Cambodia Capital

Gradually Gaining Traction
Overview of the Cambodian Economy

Investment Research June 2011

Graeme Cunningham, CFA gcunningham@camcap.net +855 77 990 769

Overview of the Cambodian Economy

June 2011

Contents Executive Summary Economics: Gaining Momentum
i) Recovery: A short history of the Cambodian economy ii) Demographics:The hopeful generation iii) Rebound: Macroeconomic growth in Cambodia iv) Imbalance:The structure of the Cambodian economy v) External Pressure: Debt, reserves, currency, inflation vi) Trade and FDI: Advancing regional, global integration vii) Empirical Global Ranking: Corruption, prosperity

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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

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Agriculture: Untapped potential
i) Climate, geography:Well suited for agriculture ii) Rice:The key crop iii) Rubber and Timber: Important exports iv) Other crops: Showing potential on a smaller scale v) Fishery and livestock: Production flattening vi) Constraints: Limited physical and financial capital

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Overview of the Cambodian Economy

June 2011

Contents Garments: Over concentration Tourism: Shift to Regional arrivals Energy, Utilities: Powering up
i) Electricity production: Defragmenting ii) Oil and Gas: Offshore and onshore potential iii) Water Utilities: Urban success, rural challenge

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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

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Manufacturing: Hints of diversification Consumer: Early signs of modern retail Property: Oversupplied

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

but still huge gains since the 1970s-1980s After the devastation of the Khmer Rouge and the political and legal confusion of the 1980s. especially rice. if anything.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. as well as foreign businesses. Risk factors: Political. Social issues persist. progress will certainly not be without political. Cambodia Capital Research 5 . 2) massive growth in the tourist industry. for the average Cambodian citizen. leaving the economy heavily geared to the fortunes of the international clothing manufacturers and the whims of global tourists. The risk lies more on the heavy weighting on the garment/textiles and tourism sectors. given the ruling Cambodia People’s Party (CPP) strong majority in both the national assembly and the senate. transition risk does remain. Myriad social issues still remain. economic. Election results have shown the CPP consolidating power over the last 10 years and there has been no significant strengthening of any second party. social. However. giving a needed push to domestic businesses. The country is effectively a one party state. the current social system is a clear improvement on the tragedy of the late 1970s. legal and social risks: Political Risk: Effectively a one party state We view near to medium term political risk as moderate. with 35 banks currently operating. 1) a significant garment/textile manufacturing base having developed. economic. and with some nations refusing to offer financial assistance to the country in the decade following. the relative chaos of the 1980s and the shaky new beginnings of the 1990s. and 3) agriculture exports starting to reach critical mass. CPP leader Hun Sen is also a relatively young 58 years old and appears to be in good health. Although access to education and healthcare are still far from universal. However. By the early 2000s. rubber and timber products. Economic Risk (1): Heavy gearing to tourism and garments The economy is still heavily geared to agriculture. economic progress in the 1980s was grinding. and it improves every year. Meanwhile. legal Although our outlook on Cambodia is bullish in the medium term. a system for both is in place. with. the country was enjoying an extended period of strong economic growth. but we do not view reliance on this sector to be a risk. Political stabilization in the early 1990s helped draw back overseas Cambodians who had fled the Khmer Rouge. it acts as a social buffer (we saw a similar situation in Thailand during the 1997 Asian financial crisis where the agriculture sector was able to reabsorb workers laid off from manufacturing). the financial system had strengthened. while foreign financial assistance from some key developed nations resumed. and a vibrant microfinance industry. it was only post-1993 that any clearly identifiable and globally recognized government emerged in Cambodia.

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

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

Bombing raids into Cambodia related to the Vietnam conflict disrupted rural Cambodian life and dramatically strengthened the Khmer Rouge movement. who subsequently sided with an opposition Communist movement based mainly in rural Cambodia. The economy was destroyed. The regime also specifically targeted the educated classes. However. health and business professions as well as any modern agriculture. 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. between 1MM-2MM people were either executed by the Khmer Rouge. Cambodia hits economic ground zero in 1978 The Khmer Rouge brought about a totalitarian agrarian regime. Cambodia had enjoyed a peaceful period of Cold War neutrality. disease or starvation. led by Prince Sihanouk. 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. virtually eliminating the education.Overview of the Cambodian Economy June 2011 Economics: Gaining Momentum • The hopeful generation: Sixty percent of the Cambodian population are under 30.5% since 1993. The weakening Lon Nol government fell to the Khmer Rouge. the Khmer Rouge. From the time of independence from the French in 1953 until 1970. or died in the rural work camps from overwork. continues to run large fiscal and trade deficits and is heavily reliant on foreign assistance. 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. In 1970. the military-backed Lon Nol government led a coup to oust the Prince. However. increasingly well educated. which took over Phnom Penh in April of 1975. Of a reported 1975 population of over 7MM. there are significant prospects for a rebalancing of the economy towards higher agriculture exports and increased manufacturing medium term. and oil and gas. emptying the cities and forcing the population to the countryside. the spillover of the Vietnam war across Cambodia’s borders dragged the nation into the conflict. Cambodia Capital Research 8 . have no living memory of Khmer Rouge rule. Cambodia has finally emerged from a nearly 40 year period of instability and civil war that clouded its history from 1970 until 1997-1998.

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

Cambodia Capital Research 10 . The population has nearly doubled from just 7. and probably the largest generation ever to have the possibility to reach tertiary education.3% in the Northwest. but there is a high urbanization rate. and has grown up with a gradually stabilizing political system and dramatically improving economy.5MM in 1986 (or just above the estimated population of the mid-1970s) to just over 14.9% in Phnom Penh. when the first major modern census was undertaken. up from just 16% in 1998 (Figures 3. IMF The Cambodia population is very young. with a minor baby boom occurring. The population is heavily concentrated in the Southeast of the country with 36. Building on the very heavy lifting of the generation coming of age in the 1980s-1990s.3MM in 1993 to 11. as shown in Figure 2. with 20% of the population in urban areas in 2008. we believe that the current generation now entering the workforce will be the one to propel the country to new economic heights. We also have IMF estimates of total population. Figure 1 shows that the promise of increased political stability after UNTAC seems to have had an effect on birth rates. 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. The population is also heavily rural.1 MM in 1994.Overview of the Cambodian Economy June 2011 First generation in decades to enjoy stability The current generation that is now just turning twenty has no living memory of the Khmer Rouge period. as shown in the map in Figure 5. the capital city) and 24. 4).3% of the population (with 9. with the population jumping from 9. A young and growing population The most recent detailed population records are available only from 1998. A second census was taken in 2008. with 65% under 30 years of age and 87% under 50 as of the 2008 census.0MM in 2010. 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. which is shown in Figure 1. with the government planning to grow beyond ‘Least Developed Country’ (LDC)-status by 2020.

and 2) the growth of a modern consumer economy. 1) further development of industrialization. as they leave their parents’ homes to start new families and purchase houses. vehicles and consumer goods. There has been a 10% decline in the population with no education from 34% in 2008 to 24% in 2008. 2) Rising proportion of young families drives consumption A rising proportion of young families in an economy has historically often driven economic growth. and creating a pool of more advanced human capital that industries can draw from.9 0 0-9 10-19 20-29 30-39 1998 Source: Cambodia National Institute of Statistics 40-49 50-59 60-69 2008 70-79 80-89 90+ Cambodia Capital Research 11 .5 2.46MM. Figure 6 shows the significant increases in education made just between 1998 and 2008.50MM to 1. as a rising standard of living leads to increased demand for consumer goods. increasing by a factor of 44x over the decade. but now has 196. and the population completing lower secondary school has risen 200% from 0. This will in turn drive. as labour becomes more concentrated in a given area. Perhaps most interesting in terms of developing a new generation of technocrats to drive the economy. Figure 2: Population by age group (MM persons) 3. 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. Cambodia had only 4.448 post secondary graduates as of 1998.6 1.758. 3) The new urban generation The population is already becoming increasingly urban.Overview of the Cambodian Economy June 2011 1) First generation to be widely educated from childhood Political stability since 1993 and the associated increase in educational opportunities is driving the development of an increasingly skilled workforce. and is accessible to firms and government entities looking to employ workers.8 0.

86MM (36.33MM (9.68MM (12.3%) Mondolkiri Kampong Chhnang Koh Kong Kampong Cham Southwest 1.5%) Kampong Speu Phnom includes: Penh Phnom Penh 1.5%) Kampong Thom Kratie Northeast 2.3%) Pursat North 1.4: Cambodian rural and urban population (%) 1998 2008 June 2011 16% 20% 84% 81% % Urban population Source: Cambodia National Institute of Statistics % Rural population Figure 5: Cambodia population by region Oddar Meanchay Preah Vihear Ratanakiri Bantay Meanchey Siem Reap Stung Treng Battambang Pailin Northwest 2. Cambodia Capital Estimates Source: General Department of Mineral Resources Cambodia Capital Research 12 .9%) Kandal Takeo Prey Veng Svay Rieng Southeast 4.Overview of the Cambodian Economy Figure 3.3%) Kampong Som Kampot Source: Government Census 2008.52MM (24.10MM (9.32 MM (17.

5% in 2010 and 2011. and only seen a single year of below 5% annual GDP growth during the financial crisis in 2009. for Cambodia.3 17. respectively. when a decline in the key garment/textiles exports segment and the collapse of an unsustainable real estate boom hit growth. However. backed by foreign investment and financial assistance. Figure 7: Real GDP (Riel TRN) 35. have already been translating into vibrant economic growth.0% and 6. with only Myanmar growing more quickly. The IMF estimates GDP growth of 6.5 8. as shown in Figure 9. the economy has returned to rapid growth in 2010 and 2011.7% for 2010 and 6. while the World Bank estimates 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.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 .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 1998.5% for 2011 (Figure 8). Cambodia has seen the second highest growth in ASEAN since 1993. Real GDP has grown at a CAGR of 7.5% since 1993.0 26.

5% 2011 5.Overview of the Cambodian Economy Figure 8: Real GDP forecasts June 2011 IMF World Bank 0% 1. it has been off a low base.0% Source: International Monetary Fund. with Cambodia’s nominal GDP in the middle of the pack for developing Indochina.3% 7. rather than pointing to an insurmountable gap. Laos) shows more where living standards for the latter could be headed in the future. we see little reason why Cambodia. 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. Vietnam and Laos cannot eventually become as economically strong as Thailand. Malaysia and Indonesia. As shown in Figures 11 and 12. As we show throughout later sections of this report.8% 2010 3. Laos was apparently more insulated from the financial crisis. tracking Laos reasonably tightly until 2005 when its smaller neighbour began to speed ahead. Cambodia. the country has the second lowest nominal GDP (US$10. Cambodia Capital Research 14 .8BN) and nominal GDP/capita (US$795) versus the larger ASEAN nations plus China in 2009. We believe that this gap between the newly industrialised countries of ASEAN (Malaysia and Thailand) and the developing economies of ASEAN (Vietnam. Figure 10 shows nominal GDP since 1993. especially when compared to the region.World Bank Figure 9: Cambodia average real GDP CAGR versus the region. while average living standards in Cambodia decreased in 2008. relative to the size of their populations.

2009 300 225 150 75 0 Thailand Malaysia Philippines Vietnam Myanmar Cambodia Laos Source: International Monetary Fund Cambodia Capital Research 15 .000 5.250 3.500 1.Overview of the Cambodian Economy Figure 10: Cambodia Nominal GDP/capita versus region (US$) 1.750 0 Malaysia Thailand China Indonesia Vietnam Laos Cambodia Myanmar Source: International Monetary Fund Figure 12: Nominal GDP (US$MM). 2009 7.200 900 600 300 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$).

5% in 2009. 2) Over concentration in garment/textiles sector: There is a heavy dependence on garment/textiles exports to Western countries and the tourism sector. manufacturing around 22% in 2000 and 21% in 2009 and services 38% in 2000 and 39% in 2009. Opportunities exist to introduce modern agricultural methods to farmers that will raise incomes. it hides the fact that the manufacturing segment is heavily dominated by one sub-segment (garment/textiles and footwear) and that service industry is heavily dependent on tourism. Bulk of the economy is still subsistence agriculture Subsistence agriculture is the economic life of 70% of the Cambodia population. but none are insurmountable over time in our view. although this declined to 5. 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. which leaves Cambodia overexposed to a decline in these sectors. As we see in both Thailand and Vietnam. 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. currently there are clearly some significant imbalances. and modern farming is only beginning to take root. 5) Country runs large trade deficits: The country continues to run large trade deficits. tourism Figures 13 and 14 show the split in the Cambodia economy by major sector for the years 2000 and 2009. and the government continues to run large fiscal deficits and is heavily reliant on foreign assistance. Although this chart suggests at first glance a relatively balanced economy. 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. at 9.0% of GDP in 2008. 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). which offers both challenges and opportunities for the country. agriculture will remain the primary source of income for the majority of the population. Cambodia Capital Research 16 .Overview of the Cambodian Economy June 2011 iv) Imbalance: The structure of the Cambodia economy Structural imbalances. with agriculture comprising 34% of the economy in both 2000 and 2009. the composition of the economy has been stable over the last decade. and there is also the potential to develop human capital over time given the young population. Heavy dependence on garment exports. 3) Tax revenues low: Tax revenues are still a small contributor to GDP versus other countries in the region. we expect that even as Cambodia’s economy modernises.

