2013 focus asean secure

THE ROAD TO THE ASEAN ECONOMIC COMMUNITY ANALYSIS | EXPERTISE | INSIGHTVOLUME 3 US$5

• Market trends: tourism • Health • Banking and finance • Telecoms • education • Natural Resources • property •

• Getting started: How to do Business in camBodia • Top dogs: names to know in asean Business • Analyse this: tHe region in numBers •

A look At the sectors driving the country’s growthCambodia 2013

Searchingfor

synthesis

10 interviews with

Business leaders

and experts

a perfect stormWhy 2013 is the

time to build Asean’s infrastructure

clocking inCambodia moves

manufacturing to the next level

new kid on the bloc?

East Timor’s battle for Asean acceptance

to unity and beyond

Asean’s triumphs and challenges under the microscope

exclusivetaBles and grapHs of key indicators

23%

investment required in asean’s

infrastructure over the next ten

years

growth of cambodia’s

exports to the eu last year

$600billion

$2.3trillionasean’s gdp

in 2012

4 | Focus AseAn 2013 Focus AseAn 2013 | 5

Nobody said it was going to be easy. Merging ten very different nations into a co-herent economic bloc would challenge the powers-that-

be in any part of the world, and Asean’s pursuit of readiness has been challenged every step of the way.

Singapore’s financial success story and Indonesia’s rapid rise on the world stage were always going to be set against less developed nations such as Cambodia and Laos, where progress has been slower. Yet it says much for the bloc’s determination that an estimated 70% of the necessary measures for integration have now been completed.

According to experts, that 70% constitutes the ‘easy’ part, and the real challenges are yet to come. It will be interesting to see how the ten Asean nations deal with the final hurdles. There already seems to be a tacit understanding that the Asean Economic Community will not be completed by the stated goal of 2015. Official notice of this circumstance has yet to be delivered but, without much fanfare, verbal announcements have now begun to refer to 2015 as a “milestone” rather than a “deadline”.

Yet to write off the future of Asean as all doom and gloom would be doing Southeast Asia a huge disservice. Home to more than 600 million people, it is one of the fastest growing regions in the world, with foreign direct investment inflows growing at unprecedented rates, comfortably outstripping those in China.

It is not just the region’s fat cats that are getting their share of the cream. Myanmar’s opening sale has investors

stampeding, Brunei’s economy keeps ticking over because of its wealth of natural resources, and Cambodia finds itself on the precipice of modernising and revolutionising its income streams, while being caressed by China’s dollar-stained fingers.

In this second edition of Focus Asean, we bring you word from some of the region’s key players and informed onlookers. It is no secret that Asean is in need of a major infrastructure overhaul, but did you know that the fallout from the global financial crisis means 2013 might just be the perfect time to address those concerns? Turn to page 20 to find out why.

Our new Market Trends section disseminates the latest goings on in the Asean business world and relays it in bite-size chunks, helping you to orient yourself with important information on the region’s key sectors.

Finally, we continue our traditional focus on the Cambodian marketplace, with a look at the industries that will help shape the future of this dynamic nation, from manufacturing (page 44) to banking (page 52), the future looks bright, while new players (life insurance, page 50) are constantly arriving to shake up the Kingdom’s economic outlook.

Distributed worldwide via the web, in tablet magazines and in print, Focus Asean hopes to accompany this ascendant ten-nation powerhouse on its road to 2015 and beyond. Z

Editor in chief Tassilo Brinzer

Editors Charlie Lancaster Dene Mullen

Contributors Thomas Cristofoletti Rebecca Foster Philip Heijmans Sam Jam Franziska Meissner Sacha Passi Eddie Sunarto Christian Vits

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Associate Art Director Lim Mengkong

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FOCuS–ASEAN.COM

FROM THE EDITOR

“it is not just the region’s fat cats that are getting

their share of the cream

4 EDITOR’s NOTE

asean

8 IN quOTEs Experts give voice to their

opinions on Asean 10 ThE lONg ROaD TO uNITy The clock is ticking on the

implementation of the Asean Economic Community in 2015

14 small buT pERfEcTly

fORmED As chair of Asean, Brunei

has a golden opportunity to diversify its economy

18 IN ThE kNOw A guide to some of the

key players in Asean business circles

20 If yOu buIlD IT... There’s no time like

the present for Asean’s infrastructure boost

24 NEw kID ON ThE blOc? Roberto Soares is the man

tasked with finding East Timor a place within Asean

26 kEy INDIcaTORs Figures show reasons for

optimism and caution market trends

28 Asean overview

34 Tourism and health

36 Banking and finance

38 Telecoms, natural resources and education

40 Property

cambodia

42 aN EyE ON ThE fuTuRE Economic tidbits from the

Kingdom of Wonder

44 maDE IN cambODIa Business is booming in the

manufacturing sector

48 IN ThE kNOw A guide to some of the

key players in Cambodian business

50 REsT INsuRED Prudential Cambodia helps

pioneer life insurance

52 bRaNchINg OuT Banks are eyeing expansion

54 ThE ONly way Is up Acleda Bank is a true

Cambodian success story

56 kEy INDIcaTORs Cambodia’s economic outlook

in figures

58 gET up aND gO Key information to get your

business off the ground

60 a EuROpEaN flavOuR Sheila Scopis of Eurocham

Cambodia discusses European business in the Kingdom

Contents

To uniTy and beyondAseAn under

the microscope pAGe 12

6 | Focus AseAn 2013

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ASEAN: Quotes 2013

Leading experts share their views on the business outlook in Southeast Asia, and the road to the Asean Economic Community

“Asean tourism has significant potential to become a major socio-economic driver for growth and a tool for development in the

region. In 2012, Asean received over 87 million international visitors, with intra-Asean travel

as the major source market with a share of 46%.”

Le Luong Minh, Asean Secretary General(page 35)

“Having prudential regulations and good governance standards are important for sustainable growth. In this regard, the road toward the Asean

Economic Community (AEC) is a positive development for the region.”

Syetarn Hansakul, senior economist for Asia (excluding-Japan) at Deutsche Bank

(page 37)

Thendra Crisnanda, research analyst with BNI Securities(page 41)

“Although Asean real estate prices have surged significantly in the last decade, we still believe

they have not yet overheated. The most important indicators, such as strong buying power and

low mortgage penetration, will lead sustainable growth for Asean real estate sectors.”

“[On an industrial level] it will become nonsensical to view the Mekong region as a group of countries. If we compare the

Mekong region to Japan, Bangkok is Tokyo, Saigon is Osaka and Phnom Penh will

become Nagoya.”

Hiroshi Uematsu, managing director of Phnom Penh Special Economic Zone

(page 44)

“When we look forward, we expect pretty dynamic growth. There’s a quadrupling of economic activity

from 2012 to 2030.”

Rajiv Biswas, chief economist for Asia at IHS Global Insight in Singapore

(page 10)

“Myanmar, in terms of population, is four times larger than Cambodia, but in terms of access to finance [it] is far smaller. In

Cambodia, loans to GDP for 2012 is just 37%, while in Myanmar it is only 5%,

meaning that it has a large market base and we believe the bank can grow

quickly over there.”

In Channy, CEO of Acleda Bank (page 54)

“As a rapidly developing economy, Cambodia continues to offer much attraction and [many] opportunities

to financial institutions that are looking to invest in this region. This will of course

heighten competition amongst the banking participants.”

Michael Lor, CEO of Canadia Bank(page 42)

“Asean’s growth rate of over 5% has to, in one way or another, be supported by a proportional

amount of investment in infrastructure. New roads, airports, railways and power lines will have to be built on a major scale in order to remain competitive in the global export market.”

Eddy Sunarto, director of Arcadia Asia(page 20)

Roberto Soares, East Timor’s Secretary

of State for Asean Affairs(page 24)

“With a population of more than 60 million people and a mobile penetration rate

of less than 10%, Myanmar offers a major growth opportunity… The government, on

paper at least, is aggressively targeting 80% mobile penetration by 2015.”

Nicole McCormick, senior communications analyst at Ovum(page 38)

“We have so much to offer Asean: a dynamic economy, a growing market

for inward investment, an educated workforce with the necessary skills to move the country forward and

an abundance of mineral resources including oil and gas.”


asean: analysis 2013

By Christian Vits

Asean has reached a crossroads. The organisation has helped foster the region’s economic

development in the past, but tougher tasks lie ahead. Asean’s aim of establishing a single trading market for goods, ser-vices and labour in the region by 2015 seems ambitious, po-litical cooperation is lagging behind stated goals, and the creation of a common identity among member states remains in its infancy.

Nevertheless, optimism re-mains. “The future starts here,” Christine Lagarde, managing director of the International Monetary Fund (IMF), said last November when visiting Malay-sia. She highlighted Asia as the bright spot in the world econ-omy: “Clearly, the momentum is here, the dynamism is here.”

Trade volume within Asean grew by more than 15%

from 2010 to 2011, reaching $598 billion, while the region’s total trade advanced 16.8% to $2.4 trillion over the same pe-riod, and foreign direct invest-ment (FDI) inflows accelerated 23% to $114 billion, according to the bloc’s statistics.

Economists are optimistic about the future of the region – home to some 600 million people – even against the back-ground of a lingering crisis in Europe and other weak spots in the world economy.

“When we look forward, we expect pretty dynamic growth,” said Rajiv Biswas, chief econo-mist for Asia at IHS Global In-sight in Singapore. “There’s a quadrupling of economic ac-tivity from 2012 to 2030.” IHS expects the region to become a $10 trillion economy by 2030, af-ter generating a gross domestic product of $2.3 trillion last year.

“Asean continues to roar,” HSBC economists wrote in a

recent research note. “The re-gion shook off last year’s global growth lull with apparent ease.”

However, progress in building a framework to tackle future economic and political challeng-es might not impress as much as the bloc’s growth develop-ment. While Asean has certainly evolved from a talking shop in its early years to a much more powerful and assertive institu-tional body, the limits of its po-litical and economic integration appear to be in sight.

The creation of the Asean Economic Community (AEC), which is slated to be in place at the end of 2015 – brought forward from 2020 originally – is a case in point. The blue-print for the project, adopted in November 2007, foresees a free flow of goods by reducing or eliminating import tariffs and aims to enhance existing trade agreements. Other focal points include the lowering

To unityand beyond

Asean is well down the path towards integration, but the biggest challenges lie ahead

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asean: analysis 2013

of barriers for the free flow of services, investments and capital, and the expansion of a regional foreign exchange pool to tackle financial crises. Possibly the most controversial political point on the agenda is facilitating the migration of skilled labour.

Given the enormous list of tasks and the diversity of the region – from the shiny fi-nancial hub of Singapore, to the burgeoning yet undevel-oped Myanmar – the project’s timeline might turn out to be mission impossible.

Consequently, Asean leaders tempered expectations that the goals can be met by 2015 after meeting for their first summit in Brunei earlier this year. With officials calling the date a “mile-stone”, rather than committing themselves to a firm end of the process, the pace of change remains uncertain.

“Essentially, Asean commu-nity building is an ongoing process that will continue even after our 2015 milestones,” Brunei Prime Minister and Sultan Hassanal Bolkiah said in April. “In opening up our economies, we acknowledge that there are challenges due to the varying levels of devel-opment amongst us.”

Facilitating the free trade of goods might be achievable, but with the proposed free trade of services and the free movement of labour and in-vestments, considerably big-ger challenges remain. Even though the organisation said in April that 259 measures – or 77.5% – of the economic community blueprint have been implemented, the tough-est problems lie ahead, and they won’t be solved with-in the planned timeframe, economists warn.

