Investment In Cambodia Prepared By Chan Bonnivoit

CAMBODIA: A FASCINATING COUNTRY FOR INVESTMENTS PREPARED BY CHAN BONNIVOIT ADVISOR FOR H.E. LU LAYSRENG, DEPUTY PREMIER MINISTER Phnom Penh, 30 Dec 2007

OBJECTIVES OF THE PRESENTATION A. B. C. D. E.

Introduction Recent economic development Investment climates Area of investment Special economic zone/Special production zone (SEZ/SPZ) F. Cambodia-Japan relationship G. Conclusion 2

A. Introduction ƒ

After the 1993 national election, held under the auspices of the United Nation, Cambodian Government makes a sustained effort to create a market-friendly environment.

ƒ

Cambodia passed a revised law on taxation which reaffirm its openness to foreign direct investment.

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There is no question that Cambodia remains a fiscally attractive location, with a corporate tax rate of 20% for most activities.

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CDC has been steadily improving its facilitation services for investors.

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Investors have an effective voice in policy-making through the Government-Private Sector Forum and the International Business Club (IBC).

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Cambodia is large market, low wages, a liberal economy and one of the world great assets for tourism.

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The large market is the function of location, not the domestic market of Cambodia, but the market of South East Asian Nations (ASEAN) and the establishing of the free trade area with China. 3

B. Recent Economic Development 1. GDP growth rate and inflation rate (%) 16% 14% 12% 10% 8%

GDP Inflation

6% 4% 2% 0% -2%

2000

2001

2002

2003

2004

2005

2006 4

B. Recent Economic Development (con´t) 2. Cambodian real GDP growth by sectors (%) 20%

15%

10%

Agriculture Industry Services Total GDP

5%

0% 2002 -5%

2003

2004

2005

2006 5

B. Recent Economic Development (con´t) 2. Cambodian real GDP growth by key sub-sectors (%) 50% 40% 30% Paddy Garment Tourism Non-Agriculture

20% 10% 0% 2002

2003

2004

2005

2006

-10% -20%

6

B. Recent Economic Development (con´t)

40 31

4100

39 00

3950

39 10

4000

2000

2001

39 35

39 80

4050

40 70

4150

41 10

3. Official exchange rate (Riel/US$)

Exchange Rate

3900 3850 3800 3750 2002

2003

2004

2005

2006 7

B. Recent Economic Development (con´t) 4. Financing Cambodia´s budget (Billions of Riel) 5,000 4,500 Total Domestic Revenue 4,000 3,500

Total Expenditure

3,000

Total Deficit

2,500

Foreign Financing

2,000 Domestic Financing

1,500 1,000

Net Foreign Reserve at National Bank

500 0 2002

2003

2004

2005

2006

2007p

8

B. Recent Economic Development (con´t) 6. Cambodia´s balance of payments (Million US$) 600

Trade Balance

400

Balance of Services Balance of Income

200 0 -200

Current Transfers

-400

Current Accounts

-600 -800 -1000 -1200 2002

2003

2004

2005

2006

Capital & Financial Accounts Change in Foreign Reserves 9

C. Investment Climate 1. Political stability ƒ The long-term political alliance between the CPP and FUNCIPEC represents the anchor of the peace for Cambodia. Our experience shows that peace can be achieved through perseverance, compromise, accommodation and mutual understanding. ƒ The election of His Majesty Preah Bat Preah Boromneath Norodom Sihamoni as the new King of Cambodia was another landmark in the Cambodian history for ensuring long-term stability for the Nation. ƒ This allows the government to pursue bold reforms to liberalize and facilitate trade and investment, strengthen free-market institutions and train human resources, open up the society and democratize our institutions. 10

C. Investment Climate (con´t) 2. The rectangular strategy of RGC

11

C. Investment Climate (con´t) 2. The rectangular strategy of RGC (con´t) ¾ The core of the rectangular strategy is good governance focused at four reform areas: ƒ ƒ ƒ ƒ

Anti-Corruption, Legal and judicial reform, Public administration reform, including decentralization and de-concentration, and Reform of the armed forces, especially demobilization

¾ Partnership in Development, including strengthening private sector and attracting foreign investor, is also the critical part of the rectangular strategy of the Royal Government of Cambodia. 12

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t) ⇒ Investment approval: Samdech Akkar Mahar Senapadei Dekchor Hun Sen, Premier Minister of RGC Chairman

H.E. Mr. Kiet Chhon, Senior Minister, Minister of Economic and Finance 1st Vice Chairman