Figure 16 shows garment/textiles/footwear exports. at 63% in 2009.Overview of the Cambodian Economy Figures 13. we do acknowledge that Cambodia maintains a comparative advantage in textiles and tourism. 14: Cambodia Economy composition by sector 2001 2009 June 2011 5% 34% 38% 22% 39% 6% 34% 21% Agriculture Manufacturing Service Other Source: Ministry of Economy and Finance Figure 15 shows garments/textiles and footwear as a percentage of total manufacturing in Cambodia. However. Cambodia’s garment/textile exports are not particularly well diversified geographically (although Asia is slowly accounting for more of the mix). and that continuing to expand in these sectors is not necessarily the problem. It is rather the heavy concentration in these sectors that creates the risk to the economy. This leaves Cambodia overly exposed to the revenue movements and manufacturing location decisions of the major global clothing retailers. it represented by far the largest component. being 90% concentrated in EU and North America. However. just the two former sectors combined accounted for 38% of 2009 GDP. tourism and agriculture as a proportion of GDP. we expect that the growth of other sectors of the economy may outpace these sectors leading to a gradual rebalancing. Cambodia Capital Research 17 .

but also expanding its presence in public utilities. government spending and net exports. with government increasingly gaining a role in providing public goods. G low and X-M continues in deficit Figure 17 shows the breakdown of the economy in terms of consumption.700 1. investment. We believe that this is the area where we will see the largest structural shift in this data. largely a function of very low tax intake versus the region. especially roads and bridges. like rural electricity and water provision. at just 5%-6% percent of the economy on average from 2005-2009. Consumption has represented over 80% of the economy for the five years to 2009. Investment has remained stable at around 19%.Overview of the Cambodian Economy Figure 15: Cambodia Manufacturing GDP by segment (US$ MM) 1.275 850 425 0 2001 2002 2003 2004 2005 2006 2007 June 2011 2008 2009 Food & Beverages & Tobacco Wood Paper & Publishing Other Manufacturing Source: Cambodian Ministry of Economics and Finance Garment/Textiles/Footwear Rubber Manufacturing Figure 16: Key sectors as percentage of economy 40% 30% 20% 10% 0% 2007 Garment/Footwear Exports Source: Cambodia Ministry of Economics of Finance 2008 Tourism Agriculture 2009 C high. Cambodia Capital Research 18 . I stable. Government spending is low.

0% 151 1.373 2007 6.4% 89 1.4% 258 2. an increasing number of workers leaving the informal economy for the formal economy should also raise this figure.7% 125 1. This is mainly because the country continues to rely heavily on imports for many industries.1% 6.3% 1.4% 2. This is not offset by the large trade surpluses it runs with the United States and the European Union. As shown in Figure 18.391 84.4% -27 -0.9% in 2008 as the financial crisis cut tax revenue at the same time as the government increased spending.8% of GDP. and in the long term. mainly related to the garment industry.4% -554 -8.3% 1.265 Source: Cambodia Ministry of Economy and Finance Large trade deficits with Asia not offset by garment exports Cambodia continues to run large trade deficits. and runs large trade deficits with its Asian trading partners.6% 7.1% 2.6% 10.0% 1.1% 2.822 84.4% 47 0.695 19.427 19.5%.4% -561 -5.3% 1. the government continues to run large budget deficits. and mineral exports.5% -1. Cambodia Capital Research 19 .208 18.705 26.494 23. at only 4. it is well below Thailand.855 June 2011 2008 8.395 2006 5.023 19.2% -548 -7. The government continues to generate very low tax revenues in a regional context.4% -567 -6.9% 8.008 22.684 94.3% 1.430 2009 9. We believe that the trade deficit may be reduced in the medium term as the country increases agricultural exports and improves infrastructure to facilitate these exports.575 21.969 81.3% of GDP from 2. although the deficit fell to a five year low in 2009 of 5.4% -940 -9. Longer term there is the possibility of both oil and gas.9% 1.619 -15. which could help further ease this deficit. The deficit widened significantly in 2009 to 6. However.843 77.0% -171 -1. The government sector still relatively small and in deficit In addition to the trade deficit.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 5.7% 7 0.6% 2. It is reported that improved tax collection methods should boost tax revenues in the medium term. expenditure has steadily outpaced it.4% 148 1. although government revenue more than tripled from 2001 to 2009.8% 10. the deficit is estimated to have contracted in 2010.962 19. Vietnam and Laos (Figure 20).191 21.

0% 4.0% 2.Overview of the Cambodian Economy Figure 18: Cambodia government revenue and expenditure (US$MM) 2.500 1.0% 0% Deficit (LS) Source: Ministry of Economy and Finance as % GDP (RS) Figure 20: Government revenue as a % of GDP Laos Thailand Vietnam Cambodia 0% 2% 4% 6% 8% Source: International Monetary Fund Cambodia Capital Research 20 .0% 6.000 500 0 2001 2002 2003 Revenue Source: Ministry of Economy and Finance 2004 2005 2006 2007 June 2011 2008 2009 Expenditure Figure 19: Cambodia government deficit (US$MM) 0 -175 -350 -525 -700 2001 2002 2003 2004 2005 2006 2007 2008 2009 8.000 1.

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 .20 0. and a higher weight has been given to the public health and education categories. as shown in Figure 22.10 0. the budget for defense spending is lower as a percentage of total spending.05 0 2001 2002 Defense 2003 2004 2005 2006 2007 2008 2009 Public Health Education. we believe there may be the potential to see the defense proportion of expenditure rise in 2012. However. foreign financial assistance covered more than 100% of the total government deficit. with defense spending at 17% of total expenditure in 2009.Youth. Figure 21: Key areas of government expenditure as % total expenditure 0.15 0. youth and sport at 9%. 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. which been lauded as a good sign for overall improved social welfare. From 2004 until 2008. following the continued conflict on the Thai border this year. public health at 7%.Overview of the Cambodian Economy June 2011 Room to grow education and public health spending Figure 21 shows three of the major categories of government expenditure. For the current year. and education.

The heavy weighting to agricultural employment offers a buffer against layoffs in the manufacturing and service sectors.Overview of the Cambodian Economy June 2011 Unemployment: Low from widespread subsistence farming Unemployment overall is a low 2% in Cambodia. 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. Although still high.0% seen in urban Vietnam (this figure may have increased since.36BN in external debt according to World Bank estimates. In the 1997 crisis. a measure of how quickly the country could cover its foreign debt with its foreign earnings. given recent difficulties in the Vietnamese economy). and is classified as a low income.42 as of 2009. from 1. However.67 in 2001 to 1. in Phnom Penh. from 0. reserves. inflation External debt to GDP and exports declining Cambodia currently owes US$4. in Thailand. external debt to GDP has been declining over the last decade. currency.12 as of 2009 (Figure 24). the most economically advanced area of the country. unemployment is 5. has also declined. increases in unemployment were not as severe as expected. which is higher than the just over 5. as migrant workers returned to family farms.64 in 2001 to 0.5%. We expect that Cambodia will have a similar economic cushion in the medium term. Cambodia Capital Research 22 . External debt to exports. with 70% of the population still employed in subsistence farming (Figure 22). moderately indebted country.

and by the time of principal repayment.7% of the debt is short term. and more readily able to handle repayment than it is currently (Figure 26). Figure 25: Composition of Cambodia external debt by country 7% 22% 28% ADB World Bank IDA US. the effective interest rate that Cambodia has been paying on the debt is a low 0. better structured. First. the Cambodian economy may be much larger.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. Third. Neither of these debts is being serviced. Russian Federation Debt Other bilateral Other multilateral 26% 17% Source: International Monetary Fund Cambodia Capital Research 23 .5%. Second. 26% is legacy debt owed to the US mainly from the 1970s Lon Nol government and the Russian Federation mainly from the 1980s (Figure 25). only 7. so there is no medium term issue with the current debt. it is still unclear when or if Cambodia will be required to pay back these loans. and some may not need to be repaid The composition of Cambodia’s external debt makes it less onerous that it may initially appear. and Cambodia is negotiating with both countries.

7% Short term Long term June 2011 92.Overview of the Cambodian Economy Figure 26: Composition of Cambodia external debt by duration 7.5 3.4x in 2009.3% Source: International Monetary Fund Foreign reserves adequate. up from just 3. which leaves the country with an adequate.0 9. As shown in Figure 25.8 6. Reserves to months of imports has risen from 4 in 2001 to near 5 as of 2008.7% of total debt.9BN in 2006.3 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Reserves/Month of Imports Source:World Bank. but not abundant Cambodia’s key foreign reserves ratios have been improving over the last few years. The National Bank of Cambodia reported US$2.1x in 2001. down from a peak of US$2. Figure 27: Key foreign reserve ratios 13. Ministry of Economy and Finance Reserves/Short Term External Debt Cambodia Capital Research 24 . short term external debt is a low 7.8BN in 2008. and therefore the reserves to short term external debt ratio is strong at 12. but still well up on US$1.6BN in foreign reserves as of end 2009. but not particularly robust financial cushion (Figure 27).

Movements in the dollar have a mixed effect on the economy: Textile exports: Garment/textile exports are priced in dollars. so dollar depreciation does not give Cambodian exports an advantage here. As shown in Figure 29. Imports: A large proportion of Cambodian imports are from Thailand.Overview of the Cambodian Economy Figure 28: National Bank of Cambodia’s Foreign reserves (US$MM) 3. but the economy is effectively dollarized.000/US$ and peak of KHR4. However.241/US$).700 1.900 Jan 06 Oct 06 Jul-07 Apr-08 Jan-09 Oct-09 Jul-10 Apr-11 Cambodia Source: National Bank of Cambodia Capital Research 25 .013 3. On net we expect the currency effect on imports to be relatively neutral in the short term. with a trough of KHR4.108/US$ since 2006.350 4.800 900 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.238 4.125 4. the second largest purchaser of textile exports is the European Union (EU). the Vietnamese Dong has depreciated significantly over the last year and China is gradually allowing its currency to appreciate versus the dollar. so a depreciation of the US$ versus the Euro could potentially make Cambodia garments/textiles more attractive to EU buyers. The Thai baht has appreciated versus the dollar. but the majority are purchased in US$. and an estimated 90% of transactions taking place in the dollar. There tends to be some seasonality also in the movement of the exchange rate related to the agricultural growing season. the National Bank of Cambodia has kept the Riel trading within a relatively tight trading band versus the US$ (at an average rate of KHR4. with the Riel pegged to the dollar.600 2. Figure 29: USD to Cambodia Riel 4. Vietnam and China.

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.8% over the decade from 2000 to 2010. Cambodian food price changes are especially correlated with Vietnam and Thailand.Overview of the Cambodian Economy Figure 30: Money Supply (US$MM) 4. the global financial crisis cut commodity prices and inflation subsequently subsided. Cambodia Capital Research 26 . there have been hints lately that the current commodities bubble may be nearing its end.2%.000 0 2003 2004 2005 2006 Demand deposits 2007 June 2011 2008 2009 Currency outside banks Foreign currency deposits Source: Ministry of Economy and Finance Time savings deposits Inflation remains benign (for now) Inflation has generally been benign in Cambodia of late.000 2. There was a significant spike in inflation just prior the the onset of the 2008 crisis to 25%. we do not expect to see a major transmission of food inflation to Cambodia from these neighbouring countries in the short term. the central bank is raising rates to curb inflation and its currency is still strengthening long term versus the dollar. On net.000 1. mainly driven by the spike in global commodities prices (largely the result of rising food and oil prices). and the latest reported April 2011 figures show inflation at 5. Figure 31: Cambodian inflation. prices still appear to be rising gradually. which pulled up the average for the decade. 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. In Thailand.000 3. Meanwhile. averaging 4.

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

which comprised 14% of the total in 2009 and South Korea. that demand from the region will be high for these products and we may see these trade deficits contract. for example. respectively.Overview of the Cambodian Economy Figure 34: Cambodia imports and exports (US$MM) 7. are also significant. especially rice.5% 2. Europa Cambodia Capital Research 28 .875 0 2001 2002 2003 2004 2005 2006 2007 2008 June 2011 11. we expect that as the country increases its agricultural exports.3% 5. for a combined 50% of imports in 2009 from just 29% in 2001. Imports from China. General Statistics Office of Vietnam (GSOV). imports largely from East Asia The largest proportion of Cambodia’s imports are from Thailand and Vietnam. However. which have soared to 29% and 21% of total imports.625 3.500 5.0% 8.750 1. EU. 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. at 5% of the total. China. has already stated its intentions to increase its imports of Cambodian rice.8% 2009 0% Imports (LS) Exports (LS) Trade deficit as % GDP (RS) Source: Ministry of Economy and Finance Exports mainly to US. The country runs large trade deficits with these regional countries which is not offset by exports to the US and EU.

