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. Introduction
B. Recent economic development
C. Investment climates
D. Area of investment
E. Special economic zone/Special production
zone (SEZ/SPZ)
F. Cambodia-Japan relationship
G. Conclusion
2
A. Introduction
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.
Cambodia passed a revised law on taxation which reaffirm its openness to foreign direct
investment.
There is no question that Cambodia remains a fiscally attractive location, with a

corporate tax rate of 20% for most activities.
CDC has been steadily improving its facilitation services for investors.
Investors have an effective voice in policy-making through the Government-Private

Sector Forum and the International Business Club (IBC).
Cambodia is large market, low wages, a liberal economy and one of the world great
assets for tourism.
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
6% Inflation
4%
2%
0%
2000 2001 2002 2003 2004 2005 2006
-2%
4
(con´t)
2. Cambodian real GDP growth by sectors (%)
20%
15%
10% Agriculture
Industry
Services
5% Total GDP
0%
2002 2003 2004 2005 2006
-5% 5
(con´t)
2. Cambodian real GDP growth by key sub-sectors (%)
50%
40%
30%
Paddy
20%
Garment
Tourism
10%
Non-Agriculture
0%
2002 2003 2004 2005 2006
-10%
-20% 6
(con´t)
3. Official exchange rate (Riel/US$)
4150
10
41
70
4100
40
31
40
4050
80
4000 39
35
39
10
3950 Exchange Rate

00
39
39
3900
3850
3800
3750
2000 2001 2002 2003 2004 2005 2006
7
(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
(con´t)
6. Cambodia´s balance of payments (Million US$)
600
Trade Balance
400
200 Balance of
Services
0 Balance of Income
-200
Current Transfers
-400
-600 Current Accounts
-800 Capital & Financial

-1000 Accounts
Change in Foreign
-1200 Reserves
2002 2003 2004 2005 2006
9
C. Investment Climate
1. Political stability
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.
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.
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
2. The rectangular strategy of RGC (con´t)
¾ The core of the rectangular strategy is good
governance focused at four reform areas:
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
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,

Trouble Senior Minister, Minister of Economic and Finance
Shooting 1st Vice Chairman
Committee
H.E. Dr. Cham Prasidh, H.E. Mr. Kong Vibol, First Secretary of State,
Senior Minister, Minister of Commerce Ministry of Economic and Finance
Vice Chairman Vice Chairman
H.E. Mr. Sok Chenda

Secretary General
Secretary General CSEZB Secretary General CIB Secretary General CRDB

H.E. Mr. Sok Chenda H.E. Mr. Suon Sitthy H.E. Mr. Chhieng Yanara
13
⇒ Flowchart of investment applications:
Chairman
H.E. Dr. Cham Prasidh, CDC Single-Stop-Service chaired by H.E. Dr.

CDC Vice Chairman Cham Prasidh,
> 7 days > 25 days

CIB
Secretary General
CIB
Department
Routine investment applications for Non-Routine complex investment

garment factories, footwear and their applications
supporting industries, and hotels 14
⇒ Newly create 3rd arm of the CDC: The SEZ Committee
Chairman
SSS
C-SEZ One Stop
CRDB CIB C-SEZ Service Meeting
presided by Premier
Minister of RGC and
CDC Chairman
CRDB SG CIB SG C-SEZ SG
Samdech Akkar
Mahar Senapadei
Dekchor Hun Sen
Public Private Private
Investment Investments Investments
Outside SEZ Inside SEZ
15
⇒The Cambodian Investment Board (CIB):
A One Stop Service
Information & Application
Analysis & Evaluation
Approval
Customs Duty & Tax Exemption
Visa & Work Permit
Company Registration
16
⇒ Licensing Authorities:
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
CDC : less than $ 50 million
Provincial Authorities : less than $ 2 million
Management Board of Special Economic Zones: project within the

zones
17
⇒ Investment approval:
Investment Application
3 Working
CDC issues a conditional Registration Certificate to the Applicant
Days
Company Registration/Ministry of Commerce

