This action might not be possible to undo. Are you sure you want to continue?
Gradually Gaining Traction
Overview of the Cambodian Economy
Investment Research June 2011
Graeme Cunningham, CFA email@example.com +855 77 990 769
Overview of the Cambodian Economy
Contents Executive Summary Economics: Gaining Momentum
i) Recovery: A short history of the Cambodian economy ii) Demographics:The hopeful generation iii) Rebound: Macroeconomic growth in Cambodia iv) Imbalance:The structure of the Cambodian economy v) External Pressure: Debt, reserves, currency, inﬂation vi) Trade and FDI: Advancing regional, global integration vii) Empirical Global Ranking: Corruption, prosperity
Page 4 8
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
Cambodia is also seeing an increasingly transparent legal and regulatory regime. but there was still factional political inﬁghting. Open for business Cambodia has a pro-foreign business environment. with the Cambodian People’s Party continuing to gain inﬂuence. On almost all measures. now having majority control of the government. Cambodia Capital Research 4 . 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. By 1993. 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. a wide margin for improvement in terms of social welfare. Political stabilization under Hun Sen From the low point of the destructive totalitarian rule of the Khmer Rouge from 1975-1979. of course. with 100% foreign ownership of businesses permitted. since the last armed battle in the capital city Phnom Penh in 1997. However. we believe that this model may simply not be a realistic frame of comparison at this juncture in Cambodia’s development. We would rather focus on the continued incremental improvements the country has made since 1980. Hun Sen is a relatively young 58. the country had a new constitution and elections supported by the United Nations Transitional Authority Cambodia (UNTAC). where there are signiﬁcant limits on foreign ownership. the legal system. the country has seen dramatic improvements. the country shifted to Vietnamese inﬂuenced rule through the 1980s under the State of Cambodia. Although still relatively early in its development. in contrast to other regional countries. Since then the political situation has stabilized. sustained progress we ﬁnd them in nearly every area. political. given the country’s history. and reliance on foreign ﬁnancial assistance. and we do not expect to see his power wane signiﬁcantly in the near to medium term. or the even more rapid improvements that have been made since the period of relative stability that began in 1997. economic and social welfare. If we look for signs of gradual.Overview of the Cambodian Economy June 2011 EXECUTIVE SUMMARY: Gradually Gaining Ground Cambodia has made impressive strides over the last 13 years. Viewed through the lens of an idealized model of a Westernized liberal democracy. there is still. marking the onset of the ﬁrst extended period of political stability after nearly 40 years of civil war. 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 current social system is a clear improvement on the tragedy of the late 1970s. but still huge gains since the 1970s-1980s After the devastation of the Khmer Rouge and the political and legal confusion of the 1980s. social. the country was enjoying an extended period of strong economic growth. and a vibrant microﬁnance industry. the relative chaos of the 1980s and the shaky new beginnings of the 1990s. and with some nations refusing to offer ﬁnancial assistance to the country in the decade following. economic progress in the 1980s was grinding. giving a needed push to domestic businesses. legal Although our outlook on Cambodia is bullish in the medium term. the ﬁnancial system had strengthened. However. and it improves every year. as well as foreign businesses. and 3) agriculture exports starting to reach critical mass. Economic Risk (1): Heavy gearing to tourism and garments The economy is still heavily geared to agriculture. Social issues persist. Election results have shown the CPP consolidating power over the last 10 years and there has been no signiﬁcant strengthening of any second party. Risk factors: Political. Political stabilization in the early 1990s helped draw back overseas Cambodians who had ﬂed the Khmer Rouge. The country is effectively a one party state. The risk lies more on the heavy weighting on the garment/textiles and tourism sectors. but we do not view reliance on this sector to be a risk. 1) a signiﬁcant garment/textile manufacturing base having developed. especially rice. CPP leader Hun Sen is also a relatively young 58 years old and appears to be in good health. leaving the economy heavily geared to the fortunes of the international clothing manufacturers and the whims of global tourists. Cambodia Capital Research 5 . economic. 2) massive growth in the tourist industry. Myriad social issues still remain. economic. given the ruling Cambodia People’s Party (CPP) strong majority in both the national assembly and the senate. Although access to education and healthcare are still far from universal. rubber and timber products. By the early 2000s. legal and social risks: Political Risk: Effectively a one party state We view near to medium term political risk as moderate. with. if anything. while foreign ﬁnancial assistance from some key developed nations resumed. transition risk does remain. progress will certainly not be without political. with 35 banks currently operating. Meanwhile. it was only post-1993 that any clearly identiﬁable and globally recognized government emerged in Cambodia.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. a system for both is in place. for the average Cambodian citizen. However. 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. at 5 months of imports and 8x the level of short term external debt. even with a pullback from Western or Japanese donors. which brings the risk of doing so prematurely. trade deﬁcits Cambodia is a dollarized economy. as we outline in this report. many are yet to be tested in the court system. where the larger institutional investor may have more clout when dealing with the government and business groups. The country has adequate. which accounted for the majority of the government’s budget deﬁcit ﬁnancing in 2009. which in many cases are not properly compensated for the relocation. Cambodia Capital Research 6 . or ineffectively executing the transition. reserves. and a modern consumer sector. Economic Risk (2): Heavy reliance on foreign assistance The country is also heavily reliant on foreign assistance. compared to Vietnam. Inﬂation is currently relatively benign. property or infrastructure. One of the most pressing issues is when developments.Overview of the Cambodian Economy June 2011 However. contract. agricultural. tax and property laws. price increases are moderate. and therefore the country does not have recourse to monetary policy and is very exposed to any depreciation in the US$. However as all these developments are in nascent stages. many countries are facing severe ﬁscal crises of their own which could feasibly reduce their willingness to assist other nations. We believe there is especially risk for the smaller investor. The country also continues to run large trade deﬁcits. there is potential to expand agriculture and dramatically increase agricultural exports. non-textile/garment manufacturing. 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). the country intends to eventually shift to the Riel. but not abundant foreign reserves. Although most of the major laws are in place. Legal Risk The legal risk of investment in Cambodia remains signiﬁcant. reaching just above 5% as of April 2011. Economic Risk (3): Currency. be they in the energy. oil and gas. Although we ﬁnd it unlikely that developed nations would abruptly withdraw ﬁnancial assistance to Cambodia given that it is so small in absolute terms. including commercial. 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. It could be within a short ﬁve years where Cambodia has reached a much higher proportion of agricultural exports in the economy. However. where inﬂation is already running at an annualized rate of 20%. but advancing. inﬂation. with around 90% of transactions taking place in the US currency. encroach on land and displace citizens. adding stability and sustainability to the export base. a heavy hit to the garment or tourism sector in the short term could dramatically slow progress. Social Risk Rapid economic progress has led to a degree of social upheaval for many Cambodians. However. Somewhat longer term are the possibilities for the development of mining and extraction.
both domestic and foreign. Failure to do so could lead to instability. Sihanoukville Port. a conglomerate and an insurance company. including a bank. with three state owned enterprises to be listed.Overview of the Cambodian Economy June 2011 With 70% of the population still engaged in subsistence farming. we would expect more ﬁrms to come to the market to raise capital to fund growth. and Phnom Penh Water Supply Authority. but a total disruption of the current rural way of life. creates sufﬁcient employment opportunities for the newly developing educated middle class. PPWSA. The Cambodia government could improve its position in both the eyes of its constituents as well as international investors by ensuring that residents affected by the inherent growing pains of rapid economic development are properly compensated for the adjustment. ensuring continued investment in the economy. Stock market could start trading by Q4/11 However. with most sectors of the economy seeing continued rapid development over the next ﬁve years. as well as other domestic public and private organisations. but also Cambodian government ministries. There are also other large names considering listing. investors may be able to get exposure to Cambodia more easily by the second half of this year. Avenues for investment There are currently only a few avenues to gain equity exposure to Cambodia. Cambodia must also carefully manage the economy’s transition. Telecom Cambodia. A note on data sources in Cambodia: We rely on various data sources in this report including international organisations. and a handful of private equity funds that invest directly into Cambodia companies. Data collection in Cambodia is still developing and we have found there to be some discrepancies between sources. relocation is not simply a matter of ﬁnding new employment. the country’s only deepwater port. There are three state owned enterprises currently considering listing. Cambodia Capital Research 7 . the capital city’s water utility. In this way economic growth imposes an uneven tax on those unlucky enough to be residing in areas of heavy redevelopment. a ﬁxed line telecom. They include listed gaming and mining names in Hong Kong and Australia with 100% Cambodia exposure. with the planned opening of the Cambodian Stock Exchange slated for July 2011. As we show in this report.
there are signiﬁcant prospects for a rebalancing of the economy towards higher agriculture exports and increased manufacturing medium term. and oil and gas. Cambodia had enjoyed a peaceful period of Cold War neutrality. However. The regime also speciﬁcally targeted the educated classes. The weakening Lon Nol government fell to the Khmer Rouge. led by Prince Sihanouk.Overview of the Cambodian Economy June 2011 Economics: Gaining Momentum • The hopeful generation: Sixty percent of the Cambodian population are under 30. Of a reported 1975 population of over 7MM. which took over Phnom Penh in April of 1975. Bombing raids into Cambodia related to the Vietnam conﬂict disrupted rural Cambodian life and dramatically strengthened the Khmer Rouge movement. 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. the military-backed Lon Nol government led a coup to oust the Prince. 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. However. have no living memory of Khmer Rouge rule. increasingly well educated. virtually eliminating the education. Cambodia Capital Research 8 . The economy was destroyed. who subsequently sided with an opposition Communist movement based mainly in rural Cambodia. between 1MM-2MM people were either executed by the Khmer Rouge. In 1970. health and business professions as well as any modern agriculture. continues to run large ﬁscal and trade deﬁcits and is heavily reliant on foreign assistance. or died in the rural work camps from overwork. Cambodia hits economic ground zero in 1978 The Khmer Rouge brought about a totalitarian agrarian regime. disease or starvation.5% since 1993. mining and other sectors longer term i) Recovery: A short history of the Cambodia economy More than a decade of stability after 38 years of civil war Over the last decade. the spillover of the Vietnam war across Cambodia’s borders dragged the nation into the conﬂict. Cambodia has ﬁnally emerged from a nearly 40 year period of instability and civil war that clouded its history from 1970 until 1997-1998. From the time of independence from the French in 1953 until 1970. the Khmer Rouge.
the return of educated overseas Cambodians that had ﬂed the Khmer Rouge. teachers or mentors in any sector other than in traditional agriculture. and the eventual arrival of foreign businesses. From 1979 until 1992.) Economic progress was therefore understandably gradual from 1980 to the mid-1990s. in conjunction with ex Khmer Rouge soldiers (including current Prime Minister Hun Sen) invaded Cambodia in January 1979. with the military weight of Vietnam a key factor in maintaining stability. with a strong provincial voter backing and a Prince Norodom Ranariddh-led party FUNCINPEC. Regardless. to help them begin to redevelop the economy. both through grinding domestic effort. First signs of the ‘new’ Cambodia by 1993 With the end of the cold war in 1989. Cambodia was able to slowly rebuild its economy through the 1980s and 1990s. and the consolidation of power by Hun Sen.Overview of the Cambodian Economy June 2011 This regime ﬁnally fell when the Vietnamese army. This occurred at the same time that there was a marked lack of capital available. This uneasy coalition held until 1997. experienced professionals. run mainly by French-educated royalists. with some major Western nations not offering ﬁnancial assistance over the period (largely because of their resistance to Vietnamese inﬂuence in Cambodia. 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.) ii) Demographics: The hopeful generation Slow grind to build human capital through the 1980s This meant that Cambodia’s leaders today. Malaysia and Indonesia which saw rapid growth during this period. assuming an average age range from 30 to 60 years old. Cambodia Capital Research 9 . would have gone through their early to middle careers in the mid 1980s and 1990s facing an extremely limited pool of older. the United Nations Transitional Authority Cambodia (UNTAC) held elections. which gave rise to a Constitutional Monarchy with a coalition government between current Prime Minister Hun Sen’s Cambodia People’s Party (CPP). political tensions in the region eased. when armed conﬂict erupted between armed factions of the two parties in the ruling coalition which ended with the exile of Prince Ranariddh. and by 1991 the United Nations became more heavily involved in stabilizing Cambodia politically. the country was barely governed through a loose coalition of warring factions (ﬁguratively and literally). especially compared to the other industrializing regional economies like Thailand. This lead to the political situation that Cambodia has broadly maintained over the last 13 years. international assistance. In 1993.
with 65% under 30 years of age and 87% under 50 as of the 2008 census. The population is also heavily rural.3% in the Northwest. A second census was taken in 2008. 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. which is shown in Figure 1. with the government planning to grow beyond ‘Least Developed Country’ (LDC)-status by 2020.9% in Phnom Penh. as shown in Figure 2. with 20% of the population in urban areas in 2008. when the ﬁrst major modern census was undertaken. The population is heavily concentrated in the Southeast of the country with 36.1 MM in 1994. with a minor baby boom occurring.0MM in 2010. up from just 16% in 1998 (Figures 3.3% of the population (with 9. we believe that the current generation now entering the workforce will be the one to propel the country to new economic heights. They are also be the ﬁrst generation since the 1970s in any signiﬁcant proportion to have the chance of achieving an education up to at least secondary school. and has grown up with a gradually stabilizing political system and dramatically improving economy. as shown in the map in Figure 5. and probably the largest generation ever to have the possibility to reach tertiary education.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. IMF The Cambodia population is very young. Figure 1 shows that the promise of increased political stability after UNTAC seems to have had an effect on birth rates. but there is a high urbanization rate.5MM in 1986 (or just above the estimated population of the mid-1970s) to just over 14. We also have IMF estimates of total population. the capital city) and 24. with the population jumping from 9. Cambodia Capital Research 10 . A young and growing population The most recent detailed population records are available only from 1998. The population has nearly doubled from just 7. 4).3MM in 1993 to 11. Building on the very heavy lifting of the generation coming of age in the 1980s-1990s.
and is accessible to ﬁrms and government entities looking to employ workers.46MM. 3) The new urban generation The population is already becoming increasingly urban. Cambodia had only 4. 1) further development of industrialization. Figure 2: Population by age group (MM persons) 3.6 1.8 0.50MM to 1. increasing by a factor of 44x over the decade. This will in turn drive. as they leave their parents’ homes to start new families and purchase houses. Perhaps most interesting in terms of developing a new generation of technocrats to drive the economy.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.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 .448 post secondary graduates as of 1998. Figure 6 shows the signiﬁcant increases in education made just between 1998 and 2008.5 2. 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. 2) Rising proportion of young families drives consumption A rising proportion of young families in an economy has historically often driven economic growth. and the population completing lower secondary school has risen 200% from 0. There has been a 10% decline in the population with no education from 34% in 2008 to 24% in 2008. and creating a pool of more advanced human capital that industries can draw from. but now has 196.758. vehicles and consumer goods. and 2) the growth of a modern consumer economy. as a rising standard of living leads to increased demand for consumer goods.
33MM (9.3%) Kampong Som Kampot Source: Government Census 2008.5%) Kampong Speu Phnom includes: Penh Phnom Penh 1.68MM (12.5%) Kampong Thom Kratie Northeast 2.3%) Mondolkiri Kampong Chhnang Koh Kong Kampong Cham Southwest 1.52MM (24.Overview of the Cambodian Economy Figure 3.32 MM (17.86MM (36.9%) Kandal Takeo Prey Veng Svay Rieng Southeast 4.3%) Pursat North 1. Cambodia Capital Estimates Source: General Department of Mineral Resources Cambodia Capital Research 12 .10MM (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.
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).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. while the World Bank estimates 6. as shown in Figure 9.5 8.0% and 6.5% in 2010 and 2011. Real GDP has grown at a CAGR of 7. the economy has returned to rapid growth in 2010 and 2011. for Cambodia. when a decline in the key garment/textiles exports segment and the collapse of an unsustainable real estate boom hit growth. backed by foreign investment and ﬁnancial assistance. The IMF estimates GDP growth of 6. 2008 10% 20% 2008 30% June 2011 40% iii) Rebound: Macroeconomic growth in Cambodia Second fastest real GDP growth in ASEAN since 1993 These strong demographic trends.3 17. Figure 7: Real GDP (Riel TRN) 35. However. respectively. and only seen a single year of below 5% annual GDP growth during the ﬁnancial crisis in 2009. with only Myanmar growing more quickly. have already been translating into vibrant economic growth. Cambodia has seen the second highest growth in ASEAN since 1993.5% since 1993.7% for 2010 and 6.0 26.
Figure 10 shows nominal GDP since 1993.World Bank Figure 9: Cambodia average real GDP CAGR versus the region. the country has the second lowest nominal GDP (US$10. we see little reason why Cambodia. rather than pointing to an insurmountable gap. Laos) shows more where living standards for the latter could be headed in the future. tracking Laos reasonably tightly until 2005 when its smaller neighbour began to speed ahead. Laos was apparently more insulated from the ﬁnancial crisis. We believe that this gap between the newly industrialised countries of ASEAN (Malaysia and Thailand) and the developing economies of ASEAN (Vietnam. Malaysia and Indonesia. Cambodia Capital Research 14 .0% Source: International Monetary Fund.3% 7. As we show throughout later sections of this report.5% 2011 5.Overview of the Cambodian Economy Figure 8: Real GDP forecasts June 2011 IMF World Bank 0% 1. As shown in Figures 11 and 12. Vietnam and Laos cannot eventually become as economically strong as Thailand.8% 2010 3. while average living standards in Cambodia decreased in 2008. it has been off a low base.8BN) and nominal GDP/capita (US$795) versus the larger ASEAN nations plus China in 2009. 1993-2009 China Myanmar Cambodia Vietnam Laos Malaysia Philippines Indonesia Thailand 0% 3% 6% 8% 11% Source: International Monetary Fund Room for improved living standards versus ASEAN Although growth has been rapid. with Cambodia’s nominal GDP in the middle of the pack for developing Indochina. Cambodia. relative to the size of their populations. especially when compared to the region.