Trouble Shooting Committee

H.E. Dr. Cham Prasidh, Senior Minister, Minister of Commerce Vice Chairman

H.E. Mr. Kong Vibol, First Secretary of State, Ministry of Economic and Finance Vice Chairman

H.E. Mr. Sok Chenda Secretary General

Secretary General CSEZB H.E. Mr. Sok Chenda

Secretary General CIB H.E. Mr. Suon Sitthy

Secretary General CRDB H.E. Mr. Chhieng Yanara

13

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t) ⇒ Flowchart of investment applications: Samdech Akkar Mahar Senapadei Dekchor Hun Sen, Premier Minister of RGC Chairman

H.E. Dr. Cham Prasidh, CDC Vice Chairman

CDC Single-Stop-Service chaired by H.E. Dr. Cham Prasidh,

> 7 days

> 25 days CIB Secretary General CIB Department

Routine investment applications for garment factories, footwear and their supporting industries, and hotels

Non-Routine complex investment applications

14

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t)

⇒ Newly create 3rd arm of the CDC: The SEZ Committee Samdech Akkar Mahar Senapadei Dekchor Hun Sen, Premier Minister of RGC Chairman

SSS CRDB

CIB

C-SEZ

CRDB SG

CIB SG

C-SEZ SG

Public Investment

Private Investments Outside SEZ

C-SEZ One Stop Service Meeting presided by Premier Minister of RGC and CDC Chairman Samdech Akkar Mahar Senapadei Dekchor Hun Sen

Private Investments Inside SEZ

15

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t) ⇒The Cambodian Investment Board (CIB): A One Stop Service ƒ Information & Application ƒ Analysis & Evaluation ƒ Approval ƒ Customs Duty & Tax Exemption ƒ Visa & Work Permit ƒ Company Registration 16

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t) ⇒ Licensing Authorities:

ƒ Council of Ministers : CDC but needs approval from COM for project with investment capital exceeding $ 50 million, BOT, BOOT, BOO or BLT, long long-term strategy, sensitive projects: negative term strategy, sensitive projects: negative impact on the environment and natural resource impact on the environment and natural resource exploitation ƒ CDC : less than $ 50 million ƒ Provincial Authorities : less than $ 2 million ƒ Management Board of Special Economic Zones: project within the zones 17

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t) ⇒ Investment approval: Investment Application 3 Working CDC issues a conditional Registration Certificate to the Applicant

Days

ƒ Company Registration/Ministry of Commerce ƒ Relevant licenses as appropriate/Ministry of Industry and Energy ƒ Review and approval of construction plan/local authorities ƒ Ministry of Land Management, Urban Planning and construction

28 Working Days

ƒ Initial environmental impact assessment/Ministry of Environment ƒ Tax Department Registration/Ministry of Economic and Finance CDC issues a Final Registration Certificate to the Applicant

18

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t) ⇒ Incentives comparison 1994

2003

ƒ ƒ

ƒ ƒ

ƒ ƒ ƒ ƒ ƒ ƒ ƒ

9% corporate income tax Tax holidays up to 8 Years (according to matrix) Reinvestment of profit (Tax free) Reinvestment of earning (Tax free) Full import duty exemption No export tax Licensing (evaluation and approval)

ƒ ƒ ƒ ƒ ƒ

20% corporate income tax Trigger period +3years+n (automatic) Reinvestment of profit (special depreciation) Reinvestment of earning (withholding tax) Full import duty exemption No export tax Licensing (simple) 19

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t) ⇒ Investment protection: The investment law and sub-decree contains a number of important guarantees for the investors: ƒ Equal treatment of all investors ƒ No nationalization adversely affecting the property of investors ƒ No price controls on products or services ƒ No restriction on foreign equity participation ƒ No restriction on foreign convertibility ƒ Remittance of foreign currencies abroad. 20

C. Investment Climate (con´t) 3. Legal and institutional framework (con´t)

⇒ Increasing the participation of firms in the formal economy by reducing the regulatory burden on firms including: ƒ Government-Private Sector Forum: Meeting in every 6 months. ƒ Lowering the cost of commercial registration: We have therefore lowered this cost by US$400. ƒ Eliminating unnecessary and multiple licenses: We have abolished the Economic Police permit. We have eliminated the Export License and the need to issue Certificates of Origin (CO) before the shipment is cleared. ƒ Lowering the minimum capital requirement for registration: We have therefore lowered from $5,000 to lower than $1,000 dollars. ƒ Reforming the inspection regime: The Ministry of Industry, Mines and Energy’s role in inspections of individual consignments has been confined to a “post-shipment inspection” with less encumbrances to the exporters. 21