Although the country did join ASEAN in 1999. it has proved that it can compete reasonably well even where it does not have significant trade advantage. and 3) being part of the Cambodia-Laos-Vietnam development triangle. 2) becoming part of the Cambodia Laos Vietnam Myanmar cooperation framework (CLMV) in November 2004. which comprises 13 provinces in these three countries. Cambodia Capital Research 29 . CLV. KITA Increasingly integrated into regional and global trade It has only been relatively recently that Cambodia has become more integrated into the regional and global trading blocks.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. CLMV and ACMECs summits in Phnom Penh. Although the country is classified as a Least Developed Country (LDC). the country simultaneously held the CLV. it was only in October 2004 that it joined the World Trade Organisation. further raising its regional profile. In November 2010. Since then. it has also been more active within the region. Cambodia MEC.WTO. Figure 37: Cambodia’s joining date of regional/global organisations Trade Organisation or Agreement Association of Southeast Asian Nations (ASEAN) World Trade Organisation (WTO) Ayeyawady-Chao Phraya Mekong economic cooperation strategy (ACMECS) Cambodia-Laos-Vietnam development triangle (CLV) Cambodia-Laos-Vietnam-Myanmar cooperation framework (CMLV) Source: ACMECS. 1) joining the first Ayeyawady Chao Phraya Mekong economic cooperation strategy (ACMECs) at its first meeting in November 2003. and thus is offered some advantages in terms of trade because of this. GSOV. CMLV Date joined April 1999 October 2004 November 2003 2004 November 2004 Opening to trade appears to have been beneficial so far On net. we believe that Cambodia has generally benefited from its involvement in the various trade organizations. for the first time.

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

And as we have shown above.Overview of the Cambodian Economy June 2011 The question is whether reducing tariffs on some imports from ASEAN. with FDI as a percentage of GDP peaking at 10% in 2007 from a low of just 1. Cambodia Capital Research 31 . FDI has since returned to what we view as a more sustainable level. We believe a larger issue for Cambodia than domestic industry protection. mainly led by investment in an overheating property market. However. 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. is a potential reduction in government revenue.6% in 2003 (Figure 39).125 750 375 0 2005 2006 2007 2008 2009 30% 23% 15% 8% 0% International Trade Taxes (LS) Total Government Revenue (LS) International Trade Taxes to Total Government Revenue (RS) Source: Ministry of Economy and Finance Foreign direct investment returning to sustainable level Foreign direct investment surged in 2007 and 2008. and the gradual reduction in tariffs over the next four years could reduce revenue further. and is directed more to sectors like infrastructure and agriculture that should improve the structural balance of the economy in the longer term. could slow the growth of some newly developing agricultural sectors. government revenue is already low in Cambodia relative to the region. the majority of agricultural sectors in Cambodia appear to be showing both a high increase in production as well as rising exports. notably agriculture products. The government generated 21% of its revenue from international trade taxes in 2009 (Figure 38).500 1. Figure 38: Cambodia International Trade Taxes (US$MM) 1.

Figure 41 shows the investment breakdown by sector for 2009 and 2010. EU and US direct investment in Cambodia has been relatively muted over the period.Overview of the Cambodian Economy Figure 39: Approved FDI (US$MM) 900 675 450 225 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 June 2011 30% 23% 15% 8% 2010 0% FDI (LS) Source: Cambodia Ministry of Economy and Finance % growth (RS) Figure 40: Aggregate investment by country 1994-2009 (US$MM) China Korea Malaysia EU US Thailand Taiwan Singapore Vietnam Hong Kong Japan 0 1.500 6. Energy and agricultural investment have been the second and third largest investment categories over the last two years. with most of the major investment coming in recent years. with Korea and Malaysia the next largest.000 4.500 3. Cambodia Capital Research 32 .500 Source: Council for the Development of Cambodia China is largest source of FDI since 1993 Figure 40 shows aggregate investment (as reported by the Council for the Development of Cambodia).000 7. which is catering mainly to tourists for Angkor Wat. Regional investment tends to dominate the profile for Cambodia. Tourism investment was the largest category for both years. which shows that China is far and away the largest investor in Cambodia over the past fifteen years. if we consider that the transportation category in 2010 consisted mainly of South Korean investment to build a new airport in Siem Reap (although the funding source is still unclear). Relative to their economic size.

Cambodia remains well down on the list. At 95 in 2010. and the findings of the survey for each. however. is that although Cambodia ranks low in many categories. Cambodia Capital Research 33 . the subjective opinion of many Cambodians often do not match their objective ranking globally. vii) Empirical Global Ranking: Corruption.859 Transportation Energy Agro-Industry Rubber Garments/textiles Other Total June 2011 2010 1. and thus could be considered tourism related.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. but we include them for comparison in Chart 42). Chart 43 shows the eight categories used in the index. The Legatum Prosperity Index ranked 110 countries in terms of overall prosperity.059* 589 353 190 129 379 2. What is interesting. as would be expected for a Least Developed Country. We believe this supports our view of the ‘hopeful generation’ which is less concerned with absolute conditions and more with relative gains given the country’s history. 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.901 665 457 235 146 456 5. Also.Overview of the Cambodian Economy Figure 41: Investment by sector 2009 Tourism centres Energy Agro-Industry Telecommunication Tourism Other Total Source: 3. Prosperity Prosperity index gains. with a value of one being the most prosperous (the 2009 and 2008 surveys rated just 104 countries and so may not be perfectly comparable.

prosperity. but political repression and human flight are also high Although civil liberties are rated low in Cambodia.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 . although corruption is perceived as widespread Although the ranking relative to other nations is low. As shown in Figure 44. and high in terms of start up costs. back up at its 2006-2007 rating. which would be expected given the low ranking Personal safety is perceived as high by Cambodians. ranking a 2. Cambodia does not fare well on this scale.Legatum Prosperity Index 2010 Rank Economy Entrepreneurship. Cambodia Capital Research 34 . 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. after actually worsening slightly in 2008 and 2009. although this could indicate others outside the family unit. Cambodians are extremely satisfied with their education system Cambodians report low health services satisfaction.Overview of the Cambodian Economy Figure 42: Legatum Prosperity Index 2008 Singapore Thailand Malaysia Indonesia Vietnam Cambodia Source: Legatum Properity Index (www.1 in 2010. and has shown little improvement. employment rates are high C a m b o d i a r a n k s l ow i n t e r m s o f b u s i n e s s infrastructure. 94% of citizens report satisfaction with their freedom of choice In a 2009 survey only 12% of Cambodians thought others could be trusted. Opportunity 92 100 Detail Over half of Cambodians are satisfied with their standard of living. but Cambodians still view their country as offering a good environment for entrepreneurs 4 out of 5 Cambodians are satisfied with the national government.

1 1.8 2.4 5.1 1.3 2009 9.4 2.6 2.2 4.4 2.0 3.5 2.4 5.0 1.6 2.0 2.5 3.8 1.8 2.1 1.6 2.9 2008 9.7 2.1 2.6 2.0 1.5 2.9 2007 9.2 5.3 4.4 2.6 2.7 2.4 3.0 3.Overview of the Cambodian Economy 2006 Singapore Malaysia Thailand Indonesia Vietnam Laos Cambodia Myanmar 9.1 3.4 Figure 44:Transparency International Corruption Perceptions Index Rating Source:Transparency International Corruption Perceptions Index Cambodia Capital Research 35 .6 2.6 2.4 June 2011 2010 9.7 2.

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

and then North Korea. Hun Sen’s Cambodia People’s Party (CPP) is far and away the dominant political force in the country. allied with the United States. 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. and holds elections. 2008. The other smaller parties gained a combined 7 seats. at first heavily backed by Vietnamese forces. By 1997. In the last National Assembly election on July 27. it won 90 of 123 seats. Massive improvements made in developing the legal. but Prince Rannariddh led FUNCINPEC also does well. US army moves into Cambodia. begin battles with Lon Nol forces. Prince Sihanouk leaves for exile in Beijing. both leaders are elected as co-prime ministers A uneasy alliance exists between the two ruling parties. which allows the UN to oversee a ceasefire. 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. with the UN still officially recognizing the party as ruling the country from 1979 to 1982. Hun Sen’s Cambodia People’s Party wins. disarm the military operations of the four political factions. Eventually Khmer Rouge strengthens and wins battles with less Vietnamese support Khmer Rouge overtake Phnom Penh Khmer Rouge implement a totalitarian agrarian regime.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. bombing raids in rural Cambodia lead to growth in Khmer Rouge movement Khmer Rouge. Cambodia Capital Research 37 . with the opposition Sam Rainsy Party winning 26 seats. Khmer Rouge resurgence is still a threat. Paris-educated leftists (eventual Khmer Rouge) and rightwing Lon Nol government Military coup installs Lon Nol government. 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. Khmer Rouge remains a danger. Political split widens in 1960s between the Prince. repatriate Khmer citizens that had fled to Thailand. the country initially sees economic progress. economy is destroyed and an estimated 15% or more of population perish Vietnam army enters Cambodia with help of ex-Khmer Rouge soldiers and topples the regime Cambodia is barely governed by a loose coalition dubbed ‘The State of Cambodia’. The Paris Agreement is signed 1991. and establish free and fair elections The United Nations Transitional Authority Cambodia (UNTAC) arrives. and maintains neutrality over US/Vietnam conflict.

but is especially strong in rural areas. In the senate. we have seen little to suggest that the CPP’s dominance is waning significantly. with its platform originally based on a Marxist-Leninist single party system. the party’s leader.Overview of the Cambodian Economy June 2011 The CPP also dominates the Senate. 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. winning 43 of 58 available seats in the 2006 senate election. Since these elections. Cambodia Capital Research 38 . with nine seats. Also. and the establishment of constitutional monarchy. especially with the arrival of UNTAC. It is unclear if there is a similarly charismatic second in charge to lead the party without the eponymous founder. However. during the State of Cambodia period of 1989-1991 the party began to shift its ideology to adopt more free market principles. and economic growth continues to be strong. FUNCINPEC is the next largest. is in exile in France after being convicted in absentia of defamation charges after accusing the government of corruption. Sam Rainsy Party (SRP): Founded in 1995 (originally the Khmer National Party from 1995-1998). led by Hun Sen. The party was formed from the Kampuchean People’s Revolutionary Party which was the only legally recognized party within Cambodia from 1981-1991. we have not seen strong political moves from either the Sam Rainsy Party or FUNCINCPEC that would suggest that these parties are gaining popularity versus the CPP. has a broad base of support. Sam Rainsy.

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

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

3) the country accepts guidance and funding from the Asian Development Bank. setting the stage for eventual UNTAC-sponsored elections by 1993. IMF and World Bank. and infighting between various factions meant that there was no globally recognized government in Cambodia until after the Cold War ended.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. 2) the World Trade Organisation in 2004. 1) it joined ASEAN in 1999. and its WTO accession. Cambodia Capital Research 41 . 4) with special privileges for least developed countries. 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. it makes the bulk of its exports to the EU and the US. Since then the country has progressively integrated itself into the world system.

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

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

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 given that the key business laws were established only as of the late 1990s. Current contract law of Cambodia promulgated during this period From 1989-1993. and had to adopt (or commit to adopt) many laws to meet WTO requirements 1975-1979 Khmer Rouge 1979-1989 Communist (Vietnamese influenced) 1989-1993 Liberalized Communism 1993-Present Constitutional Monarchy World Trade Organisation Source: Cambodia Capital Research Stock market laws promulgated in 2007 Stock market legislation was only promulgated in the form of the Law on the Issuance and Trading of Non-Government Securities as recently as 2007. its influence re-emerges in the drafting of the 1993 constitution Complete elimination of any modern legal system. Cambodia Capital Research 44 . The new constitution was again based largely on the French system. we view getting the capital markets up and running in just a decade as a reasonably quick turn around. which included property rights A constitutional monarchy was established by the constitution of 1993. Given the current target of a 2011 opening. It also allowed for any laws previously written that did not contradict new laws to remain. 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. Although this system was abolished by the Khmer Rouge. and is the basis of the present system. and therefore integrated the influence of all the preceding systems In 2005 the country joined the World Trade Organisation. Almost no legal professionals remaining in the country by the end of this period. the country shifted to a more liberalised form of Communism.

Insurance law (2000). amendment (2003) Law on banking and financial institutions (1999). Law on issuance and trading of nongovernment securities (2007). Law on negotiable instruments and payment transactions (2005). supersedes 1992 Land law 1988 Cambodia adopted has adopted the regulations of the major trade bodies it has joined. 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. Law on secured transactions (2007). trade names and acts of unfair competition (2002) Tax Financial System Property Contract Law Trade Labour Intellectual property Source: DFDL Mekong Cambodia Capital Research 45 .Overview of the Cambodian Economy Figure 50: Major Cambodian Laws Laws Commercial Details June 2011 Law on commercial rules and commercial register (1995) and amendment (1999). Law on commercial enterprises (2005) Law on tax (1997).

