Updating investment and business environment and ......Assembly, electronics and spare parts manufacturing Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region 10

CAMBODIA - UPDATING INVESTMENT AND BUSINESS ENVIRONMENT AND OPPORTUNITIES FOR

ENHANCED CONNECTIVITY OF VALUE-SUPPLY CHAINS IN THE MEKONG SUB-REGION

SOK SOKEN Deputy Director, Private Investment Strategy Analysis Department

Cambodian Investment Board (CIB)

Council for the Development of Cambodia (CDC)

KINGDOM OF CAMBODIA

The 2nd Mekong – Republic of Korea Business Forum

“Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region”

Hanoi, VN, 29 March 2014

1

Table of contents • Putting everything into perspective

• GVC, GSC (external forces, trends)

• Regional initiative (ASEAN, APEC)

• Sub-regional initiative (GMS, BIMP-EGA, IMT-GT)

• Current Investment and Business environment • FDI Policy regimes

• Investment data

• Investment promotion materials (including G-PSF)

• Updates on investment and Business environment • Supply chain Infrastructure and Cross border infrastructure (CBI)

– (hard [transport and energy] and soft [border administration, etc.])

• G-PSF and outcomes

• Opportunities for enhanced connectivity of value-supply chains in the Mekong sub-region

• Domestic value chain – downstream (agro processing for rice, rubber, cassava, maize)

• Domestic value chain – upstream (parts and components for domestic industry, Fabric production for garment)

• Regional value chain – (miniature motors, wire harness, ignition parts, INTERMEDIARY goods)

2 Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

I - Putting everything into perspective

GSC & GVC (80% of global trade,

WTO)

Economic trend: emerging markets, BRIC, ROK, Africa

(patterns of outsourcing and

offshoring)

Ecological trend: awareness of env.

issues (scarce resource costs and supplies)

Regulatory trend: new rules (CSR,

sustainability)

Natural disasters (disruptions to key

component supplies)

Demographic trend

(demographic structure changes

demand preferences)

New technological

trend (new business

models/platforms)

3

Source: Chang et al. (2012), APEC Policy Supporting Unit

Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

I – Putting everything into perspective – Regional and sub-regional

initiatives

• To enhance scalability and expand market through improving supply chain connectivity

across borders and improve business environment behind the border: cost, time and

uncertainties for trade

• Regional • ASEAN – CBI Development

• Physical Connectivity • Transport projects - 9 regional transport agreements (air freight, goods in transit…), ASEAN Highway networks [38,400km],

Singapore-Kunming Rail link [7,000km]

• Energy sector projects (ASEAN Power Grid – 14 interconnection projects, trans-ASEAN Gas pipeline – 8 gas interconnection projects)

• APEC • Supply Chain Connectivity Framework Action Plan

• Supply Chain Visibility Initiative (reduce logistics and warehousing costs)

• Sub-regional • GMS

• 10-year Strategic Framework – increase connectivity and competitiveness(11 programmes and 3 economic corridors)

• Cross-border Transport Agreement (CBTA) – facilitates [single stop custom inspection, movement of people, road standards and signage, transit traffic regimes]

• BIMP-East Asia Growth Area

• IMT – Growth Triangle

• Pan-Asia Infrastructure initiative: Asian Highway

• CHALLENGES to supply chain connectivity • Gaps in economic and infrastructure development (asymmetric distribution of regional infrastructure)

• Too many different regulatory requirements


II – Investment and business environment in Cambodia


Embracing globalization process – outward looking

economic development strategy

6

JOINING

WTO JOINING

ASEAN

Everything

But

Arms (EBA)

ASEAN

Economic

Community


Assessment of FDI Policy Regimes based on legal documents - ASEAN

7

+ High score indicates open FDI policy regime

+ Singapore is very open

+ The Philippines, Thailand, Indonesia and Cambodia are relatively open

+ Myanmar, Malaysia, Brunei and Lao, PDR are relatively closed.

Source: Urata and Ando (2010)


Investment environment in Cambodia

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 20122013

e

GDP 9.20 6.50 5.30 5.70 5.00 12.6 9.20 7.70 6.20 8.60 10.0 13.3 10.8 10.2 6.70 0.10 5.90 7.10 7.30 7.60

Inflation 17.9 3.50 10% 9.20 13.3 4.00 -0.8 0.20 3.30 1.20 3.90 5.80 4.70 5.9% 19.7 -0.6 4.00 4.90 3.00 4.00

-5.00%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

0%

2%

4%

6%

8%

10%

12%

14%

z

Source: SNEC & MEF


Rectangular Strategy Phase III - Growth, Employment, Equity and Efficiency


Encouraged Investment Activities

Agriculture and agro-industry

Transport and telecommunications

Energy and electricity

Labor-intensive industries, processing and manufacturing;

Tourism

Human resource development

Oil & Gas, Mining

New high value-added and more creative industries

Heavy industries

Assembly, electronics and spare parts manufacturing


Council for the Development of Cambodia (CDC)

Investment application

CDC issues a Conditional Registration Certificate (CRC) to the Applicant

Company Registration / Ministry of Commerce

Relevant licenses, as appropriate / Ministry of Industry and Handicraft

Review and approval of construction plan / local authorities-

Ministry of Land Management, Urban Planning and Construction.