“I never felt it was realistic to have that milestone of 2015 – it was too short of a road map to achieve these ambitious goals with a full liberalisation of trade,” said IHS’s Biswas. “Go-ing forward, we have to see progress with services, while on investment it’s very unclear what [the direction will be]. Countries like Myanmar and Vietnam have quite restrictive rules on foreign investment and are nowhere near free in-vestment. That will take much longer to achieve.”

Alongside efforts to achieve a free flow of goods, protection-ist measures to shield national industries have remained in place so far. Malaysia has been reluctant to reduce barriers for auto trade as it fears competi-tion from Thailand. Foreign investors in the Philippines face rigorous restrictions. The same can be said of foreigners

in Indonesia, Southeast Asia’s biggest economy, where the government has capped foreign ownership of mines. The liber-alisation of skilled worker mi-gration has been limited to only seven professions.

“Maybe about 70% of the easiest stuff has now been completed, which was the low-hanging fruit. The much more difficult reforms in areas like non-tariff barriers and services are still to be done,” said Jayant Menon, a senior economist at the Asian Devel-opment Bank in Manila. “If you’re looking at the targets they set by themselves, they won’t be met by 2015. Asean itself is talking about this as a journey, not a destination.”

Differences between member states are not only widespread on the economic frontline. Di-verging interests have been unveiled, in particular when it

comes to political mine fields such as the dispute over terri-torial claims in the South Chi-na Sea. China is at loggerheads with the Philippines, Vietnam, Malaysia and Brunei over the strategically important waters.

Last year, Asean was unable to issue a joint communiqué for the first time in the organisa-tion’s history, after the member states failed to find a common position on the dispute. Cam-bodia, which chaired the meet-ing and is a close ally to China, blocked attempts to mention the conflict, while the Philip-pines, Vietnam, Brunei and Malaysia reportedly insisted on making it part of the state-ment. Attempts to implement a legally binding code of con-duct for the sea, favoured in particular by Vietnam and the Philippines, also failed due to resistance from China, which is Asean’s largest trading partner.

In April 2013, Cambo-dia signed an agree-ment with China “to enhancecooperation between the two foreign ministries of the two sides”, deepening the depend-ence of Cambodia on its big ally to the north. China is by far the biggest investor in Cambodia, providing gener-ous support for infrastructure projects and helping to mod-ernise the Cambodian army.

The Chinese factor is another obstacle to the region acting as a solid body. The organisation prefers informal discussions to adversarial negotiations, and under its consensus-based ap-proach every member has a veto, meaning controversial is-sues remain unresolved until agreement can be reached.

“Asean needs to develop com-mon positions with regard to territorial and security issues, otherwise it will be pulverised between the US and China,” said Gerhard Will, a Southeast Asia expert at the German In-stitute for International and Security Affairs in Berlin. “Chi-na wants a free trade area but politically it’s not interested in a united regional body as its po-sition is much stronger when dealing with individual coun-tries.” China has so far insisted on resolving tensions over the South China Sea on a bilateral basis, rather than talking to a regional organisation such as Asean.

Such political integration problems seem likely to per-sist, despite Asean’s slogan: ‘One vision, one identity, one community’. “Most of Asean is economic at the moment, and less of an ‘Asean’ iden-tification. Countries are not keen to give up too much of their sovereignty, and I think this will remain for the

foreseeable future,” said ADB’s Menon.

“The integration will occur at the economic level, and there will be constraints on how far [Asean] can go,” he added.This lack of identifica-

tion among citizens in Asean member countries will possibly pose the biggest risks for the bloc, particularly with integra-tion efforts following a top-down and not a bottom-up ap-proach – risky in a region where income inequality is on the rise. The rancorous conflicts in the region – such as the border dispute between Thailand and Cambodia over Preah Vihear temple, or the unrest among Muslims in southern Thailand – show that there is much to be done on this front.

“There is no feeling among the ordinary people that they belong together,” said Gerhard Will. “Against this backdrop, the way towards more econom-ic and political integration will be bumpy.” Z

“Maybe about 70% of the easiest stuff has now

been coMpleted, which was the low-hanging

fruit. the Much More difficult

reforMs in areas like non-tariff

barriers and services are

still to be done. if you’re looking at the targets...

they won’t be Met by 2015

Big blue: a Chinese marine looks out over the skerry of Nansha islands, South China Sea

Tense times: Philippine President Benigno Aquino (L) in trade talks with Chinese Premier Wen Jiabao in 2011

IHS Global Insight expects Southeast Asia to become a $10 trillion economy by 2030

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asean: brunei 2013


Getting to know Brunei Darussalam, the oil-rich state that chairs Asean for the fourth time this year

For one of the smallest nations on earth, Brunei Darussalam – which means ‘Brunei, the house of peace’ – packs a serious financial punch.

Home to some of the largest oil fields in Southeast Asia, the pint-sized nation’s wealth and relative stability resulted in it being the first nation admitted to Asean outside of its founding members.

As it chairs Asean for the fourth time, Brunei will be navigating choppy waters, with tensions over territorial disputes in the South China Sea remaining acute. Divisions within the ten-member bloc

also linger in other areas. The formation of the Asean Economic Community, slated for the end of 2015, is a major obstacle in Asean’s immediate future. Brunei is tasked with ensuring that the bloc is on course to implement the final, and most crucial, stages of integration in a timely fashion.

Brunei, the fourth-largest oil producer in Southeast Asia and the ninth-largest exporter of liquefied natural gas (LNG) in the world, has chosen “Our people, our future together” as the slogan for its chairmanship. It will organise some 400 meetings, including two Asean leaders’

summits and the East Asia Summit, which brings together important partners such as the US and China.

Economic integration will offer exceptional trade opportunities for a re-gion of some 600 million people, reducing trade barriers and facilitating easier move-ment of capital and labour. This promotion of economic growth will benefit Brunei, which already has an attractive foreign investment law. The nation has no capital gains or personal income tax and investors enjoy a wide range of incentives, including up to 20 years’ exemption from corporate

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asean: brunei 2013


One of the world’s last remaining absolute monarchs, Sultan

Hassanal bolkiah certainly enjoys his multibillion dollar nest egg.

Well versed in the art of spending his riches in lavish ways, the

Sultan’s passion for the world’s most expensive and beautiful cars has slowly expanded his personal

collection of high performance automobiles to 7,000. Valued at about $5 billion, this vast pool is said to include 600 rolls royces, 450 Ferraris and 134 Koenigseggs,

the largest collection of the Swedish hypercars in the world.

Sultan of Swing

taxes, and exemption from import duties on raw material, component parts and machinery, among other things.

For the past 80 years, Brunei’s oil and gas reserves have buoyed the country’s economy. Revenues from the petroleum sector account for over 90% of Brunei’s export income – val-ued at $12.1 billion in 2011 – and more than half of its gross domestic product (GDP).

Thanks to these huge reserves, Brunei’s four million people enjoys a high standard of living. With a GDP per capita of $48,000, Forbes ranked the tiny sultanate as the fifth richest nation out of 182 countries last year.

The government provides free medical services – which the World Health Organisa-tion ranks among the best in the world – and free education up to and including university level, resulting in one of the world’s highest literacy rates. The state’s generosity doesn’t end there. Dependent on imports from Sin-gapore, the EU, Japan and China, the govern-ment subsidises housing, electricity and some food staples such as rice, sugar and milk.

However, as about 80% of the country’s food requirements are imported, Brunei remains

exposed to world food price fluctuations.While Bruneians largely enjoy the good life, there is rising awareness that the country’s reliance on the oil and gas industry will leave it vulnerable once its reserves are depleted – an eventuality expected within the coming 40 years. The government’s attempts to diver-sify Brunei’s economy into agriculture, for-estry, fishing and aqua-culture have achieved limited results, and the country continues to spend heavily on the oil and gas industry.

A predominantly Muslim nation, the state is developing its Islamic banking sector and positioning itself as a halal standards centre. The blue and white national halal branding scheme, Brunei Halal, is one of the first attempts to offer a halal standard in a multi-trillion dollar global industry.

With Brunei looking to a future far re-moved from its traditional economic foun-dations, it could prove a perfect fit as chair of Asean at this point. The bloc has also reached a crucial crossroads on its ambi-tious new path. The year 2013 could pro-vide an ideal opportunity for Brunei and Asean to move forward together. Z

Kings & Queens: Brunei’s Sultan Hassanal

Bolkiah celebrates his 61st birthday in 2007

asean: brunei 2013

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asean: PeoPle 2013

Tay Za (MyanMar)Business magnate Tay Za has interests in construction, tourism, infrastructure and mobile phone services. Reportedly a close associate of Myanmar’s former head of state, General Than Shwe, Tay Za owns the Htoo Group – the parent company of Air Bagan, Myanmar’s first privately owned airline. Tay Za, who was once Myanmar’s top extractor of timber, is expected to reap big profits following the recent opening up of Myanmar, here the tourism sector is set to explode.

aireen OMar (Malaysia)Aireen Omar took over as CEO of AirAsia’s Malaysian Operations in July 2012. Previously she held the position of regional head of corporate finance, treasury and investor relations at AirAsia after joining the company in 2006 as director of corporate finance. Omar has been credited with keeping AirAsia above water during the finan-cial crisis, by securing financing for new aircraft while other airlines in the region struggled. In her cur-rent role, Omar will play a significant part in the regional growth of AirAsia by expanding the com-pany’s market base to 600 million people in an effort to bring Asean ever closer together.

DaTuk seri abDul WahiD OMar (Malaysia)

Recently appointed as a minister in the Prime Minister’s Department, Abdul Wahid Omar will take charge of the Economic Planning Unit. Omar is one of several new faces handpicked by Prime Minister Najib Razak for his cabinet following his re-election at the beginning of May. Since 2008, Omar has overseen the transformation of Maybank and expanded its regional presence in his role as president and CEO. Maybank is now the most valuable company listed on Bursa Malaysia and the fourth largest bank in Southeast Asia.

Meet some of the key players in the region’s business world

aseanaces

Dhanin ChearavanOnT (ThailanD)Head of Thailand-based Charoen Pokphand Group, Chearavanont is ranked at number 57 on Forbes’ 2013 World Billionaires List, mak-ing him the richest person in Southeast Asia. Selected as Forbes Asia’s Businessman of the Year in 2011, the Thai tycoon has a net worth of $14.3 billion as of March 2013. Charoen Pokphand Foods, Thailand’s biggest food maker, has recently increased its efforts to use alternative fuel projects, which will consist of six biomass plants, three co-generation plants and a biodiesel plant, scheduled to begin operations later this year.

rOlanD PirMeZ (singaPOre)Roland Pirmez has captained Asia-Pacific Breweries (APB), a subsidi-ary of beverage giant Heineken International, since October 2008. Following Heineken’s takeover of Singapore-listed APB in Septem-ber 2012, Pirmez has held the roles of CEO of APB and president of Asia-Pacific for Heineken. Heineken’s ex-isting operations in Asia have been integrated within APB to create a unified regional platform. Control of APB is set to strengthen Heineken’s

presence in the crucial growth markets of developing Asia. Heineken NV will brew and sell Heineken in Myanmar by the end of 2014. APB’s portfolio includes brands such as Tiger beer and Bintang lager, and the company currently controls 30 breweries in 14 countries across the Asia-Pacific region. Ph

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ASEAN: inFRastRuCtuRe 2013

The economic crisis in Europe and the US, together with a long-awaited stimulus package in Japan, may bring about the investment capital needed for Southeast Asia’s crumbling infrastructure

By Eddy Sunarto

2013 is the year to build Asean’s infrastructure

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Why

There is little doubt that the future success of Asean largely depends on building export-oriented economies, much like China has over

the past few decades. A growth rate of over 5% has to, in one way or another, be supported by a proportional invest-ment in infrastructure. New roads, airports, railways and power lines will have to be built on a major scale in or-der to remain competitive in the global export market.