For rural lending. Cambodia Capital Research 46 *Specialised banks have limited scope and by law can perform only one of three activities carried out by a fully licensed bank. and that a Cambodian sovereign issue could be seen within the next 2-5 years. given the market risk) limits the growth of many riskier ventures that could potentially be funded by more risk tolerant equity investors. which allowed for the development of a bond market in Cambodia. These institutions support many projects that cross borders in the Greater Mekong Sub Region. private equity investment in Cambodia is growing. but the related legislation has been drafted. Bond law written but no market yet Although the Law on the Issuance of Government Securities. We give more detail on the progress with regards to the stock exchange below. The required regulations have been issued by the SECC. there is also growing international interest in lending to Cambodia from private and policy banks. as well as interest from regional funds. Therefore there are still no government or corporate bonds issued in Cambodia. through 35 banks (including specialised banks*). 1) granting credit 2) taking deposits or 3) offering payment processing. the CSX is housed and rolling out its systems. However. In addition. We estimate that the first trade could happen by Q4/2011. establishing the Cambodia Stock Exchange has clearly taken precedence over the bond market in the last several years. particularly from China. 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. there are 13 microfinance institutions that are a key source of capital. However. we expect that with the equity market nearly up and running. although private equity funds already investing in the country and the planned new stock market will increase the availability of equity capital for firms • No bond market: There is currently no bond market in Cambodia. given the presence of a handful of domestically based funds. private equity growing The public equity market is very near opening. Foreign lending in the country increasing The longest running international lending to Cambodia has been from multilateral institutions such as the World Bank and the Asian Development Bank and national institutions such as the Japan International Cooperation Agency. and especially to small agricultural businesses. or only a single component of each of the three services. Public equity market to open this year. The tight lending standards of Cambodian banks (which we view as prudent. but they represent a small proportion of total lending. Banks loans currently the key source of capital The main source of capital in Cambodia is bank lending.Overview of the Cambodian Economy June 2011 Capital markets: Nascent • Banks the main source of capital: Banks remain the key source of capital in Cambodia. . the government will soon look towards developing the debt market. was promulgated well before the equity market laws. and the securities and support firms have all been licensed. and we expect to see trading by late 2011. Now it is an issue of the level of preparedness of the three SEOs currently planning to list.

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

but we believe that they also accurately Cambodia Capital Research 48 . There remains excess liquidity in the system and banks compete for quality creditors. limited assets available for collateral and lack of a credit bureau. while claims have been decreasing over the last several years. there are still large hurdles to growing lending. even with these myriad institutions. Deposit Rates Riel 20% 15% 10% 5% 0% Jan 07 July 07 Jan 08 July 08 Jan 09 July 09 Jan 10 July 10 Jan 11 Source: National Bank of Cambodia Although we expect that the availability of quality credit will increase as the economy and especially housing sector develops. plus 1 new entrant since). i) Banks: Strong growth.Overview of the Cambodian Economy June 2011 Financials: Crisis proven • Strengthening banking system: The banking system in Cambodia continues to improve. it will remain a major constraint over the medium term. while the interest rate on US $ 12-month deposits has averaged around 5%.2010. there are 30 banks (the 29 reported by the National Bank of Cambodia at end.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. The high interest rates from banks are an impediment to growth. the interest rate on US$ 12month loans has averaged about 16% since 2007. with only spartan housing. 5 specialized banks. As shown in Figure 52. having weathered the 2008-2009 financial crisis and returned to strong growth in 2010. With 70% of the population engaging in subsistence farming. However. and the risk to financial institutions will keep interest rates high. 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. access to capital is still relatively limited for many businesses and the majority of the population. healthy balance sheets Figure 52: Interest. while balance sheets remain healthy • Microfinance supporting agriculture: The microfinance sector continues to grow rapidly and is especially important in funding the key agricultural sector. 13 key microfinance institutions and 6 insurance companies.

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. We believe that as the economy develops we will see the spread on loans versus deposits contract. leaving a total 5 specialized banks . Figure 53: Cambodian banks’ loans*.Overview of the Cambodian Economy June 2011 reflect the high risk of lending in the country. deposits.

Cambodia’s interest rates are near the average for the ACMECS region at around 16%. as shown in Figure 53. Figure 54: Lending rates (%) 40% 30% 20% 10% 0% 2000 2001 2002 2003 Laos 2004 2005 2006 2007 2008 2009 Cambodia Source:World Bank Myanmar Thailand Vietnam The four tiers of Cambodian banking We categorize the banking sector in Cambodia roughly into four tiers: 1) The 4 major banks: These are the largest banks by a significant margin. but the smaller institutions may mainly be servicing the local needs of a specific foreign business group with which they are associated. at first glance it would appear that mergers will be a likelihood in the sector. However. Cambodia Capital Research 50 . 2) The middle 12 banks: The middle 12 banks comprise 26% of the loans in the banking sector and 27% of the deposits. domestically owned banking institution) and ANZ Royal (controlled by Australia’s ANZ). accounting for 67% of total loans and 69% of total deposits. which illustrates banking sector loans and deposits. either domestic or foreign. and in Thailand the lowest. as it is the most developed economy of the group (Figure 54). these issues are not uncommon to the region. Canadia Bank (a strong.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. The individual banks in this group had between US$285MM and US$727MM in loans in 2010. these banks will tend to have a business group as a dedicated customer. this will also limit mergers in the sector. Interest rates in Laos have historically been the highest. we believe that in many cases these links to business groups may hold back merger activity between rival groups in home countries. They are: Cambodia Public Bank (partnered with Malaysia’s Public Bank). and between US$491MM and US$860 in deposits. With such a large number of banks. 3) The smaller banks: Similar to the middle banks. ACLEDA (a local bank that started as a microfinance institution. We expect that in this segment. The larger institutions in this group will compete with the big four. These banks comprise just 6% of loans and 3% of deposits.

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

5% gain in 2009.000 2. Cambodia Capital Research 52 . especially in light of the problems experienced at some major global financial institutions.6%. yet still healthy level of growth.000 0 2005 2006 Loans (LS) Source: National Bank of Cambodia 2007 2008 2009 June 2011 80% 60% 40% 20% 2010 0% Loan Growth % (RS) Banks looking stronger on most measures The story over the last five years for Cambodian banking has broadly been one of increasing strength.000 1. it appears to have passed with flying colours. still eking out a 3. to a low of 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.Overview of the Cambodian Economy Figure 56: Aggregate bank loans (US$MM). After loan growth increases of as high as 77% in the lead up to the crisis. but also able to grow through the period. with banking system not only successfully weathering the 2008/2009 global financial crisis. Outstanding bank loans have soared fivefold since 2005 from just over US$600M to over US$3. Loan growth did not turn negative even during the global financial crisis.0% in 2010 (Figure 57). from a 2006 high of 9. If we view the financial crisis as a test of the Cambodian banking system.000 as of 2010 (Figure 56). the 22% loan growth seen in 2010 seems to us a more sustainable. growth in bank loans (%) 4.000 3.

Thailand. the required total capital adequacy ratio in Malaysia.000 3.31 as of 2009 (Figure 59). but lending rates remained relatively flat (Figure 60. Figure 58: Loans to deposits 5. which also peaked in 2007 at 0. Vietnam. 9. with the solvency ratio (or total capital adequacy ratio) rising from a recent low of 0. but with the market still in the relatively early days of development.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.0%. and Singapore are 8.500 1. banks have been growing fee income over the last five years.) This is reflected in the decline in net interest income seen in Figure 61 in 2009. as deposit growth outpaced loan growth (Figure 58). 8.75 as of 2010.250 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. the banking system has strengthened its capital base over the last two years. This remains well in excess of the National Bank of Cambodia’s required total capital ratio of 15%. However. helping to offset the decline in aggregate net interest income.24 in 2007 to 0. For comparison.0%. and 10%. as deposit rates rose with increasing banking competition. which well is above the 8% required by Basel 1.750 2. respectively. The National Bank of Cambodia continues to gradually move towards the Basel 2 standards.5%.95 but had declined to 0. Cambodia Capital Research 53 . As shown in Figure 55.

1) retail and wholesale operations. Transport. Wholesale Construction. 2) construction and real estate. we expect that this sector is likely to represent an increasing proportion of lending as it develops. As we show in the next section. Fishing Telecom. 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. are a key support for the sector. Media.Overview of the Cambodian Economy Figure 60: Net interest margin 11% 10% 9% 8% 7% June 2011 2006 2007 2008 2009 2010 Source: National Bank of Cambodia Figure 61: Net interest income.Storage Personal Consumption Other 18% 5% 5% 7% 9% 10% 12% 35% Source: National Bank of Cambodia Cambodia Capital Research 54 . Interestingly. Forestry. IT. microfinance loans to the agricultural interests. Figure 62: Bank lending by sector Retail. Net fee income. Real Estate. Four segments accounted for over 66% of lending. especially through sector-leading ACLEDA. Restaurants Manufacturing Agriculture. agricultural lending was just 7% of lending in 2010. Public Utilities Hotels. 3) hotels and restaurants and 4) manufacturing.

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. as shown in Figure 62. Lending for owner-occupied housing as a percentage of total lending was 3. property exposure remains a risk. microfinance growth rates saw a decline in in 2009. 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). with 14. at only 0.1% of the total. Some of these have dealt with their limited capital by downgrading to specialized bank status. For most of the top 16 banks.2% of total 2010 lending. For comparison. (having fallen from a 7. up from 5. although at least one small bank. The credit card segment is still tiny. where the capital requirements are lower.003 cards having been issued in 2010. went into liquidation in March 2011. or the support of large foreign partners. and loan growth has rebounded dramatically in 2010. they have either more than sufficient capital. but still remained above 40% even in a trough year. Similar to the banking sector.4% in 2004. High risk still remains in the segment for banks. in the hire purchase loan market for vehicles. This has really only been an issue for a few small banks so far. versus 11. and the sector especially in Phnom Penh in a degree of oversupply currently. Aggregate bank sector lending for personal consumption was 5. for instance. up 59% yoy. 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.3% peak in 2008).0MM. but also growing rapidly.2% in 2009 (Figure 62).5MM from the previous US$12. New capital requirements have caused few downgrades The National Bank of Cambodia introduced requirements for banks to increase their capital to US$37. Cambodia Development Bank. With the many large projects in various stages of completion.6% on average in Thailand for 2010. Property and construction are still heavily weighted in banks’ loan books. banks face the possibility of collateral simply disappearing. total personal consumption lending by Thai commercial banks in 2010 was 22. which represent 94% of the loans in the system. Cambodia Capital Research 55 .6% in 2010. Some larger banks have severely restricted credit given to the property sector. but this has risen quickly from just 2.279 as of 2006.

Microfinance will continue to be extremely important in Cambodia in allowing the agricultural sector access to credit.3% in 2010. with its ‘small loans’ portfolio comprising 34% of total microfinance loans.4% in 2008 to 2.Overview of the Cambodian Economy Figure 63: Aggregate microfinance loans. Figure 64: ACLEDA ‘small’ loans are 34% of microfinance ACLEDA ‘Small Loans’ Other Microfinance 34% 66% Source: Cambodian Microfinance Association Cambodia Capital Research 56 . loan growth (US$ MM) 700 467 233 0 June 2011 90% 68% 45% 23% 2005 2006 Loans 2007 2008 2009 % growth 2010 0% Source: Cambodia Microfinance Association ACLEDA the largest player in microfinance As shown in Figure 64. and demonstrates clearly the higher the degree of risk in extending microfinance loans compared to the rest of the banking system in adverse economic conditions. The loans of the main microfinance institutions (excluding ACLEDA) are shown in Figure 65. microfinance NPLs did spike in the crisis from just 0. for microfinance. or US$219MM). Agricultural loans the largest for the sector Also in contrast to the main banking system. Although this figure has declined to 1. agricultural loans are by far the largest category of loans.134MM. where there was not a major increase in NPLs during the global financial crisis. it is still well above mid-2000s average. In contrast to what we have seen in the banking sector. at 42% of the total in 2010 (Figure 67).8% by 2009 (Figure 66). or US$272MM) than the banking sector (7% of US $3. Agricultural loans were actually much larger in 2010 in absolute terms in the microfinance sector (42% of US$648MM. ALCEDA bank by far dominates the sector.