Initial environmental impact assessment / Ministry of Environment

Tax Department Registration / Ministry of Economy and Finance

CDC issues a Final Registration Certificate (FRC) to the Applicant

3 working

days

28 working

days


Incentives

Non-fiscal incentives

No nationalization

No requirement of local equity

participation

No discrimination between foreign

and domestic investors (except land

ownership)

No restriction on capital repatriation

Special accelerated depreciation for

reinvestment of profit

No foreign exchange control

No price control and quantitative

trade restriction

Fiscal incentives

• Low corporate tax at 20%

• Exemption on import duty and export tax

• Production equipment and Construction materials imported by Qualified Investment Project (QIP)

• Production inputs imported by Export QIP

• Profit tax exemption –

• Trigger period 0-3 years + Grace period 3 years + Priority period 0-3 years determine by Financial Management Law

• Up to 9 years (Agriculture, Heavy Industry [>5m] and infrastructure [>30m] )


Accumulated Investments (1994-2013)

9,611

4,405

3,649

2,620

1,524 1,294

1,021 899 870 786 391

-

2,000

4,000

6,000

8,000

10,000

12,000

Ch

ina

Ko

rea

EU

Ma

laysia

Vie

tna

m

US

A

Ta

iwa

n

Th

aila

nd

Ho

ng

Ko

ng

Sin

gap

ore

Ja

pa

n

US$ Million

13

Agriculture 10%

Industry 29%

Service 17%

Tourism 44%


Investment by Mekong sub-region countries and ROK

2009 2010 2011 2012 2013 Jan-Apr 2014

Korea $120,135,261 $1,063,407,238 $163,249,209 $293,288,856 $85,150,716 $44,085,480

Vietnam $352,085,036 $153,252,238 $690,973,515 $84,754,552 $279,661,413 $2,641,181

Thailand $182,899,276 $2,044,408 $8,207,022 $125,831,610 $216,653,329 $16,699,385

$0

$200,000,000

$400,000,000

$600,000,000

$800,000,000

$1,000,000,000

$1,200,000,000

Investment from Korea, Vietnam, and Thailand in Cambodia


Rank

2008 2009 2010 2011 2012 2013

$11,420,127183 $6,309,435,594 $3,029,497,634 $7,984,908,645 $2,965,537,652 $3,314,528,763

Country % Country % Country % Country % Country % Country %

1 China 39.45 Cambodia 60.81 Korea 35.10 U.K 30.93 Cambodia 42.08 Cambodia 68.80

2 Cambodi

a

36.73 China 14.93 China 28.73 Cambodia 29.76 China 20.69 China

15.68

3 Korea 10.89 Vietnam 5.58 Cambodia 14.91 China 22.05 Korea 9.89 Vietnam 6.10

4 USA 5.59 Singapore 4.81 Malaysia 8.53 Vietnam 8.65 Japan 9.15 Thailand 4.37

5 Israel 2.63 Russia 3.84 Vietnam 5.23 Malaysia 3.03 Malaysia 6.04 Korea 1.76

6 Russia 0.92 Thailand 3.53 Portugal 1.66 Korea 2.10 Thailand 4.53 Japan 1.59

7 U.K 0.59 Korea 2.89 Australia 1.65 U.S.A 1.78 Vietnam 2.89 Malaysia 1.04

8 Austria 0.54 India 1.90 Singapore 1.02 Japan 0.83 Singapore 2.59 Singapore 1.03

9 Vietnam 0.51 Malaysia 1.19 Denmark 0.97 Australia 0.31 U.K 0.51 UK 0.43

10 France 0.50 Japan 0.20 Japan 0.86 Singapore

0.20 U.S.A 0.42 France

0.27

11 Others 1.28 Others 0.32 Others 1.35 Others 0.35 Others 1.21 Others 0.96

Investment Ranking (2008-2013)


Reasons to invest in Cambodia

Political stability and open economy

Sound Macroeconomic Environment

Competitive Investment Incentives

Young and dynamic labor force (median age: 24 years old)

Low Labor Cost

Strategic Location

Preferential Trading Status

Market access to major world markets on duty-free quota free basis


III – Updating investment and business

environment in Cambodia


Infrastructure - Improvement of domestic and cross border connections

• Phnom Penh – Ho Chi Minh City

Expressway Plan ( travel time and

cost savings, bilateral trade up 40%,

border crossing up 53%, special

border economic zones creating jobs)

• Bridge (Nek Leoung Bridge,

Cambodia and China Friendship

Bridge,…) and road constructions (

National Road number 5, and 6,…) are

being built.

