FOREIGN INVESTMENT, TRADE AND TOURISM IN CAMBODIA

FOREIGN TRADE AND CAMBODIA

Kampong Cham on the Siem Reap is Cambodia’s main economic hub and Sihanoukville is the country’s only port. They are about 400 kilometers apart. Phnom Penh is situated roughly in the middle of them.

Cambodia joined the World Trade Organization in 2004, earlier than Vietnam. The Cambodian parliament approved membership to the World Trade Organization in August, 2004 allowing Cambodia to officially join the organization and becomes its 148th member in October 2004. The WTO approved Cambodia entry in September 2003 but problems forming a government after the 2003 elections slowed the approval process. The move not only helped open markets for Cambodia it also pushed reforms and the creation of modern framework for commerce.

Cambodia exports a lot of textiles to the United States. After the United States lifted a trade embargo after the 1993 election and signed a bilateral trade deal in 1996 trade between the United States and Cambodia soared. It rose 2000 fold between 1996 and 2002, when Cambodia exported nearly $1 billion worth of good to the United States, much of it fish and textiles.

Imports from China declined 24.8 percent between 2001 and 2003. Exports to China rose 43.3 percent between 2001 and 2003. Even so Cambodia imported $452 million worth of goods from China in 2004 but exported just $30 million.

According to Cambodian government: “The Royal Government would enhance its policy of trade liberalization. It would facilitate the free circulation of goods. The price and quantity of the growth of its production. It would also broaden international trade relation by bridging the domestic markets to foreign markets. Finally it would promoted the integration and global trade.”

Cambodian Trade in the 1980s

In the 1980s the government controlled all official foreign trade. In July 1979, the Ministry of Local and Foreign Trade set up the Kampuchean Export and Import Corporation (KAMPEXIM, the state trading agency) to handle exports, imports, and foreign aid. In addition, the National Trade Commission was created to be in charge of both internal and external economic coordination. In March 1980, the Foreign Trade Bank was formed to deal with international payments, to expand trade, to provide international loans, and to control foreign exchange. [Source: Library of Congress, December 1987 *]

Beginning in 1982, the government made serious efforts to promote foreign trade as a means of accelerating national reconstruction and development. The First Plan emphasized exports as a way to correct imbalances in the national economy, but it did not provide any commodity export target figures. In the late 1980s, Cambodian officials released information revealing the direction and the patterns of trade rather than specific numbers. Most official trade was being conducted with Comecon countries in the form of exchanges of commercial goods. In the absence of authoritative data, unofficial Western sources placed Cambodia's trade deficit at US$100 million to US$200 million annually from 1981 to 1987. According to the Asian Development Bank, the country's total external debt in 1984 was US$491 million, up from US$426 million in 1983, and US$368 million in 1982. *

In an attempt to increase foreign exchange earnings, the Heng Samrin regime in 1987 encouraged expatriate Cambodians to remit money to relatives and to friends remaining in the country. Cambodia's Foreign Trade Bank provided the names of sixteen banks in Western Europe, Canada, and Australia that were authorized to handle such transactions. The list included the Moscow Narodny Bank in London and several capitalistic financial institutions, such as the Société Générale in France and the Union des Banques Suisses in Switzerland. *

Cambodia's major trading partners in the 1980s were Vietnam, the Soviet Union, and the countries of Eastern Europe, particularly the German Democratic Republic (East Germany), Czechoslovakia, Poland, Hungary, and Bulgaria. Cambodia also claimed to have trade relations with Japan, one of several countries that had recognized Sihanouk's Coalition Government of Democratic Kampuchea (CGDK) and had imposed a trade embargo on the Phnom Penh government of the People's Republic of Kampuchea (PRK). *