2010 2% 42% Agriculture Trade.0% 2. Commerce Services Transportation Construction Household Others 11% 3% 4% 9% 29% Source: Cambodian Microfinance Association Cambodia Capital Research 57 .3% 1.8% 0% 2005 2006 2007 2008 2009 2010 Source: Cambodian Microfinance Association Figure 67: Microfinance loans by sector. 2010 (US$MM) Prasac Amret Sathapana HKL Credit AMK Vision Fund TPC Seilanithih SAMIC 0 28 55 83 June 2011 110 Source: Cambodian Microfinance Association (excludes ACLEDA’s ‘smaller loans’) Figure 66: Microfinance NPLs 3.Overview of the Cambodian Economy Figure 65: Largest microfinance companies by loans.5% 0.

the trend in growth is strong. a figure which we would expect to rise given the increasing popularity of insurance and overall economic growth. Cambodia Capital Research 58 .0 7.3 1.5 0.0 22. with the country having the lowest insurance density to GDP in the region (Figure 70). with industry gross premiums more than quintupling from just US$4.Overview of the Cambodian Economy June 2011 iii) Insurance: Room for long term growth The insurance industry is relatively small in Cambodia. as would be expected with much of the population still engaged in subsistence farming. However.0 10. Meanwhile claims have been falling in recent years.9MM in 2010 (Figure 68). Another driver for the industry will be the current lack of compulsory third party insurance and the fact that it is expected to be introduced soon by government.5 15. Figure 68: Gross insurance premiums in Cambodia 30. as shown in Figure 69.41 MM 2.8 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.7MM in 2002 to US$24.5 0 2002 2003 2004 2005 2006 2007 2008 2009 2010 90% 68% 45% 23% 0% -23% Insurance Gross Premiums (US$ MM) (LS) Source: MEF Insurance Division Growth (%) (RS) Figure 69: Gross claims 3.

for example. health and safety (15%) and personal accident insurance (8%) representing nearly 75% of industry premiums. to enter the life insurance business. 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. Existing insurers that are public limited companies are already required to have a minimum US$7MM in capital. For comparison. Cambodia Capital Research 59 .3% 1.Overview of the Cambodian Economy June 2011 Industry growth is also protected by the fact that Cambodian citizens and Cambodia-based businesses must purchase all insurance domestically and cannot buy any insurance abroad. 7% personal accident and 9% health and safety as shown in Figure 68.6% 0% Malaysia Singapore Thailand Brunei Indonesia Philippines Cambodia Source: MEF Insurance Division Figure 71 shows industry premiums written for 2009. infrastructure and new property development should be very good for the industry. Given this. We note. that this 2009 proportion of claims cannot be considered indicative and the shifts can be volatile. the level of claims in 2009 were 34% fire. however.7% 1. with key categories comprising fire (31%). motor (23%). the massive fire claims in 2007 (Figure 69). One of the main reasons behind the law was to help develop a domestic industry. Figure 70: Insurance density to GDP (2008) 2. which so far appears to have been effective. they will be required to have an additional US$7MM in capital.2% 0. 42% motor. This is mainly because of the considerable capital requirement to enter the segment in Cambodia.

Overview of the Cambodian Economy June 2011 Add to this the lack of domestic expertise in the sector. Asia Insurance. we believe that there may be the possibility of a large foreign player entering the life insurance business within the next few years. 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. 10%. However. that could easily meet the capital requirements. and the 4-5 year period life insurance businesses can require before generating a profit. Caminco. and have sufficient financial flexibility to take a long term view on the market. Figure 72: Market Share by firm (2009) 0% 10% 17% Forte Asia Infinity Campu Caminco Cam-VN 29% 20% 23% Source: MEF Insurance Division Cambodia Capital Research 60 . 20%. there is little incentive for domestic players to enter the industry. Infinity. and Cambodia Vietnam insurance commanded less than a percent of the market. given the currently low potential commissions. Forte had a market share of 29%. the high upfront costs. all with significant market shares as of 2009. Campu 17%. There are five large competitors. 23%. and one small operator.

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

with 32% and Thailand. 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. Only Vietnam. Cambodia sees more than adequate rainfall to drive agriculture. with the monsoon season running from roughly May to November each year. Figure 73: Cambodian agricultural geography (% vegetated land) 0-60% >60% Water Source: Food and Agriculture Organization of the United Nations (FAO) Figure 74: Major farming systems Lowland Rice Sparse (forest) Treecrop Mixed Upland intensive mix Source: FAO Cambodia Capital Research 62 .

Cambodia has two main rice crops per year (versus three in Thailand and between two and three in Vietnam).0% 0% 2000 2001 2002 2003 2004 2005 June 2011 2006 2007 Cambodia Malaysia Source: World Bank Thailand Myanmar Vietnam Laos Indonesia ii) Rice: The key crop Rice is the main staple of the Cambodia diet.0% 20.7MM hectares of land currently dedicated to rice farming in Cambodia. Floating Rice Rainfed Upland Dry Season Irrigated 2% 4% 86% Source: Food security atlas Cambodia Capital Research 63 . and 2) a dry season crop.0% 10. with dry season irrigated rice 8%. comprising over 80% of agricultural land. with planting from May-July and a harvest in December.0% 30. There are an estimated 2. at 86%. and is the key crop cultivated in Cambodia.Overview of the Cambodian Economy Figure 75: Percentage of arable land to total land 40. and rain fed upland rice 2% (Figure 76). Figure 76: Rice cultivation by type 8% Lowland Wet Season Deepwater. deepwater rice 4%. with planting in November and a January-February harvest. The lowland wet season rice production represents the majority of rice production. 1) a longer wet season crop.

from 2.800. from 15k tonnes in 2009 to 100k tonnes in 2010.750 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Production (Rough Rice) Source: USDA Consumption (Milled Rice) Milled rice exports still small. 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. but growth targets aggressive Milled rice exports.000 tonnes to 6. in contrast. consumption (‘000 tonnes) 7. the USDA estimated that 400MM tonnes of unmilled rice were officially exported. Figure 77: Cambodia rice production. The government currently targets one millions tonnes of milled rice exports by 2015. and by 2008. exports (US$MM) 500 375 250 125 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 Exports Source: USDA Imports Cambodia Capital Research 64 .We believe that Cambodia will eventually hit this target. although they are growing very rapidly.500 1. These exports became material around 2003 (Figure 78). Figure 78: Cambodia unmilled rice imports.250 3. We outline further the constraints that currently limit Cambodian agriculture at the end of this section.381.000 5.000 tonnes as of 2008 (Figure 77). but that the current timeline may be a bit aggressive. 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.Overview of the Cambodian Economy June 2011 Unmilled rice production rises 185% since 1993 Unmilled rice production in Cambodia has risen 185% since 1993. remain tiny.

reaching 160k hectares in 2010 (Figure 80). rubber and timber are Cambodia’s largest exports. km in 1994 to just 10. km in 2007 (Figure 81). and rubber exports were US$147MM in 2009 (Figure 79).Overview of the Cambodian Economy June 2011 iii) Rubber and timber: Important exports Rubber industry continues to expand After garments/textiles. and regional producers expressing more interest in Cambodia as a production base.3MM sq. Figure 79: Key exports (excluding Textiles and Animal/Vegetable products) US$MM 225 169 113 56 0 Rubber 2006 Source: National Bank of Cambodia 2007 Wood Products 2008 Beverages. With rubber a key product of ASEAN. Cambodia Capital Research 65 . Wood product exports were far lower in value terms compared to rubber.0MM sq. we expect that the rubber industry will continue to expand. Land dedicated to rubber cultivation has increased steadily over the last several years driven by rising global prices. but unsustainable deforestation has hurt the long term potential with forested land declining from 12. Tobacco 2009 Figure 80: Land for rubber cultivation (‘000 hectares) 200 150 100 50 0 2007 2008 2009 2010 Source: Department of Cambodian Rubber Timber industry hit by unsustainable deforestation The timber industry has been important for Cambodia in the past. animal/vegetable products (including rice). at just US$30MM in 2009 (Figure 79). and beverages/tobacco.

500 0 June 2011 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 Source:World Bank iv) Other crops: Showing potential on smaller scale Cultivation of other crops show promise Figure 82 shows land under cultivation for other key crops.500 7.000 3. and mung bean and soya in decline as of the most recently available 2008 statistics. with maize and cassava showing the strongest growth. Figure 82: Cultivated land by crop (‘000 hectares) 160 128 96 64 32 0 2002 2003 Maize Source: MAFF.Overview of the Cambodian Economy Figure 81: Forested land (‘000 sq km) 14. Figure 83 gives a basic overview of some of Cambodia’s key crops apart from rice. ESCAP 2004 Cassava 2005 2006 Mung Bean 2007 Soya 2008 Cambodia Capital Research 66 .000 10.

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

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

However. and ensure that farmers have clear title to their land. tonne/hectare 5. although these issues continue to weigh on the sector. but still limited It is not just farmers. 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. to increase the effective size of the farms. banks simply cannot lend to many farmers and still maintain basic lending requirements. especially given rapidly rising global demand and prices for agricultural goods. Vietnam (4. but also rice millers that face a lack of access to capital. This includes a lack of access to both physical and financial capital. but it still far from completely solved.0% 3.6%). the incentive is still high for farmers to sell their unmilled rice to Cambodia Capital Research 69 . fertilizer and machinery. This would encourage and allow for the purchase of better seed.3% in 2000 (Figure 86). Rice millers’ access to capital improving. The solution will likely have to come from increased economies of scale in the sector.5% 1.3%) and Laos (3. given that the rice yield was a meager 1. they have all improved over the last decade. small farms and little other collateral. Figure 86: Rice yield.1%). possibly through government intervention or cooperatives. which has probably truncated growth in the sector over the last few years. with limited or no land title. and allow financial institutions to see collateral and be more willing to lend. With demand from local millers lows. at just 2.0% as of 2008 versus neighbors like Thailand (2. Lending by both microfinance and development finance institutions has bridged the gap on this issue to some degree.8% 2.Overview of the Cambodian Economy June 2011 v) Constraints: Limited physical and financial capital Several constraints truncate growth in the sector Although agricultural production of rice and many other crops is clearly showing improvement. which makes expansion or refurbishment difficult. there are still major constraints on the sector. Low rice yield an indicator of less productive methods A lack of modern farming methods is demonstrated by Cambodia’s low rice yield versus the region.3% 0% 2000 2001 2002 2003 Thailand 2004 2005 Vietnam 2006 2007 Laos 2008 Cambodia Source: US Department of Agriculture (USDA) Farmers have limited access to capital Part of the problem is that farmers have a limited access to capital.

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

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 . especially in the United States (which represented 69% of garment exports from Cambodia for 9M/10) and the European Union (25%). Figure 87:Textile exports to GDP 11. the garments/textiles manufacturing industry is the most important single sector for the Cambodian economy. we do not necessarily see this sector as key to sustainable long term growth. and 24% of GDP (Figures 87.5 2.3 5. and the country’s membership in the WTO allows it quota free exports to other WTO members. The sector represented 60% of 2009 exports. representing 63% of total manufacturing (2009). which together comprise the bulk of the Cambodian textile industry’s customers (Figure 89).0 8. 88). even compared to other countries historically following a similar textiles-led growth path. Eventual diversification is key to reducing the country’s exposure to the manufacturing base decisions and demand swings of the global apparel firms • Further labour disputes remain a risk: Labour disputes erupted in the garment sector in September 2010 following the establishment of a new minimum wage. In contrast to agriculture. and 24% of GDP • Over concentration: We believe that there is an over concentration in the sector. while textile exports accounted for 60% of total exports.Overview of the Cambodian Economy June 2011 Garments: Over concentration • Second most important sector after agriculture: Garment/textile manufacturing is the most important single sector for Cambodia after agriculture. and currently it is a point of structural instability in the economy. 63% of 2009 total manufacturing output. but ended quickly. however. The sector is almost wholly reliant on the fate of the global clothing retailers. The country’s least developed nation status allows it duty free exports to the EU. We believe that agitation for higher wages would be the result of rising food prices Economy heavily geared to garment sector After agriculture.

Overview of the Cambodian Economy Figure 88:Textiles/Garments as a % of exports 5. 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. 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. 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. Beyond just the overexposure to global clothing demand.250 0 2007 Total Exports (US$MM) Source: Ministry of Economy and Finance 2008 Textiles Exports (US$MM) 2009 June 2011 100% 75% 50% 25% 0% Textiles/Total (%) As we have seen in 2009. a decline in the fortunes of the global apparel retailers will mean a major hit to GDP in Cambodia.500 1.750 2. and this is mainly based on wage rates. We expect that Cambodia could also follow this path longer term.000 3.

15 0. The main issue for workers agitating for higher wages will be rising foods costs. Cambodia Capital Research 73 .30 0. which comprises the majority of the consumption basket for the average Cambodian garment/textiles worker.23 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. with unions striking for just under a week.30 0. The unions had been agitating for US$93. global commodities and food prices have been soaring. As figures 90 and 91 show. Figure 90: Thailand textile exports as % of total exports.15 0. The strike ended peacefully with workers returning to the factories.Overview of the Cambodian Economy June 2011 However. The strike was partly in reaction to the setting of the minimum wage rate for sector at US $61/month.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. Although inflation has been relatively benign in Cambodia (apart from a short term spike in 2008). 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. 1995-2009 0. We expect that strong food price inflation would be the trigger to see further unrest in the garment manufacturing sector. 1980-1990 0.23 0.6% of exports from 1995 to 2009. 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.