C. Investment Climate (con´t) 4. Location and Market Access

22

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ Location:

23

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ Location: The large market of Cambodia is the function of location, not the domestic market of Cambodia

24

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ ASEAN Membership: Tariff reduction schedule Country

Industrial and AgroIndustrial Products IL

TEL

Agricultural Products IL

TEL

SL

ASEAN-6

1993-2003

1996-2003 1996-2003

1997-2003

2001-2010

Vietnam

1996-2006

1999-2006 1999-2006

2000-2006

2004-2013

Laos & Myanmar

1998-2008

2001-2008 2001-2008

2002-2008

2008-2015

Cambodia

2000-2010

2003-2010 2003-2010

2004-2010

2008-2017

Remark: IL: Inclusion List, TEL: Temporary Exclusion List, SL: Sensitive List

25

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ ASEAN Membership: AISP for CLMV

Abbreviation of CLMV : Cambodia, Laos, Myanmar and Vietnam

26

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ ASEAN membership: ASEAN + arrangements: - ASEAN + 3 (Japan, China and South Korea): Economic Cooperation and Establishing East Asia FTA in the Future - ASEAN-CHINA: Special Preferential Tariff Treatment with new Member of ASEAN and Free Trade Area in 2015 - ASEAN + Japan: Comprehensive Economic Cooperation - ASEAN + Korea: ASEAN-Korea FTA : in process - ASEAN + India: Economic Cooperation and Comprehensive Economic Cooperation - ASEAN + ECR: Closer Economic Partnership

27

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ WTO membership: Doha Development Round (DDR) - Developed Countries provide duty free & quota free (DFQF) for 97% for all products from LDCs. - Developing Countries is in the position to provide DFQF for LDCs. - Elimination of all kinds of export subsidies by 2013 (HK mandate). - Cambodia is not required to make the tariff reduction. - Cambodia is not required to make a new services sector´s commitments. 28

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ WTO membership: Cambodian tariffs schedule

29

C. Investment Climate (con´t) 4. Location and Market Access (con´t)

⇒ WTO membership: Cambodian service commitments ƒ Undertaken market access and national treatment commitments in at least one sub-sector under each of 11 different services.

ƒ Allowing foreign firm to operate in the areas of legal services (with some exceptions), accounting, auditing, bookkeeping, banking, management consulting, telecommunication and transport, but some conditions were attached to market access in areas of financial services and telecommunication services. ƒ Allowing foreign firms to provide higher education and adult education services. ƒ Reserving part of a market for Cambodian small and medium sized enterprise in areas such as banking, tourism and courier services. 30

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ Great Mekong sub-region

31

C. Investment Climate (con´t) 4. Location and Market Access (con´t) ⇒ Great Mekong sub-region

32

C. Investment Climate (con´t) 4. Location and Market Access (con´t)

⇒ Countries according MFN/GSP to Cambodia = 0% import duty or reduced import duty for Cambodian exports ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

Australia Austria Belarus Belgium Bulgaria Canada China Czech Republic Denmark Finland France

ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

Germany Hungary Ireland Italy Korea Luxemburg Japan Netherlands New Zealand Norway Poland

ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ ƒ

Portugal ROK Russian Federation Slovakia Spain Sweden Switzerland UK USA ASEAN-6 33

C. Investment Climate (con´t) 4. Location and Market Access (con´t)

⇒ Bilateral agreement on the promotion and protection of investments between the Kingdom of Cambodia and other Countries. – Already signed: 1. 2. 3. 4. 5. 6. 7.

Malaysia Thailand USA (OPIC) China Switzerland Singapore ROK

8. 9. 10. 11. 12. 13. 14.

France Philippines OPEC Croatia Cuba Vietnam Netherlands

15. 16. 17. 18. 19.