In January, floodwaters ravaged Jakarta, leaving 20 dead and 50,000 homeless. With the region’s largest city paralysed for days, the flood-ing showcased the urgent need for long-term strategic investment in the city’s crumbling infrastructure if the government is to achieve an an-nual growth rate of 6% in the coming years. Jakarta requires about 12,000 kilometres of road to accommodate a bulging population. Japan has agreed to fund a nationwide infra-

structure project in an agreement with the Indonesian government worth $43 billion. This Official De-velopment Assistance (ODA) loan is a strategically-timed investment to assist the steady influx of Japanese manufacturers such as Toyota, Mit-subishi, Hitachi and Denso, among others, which have recently set up bases in Indonesia.

Thailand’s path mirrors the Indo-nesian story. Recognising the over-whelming need to build new infra-structure, the Thai government has gone on a wild bond-issuance spree in the last few years. The outstanding Thai government debt market grew from 12% to 71% of GDP in 2012, and most of the money raised has been channelled into numerous infrastruc-ture projects around the country. Apart from China, the UK and France, the Kingdom is the only country to have issued a 50-year maturity bond, which makes sense as it takes years to build roads and railways. g

ASEAN: inFRastRuCtuRe 2013


The future: workers string up concrete on a flyover construction site in downtown Jakarta

by the Obama administration, this is a likely scenario.

Japan has been pursuing a money printing timetable of its own. The newly elected prime minister, Shin-zo Abe, has been keeping up his re-lentless pressure on the central bank to meet the inflation target of 2%, with an announced stimulus pack-age of $117 billion, the biggest since the financial crisis. Abe’s first official visit since taking office was to Indo-nesia, Thailand and Vietnam, provid-ing evidence of Japan’s commitment to this region.

With 2013 seemingly the year for printing money, some of the cash will certainly find its way to other parts of the world, including Asean. The recent credit rating upgrade for some Asean countries will make the region more attractive for investors, and cheaper for infrastructure developers to raise funds in the capital markets.

It is against this backdrop that Asean will be presented with the biggest op-

portunity to attract funds into its infra-structure projects. It is imperative that Asean countries work together fast to integrate their disjointed capital mar-kets. Securities regulators across the region must also work towards a com-mon legal jurisdiction for securities documentations to facilitate a smooth entry for international investors. In ad-dition, Asean countries must tighten the rule of law and ease the risk of do-ing business in their respective coun-tries. A recent survey by the World Bank ranked all Asean countries, apart from Singapore, unfavourably when it comes to enforcing contracts and protecting investors.

More than anything, Asean countries must be opportunistic and use the cur-rent situations in the US, Europe and Japan to their advantage, to attract investments in their ailing infrastruc-ture projects. It is time to build the foundation of a sustainable economy for the whole region, and there is no better time than 2013. Z

tination. Asia is no longer seen as a place for speculative investors to chase yields, but rather as a safe long-term strategic reallocation of assets from the developed world to the emerging markets. The austerity measures being taken across the Eurozone will stunt its growth to virtually zero in 2013. Money managers across the zone will certainly be looking to park their money elsewhere until the dust settles in Europe.

The US government has attempted to stimulate its sluggish economy through a series of asset repurchase programmes, which boils down to printing money. The resulting in-crease in inflation will force fund managers to look beyond American shores for higher yielding assets. Furthermore, as the dollar comes under pressure, it may bring about a rush of capital outflow from dollar assets to emerging markets such as Asean. Given the US’ ‘pivot to Asia policy’, which has been embraced

The state of infrastructure in some countries is even more desperate. Not only can the roads, bridges and rail-ways be deficient, there is often an ab-sence of basic services such as electric-ity and telecommunications.

Cambodia is a case in point. Ac-cording to the UN Development Pro-gramme, only 22% of Cambodians have access to electricity, and 85% of them live in Phnom Penh. Further-more, recent government research found that more than 50% of Cambo-dia’s roads are in poor condition, and in critical need of major upgrades.

The Asian Development Bank (ADB) has estimated that the Asia-Pacific needs an investment of $8 trillion over the next ten years to build new, or replace existing, infrastructure, and to make up for historical under-investment. Of that number, Asean accounts for a staggering $600 billion, roughly one-third of combined Asean GDP. The sheer size of the necessary investment means that capital-raising

has to be diversified away from the more traditional donor-recipient loan mechanism employed by treaty organ-isations such as the World Bank and the ADB. It is inconceivable to think that these treaty organisations have the mandate or capacity to finance the required capital.

The Asean Infrastructure Fund, founded in 2012 by Asean members and the ADB to address this critical need, is a step in the right direction. However, as momentous and forward-looking as it may be, the fund can only commit $13 billion in the next ten years, a fraction of what is required. Hypothetically, every Asean country would have to tap into and unleash all of their foreign reserves to cover such an amount.

There is no question that foreign investment and private capital have a big part to play in Asean infrastructure projects. The continuing debt crisis in Europe has helped strengthen the case for Asia as a long-term investment des-

Eddy Sunarto is director of Arcadia Asia, an investment advisory companybased in Tokyo and Jakarta that specialises in attracting investors to the Asean region. Arcadia Asia’s investment portfolio includes projects and assets in Asean countries.

Phot

o: B

ay Is

moy

o/AF

P


asean: east tiMoR 2013

Roberto Soares took his position as East Timor’s Secretary of State for Asean Affairs in August 2012. The

nationalist, activist and survivor of the Santa Cruz massacre ac-cepted the challenge of securing the tiny nation’s place as the 11th member of Asean with relish.

“Timor-Leste is invested in joining Asean for strategic geo-political [reasons],” said Soares. “It is also guided by the Consti-tution of Timor-Leste, which states that we are to maintain special ties of friendship and cooperation with the countries of the region.”

Asean members remain staunchly divided on the matter of East Timor’s membership. In one corner, Indonesia, Malaysia and Thailand have openly en-dorsed East Timor’s entry to Asean; in another corner, Singa-pore, Laos and Cambodia vetoed the move, stating that Southeast Asia’s youngest and poorest na-tion, is simply not ready for membership. The patronage of Indonesia, Asean’s largest na-tion, will no doubt work in East Timor’s favour, and Soares re-futes the idea that Indonesia’s main motivation is clever diplo-macy, as has been suggested by some observers.

“Timor-Leste and Indonesia have established an extraordi-nary, indeed unique, bilateral relation,” said Soares. “As a mat-ter of fact, today, Timor-Leste and

Indonesia are moving towards a new chapter in our relations. The peoples of Timor-Leste and Indonesia have come a long way in overcoming the sometimes painful chapter of our shared past [when Indonesia brutally oc-cupied East Timor for a quarter of a century].”

East Timor’s oil and gas re-serves, worth an estimated $30 billion, will go some way to strengthening its claims for Asean membership, although its limited industrial capac-ity has led to speculation that any future ability to become an active economic partner in the region will rely on leasing oil and gas reserves to Asean states. Much of Soares’ remit will be to assuage the fears of other nations that admitting East Timor will not hinder the bloc economically.

“Our country and our econ-omy gains strength year after year with record double-digit growth,” said Soares. “We firm-ly believe that Timor-Leste will be an active contributor and a dynamic new member of Ase-an. We have so much to offer Asean: a dynamic economy, a growing market for inward investment, an educated work-force with the necessary skills to move the country forward and an abundance of mineral resources including oil and gas.

“Timor-Leste is very much at peace, and moving progressively towards national

New kid on the bloc?Roberto Soares, East Timor’s former ambassador to Singapore and Brunei, is the man leading the country’s charge toward a place at the Asean table

By Sacha Passi

Roberto Soares is a man on a

mission. He hopes to secure East Timor’s

Asean accession before the Asean

Economic Community integration

development in a stable man-ner, with an impressive eco-nomic growth rate, a more highly educated young popu-lation, and increasing pros-perity and political stability.”

Indeed, according to Soares, most Asean nations have already begun investing in East Timor, and even those that haven’t are eyeing potential moves.

“Since the restoration of our independence in 2002, we have witnessed each of the Asean member countries supporting our nation- and state-building process,” said Soares. “The private sectors from Asean countries such as Indonesia, Malaysia, Thailand, Singapore, the Philippines and Vietnam are among the largest inves-tors in the Timorese economy, and invest earnestly in our dy-namic economy because of the excellent business opportuni-ties to be found in Timor-Leste. Brunei, Cambodia, Laos and Myanmar also express desires for future cooperation.”

Dennis Shoesmith, an asso-ciate professor of political sci-ence and East Timor scholar at Charles Darwin University in Australia, said the biggest concern is that Singapore and other opposing members would look at the young na-tion’s position too narrowly, failing to consider China’s increasing interest in the country. Furthermore, Asean observers have suggested that

the best counterbalance to China’s growing influence in the country is to approve East Timor’s membership.

“If Timor-Leste is outside Asean, it becomes a blind spot in the middle of the associa-tion, which could develop as a problem for a whole range of things which Asean tries to collectively control,” Shoe-smith said.

As it seeks to become an active member of the bloc, East Timor has spent recent years ticking off a number of requirements for accession, including establishing diplo-matic relations with all Asean countries, supplying accred-ited ambassadorial represen-tation to all Asean countries, acquiring full membership of the Asean Regional Forum, and forming its own National Secretariat of Asean.

“We feel [being granted Asean membership] is a matter of ‘when’ rather than ‘if’,” said Soares. “The government is committed to socio-economic development that allocates a substantial budget for infra-structure, education, health, ag-riculture, defence and security.

“There are still many chal-lenges ahead of us, but we be-lieve that our Strategic Devel-opment Plan, which gives us a clear direction [to follow in our] nation-building, will trans-form Timor-Leste into a middle income country by 2030.” Z


asean: indiCatoRs 2013

Share of Asean FDI inflows from selected countries/regions

Microeconomic and macroeconomic competitiveness across Asean countries

GDP growth rates, selected countries/regions

Trends in prosperity growth, Asean and selected countries

World export market shares, Asean

Sou

rces

: As

ean

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1,400

1,200

1,000

800

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400

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Prosperity level and growth, Asean and selected countries

50,00045,00040,00035,00030,00025,00020,00015,00010,000

5,000

0 1 2 3 4 5 6 7 8 9 10

GDP per capita, 2009 (2005 PPP$)

Notes: GDP figures are in PPP terms at constant 2005 international dollar. Population and GDP growth rate at compound annual growth rate (CAGR). Asean data exclude Brunei and Myanmar.

*Cambodia, Laos, Myanmar, Vietnam

US

JapanEU

WorldAsean5 Asean India CLMV*

China

Growth of prosperity, 1997-2009 (CAGR %)

Extra

US

EUJapanChina

Intra

KoreaAsean

Rest of the world

2002

2004

2006

2008

US EU Japan China India Asean Rest of the world

(in %)-1.2

5.6 20.6 12.72.5 0.7

18.3 39.6

21.0 17.0

0.5

21.4 42.6

0

20

40

60

80

100

120

100 90 80 70 60 50 40 30 20 10 0

Ranking in Micro Competitiveness

Note: Shares calculated from exports and GDP in US$ at current prices and current exchange rates.