Trade with Vietnam in the 1980s

In February 1979, Cambodia signed a Treaty of Peace, Friendship and Cooperation with Vietnam that formally strengthened "solidarity and cooperation" between the two countries. As part of the Vietnamese aid program to Cambodia, a joint scheme of pairing Cambodian provinces with Vietnamese "sister provinces" was inaugurated in the same year for the purposes of economic cooperation and of technical, educational and cultural exchange. Cambodia's Rotanokiri Province, however, was linked with two neighboring Vietnamese provinces--Nghia Binh and Gia Lai-Cong Tum. In addition, the municipality of Phnom Penh was paired with two Vietnamese cities--Ho Chi Minh City and Hanoi. Except for the municipalities of Hanoi and Haiphong, all of the Vietnamese participants in the scheme were located in former South Vietnam near their Cambodian counterparts. [Source: Library of Congress, December 1987 *]

The paired provinces were engaged mostly in barter trade the volume and value of which were unpublicized. Some observers argued that the system facilitated the integration of Cambodia's economy into Vietnam's. They pointed to the case of Batdambang Province, which sent tons of rice to its overpopulated and underfed Vietnamese sister province, Quang Nam-Da Nang, in exchange for bicycles and cement. In another case, Cambodia's Siemreab-Otdar Meanchey Province, supplied Vietnamese counterparts in Binh Tri Thien Province with unmilled rice and other agricultural products; in return, Vietnam supplied workers from Hue and its suburbs to help run the building industry in Siemreab-Otdar Meanchey This exchange came at the expense of Cambodian workers, who were assigned to find clay, while the new Vietnamese settlers produced bricks and tiles and made a good living. In Siemreab city, the Vietnamese also assumed control of the biggest fish-sauce factory. *

According to a Cambodian official's evaluation of foreign cooperation, the pairing system worked successfully. The exchange of goods between the sister provinces and cities helped "meet the needs of the people promptly." Reportedly, the system also helped Cambodia fulfill all of its development targets for 1986. In February 1986, Cambodia and Vietnam signed an agreement to double their trade for that year. *

Trade with the Soviet Union and the Eastern Bloc in the 1980s

The first important trade agreement between Cambodia and the Soviet Union was signed in February 1983 and covered three years, 1983 through 1985. According to a Soviet source, Moscow's trade turnover with Cambodia during this period increased from 71.8 to 100.3 million rubles. Cambodian exports were mainly rubber, while imports from the Soviet Union consisted of refined petroleum products, textiles, and chemical fertilizers. [Source: Library of Congress, December 1987 *]

In July 1984, Cambodia--following the examples of Vietnam, Laos, and the East European countries--set up an Intergovernmental Commission for Trade, Economic, Scientific, and Technical Cooperation to manage its bilateral trade with the Soviet Union. The first session of the commission was held in January 1985. At its fourth meeting, in December 1987, protocols were signed regarding the restoration of rubber plantations and the development of some joint state enterprises. On March 28, 1986, the two countries signed a five-year trade and aid agreement for the period 1986 to 1990 that would double the level of trade over that of the previous five-year period. The Soviet export package included tractors, fertilizer, petroleum products, machines, and raw materials. In exchange, Cambodia was to export raw rubber, timber, and plant-based industrial products such as lacquer. According to the Phnom Penh Domestic News Service, by the end of 1986 Cambodia had shipped 91 percent of its planned exports to the Soviet Union and had received 104 percent of its planned imports in return. During Cambodian Prime Minister Hun Sen's visit to Moscow in July 1987, the Soviet press reported that the volume of goods sold by the Soviet Union to Cambodia in the 1986 to 1990 period would increase one-and-one-half times over the previous five-year period, whereas goods sold by Cambodia would increase more than four times. In November 1987, the two countries concluded trade-payments agreement for 1988. Under the terms of this agreement, the Soviet Union was to ship vehicles, tractor equipment, and fertilizer and would receive in exchange "traditional export goods" from Cambodia. Trade turnover between the two countries was projected to reach nearly 80 million rubles in 1988. *