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

including other ancient temples and potential eco-tourism sites. especially from Vietnam.500 1. Figure 93: Cambodia tourism receipts and tourism receipts/GDP 2.000 1. Annual arrivals have risen from just 0. Korea and China.4% of 2009 GDP. and accounted for 14.2MM in 1995 to 2. and for other destinations over the longer term • Regional arrivals increasingly important: Regional arrivals are an increasing proportion of the total.Overview of the Cambodian Economy June 2011 Tourism: Shift to regional arrivals • Tourism is third largest sector of economy: Tourism receipts represented 14.5MM as of 2010 • Room for further development: So far tourism has been heavily focussed on Phnom Penh and Siem Reap (the site of Angkor Wat) but there is a new frontier for development in the virtually untouched islands off Sihanoukville in the medium term. The industry is still concentrated mainly in two cities so far. making it the third largest single sector of the Cambodian economy.4% of GDP in 2009 (Figure 93). this has led to a decline in revenue/arrival/day in real terms. the location of the World Heritage Site Angkor Wat. the capital Phnom Penh and Siem Reap. However. the tourism industry is the third largest single sector of the economy.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 . Other areas of the country also have potential. and as road infrastructure gradually improves they will be more easily accessed by tourists (Figure 94). but this appears to be offset by the increased volume as total tourism receipts have risen Strong long term trend in tourist arrivals After agriculture and garments/textiles.

as shown in Figure 91. Figure 94: Main destinations in Cambodia Destination Phnom Penh Siem Reap Sihanoukville Greater Sihanoukville Sihanoukville area islands Other Islands Other historical sites Eco-tourism sites Source: Cambodia Capital Research Details Capital city.Overview of the Cambodian Economy June 2011 Sihanoukville the most promising new location The most promising location for further development in the short to medium term is Sihanoukville. Sihanoukville has its own airport (although no major airlines yet fly there) but it still needs to build up more five star accommodation before major airlines will open routes there. Beyond the three key cities there are also other areas ripe for tourism development in the longer run. virtually untouched islands.6 1. mainly tourist arrivals Beach town near port and commercial facilities Beach lined coast. mix of business and tourist arrivals Angkor Wat is key attraction. limited facilities but development potential Over 20 untouched islands could be developed More than 20 other islands along Cambodia’s coast Several Cambodian provinces have Angkor-era ruins Eco-tourism can be developed in the northern provinces Figure 95: Cambodia international tourist arrivals (MM) 2. where development is just starting. but we expect this to happen in the next few years.9 0 60% 38% 15% -8% 1995 1998 2001 2004 2007 % growth (RS) 2010 -30% Arrivals (LS) Source: Cambodia Ministry of Tourism Cambodia Capital Research 76 . and the surrounding.7 0.

806 7.1% 146.8% 6) France 90.0% 4) Japan 158.442 6. we expect that as Cambodia’s reputation as a destination continues to improve.298 16.8MM to Vietnam).9% 102. Given the high number of tourist arrivals we see for other Southeast Asian nations (14. 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.725 9.9% 72.Overview of the Cambodian Economy June 2011 Surge in arrivals over last decade Tourist arrivals have surged more than tenfold in Cambodia from just 0.5% 2008 209.005 5.119 3.516 9.020 5.957 4.9% 266.2% 8) Thailand 101.8% 113.060 1.581 3.909 16.7% 161.2MM in 1995 as Cambodian began to stabilise politically to over 2.5% 7) UK 84. it will be able to gain share from other regional markets.180 5.286 6.079 6.4% 3) China 161.7% 91.9% 105.8% 97.695 18.6% 289.9% 106.973 7.590 5.6% 197.168 4.2% 10) Taiwan 118.6% 109.949 4.015.9% 5) US 137.5% 103.837 4.1% 84.8% 93.000 3.465 5. with arrival growth averaging 19.229 3.018 4.5% 2.202 14.0% 83.577 1.6% 98.6% 145.6MM to Malaysia and 3.598 3.3% 94.9% 2.806 7.3% per year from 1995-2010 (Figure 95).702 11.4% 2.103 4.1% 146.9% 60.5MM in 2010. Figure 96: Cambodia arrivals by country and as percentage of total arrivals (‘000) 1) Vietnam 2007 125.353 7.2% 2) Korean 329.161.1MM arrivals to Thailand in 2009.0% 9) Australia 83.093 4.128 18.525 12.125.6% 63.5% 163.1% 96.437 4.5% 2009 316.539 6.8% 163.517 4.0% Source: Cambodian Ministry of Tourism Cambodia Capital Research 77 .285 4.508.795 6.7% 2010 466.286 5.7% 84.5% 151.067 4.9% 11) Laos 23.482 6. 23.973 8.933 2.277 3.6% 148.181 4.8% 146.1% Total Arrivals % growth 2.311 2.

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

Figure 98: Per capita energy consumption.235MM kWh in 2009. the state owned utility Electricite Du Cambodge (EDC).000 3. Thailand per capita energy consumption was over 20x this figure and Malaysia over 35x (Figure 98). Cambodia Capital Research 79 . supplying just 8. 2009 (kWh) Malaysia Thailand Vietnam Indonesia Cambodia Myanmar 0 Source: ASEAN 1. given comparably limited development. The electricity supplied by EDC has actually declined significantly in absolute terms since the early-2000s (Figure 101). but rural rates of water supply and cleanliness still need dramatic improvement i) Electricity Production: Defragmenting Electricity consumption second lowest in the region Cambodia’s total energy consumption was 1.000 2. understandably very low versus the region in both absolute and per capita terms. 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. Cambodia ranks second lowest with 94 kWh annual consumption per capita in 2009.000 4.000 Extremely fragmented power industry Cambodia’s energy industry is still extremely fragmented and currently has no country-wide power grid. less so in provinces: The Phnom Penh Water Supply Authority now supplies water to 100% of the city. Among the major ASEAN nations.1% of the energy generated in 2009. with an accompanying major expansion towards a national grid • Large oil and gas potential: The country is wholly reliant on oil imports currently.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 demand clearly still concentrated heavily in the capital. 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 . especially along the borders. Figure 99: Cambodia’s existing and planned electricity grid by 2016 to Laos to Thailand Banteay Meanchay Preah Vihear Stung Treng Ratanakiri Siem Reap Battambang Kompong Thom Pursat Battambang Hydro Kratie Mondulkiri Kompong Chhang Osom Phnom Penh Koh Kong Kompong Speu Kompong Cham Prey Veng Takhmau to Vietnam City. Generation from Phnom Penh still dominates total electricity supply. indicating just how limited energy use is outside this single city. are still very dependent on electricity imports from Vietnam.Overview of the Cambodian Economy June 2011 Given this lack of country-wide electricity distribution. and Thailand. which supplied 5% (Figure 100). which supplied 7% of Cambodia’s energy in 2009. parts of Cambodia. at 67% of the total.

Outside these small systems. by 2016.10-0. paving the way for further investment in generating capacity. and consumers cannot be guaranteed consistency or quality of service. As the country expanded generating capacity to accommodate rapid growth. Kamchay and SHV Thermal service the south. while producers with consolidated licenses produced 3.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. with a major contraction in supply from both the IPPs and EDC. The IPPs are generally very small and high in number. However. Figure 101: Electricity sent out by supplier (MM kWh) 1.18 US cents/kWh. at between 0. meaning that the industry is not taking advantage of economics of scale. as shown by the blue lines on the map. power is supplied both from Thailand and from Battambang Hydro. there is power to Stung Treng supplied by Laos.600 1.484MM kWH.200 800 400 0 2003 IPPs Source: EAC 2004 2005 2006 2007 2008 2009 Consolidated licenses Electricity Du Cambodge Cambodia Capital Research 81 . the grid is expected to be expanded to link the northwest and the Southeast. We note that even after this expansion. with much of the energy going to Phnom Penh. In the Northwest.5% of 2009 domestic production. This industry structure has kept the energy tariff in Cambodia the second highest in the region. Three power plants. domestic energy production from 2003 to 2008 grew 130% from 636MM kWh to 1. domestic generation declined significantly in the 2009 recession. and in the Northeast. IPPs account for nearly 90% of domestic power production Figure 101 shows domestic electricity production and therefore excludes imports from Thailand and Vietnam. the country mainly depends on small scale independent power producers for energy. the grid will still not reach Northeast. Kirirom. Independent power producers accounted for 88.4%. while there is also energy supplied from Vietnam. the most sparsely populated. least developed region. with only Singapore having higher prices (Figure 102). However.

Figure 103: Electricity sent out by type of generation (MM kWh) 1. Cambodia Capital Research 82 .22 Heavy fuel oil main power source Domestic generation of electricity is mainly done through burning heavy fuel oil.200 800 400 0 2003 Hydropower 2004 Diesel/HFO 2005 2006 2007 Coal 2008 2009 Wood.06 Low Source: ASEAN 0.Overview of the Cambodian Economy Figure 102: Residential electricity tariff.4% of domestic energy generation in Cambodia in 2009. Heavy fuel oil accounted for 93.3%. 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.527 MW expected capacity growth. from 583 MW currently to around 2400 MW (for comparison. Figure 100 shows the total electricity supply by type of generation. Under current plans. capacity rose 200% from 2003 to 2010). Of the total 1. 927 MW.600 1. given plans currently underway to diversify into hydroelectric and coal power. or 61%. which leaves the country heavily dependent on oil. 100% of which is imported.8% and coal just 2. 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). for its energy needs. 2011 (US cents/kwh) Singapore Cambodia Indonesia Malaysia Philippines Laos Thailand Vietnam Brunei Myanmar 0 0.17 June 2011 0. while hydropower generated 3.11 High 0.

The other issue in using the local coal is environmental. On net. other bio mass Coal Steam (Burn HFO) Source: EAC Figure 105: Planned and potential hydroelectricity and coal projects by 2016 Project # Capacity (MW) 1 1 2 3 4 7 200 400 600 205 722 927 1. as it would likely be heavily polluting due to the low quality. they pose a serious environmental risk as we mentioned in our agriculture section. disruption of the river environment is a significant issue for the country.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. Cambodian coal is relatively low quality with a low thermal value.534 3. Dams pose environmental risk Although the planned hydroelectric dams will massively increase baseload generation capacity in the country.Overview of the Cambodian Economy Figure 104: Installed capacity (MW) 2. 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. With much of the population existing on subsistence agriculture. but it is unclear to what extent it can be used for cost-effective and efficient domestic power generation.527 539 2. we expect that imported coal will still be used to a large degree in the new coal-fired plants.500 1. there have been delays Cambodia Capital Research 83 .875 1. On the upside.250 625 0 June 2011 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 Hydropower Diesel/HFO Wood. and a large proportion of the protein in the Cambodian diet consisting of fish.

Xayaburi. and the actual resources may prove Cambodia Capital Research 84 . but importantly. However. Offshore potential. production is at least five years away. but installed capacity is low. and this source is not yet very cost effective. 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.Overview of the Cambodian Economy June 2011 recently in the construction of a major dam. Given that most of the current electricity supplied is generated by heavy fuel oil.727MM bbls of oil and 13. exploration has only commenced in earnest in the last decade. Biogas and biofuel development are also undertaken in Cambodia on a small scale. Cambodia also has the possibility of domestic oil production. and there is no domestic production. although the sector is not without promise over the very long term.7BN bbls of oil. 2) China Petrotech held Block D. The government is currently attempting to promote the development of these resources. As noted above.000BN cubic feet of gas. 1) Chevron-Moeco-GS Caltex holds Block A. with 227MM bbls of oil and 496BN cubic feet of gas. 108). as the country has potential offshore and onshore oil reserves. with estimates of 500MM bbls of oil and 3.496BN cubic feet of gas reserves. the mountainous area of the southwest and the coastal regions.000BN cubic feet of gas.5BN cubic feet gas Potential reserves estimates have been released for only three of the blocks. 13. this has left the country with little flexibility in terms of energy production. However. these estimates are subject to criticism by some. but limited visibility so far Publicly available information regarding development in the upstream oil industry is limited. Nonetheless. but may have oil reserves Oil in Cambodia is 100% imported currently. especially around the southern part of the Tonle Sap lake. with 2. if even half of the currently estimated reserves were brought into production. This would be a total 2. there is capacity for solar energy.000MM bbls of oil and 10. it would greatly cut oil import demand and boost GDP. the available information is summarized in Figure 106. and only four producing test wells have been developed in recent years. hydro and coal power generation should help alleviate this oil import dependence over the next five years. Biomass energy consumption could be considered very high given that many subsistence farmers burn a large amount of wood and other plant sources. even on a aggressive timeline. Studies have suggested that there are significant potential oil deposits in Cambodia’s offshore territory. With the average duration of sunshine at 6-9 hours/day. planned in Laos. Potential reserves of 2. and CNOOC’s Block F. this has been divided into six blocks (A to F) and awarded to various international oil companies (Figures 106. However. to allow time for further study on potential environmental damage. ii) Oil and Gas: Offshore and onshore potential Wholly reliant on imports currently. There is also some capacity for wind energy generation.

the recent deterioration in bilateral ties between the countries related to the border conflict will surely not assist negotiation on the oil issue. Note: Oil. there are estimated to be significant potential oil and gas reserves in an offshore block that is jointly claimed by Thailand and Cambodia.0%).000 Companies Involved Chevron(55%). possibly by 50% or more. 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. GS Caltex (15%) PTTEP (33. (Historically. given that the find was only a single well. but politics a hurdle In addition to blocks A-F. there were two previous waves of drilling. and occurred 5 years ago. However. JHL (10%) CNOOC Source: EIC. The prime minister has pressed Chevron to develop the field and start pumping oil by 2012.3%) Polytec (100%) China Petrotech (100%) Medco (60%).5%). Meanwhile.000 Gas (BN cubic feet) 3. this deadline may prove overly aggressive. Moeco (30%). and nine wells drilled in the mid 1990s by British and Japanese oil exploration companies). 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. Resourceful Petroleum (33. Cambodia Capital Research 85 . with the time from the initial oil discovery to the start of extraction taking on average 5-10 years.3%).5%) Petrovietnam (100%) JOGMEC (100%) Source: EIC Joint claims area very promising.3%). Kuwait Energy (30%). one in the early 1970s by Elf. CNPA (40. There is also limited transparency on the expected quality of the reserves.000 n/a n/a 496 n/a 10. 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. JHL (7. or risk losing its concession. but political wrangling between the two countries over the area continues.Overview of the Cambodian Economy June 2011 to be much lower. This block has been targeted as the most promising of the Cambodia offshore areas. with oil documented in four test wells drilled by Chevron in Block A. SPC (33.