2009 7.750 0 Malaysia Thailand China Indonesia Vietnam Laos Cambodia Myanmar Source: International Monetary Fund Figure 12: Nominal GDP (US$MM).Overview of the Cambodian Economy Figure 10: Cambodia Nominal GDP/capita versus region (US$) 1.250 3.000 5.200 900 600 300 0 1993 1995 Cambodia Source: International Monetary Fund 1997 1999 Laos 2001 2003 Myanmar 2005 June 2011 2007 Vietnam 2009 Figure 11: Nominal GDP/Capita (US$).500 1. 2009 300 225 150 75 0 Thailand Malaysia Philippines Vietnam Myanmar Cambodia Laos Source: International Monetary Fund Cambodia Capital Research 15 .
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. 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. agriculture will remain the primary source of income for the majority of the population. the composition of the economy has been stable over the last decade. 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. 3) Tax revenues low: Tax revenues are still a small contributor to GDP versus other countries in the region.Overview of the Cambodian Economy June 2011 iv) Imbalance: The structure of the Cambodia economy Structural imbalances. and modern farming is only beginning to take root. which offers both challenges and opportunities for the country. Opportunities exist to introduce modern agricultural methods to farmers that will raise incomes. As we see in both Thailand and Vietnam. 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. Although this chart suggests at ﬁrst glance a relatively balanced economy. and the government continues to run large ﬁscal deﬁcits and is heavily reliant on foreign assistance. with agriculture comprising 34% of the economy in both 2000 and 2009. we expect that even as Cambodia’s economy modernises. which leaves Cambodia overexposed to a decline in these sectors. manufacturing around 22% in 2000 and 21% in 2009 and services 38% in 2000 and 39% in 2009. Cambodia Capital Research 16 .5% in 2009. Bulk of the economy is still subsistence agriculture Subsistence agriculture is the economic life of 70% of the Cambodia population. but not insurmountable over time We believe that we will see a signiﬁcant shift in the composition of the Cambodian economy over the coming years. and there is also the potential to develop human capital over time given the young population. although this declined to 5. currently there are clearly some signiﬁcant imbalances.0% of GDP in 2008. Heavy dependence on garment exports. 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. 2) Over concentration in garment/textiles sector: There is a heavy dependence on garment/textiles exports to Western countries and the tourism sector. 5) Country runs large trade deﬁcits: The country continues to run large trade deﬁcits.
Cambodia’s garment/textile exports are not particularly well diversiﬁed geographically (although Asia is slowly accounting for more of the mix). 14: Cambodia Economy composition by sector 2001 2009 June 2011 5% 34% 38% 22% 39% 6% 34% 21% Agriculture Manufacturing Service Other Source: Ministry of Economy and Finance Figure 15 shows garments/textiles and footwear as a percentage of total manufacturing in Cambodia. However. Figure 16 shows garment/textiles/footwear exports.Overview of the Cambodian Economy Figures 13. It is rather the heavy concentration in these sectors that creates the risk to the economy. However. just the two former sectors combined accounted for 38% of 2009 GDP. at 63% in 2009. tourism and agriculture as a proportion of GDP. This leaves Cambodia overly exposed to the revenue movements and manufacturing location decisions of the major global clothing retailers. being 90% concentrated in EU and North America. we do acknowledge that Cambodia maintains a comparative advantage in textiles and tourism. 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. it represented by far the largest component. Cambodia Capital Research 17 .
investment. largely a function of very low tax intake versus the region. at just 5%-6% percent of the economy on average from 2005-2009. especially roads and bridges. I stable. Investment has remained stable at around 19%. like rural electricity and water provision.275 850 425 0 2001 2002 2003 2004 2005 2006 2007 June 2011 2008 2009 Food & Beverages & Tobacco Wood Paper & Publishing Other Manufacturing Source: Cambodian Ministry of Economics and Finance Garment/Textiles/Footwear Rubber Manufacturing Figure 16: Key sectors as percentage of economy 40% 30% 20% 10% 0% 2007 Garment/Footwear Exports Source: Cambodia Ministry of Economics of Finance 2008 Tourism Agriculture 2009 C high. We believe that this is the area where we will see the largest structural shift in this data. G low and X-M continues in deﬁcit Figure 17 shows the breakdown of the economy in terms of consumption. but also expanding its presence in public utilities.700 1. with government increasingly gaining a role in providing public goods. Cambodia Capital Research 18 . government spending and net exports.Overview of the Cambodian Economy Figure 15: Cambodia Manufacturing GDP by segment (US$ MM) 1. Consumption has represented over 80% of the economy for the ﬁve years to 2009. Government spending is low.
494 23. It is reported that improved tax collection methods should boost tax revenues in the medium term. mainly related to the garment industry.9% in 2008 as the ﬁnancial crisis cut tax revenue at the same time as the government increased spending. expenditure has steadily outpaced it. The deﬁcit widened signiﬁcantly in 2009 to 6.962 19.Overview of the Cambodian Economy Figure 17: Nominal Gross Domestic Expenditure (US$MM) BN Riels Consumption as % total Investment as % total Government as % total Inventory Changes as % total Net Exports as % total Other as % total GDP 2005 5.6% 7.427 19.3% 1. and in the long term. an increasing number of workers leaving the informal economy for the formal economy should also raise this ﬁgure.0% -171 -1.695 19.619 -15.684 94.8% of GDP.391 84. which could help further ease this deﬁcit.4% -27 -0.208 18. the deﬁcit is estimated to have contracted in 2010. This is mainly because the country continues to rely heavily on imports for many industries.3% 1.705 26.6% 10. at only 4. Cambodia Capital Research 19 .191 21.3% 1. As shown in Figure 18.843 77. The government continues to generate very low tax revenues in a regional context.008 22.4% 258 2.1% 2. Vietnam and Laos (Figure 20).6% 2. The government sector still relatively small and in deﬁcit In addition to the trade deﬁcit. This is not offset by the large trade surpluses it runs with the United States and the European Union.8% 10.4% 148 1.0% 1. and runs large trade deﬁcits with its Asian trading partners. it is well below Thailand.395 2006 5.4% 47 0.265 Source: Cambodia Ministry of Economy and Finance Large trade deﬁcits with Asia not offset by garment exports Cambodia continues to run large trade deﬁcits.822 84.5% -1.1% 6.969 81.0% 151 1.4% -561 -5.430 2009 9.3% of GDP from 2. the government continues to run large budget deﬁcits. although the deﬁcit fell to a ﬁve year low in 2009 of 5. Longer term there is the possibility of both oil and gas.023 19.4% 2.4% -940 -9.7% 125 1.373 2007 6.575 21.2% -548 -7. and mineral exports.7% 7 0. although government revenue more than tripled from 2001 to 2009.9% 8.4% -567 -6.1% 2.4% 89 1.5%.3% 1.4% -554 -8. However.855 June 2011 2008 8.9% 1. 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.
0% 2.Overview of the Cambodian Economy Figure 18: Cambodia government revenue and expenditure (US$MM) 2.000 500 0 2001 2002 2003 Revenue Source: Ministry of Economy and Finance 2004 2005 2006 2007 June 2011 2008 2009 Expenditure Figure 19: Cambodia government deﬁcit (US$MM) 0 -175 -350 -525 -700 2001 2002 2003 2004 2005 2006 2007 2008 2009 8.0% 4.500 1.0% 6.000 1.0% 0% Deﬁcit (LS) Source: Ministry of Economy and Finance as % GDP (RS) Figure 20: Government revenue as a % of GDP Laos Thailand Vietnam Cambodia 0% 2% 4% 6% 8% Source: International Monetary Fund Cambodia Capital Research 20 .
Sport Source: Ministry of Economy and Finance Still heavily reliant on foreign ﬁnancial assistance The Cambodian government is still heavily reliant on foreign ﬁnancial assistance to fund its budget deﬁcit. following the continued conﬂict on the Thai border this year.05 0 2001 2002 Defense 2003 2004 2005 2006 2007 2008 2009 Public Health Education. From 2004 until 2008. However. as shown in Figure 22. with defense spending at 17% of total expenditure in 2009. youth and sport at 9%. Figure 22: Financing of government budget deﬁcit (US$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 . which been lauded as a good sign for overall improved social welfare.Youth. public health at 7%. and a higher weight has been given to the public health and education categories. and education.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.10 0. Figure 21: Key areas of government expenditure as % total expenditure 0. foreign ﬁnancial assistance covered more than 100% of the total government deﬁcit. we believe there may be the potential to see the defense proportion of expenditure rise in 2012.15 0. the budget for defense spending is lower as a percentage of total spending.20 0. For the current year.
External debt to exports. external debt to GDP has been declining over the last decade. with 70% of the population still employed in subsistence farming (Figure 22). a measure of how quickly the country could cover its foreign debt with its foreign earnings. unemployment is 5. inﬂation External debt to GDP and exports declining Cambodia currently owes US$4.5%. in Thailand.0% seen in urban Vietnam (this ﬁgure may have increased since.64 in 2001 to 0.36BN in external debt according to World Bank estimates. as migrant workers returned to family farms. 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. Cambodia Capital Research 22 . However. In the 1997 crisis.12 as of 2009 (Figure 24). which is higher than the just over 5. currency. Although still high.Overview of the Cambodian Economy June 2011 Unemployment: Low from widespread subsistence farming Unemployment overall is a low 2% in Cambodia. has also declined. increases in unemployment were not as severe as expected. the most economically advanced area of the country. reserves. and is classiﬁed as a low income. given recent difﬁculties in the Vietnamese economy). from 0. The heavy weighting to agricultural employment offers a buffer against layoffs in the manufacturing and service sectors.42 as of 2009.67 in 2001 to 1. moderately indebted country. from 1. in Phnom Penh. We expect that Cambodia will have a similar economic cushion in the medium term.
and Cambodia is negotiating with both countries. the effective interest rate that Cambodia has been paying on the debt is a low 0. Neither of these debts is being serviced. and more readily able to handle repayment than it is currently (Figure 26). better structured. and some may not need to be repaid The composition of Cambodia’s external debt makes it less onerous that it may initially appear. only 7. and by the time of principal repayment.5%. Second. it is still unclear when or if Cambodia will be required to pay back these loans.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. First. the Cambodian economy may be much larger. Figure 25: Composition of Cambodia external debt by country 7% 22% 28% ADB World Bank IDA US. 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). Third. Russian Federation Debt Other bilateral Other multilateral 26% 17% Source: International Monetary Fund Cambodia Capital Research 23 . so there is no medium term issue with the current debt.7% of the debt is short term.
but not particularly robust ﬁnancial cushion (Figure 27). and therefore the reserves to short term external debt ratio is strong at 12. As shown in Figure 25. but still well up on US$1.4x in 2009.5 3. down from a peak of US$2. which leaves the country with an adequate. up from just 3.8BN in 2008.7% of total debt. Reserves to months of imports has risen from 4 in 2001 to near 5 as of 2008. short term external debt is a low 7.9BN in 2006. Ministry of Economy and Finance Reserves/Short Term External Debt Cambodia Capital Research 24 . The National Bank of Cambodia reported US$2. but not abundant Cambodia’s key foreign reserves ratios have been improving over the last few years.6BN in foreign reserves as of end 2009.Overview of the Cambodian Economy Figure 26: Composition of Cambodia external debt by duration 7.3% Source: International Monetary Fund Foreign reserves adequate.8 6. Figure 27: Key foreign reserve ratios 13.0 9.7% Short term Long term June 2011 92.3 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Reserves/Month of Imports Source:World Bank.1x in 2001.
Vietnam and China. the National Bank of Cambodia has kept the Riel trading within a relatively tight trading band versus the US$ (at an average rate of KHR4.013 3. but the economy is effectively dollarized. the Vietnamese Dong has depreciated signiﬁcantly over the last year and China is gradually allowing its currency to appreciate versus the dollar. On net we expect the currency effect on imports to be relatively neutral in the short term. the second largest purchaser of textile exports is the European Union (EU).108/US$ since 2006.238 4. so a depreciation of the US$ versus the Euro could potentially make Cambodia garments/textiles more attractive to EU buyers. However.125 4.700 1.000/US$ and peak of KHR4. with the Riel pegged to the dollar. with a trough of KHR4. There tends to be some seasonality also in the movement of the exchange rate related to the agricultural growing season.Overview of the Cambodian Economy Figure 28: National Bank of Cambodia’s Foreign reserves (US$MM) 3. Imports: A large proportion of Cambodian imports are from Thailand. so dollar depreciation does not give Cambodian exports an advantage here. As shown in Figure 29.241/US$). The Thai baht has appreciated versus the dollar.600 2.900 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 . Figure 29: USD to Cambodia Riel 4. Movements in the dollar have a mixed effect on the economy: Textile exports: Garment/textile exports are priced in dollars. but the majority are purchased in US$.800 900 0 2001 2002 2003 2004 2005 2006 2007 June 2011 2008 2009 Source:World Bank Currency considerations: 90% of transactions still in the dollar Cambodia’s ofﬁcial currency is the Riel.350 4. and an estimated 90% of transactions taking place in the dollar.
and the latest reported April 2011 ﬁgures show inﬂation at 5. the central bank is raising rates to curb inﬂation and its currency is still strengthening long term versus the dollar. Meanwhile.000 1. there have been hints lately that the current commodities bubble may be nearing its end. On net.000 3.Overview of the Cambodian Economy Figure 30: Money Supply (US$MM) 4. Cambodia Capital Research 26 . prices still appear to be rising gradually. In Thailand. Increasing domestic production of food products should also help alleviate this risk over time. 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. However. given the large amount of trading with the two economies. In Vietnam there has been the mixed effect of a currency depreciation offset by rapidly rising inﬂation. which pulled up the average for the decade. the global ﬁnancial crisis cut commodity prices and inﬂation subsequently subsided.000 2.8% over the decade from 2000 to 2010. Figure 31: Cambodian inﬂation. we do not expect to see a major transmission of food inﬂation to Cambodia from these neighbouring countries in the short term. There was a signiﬁcant spike in inﬂation just prior the the onset of the 2008 crisis to 25%.000 0 2003 2004 2005 2006 Demand deposits 2007 June 2011 2008 2009 Currency outside banks Foreign currency deposits Source: Ministry of Economy and Finance Time savings deposits Inﬂation remains benign (for now) Inﬂation has generally been benign in Cambodia of late. mainly driven by the spike in global commodities prices (largely the result of rising food and oil prices). averaging 4.2%. Cambodian food price changes are especially correlated with Vietnam and Thailand.
Cambodia Capital Research 27 . respectively. average Cambodian inﬂation from 2004-2009 has been in the middle of the pack. accounting for a combined 76% share of the country’s exports. which comprised 49% and 27%. Cambodia’s exports are still comprised mainly of garments/ textiles and footwear exports to the United States and Europe.Overview of the Cambodian Economy June 2011 In a regional context. Figure 32: Inﬂation in a regional context 20% 15% 10% 5% 0% Myanmar Vietnam Indonesia Cambodia Laos Thailand Malaysia Source: International Monetary Fund Figure 33: Cambodia CPI Index by category 15% 10% 5% 0% -5% -10% Jan 10 Mar 10 May 10 Jul 10 Sept 10 Nov 10 Jan 11 Mar 11 Health CPI Transport Food beverages Communication Housing. Cambodia’s other major regional trading partner. global integration Trade surging. comprising just under 5% of exports in 2009. but deﬁcits persist Cambodia’s overall trade has surged by over 200% since 2001. but growing rapidly from just 1.5% in 2009.5% in 2001. Energy Source: Cambodian National Institute of Statistics vi) Trade and FDI: Advancing regional. although export growth continues to lag import growth and the country ran a trade deﬁcit of 5. 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. Vietnam is a distant third.
0% 8.3% 5. which comprised 14% of the total in 2009 and South Korea. EU. respectively. Figure 35: % of Cambodia’s exports by key trading partners 100% 75% 50% 25% 0% 2001 2002 2003 US 2004 2005 EU 2006 2007 2008 Vietnam 2009 2010 Source: US Census Bureau.875 0 2001 2002 2003 2004 2005 2006 2007 2008 June 2011 11. we expect that as the country increases its agricultural exports. at 5% of the total. which have soared to 29% and 21% of total imports. China.625 3.8% 2009 0% Imports (LS) Exports (LS) Trade deﬁcit as % GDP (RS) Source: Ministry of Economy and Finance Exports mainly to US. especially rice. imports largely from East Asia The largest proportion of Cambodia’s imports are from Thailand and Vietnam.500 5. General Statistics Ofﬁce of Vietnam (GSOV).750 1. The country runs large trade deﬁcits with these regional countries which is not offset by exports to the US and EU. that demand from the region will be high for these products and we may see these trade deﬁcits contract. for example. Europa Cambodia Capital Research 28 . However. Imports from China. for a combined 50% of imports in 2009 from just 29% in 2001. are also signiﬁcant. has already stated its intentions to increase its imports of Cambodian rice.5% 2.Overview of the Cambodian Economy Figure 34: Cambodia imports and exports (US$MM) 7.
GSOV. 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. we believe that Cambodia has generally beneﬁted from its involvement in the various trade organizations.WTO. which comprises 13 provinces in these three countries. the country simultaneously held the CLV. and 3) being part of the Cambodia-Laos-Vietnam development triangle. Since then. In November 2010. 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. 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. and thus is offered some advantages in terms of trade because of this. 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. further raising its regional proﬁle. for the ﬁrst time. 2) becoming part of the Cambodia Laos Vietnam Myanmar cooperation framework (CLMV) in November 2004. Cambodia Capital Research 29 . Cambodia MEC. it has also been more active within the region. Although the country did join ASEAN in 1999.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. Although the country is classiﬁed as a Least Developed Country (LDC). it was only in October 2004 that it joined the World Trade Organisation. CLV.
We expect therefore that Cambodia will beneﬁt from this program for the next decade at least. The ending of this regulation allowed nations within the WTO to export garments/textiles freely. 2005. but this has been offset by the overall growth in the market for textiles/ garments exports to the US. Currently. the country has gained somewhat easier access to the US market from its accession to the WTO. with the country expanding its textile exports to the US rapidly since 2005. The other beneﬁt of WTO accession is that Cambodia has needed to expand and strengthen its laws to meet the requirements. which are mainly textiles/garments and footwear. 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 from a comparatively low base. The last ﬁve years have shown that concerns that Cambodia might have severe difﬁculty competing were unfounded. so the reduced tariffs within ASEAN over the last ten years have not really been a signiﬁcant boon for the country. While Cambodia currently exports mainly textiles/garments to the EU under this system. especially for garment/textiles. This external lever seems to have prompted more rapid development of the legal structure than otherwise might have been the case. This is the strongest version of the EU Generalized System of Preferences (GSP). At the time there were limiting quotas. With Cambodia already in the WTO. However. the country beneﬁted from the absence of non-WTO competition. The EBA program currently has no ﬁxed end date. especially to the US. 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%. comprising mainly garments/textiles and footwear. a regulation that had previously allowed countries to apply quantitive restrictions of imports of clothing between WTO countries was abolished.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). although it did face increased competition from other WTO members also enjoying quota-free garment/ textile exports within the organization. This is under the EU’s Everything But Arms (EBA) initiative to promote imports from Least Developed Countries. Cambodia Capital Research 30 . agricultural exports are also growing. although the US remains Cambodia’s largest single customer for exports. This is because as of January 1. 90% of Cambodia’s exports are to non-ASEAN nations. Accession to WTO offset 2005 end of textile quotas Cambodia is not a country considered by the US for preferential exports. 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. Cambodia has lost some market share. However. which offers lower trade tariffs to many developing countries. without facing quotas.