In 1986 the total trade between Cambodia and East Germany reached about 14 million rubles, a 17 percent increase over the 1985 total of 12 million rubles. Cambodia exported more than 12 million rubles worth of rubber to East Germany and an additional million rubles worth of other goods. Cambodia's imports from East Germany amounted in value to more than 965,000 rubles. Trade between Cambodia and Czechoslovakia totaled to 4.4 million rubles in 1985. In 1986 Cambodia exported 800 tons of rubber, more than 400 cubic meters of timber, and 700 tons of soybeans to Czechoslovakia. Cambodian imports from Czechoslovakia consisted chiefly of medicine and cloth. The two countries signed a protocol in Prague on October 29, 1987, on the exchange of goods planned for 1988. Under the terms of the protocol, total trade would increase by 19 percent over the 1987 level. Cambodia was to export rubber, beans, and timber to Czechoslovakia and was to import tractors, diesel engines, and pharmaceuticals. *

Cambodia's trade with Poland between 1982 and 1985 was estimated at 4.4 million rubles. Cambodia exported rubber, timber, and soybeans and imported Polish textiles, ship engines, and glassware. The two countries set a trade target for 1986 to 1990 amounting to 14.3 million rubles. In 1986 the trade between Cambodia and Poland amounted to 2.1 million rubles. On February 18, 1987, the two countries negotiated a trade agreement for the year stipulating that Cambodia would export crepe rubber, timber, furniture, soybeans, sesame seeds, and farm products; it would import, in return, antitrust paint, soldering rods, sewing machines, boat engines, raw materials for medicine, and consumer goods. *

Exports

Four fifths of Cambodia’s exports are garments, Rules that govern the garment trade could have shut the industry down if Cambodia didn’t join the WTO.

Clothing and textiles as a share of the country’s exports in 2002: 84.4 percent, 1st in the world. Value of clothing and textiles exports at that time: $1.2 billion. [Source: WTO and OECD]

In the 1980s Cambodia's principal exports included natural rubber (latex), resin, maize, tobacco, soybeans, and timber. Private Western sources estimated Cambodia's 1985 export earnings at US$10 million. Other sources reported that they were $US3.2 million just one year later. [Source: Library of Congress, December 1987]

Imports

In the 1980s Cambodia's major imports have consisted of machinery, tractors, vehicles, fuels and raw materials for light industry, consumer goods, clothing, cement, and chemical fertilizers. [Source: Library of Congress, December 1987]

Foreign Investment in Cambodia

According to Reuters: Cambodia has seen a rush of investment in recent years, especially into the shoe and garment sector, with Western and Asian firms attracted by its low-cost labour. The International Monetary Fund says garments account for about 80 percent of the Southeast Asian country's exports.

Foreign manufacturers have begun looking for new investment locations to replace China, where labor costs have risen and the government started reviewing the preferential treatment of foreign capital. Cambodia imposes no restrictions on foreign capital in most industrial sectors and its administrative systems are highly transparent. The Cambodian government also plans to set up 10 special economic zones across the country and has made efforts to have close contact with the private sector. [Source: Takashi Kikuchi, Yomiuri Shimbun, June 14, 2007]

Cambodia has wooed foreign investors with promises of eight-year tax holidays, income tax breaks, no price controls and fair repatriation of profits. In the early 1990s there were few takers when foreign investment was below $100 million. By early 1996 it topped $2 billion.

In recent years in Cambodia, the inflow of foreign capital has helped the country's labor-intensive textile industry become second only to agriculture in the nation's economy. Cambodia's advantage is low manufacturing costs, though its productivity is lower than China.

Few foreign investors invent in Cambodia for the long term. The Cambodian finance minster said in 2000: “Cambodia lives in the casino economy where investors come quickly and leave quickly.” Money from foreign investors helps the elite and well connected buy new cars and additional homes but little of trickles down the poor, except perhaps people who get low-paying hotel or casino jobs.