To the upside. For the joint claims area with Thailand. however there are four main blocks located nearest to the basin currently expected to have the highest potential for significant oil finds (Figures 107. The CNPA handles all petroleum related bidding and contracts. given that the expected location of the oil is around the Tonle Sap river basin. to administer the six offshore blocks and the 19 onshore blocks.0% JHL7.5% Onshore oil potential around Tonle Sap basin The onshore region with the most potential is the Tonle Sap river basin. There have been some initial studies of the area (including an airborne gravity and magnetic survey by the Japan National Oil Corporation in the 1990s) that have shown evidence that the geology there has a reasonable chance of having oil. There were reports of ‘oil seeps’ in the area as early as a 1958 Chinese study (which was followed up in 2002).5%) Block XV (Petrovietnam) Block III (Total) Block B Source: EIC 2. Similar to the development of hydropower. and acts an inspector both of the financial and physical capital in the industry. originally promulgated in 1991. Cambodia Capital Research 86 Block XV Pe Block III and XXVI TOTAL . We believe that we are more likely to see Cambodia’s wholly Block before the joint owned blocks start producing XII Medco 52. In 1998.5% CNPA 40. onshore oil development poses serious environmental risks. the countries signed a 2001 memorandum of understanding with the aim to eventually undertake joint development of the area. 109). Cambodian National Petroleum Authority regulates industry The oil and gas industry is regulated under the Petroleum Regulations Act. even though the CNPA 40% latter looks potentially more promising at this stage.5% claims area. the area is still in the very early days of exploration and production would at best be five years away. The country has been divided into 19 onshore blocks.Onshore and Offshore Oil Blocks Until the political issues are resolved. JHL 7.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. However. the costs to do seismic studies of the area will apparently be moderate given the terrain. but there is still no reliable documented proof of this. but then amended in 1998 in 1999. the Cambodian National Petroleum Authority (CNPA) was established as the industry regulator. we do not expect to even see a ramp up JOGMEC Block XVII in exploration and testing. let alone a move to full production in the joint claims area.

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

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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.

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Overview of the Cambodian Economy

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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.

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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

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

The key risk is that there is still a large amount of undetonated ordnance and heavily mined areas all across the country. comprising two laws. Unusually high risks in Cambodian mining In addition to the opaque regulatory environment. The law has been criticised as leaving significant gaps in interpretation. given the extended timeline before we can expect significant extraction. This is another issue with the laws. However. even with these advantages. The government also applies exemptions on customs duties for the mining sector. Other risks. This makes exploration in Cambodia a far more risky venture than it would be. which maintain that information related to mineral concessions is to remain private. for example. limiting both exploration and extraction. Legal regime established. First is an article that states that mineral resource licenses are to be granted by a ‘competent institution. it is currently illegal to export mineral wealth from the country. the exact extent of all the fees and duties collected from mining companies are not yet transparent. But it is unclear why such development would occur in advance of evidence of mines coming close to extraction. As with other sectors. compared to other countries. but remains opaque The legal framework for mineral extraction in Cambodia is not completely clear. are a long wet season. Additionally. not public information. foreign investors in the mining sector face a somewhat loose and untested regulatory regime. there are also other major risks to the industry in Cambodia. while displacement a problem Also. the 2001 Law on the Management and Extraction of Mineral Resources.‘ However. still left from several decades of civil war. However. Fees involved not transparent. There have been reports of displacement of citizens and lack of access to land by the local population as the mining firms set up concessions. it is not completely clear which ‘competent institution’ holds sway. as both MIME and the Council for Development of Cambodia are involved in granting mineral resource licenses. and the 1996 Law on Environment Protection and Natural Resources Management. Cambodia Capital Research 92 . although the key legislation is in place. but no refining capacity Yet another issue is that all mineral resource wealth once extracted is to be consumed in Cambodia. Resources to be consumed locally. there is a window to develop this capacity. although the legislation states that private land owners should be compensated for any disturbance to their land from mining concessions. foreign companies can own 100% of their investment. and do not require a local partner. We expect that this law will be amended as the industry matures. many average Cambodians do not possess land titles. This is an issue given that the raw materials must clearly be processed and there is no refining capacity in Cambodia currently.Overview of the Cambodian Economy June 2011 Generally supportive framework for foreign investment The government has established a generally supportive framework for foreign mining investment. which are also faced by Cambodia’s neighbours. in Thailand. 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. Generally.

These include funding from multilateral institutions including the World Bank and Asian Development Bank. both domestic and regional. both through domestic initiatives and as part of regional projects. and is set to be completed by 2012 • Seaports set for expansion. Vietnam. and a rail line running from Singapore to Kunming. Cambodia Capital Research 93 . while a new major airport is planned for Siem Reap. Plans have also been announced for a new Siem Reap airport. Although the projects have varied timelines we expect to see a very different Cambodia in terms of transport infrastructure by 2015. The country's two main ports are also undergoing major expansions. Cambodia has now begun to rebuild its roads. Multiple road development and bridge projects are being undertaken and a revamp of the railway system has already opened its first leg. and most of the major infrastructure projects are supported by international funding. from Chinese policy banks. Thailand. Cambodia also plays a key role in regional transport development plans. increasingly. Foreign funding of transport projects have been crucial Government spending on infrastructure remains low versus the region. 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. China. The government is broadly on track with a countrywide road development plan covering the period from 2006-2020. 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. Malaysia and Japan (through the Japan International Cooperation Agency and Japan Bank for International Cooperation) and. Both domestic and international transport plans underway There are several large scale transport plans that guide transport development in Cambodia. A major rail refurbishment has already completed its first phase.Overview of the Cambodian Economy June 2011 Transport Infrastructure: Connecting • Major infrastructure improvements by 2016: Cambodia is currently undergoing a major push to rebuild and refurbish its infrastructure. with major extensions into the provinces to be completed by 2015. including multilateral initiatives for the Greater Mekong Subregion. China. plans for new Siem Reap airport: Both the Sihanoukville deepwater seaport and the Phnom Penh river port are undergoing significant expansions. 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. and is currently implementing its master plan for waterborne transport. as well as country funding from South Korea. expected to be completed by 2014. bridges and railway. with the combined effect of the new changes beginning to have a sizeable effect on the economy by that time.

but still not every province. while rural roads total 18. and the minor national roads another 2.052 km.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.948 km. of which more than 4. and limits the development of these more remote areas. Provincial roads are another 6. The Ministry of Public Works and Transport are undertaking rehabilitation of 30. Figures 116 and 117 give detail on the major road systems in the country.391 km of road between 2006 and 2020. 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. Cambodia Capital Research 94 .000 km have already been completed.615 km. The major national roads in Figure 113 comprise a total 2. where limited road development adds immensely to transportation time and cost. with examples of current developments. where new bridges will cut travel times significantly.643 km.

leading to rising traffic. it is expected that Cambodia should have its major rail lines up and running by 2012. 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. Figure 118 shows the timeline for the completion of the additional sections. COD February 2012 Construction of 48 km Sisophon to Poipet.Overview of the Cambodian Economy Figure 117: Road and bridge development by region Region Southeast Detail This region has the most extensive road system. 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. 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. COD mid-2011 Rehabilitation of 338 km Phnom Penh to Sisophon. and the first section was completed in October 2010. as it contains the capital city Phnom Penh. but the Prime Minister has announced plans to build a major road linking the two provinces Source: Cambodia Capital Research Rail: First line now open. and is currently handling freight. Access to neighbouring Ratanakiri province is limited by a dirt road. helping link the area with Phnom Penh National road 57 is almost complete. Battambang. Road development here is key for further agricultural development and market access This largely mountainous region bordering on Vietnam could be viewed as the most remote in the c o u n t r y. COD January 2012 Source: Royal Toll Railway Cambodia Capital Research 95 . However. a n d i s t h e l e a s t populated. 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. a joint venture between Toll Railway of Australia and Cambodia's Royal Group began a project to refurbish the railway in 2009. more on the way There had been only limited use of Cambodia’s aging railway system since the 1970s until recently. 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. commercial operation date (COD) October 2010 Rehabilitation of 146 km Sihanoukville Port to Kampot. and citizens in the provinces using makeshift carriages for short haul journeys. with some lines used for small scale cement and oil transport.

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

competition in other centres: Nagaworld holds a gaming monopoly within a 200 km radius of Phnom Penh. but there have been only limited signs of consolidation to date • Diverse media sector: The media sector is diverse with multiple television channels. radio stations and newspapers with varying political views tolerated to some degree • Gaming monopoly in Phnom Penh.2% penetration (Figure 119).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. 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. with 35k of this figure serviced by the state-owned Telecom Cambodia. with estimates of 8. Entertainment. fibre optics developing Wireless telecoms dominate the Cambodian market. while competition is rife in towns at the borders with Thailand and Vietnam. Figure 119: Mobile telephone reported subscribers. Cambodia was still in the early days of rebuilding its economy. with fixed line investment concentrated in fibre optic networks. as casinos vie to attract foreign gamblers (it is illegal for Cambodians to gamble) i) Telecoms: Sustained intense competition Telecoms mainly wireless. We expect to see minimal investment in traditional copper wire technology.0 2. or 61. compared to just 40k fixed line subscribers.5 5.7MM cellular subscribers as of end 2010. penetration rate (MM) 10. Technology 97 .0 7. and had only minimal fixed line development. Media.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.

which may not represent sustainable cash flow for the operators.5 3. Cambodia Capital Research 98 . and the combined subscribers reported individually by just the top 4 players (before taking into account the other 4 smaller players) already a total 8.8 5. Figure 120: Top 4 Mobile operators reported subscribers.7MM subscribers as of end 2010. Hello and Mfone. qb and Excell) have an aggregate negative 100k subscribers. it was not good for the mobile telephone companies which have faced pressure on revenue and margins. With 99% of the market still prepaid subscribers and with both voice and data prepaid services available. This would imply that the remaining players (Beeline. This market was good for customers.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. there are low barriers to users switching between networks. we have only two sources: 1) Ministry of Post and Telecommunications reported figures. which show market subscribers at 8. New entrants used promotion such as free SIMs and low pricing plans to draw subscribers.0 Source: Cambodia Ministry of Posts and Telecommunications Reported subscribers in some cases based on distributed SIMs Reported subscriber numbers for Cambodia in some cases appear to be based simply on the SIM cards distributed. with a generation of ‘SIMhoppers’ able to get a free SIM and use up promotional minutes on one network and then move on to the next. release any detail on revenue or profitability.3 2. For Hello (Axiata) and Metfone (Thaicom). which clearly can’t be the case. 2010 (MM) Metfone (Viettel) CamGSM (Mobitel) Hello (Axiata) Mfone (Thaicom) 0 1. Generally.8MM subscribers. Only 2 of the 8 operators. subscribers are reported in their respective parent’s quarterly releases (Figure 120). What had been a cozy oligopoly up until about 2008 became intensely competitive with several new entrants driving the total number of operators up to nine. Smart Mobile/Star Cell. Some discrepancy between sources in reported subscribers There is a clear mismatch between the statistics reported by the MPTC. and 2) subscriber numbers as reported by the operators to the press for market leaders Mobitel and Viettel. However. and the other smaller operators.