The government generated 21% of its revenue from international trade taxes in 2009 (Figure 38). with FDI as a percentage of GDP peaking at 10% in 2007 from a low of just 1. We believe a larger issue for Cambodia than domestic industry protection.Overview of the Cambodian Economy June 2011 The question is whether reducing tariffs on some imports from ASEAN. is a potential reduction in government revenue. FDI has since returned to what we view as a more sustainable level. And as we have shown above. However. government revenue is already low in Cambodia relative to the region. mainly led by investment in an overheating property market. could slow the growth of some newly developing agricultural sectors. the majority of agricultural sectors in Cambodia appear to be showing both a high increase in production as well as rising exports. and is directed more to sectors like infrastructure and agriculture that should improve the structural balance of the economy in the longer term.500 1.125 750 375 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. Cambodia Capital Research 31 . and the gradual reduction in tariffs over the next four years could reduce revenue further.6% in 2003 (Figure 39). notably agriculture products. Figure 38: Cambodia International Trade Taxes (US$MM) 1. 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.
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). EU and US direct investment in Cambodia has been relatively muted over the period. Energy and agricultural investment have been the second and third largest investment categories over the last two years. Regional investment tends to dominate the proﬁle for Cambodia.500 3. which is catering mainly to tourists for Angkor Wat.000 7. Relative to their economic size. Tourism investment was the largest category for both years. with Korea and Malaysia the next largest. Figure 41 shows the investment breakdown by sector for 2009 and 2010.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. with most of the major investment coming in recent years.500 6. Cambodia Capital Research 32 . 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).000 4. which shows that China is far and away the largest investor in Cambodia over the past ﬁfteen years.
Also. the subjective opinion of many Cambodians often do not match their objective ranking globally. and thus could be considered tourism related. but we include them for comparison in Chart 42). is that although Cambodia ranks low in many categories.059* 589 353 190 129 379 2. as would be expected for a Least Developed Country. Cambodia remains well down on the list. 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. vii) Empirical Global Ranking: Corruption. 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. The Legatum Prosperity Index ranked 110 countries in terms of overall prosperity.Overview of the Cambodian Economy Figure 41: Investment by sector 2009 Tourism centres Energy Agro-Industry Telecommunication Tourism Other Total Source: 3. Chart 43 shows the eight categories used in the index. 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. however. What is interesting.901 665 457 235 146 456 5. Cambodia Capital Research 33 . and the ﬁndings of the survey for each.859 Transportation Energy Agro-Industry Rubber Garments/textiles Other Total June 2011 2010 1. At 95 in 2010.698 * Nearly US$1BN of this is related to a planned new airport in Siem Reap. it is unclear whether this has been funded yet.
prosperity. but Cambodians still view their country as offering a good environment for entrepreneurs 4 out of 5 Cambodians are satisﬁed with the national government. Opportunity 92 100 Detail Over half of Cambodians are satisﬁed with their standard of living.1 in 2010. 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.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 . Cambodians are extremely satisﬁed with their education system Cambodians report low health services satisfaction. and has shown little improvement. which would be expected given the low ranking Personal safety is perceived as high by Cambodians. after actually worsening slightly in 2008 and 2009. 94% of citizens report satisfaction with their freedom of choice In a 2009 survey only 12% of Cambodians thought others could be trusted.Overview of the Cambodian Economy Figure 42: Legatum Prosperity Index 2008 Singapore Thailand Malaysia Indonesia Vietnam Cambodia Source: Legatum Properity Index (www. As shown in Figure 44. although this could indicate others outside the family unit. although corruption is perceived as widespread Although the ranking relative to other nations is low. Cambodia Capital Research 34 .Legatum Prosperity Index 2010 Rank Economy Entrepreneurship. but political repression and human ﬂight are also high Although civil liberties are rated low in Cambodia. back up at its 2006-2007 rating. Cambodia does not fare well on this scale. and high in terms of start up costs. employment rates are high C a m b o d i a r a n k s l ow i n t e r m s o f b u s i n e s s infrastructure.
7 2.4 5.0 1.4 Figure 44:Transparency International Corruption Perceptions Index Rating Source:Transparency International Corruption Perceptions Index Cambodia Capital Research 35 .6 2.8 2.2 4.4 2.5 2.4 2.1 3.0 3.7 2.5 2.2 5.6 2.6 2.6 2.9 2007 9.1 2.1 1.0 2.4 June 2011 2010 9.0 1.6 2.4 3.3 4.8 1.1 1.5 3.8 2.7 2.1 1.0 3.4 5.6 2.6 2.3 2009 9.Overview of the Cambodian Economy 2006 Singapore Malaysia Thailand Indonesia Vietnam Laos Cambodia Myanmar 9.9 2008 9.4 2.
We would emphasise that before 1998. Two of the senate members are chosen by the King. the head of state. but not rule’. as shown in Figure 45. but where Thailand prefers a bilateral solution. Cambodia has gone to both ASEAN and the United Nations with the issue. We would estimate that it was only really since around 2005 that the country could be said to fully stabilised politically. and the Monarch. This issue goes back as far as 1.000 years. there followed a period of uncertainty as to whether the new government would hold. prior to that. 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. Cambodia Capital Research 36 . the head of government. Currently the countries are trying to negotiate. the country was embroiled in 38 years of conﬂict. as the Cambodian People’s Party increasingly strengthened its hold on political power.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. with it declared that he shall ‘reign. Norodom Sihamoni. with a National Assembly and Senate. with the Prime Minister. Hun Sen. The system has a bicameral parliament. From 1998 to the early 2000s. having joined the WTO in 2004. A constitutional monarchy The Cambodian system of government is ofﬁcially a constitutional monarchy. The king has limited political power. The 123 National Assembly members are elected for 5 years under proportional voting. and some factional inﬁghting. and the rest are chosen by voting in Cambodia’s 24 provinces. another two by the National Assembly. there was little in the way of substantial law or a solid system holding the country together and therefore little capacity for the country to develop human or technological capital. 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.
it won 90 of 123 seats. Hun Sen’s Cambodia People’s Party (CPP) is far and away the dominant political force in the country. and establish free and fair elections The United Nations Transitional Authority Cambodia (UNTAC) arrives. Massive improvements made in developing the legal. and then North Korea. 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’. both leaders are elected as co-prime ministers A uneasy alliance exists between the two ruling parties. and maintains neutrality over US/Vietnam conﬂict. Cambodia Capital Research 37 . the country initially sees economic progress. with the opposition Sam Rainsy Party winning 26 seats. Political split widens in 1960s between the Prince. but Prince Rannariddh led FUNCINPEC also does well. US army moves into Cambodia. 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. 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. Paris-educated leftists (eventual Khmer Rouge) and rightwing Lon Nol government Military coup installs Lon Nol government. The other smaller parties gained a combined 7 seats. Khmer Rouge remains a danger. repatriate Khmer citizens that had ﬂed to Thailand. Hun Sen’s Cambodia People’s Party wins. and holds elections. begin battles with Lon Nol forces. bombing raids in rural Cambodia lead to growth in Khmer Rouge movement Khmer Rouge. In the last National Assembly election on July 27. The Paris Agreement is signed 1991. allied with the United States.Overview of the Cambodian Economy Figure 45: An overview of modern Cambodian political history Year(s) 1953 1954-1970 Key Events Cambodia gains independence from France June 2011 Ruled under Prince Sihanouk. Prince Sihanouk leaves for exile in Beijing. with the UN still ofﬁcially recognizing the party as ruling the country from 1979 to 1982. Khmer Rouge resurgence is still a threat. which allows the UN to oversee a ceaseﬁre. By 1997. disarm the military operations of the four political factions. 2008. economic and educational system King Sihanouk leaves the throne and his son Norodom Sihamoni becomes King 1970 1970-1975 1975 1975-1979 1979 1979-1989 1990-1992 1993 1994-1998 1999-2010 2004 Source: Cambodia Capital Research Cambodia People’s Party dominates government As shown in Figures 46 and Figure 47. Eventually Khmer Rouge strengthens and wins battles with less Vietnamese support Khmer Rouge overtake Phnom Penh Khmer Rouge implement a totalitarian agrarian regime.
during the State of Cambodia period of 1989-1991 the party began to shift its ideology to adopt more free market principles. but is especially strong in rural areas. we have seen little to suggest that the CPP’s dominance is waning signiﬁcantly. and the establishment of constitutional monarchy. winning 43 of 58 available seats in the 2006 senate election. Also. especially with the arrival of UNTAC. However. It is unclear if there is a similarly charismatic second in charge to lead the party without the eponymous founder. is in exile in France after being convicted in absentia of defamation charges after accusing the government of corruption. the party’s leader. Since these elections.Overview of the Cambodian Economy June 2011 The CPP also dominates the Senate. led by Hun Sen. FUNCINPEC is the next largest. with its platform originally based on a Marxist-Leninist single party system. Sam Rainsy. Sam Rainsy Party (SRP): Founded in 1995 (originally the Khmer National Party from 1995-1998). In the senate. 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. The party was formed from the Kampuchean People’s Revolutionary Party which was the only legally recognized party within Cambodia from 1981-1991. Cambodia Capital Research 38 . and economic growth continues to be strong. Figure 46: National Assembly 90 68 45 23 0 CPP SRP HRP NRP Funcinpec Source: Cambodian National Election Committee Figure 47: Senate seats 50 38 25 13 0 CPP Funcinpec SRP Royal Appointees NAC Source: Cambodian National Election Committee Cambodia People’s Party (CPP): Cambodia’s dominant political party. the country was able to weather the ﬁnancial crisis without massive social upheaval. with nine seats. has a broad base of support.
It has relatively more sway in the senate. They remained strong militarily throughout the 1980s. Neutral. Ranaridhh retired from politics in October 2008. 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. while Thailand’s inﬂuence tends more to just the business sphere. formed in in 2007. Cambodia tends to thus view both Vietnam and Thailand with some degree of suspicion. FUNCINPEC played an important part in government throughout the 1990s. Norodom Ranariddh Party (NRP): Another relatively new party. originally established in 1981 by Norodom Sihanouk as a counterbalance to then Vietnamese occupation of the country. However. The party’s current leader is Chhim Siek Leng. the Khmer Rouge began to lose power and any remaining credibility. and the party was renamed the Nationalist Party until the Prince announced a return to politics in December 2010. as it won only 2 seats of 123 in the National Assembly in the 2008 election. Cambodia Capital Research 39 . were a perpetual threat to stability and were recognized as the ofﬁcial Cambodian government by the United Nations as late as 1982. The party appears to be a right leaning centrist party. Bilateral relations with two largest neighbors Cambodia’s diplomatic relations with two of its closest neighbors. The party’s popularity in rural areas. and the still threatening Khmer Rouge. its popularity appears to have waned over the next ten years. including land and civil rights. 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. tend to be fraught with border issues.Overview of the Cambodian Economy June 2011 Human Rights Party (HRP): Is a relatively new party. with the two much larger countries possessing both expansive military and economic might relative to much smaller Cambodia. has been growing. Vietnam and Thailand. and involvement in anti-corruption law. and won 43 of 123 seats in the 1998 elections. generally the stronghold of the CPP. and the party again took his name. Leader Kem Sokha has a history of humans rights activism. The party is generally considered a Royalist party. Peaceful and Cooperative Cambodia. 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. If we were to characterize these relationships we would say that Vietnam has both a strong political and business inﬂuence in the country. who changed their name to incorporate the new leader. Khmer Rouge: The Khmer Rouge orchestrated the complete economic collapse of the country from 1975 to 1979. However. by refusing to participate in the 1993 elections. having won 9 out of 58 seats in the most recent 2006 senate election. and by 1996 saw a mass defection of over half the remaining soldiers. Informal border trading is widespread with both countries.
ﬁghting broke out at a second disputed area along the ThaiCambodian border in Oddar Meanchey province. unrelated to Preah Vihear. In the north of Cambodia in Preah Vihear is a temple complex that was granted to Cambodia in 1962. but it was stated that Thailand would play an important role also in overseeing the temples. on the whole. Relations with Thailand sour after border conﬂict If the border issues with Vietnam are more of a cold war. a meeting was brokered between the two countries mediated by ASEAN. but Cambodia would also have its preferred solution of the presence of ASEAN observers at the border. strong words on both sides suggest to us that this agreement is still very tentative. and the party appears to still maintain close ties with the Vietnamese ofﬁcials. Although there has been some minor disruptions to border trade in the conﬂict areas and a marked decline in Thai tourism to Cambodia. By comparison relations between Cambodia and its smaller neighbor Laos tend to be less conﬂictual. with Thailand they became a hot war in February 2011 and then again in April 2011. a decision that has been disputed by Thailand ever since. The complex was declared a World Heritage Site in 2008 by UNESCO. A deal was reached where Cambodia has agreed to talks through Thailand’s preferred channel. Following this battle. with some parties opposing what they view as encroachment on both Cambodia’s territory and sovereignty. but it was only in February 2011 that ﬁghting erupted. trade between the two countries continues to grow strongly. Fighting erupts in February 2011 near Preah Vihear This led to the placement of troops on either side of the border from mid-2008. opposition to Vietnam’s inﬂuence issue still remains. 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. since 1979 there have generally been cordial relations between the two nations. in far Northwestern Banteay Meanchey province. the bilateral border committees. This event appears to be the trigger point. Cambodia Capital Research 40 . Thailand initially agreed. and lasted for several days with military casualties on both sides.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. However. Second battle occurs in April 2011 at Oddar Meanchey In late April 2011. which has led to a cease ﬁre. This was shortly after some Thai activists had been jailed in Cambodia for reportedly illegally entering the country without visas at another area of border dispute. and ofﬁcially part of Cambodia.6 sq km area that is the center of the conﬂict. The ruling remains unclear especially on a 4. However. but later reversed course and rejected the UNESCO plan.
1) it joined ASEAN in 1999. 3) the country accepts guidance and funding from the Asian Development Bank. Cambodia Capital Research 41 . Since then the country has progressively integrated itself into the world system. IMF and World Bank. 5) it held the Cambodia Vietnam Laos (CLV) and Cambodia Vietnam Laos Myanmar (CLVM) as well as the ACMECS (CLVM plus Thailand) summits in November 2010. and inﬁghting between various factions meant that there was no globally recognized government in Cambodia until after the Cold War ended. and its WTO accession. 4) with special privileges for least developed countries.Overview of the Cambodian Economy June 2011 Increasingly integrated into the regional and world system Cambodia had been completely isolated from the world from 1975 to 1979. it makes the bulk of its exports to the EU and the US. 2) the World Trade Organisation in 2004. setting the stage for eventual UNTAC-sponsored elections by 1993.
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. but it was not until the current constitution was adopted in 1993 that a clear separation between the legislative. and Cambodia’s current set of laws. and now has a functioning legal framework.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. insurance (2000). Cambodia Capital Research 42 . which was based on the Vietnamese system. Liberalization of this system occurred as early 1989. many important laws were promulgated only in the last 10 years. including banking (1999). A series of constitutions since the 1950s Cambodia has been through a series of constitutions since the 1950s. With the overthrow by the Lon Nol government. The Khmer Rouge adopted their own constitution. this document itself. However. tax (2003) commercial (2005). with power entirely concentrated in the National Assembly. We believe that an improving and increasingly transparent legal and regulatory regime will further encourage future foreign investment. from 1953-1975 the Cambodia legal system was based on the French system under rule by Prince Norodom Sihanouk. with 100% foreign ownership of businesses permitted Foreign-investment friendly. is somewhat of a hybrid from the various periods of the country’s history since independence from France in 1953. a new constitution was adopted from 1970-1975. The legal system is supportive of foreign investment. This constitution led to the establishment of separate executive. although some key preexisting laws are still in use. which was ostensibly ‘peasant rule’ but effectively totalitarian agrarianism. as many of the laws were promulgated over the last ten years. many have not been thoroughly tested in the courts. gradually improving legal system Cambodia has a basic legal system in place. there had been no split between these three bodies. However. with the most recent a version of the 1993 document with some amendments made in 1998 (Figure 48). executive and judicial functions of government was stipulated. from 1979 to 1992. This was replaced by the 1979 constitution when the Vietnamese overthrew the Khmer Rouge. with the major business laws now written. Prior to the Khmer Rouge. so have not been well tested in the courts • Major business laws promulgated: The country has the key legislation for business in place. However. with 100% foreign ownership of businesses permitted. 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. legislative and judiciary branches.
Continued improvement in the legal framework coupled with increased testing of the same. with an amendment written in 1999 (Figure 50). which has largely remained intact to the present. By the mid to late 1990s important laws for business were written. the law on banking and ﬁnancial institutions promulgated in 1999 and an insurance law written in 2000. Cambodia Capital Research 43 . The tax law was issued in 1997. Tax and property/land laws were also in place prior to the current constitution in 1993. and 2001.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. workers. serve to support ongoing growth and investment. an independent judiciary. but were eventually superseded by new laws in 1997. peasants and all other labourers. the country began to further develop its legal structure. The establishment of this legal framework coincides with the start of rapid growth in the Cambodian economy. increasing the National Assembly seats to 122 and allowing for the creation of a 61-seat appointed senate. should. respectively. but not govern Amendments are made to the 1993 constitution. and shall reign. with parliament making laws. with all legislative. executive and judicial power coming from the monarch All power derived from the people. appoints people’s courts to administer justice All power resides at the National Assembly A Constitutional Monarchy is established where the legislative. The people’s representative assembly determines legislation. 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. with the Law on commercial rules and commercial register coming into effect in 1995. The King is head of state for life. but this is not really brought into effect until around 1998. executive and judicial branches are to be separate. in our view. There was existing contract law. and a Supreme Court A state of the people. promulgated in 1988.