Rank

ing

in M

acro

Com

petit

iven

ess

Brunei

AseanThailand

Malaysia

Singapore

Indonesia

Vietnam

Philippines

Cambodia

% change, year-on-year

Note: The figures for 2011 and 2012 refer to the simple average of growth forecasts from EU (E), IMF (I) and World Bank (W) for each country or region.

Notes: GDP figures are in PPP terms at constant 2005 international dollar. ASEAN data exclude Myanmar.

$ billions

Annual growth in GDP per capita (%)

20

15

10

5

0

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15

10

5

0

-5

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90 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

China IndiaAsean EU Japan US World

EU Japan US WorldIndiaChinaAsean

Asean endowments: natural resources

Vietnam

Brunei

Cambodia

Thailand

Laos

Myanmar

Coal, Copper, Hydropower, Lead, Limestone, Marble, Petroleum, Precious stones, Natural Gas, Timber, Tin, Antimony, Tungsten, Zinc

Gemstones, Hydropower, Iron Ore, Manganese, Oil and Gas, Phosphates, Timber

Gemstones, Gold, Gypsum, Hydropower, Timber, Tin

Bauxite, Chromate, Coal, Hydropower, Manganese, Oil and Gas, Phosphates, Timber

Cobalt, Copper, Gold, Nickel, Petroleum, Salt, Silver, Timber

Natural Gas, Petroleum, Timber

Bauxite, Coal, Copper, Fertile silt, Gold, Natural Gas, Nickel, Petroleum, Silver, Timber, Tin

Fish, Fluorite, Gypsum, Hydropower, Lead, Lignite, Natural Gas, Rubber, Tantalum, Timber, Tin, Tungsten

Bauxite, Copper, Iron Ore, Natural Gas, Petroleum, Timber, Tin

Deepwater ports, Fish

Singapore

Malaysia

Indonesia

Philippines

Industrial clusters in Asean

Vietnam

Brunei

Cambodia

Thailand

Laos

Myanmar

Agricultural Products, Apparel, Fishing, Forest Products, Oil and Gas

Apparel,Business Services,Footwear, Plastics,Transport and Logistics

Apparel, Forest Products, Metal Mining and Manufacturing, Power Generation

Fishing, Footwear, Oil and Gas,Textiles and Garments

Agricultural Products, Automotive Communications Equipment, IT,Metal Mining and Manufacturing

Apparel, Business Services, Jewellery, Oil and Gas, Transport and Logistics Agricultural

Products, Coal and Briquettes Products, Metal Mining and Manufacturing, Oil and Gas, Plastics

Agricultural Products, Automotive, IT, Metal Mining and Manufacturing, Plastics

Agricultural Products, Communications Equipment, IT,Oil and Gas, Plastics

Business Services, Communications Equipment,IT, Oil and Gas, Transport and Logistics

Singapore

Malaysia

Indonesia

Philippines

Intra-Asean trade as % total trade

Asean exports and imports

Share of Asean exports in %

95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11

2007

f: forecast

2008 2009 2010 2011f 2012f

Exports Imports

75%

25%

Year 2011

Year 2011

IN FIGURESIf Asean wants to generate new sources of growth, it must improve its competitiveness fundamentals

8

7

6

5

4

3

2

1

090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09

World market share (%)

Goods Services Total GDP

30

11

11

25

4

910


Market trends 2013


As advanced economies continue to limp out of recession, Southeast Asia is a rising star in the global market

As a beneficiary of the Everything But Arms system, Myanmar-EU trade is likely to soar

Everything But Arms race

The roar of the region

G iven Southeast Asia’s large and growing pool of skilled, low-cost la-

bour, it is not surprising that companies are keen to create an early move advantage in the region. Rising production costs in China have shifted manufacturing and produc-tion momentum to Southeast Asia, where countries such as Cambodia, Indonesia and Vietnam have gained ground as low-cost production cen-tres, especially for labour-intensive manufacturing. In 2010, Vietnam surpassed China to become the largest production venue for Nike, while Coach, citing rising la-bour costs, announced plans in 2011 to shift half of its pro-

duction activities from China to neighbouring Asian coun-tries. Looking to climb up the value chain, Southeast Asia is also setting its sights on be-coming a producer of sophisti-cated goods. Intel has opened a $1-billion assembly and test-ing plant in Ho Chi Minh City, and Nokia has announced plans to build a handset man-ufacturing plant in Hanoi. The region is creating opportuni-ties for services offshoring and outsourcing. The Philip-pines has developed a pool of highly literate, English-speak-ing, low-cost workers who provide services such as back-office support, call centre services, engineering design and software development.

Myanmar is set to join Cambodia and Laos as a beneficiary of the Everything

But Arms preferential trade scheme, which allows goods to be imported into the European Union without import duties or quotas.

Only countries classified as ‘least developed’ are eligible to benefit from the system.

“Trade is fundamental to sup-porting political stability and the EU’s trade preferences mean we will give this reform-minded country priority access to the world’s largest market,” said

EU Trade Commissioner Karel De Gucht.

In 2011, Myanmar’s exports to the EU totalled $221m, about 3% of the country’s total exports. Cambodia’s exports to the EU grew to $2.32 billion in 2012, a 23% increase compared to the previous year.

Trade talesMorgan Stanley forecasts that the region’s

four biggest economies – Indonesia, Malaysia, Thailand and Singapore – will expand 4.5% in

2013, outpacing the 3.1% global growth estimate for the same period. In recent years, China has

been Asean’s biggest trade partner and Asean has become China’s third-largest trader with two-way trade reaching nearly $400 billion in 2012, a figure

that is expected to rise to $500 billion by 2015.

1,0021,0272,0532,2934,7351,500

VietnamIndonesia

PhilippinesthailandMalaysia

China

AverAge yeArly wAge/usd

Southeast Asia is home to 620 million

people, or 8.9% of the world’s population.

Total GDP in 2011 (World total = $69.98 trillion)

Asean: $2.2 tn China: $7.3 tn, EU: $16 tn

In 2010, Foreign Direct Investment inflows into China grew by 12%, a growth

rate nine times lower than that of Southeast Asia in the same period.

In 2010, Foreign Direct Investment

into Southeast Asia surged 100%

from $38 billion

to $79 billion

Value US$ millions/2011Source: IMF World Economic Outlook, October 2011

European Commission President Jose Manuel Barroso (R) welcomes Myanmar President Thein Sein before a meeting at EU headquarters

asean overview

Phot

os: J

ohn

Thys

/AFP

; AFP


Market trends 2013

As regional trade pacts jostle for Asean’s loyalty, the region must maintain its centrality if it wants to remain relevant

coursE forcollision?

Southeast Asia could become the battle-field on which two regional trade groups

fight to secure trade liberalisa-tion agreements and economic integration. While free trade agreements are integral to the growth of individual countries in Southeast Asia, Asean must be wary not to lose the clout a united bloc affords, as China and the US put pressure on Asean to join their respective geopolitical gangs.

The Chinese-backed Regional Comprehensive Economic Part-nership (RCEP) – which covers 3.3 billion people in 16 coun-tries and accounts for 30% of world trade – aims to gather standing Asean FTAs with Chi-na, South Korea, Japan, India, Australia and New Zealand

into an integrated regional eco-nomic agreement. If the group, which has the potential to be-come the world’s largest free-trade pact, secures the support of Indonesia, 2013 could prove a pivotal year.

In response to China’s rise, the US is stepping up its en-gagement with Asean. The US-led, 11-member Trans Pacific Partnership – which has a to-tal GDP of $20 trillion – calls for deeper integration than the RCEP, promoting trade in goods, services and investment, as well as tackling intellectual property issues.

With countries such as Singapore already siding with the TPP, some Asean academics caution that the competition between the two trade groups may split Asean.

T he long-running territo-rial dispute in the South China Sea, believed to

be rich in untapped natural re-sources, seems unlikely to be resolved any time soon.

Asean ran aground in July last year on the issue of the South China Sea, where China, Malaysia, Vietnam, Brunei and the Philippines all have terri-torial claims.

The Paracel and Spratly islands, as well as the Scarbor-ough Shoal, may have vast reserves of natural resources, but the areas remain largely unexplored. Extrapolating estimates using the mineral wealth of neigh-bouring areas, the US Energy Information Administration approximates that the area holds 11 billion barrels of oil

reserves, 190 trillion cubic feet of natural gas reserves and a potential wealth of hydro-carbons. The area is also one of the region’s main shipping lanes and is home to abundant fishing grounds that sustain the livelihoods of thousands of people.

While China has typically pushed to negotiate with indi-

vidual coun-tries be-hind closed doors, ana-lysts say the

region will have more leverage if it negotiates as

a bloc, which, to date, it has failed to do. Attempts to dis-cuss new ideas for resolving the dispute have left the ten-member bloc severely divided and open to criticism.on

Automobile brands entering Asean markets in 2013/2014

The annual worth of Thailand’s

automobile parts export industry

$5 billion

Mercedes-Benz Myanmar TBA

BMW Cambodia 2013

Peugeot Vietnam 2013

Rolls-Royce Philippines 2013

Porsche Cambodia 2014

Brand Country When

Is the Asean Economic Community nothing more than a pipe dream?

uniTEd fronT

F ollowing April’s summit of Asean leaders in Brunei,

it seems unlikely that the Ase-an Economic Community will successfully integrate by 2015. Some leaders have now taken to referring to the 2015 target as a “milestone”, and are per-haps looking towards the origi-nal target date of 2020.

Asean nations stand to gain increased mobility of capital, human resources, goods and services from integration, which will open up an un-tapped middle class to inves-tors. Failure to integrate by 2015 may undermine Asean’s credibility at a time when

several of its nations are em-broiled in territorial disputes concerning the South China Sea. Integration holdups mean the AEC risks being outpaced by favourable trade agree-ments between Asean nations and other countries. Bridg-ing the wealth gap remains a problem for the bloc, as does the regression of politically sensitive goals such as free-flow labour. While the group claims to have implemented 77.5% of measures for the AEC, economists believe that the remaining 20% or so will be the most difficult to bring to fruition.

Southeast Asia needs to present a united front on the South China Sea dispute sooner rather than later

Troubled waters

Trade parTner counTry/region

chinA 280,405

EuropEAn union 234,776

AsEAn 598,242

JApAn 273,347

usA 198,785

hong kong 96,714

indiA 68,428

souTh korEA 124,470

TAiwAn 80,865

AusTrAliA 59,474

ToTal Trade$ million

trillion cubic feet of natural gas

reserves estimated in the disputed area of the

south china sea

Barack Obama and Japanese Prime Minister Shinzo Abe are two of the key drivers of the Trans

Pacific Partnership, which is courting Asean

Top Ten AseAn TrAde pArTners, 2011

Phot

o: J

ewel

Sam

ad/A

FP

asean overview

Market trends 2013


How important is the role of tourism in Asean’s development plans?Asean tourism has signifi-cant potential to become a major socio-economic driver for growth and a tool for de-velopment in the Asean re-gion. In 2012, Asean received over 87 million international visitors, with intra-Asean travel as the major source market for Asean tourism with a share of 46%. Given this promising outlook, tour-ism plays an important role as an instrument for the alleviation of poverty, im-provement of people’s qual-

ity of life and [is] contribut-ing greatly to economic and social development in Asean.

What would you like to see happen to further improve cross-border road transport within Asean?Cross-border road transport is one of the key components of land transport. The inten-tion of the Asean Framework Agreement on Cross Bor-der Transport of Passengers (CBTP) is to facilitate cross border road transport of peo-ple between and among Ase-an member states through simplification and harmoni-sation With the conclusion

The region’s hoteliers are riding the crest of a tourism wave, which is washing up a record number of visitors

A damning report provides a stark look at the region’s water quality

Rising visitor arrivals, robust trading perfor-mance and positive market dynamics have

put emerging Southeast Asian markets such as Vietnam, Cambodia and Myanmar back into the investment spotlight,” said Tom Oakden, executive vice president of investment sales for property consultancy Jones Lang La Salle (JLL)’s Ho-tels & Hospitality Group, at an industry event in April.

