futures or other derivative instruments based thereon. This report is produced under copyright by Cambodia Capital and may not reproduced. 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. Cambodia Capital makes no representation or warranty. Cambodia Capital endeavours to ensure that the contents have been compiled or derived from public sources that we believe are reliable and contain information and opinions that are accurate and complete. express or implied. or reliance on. and service to clients. in whole or in part. directors or employees may have a long or short position in many of the securities discussed herein. Cambodia Capital Research 111 . directly or indirectly. related to the speciﬁc recommendations or views expressed in this report. is. accuracy of earnings estimates. which includes the overall proﬁtability of investment banking services. The analyst(s) also certify that no part of their compensation was. and forms no part of any contract with Cambodia Capital. in respect thereof. 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. copied. including investment banking services. this report or its contents. The opinions. This material is not and should not be interpreted as an offer or solicitation to buy or sell securities. General Disclaimer. to companies mentioned in this report. related securities or in options. 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. performance of recommendations. The analyst(s) named on this report certify that the views expressed in this report accurately reﬂect their own personal views about the subject. However.
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