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 given that the key business laws were established only as of the late 1990s.Overview of the Cambodian Economy Figure 49: History of legal systems in Cambodia Date/System 1953-1975 French Civil Details June 2011 Cambodia adopted the French legal system. and had to adopt (or commit to adopt) many laws to meet WTO requirements 1975-1979 Khmer Rouge 1979-1989 Communist (Vietnamese inﬂuenced) 1989-1993 Liberalized Communism 1993-Present Constitutional Monarchy World Trade Organisation Source: Cambodia Capital Research Stock market laws promulgated in 2007 Stock market legislation was only promulgated in the form of the Law on the Issuance and Trading of Non-Government Securities as recently as 2007. and is the basis of the present system. its inﬂuence re-emerges in the drafting of the 1993 constitution Complete elimination of any modern legal system. 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. we view getting the capital markets up and running in just a decade as a reasonably quick turn around. Although this system was abolished by the Khmer Rouge. which included property rights A constitutional monarchy was established by the constitution of 1993. Almost no legal professionals remaining in the country by the end of this period. The new constitution was again based largely on the French system. Given the current target of a 2011 opening. Cambodia Capital Research 44 . and therefore integrated the inﬂuence of all the preceding systems In 2005 the country joined the World Trade Organisation. Current contract law of Cambodia promulgated during this period From 1989-1993.
supersedes 1992 Land law 1988 Cambodia adopted has adopted the regulations of the major trade bodies it has joined. Law on negotiable instruments and payment transactions (2005). amendment (2003) Law on banking and ﬁnancial institutions (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 secured transactions (2007). Insurance law (2000). Law on ﬁnancial leases (2009) Land law (2001). the ASEAN Free Trade Area (1999) and the World Trade Organisation (2004) Labour law 1997 replaces 1992 Labour law Law concerning marks.Overview of the Cambodian Economy Figure 50: Major Cambodian Laws Laws Commercial Details June 2011 Law on commercial rules and commercial register (1995) and amendment (1999). Law on commercial enterprises (2005) Law on tax (1997). Law on issuance and trading of nongovernment securities (2007).
and the securities and support ﬁrms have all been licensed. and especially to small agricultural businesses. Public equity market to open this year. given the presence of a handful of domestically based funds. In addition. 1) granting credit 2) taking deposits or 3) offering payment processing. 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. which allowed for the development of a bond market in Cambodia. there is also growing international interest in lending to Cambodia from private and policy banks. and we expect to see trading by late 2011. was promulgated well before the equity market laws. but the related legislation has been drafted. we expect that with the equity market nearly up and running. there are 13 microﬁnance institutions that are a key source of capital. The tight lending standards of Cambodian banks (which we view as prudent. We give more detail on the progress with regards to the stock exchange below. the government will soon look towards developing the debt market. the CSX is housed and rolling out its systems. Therefore there are still no government or corporate bonds issued in Cambodia. as well as interest from regional funds. establishing the Cambodia Stock Exchange has clearly taken precedence over the bond market in the last several years. private equity investment in Cambodia is growing. through 35 banks (including specialised banks*). or only a single component of each of the three services. These institutions support many projects that cross borders in the Greater Mekong Sub Region. given the market risk) limits the growth of many riskier ventures that could potentially be funded by more risk tolerant equity investors. We would expect to see a sovereign issue from Cambodia within the next 2-5 years • Expect trading on CSX by Q4/2011: The Cambodia Stock Exchange (CSX) is in the late stages of preparation for opening. Now it is an issue of the level of preparedness of the three SEOs currently planning to list. Bond law written but no market yet Although the Law on the Issuance of Government Securities. We estimate that the ﬁrst trade could happen by Q4/2011. 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. However. 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. However.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. . For rural lending. and that a Cambodian sovereign issue could be seen within the next 2-5 years. The required regulations have been issued by the SECC. Banks loans currently the key source of capital The main source of capital in Cambodia is bank lending. particularly from China. private equity growing The public equity market is very near opening. but they represent a small proportion of total lending.
and underwriters chosen (Figure 51). 2) the trading. advisors and settlement banks. 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. 2010. Auditors and clearing agents also were licensed at this ceremony Three state owned enterprises. has promulgated most of the major regulations we estimate will be required prior to opening the CSX. Settlements will be undertaken separately by commercial banks which were awarded their licenses on February 28. please see our April 27. 5 brokers. based on the KRX. where actual trading followed the ofﬁcial opening of the exchange by about 3-4 months. 2011 planned opening. Telecom Cambodia (TC) and Phnom Penh Water Supply Authority (PPWSA) have been selected to list on the exchange. but may wait until the market proves itself 2) CSX 3) Securities Firms 4) Listed Companies Source: Respective organisations and companies Progress being made in all key area of CSX The major pillars are in place to establish the stock exchange in Cambodia. brokers. clearing agents. are being rolled out The securities ﬁrms ofﬁcially received their licenses in early Nov. have been selected. The underwriters have been chosen. it may take 5-6 more months for the underwriters to ready the SEOs for listing. A location in Canadia Tower is secured and the systems. CSX and securities ﬁrms should be prepared for the ofﬁcial July 11. 2 dealers and 2 advisors permitted to operate. SBI Securities for SAP. Other private companies are contemplating listing. underwriters.’ Cambodia Capital Research 47 . the Securities Exchange Commission of Cambodia (SECC) has been established since 2007. dealers. and Tong Yang Securities for PPWSA and TC. 4) the ﬁrst three companies to be listed. The SECC has a staff of 70 employees 55% owned by the Cambodian government and 45% by the Korean Stock Exchange (KRX). and auditors have all been licensed. 2011. For more detail. We could see trading by late Q4/2011 Although the SECC. all state-owned enterprises.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. This is similar to what was seen in the Laos exchange. with 7 underwriters. 2011 report ‘Approaching a Final Frontier: Progress on the Road to Opening the Cambodia Stock Exchange. Sihanoukville Autonomous Port (SAP). 1) the regulator.
while the interest rate on US $ 12-month deposits has averaged around 5%. i) Banks: Strong growth. 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. 13 key microﬁnance institutions and 6 insurance companies. With 70% of the population engaging in subsistence farming. while claims have been decreasing over the last several years. 5 specialized banks. but we believe that they also accurately Cambodia Capital Research 48 . there are 30 banks (the 29 reported by the National Bank of Cambodia at end. even with these myriad institutions.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. access to capital is still relatively limited for many businesses and the majority of the population. with only spartan housing. and the risk to ﬁnancial institutions will keep interest rates high. The high interest rates from banks are an impediment to growth. it will remain a major constraint over the medium term. 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.2010. limited assets available for collateral and lack of a credit bureau. healthy balance sheets Figure 52: Interest. the interest rate on US$ 12month loans has averaged about 16% since 2007. plus 1 new entrant since). 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$25MM in 2010.Overview of the Cambodian Economy June 2011 Financials: Crisis proven • Strengthening banking system: The banking system in Cambodia continues to improve. having weathered the 2008-2009 ﬁnancial crisis and returned to strong growth in 2010. As shown in Figure 52. However. there are still large hurdles to growing lending. There remains excess liquidity in the system and banks compete for quality creditors.
Figure 53: Cambodian banks’ loans*. We believe that as the economy develops we will see the spread on loans versus deposits contract. deposits. end 2010 (US$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. leaving a total 5 specialized banks .Overview of the Cambodian Economy June 2011 reﬂect the high risk of lending in the country.
Cambodia Capital Research 50 .Overview of the Cambodian Economy June 2011 Lending rate not excessive in a regional context Although there are issues of both access to capital and high interest rates for business in Cambodia. these banks will tend to have a business group as a dedicated customer. ACLEDA (a local bank that started as a microﬁnance institution. and in Thailand the lowest. accounting for 67% of total loans and 69% of total deposits. However. Interest rates in Laos have historically been the highest. which illustrates banking sector loans and deposits. either domestic or foreign. as shown in Figure 53. domestically owned banking institution) and ANZ Royal (controlled by Australia’s ANZ). these issues are not uncommon to the region. as it is the most developed economy of the group (Figure 54). Canadia Bank (a strong. we believe that in many cases these links to business groups may hold back merger activity between rival groups in home countries. 3) The smaller banks: Similar to the middle banks. at ﬁrst glance it would appear that mergers will be a likelihood in the sector. this will also limit mergers in the sector. 2) The middle 12 banks: The middle 12 banks comprise 26% of the loans in the banking sector and 27% of the deposits. Cambodia’s interest rates are near the average for the ACMECS region at around 16%. 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. The individual banks in this group had between US$285MM and US$727MM in loans in 2010. The larger institutions in this group will compete with the big four. We expect that in this segment. With such a large number of banks. These banks comprise just 6% of loans and 3% of deposits. They are: Cambodia Public Bank (partnered with Malaysia’s Public Bank). but the smaller institutions may mainly be servicing the local needs of a speciﬁc foreign business group with which they are associated. and between US$491MM and US$860 in deposits.
The ﬁrst was Vietnam Agribank in mid 2010. and less than 1% of the deposits. with a total 21 (13 Phnom Penh/8 provincial). far more than the next largest. CIMB in late 2010. Only ACLEDA has an extensive country-wide network. especially the dominance of the current top 4. All three have strong parent operations with ample capital bases. We believe that they could shake up the market. and the Bank of China (BOC) in Q2/11. in line with its business model catering to smaller rural customers. or payment systems) or a single component of each of the three. Two heavyweight new entrants: Bank of China. It had 14 branches in Phnom Penh and 220 in the provinces as of end-2010 for a total 234 branches (Figure 55). however. Cambodia’s six specialized banks account for less than 2% of total loans in the banking system. Canadia. with a total 27 branches (13 Phnom Penh/14 provincial) and Campu. CIMB There have been three new entrants to the banking sector since 2009. given its roots in microﬁnance. Figure 55: Bank branches in Cambodia (2010) Phnom Penh Branches ACLEDA Canadia Campu ANZ Royal Singapore Banking May Bank OSK Indochina Advanced Bank Cambodia Mekong Union Commercial BIDC Cambodia Commercial Others Total Source: National Bank of Cambodia 14 13 13 11 10 6 5 6 2 2 2 1 26 111 Provincial Branches 220 14 8 8 5 3 4 2 4 3 2 3 3 279 Total Branches 234 27 21 19 15 9 9 8 6 5 4 4 29 390 Cambodia Capital Research 51 . a third large bank. which was small enough that it was not expected to disrupt the market. there have been two heavyweight entrants to the banking industry.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. More recently. Meanwhile. the Industrial and Commercial Bank of China (ICBC) is also considering entering the market. deposits.
If we view the ﬁnancial crisis as a test of the Cambodian banking system.5% gain in 2009. still eking out a 3. the 22% loan growth seen in 2010 seems to us a more sustainable. it appears to have passed with ﬂying colours. growth in bank loans (%) 4.000 as of 2010 (Figure 56).000 1. but also able to grow through the period. After loan growth increases of as high as 77% in the lead up to the crisis. especially in light of the problems experienced at some major global ﬁnancial institutions. Cambodia Capital Research 52 . Loan growth did not turn negative even during the global ﬁnancial crisis. with banking system not only successfully weathering the 2008/2009 global ﬁnancial crisis.Overview of the Cambodian Economy Figure 56: Aggregate bank loans (US$MM).6%. to a low of 3. yet still healthy level of growth. Outstanding bank loans have soared ﬁvefold since 2005 from just over US$600M to over US$3. 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 2.0% in 2010 (Figure 57). from a 2006 high of 9.000 3.000 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.
but lending rates remained relatively ﬂat (Figure 60.750 2.75 as of 2010. but with the market still in the relatively early days of development. and Singapore are 8. As shown in Figure 55. banks have been growing fee income over the last ﬁve years.31 as of 2009 (Figure 59).95 but had declined to 0. as deposit rates rose with increasing banking competition. Cambodia Capital Research 53 . respectively. Figure 58: Loans to deposits 5. the banking system has strengthened its capital base over the last two years.0%. with the solvency ratio (or total capital adequacy ratio) rising from a recent low of 0. 8.Overview of the Cambodian Economy June 2011 The lending practices of the Cambodia banking system appear to be adequately stringent and banks look healthy based on loan to deposit ratio. this may take years. 9. The National Bank of Cambodia continues to gradually move towards the Basel 2 standards. and 10%.0%. Vietnam. which well is above the 8% required by Basel 1.24 in 2007 to 0. which also peaked in 2007 at 0. the required total capital adequacy ratio in Malaysia. helping to offset the decline in aggregate net interest income. For comparison.000 3. However.) 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.5%. as deposit growth outpaced loan growth (Figure 58).500 1. This remains well in excess of the National Bank of Cambodia’s required total capital ratio of 15%.
are a key support for the sector. IT. especially through sector-leading ACLEDA. Restaurants Manufacturing Agriculture. Media. microﬁnance loans to the agricultural interests.Storage Personal Consumption Other 18% 5% 5% 7% 9% 10% 12% 35% Source: National Bank of Cambodia Cambodia Capital Research 54 . Figure 62: Bank lending by sector Retail. agricultural lending was just 7% of lending in 2010.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. Forestry. Public Utilities Hotels. Transport. Real Estate. Net fee income. Fishing Telecom. 1) retail and wholesale operations. Four segments accounted for over 66% of lending. 2) construction and real estate. 3) hotels and restaurants and 4) manufacturing. we expect that this sector is likely to represent an increasing proportion of lending as it develops. Interestingly. Wholesale Construction. As we show in the next section. Fee Income as % Operating Income 250 188 125 63 0 2006 2007 2008 2009 2010 28% 21% 14% 7% 0% Source: National Bank of Cambodia Figure 62 shows lending by the banking system by sector in 2010.
they have either more than sufﬁcient capital. 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 loan growth has rebounded dramatically in 2010. as shown in Figure 62. or the support of large foreign partners. 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). High risk still remains in the segment for banks. With the many large projects in various stages of completion. microﬁnance growth rates saw a decline in in 2009. although at least one small bank. (having fallen from a 7. 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. total personal consumption lending by Thai commercial banks in 2010 was 22. Aggregate bank sector lending for personal consumption was 5. Similar to the banking sector. Property and construction are still heavily weighted in banks’ loan books.6% in 2010.5MM from the previous US$12. up 59% yoy. Cambodia Capital Research 55 .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.3% peak in 2008). For comparison.003 cards having been issued in 2010. banks face the possibility of collateral simply disappearing.2% of total 2010 lending. Some of these have dealt with their limited capital by downgrading to specialized bank status.4% in 2004. For most of the top 16 banks. at only 0. and the sector especially in Phnom Penh in a degree of oversupply currently. but still remained above 40% even in a trough year.1% of the total.6% on average in Thailand for 2010. property exposure remains a risk. in the hire purchase loan market for vehicles.2% in 2009 (Figure 62). but this has risen quickly from just 2.279 as of 2006. which represent 94% of the loans in the system. went into liquidation in March 2011. The credit card segment is still tiny. Some larger banks have severely restricted credit given to the property sector. for instance. Lending for owner-occupied housing as a percentage of total lending was 3. with 14. versus 11. but also growing rapidly.0MM. where the capital requirements are lower. This has really only been an issue for a few small banks so far. Cambodia Development Bank.
agricultural loans are by far the largest category of loans.4% in 2008 to 2. for microﬁnance. or US$272MM) than the banking sector (7% of US $3. with its ‘small loans’ portfolio comprising 34% of total microﬁnance loans. The loans of the main microﬁnance institutions (excluding ACLEDA) are shown in Figure 65. In contrast to what we have seen in the banking sector. at 42% of the total in 2010 (Figure 67). and demonstrates clearly the higher the degree of risk in extending microﬁnance loans compared to the rest of the banking system in adverse economic conditions. Although this ﬁgure has declined to 1.134MM. Microﬁnance will continue to be extremely important in Cambodia in allowing the agricultural sector access to credit. loan growth (US$ MM) 700 467 233 0 June 2011 90% 68% 45% 23% 2005 2006 Loans 2007 2008 2009 % growth 2010 0% Source: Cambodia Microﬁnance Association ACLEDA the largest player in microﬁnance As shown in Figure 64.3% in 2010. or US$219MM). ALCEDA bank by far dominates the sector. it is still well above mid-2000s average. microﬁnance NPLs did spike in the crisis from just 0. Figure 64: ACLEDA ‘small’ loans are 34% of microﬁnance ACLEDA ‘Small Loans’ Other Microﬁnance 34% 66% Source: Cambodian Microﬁnance Association Cambodia Capital Research 56 .Overview of the Cambodian Economy Figure 63: Aggregate microﬁnance loans. where there was not a major increase in NPLs during the global ﬁnancial crisis. Agricultural loans were actually much larger in 2010 in absolute terms in the microﬁnance sector (42% of US$648MM.8% by 2009 (Figure 66). Agricultural loans the largest for the sector Also in contrast to the main banking system.
Commerce Services Transportation Construction Household Others 11% 3% 4% 9% 29% Source: Cambodian Microﬁnance Association Cambodia Capital Research 57 .0% 2.5% 0. 2010 2% 42% Agriculture Trade.Overview of the Cambodian Economy Figure 65: Largest microﬁnance companies by loans. 2010 (US$MM) Prasac Amret Sathapana HKL Credit AMK Vision Fund TPC Seilanithih SAMIC 0 28 55 83 June 2011 110 Source: Cambodian Microﬁnance Association (excludes ACLEDA’s ‘smaller loans’) Figure 66: Microﬁnance NPLs 3.3% 1.8% 0% 2005 2006 2007 2008 2009 2010 Source: Cambodian Microﬁnance Association Figure 67: Microﬁnance loans by sector.
7MM in 2002 to US$24.41 MM 2. Figure 68: Gross insurance premiums in Cambodia 30. a ﬁgure which we would expect to rise given the increasing popularity of insurance and overall economic growth.5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 90% 68% 45% 23% 0% -23% Insurance Gross Premiums (US$ MM) (LS) Source: MEF Insurance Division Growth (%) (RS) Figure 69: Gross claims 3.8 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.Overview of the Cambodian Economy June 2011 iii) Insurance: Room for long term growth The insurance industry is relatively small in Cambodia. the trend in growth is strong. as shown in Figure 69.0 7. Meanwhile claims have been falling in recent years. with the country having the lowest insurance density to GDP in the region (Figure 70). as would be expected with much of the population still engaged in subsistence farming.9MM in 2010 (Figure 68).0 22.5 0.0 10.3 1.5 15. with industry gross premiums more than quintupling from just US$4. Another driver for the industry will be the current lack of compulsory third party insurance and the fact that it is expected to be introduced soon by government. Cambodia Capital Research 58 . However.