• New Phnom Penh Port is built and

operated with capacity 150,000 TEUs,

will be expanded to 300,000 TEUs by

2015, and 500,000 TEUs after 2017.

• Sihanokville Port has one jetty and

two wharfs:

The old Jetty have two berths for 10 000

DWT and 7 000 DWT vessels at a time.


Infrastructure – Special Economic Zone

From 1994 to 2014: 34

SEZs have been approved

which has 92 factories are

being operated.

An informal Bilateral

Meeting on Cambodia-

Thailand Joint Special

Economic Zone Development

Cooperation for the Border

areas of Bantey Meanchey-Sa

Kaeo and Koh Kong-Trat.

A new SEZ will be

established near by New

Phnom Penh Port, and this

project is under preparatory

survey by JICA.


Infrastructure Power Supply

By 2013, Cambodia has electricity supply about 1100MW.

Cambodia will get power supply from hydroelectricity dam 584 MW by 2015 and coal power plant 505MW by 2016.

Cross-border transportation

Royal government signed and ratified to 17

annexes and 3 protocols under Cross Border

Transportation Agreement (CBTA).

Bilateral agreement with neighboring

countries:

With Vietnam: 500 vehicles ( 98 trucks )

With Thailand: 40 vehicles ( 4 trucks )

With Laos PDR: 40 vehicles


In the process of revising the law on investment (1994) and

the law on the Amendment to the Law on Investment (2003)

Establishing of the law on Special Economic Zone (currently

only in the form of sub-decree).

Drafting on Industrial Development Policy 2014-2020

Policy and regulatory framework


Strengthening harmony in industrial relations between workers,

employees, and employers through adoption of the law on trade union,

updating labor law.

Mechanism for reviewing and setting minimum wages.

Adopted sub-decree on Cambodian National Qualification Framework.

Updating the education strategy plan, master plan on ICT in education

and policy on Research Development in Education.

Enhancing human resource capacity in science, technology and

vocational training, in priority sector: agriculture, industrial, energy, ICT,

infrastructure, engineering, and health care.

Labour market


Business consultation Government-Private Sector Forum (G-PSF)

23

Government Private Sector Forum (G-PSF)

(Chair by Prime Minister)

Sectoral Consultative Mechanism

(MEF/CDC)

Technical Working Groups:

1. Agriculture and Agro-Industry

2. Tourism

3. Manufacturing and Distribution

4. Legislation, Taxation and

Governance

5. Services, including Banking and

Financial Services

6. Energy, Infrastructure &

Transport

7. Export Processing & Trade

Facilitation

8. Industrial Relations

9. Paddy Rice and Milled Rice

10.Mine and Energy

Policy and Strategy Mechanism

Steering Committee for PSD

(MEF/MOC)

Sub-committee of

Investment Climate

and PPI

MEF/CDC

(World Bank)

Sub-committee of

Trade Development

and Trade-Related

Investment

MOC

(World

Bank/UNDP)

Sub-committee

of SME

MIME

(ADB)

Development Partners of PSD Coordination

Mechanism (World Bank)


Outcomes from the 17th Government-Private sector forum held on March 4th, 2014

Further reduction of 20% of the scanning fee is approved. Scanning fee for 40ft

container will decline from USD 40 to USD 32 and for 20ft container will decline

from USD 25 to USD 20. The Ministry of Economy and Finance will prepare

Prakas for implementing this by 1st April 2014.

An inspection on export goods for risk management will be done to the maximum

at 2% (formerly 5%) of total containers for exporting to trade partners

Incentives on the import of raw materials for producing luggage, handbag and hat

and similar products for export as provided to the garment and footwear

industries.

Approved on the establishment of Cambodia Rice Federation (CRF)

Business consultation Government-Private Sector Forum (G-PSF)


IV – Opportunities: 3 strategic paths

1. Upstream value-

added

• Bicycle parts

• Fibre, yarn, fabric

production for garment

manufacturing

2. Downstream

value-added

• Higher value added

for agro-industry

3. Involve in regional

production chain

• Wire harness

• Motor bike ignition

• Miniature motors

There are 12 out of 92

factories which are

focusing on spare-part,

assembly, electric, and

bicycle in Special

Economic Zones.

25

1998

2012

Source: Atlas of Economic Complexity

Type Cultivated Area (2013) Yield (2013) Cult. Area (2018)

Yield (2018)

Rubber 328,771 ha (P. estate17%,

ECL 41%, smallholder 42%)

(Mature: 78,493ha)

85,244 tons >420,000 ha 400,000 tons

Paddy 3,052,420 ha 9,389,961 tons 3,34 million ha 10,85 million tons

Cassava 377,239 ha 7,933,381 tons N/A N/A

Corn 180,327 ha

848,450 tons N/A N/A

Thank you


Documents

Updating investment and business environment and ......Assembly, electronics and spare parts manufacturing Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region 10