Tuesday, 12 August 2008

Opinion: Election results signal bright future for Cambodia's economy

The Phnom Penh Post

Written by Benny Widyono
Monday, 11 August 2008

The landslide victory of the Cambodian People's Party at the July 27 elections, in which it is expected once official results are released to have won 90 seats out of 123, a gain of 17 seats from the 2003 election, bodes well for the future of Cambodia and it will bolster the 23-year rule of Prime Minister Samdech Hun Sen, who is considered a fulcrum of economic stability.

Hun Sen's victory, the third since UNTAC (United Nations Transitional Authority of Cambodia) conducted elections in 1993, carries a special significance.

It is the first election under the constitutional amendment of March 2, 2006, requiring only a simple majority, 50 percent plus one, rather than the unwieldy two-thirds majority laid down in the Constitution adopted after the UNTAC elections.

This time, CPP won at the expense of Funcinpec, the royalist party, which had won the UNTAC-administered elections in 1993, and has now practically disappeared from the radar screen, obtaining only two seats. The main opposition party is now the Sam Rainsy Party, which gained 26 seats, three more than in 2003.

" Cambodia has an $8-billion economy, but this could easily be a $100-billion economy within another 10 to 20 years, providing stability continues".

The landslide victory can no doubt be attributed to rapid economic progress since the UNTAC elections of 1993, driven by four Fs: foreign aid, foreign investment, foreign trade and foreign tourists.

Since 2004 Cambodia has become Asia's fastest growing economy after China. Starting from a low base, average annual growth rate during 2001-2006 was 9.9 percent compared with Asean's 6.5 percent. Everywhere one can see a rapidly emerging middle class living in ever better accommodations, reflecting the construction boom and rapidly escalating land prices, while more and more families are sending their children to public and an increasing plethora of private schools and universities.

In the last 10 to 15 years, the four Fs were augmented by a rapidly growing, vibrant and dynamic domestic sector.

An example can be found in Lucky enterprises, which during UNTAC days had a small store serving high-spending UNTAC personnel. Now Lucky boosts five supermarkets including one in Siem Reap and seven Lucky Burgers and Lucky Sevens.

FDI surge

In 2004, foreign direct investment began to surge from less than one percent to eight percent of GDP in 2007. Today, foreign investment is dominated by North Asia, particularly Korean companies who are building skyscrapers and condominium complexes. The growth of domestic enterprises has attracted American capital, including Leopard Capital, a private investment fund aimed at building a diversified portfolio of Cambodia's leading businesses in key sectors it has identified such as financial services, energy, telecoms, real estate, hotels, manufacturing, agribusiness and natural resources.

After the UNTAC elections in 1993, the country was governed by two prime ministers, Prince Ranariddh, head of the royalist Funcinpec party who won the elections and Hun Sen of the CPP who came in a close second. Ironically, soon businessmen who flocked to Cambodia, as well as donor governments discovered that in order to get things done one should turn to the ex-Communist Hun Sen wing of the government rather than to the erratic and haphazard Ranariddh who headed the Royalist wing of the government.

Today, Cambodia has a US$8 billion economy - but this could easily be a $100 billion economy within another ten to 20 years, providing stability continues, and there is no reason to think it won't.

There are many other compelling reasons to invest in the country including a remarkably open economy, its central location as the epicentre of a fast growing region, no separatist movements, a young and hardworking population eager to learn new skills, and low labour costs.

Land boom

Let us look at some specifics. The property boom including the building of a great number of housing projects and malls have driven land prices sky high especially in the centre of Phnom Penh where land values rose from $500 a square metre in 2003 to over $3,000 today.

Many feel that this will be followed by a crash. However, look at the history at such countries like Thailand and Indonesia, who suffered a property bubble during the financial crisis of 1997, but have since continued to boom and are now at levels much higher than before the crisis.

The plans for a stock market to open its doors in 2009 will further boost the rapidly growing financial services sector attracting both domestic funds as well as international funds through mutual funds following the pattern of other Asian countries.

International banks have started to move in but there is room for much faster growth in this sector.

With economic stability assured, other internationally known banks will follow and move in.

Decades of fighting has had one consequence which makes Cambodia so desirable to investors:

the availability of vast swathes of arable and fertile land just waiting to be cultivated for rice and other valuable cash crops for exports, agricultural materials including food processing is another untapped resource for growth.

Finally, in addition to Angkor Wat, Cambodia offers beautiful untouched beaches to attract tourists. Indeed, Cambodia is still relatively unexplored in tourism potential.

Overall, there is no doubt in my mind that the elections will usher in another five years of dynamic growth and stability in the country.

Benny Widyono, Ph.D., was the UN secretary general's representative in Cambodia from March 1993 to May 1997. He is a professor of economics at the University of Connecticut.

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