For comparison. that this 2009 proportion of claims cannot be considered indicative and the shifts can be volatile. for example. the level of claims in 2009 were 34% ﬁre. which so far appears to have been effective. 7% personal accident and 9% health and safety as shown in Figure 68. infrastructure and new property development should be very good for the industry. to enter the life insurance business. Cambodia Capital Research 59 .6% 0% Malaysia Singapore Thailand Brunei Indonesia Philippines Cambodia Source: MEF Insurance Division Figure 71 shows industry premiums written for 2009. One of the main reasons behind the law was to help develop a domestic industry. with key categories comprising ﬁre (31%). however. We note. motor (23%). health and safety (15%) and personal accident insurance (8%) representing nearly 75% of industry premiums. This is mainly because of the considerable capital requirement to enter the segment in Cambodia. Existing insurers that are public limited companies are already required to have a minimum US$7MM in capital. 42% motor.2% 0. they will be required to have an additional US$7MM in capital.7% 1.3% 1. Given this. Figure 71: Distribution of gross premium by sector (2009) Fire Auto Health & Safety Personal Accident Engineering Marine Other 16% 2% 6% 8% 14% 23% 31% Source: MEF Insurance Division No life insurance as capital requirement a barrier to entry There is also no life insurance currently offered in the market. Figure 70: Insurance density to GDP (2008) 2. the massive ﬁre claims in 2007 (Figure 69).Overview of the Cambodian Economy June 2011 Industry growth is also protected by the fact that Cambodian citizens and Cambodia-based businesses must purchase all insurance domestically and cannot buy any insurance abroad.
given the currently low potential commissions. Campu 17%. that could easily meet the capital requirements. and the 4-5 year period life insurance businesses can require before generating a proﬁt. Forte had a market share of 29%. and one small operator. all with signiﬁcant market shares as of 2009.Overview of the Cambodian Economy June 2011 Add to this the lack of domestic expertise in the sector. 23%. and have sufﬁcient ﬁnancial ﬂexibility to take a long term view on the market. However. the high upfront costs. Inﬁnity. and Cambodia Vietnam insurance commanded less than a percent of the market. we believe that there may be the possibility of a large foreign player entering the life insurance business within the next few years. There are ﬁve large competitors. Figure 72: Market Share by ﬁrm (2009) 0% 10% 17% Forte Asia Inﬁnity Campu Caminco Cam-VN 29% 20% 23% Source: MEF Insurance Division Cambodia Capital Research 60 . there is little incentive for domestic players to enter the industry. 10%. Asia Insurance. Caminco. 20%. 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.
soybean. Modern farming is beginning to develop. but it is still relatively limited. but ofﬁcial exports have begun to increase in the last ﬁve years for many products. sugarcane. 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. tobacco. a need for improved irrigation and transport infrastructure. cassava. coffee). that although relatively sparsely vegetated. With high demand and soaring prices for most agricultural commodities currently. in terms of both physical and ﬁnancial capital. coffee. in addition to its key rice crop. Cambodia already cultivates. heavily vegetated alluvial plain that runs from the northwest to the southeast (the light green area in Figure 73) and is the rice growing heartland. the Cambodian government and multilateral institutions like the World Bank and ADB. Sustainable growth sector that is key to balancing economy Agriculture in Cambodia represents the livelihood of the majority the country. with loans to the agricultural sector rising from both the banking system. The country has an ample supply of natural resources and labour. with lowland rice making up the majority the country. and access to capital to purchase equipment and fertilizer. Unmilled production has risen 185% since 1993. mung and soya beans. 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. are speciﬁcally suited for cultivation of some crops (eg. However. It also has mountainous regions. Cambodia Capital Research 61 . the country was exporting very little formally (although there is clearly informal trafﬁc in agricultural goods across the borders with its neighbors). cotton and corn maize. with 70% of the population subsistence farmers. it is mainly supply side issues. Until recently. rubber. Gradual improvement is being made in all of these areas. This situation is gradually improving. even these loans are not sufﬁcient for the agriculture sector to take advantage of the current demand. The country has a large. i) Climate. but lacks the modern farming methods. 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. cashews. Figure 74 shows the main type of vegetation by area. using over 80% of agricultural land.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. that is slowing Cambodia’s progress in becoming a major exporter of agricultural products. much of this subsistence farming. There are also issues of limited processing capacity. and Cambodia is now a net exporter.
Only Vietnam. with 32% and Thailand. with the monsoon season running from roughly May to November each year. Cambodia sees more than adequate rainfall to drive agriculture. Figure 73: Cambodian agricultural geography (% vegetated land) 0-60% >60% Water Source: Food and Agriculture Organization of the United Nations (FAO) Figure 74: Major farming systems Lowland Rice Sparse (forest) Treecrop Mixed Upland intensive mix Source: FAO Cambodia Capital Research 62 . with 30% had a higher ratio than Cambodia at 24%.Overview of the Cambodian Economy June 2011 Figure 75 shows arable land as a percentage of total land versus the region.
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. at 86%. with dry season irrigated rice 8%. Cambodia has two main rice crops per year (versus three in Thailand and between two and three in Vietnam). and is the key crop cultivated in Cambodia. comprising over 80% of agricultural land.Overview of the Cambodian Economy Figure 75: Percentage of arable land to total land 40.0% 20. Figure 76: Rice cultivation by type 8% Lowland Wet Season Deepwater. with planting in November and a January-February harvest. with planting from May-July and a harvest in December. and rain fed upland rice 2% (Figure 76). There are an estimated 2. 1) a longer wet 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 2) a dry season crop.0% 10. deepwater rice 4%.0% 30.7MM hectares of land currently dedicated to rice farming in Cambodia.
Figure 78: Cambodia unmilled rice imports. but growth targets aggressive Milled rice exports. 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. remain tiny.800. from 2. 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. These exports became material around 2003 (Figure 78). although they are growing very rapidly.500 1.750 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. 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 . the USDA estimated that 400MM tonnes of unmilled rice were ofﬁcially exported. and by 2008.381. The government currently targets one millions tonnes of milled rice exports by 2015. consumption (‘000 tonnes) 7.000 tonnes to 6. We outline further the constraints that currently limit Cambodian agriculture at the end of this section.Overview of the Cambodian Economy June 2011 Unmilled rice production rises 185% since 1993 Unmilled rice production in Cambodia has risen 185% since 1993. but that the current timeline may be a bit aggressive. from 15k tonnes in 2009 to 100k tonnes in 2010.000 tonnes as of 2008 (Figure 77).000 5. Figure 77: Cambodia rice production. in contrast.We believe that Cambodia will eventually hit this target.250 3.
km in 2007 (Figure 81). With rubber a key product of ASEAN. reaching 160k hectares in 2010 (Figure 80). Cambodia Capital Research 65 . rubber and timber are Cambodia’s largest exports.Overview of the Cambodian Economy June 2011 iii) Rubber and timber: Important exports Rubber industry continues to expand After garments/textiles. 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. but unsustainable deforestation has hurt the long term potential with forested land declining from 12. km in 1994 to just 10. animal/vegetable products (including rice). Land dedicated to rubber cultivation has increased steadily over the last several years driven by rising global prices. at just US$30MM in 2009 (Figure 79).0MM sq.3MM sq. Wood product exports were far lower in value terms compared to rubber. and beverages/tobacco. and regional producers expressing more interest in Cambodia as a production base. and rubber exports were US$147MM in 2009 (Figure 79). we expect that the rubber industry will continue to expand. Figure 79: Key exports (excluding Textiles and Animal/Vegetable products) US$MM 225 169 113 56 0 Rubber 2006 Source: National Bank of Cambodia 2007 Wood Products 2008 Beverages.
Overview of the Cambodian Economy Figure 81: Forested land (‘000 sq km) 14.000 10. Figure 82: Cultivated land by crop (‘000 hectares) 160 128 96 64 32 0 2002 2003 Maize Source: MAFF. ESCAP 2004 Cassava 2005 2006 Mung Bean 2007 Soya 2008 Cambodia Capital Research 66 . and mung bean and soya in decline as of the most recently available 2008 statistics.500 0 June 2011 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source:World Bank iv) Other crops: Showing potential on smaller scale Cultivation of other crops show promise Figure 82 shows land under cultivation for other key crops. Figure 83 gives a basic overview of some of Cambodia’s key crops apart from rice.500 7.000 3. with maize and cassava showing the strongest growth.
for example in Mondulkiri province. Cambodia exports cassava mainly to Vietnam and Thailand (the world’s leading starch exporter) currently. there is the possibility for increased coffee production longer term A key ingredient in animal feed production. with domestic consumption limited Coffee production is still low. Fish and seafood are a key ingredient in the Cambodian diet. comprising as much of 80% of domestic protein consumption. and has become increasingly important over the last several years (see Figure 76).Overview of the Cambodian Economy Figure 83: Crops cultivated in Cambodia Crop Cassava June 2011 Detail Production is estimated at 3. but also in energy production. but at least one company.8MM tons for 2010 (cultivated hectares in 2008 was 160k). the source of much inland ﬁshing (Figure 84). is highly suitable for coffee production. the large inland ﬁsheries in the country have seen a decline due to lower water levels along the Tonle Sap and Mekong rivers. the growth in livestock and ﬁsheries production in Cambodia has been reasonably ﬂat to downward trending. 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. Seladamex. feed producers in Thailand and Vietnam import maize from Cambodia Sugar producers from both Thailand and Vietnam have operations in Cambodia to grow sugarcane There is still limited cotton production in Cambodia (it was a major crop prior to the 1970s). 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. Cambodia Capital Research 67 . which is the main export market for the nut. however. vanilla and other specialty herbs. but the northeastern mountainous climate. was exporting cotton and cotton seeds as of mid 2010 Farmers have been shifting back towards tobacco as prices rise and Vietnam reintroduced duty free quotas in late 2010 after a one year pause Cambodia produces the globally recognised ‘Kampot Pepper’. The product is used mainly for starch. As infrastructure and improved agricultural methods reach this more remote area. In recent years.
Fortunately. and 9 are planned in Laos. but informal exports likely much higher. and as with rice. Poultry represents far and away the majority of livestock production (Figure 85). We believe that there is large long term potential for expansion into the country by the large agricultural companies in Thailand. recorded exports are low. ESCAP 2005 2006 Poultry 2007 Swine 2008 Cambodia Capital Research 68 . are 11 planned dams on the lower Mekong that could lower water levels further. but that rice will likely be the main focus for some time to come. leaving Cambodia limited inﬂuence in the outcome. Laos has agreed to postpone work on the ﬁrst major dam Xayaburi. long term. However. ESCAP Aquaculture Planned dams may exacerbate the problem Potentially exacerbating these current problems. Figure 85: Livestock production (MM head) 25 20 15 10 5 0 2004 Bovine Source: MAFF. with many small farmers raising and selling chickens to supplement rice farming incomes. the dams could further lower water levels and reduce ﬁshing stocks. but more importantly disrupt ﬁsh migration and reproduction patterns. Only two of the dams are in Cambodia. and most production is small scale by individual farms. Most livestock production currently small scale There is little in the way of modern livestock farming.Overview of the Cambodian Economy Figure 84: Fisheries production (‘000 tonnes) 600 480 360 240 120 0 2004 2005 2006 Marine Fisheries 2007 June 2011 2008 Inland Fisheries Source: MAFF. There is demand from Thailand and Vietnam for bovine imports. until further studies are conducted on the potential environmental effects of the dams.
The issues include a lack of access to breeding-seed stock and fertilizer and limited interest by many farmers in developing their land thoroughly given that many do not have ofﬁcial title to the land they farm. banks simply cannot lend to many farmers and still maintain basic lending requirements. which makes expansion or refurbishment difﬁcult. especially given rapidly rising global demand and prices for agricultural goods. This includes a lack of access to both physical and ﬁnancial capital. 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. given that the rice yield was a meager 1.1%).8% 2. the incentive is still high for farmers to sell their unmilled rice to Cambodia Capital Research 69 . Lending by both microﬁnance and development ﬁnance institutions has bridged the gap on this issue to some degree. but also rice millers that face a lack of access to capital. With demand from local millers lows. possibly through government intervention or cooperatives.3%) and Laos (3.0% as of 2008 versus neighbors like Thailand (2. there are still major constraints on the sector. to increase the effective size of the farms. small farms and little other collateral. Rice millers’ access to capital improving.0% 3.5% 1. but it still far from completely solved. although these issues continue to weigh on the sector. tonne/hectare 5. Vietnam (4. which has probably truncated growth in the sector over the last few years.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.Overview of the Cambodian Economy June 2011 v) Constraints: Limited physical and ﬁnancial capital Several constraints truncate growth in the sector Although agricultural production of rice and many other crops is clearly showing improvement. and ensure that farmers have clear title to their land. and allow ﬁnancial institutions to see collateral and be more willing to lend. with limited or no land title. The solution will likely have to come from increased economies of scale in the sector.6%). at just 2. they have all improved over the last decade. fertilizer and machinery. However. Figure 86: Rice yield. This would encourage and allow for the purchase of better seed. but still limited It is not just farmers.3% in 2000 (Figure 86).
the railway system has only recently begun its ﬁrst refurbishment in about 40 years. roads and bridges are being developed. which have huge demand for the product. mainly using older technology. major forward motion on all these issues has already taken place. Although these actions will take at least 3-5 years to complete. and improved roads and the option of rail transport will materially lower the cost of agricultural exports. 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. mills) will help drive farming efﬁciency and agricultural development. Cambodia Capital Research 70 .Overview of the Cambodian Economy June 2011 Thailand and Vietnam. Nevertheless. multilateral institutions. storage and warehousing facilities need modernizing and the two main ports need expansion. and the port expansions are currently underway. where there are only about 5 major rice mills currently. On the upside. road. Road and bridge infrastructure in the more remote provinces is still limited. even if Cambodia only reaches half this target in the allotted time. it would still represent a 10-fold increase in milled rice exports from the current level. related logistics and port infrastructure. the railway is being rebuilt. but it is still at a relatively low level when compared against the government’s one million tonne target. We believe that downstream development (ie. The heavily reliance currently on trucking for transportation for goods in Cambodia keeps costs high. Agricultural ofﬁcials have reported that it would take 30-40 modern rice mills to reach the one million tonne target. once ﬁnished they could help facilitate major growth in the development of Cambodia’s agriculture exports. The government. banks and microﬁnance institutions have been increasing the credit available to domestic millers.
3 5. which together comprise the bulk of the Cambodian textile industry’s customers (Figure 89). and the country’s membership in the WTO allows it quota free exports to other WTO members.5 2. even compared to other countries historically following a similar textiles-led growth path. 88). and 24% of GDP (Figures 87. the garments/textiles manufacturing industry is the most important single sector for the Cambodian economy. but ended quickly. however. especially in the United States (which represented 69% of garment exports from Cambodia for 9M/10) and the European Union (25%). 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. we do not necessarily see this sector as key to sustainable long term growth.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 . The sector represented 60% of 2009 exports. The country’s least developed nation status allows it duty free exports to the EU. Figure 87:Textile exports to GDP 11.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.0 8. 63% of 2009 total manufacturing output. and 24% of GDP • Over concentration: We believe that there is an over concentration in the sector. In contrast to agriculture. The sector is almost wholly reliant on the fate of the global clothing retailers. We believe that agitation for higher wages would be the result of rising food prices Economy heavily geared to garment sector After agriculture. and currently it is a point of structural instability in the economy. while textile exports accounted for 60% of total exports. representing 63% of total manufacturing (2009).
000 3. Beyond just the overexposure to global clothing demand. and this is mainly based on wage rates. is the fact that the global clothing retailers are notoriously ﬁckle in shifting between countries in terms of placing manufacturing orders. but in the short to medium term it leaves the country highly exposed to the vagaries of this single industry. Cambodia Capital Research 72 . We believe that the garment/textiles manufacturing sector will remain a large part of the economy in the medium term and investors in Cambodia should be well aware of the disproportionate effect that downturns in global clothing retailing can have on the domestic economy. Figure 89: Cambodia textile export destinations (9M/10) US EU Other 16% 25% 59% Source: CamControl Comparison with Thailand/Vietnam shows over concentration Countries like Thailand and Vietnam both began their industrial expansion with a heavy component of garment/textiles manufacturing and then diversiﬁed their economic base over time. a decline in the fortunes of the global apparel retailers will mean a major hit to GDP in Cambodia.750 2. 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 2009.500 1.Overview of the Cambodian Economy Figure 88:Textiles/Garments as a % of exports 5.
15 0. Although inﬂation has been relatively benign in Cambodia (apart from a short term spike in 2008). The unions had been agitating for US$93. 1980-1990 0.Overview of the Cambodian Economy June 2011 However. Cambodia Capital Research 73 . The main issue for workers agitating for higher wages will be rising foods costs. As ﬁgures 90 and 91 show. The strike was partly in reaction to the setting of the minimum wage rate for sector at US $61/month.15 0. the Cambodian concentration of garment/textiles to total GDP at 60% still looks extreme if compared to its neighbors going through similar comparable periods in their long term economic growth cycles.30 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.23 0. global commodities and food prices have been soaring.6% of exports from 1995 to 2009. which comprises the majority of the consumption basket for the average Cambodian garment/textiles worker. We expect that strong food price inﬂation would be the trigger to see further unrest in the garment manufacturing sector.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. Figure 90: Thailand textile exports as % of total exports.30 0. with unions striking for just under a week. The strike ended peacefully with workers returning to the factories. 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 24.23 0. 1995-2009 0.
however. However. 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 . at US $43/month. As shown in Figure 92. Cambodia still offers far less expensive labour than the larger cities in Vietnam. and higher wage China. Since these ﬁgures were issued.Overview of the Cambodian Economy June 2011 Cambodia maintains low wage advantage This is important because the key competitive advantages for Cambodia continue to be a mix of low wage rates coupled with a capable workforce. However. likely making the smaller cities less costly in labour terms versus Cambodia. the ofﬁcial rate for the Vietnamese Dong to the US$ has depreciated more than 6%. Cambodia currently ranks in the middle of the pack at US $61/month between lowest-regional-wages-in-the-industry Bangladesh. The most recently reported wage ﬁgures from Vietnam we have are from late 2010. ranging from US$63/month in smaller cities to US$93/month in larger ones. it would make Cambodia less competitive versus Vietnam. even taking into account the devaluation. if the union’s target of US$93/month were to be achieved. although still leaving it competitive versus China.