Foreign Investors in Cambodia

Most investment in the industry in Cambodia comes from Taiwan, Hong Kong, China and South Korea. According to the Council for the Development of Cambodia, South Korea was the top direct investor in the country on a registered basis, pouring in $2.36 billion between 1994 and 2006. China, ranked third, invested $1.58 billion during that period. Japan invested only $22 million, accounting for 0.2 percent of foreign direct investment in Cambodia. The figure was dwarfed by the $600 million from the United States and the European Union.

Vietnam, Thailand, Malaysia and Singapore are also major investors in Cambodia. Cambodia received $7.3 billion worth of foreign direct investment between 1995 and 2005. Of this Malaysia, which made big investments in to the natural resource sector, including natural rubber, and tourism, was the largest investor, accounting for 31 percent of the total, followed by Singapore, Taiwan, South Korea, Hong Kong and China. Investments from Japan and the United States in this period were relatively low.

The Chinese have become major players in a relatively short time. This is especially remarkable when considering they were the Khmer Rouge’s main supporters. Mandarin is the most popular foreign language after English.

In August 2010 Singapore-based Leopard Capital said it planned to raise $50 million in capital to invest in Cambodia and Laos. It invested in things like Kingdom Breweries, Cambodia’s first microbrewery, and Acleda Bank Plc.

Qatar and other countries that rich in cash but poor in agricultural land have shown an interest in renting large tracts of land to grow crops.

TOURISM IN CAMBODIA

Tourism an important industry and source of foreign exchange in impoverished Cambodia. A key pillar of the economy, it accounted for one-fifth of the country's gross domestic product in the mid 2000s and has shown signs of growth after the post-2008 slump. The Cambodia Daily newspaper reported that tourist arrivals increased 13 per cent in the first six months of 2011, with growth driven by visitors from China, South Korea and Vietnam. Cambodia is hoping to attract lots of Chinese tourists.

Number of foreign visitors: 90,000 in 1993; 220,000 in 1996; 446,365 in 2000, a 27 percent increase from the year before; 1.4 million in 2005, a tenfold increase from 1995; 2.12 million in 2008. Many come to Cambodia simply to see Angkor Wat. South Koreans made up the largest percentage of 1.7 million foreign visitors to Cambodia in 2006.

The average foreign tourist only stays for 2½ days in Cambodia. Most do a quick trip to Angkor Wat and leave. Money generated from tourism: $50 million 1992; $157 million in 1999; $208 million in 2000. It is estimated that tourism in 2005 created jobs for 160,000 people. Malaysian developer Francis Yeow Sock Ping has a plan to build a $80 million "archeo-ecological" tourist resort near Angkor Wat.

In 2005, about half of the 1.4 million visitors who came to Cambodia went to see the Angkor monuments, architectural masterpieces built at the height of the Khmer empire from the 9th to the 15th centuries. Total tourist arrivals for Cambodia in 2005 were an impressive 34.7 percent above 2004's figures. [Source: Ker Munthit, The Associated Press, November 21, 2006]

Cambodia is regarded as a destination for ecological and cultural tourism. It is well-known for its 12th century Angkor Wat Temple, a world heritage site, which is situated about 315 kilometers northwest of Phnom Penh. Also, it has a pristine coastline stretching in the length of 450 kilometers in four provinces of Koh Kong, Preah Sihanouk, Kampot and Kep.

Vann Molyvann, Cambodia’s most revered architect, spent the 1990s as head of Apsara, an independent government authority created to safeguard the temples of Angkor Wat. By authoring a zoning plan that kept big hotels outside the borders of the ancient temple complexes, he was instrumental in preserving the area's authenticity and nurturing its tourism industry. Eventually the Hun Sen government pushed him out of Apsara: he was deemed insufficiently friendly to development. [Source: Matt Steinglass, New York Times, May 15, 2005]

UNESCO World Heritage Sites: Angkor and the Temple of Preah Vihear

See Angkor Wat

Late 1980s. See Phnom Penh, Places.