Pakistan Austria Australia Indonesia Germany

– In the pipeline: Laos, Myanmar, Czech Republic, Ukraine, Egypt, Russia, PDR Korea, Libya, UK, Algeria and Japan. 34

C. Investment Climate (con´t) 5. Cost and labor ⇒ Tax incentives (see in chapter of legal and institutional framework) ⇒ Reasonable labor cost (see table below) ⇒ Young and energetic work force ⇒ Trainable and motivate-able labor ⇒ Foreign friendly labor ⇒ Patient and brave labor

35

C. Investment Climate (con´t) 5. Cost and labor (con´t) ⇒

Average monthly salaries for different professional levels: Position

Salary in US$ (2004)

Manager, senior level Manager, middle level Manager, entry level Accountant Secretary Office Clerk Messenger Driver Janitor Laborer

1,000-1,500 500-1,000 250-400 250-400 120-150 100-120 100-120 100-120 40-80 40-80 36

D. Area of Investment 1. Investment in Cambodia ⇒ FDI in Cambodia (in USD Million) 30 37

3500 3000 2500 2000

Total FDI 83 1 34 2 63

14 5

14 0

19 6

500

16 0

55 4

57 8

1000

61 8

1500

20 06

20 05

20 04

20 03

20 02

20 01

20 00

19 99

19 98

19 97

19 96

0

37

D. Area of Investment (con´t) 1. Investment in Cambodia (con´t) ⇒ Investments by Countries 1994-1st Half 2006 (Million US$) 2,500

59 0 2,

6 95 , 1

1, 35 9

2,000 1,500

20

26 7

500

33 1

9 55

35 7

1,000

Ja pa n

Si ng ap or e

d Th ai la n

EU

SA U

or ea K

al ay si a M

C

hi na

0

38

D. Area of Investment (con´t) 1. Investment in Cambodia (con´t) ⇒ Investments by Sectors 1994-1st Half 2006 (%) Tourism, 23%

Service, 34%

Agriculture, 7%

Industry, 36%

39

D. Area of Investment (con´t) 2. Encouraged investment activities ƒ ƒ ƒ ƒ

Agriculture and agro-industry Transport and telecommunications infrastructures Energy and electricity sectors Labor-intensive industries and export- oriented processing and manufacturing; ƒ Tourism-related industries ƒ Human resource development 40

D. Area of Investment (con´t) 2. Encouraged investment activities (con´t) ⇒ Agriculture and agro-industry ƒ Key agrarian economy ƒ Natural endowments ƒ Organic crops ƒ Value-added emphasis/ Food processing ƒ New products/technology development

41

D. Area of Investment (con´t) 2. Encouraged investment activities (con´t) ⇒Transport and telecommunications infrastructures: a definitely prospect ƒ ƒ ƒ ƒ ƒ

Priority for infrastructure Infrastructure rehabilitation Multilateral aid availability Decentralization Regional and sub-regional Opportunities/integrations ƒ Private Participation in Infrastructure (PPI): BOT, BOO, etc.

42

D. Area of Investment (con´t) 2. Encouraged investment activities (con´t) ⇒ Transport and telecommunications infrastructures: a definitely prospect for investors.

43

D. Area of Investment (con´t) 2. Encouraged investment activities (con´t) ⇒Tourism ƒ ƒ ƒ ƒ ƒ

World heritage monuments Open sky policy to Siem Reap Ability to attract “add-on” trips Natural beauty Novelty value

44

D. Area of Investment (con´t) 2. Encouraged investment activities (con´t) ⇒Manufacturing and export ƒ ƒ ƒ ƒ ƒ ƒ

Competitive labor cost Patient and brave labor Tax incentives Market access Regional arrangement Favorable location 45

E. Special Economic Zone/Special Production Zone ƒ

ƒ

ƒ

The main rationale of establishing SEZs is to: – Provide investors with adequate infrastructure and supportive facilities – Effectively respond to the challenge of diversifying the Cambodian economy and to promote demand-driven development, such as export promotion – Enhance competitiveness of garment industry and other labor intensive activities – Promote agro-industry, food processing – Promote assembling industry – Promote electronic and electric appliances industries The following growth poles have been identified for industrial development: – Poipet and and Koh Kong (at the Cambodian-Thai border) – Bavet and Phnom Den (at the Cambodian-Vietnamese border) – Phnom Penh – Sihanouk Ville Sihanouk Ville port has harbor facilities and “dry ports” which have been developed to enhance its competitive edge as an international commercial gateway. 46

E. Special Economic Zone/Special Production Zone (con´t)

47

E. Special Economic Zone/Special Production Zone (con´t)

48

E. Special Economic Zone/Special Production Zone (con´t)

49

E. Special Economic Zone/Special Production Zone (con´t)

50

E. Special Economic Zone/Special Production Zone (con´t)

51

E. Special Economic Zone/Special Production Zone (con´t)

52

E. Special Economic Zone/Special Production Zone (con´t)

53

E. Special Economic Zone/Special Production Zone (con´t) ⇒ Phnom Penh Special Economic Zone (PPSEZ): ƒ PPSEZ is the industrial and residential estate owned by Attwood Investment Group (Cambodia) joint venture with ZEPHYR Co., Ltd (Japan) with a 50-50 share. ƒ The investment project has been approved by the first meeting of Cambodia Board of SEZ on 15 February 2006 which was presided by Samdech Akkar Mahar Senapadei Dekchor Prime Minister Hun Sen.