5MM as of 2010 • Room for further development: So far tourism has been heavily focussed on Phnom Penh and Siem Reap (the site of Angkor Wat) but there is a new frontier for development in the virtually untouched islands off Sihanoukville in the medium term. Figure 93: Cambodia tourism receipts and tourism receipts/GDP 2. making it the third largest single sector of the Cambodian economy. the tourism industry is the third largest single sector of the economy. Annual arrivals have risen from just 0.000 500 0 1995 1998 2001 2004 2007 2010E 20% 15% 10% 5% 0% Tourism Receipts US$MM (LS) Source: Cambodia Ministry of Tourism Tourism Receipts ot GDP (%) (RS) Cambodia Capital Research 75 . and as road infrastructure gradually improves they will be more easily accessed by tourists (Figure 94).4% of 2009 GDP. especially from Vietnam. However.4% of GDP in 2009 (Figure 93). and accounted for 14. Korea and China. the location of the World Heritage Site Angkor Wat. Other areas of the country also have potential.Overview of the Cambodian Economy June 2011 Tourism: Shift to regional arrivals • Tourism is third largest sector of economy: Tourism receipts represented 14.2MM in 1995 to 2.500 1. and for other destinations over the longer term • Regional arrivals increasingly important: Regional arrivals are an increasing proportion of the total.000 1. the capital Phnom Penh and Siem Reap. including other ancient temples and potential eco-tourism sites. but this appears to be offset by the increased volume as total tourism receipts have risen Strong long term trend in tourist arrivals After agriculture and garments/textiles. The industry is still concentrated mainly in two cities so far. this has led to a decline in revenue/arrival/day in real terms.
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 .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. mainly tourist arrivals Beach town near port and commercial facilities Beach lined coast. Beyond the three key cities there are also other areas ripe for tourism development in the longer run. but we expect this to happen in the next few years. where development is just starting. and the surrounding. 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. virtually untouched islands. 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.6 1. as shown in Figure 91. 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. mix of business and tourist arrivals Angkor Wat is key attraction.7 0.
5MM in 2010.1% 84.8% 163.3% 94.093 4.0% 83.973 8.725 9.103 4.018 4.9% 5) US 137.181 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.3% per year from 1995-2010 (Figure 95).5% 151.4% 2.9% 2.581 3.125.6% 145.695 18. with arrival growth averaging 19.9% 266.6% 98.0% Source: Cambodian Ministry of Tourism Cambodia Capital Research 77 .6% 289.1% 146.6% 63.6% 148.516 9. Given the high number of tourist arrivals we see for other Southeast Asian nations (14.286 5.437 4.7% 91.5% 2009 316.202 14.285 4.5% 2. we expect that as Cambodia’s reputation as a destination continues to improve.8% 6) France 90.298 16.4% 3) China 161.Overview of the Cambodian Economy June 2011 Surge in arrivals over last decade Tourist arrivals have surged more than tenfold in Cambodia from just 0.806 7.2% 8) Thailand 101.442 6.1% 146.9% 72.6MM to Malaysia and 3.180 5.9% 105. Figure 96: Cambodia arrivals by country and as percentage of total arrivals (‘000) 1) Vietnam 2007 125.128 18.577 1.7% 84.229 3.9% 11) Laos 23.311 2.5% 163.949 4.353 7.973 7.2MM in 1995 as Cambodian began to stabilise politically to over 2.5% 103.277 3.5% 2008 209.8% 97.9% 102.909 16.590 5.0% 4) Japan 158.067 4.598 3.525 12.286 6.1% 96.8% 93.8% 113.482 6.161.6% 197.8MM to Vietnam).7% 2010 466.2% 2) Korean 329.119 3.2% 10) Taiwan 118.806 7.539 6.933 2.168 4.9% 106.005 5.8% 146.465 5.020 5.1% Total Arrivals % growth 2.837 4.7% 161.0% 9) Australia 83.517 4.000 3.957 4.795 6.6% 109. 23.1MM arrivals to Thailand in 2009.015.702 11.079 6.9% 60.508. it will be able to gain share from other regional markets.060 1.5% 7) UK 84.
9% of arrivals in 2010. especially due to a surge in arrivals from Vietnam and Laos over the past few years (Figure 96). Therefore.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. Vietnam and Laos alone have increased from just 9. 2011 report: ‘Short-term hurdles.5% of arrivals in 2006 to 24. we may see the volume growth offset the lower receipt per average arrival.’ 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 . However. 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). Europe and Japan. we may no longer be able to take the arrival growth rate as corresponding to the growth of tourist receipts. and political conﬂict with Thailand. please see our January 5. This is because in economic downturns. For more detail on the Cambodian tourism industry. but we expect that the secular long term trend is for an increase from the Mekong region. We note that with the current economic difﬁculty in Vietnam. Arrivals from the country’s three neighbours Thailand. we may see some short term slow down in arrivals from neighbouring nations. long-term opportunities. leading to rising aggregate tourism receipts. real revenue per arrival per day had been maintained above US$70/day from 2001 to 2007. and this could lower the average spending per tourist. As shown in Figure 97. Historically Cambodia had been weighted (especially in revenue terms) to tourist arrivals from more distant locations including the US. Declining real revenue per arrival per day over last few years On the downside. but there has seen a signiﬁcant decline in the ﬁgure to below US$60/ day in 2010. tourists from far abroad may choose to reduce their budgets and travel more locally. if Mekong arrivals continue to increase at a rapid rate. We believe that this could mean that arrival ﬁgures could become more cushioned to the downside. as it has been for the last few years.
235MM kWh in 2009. 2009 (kWh) Malaysia Thailand Vietnam Indonesia Cambodia Myanmar 0 Source: ASEAN 1. with an accompanying major expansion towards a national grid • Large oil and gas potential: The country is wholly reliant on oil imports currently. Figure 98: Per capita energy consumption. given comparably limited development. supplying just 8. The electricity supplied by EDC has actually declined signiﬁcantly in absolute terms since the early-2000s (Figure 101).1% of the energy generated in 2009. but rural rates of water supply and cleanliness still need dramatic improvement i) Electricity Production: Defragmenting Electricity consumption second lowest in the region Cambodia’s total energy consumption was 1.Overview of the Cambodian Economy June 2011 Energy and Utilities: Powering Up • Signiﬁcant expansion in electricity production by 2016: Cambodia’s installed power capacity is estimated to rise by fourfold from 2011 to 2016. with even the largest single player. 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 Extremely fragmented power industry Cambodia’s energy industry is still extremely fragmented and currently has no country-wide power grid.000 2. Cambodia Capital Research 79 . less so in provinces: The Phnom Penh Water Supply Authority now supplies water to 100% of the city. understandably very low versus the region in both absolute and per capita terms. Thailand per capita energy consumption was over 20x this ﬁgure and Malaysia over 35x (Figure 98).000 3. Cambodia ranks second lowest with 94 kWh annual consumption per capita in 2009.000 4. Among the major ASEAN nations. the state owned utility Electricite Du Cambodge (EDC).
especially along the borders. indicating just how limited energy use is outside this single city. are still very dependent on electricity imports from Vietnam. Generation from Phnom Penh still dominates total electricity supply. with demand clearly still concentrated heavily in the capital. and Thailand. parts of Cambodia. which supplied 7% of Cambodia’s energy in 2009. at 67% of the total. Town Kirirom Takeo Svay Rieng Power Plant 115 KV Existing (2011) Kamchay SHV Thermal Sihanoukville Kompot to Vietnam to Vietnam 230 KV Existing (2011) 115 KV Planned 230 KV Planned Source: Electricity Authority of Cambodia (EAC) Figure 100:Total 2009 electricity supply by generating system 9% Phnom Penh Banteay Meanchey Kampong Cham Imports from Vietnam Imports from Thailand Isolated Systems 67% 5% 7% 1% 11% Source: EAC Cambodia Capital Research 80 . which supplied 5% (Figure 100). 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.Overview of the Cambodian Economy June 2011 Given this lack of country-wide electricity distribution.
Outside these small systems. paving the way for further investment in generating capacity. the grid is expected to be expanded to link the northwest and the Southeast. by 2016. Three power plants. domestic generation declined signiﬁcantly in the 2009 recession. Figure 101: Electricity sent out by supplier (MM kWh) 1. with a major contraction in supply from both the IPPs and EDC. the country mainly depends on small scale independent power producers for energy. with only Singapore having higher prices (Figure 102). However. However. power is supplied both from Thailand and from Battambang Hydro. as shown by the blue lines on the map. meaning that the industry is not taking advantage of economics of scale.5% of 2009 domestic production. the most sparsely populated. there is power to Stung Treng supplied by Laos. Independent power producers accounted for 88.4%. the grid will still not reach Northeast. This industry structure has kept the energy tariff in Cambodia the second highest in the region. The IPPs are generally very small and high in number. Kamchay and SHV Thermal service the south. We note that even after this expansion. and consumers cannot be guaranteed consistency or quality of service.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. In the Northwest.200 800 400 0 2003 IPPs Source: EAC 2004 2005 2006 2007 2008 2009 Consolidated licenses Electricity Du Cambodge Cambodia Capital Research 81 . and in the Northeast. at between 0.600 1. As the country expanded generating capacity to accommodate rapid growth. domestic energy production from 2003 to 2008 grew 130% from 636MM kWh to 1.484MM kWH.10-0. Kirirom. while producers with consolidated licenses produced 3. least developed region.18 US cents/kWh. while there is also energy supplied from Vietnam. IPPs account for nearly 90% of domestic power production Figure 101 shows domestic electricity production and therefore excludes imports from Thailand and Vietnam. with much of the energy going to Phnom Penh.
927 MW. which leaves the country heavily dependent on oil.17 June 2011 0.600 1. Under current plans.3%. given plans currently underway to diversify into hydroelectric and coal power. capacity rose 200% from 2003 to 2010).11 High 0. from 583 MW currently to around 2400 MW (for comparison. Heavy fuel oil accounted for 93. Cambodia Capital Research 82 .8% and coal just 2.22 Heavy fuel oil main power source Domestic generation of electricity is mainly done through burning heavy fuel oil. Figure 100 shows the total electricity supply by type of generation.Overview of the Cambodian Economy Figure 102: Residential electricity tariff. Figure 103: Electricity sent out by type of generation (MM kWh) 1.527 MW expected capacity growth. or 61%.200 800 400 0 2003 Hydropower 2004 Diesel/HFO 2005 2006 2007 Coal 2008 2009 Wood.06 Low Source: ASEAN 0.4% of domestic energy generation in Cambodia in 2009. Of the total 1. while hydropower generated 3. 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. generating capacity is expected to rise 300% by 2016. is estimated to come from hydro electric projects and 600 MW from new coal power generating projects (Figure 105). 2011 (US cents/kwh) Singapore Cambodia Indonesia Malaysia Philippines Laos Thailand Vietnam Brunei Myanmar 0 0. for its energy needs. 100% of which is imported.
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. there have been delays Cambodia Capital Research 83 .527 539 2. Cambodian coal is relatively low quality with a low thermal value.073 Annual Energy Generated (Gwh) Sihanoukville (Coal power) 700 MW Plant (Coal Power) Total probable projects (Coal power) Existing (Hydro power) Committed projects (Hydro power) Total probable projects (Hydro power) Total increase in capacity Source: EAC Low quality coal in Cambodia There is coal in Cambodia.250 625 0 June 2011 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Hydropower Diesel/HFO Wood. The other issue in using the local coal is environmental. Dams pose environmental risk Although the planned hydroelectric dams will massively increase baseload generation capacity in the country.534 3. and a large proportion of the protein in the Cambodian diet consisting of ﬁsh. we expect that imported coal will still be used to a large degree in the new coal-ﬁred plants. and would likely need to be mixed with imported coal to raise the average caloriﬁc value before it can be readily used in power generation. they pose a serious environmental risk as we mentioned in our agriculture section.Overview of the Cambodian Economy Figure 104: Installed capacity (MW) 2. On the upside.500 1. disruption of the river environment is a signiﬁcant issue for the country. as it would likely be heavily polluting due to the low quality.875 1. but it is unclear to what extent it can be used for cost-effective and efﬁcient domestic power generation. With much of the population existing on subsistence agriculture. On net.
Overview of the Cambodian Economy June 2011 recently in the construction of a major dam. Cambodia also has the possibility of domestic oil production. However. this has been divided into six blocks (A to F) and awarded to various international oil companies (Figures 106. especially around the southern part of the Tonle Sap lake. This would be a total 2. there is capacity for solar energy. and CNOOC’s Block F. the available information is summarized in Figure 106. and this source is not yet very cost effective. if even half of the currently estimated reserves were brought into production. to allow time for further study on potential environmental damage. and only four producing test wells have been developed in recent years. 1) Chevron-Moeco-GS Caltex holds Block A. production is at least ﬁve years away.7BN bbls of oil. Nonetheless.000MM bbls of oil and 10. as the country has potential offshore and onshore oil reserves. Biomass energy consumption could be considered very high given that many subsistence farmers burn a large amount of wood and other plant sources. Given that most of the current electricity supplied is generated by heavy fuel oil. but may have oil reserves Oil in Cambodia is 100% imported currently. and the actual resources may prove Cambodia Capital Research 84 .727MM bbls of oil and 13. As noted above. Biogas and biofuel development are also undertaken in Cambodia on a small scale. 108). with 2. 2) China Petrotech held Block D. Studies have suggested that there are signiﬁcant potential oil deposits in Cambodia’s offshore territory. with estimates of 500MM bbls of oil and 3. this has left the country with little ﬂexibility in terms of energy production. With the average duration of sunshine at 6-9 hours/day. However. but importantly. The government is currently attempting to promote the development of these resources. exploration has only commenced in earnest in the last decade. even on a aggressive timeline. Potential reserves of 2. hydro and coal power generation should help alleviate this oil import dependence over the next ﬁve years. these estimates are subject to criticism by some. 13. 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. There is also some capacity for wind energy generation.496BN cubic feet of gas reserves. with 227MM bbls of oil and 496BN cubic feet of gas.5BN cubic feet gas Potential reserves estimates have been released for only three of the blocks. Xayaburi. Offshore potential. and there is no domestic production. ii) Oil and Gas: Offshore and onshore potential Wholly reliant on imports currently. planned in Laos.000BN cubic feet of gas. However.000BN cubic feet of gas. it would greatly cut oil import demand and boost GDP. the mountainous area of the southwest and the coastal regions. but limited visibility so far Publicly available information regarding development in the upstream oil industry is limited. but installed capacity is low. although the sector is not without promise over the very long term.
JHL (7. The prime minister has pressed Chevron to develop the ﬁeld and start pumping oil by 2012.000 Gas (BN cubic feet) 3. Kuwait Energy (30%).3%).5%) Petrovietnam (100%) JOGMEC (100%) Source: EIC Joint claims area very promising. GS Caltex (15%) PTTEP (33.5%). there were two previous waves of drilling. (Historically. SPC (33.3%) Polytec (100%) China Petrotech (100%) Medco (60%).3%). However.000 Companies Involved Chevron(55%). 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. Note: Oil. with oil documented in four test wells drilled by Chevron in Block A. JHL (10%) CNOOC Source: EIC. and occurred 5 years ago. This block has been targeted as the most promising of the Cambodia offshore areas. possibly by 50% or more. or risk losing its concession. Moeco (30%). with the time from the initial oil discovery to the start of extraction taking on average 5-10 years. given that the ﬁnd was only a single well. and nine wells drilled in the mid 1990s by British and Japanese oil exploration companies). Resourceful Petroleum (33. there are estimated to be signiﬁcant potential oil and gas reserves in an offshore block that is jointly claimed by Thailand and Cambodia. Cambodia Capital Research 85 . but politics a hurdle In addition to blocks A-F.0%). this deadline may prove overly aggressive. Figure 106: Cambodian Offshore Oil Block Details Offshore Block A B C D E F BBLs (MM) 500 n/a n/a 227 n/a 2. but political wrangling between the two countries over the area continues.000 n/a n/a 496 n/a 10. one in the early 1970s by Elf. 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. the recent deterioration in bilateral ties between the countries related to the border conﬂict will surely not assist negotiation on the oil issue. There is also limited transparency on the expected quality of the reserves.Overview of the Cambodian Economy June 2011 to be much lower. CNPA (40. Meanwhile.
the costs to do seismic studies of the area will apparently be moderate given the terrain. however there are four main blocks located nearest to the basin currently expected to have the highest potential for signiﬁcant oil ﬁnds (Figures 107.0% JHL7.5% claims area. Cambodian National Petroleum Authority regulates industry The oil and gas industry is regulated under the Petroleum Regulations Act. given that the expected location of the oil is around the Tonle Sap river basin.5% Onshore oil potential around Tonle Sap basin The onshore region with the most potential is the Tonle Sap river basin. to administer the six offshore blocks and the 19 onshore blocks. but there is still no reliable documented proof of this.Onshore and Offshore Oil Blocks Until the political issues are resolved. There were reports of ‘oil seeps’ in the area as early as a 1958 Chinese study (which was followed up in 2002). JHL 7. the area is still in the very early days of exploration and production would at best be ﬁve years away. even though the CNPA 40% latter looks potentially more promising at this stage. The CNPA handles all petroleum related bidding and contracts. We believe that we are more likely to see Cambodia’s wholly Block before the joint owned blocks start producing XII Medco 52. 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. Cambodia Capital Research 86 Block XV Pe Block III and XXVI TOTAL . we do not expect to even see a ramp up JOGMEC Block XVII in exploration and testing. originally promulgated in 1991. To the upside. In 1998. The country has been divided into 19 onshore blocks. onshore oil development poses serious environmental risks.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. For the joint claims area with Thailand. 109). let alone a move to full production in the joint claims area.5%) Block XV (Petrovietnam) Block III (Total) Block B Source: EIC 2. and acts an inspector both of the ﬁnancial and physical capital in the industry.5% CNPA 40. the Cambodian National Petroleum Authority (CNPA) was established as the industry regulator. Similar to the development of hydropower. However. the countries signed a 2001 memorandum of understanding with the aim to eventually undertake joint development of the area.
and 5 storage terminals Estimated market share of 25%-30%. The market leader is domestically owned operator Sokimex. supplies jet fuel to military and government aircraft. has 38 gas service stations. There is also a substantial informal sector.000 ton ships. sells road fuels. 2) via Vietnam through the Mekong River delta to Phnom Penh. Company has its own jetty able to accommodate 46. sells liqueﬁed petroleum gas.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 . has 32 gas service stations. with this channel comprising between 60%-75% of Cambodia’s oil imports. mainly by Sokimex and Tela.has 25 gas service stations. produces liquiﬁed natural gas. estimated as high as 20-30% of imports. which has an approximate 25%-30% 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. has 184 gas service stations. Figure 110: Overview of players on downstream oil industry Company Sokimex Details Estimated market share of about 30%. The other three players are foreign operators. fuel oil and lubricant to industrial sector. It also sells fuel to inland industrial customers. industrial and aviation fuels. which have terminal facilities at the port. 1) the country’s only deepwater seaport at Sihanoukville.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. fuel oil. gasoline. which we estimate has a 30% share. Caltex. especially gasoline. and Thailand’s PTT with a small market share (Figure 110). Figure 111: Oil imports by type. and sells petrol and engine oils. kerosene and oil lubricants Estimated 15% market share. the second largest player is Tela. A large proportion of the imports are sourced from reﬁneries in Thailand. commanding a 15% share. supplies high speed diesel. liquiﬁed petroleum gas and oil lubricants Six gas service stations. 2006 (Total: 1. Total with about 10% of the market. across the Thai and Vietnamese borders with Cambodia. Estimated 10% market share. distributes jet fuel at Siem Reap airport. power diesel.