Cambodia Welcomed 3.58 Million Foreign Tourists, Mostly from Asia, in 2013

In February 2013, Xinhua reported: “Cambodia is predicted to greet 4 million foreign visitors this year, an expected 12 percent rise year-on-year, Tourism Minister Thong Khon said Monday. "Last year, we received 3.58 million foreign tourists, up 24 percent year-on-year, and generated total revenue of about 2.2 billion U.S. dollars.” He said about 75 percent of the tourists were from Asia-Pacific region and about 16 percent from European countries. "Besides, ASEAN member states see countries in Asia-Pacific region as our major tourism destinations, especially China, Japan, South Korea and India," he said. [Source: Xinhua, February 18, 2013]

The minister said that flight connections are very important to attract foreign tourists to Cambodia, saying that the country has already connected direct flights to seven countries out of the ten- member ASEAN, except Brunei and Indonesia. "This year, I hope that there will be direct flights from Japan to Cambodia and flight increases from China to Cambodia," he said.

Ang Kim Eang, president of Cambodia Association of Travel Agents, said the tourism growth from year to year was thanks to attractive tourism destinations, broad promotions, flight connections between Cambodia and foreign countries and visa exemptions among ASEAN member states. "If everything continues going well, I believe that the country's tourism sector will see stronger growth this year," he said.

Sex Tourism in Cambodia

Sex tourism is a major draw, See Sex.

Boutique Hotel Provides Work for the Poor

Austin Ramzy wrote in Time: “Cambodia has some of the world's most beautiful temples, but they are surrounded by dusty villages mired in extreme poverty. For the country's tourism trade, that would seem like a drawback. For entrepreneur Sokoun Chanpreda, it looked more like an opportunity—a chance to put an industry with jobs to fill together with people who need the work. [Source: Austin Ramzy, Time, April 30, 2007 <>]

“At the Shinta Mani, an 18-room boutique hotel Sokoun founded near Angkor Wat, that's just what's going on. The hotel's hospitality institute opens its doors to poor students and gives them a free nine-month education in high-level restaurant and hotel work. More than 60 students have completed the program since it started in 2004, and all have managed to find jobs. After scraping by on as little as $5 a month, they can earn $80 to $120 upon graduation. <>

“Philanthropy is the animating idea of the hotel, but it still needs to generate a profit to stay in operation. Sokoun, 42, who is also a co-founder of Bed Supperclub, a sleek Bangkok nightspot, has that worked out, mostly by making the charitable mission part of the hotel's allure. Visitors who come to the Shinta Mani help sponsor students, and have even donated $150,000 over the past two years to provide aid such as wells, livestock and sewing machines for 340 families in the area. "We create a unique differentiation between our hotel and the hotel across the street," says William D. Black, managing director of Bed Management, the Shinta Mani's parent company. <>

“Sokoun's past is part of the reason he's driven to both do well and do good. He fled Cambodia with his family in 1970 just as a 20-year civil war broke out, and he returned for the first time in the early 1990s. "If my family had not left, I would be dead," he says. Instead, he can give back through the Shinta Mani. The hotel's guests, meanwhile, can go home thinking not just about Cambodia's poverty but also about their contribution to ending it. <>

Image Sources:

Text Sources: New York Times, Washington Post, Los Angeles Times, Times of London, Lonely Planet Guides, Library of Congress, Tourism of Cambodia, Compton’s Encyclopedia, The Guardian, National Geographic, Smithsonian magazine, The New Yorker, Time, Newsweek, Reuters, AP, AFP, Wall Street Journal, The Atlantic Monthly, The Economist, Global Viewpoint (Christian Science Monitor), Foreign Policy, Wikipedia, BBC, CNN, NBC News, Fox News and various books and other publications.

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© 2008 Jeffrey Hays

Last updated May 2014

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