Cambodia: Waiting For Investors

1998

A.C. Kevin

Cambodia is a small economy (population 9-10 million) in the early stages of reconstruction after 30 years of war. The country is well positioned at the heart of the Mekong economic region, and Phnom Penh is about to become headquarters of the new Mekong River Commission. The government is market-friendly and welcomes foreign investment. Tiger Beer last year opened a state-of-the art brewery in Phnom Penh and there is an impressive amount of new factory development on the main roads around Phnom Penh. But many potential investors are still waiting for the outcome of the July 1998 election. Some things are happening: the World Bank recently announced a $30 million water supply contract for Phnom Penh, and an Australian oil company, Woodside Petroleum, has announced a $10 million offshore gas exploration joint venture. This follows the favourable exploration leases awarded recently by the Cambodian Government to BHP Petroleum in the offshore joint development zone that is now being negotiated between Cambodia and Thailand. Provided local joint venture partners are chosen with care, there are interesting prospects, especially in resources, tourism, and textiles (which enjoys favourable US and EU market quotas); and in aid-related contracts. Telstra's successful 10-year franchise to manage Cambodia's international telecommunications has 2 years to run and there are good prospects for its renewal in 2000. Because the US$ is the real currency in Cambodia, the Asian economic crisis has had little direct economic impact. Inflation (in the local "street" currency, the riel) has risen from 7% p.a. to around 15% p.a. More worryingly, growth has fallen from 7% p.a. to around 2-3% p.a. More important have been the post-July 1997 US aid cutbacks which put the state budget under stress and sent a negative political signal to investors and tourism operators. The continuing support of other major aid donors - Japan, France, European Union, World Bank and ADB - should help to normalise the foreign investment climate soon after the July 1998 elections

WATCHPOINT: Will Cambodia's economy escape being seriously affected by its neighbours' disasters?

 

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AFG Venture Group is an Asia and Australia based corporate advisory and consulting firm with over 20 years experience in creating alliances, relationships and transactions in Australia, South East Asia and India; including a 15 year history of corporate and equities advisory in Australia, undertaking merger, acquisition, divestment, fund raising and consulting for private and public companies.

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