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
widely available estimates on the potential reserves for the precious metals. There are no public. with their tenements centred in the mountainous North Eastern provinces of Kratie. Figure 115: Key mineral resource deposits of Cambodia by province Oddar Meanchay Preah Vihear Bantay Meanchey Limestone Phosphate Gems Gold Iron Ore Ratanakiri Stung Treng Coal Iron Ore Gold Siem Reap Lignite Battambang Bauxite Pailin Gems Gems Limestone Kampong Thom Gold Mondolkiri Kratie Lignite Bauxite Gems Gold Pursat Antimony Chrome Kampong Chhnang Kampong Cham Gold Koh Kong Silica Gems Kampong Speu Phnom Penh Kandal Prey Veng Svay Rieng Kampot Limestone Takeo Gems Sihanoukville Phosphate Lignite Source: General Department of Mineral Resources Source: Cambodian General Department of Mineral Resources Cambodia Capital Research 91 . Mondulkiri and Rattanakiri. 1) Brighton Mining is a pure play on Cambodia mining.Overview of the Cambodian Economy June 2011 Most ﬁrms are still in the early exploration phase Other than the construction materials segment. with the company holding tenements in both countries. mainly focussed on gold. although ﬁrms are beginning to report small potential ﬁnds. ASX-listed ﬁrms mainly focussed on gold exploration For investors looking to gain exposure to Cambodian mining. but also have reasonably large scale exploration activities in Cambodia. the company’s only operations are in the country. and thus are not pure Cambodia/Indochina plays. 3) OZ Minerals and Southern Gold already have extensive mining operations already in the production stage in Australia. 2) Indochine Mining is a play on both Cambodia and Laos mining. all of the ﬁrms are still early in the exploration phase and extraction is at least ﬁve years away in a best case scenario. there are four Australian Stock Exchange (ASX) listed companies undertaking exploration in Cambodia currently.
there are also other major risks to the industry in Cambodia. Fees involved not transparent. This is an issue given that the raw materials must clearly be processed and there is no reﬁning capacity in Cambodia currently. Legal regime established. However. But it is unclear why such development would occur in advance of evidence of mines coming close to extraction. The key risk is that there is still a large amount of undetonated ordnance and heavily mined areas all across the country. This is another issue with the laws.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. As with other sectors. and the 1996 Law on Environment Protection and Natural Resources Management. are a long wet season. not public information. compared to other countries. given the extended timeline before we can expect signiﬁcant extraction. it is not completely clear which ‘competent institution’ holds sway. foreign investors in the mining sector face a somewhat loose and untested regulatory regime. Resources to be consumed locally. comprising two laws. there is a window to develop this capacity. Cambodia Capital Research 92 . which maintain that information related to mineral concessions is to remain private. Unusually high risks in Cambodian mining In addition to the opaque regulatory environment. in Thailand. We expect that this law will be amended as the industry matures. Generally. 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. it is currently illegal to export mineral wealth from the country. and do not require a local partner. This makes exploration in Cambodia a far more risky venture than it would be. even with these advantages. However. Additionally. foreign companies can own 100% of their investment. although the key legislation is in place. many average Cambodians do not possess land titles. but remains opaque The legal framework for mineral extraction in Cambodia is not completely clear. limiting both exploration and extraction. 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 law has been criticised as leaving signiﬁcant gaps in interpretation. First is an article that states that mineral resource licenses are to be granted by a ‘competent institution. but no reﬁning capacity Yet another issue is that all mineral resource wealth once extracted is to be consumed in Cambodia. the 2001 Law on the Management and Extraction of Mineral Resources. which are also faced by Cambodia’s neighbours. for example.‘ However. while displacement a problem Also. Other risks. still left from several decades of civil war. The government also applies exemptions on customs duties for the mining sector. the exact extent of all the fees and duties collected from mining companies are not yet transparent. 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.
increasingly. The country's two main ports are also undergoing major expansions. Plans have also been announced for a new Siem Reap airport. Cambodia also plays a key role in regional transport development plans. Cambodia Capital Research 93 . A major rail refurbishment has already completed its ﬁrst phase. as well as country funding from South Korea. both domestic and regional. both through domestic initiatives and as part of regional projects. These include funding from multilateral institutions including the World Bank and Asian Development Bank. Although the projects have varied timelines we expect to see a very different Cambodia in terms of transport infrastructure by 2015.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. The government is broadly on track with a countrywide road development plan covering the period from 2006-2020. plans for new Siem Reap airport: Both the Sihanoukville deepwater seaport and the Phnom Penh river port are undergoing signiﬁcant expansions. but details are still unclear Many major developments to be completed by 2015 Although much of the country’s infrastructure was left in disrepair following nearly 40 years of civil war. Multiple road development and bridge projects are being undertaken and a revamp of the railway system has already opened its ﬁrst leg. Malaysia and Japan (through the Japan International Cooperation Agency and Japan Bank for International Cooperation) and. and most of the major infrastructure projects are supported by international funding. Both domestic and international transport plans underway There are several large scale transport plans that guide transport development in Cambodia. and a rail line running from Singapore to Kunming. including multilateral initiatives for the Greater Mekong Subregion. China. expected to be completed by 2014. Foreign funding of transport projects have been crucial Government spending on infrastructure remains low versus the region. while a new major airport is planned for Siem Reap. Domestically the sector is overseen by the Ministry of Public Works and Transport as well as the Ministry of Rural Development for the more remote provincial areas. Cambodia has now begun to rebuild its roads. with the combined effect of the new changes beginning to have a sizeable effect on the economy by that time. with major extensions into the provinces to be completed by 2015. from Chinese policy banks. Thailand. and is currently implementing its master plan for waterborne transport. major progress is expected to be achieved by 2016 • Road and rail upgrades already underway: The government is 5 years into its 15 year road and bridge improvement plan. bridges and railway. Vietnam. China. and is set to be completed by 2012 • Seaports set for expansion.
The major national roads in Figure 113 comprise a total 2.052 km. There are currently several areas where travel routes are very indirect. Royal Toll Railway Roads and Bridges: Pushing towards the economic periphery Modern roads now reach each of the major regions of Cambodia. The Ministry of Public Works and Transport are undertaking rehabilitation of 30. Cambodia Capital Research 94 .391 km of road between 2006 and 2020. but still not every province.Overview of the Cambodian Economy Figure 116: Cambodia transport infrastructure June 2011 Thailand Laos 56 Preah Vihear 68 67 Poipet Sisophon Ratanakiri Stung Treng 78 Phase 4 57B 66 Siem Reap Battambang 57 59 6 64 7 Kampong Tom 76 5 Pursat 71 Mondulkiri Phase 3 11 73 Koh Kong Phnom Penh 48 4 Phase 1 Phase 2 3 Vietnam 2 1 Sihanoukville Kampot City International Airport Major National Road Minor National Road Railway Source: Ministry of Public Works and Transport. of which more than 4.615 km. with examples of current developments. while rural roads total 18. Figures 116 and 117 give detail on the major road systems in the country. where new bridges will cut travel times signiﬁcantly. and limits the development of these more remote areas.948 km. and the minor national roads another 2. Provincial roads are another 6.000 km have already been completed. where limited road development adds immensely to transportation time and cost.643 km.
Road development here is key for further agricultural development and market access This largely mountainous region bordering on Vietnam could be viewed as the most remote in the c o u n t r y. COD February 2012 Construction of 48 km Sisophon to Poipet. COD January 2012 Source: Royal Toll Railway Cambodia Capital Research 95 . leading to rising trafﬁc.Overview of the Cambodian Economy Figure 117: Road and bridge development by region Region Southeast Detail This region has the most extensive road system. a joint venture between Toll Railway of Australia and Cambodia's Royal Group began a project to refurbish the railway in 2009. 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. more on the way There had been only limited use of Cambodia’s aging railway system since the 1970s until recently. 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. as it contains the capital city Phnom Penh. Figure 118 shows the timeline for the completion of the additional sections. 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. helping link the area with Phnom Penh National road 57 is almost complete. and is currently handling freight. commercial operation date (COD) October 2010 Rehabilitation of 146 km Sihanoukville Port to Kampot. 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. Battambang. and the ﬁrst section was completed in October 2010. with some lines used for small scale cement and oil transport. and is in need of road improvements June 2011 Examples of current development The US$131MM Neak Leoung bridge on National Road 1 is currently being built. However. COD mid-2011 Rehabilitation of 338 km Phnom Penh to Sisophon. Access to neighbouring Ratanakiri province is limited by a dirt road. 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. it is expected that Cambodia should have its major rail lines up and running by 2012. while national roads 57B and 59 along the border with Thailand are now under construction Southwest Northwest Northeast 127 km of National Road 76 in Mondulkiri province have been refurbished.
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. the Phnom Penh Autonomous Port. we will see increased private sector involvement in both hard and soft infrastructure projects. Cambodia Capital Research 96 . with a new container terminal port 30 km outside of the city. improved local government credit worthiness and continued evolution of the legal system and enforcement of laws. and do not yet appear to be reaching capacity. to 200k twenty foot equivalent units (TEUs). but it appears that SCA will no longer maintain a monopoly if this new airport is open. The Sihanoukville Autonomous Port is also expanding by 300k tonnes (versus 2. This law is fundamental to private sector participation in the infrastructure sector. although the expansion will help the ports accommodate larger ships. Sihanoukville Autonomous Port.The situation is still unclear. from the current 80k TEUs. Phnom Penh and Siem Reap. This is expected to change as the city develops its 5 star hotel supply further. Both ports are facing some capacity restraints. Both are run by the Societe Concessionaire de L’Aerport with parent Vinci. subject to improved liquidity in capital markets.217k tonnes shipped in 2010). but no international ﬂights yet land there.Overview of the Cambodian Economy June 2011 Airports: Second airport for Siem Reap? There are two large international airports operating Cambodia. Phnom Penh Port is centred in the middle of the capital city Phnom Penh. However. and increasing the capacity of ships it can handle to 20k dead weight tonnes (dwt) from 10k dwt. However. but are undergoing expansions. which will expand its capacity 150%. Korean developers in conjunction with the Cambodian government have announced that they planning to develop a US$1BN new airport for Siem Reap. There are also several small domestic airports in the second tier cities. and this had restricted its expansion. We believe that in the medium term. However. and a seaport. The current Toll Royal railway project is one of the ﬁrst major projects to test this new law. Infrastructure concessions laws Cambodia passed a Law on Concessions in 2007 which allows for government organisations to enter into concessions with private organisations for various types of infrastructure projects. it has recently begun an expansion. in the major cities. respectively) to access international markets. Neither of the airports is currently planning major expansions. a river port on the Tonle Sap. There is also a third international airport in Sihanoukville which is operating. Ports: Expansions will help ease current limitations Cambodia has two major ports.
ﬁbre optics developing Wireless telecoms dominate the Cambodian market.2% penetration (Figure 119). We expect to see minimal investment in traditional copper wire technology.5 5. radio stations and newspapers with varying political views tolerated to some degree • Gaming monopoly in Phnom Penh. Where other markets in the region had some major development of ﬁxed line telephony in the 1980s and 1990s before the mid 1990s mobile revolution.5 0 2004 2005 2006 2007 2008 2009 2010 65% 49% 33% 16% 0% Penetration Rate (RS) Subscribers (reported) (LS) Source: Cambodia Ministry of Posts and Telecommunications (MPTC) Cambodia Capital Research *TMET: Telecoms. as casinos vie to attract foreign gamblers (it is illegal for Cambodians to gamble) i) Telecoms: Sustained intense competition Telecoms mainly wireless. competition in other centres: Nagaworld holds a gaming monopoly within a 200 km radius of Phnom Penh. Figure 119: Mobile telephone reported subscribers. or 61. compared to just 40k ﬁxed line subscribers. with 35k of this ﬁgure serviced by the state-owned Telecom Cambodia. while competition is rife in towns at the borders with Thailand and Vietnam. Cambodia was still in the early days of rebuilding its economy.0 7. and had only minimal ﬁxed line development. but there have been only limited signs of consolidation to date • Diverse media sector: The media sector is diverse with multiple television channels. Entertainment. Media. Technology 97 .7MM cellular subscribers as of end 2010.0 2. with estimates of 8. penetration rate (MM) 10. with ﬁxed line investment concentrated in ﬁbre optic networks.Overview of the Cambodian Economy June 2011 TMET*: Energetic competition • Intense competition continues in wireless telecoms: The wireless telecoms market is still undergoing a period of intense competition with over 9 operators in a market that will likely only accommodate 3-4 players long term.
Figure 120: Top 4 Mobile operators reported subscribers. with a generation of ‘SIMhoppers’ able to get a free SIM and use up promotional minutes on one network and then move on to the next.3 2. New entrants used promotion such as free SIMs and low pricing plans to draw subscribers. and 2) subscriber numbers as reported by the operators to the press for market leaders Mobitel and Viettel.8 5. Smart Mobile/Star Cell.7MM subscribers as of end 2010.0 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. Cambodia Capital Research 98 . release any detail on revenue or proﬁtability. which show market subscribers at 8. Hello and Mfone. there are low barriers to users switching between networks.5 3. and the other smaller operators. 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.8MM subscribers. qb and Excell) have an aggregate negative 100k subscribers. With 99% of the market still prepaid subscribers and with both voice and data prepaid services available. Only 2 of the 8 operators. we have only two sources: 1) Ministry of Post and Telecommunications reported ﬁgures. For Hello (Axiata) and Metfone (Thaicom). This market was good for customers. 2010 (MM) Metfone (Viettel) CamGSM (Mobitel) Hello (Axiata) Mfone (Thaicom) 0 1. However. which may not represent sustainable cash ﬂow for the operators. Some discrepancy between sources in reported subscribers There is a clear mismatch between the statistics reported by the MPTC. 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. which clearly can’t be the case. This would imply that the remaining players (Beeline.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. Generally. it was not good for the mobile telephone companies which have faced pressure on revenue and margins. subscribers are reported in their respective parent’s quarterly releases (Figure 120).
but this may not happen until well into 2012.68MM in a single month from 2. which support between 2-5 major operators. we are not convinced that these should be considered active subscribers until a several month track record for a given subscriber has been established. and adjust the Viettel reported number down by the 1.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. or the exit of several operators. Currently in the market mobile operators vary in their deﬁnition of subscriber. Fibre optic networks now reach to most of the larger cities and towns. especially cellular towers. eventually we expect to see the Cambodia wireless market consolidate to a similar structure to other regional markets. Fibre roll out continues There are currently several ﬁrms rolling out ﬁbre networks in Cambodia.2MM subscribers for the top 4 players. we arrive at a total 7. The competition has also driven operators to outsource operating expenses. We believe that the very rapid increase in Viettel’s reported subscribers puts them well towards the aggressive end of the scale.52MM as of end-December 2010.2MM ﬁgure. which grew by a dramatic 1. Adjusting Viettel ﬁgures after December 2010 surge If we were to assume that the MPTC ﬁgure of total market subscribers is correct. which will ease competitive pressures at least marginally. However.68MM subscribers reportedly gained in December (as there is limited proof that these are long-term active subs). Cambodia Capital Research 99 . We expect that we will see either M&A in the sector. with some removing subscribers after 2 months of inactivity (conservative) and others retaining inactive subscribers indeﬁnitely.7MM. We note that this rough estimate relies heavily on the idea that the MPTC adjusts its ﬁgures for active subscribers. but we had seen two recent indicators that seem upbeat. However.84MM as of end-November 2010 to 4. holder of the America Asia Gateway license. Price competition may be heating up again It is difﬁcult to gauge whether the market has permanently exited a period of destructive competition. recently Hello has introduced a very low price on-network promotion. which is not guaranteed. Ezecom (which recently acquired Telcotech. with the 336k subs on average for the 5 remaining players. which has complementary ﬁbre network) and CFOCN (Figure 121). and 2) the ﬁrst merger in the sector had been announced. and estimate active SIMs at only 6MM. suggesting that another round of heavy price competition may just be starting. at 8. and ﬁbre to the home is increasingly available in the Phnom Penh and Siem Reap. Some industry players would set the active subscriber base lower than our 7. but the three leaders in the industry are Viettel. 1) the communications CPI has ﬁnally moved out of deﬂation for the ﬁrst time at least a year. However. between two of the smaller operators. This may have been the number of SIMs distributed. Star Cell and Smart Mobile.