Hotel transactions in Asia reached $620m in the first quarter of 2013, up 190% year-on-year, according to JLL. Improved accessibility led to tourism growing by 15% in Vi-etnam, 25% in Cambodia and 55% in Myanmar, year-on-year in 2012.

“The affordability factor and capital growth prospects some of these markets offer when benchmarked against more mature Asia gateway cit-ies… is also a driving factor,” said Oakden.

While the economy of Vietnam is in recovery, the po-tential of the country is being recognised, which is evident in the sale of two Life Resorts properties in Hoi An and Quy Nhon to the Minor Hotel Group in February.

Cambodia has seen in-creasing tourist arrivals and

A majority of the Asean population lacks access to safe, secure water piped into their hous-

es, according to a report by the Asian Development Bank and the Asia-Pacific Water Forum. The survey indicates the need

for $59 billion of investment in water supplies for Asia, as well as significant changes in wa-ter governance. In the report’s water security rating, which gives scores from one (water is hazardous) to five (model for water security), no country

in Southeast Asia picked up a maximum score. Malaysia, Singapore and Brunei scored a three, while Laos, Vietnam, Myanmar, Thailand, Indonesia and the Philippines were given a rating of two. Cambodia was at the bottom of the survey.

growing foreign investment from countries such as South Korea, Vietnam and China, as well as receiving attention from domestic investors and developers.

Myanmar’s hotel market has the greatest potential, ac-cording to JLL. However, un-til further investment law is launched and economic re-

forms occur, it will be challeng-ing to establish genuine hotel investment sales. Accor plans to develop three hotels in Yan-gon, Mandalay and Naypyidaw by 2015. The Yangon and Man-dalay projects will be devel-oped under the Novotel brand, while the Naypyidaw prop-erty will be established under Accor’s McGallery brand.

Q&ALe Luong Minhthe Asean Secretary General provides updates on tourism integration in Southeast Asia

of the agreement, we would expect much more seamless land travel, which, in the end, will further develop tourism in the region.

How important is it for each Asean country to pro-mote simplified visa proce-dures to facilitate travel by non-Asean visitors?Recognising that a single tourist visa could substan-tially benefit travel facili-tation and the tourism in-dustry in the region, Asean member states continue to promote an Asean common visa. Significant progress was made by Thailand and Cambodia when they agreed to implement a single visa agreement. Since December 2012 non-Asean visitors just need to obtain one visa to vis-it both countries. Within the context of ACMECS, which is

a sub-regional arrangement comprising Cambodia, Laos, Myanmar, Thailand and Viet-nam, the idea of a common tourist visa is also enjoying broad support.

Asean is now placing a lot of emphasis on sustainable tourism practices.To promote the sustainability of the tourism industry, the Asean Green Hotel Awards are granted biannually to hotels and resorts. For con-sideration are various energy conservation measures based upon a set of criteria agreed [to] by Asean member states. These include environmental policies and actions for ho-tel operations, use of green products, and collaboration with the local community in-cluding human resource de-velopment, and energy and water efficiency.

“affordability and capital

growth prospects

are driving factors

Asean’s water woes

THB2 billion

THB780 millionTHB400 million

the budget of thailand’s Ministry of science and technology for the development of medical robot technology ($68m).

thailand’s current annual expenditureon the import of advanced medical robots ($26.6m).

the cost of a medical robot laboratory and research centre, which is set to open in thailandin 2015 ($13.5m).

“The healthcare system doesn’t just need to be built up, it needs to be built.”

Harjit Gill, chief executive of Philips Electronics in Asean & Pacific, on the state of healthcare in Myanmar. Philips is seeking to establish itself in the

country’s rapidly growing, yet marginally developed market.

HEAltH

touriSM


Market trends 2013

What are the prospects for growth in Southeast Asia if international conditions remain difficult? If the G-3 economies continue to grow, even at below potential rates, Asean should be able to grow at around 4-6% year-on-year, propelled by intra-regional trade as well as domestic consumption and investment which will in turn be supported by fiscal stimulus measures in the more mature Asean economies.

What new paradigms of growth are likely to be needed in Southeast Asia in the coming decade? Governance and development of intra-regional finan-cial intermediation will be needed. Asean-10 on aggre-gate has surplus savings, but these savings are not being channelled to finance investment in the region. Regional integration is necessary in light of the existence of other large emerging markets such as China, India, Brazil and Russia. Population size, governance and ease of doing business are important considerations for investors.

What lessons should Southeast Asia take from the recent economic slowdown, particularly in Europe and the US? First, Asean should nurture increased domestic demand and intra-regional synergies to drive future economic growth. Second, openness augments growth potential but also brings contagion risks. The importance of hav-ing prudential regulations and good governance stand-ards are important for sustainable growth. In this re-gard, the road toward the Asean Economic Community (AEC) is a positive development for the region.

How is the region’s banking sector expected to gain from the formation of the AEC? It is poised to gain from higher transaction volumes in trade and investment f lows from both intra-regional and global origins. Greater regional synergies are also ex-pected to increase income and financial sophistication, boding well for consumer banking, corporate banking and the development of the region’s capital markets.

In terms of FDI competition, to what extent is the emergence of Myanmar a positive or a threat to less developed countries such as Laos and Cambodia? The emergence of Myanmar is not necessarily a zero-sum game for Laos and Cambodia. Myanmar is a much larger country in terms of GDP size and population, so it will attract FDI that seeks competitive and abundant labour, as well as larger markets. Laos’ attraction lies in the hy-dropower sector, which will remain unique. Cambodia is well known for its tourism sector, which is also unlikely to change. FDI for labour-intensive industry such as gar-ment and textile may be somewhat affected, however. On the other side of the coin, a more prosperous Myan-mar should attract more interest into the region.

Q&ASyetarn HansakulSenior economist, Asia (ex-Japan) at Deutsche Bank, discusses banking and finance in Aseanfullfor 2015

Policy frameworks that should contrib-ute to a smooth Asean financial integration

in 2015 are in the works, in a big indication that central banks and banking sectors across the ten Ase-an nations are stepping up their preparations for the upcoming assimilation.

It is expected that inte-grating the region’s banks will help create an environ-ment conducive to the emer-gence of banking institutions able to compete at a global level – something that has remained elusive for the re-gion’s banks despite strong growth in asset sizes since the 1990s.

The ‘Asean Five’ (Indone-sia, Malaysia, the Philip-pines, Singapore and Thai-land) have already opened up their banking sectors, but cross-border banking has not developed as quickly as was hoped. With overseas banks such as Citibank, HSBC and Standard Chartered retaining the strongest presence in the

region, Asean banks must de-velop and meet international standards, and achieve similar levels of penetration to the foreign big boys. According to the ADB, the Asean banks that are currently in the strongest position to do so are Maybank of Malaysia, Thailand’s Bang-kok Bank and United Overseas Bank from Singapore.

“It is crucial to involve the private sector in infrastructure financing if Asean is to continue building and growing.”

Kunio Senga, Asian Development Bank (ADB) Director General of the Southeast Asia Department, addresses

Asean’s $600-billion infrastructure finance shortcomings.

In briefMalaysia-based CIMB Group will develop

globally recognised Asean bankers after it signed off on a memorandum of understanding with the Institute of Bankers Malaysia (IBBM) that will see

the launch of the Chartered Banker Education Pathway for CIMB’s 42,000 employees.

The programme is a globally recognised qualification conferred jointly in Malaysia by

IBBM and the Chartered Banker Institute in the UK. The syllabus will be customised to reflect

Malaysia’s specific banking operations and regulatory framework.

5.6% Asean economic growth in 2012

projected Asean economic growth in 2013

5.3%-6%

steam ahead

The integration of the region’s banks is a vital step in the evolution of Southeast Asia’s banking sector, yet local institutions must up their game to follow in the successful footsteps of their non-Asean brethren

Phot

o: R

EUTE

RS/E

dgar

Su

BAnKinG AnD finAnce


Market trends 2013

How do you see the mar-ket shaping up over the next ten years?That is a long time in tel-ecoms. There is the potential for the big operators to get bigger, with smaller opera-tors coming under pressure from lack of scale. That does not necessarily mean that the smaller operators will disappear, but they will need to potentially rethink their business models. Consolida-tion, for instance, may take the form of closer network alliances, including more ac-tive infrastructure collabo-ration. Collaboration will be vital across several parts of the value chain for all opera-tors, both big and small.

What will be the key areas of growth in the coming years?Mobile broadband – both big-screen and small-screen – will continue to drive data revenue. Smartphone affordability and availabil-ity will drive small-screen take-up and revenue. Ma-chine to machine (M2M) will also play a key role in driving revenue on the enterprise side. Operators should actively seek to tap more opportunities in the enterprise space, since this area is considerably less fickle than the consumer space. In Southeast Asia, mobile money opportuni-ties could also help drive revenue. But overall, we en-courage operators to contin-ue to innovate on tariffs if they are truly serious about

unlocking incremental rev-enue from consumers.

What kind of an impact will the ICT sector have on the more traditional forms of communication in Southeast Asia?The ICT sector is both an op-portunity and a threat for operators. ICT technologies such as cloud services are well served by OTT players. The challenge for operators will be to differentiate their services, and that is difficult to do. Big data is another ICT opportunity for mobile oper-ators. One big data opportu-nity we particularly like in-volves operators using their customer data to optimise their networks and make them more efficient. We see this being of interest to op-erators in Southeast Asia.

What impact will the opening up of Myan-mar have on its telecoms industry?With a population of more than 60 million people and a mobile penetration rate of less than 10%, Myanmar of-fers a major growth opportu-nity for two new nationwide licensees. We encourage the government to conduct an open and transparent licens-ing process, with knowledge that greater mobile penetra-tion will have GDP benefits. The government, on paper at least, is aggressively target-ing 80% mobile penetration by 2015. In order to achieve that, it needs to open the market in a fair manner that encourages competition.

Q&ANicole McCormickSenior communications analyst at Ovum, a global telecom analyst, discusses the future of telecommunications in Southeast Asia

“We said education for all, now we should say strengthening of telecommunications for all.”

Cambodian Deputy Prime Minister Sok An supports the development of the country’s ICT sector. He went on to say that the skills of citizens, especially the

younger generation, in this area would be “a major factor” in Cambodia’s future.

22%

$4.76

$10

25%

Indonesia gives 4G go-aheadIndonesian companies have been given the go-ahead to intro-duce 4G technology at the end of 2013. A number of companies – including First Media and Indosat Mega Media – have already secured a licence for the frequency (2.3 Gigahertz) required to introduce the next generation of mobile-telecommunications technology, and are now preparing to roll it out around the turn of the year.

expected household broadband penetration rate this year.

billion – the projected rise in GdP for every 10% increase in broadband penetration.

the average amount spent by thais for one gigabyte of information.

the minimum expected growthof the WiFi device market in 2013.

Thailand’s broadband secTor in numbers

educaTion by numbers

With massive energy demands threatening to slow Southeast Asia’s growth, alternative energy will play an increasing role in powering the region

The sunshine coastS outheast Asia’s voracious

appetite for energy has left many regional gov-

ernments scrambling to secure energy supplies, with demand set to soar in the coming dec-ade. While Southeast Asia has only 1% of the globe’s proven oil reserves, it remains rich in sunshine and wind. Can alterna-tive energy help to satiate the re-gion’s energy needs? The energy sources with the most potential are geothermal, solar, wind and hydropower. Indonesia is South-east Asia’s biggest market for renewable energy, followed by Thailand, Malaysia and Vietnam.