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

With the majority of the population still engaged in subsistence farming with at best intermittent access to electricity. they would show a breakout year in 2010. MPTC Details of network June 2011 4. Data growth will be driven by network upgrades to 3. As with telecoms. with voice service still to comprise the dominant proportion of revenue for the next several years. but even adjusted downward by 50%.900 km countrywide network including GEPON.000 km planned over the next year 16. with additional 3. penetration rate (%) 200 150 100 50 0 2004 2005 2006 2007 2008 2009 2010 15% 11% 8% 4% 0% Subscribers (LS) Penetration Rate (RS) Source: Cambodia Ministry of Posts and Telecommunications (MPTC) Internet penetration will be driven by wireless Internet penetration saw a dramatic surge in 2010. However. in-line with the global trend. We expect that data demand through wireless devices will be increasingly significant. these figures may be somewhat exaggerated. metro fibre. Cambodia Capital Research 100 . Growth is much more likely to be a wireless story in Cambodia. with penetration jumping from 2% to 12% and users rising nearly sixfold to over 173k.Overview of the Cambodian Economy Figure 121: Fibre optic network operators in Cambodia Operator Ezecom/Telcotech Viettel CFOCN Other Source: Companies.000 km countrywide network 4.5G and beyond and the much faster speed of service that this entails. with browsing enabled handsets much more accessible in price terms compared to computers for the average citizen.000 km countrywide network leased by telecom operators and ISPs including Ezecom and Mfone Telecom Cambodia. as internet tariffs declined and fibre optic network access continued to expand (Figure 122). and will account for a rising proportion of wireless telecom revenue. we do estimate that the shift will be gradual in Cambodia. home computer penetration will remain low and we expect that internet user growth through this medium will be truncated. Mekong Net and Online have smaller scale fibre networks well below 3.000 km each Figure 122: Internet subscribers (‘000).

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

and is concentrated therefore in Phnom Penh (with one casino.3MM) Beverages Telecommunications Other 17% 14% 68% Source: Indochina Research iii) Gaming: Phnom Penh monopoly. since the introduction of the 1996 Gambling Suppression Law. Although admitted this data is dated. estimated circulation of 18. these are the the most recently publicly reported data and they do give us a basic indicator of the size of the market. Nagaworld. Siem Reap. holding a monopoly in the city). we would arrive at a full year estimate close to US$90MM. The government does have the ability however. Cambodia Capital Research 102 . Figure 125: Advertising by sector. Q1/10 (total US$20. and telecommunications. and several towns on the borders with Thailand and Vietnam. as reported by Indochina Research. at 14% and 17% of the total spending. to permit gambling in certain provinces. in which countries gaming is illegal (Figure 126). This has meant that the gambling industry is set up to cater mainly to foreigners. rural competition Cambodians are not allowed to gamble or enter gambling establishments.000 Second most popular paper. Ad-spend is heavily weighted to beverages. respectively. if we were to extrapolate from the Q1/10 and add a 5% rise qoq to account for the general improvement in economy in 2010.Overview of the Cambodian Economy Figure 124: Major Khmer language newspapers in Cambodia Newspaper Rasmei Kampuchea (Light of Cambodia) Kampuchea Thmei Daily Koh Santepheap (Island of Peace) Daily Moneaksekar (Conscience) Khmer Pracheaprey (Popular Magazine) Kanychok Sangkhum (The Mirror) Source: Respective newspapers Details June 2011 Leading daily in Cambodia. 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.

However. with revenues growing 28%. some entertainment establishments had featured gaming machines. This has paid off in 2010. many of which have been driven out of business. lasting until 2035.Overview of the Cambodian Economy June 2011 Nagaworld monopoly within 200 km radius of Phnom Penh Nagaworld has held a license since 1995. and invested more in expanding its public floor and gaming stations. the government undertook a major crackdown on gaming machines in the capital. Nagaworld had a difficult 2009. However. We expect to see closures and consolidation continue in the gambling sector outside of Phnom Penh. by February 2009. In the boom period leading up to the late 2008 bust. servicing customers mainly from Vietnam Bavet Source: Cambodia Capital Research. the intense competitive situation lies in stark contract to NagaWorld’s monopoly in the capital city. and therefore were not in breach of Naga’s agreement. there were many new entrants into gaming cities on the border such as Bavet.HK). but could not be considered full casinos. leaving Nagaworld the only gaming venue in the city. hit by the economic downturn. Larger cities such as Siem Reap and Sihanoukville also have gaming businesses. after a decline of 39% in 2009. However. that gives it a monopoly on casino operations within 200 km of Phnom Penh. but also because of a major revamp of its strategy. the reduction in both customers and gambling revenue per customer hit the less competitive casinos. Figure 126: Major gambling centres in Cambodia City/town Phnom Penh Sihanoukville Poipet Detail Nagaworld holds casino monopoly with 200km of Phnom Penh At least two major casinos in the coastal tourist resort town At eight least major casinos and other smaller gaming operations with mainly Thai customer base given location at the Thai border At least ten casinos in this town on the Vietnamese border.World Casino Directory Strong competition in gaming outside of Phnom Penh Outside of Phnom Penh in the cities where gaming is permitted. driven by the strategy shift as well as a rebound in tourist arrivals. This has been reflected in the share price of NagaWorld (3918. Cambodia Capital Research 103 . earlier in the decade. The company in 2009 shifted away from a reliance on the low margin junket business. on the border with Vietnam and Poipet on the border with Thailand. but they do not dominate commerce the way they do in the gambling-focussed border towns. with the onset of 2008 financial crisis.

similar to its neighbours. there is continued incremental progress.700 1. Even five years ago.275 850 425 0 2001 2002 2003 2004 2005 2006 2007 2008 2009 Food & Beverages & Tobacco Wood Paper & Publishing Other Manufacturing Source: Ministry of Economy and Finance Textile Apparel Footwear Rubber Manufacturing If we can assume the wage rate for the garment industry (as shown in the Garments section. but just enough progress has been made that foreign companies are now starting to see the growing opportunity in the country. inexpensive labour and concessionary export market access may remain a very attractive factor for international manufacturers looking for a new base of operations. a lack of infrastructure may have dissuaded manufacturers from locating in Cambodia. 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. We expect that. we have begun to see foreign businesses outside the garments/textiles/footwear sectors become increasingly interested in basing new operations in the country. with foreign firms increasingly interested in establishing operations in Cambodia • Special economic zones to support manufacturing growth: Cambodia has established 21 special economic zones in several different provinces to encourage manufacturing development. Figure 127: Cambodia manufacturing GDP by segment 1. especially by foreign investors Initial signs of manufacturing moving beyond textiles Manufacturing is still concentrated heavily in the garments/textiles and footwear sectors. Figure 92) is an indicator for relative wage competitiveness in other industries. Cambodia will be able to diversify its manufacturing base over time. Cambodia Capital Research 104 . In recent years.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.

6 of which have started operations. Kampot and Kampong Cham) and 5 near Thailand (1 in Bantaey Meanchey province and 4 in Koh Kong province). 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. 2 in Bavet and 1 each in Takeo. the SEZs also have independent power supplies. Vietnam or Sihanoukville The other SEZs are mainly concentrated on the borders. Cambodia Capital Research 105 . Cambodia’s only deepwater seaport. the government has established 22 Special Economic Zones (SEZ). and the second phase beginning in February 2011. or are positioned near the Thai or Vietnamese border to source less costly power from these countries. or near Sihanoukville. the former has already begun selling cars to the local market. With the cost of electricity still high in Cambodia compared to the region. Japan’s Minebea. The zones are effectively large industrial estates. Phnom Penh and Sihanoukville expected to be the largest The two largest zones are expected to be the Phnom Penh and Sihanoukville economic zones. Other SEZs focussed near Thailand. Activity at the Phnom Penh SEZ is well underway. and the latter is expected to soon start. A large part of the funding is being provided by the Japanese government. but it is key as it lies adjacent to the Sihanoukville Autonomous Port. including small motors. 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. RM Asia is also currently assembling Ford vehicles in the country. broke ground on a new factory in May 2011 in the Phnom Penh Special Economic Zone. with the government providing incentives to operate out of these areas with privileges in the areas of.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. with the first Phase complete. a manufacturer of electronic components. The remaining SEZ is in Kandal province. The establishment of Special Economic Zones In an effort to further encourage this growing foreign participation in the manufacturing sector in Cambodia. The Sihanoukville SEZ is still under development. with 58 factory lots fully accounted for. 2) customs (full duty exemption on raw materials and equipment) and 3) VAT (0% to pay). with 8 adjacent to Vietnam (3 in Svay Rieng province.

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

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

Canadia Tower. but there was also extensive building in Siem Reap. 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.000 according to the most recent estimates by the National Valuers Association of Cambodia. mainly of hotels and guest houses catering to tourists. 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. and eked out only a small gain in 2010 yoy. and the first Grade A commercial office building in the capital. rising from just US$500/sq m to US$5. This was mainly concentrated in Phnom Penh. It appears that a best case scenario for the property sector would involve flat prices. many major projects were either put on hold or cancelled as funding dried up during the crisis. Prime land prices down to US$4k/sq m from US$5k peak Prime land Phnom Penh prices shown in Figure 128 are indicative of just how rapid and severe the boom was. was only completed in 2009.Overview of the Cambodian Economy June 2011 Property: Oversupplied • Flattening after unsustainable boom: After a major foreign and domestic-lending driven boom from 2005-2008. Other major provincial cities like Battambang are still in the early stages of developing their property markets. booming investment began to peak by 2007. and declining to around US$4. significant new supply continues to come on market in Phnom Penh leading to an expected flattening of land and houses prices and apartment and retail rentals • Development outside Phnom Penh still limited: The property market outside of Phnom Penh is still in the early stages of growth. Large investment boom peaked in 2007 Prior to this boom. driven by a wave of foreign investment and a lack of other investment alternatives for domestic capital. with especially South Korean investors taking a large bet on the development of major new office and residential properties. (Figure 129). However. and appear to have been spared the oversupply of the capital city. However. there had been little in the way of high rise buildings in the capital. However. as the boom turned to bust. even taking into account this reduction. The US$ value of Phnom Penh housing approvals was nearly halved from 2008 to 2009.000/sq m at the peak of the boom in mid 2008. the property market declined abruptly in 2009 and 2010. with modern housing and retail outlets in the second tier cities like Battambang only just starting to be developed Market flattening after 2009-2010 dip The property market in Cambodia is still recovering very slowly from an unsustainable boom that lasted roughly from 2003 to 2008. but a more bearish scenario could see further price declines. but has shown some signs of stabilisation in 2011 • Oversupply still an issue: Although demand appears to be recovering in 2011. Cambodia Capital Research 108 .

000 4.000 0 2008 # project approvals (LS) 2009 2010 Value US$MM (RS) 400 300 200 100 0 Source: Cambodia Department of Land Management.000 6.000 2. Urban Planning and Construction Figure 129: Phnom Penh housing project approvals 8.500 4.125 2. Urban Planning and Construction Figure 130: Office Rental Price per sq m 40 30 20 10 0 Q3/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Cambodia Capital Research 109 .750 1.375 0 2003 2008 2009 June 2011 2010 Source: Cambodia Department of Land Management.Overview of the Cambodian Economy Figure 128: Phnom Penh prime land price (US$MM) 5.

with 70% of the population still surviving on subsistence agriculture. these shophouses have been combined to create larger retail space. but constrained by high electricity/land cost There are now three modern shopping centres in Phnom Penh. Homes approved for construction outside of Phnom Penh rose rose only 0. 126 house. Office occupancy rates have reportedly declined from around 80% at the peak of the boom to around the 66% currently. the housing market is still in the very early stages of development. one that is unlikely to be relieved soon. any modern form of provincial housing is very much in its early stages. completed in 2011. Limited availability of parking in the city centre is also an issue. which although being the second largest city in the country. we could view the lack of decline in the figures as a positive. but the majority of retail space is still mainly limited to stalls in traditional markets. further confirming that oversupply remains an issue. is only expected to see it first major housing development. and there is little indication that prices have seen a significant rebound in the six months since. In many cases in the capital. no credit bureau and only a small housing stock.100 1. Rural housing market still in early stages of development In the provinces away from Phnom Penh. 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). Figure 131: Class A apartment prices monthly rental 2. according to the latest figures reported to the press by the National Valuer’s Association. the US$7MM. However. given the high cost of land.102 residences worth US$219MM over 9M/09. Flat growth in rural home construction as 2010 Provincial housing growth has remained relatively flat as of the latest figures. However. to 1.800 2. With no collateral. or 2-3 story shophouses. Cambodia Capital Research 110 . limited access to mortgage financing.77% yoy for 9M/10. Mahatep City. An example is Battambang.400 700 0 Q4/09 High Source: National Valuer’s Association of Cambodia Low Q3/10 Retail developing. given the recent falls seen for the construction industry in Phnom Penh.184 residences valued at US$221MM from 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).

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