Relevant licenses as appropriate/Ministry of Industry and Energy
Review and approval of construction plan/local authorities 28 Working
Ministry of Land Management, Urban Planning and construction Days
Initial environmental impact assessment/Ministry of Environment
Tax Department Registration/Ministry of Economic and Finance
CDC issues a Final Registration Certificate to the Applicant 18

⇒ Incentives comparison
1994 2003
9% corporate income tax 20% corporate income tax

Tax holidays up to 8 Years Trigger period +3years+n
(according to matrix) (automatic)
Reinvestment of profit Reinvestment of profit
(Tax free) (special depreciation)
Reinvestment of earning Reinvestment of earning
(Tax free) (withholding tax)
Full import duty exemption Full import duty exemption
No export tax No export tax
Licensing (evaluation and approval) Licensing (simple)
19
⇒ Investment protection: The investment law and sub-decree
contains a number of important guarantees for the
investors:
Equal treatment of all investors
No nationalization adversely affecting the property of
investors
No price controls on products or services
No restriction on foreign equity participation
No restriction on foreign convertibility
Remittance of foreign currencies abroad.
20
⇒ Increasing the participation of firms in the formal economy
by reducing the regulatory burden on firms including:
Government-Private Sector Forum: Meeting in every 6 months.
Lowering the cost of commercial registration: We have
therefore lowered this cost by US$400.
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.
Lowering the minimum capital requirement for registration: We
have therefore lowered from $5,000 to lower than $1,000 dollars.
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
4. Location and Market Access
22
4. Location and Market Access (con´t)
⇒ Location:
23
⇒ Location: The large market of Cambodia is the function of location,
not the domestic market of Cambodia
24
⇒ ASEAN Membership: Tariff reduction schedule
Country Industrial and Agro- Agricultural Products
Industrial Products
IL TEL 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 & 1998-2008 2001-2008 2001-2008 2002-2008 2008-2015

Myanmar
Cambodia 2000-2010 2003-2010 2003-2010 2004-2010 2008-2017
Remark: IL: Inclusion List, TEL: Temporary Exclusion List, SL: Sensitive List 25
⇒ ASEAN Membership: AISP for CLMV
Abbreviation of CLMV : Cambodia, Laos, Myanmar and Vietnam 26

⇒ 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
⇒ 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
⇒ WTO membership: Cambodian tariffs schedule
29
⇒ WTO membership: Cambodian service commitments
Undertaken market access and national treatment commitments in at
least one sub-sector under each of 11 different services.
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.
Allowing foreign firms to provide higher education and adult education

services.
Reserving part of a market for Cambodian small and medium sized

enterprise in areas such as banking, tourism and courier services.
30
⇒ Great Mekong sub-region
31
⇒ Great Mekong sub-region
32
⇒ Countries according MFN/GSP to Cambodia = 0% import duty
or reduced import duty for Cambodian exports
Australia Germany Portugal

Austria Hungary ROK
Belarus Ireland Russian Federation
Belgium Italy
Slovakia
Bulgaria Korea
Canada Luxemburg Spain
China Japan Sweden
Czech Republic Netherlands Switzerland
Denmark New Zealand UK
Finland Norway
USA
France Poland
ASEAN-6
33
⇒ Bilateral agreement on the promotion and protection of investments
between the Kingdom of Cambodia and other Countries.
– Already signed:
1. Malaysia 8. France 15. Pakistan