“The Southeast Asian market has great potential for increasing energy efficiency... By 2020, the region could save between $15 billion and $43 billion in power savings.”

Eurocham’s Market Potential in Energy Efficiency in Southeast Asia report adds that energy savings in the region depend on private-public sector collaboration.

the growth in

Southeast Asia’s energy demand by 2030. This projected increase is faster than any other region in the world, according to the International Energy Agency.

A growing number of Western universi-ties are collaborating with Southeast Asian

universities. The affiliations allow regional education in-stitutes to offer high-quality higher education at cheaper rates than offered in the US and Europe.

A collaboration between America’s Yale University and Singapore’s National University will open Singapore’s first lib-eral arts college in 2015. The partnership makes Yale the first Ivy League school to establish a college bearing its name in Asia.

In pursuit of its goal to become a regional education hub, Malaysia is looking to ex-pand its strategic partnerships with Western universities. To date, seven foreign universities from Australia, India, the UK, US and the Netherlands have opened branch campuses in the country, with four more to open in the coming years.

The Malaysian government has enticed universities by sup-plementing start-up costs. In return, universities must estab-lish learning environments that best suit the country’s needs, such as engineering facilities.

Looking to achieve top marks for education, the region is enticing Western universities to set up shop on its shores

A model sTudenT

“Building knowledge economies is increasingly regarded as the most sustainable way of driving growth, while providing citizens with higher incomes and more fulfilling work.”

Bindu N Lohani, of the Asian Development Bank, discusses the need for Asean to become more competitive by better educating its workforce.

95

1837,000 1.66m

75

the percentage of adult literacy in Indonesia, thailand and Vietnam.

the number of educational institutions in thailand.

the number of students enrolled in universities in Vietnam.

the percentage of Philippine students who complete secondary education.

the percentage of Filipino college graduates who are unemployed.

EDuCATION

NATurAL rESOurCESTELECOMS


Market trends 2013

The region’s property market is looking healthy. What is your forecast for Southeast Asia’s property market over the coming decade?Real estate is still growing and gaining momentum through the soft landing of global economic turbulence. Excess liquidity has shifted to Southeast Asia, which is offering better investment yield, especially in the housing sector.

Several keys, such as domestic consumption, strong GDP growth, urbanisation and low mortgage rates, have become base considerations in our belief that the cur-rent growth for global real estate is in Asean. However, short-term threats remain in the form of minimum wage increases and local elections in several Asean countries. Imprecise policy decisions on minimum wages and elec-tion processes will drive the rising uncertainty about regulations and policies, which may harm the growth of the real estate industry in the region.

The region’s largest economies have spearheaded the Southeast Asian property market in the past. In which countries do you see the most potential for future growth?Indonesia and Singapore are the top line of our choice, with Indonesia’s booming middle class expected to grow from 36% in 2012 to 58% in 2020, with low key inter-est rates (5.75%) and high growth in income per capita (more than $3,250 in 2012) stimulating the middle class to buy their home, thus boosting new home sales by 15-20% annually.

As one of the world’s financial hubs, Singapore offers the highest liquidity in Asean’s housing markets as well as the most expensive rental rate among the bloc’s coun-tries. Supported by political and economic stability – although it still faces classic problems such as high inf la-tion f luctuation – Singapore will remain one of the top destinations for global real estate investors.

Unused market stock is a real concern in other parts of the world. To what extent is the formation of property bubbles a concern in the region’s markets?Although Asean real estate prices have surged signifi-cantly in the last decade, we still believe they have not yet overheated. The most important indicators, such as strong buying power and low mortgage penetration, will lead sustainable and more convenient growth for Asean real estate sectors.

Our main current concern is in infrastructure develop-ment. If countries can’t unlock the bottleneck in their in-frastructure development, we estimate that the increase of property value in those countries would slow down in the next two years. Singapore also faces diminishing high rise building yields caused by oversupply.

Q&AThendra CrisnandaResearch analyst, BNI Securities, casts his eye over the region’s property sector

of designer homes

The rise

According to data collected by real estate services firm CBRE, branded resi-dences are on the

rise across Southeast Asia. Lux-ury brands St Regis and Four Seasons are already established in Bangkok and are on the way in Kuala Lumpur. CBRE also es-timates that at least 16 branded residences have been launched in the Philippines since 2008.

Branded residences combine the features of high-end ser-viced real estate with superior design quality, with some of-fering 24-hour concierge ser-vices. The company association also influences the price of units, which tend to command a premium of 15-20%. Branded residences have been gaining momentum in Thailand for

some time, both in resort re-gions and Bangkok. The Resi-dences at the St Regis Bangkok, the Sukhothai Residences and the Ritz-Carlton Residences at the soon-to-be completed Ma-haNakon, are all targeted at the end-user, whereas the Am-ari Residences and Banyan Tree Residences in Phuket are de-signed purely for investment.

In Kuala Lumpur, the Four Seasons Place is targeted for completion in 2017, with developments attached to St Regis, Ritz-Carlton, Ban-yan Tree and Harrods in the pipeline.

Branded residences in the Philippines are situated chiefly in resort destinations, and in-clude Aqua Boracay, designed by UK-based ‘yoo’, and Cebu City’s Movenpick Residences,

which are associated with the Movenpick Hotels and Resorts brand.

Branded real estate promises to be the next

big thing to sweep through

Southeast Asia’s world

of luxury goods

A new look for urban living Philippines-based developer Ayala Land recently unveiled plans for the development of a $366m mixed-use development in the Atria Park District of Manduriao, Iloilo City. The development will feature residential, commercial, office and hotel compo-nents. This move mirrors the decision of other developers across the region to construct integrated communities. Mixed-use de-velopments are also on the rise in Malaysia, particularly in the economic corridor of Iskandar. The convenience afforded by the development of self-encapsulated communities in mixed-use de-velopments may represent the future of urban living in Southeast Asia. Integrated developments put everyday facilities and offices within reach of residents who want to avoid the gridlocked com-mute to busy city centres.

$272.1 millionthe amount that will be invested in the sustainable

development of Da Nang, including plans to improve the city’s bus network, develop new roads and

improve the drainage system.

“In kuala lumpur, the

four seasons place Is

targeted for completIon In 2017, wIth

developments attached to

harrods In the pIpelIne

Indonesian developers are able to supply 40,000-50,000 new residential units per year.

Demand currently sits at 200,000

per year.

More than 50%

of Indonesia’s population now lives in cities,

compared to 30%

in the 1980s.

Sea of money: property values are

rising rapidly in Vietnam’s coastal town of Da Nang

pRopeRty

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MARKET TRENDS CAMBODIA 2013

A sia Salt (Cambodia) plans to become the first company to produce export-quality salt in Cambodia. A local

subsidiary of a $2.9m joint venture between South Korean company EEE Korea and Infra-Co Asia Development, Asia Salt plans to pro-duce 20,000 tonnes of the white stuff each year for export to South Korea.

Located in Cambodia’s southern province of Kampot, the 120-hectare salt farm has introduced modern salt farming tech- niques into a sector that largely uses traditional methods. It is hoped the project – financed by the British, Swiss and Austral-ian governments – will revitalise the King-dom’s struggling salt industry. Cambodia’s salt sector has failed to compete internation-ally with the higher quality salt produced in Thailand and Vietnam, and only sells to the domestic market.

Asia Salt expects the first shipment of salt to head to South Korea by the third quarter of the year.

Luxury jewellery brand Tiffany & Co plans to open a dia-mond-polishing factory in Phnom Penh. The 1.2-hectare pro-cessing factory, located in the Phnom Penh Special Economic

Zone, will be headed by Graeme Currie, the director general of Tiffany’s subsidiary Laurelton Diamonds in Vietnam. Laurelton Diamonds sorts, cuts and polishes Tiffany & Co diamonds. Tif-fany & Co reported net sales of $3.8 billion in 2012, up from $3.64 billion the previous year, and it is expected to purchase about $200m-worth of rough diamonds in 2013.

THE well-received launch of the Angkor Car, a small electric vehicle, in January might well have been

timed to perfection, given Cambodia’s burgeoning automobile industry. Last year the number of cars registered with the gov-ernment hit 231,352 – more than double the total in 2006. In-dustry giants Mazda and BMW are expected to enter the market this year, with the latter hoping to tap into a growing desire to buy high-end vehicles, which saw 27% growth in 2011 compared to the previous year.

Cambodia’s first shipment of export-quality salt

will head to South Korea later this year

133 $5 billion

“Presently, most of [Canadia Bank’s] customers are taking up loans of around 70% over the usual durations of between ten to 15 years.”

“It is interesting to note that most of the firms expanding operations in Cambodia are the same firms that moved to Thailand some 20 to 25 years ago. They are even producing the same products.”

Canadia Bank CEO Michael Lor discusses Cambodia’s

nascent loans sector.

Peter Brimble, ADB deputy country director for Cambodia talks about the increasing diversification of Cambodia’s economy.

the amount of foreign aid Cambodia received in 2012, an increase of about 14% per year since 2004.

$1.38 billion

the number of financial institutions offering services in Cambodia to a population of 14 to 15 million people.100

Cambodia’s ranking in the World

Bank’s Doing

Business 2013 list, which surveys 185 countries across competitive criteria such as

ease of starting up a business, getting licensing approvals, efficiency of tax administration and

ease of trading across borders. Cambodia ranked 141 in 2012.

the government’s target for the number of hectares of rubber plantations within

five years.

in 2012, apparel exports grew 9%, compared to the previous

year, to $4.61 billion.

it’s tiffany time

electric feel

One of the world’s most famous jewellers is preparing to open a Phnom Penh finishing centre

for its sexy sparklers

Tiffany & Co is expected to purchase about

-worth of rough diamonds this year

During the first quarter of 2013, 606 companies opened in

Cambodia, a drop of 33% compared

to the same period last

year.

To meet Cambodia’s rice

export target of one million

tonnes by 2015, the country

must make the sector more efficient, say agriculture

officials.

Cambodia’s home-grown car is a hit in an increasingly car crazy country

the projected volume of bilateral trade between cambodia and china by 2017.


cambodia: ManuFaCtuRing 2013

Faced with relentless increases in wages and operational costs on home soil, Western manufac-turing firms staged an exodus to Asia about a decade ago in search

of lower costs. They planned to tap into a regional supply chain that had formed in countries such as Vietnam and Indone-sia while taking advantage of low wages offered by the world’s largest exporter, China. It was a move that bolstered many a bottom line, but ten years on times are changing.

Driven by a rapidly growing middle class, China has become increasingly prosperous in recent years. Seeking to meet the needs of this homegrown customer base, some Chinese manufacturers have forfeited the interests of exporters for those of the country’s domestic customer base. Further-more, growing wage demands in China and Southeast Asia’s light manufacturing coun-tries are forcing global retailers to consider other options as they search for the next low-cost manufacturing destination.

The result has been a speedy realign-ment of the jigsaw puzzle that is Asia’s manufacturing supply chain. China has become bullish in foreign markets, in-vesting billions of dollars in new factories and infrastructure development projects. Vietnam, meanwhile, has earned the title of Asia’s new tech hub as it moves from low- to high-value manufacturing.

