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FDI on the Rise, but Figures Questioned

Igor Kossov / Khmer Times Share:
Construction is likely to remain a pillar of economic growth as Cambodia's economy continues racing foreward, analysts say. KT Photo: Igor Kossov

PHNOM PENH (Khmer Times) – Official figures released last week showing a surge in foreign direct investment during the first half of this year may not be the most reliable indicators of actual investment, as they reflect proposed investments rather than actual foreign direct investment (FDI), experts and executives say.  

They stress, however, that investment is rising.

Deputy Prime Minister Keat Chhon said on Friday that foreign investment reached $3.4 billion in the first half of this year, across 94 different projects. The total for last year was $4 billion in 210 registered projects. Mr. Chhon also expressed optimism that investors see Cambodia as trustworthy and lucrative.

It was not clear whether the numbers referred to approved investment projects or to actual FDI flows. UN data suggest the former— its 2015 World Investment Report showed that FDI in Cambodia for 2014 totaled $1.73 billion, a decline from 2013’s $1.87 billion.

Grant Knuckey, the CEO of ANZ Royal Bank (Cambodia) Ltd, warned against confusing the two sets of figures. 

“If you look at the past history of any country, there is normally a material difference between approvals and the flow of investment,” he said. “A number of projects, for whatever reasons, don’t eventually get off the ground. 

However, he added that he sees a large flow of investment into the construction, retail and manufacturing industries. 

Incentives and Dangers 

May Kalyan, a senior advisor with the Supreme National Economic Council, said that the investments announced for the first half of the year preceded the unveiling of the government’s industrial development policy (IDP). Future investment figures should reflect the new policy’s promise to make it easier for businesses to set up here, he said. 

Mr. Knuckey said that investors are starting to look at the IDP’s incentive structure. The policy pledges to upgrade and supply more infrastructure and create more, enhanced special economic zones. 

“Manufacturers are looking for a signal that an enabling framework is going to support them – electricity, skills development as well as logistics and hard infrastructure – roads and ports,” said Mr. Knuckey. “That’s the sort of commitment that an investor would want to see in those three key enabling areas.”

However, Dr. Kalyan added that China’s recent stock market crash and the regional currency devaluation might negatively impact FDI in the second half of the year, potentially canceling out the promise of the IDP. 

“This number ($3.4 billion) came out before the problems in China,” he said. “We have to be watchful.” 

Mr. Knuckey is less worried about China, saying that the stock crash was a “market correction,” that should not have a major impact on overseas investment decisions. 

Brand Names Increase Presence

Over the summer, several well-known brands entered the market or increased their presence here. Coca Cola committed to a $100 million factory in Phnom Penh Special Economic Zone after outgrowing its previous facility. Coke executives said the company needed a bigger bottling plant to meet rising demand.

Sanrio Corporation, the parent of Hello Kitty, is planning to open shops in new malls. It also wants to build a Hello Kitty-themed café in Phnom Penh. The company currently has a single shop at Aeon Mall. 

Starbucks recently announced that it will open its first location here, at Phnom Penh International Airport, by yearend, and is eyeing more locations in downtown Phnom Penh. 

A joint venture between Kerry Logistics and the Worldbridge group of companies saw the creation of a new SEZ south of Phnom Penh, for spare-parts manufacturers for regional supply chains. 

Construction and Manufacturing

According to government statistics, the economy has been expanding at an annual rate of 7.7 percent over the past two decades. 

In April, the World Bank forecast that Cambodia’s growth would moderate to 6.9 percent this year and next year, as it confronts stronger competition in garment exports, continued weak growth in agriculture, and softer growth in the tourism sector. 

Construction is one of the main pillars supporting the economy. It attracted $2.5 billion in investment last year, down 10 percent from $2.77 billion in 2013, according to official data. 

The Ministry of Land Management, Urban Planning and Construction granted 1,960 construction licenses in 2014, a 19 percent increase from the 1,641 projects a year earlier.

Manufacturing showed an increase. The International Labor Organization found that 78 new garment and footwear factories were approved in 2014, with a total value of $452 million in fixed assets. In the first quarter of 2015, 19 more factories, worth a total of $72 million in fixed assets, gained approval.

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