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Private sector wants Hun Sen to clean up
Andrew Symon, ATI Correspondent
13-08-2008
SINGAPORE – Judging by the money and business people flowing into Cambodia these days, there will be unprecedented foreign investor interest in the national elections on July 27. While there is little chance that the elections will upset the stranglehold of long-standing Prime Minister Hun Sen and his Cambodian People’s Party (CPP) – indeed it is likely to become tighter – increasing foreign business interest in Cambodia could prove to be a new factor in shaping how Hun Sen conducts Government.
Of concern to many foreign companies in Cambodia, and potential investors, according to a current World Bank survey, is government corruption – a well documented fact of life – and arbitrary Government practices. Individuals or firms with close personal ties to political leaders are perceived to have most influence on business regulations and development of policy. For private funds seeking to raise money internationally, governance is a key issue.
“The issue of enforcement of laws and regulations really needs to be very high on the agenda,” Dr Peter Brimble, Managing Director of one fund, Cambodia Emerald, told a recent conference in Phnom Penh. “Political stability seems to be okay. We believe that the new election will see continuation of the stable political environment,” he said. “However, we do hope that, in the new mandate, there will be a very strong scenario where issues of governance and enforcement of regulatory frameworks play a very important role.”
The election is the fourth since Cambodia’s first free and fair election was conducted in 1993, under United Nations administration, after the end of a decade of rule by Hanoi. This followed Vietnam’s invasion of Cambodia in late 1978 and, with that, the end of Pol Pot’s Khmer Rouge regime.
The CPP, in fact, is successor to the Kampuchean People’s Revolutionary Party, which was put in power by Hanoi. Many CPP members, including Hun Sen, were former junior Khmer Rouge officers, who turned to the Vietnamese when Pol Pol began killing his own party members.
At the time of the earlier elections, Cambodia hardly registered a blip on the foreign investor radar. Today, it has become a new business prospect. Pointing to this, international fund managers, mainly from the US, met in May at Siem Riep to assess opportunities. Cambodia’s economy has been growing at an annual average of more than 10 per cent since 2004 – from a low base.
No longer is foreign discussion about Cambodia limited to the development assistance community. Business conferences are drawing crowds, as attested by the 600 delegates, mostly foreigners, who attended a two-day investor round table with the Cambodian Government in Phnom Penh – 400 more than for a similar event two years before.
In Phnom Penh, a clear sign of changing times is the emergence of the city’s first high-rise and super-high-rise buildings. Leading these is a 42-storey twin tower complex, Gold Town 42, being built by South Korean interests on Norodom Boulevard.
Driving economic growth is the garment industry, tourism and construction. Some other labour-intensive manufacturing is emerging, supported by special export zones in the west near the Thai border, southeast near the Vietnam border, outside the capital, Phnom Penh, and at the port city of Sihanoukville, southwest of Phnom Penh.
These new zones go some way to addressing Cambodia’s infrastructure weaknesses in transport, water and electricity (with some of the highest power prices in the region due to over-reliance on oil generators and lack of region-wide power grids) by enabling services to be supplied more reliably.
Longer-term, the power problem should be eased by development of hydro power within Cambodia, and connection of the southeast around Phnom Penh and Sihanoukville to power supply from Vietnam, In the west of the country, power will come from Thailand. Transport links are also improving, through Cambodia’s links with the Southern Thailand-to South Vietnam, Asian Development Bank (ADB)-promoted, transport and economic corridor.
Rehabilitation of the railway from Phnom Penh to Sihanoukville is another important ADB-financed project. Restoration of the link with Thailand, and a new link to southern Vietnam, are also planned. The revamped railway is to be run by the private sector under concession. The Australian logistics company, Toll, is among those looking at the project.
Anticipation of a petroleum and mining boom is also galvanising foreign business interest, but there needs to be caution here. So far, work by petroleum companies such as Chevron of the US, offshore – and miners, such as Australia’s BHP Billiton, Oxiana and Southern Gold – is still only at exploration stage.
Cambodia has probably the most liberal conditions for foreign investment in the region, with 100 percent foreign ownership in all areas possible. But it is useful to have a well-placed partner, as the banking joint venture between Australia’s ANZ and the local Royal Group attests. Cambodia’s advocates also point to low corporate taxes rates, no profit repatriation restrictions, a slowly-emerging modern finance sector, low exchange rate risk because of a largely dollarised economy, and a strengthening legal framework as new laws are written and enacted. Often forgotten is how Cambodia has had to put in place an almost entire new legal code since the early 1990s. But how the law may be administered is another question.
There remain enormous economic and social challenges. Poverty is extensive and deep. Average per capita income is just over US$500 a year. In a population of 14 million, 50 per cent are under 18. Some 300,000 people enter the labour market each year, but only a fraction find jobs. The need, then, to diversity the economy into more labour-intensive industries is ever more pressing.
Inequality is also growing, with much of the new growth concentrated in the main cities of Phnom Penh and Siem Reap, a centre of the tourism industry because of Angkor. With the vast bulk of the population living in rural areas, agriculture is an important target.
Despite these pressures and tensions, no Opposition figure can challenge the 55-year-old Hun Sen and the CPP. The CPP has entrenched itself through a network of branches throughout Cambodia, effective patronage, and, at times, ruthless action. Further strengthening Hun Sen and the CPP is a Constitutional change made in 2006 to the requirement that government could only be formed by a party or parties with a two-thirds majority of seats in the National Assembly. This meant that the CPP had to form a coalition with Funcipec over the last decade to form government.
Now, a simple majority of seats is sufficient for the CPP to gain government. Hun Sen and the CPP are in an unassailable position for the foreseeable future, and many observers see Cambodia, in fact, evolving towards a one-party State. What role, then, foreign business may play in the absence of effective Parliamentary opposition – in helping push for certainty, predictability and transparency in laws, regulations and government processes – remains to be seen.
Copyright ©, ATI Online, July 2008
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