Investors in Cambodia are prompting a manufacturing upgrade by building value-

added manufacturing plants, producing automotive parts, sporting equipment and small motors for various consumer products. The Kingdom – where low-value garments accounted for nearly 90% of the country’s exports last year – has become an alterna-tive marketplace for many of the industry’s heavy hitters, as spending countries like Japan are eager to wean themselves off their dependence on China. In December last year, Japanese auto parts maker Yazaki Corp opened a $24m wire harness factory in southern Koh Kong province, using sophis-ticated technologies to employ as many as 2,000 people by 2015, the company said.

“I think it is a bit of a push factor since other places like China, Bangkok, Vietnam or the Philippines are now oversaturated in manufacturing, so firms are targeting Cambodia. It is a market of relative advan-tage,” said Chan Sophal, president of the Cambodian Economic Association.

“Cambodia is now moving up the com-petitive ladder thanks to economic growth within the country and neighbouring countries, where many Cambodians are taking… cutting down the supply of labour and driving up wages.”

Global automotive components manu-facturer Denso announced in January that it would invest a modest $400,000 for the development of its new subsidiary Denso Cambodia Co. Ltd., which will pro-duce sensor components at its new facil-ity in the Phnom Penh Special Economic Zone (PPSEZ).

By Philip Heijmans

$2.32bn

Cambodia’s exports to the European Union grew 23% last year compared

to 2011, bringing the total to

low-value garments

accounted for nearly 90% of the country’s exports

last year

Big plans: Kengo Katsuki, COO of Minebea. The Japanese company is pioneering the manufacture of intricate electronic parts in Cambodia

cambodiaHaving positioned itself as a low-cost manufacturing

alternative, the Kingdom is finally attracting the big boys

made in

gPhot

os: S

am J

am; C

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Soku

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cambodia: ManuFaCtuRing 2013

“To support the increasing production of motorcycles and automobiles in the Asean region, we’ve decided to establish a production company in Cambodia,” Sojiro Tsuchiya, Denso’s executive vice president in the Asia and Oceania region, said at the time. “This will enhance our production needs for customers in the region. Denso remains committed to expanding its pro-duction and supply framework in line with market trends in various regions of the world, as well as… to create jobs and

facilitate economic development in re-spective regions through its operations.”

Yamaha Motor, Laurelton Diamond – a subsidiary of the popular US-based jeweller Tiffany & Co – Malaysia’s CH Steel Wire Industries, and Japanese firms Marusan Plastic and Nikko-Kinzoku Cambodia, which makes wax castings, are in the process of building factories in the PPSEZ. They join a list of exist-ing manufacturers that have entered Cambodia in the past two years. These

firms include US conglomerate Ford Mo-tors, which began producing vehicles for the Cambodian market at its $3m-as-sembly plant in Sihanoukville last year, and Minebea, which completed the first building of its precision motor plant in Phnom Penh in December 2011 and is well into the second phase of its $60m-project in Cambodia.

There are plenty of push and pull fac-tors attracting investors to Cambodia, says Hiroshi Uematsu, managing director of PPSEZ.

“As for internal factors, we can say Cam-bodia has lower labour costs than other countries, good political stability and investor-friendly government policy,” he said. “As for external factors, we can say increasing labour cost, a shortage of labour in China, Thailand and Vietnam, and specifically for the Japanese, anti-Japanese action in China.”

Phnom Penh’s SEZ welcomed 16 new fac-tories last year and has 18 in the pipeline. With the park at near capacity, it is look-ing to expand prior to the establishment of the Asean Economic Community tenta-tively set for 2015, Uematsu said.

“[On an industrial level] it will become nonsensical to view the Mekong region as a group of countries,” he said. “If we com-pare the Mekong region to Japan, Bang-kok is Tokyo, Saigon is Osaka, and Phnom Penh will become Nagoya.”

The Cambodian Investment Board ap-proved $829.68m-worth of projects in the industrial sector last year, 36.35% of the total $2.28 billion-worth of projects ap-proved across all sectors. The list includes a $31.6m Chinese-owned shoe manufac-turing plant, a $2.2m kitchen and tool producing plant for Korean-firm Mansin and $11.3m for an electric wiring plant.

Although many approved projects never come to fruition, the list is a good barometer to gauge the interest of foreign investors.

“Recent surveys indicate that the Cambodian economy is diversifying. Part of that diversification is light manufac-turing and we expect that trend to con-tinue. There is also growth in the food processing industry, also critical for val-ue added purposes,” said Bretton Sciaro-ni, chairman of the International Busi-ness Chamber of Cambodia, referring to the current construction of US-based firm Crown Cork’s $40m aluminium can production plant in Sihanoukville, which will serve clients such as Coca-Cola and Tiger Beer.

“Cambodia can graduate out of a category that only has garment manufacturing

$75The minimum monthly

wage in Cambodia is one of the lowest in the region

as we attract other business here,” he said. “This will be increasingly evident especially after a number of hydroelec-tric plants come online, which will help the availability, reliability and pricing of power in Cambodia, a key consideration for the manufacturing industry.”

Indeed, a lack of sufficient power sourc-es in Cambodia means electricity costs are among the most expensive in the re-gion, as the country remains dependent on Vietnam for imports. However, this is only one hurdle preventing some firms from stepping into the market.

“The question is whether or not we can continue to offer the same wages in Cambodia, given that we have much higher costs with regard to other aspects including electric-ity and logistics – as well as not having the economy of scale in technology and vocational training,” said Sophal. “There are so many factors in theory that make production here less com-petitive and firms then pay wages to employees [accordingly]… so those are the disadvantages.”

Rampant labour rights abuses – includ-ing poor workers’ safety, contemptible wage practices and sudden layoffs – propelled by a vague and unenforceable rule of law are also detracting investors, experts say.

On May 1, following a string of pro-tests and strikes, the minimum wage in Cambodia for garment and foot-wear workers was raised to $75, with an additional $5 health allowance.

“The majority of labour disputes still revolve around the garment sector, but there is still a need in Cambodia for all workers to earn a living wage,” said David Welsh, country director of the American Centre for International Labor Solidarity, adding that many workers across all sectors are unable to cover the costs of living as advocates continue to fight for the a national minimum wage of $100.

As arbitration gains prominence in Cambodia, there is still hope for good la-bour practices, says Welsh, especially as foreign suppliers are increasingly taking responsibility for paying workers who have been laid off without notice.

“There is still a huge way to go, but I think in the garment sector and in other sectors that Cambodia is… going in the right direction and it will not take much to make labour laws more efficient,” he said. “Here, there is a real chance for things to improve.” Z

recent surveys indicate that the

cambodian economy is diversifying as

it moves into food processing

Heavy load: labourers offload cement at a transit

point in the border town of Poipet in northwestern

Cambodia

Phot

os: B

rent

Lew

in/B

loom

berg

; Won

g M

aye-

E/AP


CAMBODIA: PeoPle 2013

Thomas hundTFormer CEO of Latelz Company Limited’s Smart Mobile, Thomas Hundt is the head of Smart, a recently merged telecommu-nications company. In a long overdue consolidation of Cam-bodia’s telecoms market, Smart Mobile joined forces with Malaysia-based Axiata Group Berhad’s Hello in January. With more than five mil-lion customers, the mobile company is now the second-biggest in Cambodia, and plans to expand its cover-age in its bid to become the Kingdom’s leading telecommunications op-erator. Hailing from Ger-many, Hundt led Smart Mobile for five years prior

to the merger. He previous-ly worked for Nokia Siemens

Networks and Siemens AG’s Communication Division.

Neak Oknha Kith Meng, Cambodian business tycoon and CEO of the Royal Group of Cambodia (RGC), extended his conglomerate portfolio earlier this year when he signed a joint venture with San Miguel Corporation (SMC) to launch Cam-bodia Airlines, a Cambodia-based airline. RGC owns a 51% share in the airlines, while SMC, which owns Philippines Airlines and plans to invest $1.5 billion into the venture, holds the remaining 49%. Cambodia Airlines is set to take to the skies during the third quarter of the year. It will serve both domestic and international destinations. Kith Meng is also chairman of Cambodia’s Television Network and telecommunicationscom-pany CamGSM’s brand Mobi-tel. In 2005, RGC established ANZ Royal Bank with ANZ Bank.

KiTh meng

Names to know in Cambodian business

Power play

One of South Korea’s 50 richest people, Lee Joung-keun is chairman of South Korean real estate conglomerate Booyoung Co, which is building the $1.1 billion satellite city Booyoung Town in Phnom Penh. A complex of 40 apartments, seven residential and commer-cial buildings, a school and a sports centre, the 2.7km2 compound will have the space to accom-modate 17,760 house-holds. During this year’s donation drive for the Cambodian Red Cross – presided over by Prime Minister Hun Sen’s wife, Bun Rany – Booyoung donated $3m, by far the largest contribution of the day.

Lee Joong-Keun

Phot

o: T

hom

as C

rist

ofol

etti


While ‘sweet-spot’ markets such as Indonesia and Singapore are fuelling the growth of Asia’s life insurance sector, Cambodia

has been slower out of the starting blocks. In a country where the majority of the

15-million-strong population does not have a bank account, much less a financial port-folio, the year-old life insurance sector is prioritising education over profit.

“The Cambodian market is absolutely nascent,” said Pankaj Banerjee, general manager of Prudential Cambodia, which rolled out an extensive marketing cam-paign aiming to inform Cambodians about life insurance. “We believe our current task is to create the right kind of consumer awareness with regard to the life insurance product. It is like building

a strong platform on which a sustain-able life insurance market can be built. Life insurance is a long term business.”

Building solid foundations, Prudential spent two years researching market behaviour in Cambodia.

“The product types have a very strong linage to what stage of development the life insurance industry is at in a particu-lar country. Cambodia is in the formative stages of the life insurance industry and we believe that the product we have of-fered is the relevant and right product for the needs of the local people here,” he said. Banerjee is referring to the company’s first offered product, which gives customers return payment in the event that a policy reaches maturity. Pru-dential Cambodia, a subsidiary of UK-

based insurance giant Prudential PLC, launched in January following the entry of state-owned Cambodian Life Insurance Company and Canadian firm Manulife last year.

Although the logistics of developing a sustainable marketplace for life insur-ance in Cambodia are quite complex, the reasons for pioneering it are easier to understand. Economic growth has been consistently high over the past dec-ade and GDP per capita is about $1,000, Banerjee said.

“Cambodia has a young population and practically no life insurance,” he added. “It has all the ingredients of having good life insurance potential in the long term, similar to any emerging market when they started.” Z

Cambodia’s nascent life insurance sector is expected to reach maturity

the Business of life

By Philip Heijmans

Long game: Pankaj Banerjee,

general manager of Prudential Cambodia

CAMBODIA: insuRanCe 2013

Phot

o: S

am J

am fo

r Fo

cus

Asea

n


CAMBODIA: banking 2013

cial services in Cambodia. They are succeed-ing, but there are risks.

According to the National Bank of Cam-bodia, total deposits in the banking sector in 2012 grew 24.89% to reach $6.22 billion, compared with $4.98 billion in 2011. At the same time, new loans grew an eyebrow-raising 34.2% last year to reach a total of $5.89 billion, the same data shows.

“Growth in the banking sector is reflected by the continuous strong growth of the country’s economy, particularly in the pri-vate sector. The banking sector expects a continued expansion and we [expect]… new players to enter into the market as the population still remains largely banked,” said CIMB’s head of strategy and finance, Heng Vuthy. He added that CIMB experi-enced a tripling of revenues to $4.5m last year compared to the year before, as their loan portfolio doubled to a total $85m.