Cambodia Capital Research 100 .900 km countrywide network including GEPON. With the majority of the population still engaged in subsistence farming with at best intermittent access to electricity.5G and beyond and the much faster speed of service that this entails.000 km countrywide network 4. As with telecoms.000 km countrywide network leased by telecom operators and ISPs including Ezecom and Mfone Telecom Cambodia. metro ﬁbre. with penetration jumping from 2% to 12% and users rising nearly sixfold to over 173k. in-line with the global trend. with browsing enabled handsets much more accessible in price terms compared to computers for the average citizen. but even adjusted downward by 50%. However. home computer penetration will remain low and we expect that internet user growth through this medium will be truncated. and will account for a rising proportion of wireless telecom revenue. Mekong Net and Online have smaller scale ﬁbre networks well below 3. they would show a breakout year in 2010.Overview of the Cambodian Economy Figure 121: Fibre optic network operators in Cambodia Operator Ezecom/Telcotech Viettel CFOCN Other Source: Companies. we do estimate that the shift will be gradual in Cambodia. as internet tariffs declined and ﬁbre optic network access continued to expand (Figure 122). with voice service still to comprise the dominant proportion of revenue for the next several years. 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.000 km each Figure 122: Internet subscribers (‘000).000 km planned over the next year 16. MPTC Details of network June 2011 4. Data growth will be driven by network upgrades to 3. Growth is much more likely to be a wireless story in Cambodia. with additional 3. We expect that data demand through wireless devices will be increasingly signiﬁcant.
Achieves one of the highest ratings in Phnom Penh. conservative station that broadcasts to Phnom Penh and surrounding provinces Owned by the ruling Cambodia People’s Party. comedies. Bokor and Siem Reap. Television is also Phnom Penhcentric. 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.Overview of the Cambodian Economy June 2011 ii) Media and advertising: Strong competitive landscape Reasonably wide spectrum of television and radio content There is a reasonably wide range of both radio and television content in Cambodia. Cambodia Capital Research 101 . Battambang. There are also two pay TV operators who install satellite dishes at hotels. and began color broadcasts in 1986. Of 25 major radio stations. Also published are Chinese language papers and two English language daily papers. at 18. coverage in Phnom Penh. including drama. restaurants and higher end apartments and offer access to international television stations. and their editorial policy tends to reﬂect the political leanings of the backer. with only 3 of the 7 major television stations providing country wide coverage. Pursat and Sihanoukville through network of provincial government stations Privately owned. Broadcasts nationwide. broadcasts within 150km of base station Founded in 1996. 100% privately owned. Launched in 1992. but less than 20 have a regular reliable issuance (Figure 124). competing with CTN. but it tends to be mainly concentrated in Phnom Penh. the Phnom Penh Post and the Cambodia Daily. Battambang. There is some question as to the accuracy of reported circulation numbers. but the Rasmei Kampuchea reportedly has the highest. music and game shows (Figure 123). was re-established in 1979. broadcasts nationwide Owned by Phnom Penh city and private investors. 17 operate out of the capital. broadcasted from 1966 until 1975. also broadcasts to Rattanakiri. Cambodia Cable Television and Phnom Penh Municipal Cable Television. but the two strongest competitors are the leading paper Rasmei Kampuchea (Light of Cambodia) which started publishing in 1993.000. There are 7 major Khmer language newspapers. Thai-Cambodian owned. Generally the newspapers are backed by one political faction. Most of the stations provide locally produced content. High ratings in Phnom Penh. has been broadcasting since 2002. competing with TV5 Cambodia Television Network (CTN) Source: Respective stations Active press with 20 regular newspapers There are myriad registered newspapers in Cambodia. and Kampuchea Thmei Daily.
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. and several towns on the borders with Thailand and Vietnam. to permit gambling in certain provinces. and is concentrated therefore in Phnom Penh (with one casino.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. at 14% and 17% of the total spending. we would arrive at a full year estimate close to US$90MM. estimated circulation of 18. 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. rural competition Cambodians are not allowed to gamble or enter gambling establishments.000 Second most popular paper. Q1/10 (total US$20. This has meant that the gambling industry is set up to cater mainly to foreigners. 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. Cambodia Capital Research 102 . as reported by Indochina Research. Nagaworld. respectively. Siem Reap.3MM) Beverages Telecommunications Other 17% 14% 68% Source: Indochina Research iii) Gaming: Phnom Penh monopoly. The government does have the ability however. in which countries gaming is illegal (Figure 126). Although admitted this data is dated. and telecommunications. since the introduction of the 1996 Gambling Suppression Law. Figure 125: Advertising by sector. holding a monopoly in the city).
many of which have been driven out of business. However. and invested more in expanding its public ﬂoor and gaming stations.World Casino Directory Strong competition in gaming outside of Phnom Penh Outside of Phnom Penh in the cities where gaming is permitted.HK). the government undertook a major crackdown on gaming machines in the capital. but could not be considered full casinos. that gives it a monopoly on casino operations within 200 km of Phnom Penh. there were many new entrants into gaming cities on the border such as Bavet. the intense competitive situation lies in stark contract to NagaWorld’s monopoly in the capital city. Nagaworld had a difﬁcult 2009. Cambodia Capital Research 103 . servicing customers mainly from Vietnam Bavet Source: Cambodia Capital Research. some entertainment establishments had featured gaming machines. lasting until 2035. earlier in the decade. leaving Nagaworld the only gaming venue in the city. We expect to see closures and consolidation continue in the gambling sector outside of Phnom Penh. hit by the economic downturn. This has been reﬂected in the share price of NagaWorld (3918. 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. This has paid off in 2010. driven by the strategy shift as well as a rebound in tourist arrivals. with the onset of 2008 ﬁnancial crisis. on the border with Vietnam and Poipet on the border with Thailand. the reduction in both customers and gambling revenue per customer hit the less competitive casinos. In the boom period leading up to the late 2008 bust. after a decline of 39% in 2009. but they do not dominate commerce the way they do in the gambling-focussed border towns. with revenues growing 28%. Larger cities such as Siem Reap and Sihanoukville also have gaming businesses. and therefore were not in breach of Naga’s agreement. However. but also because of a major revamp of its strategy. However.Overview of the Cambodian Economy June 2011 Nagaworld monopoly within 200 km radius of Phnom Penh Nagaworld has held a license since 1995. The company in 2009 shifted away from a reliance on the low margin junket business. by February 2009.
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. Cambodia Capital Research 104 . a lack of infrastructure may have dissuaded manufacturers from locating in Cambodia. Figure 127: Cambodia manufacturing GDP by segment 1. Even ﬁve years ago. similar to its neighbours. inexpensive labour and concessionary export market access may remain a very attractive factor for international manufacturers looking for a new base of operations. In recent years.700 1.Overview of the Cambodian Economy June 2011 Manufacturing: Hints of diversiﬁcation • Non-garment related manufacturing small but growing: Although the non-garment/textiles manufacturing sector as a proportion of total manufacturing is still low. we have begun to see foreign businesses outside the garments/textiles/footwear sectors become increasingly interested in basing new operations in the country. Cambodia will be able to diversify its manufacturing base over time. but just enough progress has been made that foreign companies are now starting to see the growing opportunity in the country.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. there is continued incremental progress. especially by foreign investors Initial signs of manufacturing moving beyond textiles Manufacturing is still concentrated heavily in the garments/textiles and footwear sectors. which represented 63% of total manufacturing in Cambodia in 2009 (Figure 127). This sector has remained remarkably steady as a proportion of the economy for the last decade. Figure 92) is an indicator for relative wage competitiveness in other industries. We expect that.
The zones are effectively large industrial estates. the SEZs also have independent power supplies. The establishment of Special Economic Zones In an effort to further encourage this growing foreign participation in the manufacturing sector in Cambodia. 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. with the ﬁrst Phase complete. Cambodia Capital Research 105 . with 6 in total (in addition to the Sihanoukville SEZ) to take advantage of the close proximity to the port and the potential for industrial expansion there. 1) tax (up to 9 years tax exempt and no export tax). Both China’s Beijing Autoworks and Southern Korea’s Hyundai are locating car assembly plants in Cambodia. Meanwhile. Activity at the Phnom Penh SEZ is well underway. 6 of which have started operations. including small motors. The Sihanoukville SEZ is still under development. Vietnam or Sihanoukville The other SEZs are mainly concentrated on the borders. with the government providing incentives to operate out of these areas with privileges in the areas of. and the latter is expected to soon start. or are positioned near the Thai or Vietnamese border to source less costly power from these countries. 2 in Bavet and 1 each in Takeo. A large part of the funding is being provided by the Japanese government. or near Sihanoukville. With the cost of electricity still high in Cambodia compared to the region. RM Asia is also currently assembling Ford vehicles in the country. The remaining SEZ is in Kandal province. 2) customs (full duty exemption on raw materials and equipment) and 3) VAT (0% to pay). with 58 factory lots fully accounted for. and the second phase beginning in February 2011. a manufacturer of electronic components.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. Cambodia’s only deepwater seaport. Other SEZs focussed near Thailand. but it is key as it lies adjacent to the Sihanoukville Autonomous Port. Kampot and Kampong Cham) and 5 near Thailand (1 in Bantaey Meanchey province and 4 in Koh Kong province). the former has already begun selling cars to the local market. the government has established 22 Special Economic Zones (SEZ). Japan’s Minebea. with 8 adjacent to Vietnam (3 in Svay Rieng province.
Development outside of Phnom Penh is still limited.6 in Laos. with a level of capacity sufﬁcient to challenge the incumbents. brand name clothing and electronic goods.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. luxury clothing. including a recently announced transaction by Hong Kong Land. Beer market competition intensifying The beer and spirits industry appears to have signiﬁcant room for growth in Cambodia. However. Quick service restaurants a ‘luxury good’ The rise of the quick service restaurant (QSR) had tended to be a sign of a developing upper middle class consumer base in Southeast Asia. with per capita consumption of alcohol at just 11. versus 31. it is occurring.9 in Thailand. Supermarkets. a major new domestic entrant is expected to hit the market this year. Given the generally high prices of QSR compared to local meals. backed by local conglomerate Chip Mong Group. minimarts and shopping malls appearing Phnom Penh now sports a series of smaller shopping complexes. consumer electronics and auto sales all seeing rapid expansion. However. riding the development of a new urban consumer class Traditional retail still dominates With 70% of the country still subsistence farmers. Pizza Company) and KFC. 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. alcoholic beverages. Khmer Breweries. We would characterise the modern retail market as still highly fragmented. although some players are beginning to gain critical mass.8 litres/year. with small shopping malls. quick service restaurants. producer of the Tiger Beer brand). There are currently two main beer producers Cambrew (partnered with Carlsberg). and Cambodia Brewery (partnered with Singapore’s Asia Paciﬁc Brewery. There is also growing international development in the sector. modern retail is only in the very initial stages and has large room for expansion • Luxury end of market growing: The luxury end of the market appears to be growing along with the increased fortunes of wealthy Cambodians. but just this year a modern mall has opened in Battambang. the bulk of retail in Cambodia is still very traditional. with Phnom Penh the heart of the change. with most established only in the last decade. 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. and one is planned for Sihanoukville. Both local and foreign brands have been expanding in the country. 19. 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. including local licensees of Thailand’s Minor Group (Swensen’s. Cambodia Capital Research 106 .
where they now distribute their products through local distributor Vimpex.000/year. there were almost no such outlets in the capital just ﬁve years ago. Nissan (500 units) and Ford (400 units). with major players including Toyota (the company targets 600 units sales for 2011). which is planning to open domestic operations in Cambodia. with unit sales around 20. has now shifted towards a customer base more of wealthy Cambodia citizens over the last few years. Larger electronics companies are also beginning to take a more direct interest in the country. Growth in the property market has also helped drive a considerable expansion of the electronic goods sector. bought a majority stake of Cambodia Beverage Company in 2004. 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. The newly developing middle class is also driving an active used car market. Luxury clothing brand ﬂagship stores appearing in the capital Some luxury clothing brands have opened ﬂagship branches in Phnom Penh. A challenge may come from India’s United Spirits. Coca Cola. Although this is only on a very small scale compared to other regional capitals including Bangkok and Ho Chi Minh City. with Japan’s Panasonic opening it ﬁrst representative ofﬁce in Cambodia in January 2011. for example.000 units. which has a 70% market share and imports Johnnie Walker and Hennesey. some large foreign brands have begun to establish a presence in the country. What was at the start of the 2000s mainly a market for foreign businesses and NGOs. Cambodia Capital Research 107 .Overview of the Cambodian Economy June 2011 Attwood leads spirits market. In non-alcoholic beverages. Electronics goods widely available Electronics goods are reasonable widely available through local distributors including many smaller family owned shops. including Mango and Axara. Coke enters non-alcoholic space The spirits market is dominated by Attwood Industry.500-3.
but there was also extensive building in Siem Reap. was only completed in 2009. Large investment boom peaked in 2007 Prior to this boom. but a more bearish scenario could see further price declines. many major projects were either put on hold or cancelled as funding dried up during the crisis. Reasonable probability of ﬂattening prices The reduction in oncoming supply may have been a blessing in disguise as the market is now suffering from a glut in nearly every category and sale and rental prices have declined signiﬁcantly from the mid-2008 peak. This was mainly concentrated in Phnom Penh. with especially South Korean investors taking a large bet on the development of major new ofﬁce and residential properties. 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. It appears that a best case scenario for the property sector would involve ﬂat prices. and appear to have been spared the oversupply of the capital city. booming investment began to peak by 2007. However. mainly of hotels and guest houses catering to tourists. and the ﬁrst Grade A commercial ofﬁce building in the capital. Canadia Tower. rising from just US$500/sq m to US$5. there had been little in the way of high rise buildings in the capital. as the boom turned to bust. even taking into account this reduction. However. but has shown some signs of stabilisation in 2011 • Oversupply still an issue: Although demand appears to be recovering in 2011. The US$ value of Phnom Penh housing approvals was nearly halved from 2008 to 2009. 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. 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. However. Cambodia Capital Research 108 .000 according to the most recent estimates by the National Valuers Association of Cambodia. 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.000/sq m at the peak of the boom in mid 2008. driven by a wave of foreign investment and a lack of other investment alternatives for domestic capital.Overview of the Cambodian Economy June 2011 Property: Oversupplied • Flattening after unsustainable boom: After a major foreign and domestic-lending driven boom from 2005-2008. and declining to around US$4. the property market declined abruptly in 2009 and 2010. and eked out only a small gain in 2010 yoy. Other major provincial cities like Battambang are still in the early stages of developing their property markets. (Figure 129).
375 0 2003 2008 2009 June 2011 2010 Source: Cambodia Department of Land Management.000 4.Overview of the Cambodian Economy Figure 128: Phnom Penh prime land price (US$MM) 5.750 1.000 0 2008 # project approvals (LS) 2009 2010 Value US$MM (RS) 400 300 200 100 0 Source: Cambodia Department of Land Management.000 6.125 2. Urban Planning and Construction Figure 129: Phnom Penh housing project approvals 8. Urban Planning and Construction Figure 130: Ofﬁce Rental Price per sq m 40 30 20 10 0 Q3/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Cambodia Capital Research 109 .500 4.000 2.
limited access to mortgage ﬁnancing. Flat growth in rural home construction as 2010 Provincial housing growth has remained relatively ﬂat as of the latest ﬁgures.800 2. we could view the lack of decline in the ﬁgures as a positive.100 1.Overview of the Cambodian Economy June 2011 Ofﬁce and apartment rentals still declining as of late 2010 Ofﬁce rental prices and Class A apartment rental prices continued to decline in Q3/10 (Figures 130 and 131). In many cases in the capital. is only expected to see it ﬁrst major housing development.102 residences worth US$219MM over 9M/09. 126 house. However. with 70% of the population still surviving on subsistence agriculture. one that is unlikely to be relieved soon. but the majority of retail space is still mainly limited to stalls in traditional markets. no credit bureau and only a small housing stock. according to the latest ﬁgures reported to the press by the National Valuer’s Association. completed in 2011. given the recent falls seen for the construction industry in Phnom Penh. given the high cost of land. further conﬁrming that oversupply remains an issue. any modern form of provincial housing is very much in its early stages. Cambodia Capital Research 110 . Figure 131: Class A apartment prices monthly rental 2. An example is Battambang. and there is little indication that prices have seen a signiﬁcant rebound in the six months since. Homes approved for construction outside of Phnom Penh rose rose only 0. or 2-3 story shophouses. With no collateral. 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).77% yoy for 9M/10. which although being the second largest city in the country. Rural housing market still in early stages of development In the provinces away from Phnom Penh.184 residences valued at US$221MM from 1. to 1. Limited availability of parking in the city centre is also an issue. Mahatep City. However. but constrained by high electricity/land cost There are now three modern shopping centres in Phnom Penh. 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. these shophouses have been combined to create larger retail space.400 700 0 Q4/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Retail developing. the US$7MM.
Information may be available to Cambodia Capital or its afﬁliates that is not reﬂected in this report. Cambodia Capital makes no representation or warranty. or personalised investment advice. used for the creation of derivative works. Compensation for research is based on effectiveness in generating new ideas and in communication of ideas to clients. related securities or in options. or will be. modiﬁed. is. 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. this report or its contents. accuracy of earnings estimates. or reliance on. Cambodia Capital or its afﬁliates may provide remunerated services. distributed. takes no responsibility for any errors and omissions contained herein and accepts no liability whatsoever for any loss arising from any use of. in whole or in part. 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. Cambodia Capital Research 111 . General Disclaimer. However. and service to clients. The reader should assume that Cambodia Capital or its afﬁliates may have a conﬂict of interest and should not rely solely on this report in evaluating whether or not to buy or sell securities of issuers discussed herein. estimates and projections contained in this report are those of Cambodia Capital as of the date of this report and are subject to change without notice. related to the speciﬁc recommendations or views expressed in this report. directly or indirectly. including investment banking services. Cambodia Capital or its afﬁliates. This report is produced under copyright by Cambodia Capital and may not reproduced. performance of recommendations. and forms no part of any contract with Cambodia Capital. unless stated otherwise in the report. 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.Overview of the Cambodian Economy June 2011 Analyst certiﬁcation. directors or employees may have a long or short position in many of the securities discussed herein. copied. in respect thereof. The opinions. express or implied. The analyst(s) also certify that no part of their compensation was. The analyst(s) named on this report certify that the views expressed in this report accurately reﬂect their own personal views about the subject. without the prior written consent of Cambodia Capital. to companies mentioned in this report. which includes the overall proﬁtability of investment banking services. futures or other derivative instruments based thereon. ofﬁcers. This material is not and should not be interpreted as an offer or solicitation to buy or sell securities.