54

E. Special Economic Zone/Special Production Zone (con´t)

55

F. Cambodia-Japan Relationship ƒ Relationship between Japan and Cambodia started when Morimoto Ukondayu Kazufusa visited Angkor Wat in the early 17th century. ƒ After few year from the end of the world war, Japan and Cambodia tied the treaty of friendship and cooperation in 1953 (The Legation of Japan was established in 1954). ƒ After that, different agreements were concluded between the two countries for structure of a true relationship at the governmental level. 56

F. Cambodia-Japan Relationship (con´t) ⇒ Japan is the largest Donor Country for Cambodia: ƒ Japan is the top Donor Country to Cambodia, accounting for 25 percent of all assistance to Cambodia. ƒ Grants: 115.5 billion yen (Total of 1992-2006) ƒ Technical Cooperation: 43.3 billion yen (Total of 19922006) ƒ Yen Loan: 16.0 billion yen (Total of 1992-2006) 57

F. Cambodia-Japan Relationship (con´t) ⇒ Cambodia-Japan Joint Efforts for Investment Promotion in Cambodia: 1. Bilateral Investment Treaty (BIT): Legal framework for liberalization, promotion and protection of investment ƒ Ensure fair and equal competitive environment for investors ƒ Enhance predictability and transparency of the basic rules and regulations ƒ Ensure legal stability ƒ Protect investments Protect 2. Public-Private Dialogue Mechanism: ƒ Improve the investment environment ƒ Ensure strict implementation of the BIT, the investment related laws and administrations procedures ƒ Solve problems faced by investors 58

F. Cambodia-Japan Relationship (con´t) ⇒Some milestones: ƒ ASEAN-Japan Comprehensive Economic Partnership – Commencing negotiation in April 2005

ƒInitiative of the Prime Minister Junichiro KOIZUMI – Official Development Assistance to CLMV Countries amounting to US$1.5 billion for 3 years

59

F. Cambodia-Japan Relationship (con´t) ⇒ Comprehensive Economic Partnership (CEP) ASEAN-JAPAN: Objectives ƒ Strengthen economic integration between ASEAN and Japan through the creation of a CEP; ƒ Enhance the competitiveness of ASEAN and Japan in the world market through strengthened partnership and linkages; ƒ Progressively liberalize and facilitate trade in goods and services as well as create a transparent and liberal investment regime; ƒ Explore new areas and develop appropriate measures for future co-operation and economic integration; and ƒ Facilitate the more effective economic integration of the newer ASEAN Member States and bridge the development gap among the ASEAN Member States. 60

F. Cambodia-Japan Relationship (con´t) ⇒ASEAN-Japan Commemorative Summit ƒ The ASEAN-Japan Commemorative Summit was held in Tokyo on 11-12 December 2003, where the leaders of ASEAN and Japan signed the Tokyo Declaration for a Dynamic and Enduring ASEAN-Japan Partnership in the New Millennium and adopted the ASEAN-Japan Plan of Action. ƒ The Tokyo Declaration intended – to enhance the political and security partnership; – to confirm the visions and principles including respect for the rule of law, protection of fundamental human rights, democratic environment, respect for Asian traditions and values, and – to cooperate for the creation of an East Asia community 61

F. Cambodia-Japan Relationship (con´t) ⇒ Japan's commitment to the Doha Development Agenda (DDH): ƒ Hong Kong WTO Declaration (December 2005) ƒ PM Junichiro Koizumi's statement on Japan's initiative for LDCs – >97% of tariff lines for duty-free and quotafree for imports from LDCs (starting sometimes in April 2007) 62

G. Conclusion ⇒ Cambodia is a Country which has the substantial potentials for the investments: 9 Political stability 9 Open economy 9 Sound macroeconomic environment 9 Business friendly government 9 Favorable investment incentives and tax regime 9 Strategic location 9 Large market access into the region and the world 9 Regional arrangements 9 With reasonable cost located Country 9 Special economic zone and economic corridors 9 Foreigner friendly population 9 Abundant natural resources 9 World famous tourist site

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THANKS YOU

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