2. Thailand 9. Philippines 16. Austria
3. USA (OPIC) 10. OPEC 17. Australia
4. China 11. Croatia 18. Indonesia
5. Switzerland 12. Cuba 19. Germany
6. Singapore 13. Vietnam
7. ROK 14. Netherlands
– In the pipeline: Laos, Myanmar, Czech Republic, Ukraine, Egypt, Russia, PDR
Korea, Libya, UK, Algeria and Japan.
34
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
5. Cost and labor (con´t)
⇒ Average monthly salaries for different professional levels:
Position Salary in US$ (2004)
Manager, senior level 1,000-1,500
Manager, middle level 500-1,000
Manager, entry level 250-400
Accountant 250-400
Secretary 120-150
Office Clerk 100-120
Messenger 100-120
Driver 100-120
Janitor 40-80
Laborer 40-80
36
D. Area of Investment
1. Investment in Cambodia
⇒ FDI in Cambodia (in USD Million)
3500
37
30
3000
2500
2000
Total FDI
1500
1
83
1000
8
4
61
57
55
2
34
500
6
5
0
19
16
14
14
63
0
96
97
98
99
00
02
03
01
04
05
06
19
19
19
19
20
20
20
20
20
20
20
37
D. Area of Investment (con´t)
1. Investment in Cambodia (con´t)
⇒ Investments by Countries 1994-1st Half 2006 (Million US$)
2,500
059 6
2, ,95
2,000 1
9
35
1,500
1,
1,000
9
55 7
1
500
35
33
7
26
20
0
EU
SA
na
n
a
ea
pa
si
or
n
hi
or
la
ay
ap
Ja
C
ai
K
al
ng
Th
M
Si
38
1. Investment in Cambodia (con´t)
⇒ Investments by Sectors 1994-1st Half 2006 (%)
Tourism, 23%
Agriculture, 7%
Service, 34% Industry, 36%
39
2. Encouraged investment activities
Agriculture and agro-industry
Transport and telecommunications infrastructures
Energy and electricity sectors
Labor-intensive industries and export- oriented
processing and manufacturing;
Tourism-related industries
Human resource development
40
2. Encouraged investment activities (con´t)
⇒ Agriculture and agro-industry
Key agrarian economy
Natural endowments
Organic crops
Value-added emphasis/
Food processing
New products/technology
development 41
⇒Transport and telecommunications infrastructures:
a definitely prospect
Priority for infrastructure
Infrastructure rehabilitation
Multilateral aid availability
Decentralization
Regional and sub-regional
Opportunities/integrations
Private Participation in
Infrastructure (PPI): BOT, BOO, etc. 42
⇒ Transport and telecommunications infrastructures: a definitely prospect
for investors.
43
⇒Tourism
World heritage monuments
Open sky policy to Siem Reap
Ability to attract “add-on” trips
Natural beauty
Novelty value
44
⇒Manufacturing and export
Competitive labor cost
Patient and brave labor
Tax incentives
Market access
Regional arrangement
Favorable location
45
E. Special Economic Zone/Special
Production Zone
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
Production Zone (con´t)
47
48
49
50
51
52
53
⇒ Phnom Penh Special Economic Zone
(PPSEZ):
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.
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
55
F. Cambodia-Japan Relationship
Relationship between Japan and Cambodia
started when Morimoto Ukondayu Kazufusa
visited Angkor Wat in the early 17th century.
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).
After that, different agreements were concluded

between the two countries for structure of a true
relationship at the governmental level. 56
(con´t)
⇒ Japan is the largest Donor Country for
Cambodia:
Japan is the top Donor Country to Cambodia,
accounting for 25 percent of all assistance to Cambodia.
Grants: 115.5 billion yen (Total of 1992-2006)
Technical Cooperation: 43.3 billion yen (Total of 1992-

2006)
Yen Loan: 16.0 billion yen (Total of 1992-2006)

57
(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
Ensure fair and equal competitive environment for investors
Enhance predictability and transparency of the basic rules
and regulations
Ensure legal stability
Protect investments Protect
2. Public-Private Dialogue Mechanism:
Improve the investment environment
Ensure strict implementation of the BIT, the investment
related laws and administrations procedures
Solve problems faced by investors
58
(con´t)
⇒Some milestones:
ASEAN-Japan Comprehensive Economic
Partnership
– Commencing negotiation in April 2005
Initiative of the Prime Minister Junichiro

KOIZUMI
– Official Development Assistance to CLMV
Countries amounting to US$1.5 billion for 3 years
59
(con´t)
⇒ Comprehensive Economic Partnership (CEP)
ASEAN-JAPAN: Objectives
Strengthen economic integration between ASEAN and
Japan through the creation of a CEP;
Enhance the competitiveness of ASEAN and Japan in the
world market through strengthened partnership and linkages;
Progressively liberalize and facilitate trade in goods and
services as well as create a transparent and liberal
investment regime;
Explore new areas and develop appropriate measures for
future co-operation and economic integration; and
Facilitate the more effective economic integration of the
newer ASEAN Member States and bridge the development
gap among the ASEAN Member States.
60
(con´t)
⇒ASEAN-Japan Commemorative Summit
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.
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
(con´t)
⇒ Japan's commitment to the Doha
Development Agenda (DDH):
Hong Kong WTO Declaration (December 2005)
PM Junichiro Koizumi's statement on Japan's

initiative for LDCs
– >97% of tariff lines for duty-free and quota-
free 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 63
THANKS YOU
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CAMBODIA:

Phnom Penh, 30 Dec 2007

 There is no question that Cambodia remains a fiscally attractive location, with a

 Investors have an effective voice in policy-making through the Government-Private

3950 Exchange Rate

3,000 Total Deficit

-800 Capital & Financial

 The long-term political alliance between the CPP and FUNCIPEC

 The election of His Majesty Preah Bat Preah Boromneath

 This allows the government to pursue bold reforms to liberalize and

¾ Partnership in Development, including strengthening

H.E. Mr. Kiet Chhon,

H.E. Mr. Sok Chenda

Secretary General CSEZB Secretary General CIB Secretary General CRDB

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

> 7 days > 25 days

Routine investment applications for Non-Routine complex investment

 CDC : less than $ 50 million

 Provincial Authorities : less than $ 2 million

 Management Board of Special Economic Zones: project within the

 Company Registration/Ministry of Commerce

CDC issues a Final Registration Certificate to the Applicant 18

 9% corporate income tax  20% corporate income tax

ASEAN-6 1993-2003 1996-2003 1996-2003 1997-2003 2001-2010

Vietnam 1996-2006 1999-2006 1999-2006 2000-2006 2004-2013

Laos & 1998-2008 2001-2008 2001-2008 2002-2008 2008-2015

Abbreviation of CLMV : Cambodia, Laos, Myanmar and Vietnam 26

 Allowing foreign firm to operate in the areas of legal services (with

 Allowing foreign firms to provide higher education and adult education

 Reserving part of a market for Cambodian small and medium sized

 Australia  Germany  Portugal

1. Malaysia 8. France 15. Pakistan

Service, 34% Industry, 36%

 The investment project has been approved by the

 After few year from the end of the world war,

 After that, different agreements were concluded

 Grants: 115.5 billion yen (Total of 1992-2006)

 Technical Cooperation: 43.3 billion yen (Total of 1992-

 Yen Loan: 16.0 billion yen (Total of 1992-2006)

Initiative of the Prime Minister Junichiro

 The Tokyo Declaration intended

 PM Junichiro Koizumi's statement on Japan's

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There is no question that Cambodia remains a fiscally attractive location, with a

Investors have an effective voice in policy-making through the Government-Private

The long-term political alliance between the CPP and FUNCIPEC

The election of His Majesty Preah Bat Preah Boromneath

This allows the government to pursue bold reforms to liberalize and

CDC : less than $ 50 million

Provincial Authorities : less than $ 2 million

Management Board of Special Economic Zones: project within the

Company Registration/Ministry of Commerce

9% corporate income tax 20% corporate income tax

Allowing foreign firm to operate in the areas of legal services (with

Allowing foreign firms to provide higher education and adult education

Reserving part of a market for Cambodian small and medium sized

Australia Germany Portugal

The investment project has been approved by the

After few year from the end of the world war,

After that, different agreements were concluded

Grants: 115.5 billion yen (Total of 1992-2006)

Technical Cooperation: 43.3 billion yen (Total of 1992-

Yen Loan: 16.0 billion yen (Total of 1992-2006)

Initiative of the Prime Minister Junichiro

The Tokyo Declaration intended

PM Junichiro Koizumi's statement on Japan's