Canadia Bank, one of the largest banks in the country, also achieved substantial revenues last year, as its operating income jumped more than 35% to reach $70m, while achieving annual deposit growth of 22% to reach $1.28 billion last year, according to the bank’s CEO Michael Lor. The bank’s loan portfolio grew nearly 20% to $880m.

“As a rapidly developing economy, Cam-bodia continues to offer much attraction and [many] opportunities to financial in-stitutions that are looking to invest in this region,” Lor said. “This will of course heighten competition amongst the bank-ing participants. However, it is pertinent to highlight that, whilst the credit growth had been significant during the past few years, access to formal credit in Cambodia is still quite under-penetrated.”

The situation is not just a by-product of growing economic wealth, but a funda-mental shift in Asia’s banking paradigm toward a consumer banking scheme that was all but ignored leading up to the 1997 Asian financial crisis, when less than 15% of the banks’ balance sheets came from retail services.

Despite Cambodia’s recent growth in banking activities, many bankers are wor-ried that the sheer number of competing commercial banks, along with several MFIs planning to convert to fully-fledged banks by 2015, will saturate the market and threaten revenue sustainability.

“If we look at the experience of the other regional countries, one would have to con-clude that consolidation of the financial sec-tor would have to naturally take its course. This is pertinent as the banking institutions would have to become more efficient in or-der to remain relevant,” Lor said.

He added that the establishment of the Asean Economic Community, expected in 2015, may be a catalyst for such consolida-tion, as financial institutions would need to compete with larger and stronger regional banks. “The potential need to adopt inter-national statutory and accounting stand-

ards would also hasten the need for smaller banks to merge in order to maintain a rea-sonable scale,” Lor said.

Organisations such as the World Bank and International Monetary Fund (IMF) have also repeatedly warned that escalating credit growth in the Cambodian banking sector is creating a number of risks.

“While inflation is expected to remain low, private credit has continued to grow rapidly with limited availability and use of instruments of control,” the IMF stated in a January report. “Continued rapid credit growth could jeopardise macroeconomic and financial stability, and increase contin-gent fiscal liabilities.”

Grant Knuckey, CEO at ANZ Royal Bank, said one of the main factors contributing to credit risk is banks only granting loans within a small pool of investors, reducing any cushion from non-perform-ing investments and creating unhealthy competition.

“At the moment credit growth is main-ly contained within a relatively defined pocket of the economic community in Cambodia, so essentially its additional lending is to people who are already bor-rowing,” he said.

Knuckey added that banks might be in-clined to lower their lending standards, loosen terms and conditions, and offer longer term loans and fixed interest rates in order to steal clients. “Frankly, I am beginning to see more of this, so that is a warning sign.”

Knuckey said that this small group of borrowers led to a substantial 2% drop in lending rates sector-wide over the last year, with those rates continuing to drop.

“[The credit growth rates are] definitely not sustainable forever and one reason for that is the compression in lending rates…. We know all banks will be faced with mar-gin compression, and for some banks that will already be at a level that is uncomfort-able relative to their cost of deposit funds,” he said.

ANZ Royal Bank’s lending portfolio grew below the industry average at just 10% in 2012, while deposits grew 20% and rev-enues by 8%, Knuckey said, although he would not give dollar amounts.

Nevertheless, there are ways to avoid some of the risk created by rapid lend-ing, said In Channy, CEO of Acleda Bank. He said that the key to keeping credit risks under control is to make prudent short-term loans. Luckily, with the ex-port market on an incline, returns can be achieved quickly since transactions are completed promptly.

“Trade cash turnovers are high with export loans and the loan period is short. That is compared to risky housing credits with loan periods between 10 to 15 years and payments made only once a year,”

Channy said, adding that the trade sec-tor makes up 40% of his bank’s

portfolio, followed by the service and agriculture

sectors at 21% and 18% respectively.

“Most of our loans go toward busi-ness productivity and development where, if compared to other countries,

those loans go to-ward consumer goods

that don’t generate revenue, so that is good

for us,” Channy said, adding that Acleda now holds 92% of the

total number of bank customers in Cambo-dia. Despite this figure, Acleda’s loan port-folio is $1.23 billion, or 21% of all loans.

Acleda Bank’s net profits after taxes last year reached $64.64 million, up 28.97% from the year before, while total deposits climbed 27.29% to $1.46 billion, according to audited data from the bank.

“You can see how accounts to loans ratio condenses – the rest of the banks have 79% of the total loan portfolio, but only 8% of the customers,” Channy said. “To me, this is a risk.” Z

Along the northern end of Phnom Penh’s busy Monivong Boulevard, con-struction crews are hard at work on a $45m tower to

house the new headquarters of locally grown Acleda Bank. Having opened the first foreign-owned microfinance sub-sidiary in Myanmar in January, Acleda only days earlier continued its expan-

sion at home by opening a new branch in northeastern Mondulkiri province.

Though Acleda is the country’s largest bank, they are not the only one making noise – Malaysia-based CIMB Bank recently completed an expansion consisting of 11 branches across the country, while Vietnam’s Sacombank, one of the most recent banks to offer commercial services in Cambodia, opened their fifth branch in Phnom Penh.

At the same time, ANZ Royal Bank and Ca-nadia Bank are hushed about future expan-sions in terms of new subsidiaries, services and real estate endeavours.

In a country where fewer than two mil-lion people – or just under 15% of the popu-lation – have bank accounts, Cambodia’s 32 operational commercial banks and dozens of microfinance institutions (MFIs), have made it their mission to firmly plant finan-

A Canadia Bank staff member counts US dollars in Phnom Penh

Growth in Cambodia’s financial sector has banks talking expansionBranching OutBy Philip Heijmans

The loan portfolio of Canadia Bank in 2012

reached

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CAMBODIA: banking 2013

in Cambodia in terms of loan port-folio, assets and savings deposits.

“With the market changing, some banks have begun targeting corpo-rate customers, but we offer inclu-sive finance for the low, medium and high segments,” Channy said. He added that at the end of 2012 Acleda had more than 315,000 active borrowers, representing 92% of all borrowers in the entire Cambodian banking sector.

According to the bank’s most recent data, Acleda’s total loan port-folio reached $1.31 billion at the end of February 2013, up 32% from the start of 2011, while deposits grew 29% to reach $1.51 billion dur-ing the same period. Channy said that Acleda’s high deposit to loan ratio means that the bank avoids costly refinancing expenditure to foot new loans.

“Normally we build the portfolio first and when it reaches a certain level, we set up an office there so that it can be profitable from the begin-ning,” Channy said. “That is how we have done it in Cambodia.” Z

While the rest of the world gauges how best to enter Myanmar, Acleda Bank is already

enjoying its early move advantage.More than 20 foreign banks have

approval from the Myanmar govern-ment to open representative offices in the country, but Cambodia-grown Acleda was the first to make transac-tions after acquiring a licence in late January to open its wholly-owned mi-crofinance subsidiary. It only took the Acleda MFI Myanmar two months to complete its first 100 loans.

“Myanmar, in terms of population, is four times larger than Cambodia, but in terms of access to finance [it] is far smaller. In Cambodia, loans to GDP for 2012 is just 37%, while in Myanmar it is only 5%, meaning that it has a large market base and we believe the bank can grow quickly over there,” said In Channy, CEO of Acleda Bank.

Having poured $10m into its new MFI operations in Myanmar – far above the government’s minimum requirement of $37,000 – Channy said that Acleda wants to promptly

flip the company into a fully fledged commercial bank once foreign own-ership laws are instated – which is expected to happen in 2015.

“Initially, we will have 36 Myan-mar staff and 13 Cambodians, but this year we plan to expand to 700 Myanmar staff with new offic-es,” he said, adding that he expects those operations to become profitable within three years.

The expansion does not stop there. In Phnom Penh’s devel-oping financial dis-trict, Acleda is building a $45m, 20-storey head-quarters, which is expected to house nearly 8,000 staff when it is completed in 2014.

As of February 2013, Acleda Bank was backed by a number of repu-table shareholders including the International Finance Corporation, Stichting Triodos-Doen, JSH Asian Holdings, Cofibred and Acleda NGO Trust. It is also the largest of about 32 operational commercial banks

On the upAcleda Bank is a true Cambodian success story. Now it is bringing its expertise as an early mover to the region’s last untapped frontier

By Philip Heijmans

R In Channy founded Acleda in 1993

Boss man: In Channy serves as

CEO and President of Acleda Bank

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CAMBODIA: indiCatoRs 2013


IN FIGURESCambodia’s growth is holding up, but exposure to risks remains high and challenges lie ahead

Country competitiveness

Rank (out of 142 economies) Score (1-7)Basic requirements 97 4.1Institutions 73 3.8Infrastructure 104 3.1Macroeconomic environment 91 4.4Health and primary education 102 5.3Efficiency enhancers 85 3.8Higher education and training 111 3.3Goods market efficiency 50 4.4Labour market efficiency 28 4.8 Financial market development 64 4.1Technological readiness 100 3.3Market size 89 3.1Innovation and sophistication factors 72 3.5Business sophistication 74 3.9Innovation 67 3.2

Output, employment and prices

2008 2009 2010 2011e 2012f 2013fReal GDP (% change y-y) 6.7 0.1 6.0 6.9 6.6 6.7Domestic demand (% change y-y) 18.3 2.7 10.7 12.5 13.0 13.4 Industrial production index (2000=100) 256 231 263 300 323 349Consumer price index (% change y-y) 12.5 5.3 3.1 4.9 5.0 5.0e: estimates f: forecast

Public Sector 2008 2009 2010 2011e 2012f 2013fGovernment revenues (% GDP) 12.0 12.0 13.1 13.1 13.4 13.5Government expenditures (% GDP) 14.8 20.4 20.6 19.1 19.2 19.1Government balance (% GDP) -2.8 -8.4 -7.5 -6.0 -5.8 -5.6

Foreign trade, BOP and external debt 2008 2009 2010 2011e 2012f 2013fTrade balance ($ million) -,1584 -1,494 -1,582 -1,603 -1,736 -1,793Exports of goods ($ million) 3,493 2,996 3,884 5,277 5,831 6,530Imports of goods ($ million) 5,077 4,490 5,466 6,879 7,567 8,324Current account balance ($ million) -1150 -1,066 -1,171 -912 -1,400 -1,500Foreign direct investment ($ million) 795 525 762 1,332 1,399 1,407

Selected Millennium Development Goals 2009 2010 2011 2015

MDGTarget

Goal 1: Eradicate extreme poverty and hungerPercentage share of income or consumption held by poorest 20% 8 ... ... 11Population below minimum level of dietary energy consumption (%) ... ... ... 21Poverty headcount ratio at $1.25 per day (PPP, % of population) ... 26 ... 20Prevalence of underweight children (under five years of age) ... ... 29 26Goal 2: Achieve universal primary educationNet primary enrollment (% of relevant age group) ... 96 ... 100Primary completion rate, total (% of relevant age group) 84 87 ... 100Proportion of pupils starting grade one who reach grade five ... 85 ... 100Youth literacy rate (% of ages 15–24) ... ... ... 100Goal 3: Promote gender equality and empower womenProportion of seats held by women in national parliament (%) 16 21 21 30Ratio of girls to boys in primary and secondary education (%) ... 94 ... 100Ratio of young literate females to males (% ages 15–24) ... ... ... 100Share of women employed in the non-agricultural sector (%) ... ... ... ...Goal 4: Reduce child mortalityImmunisation, measles (% of children ages 12–23 months) 92 93 ... 90Infant mortality rate (per 1,000 live births) 46 43 ... 50Under five mortality rate (per 1,000) 55 51 ... 38OtherLife expectancy at birth, total (years) 62 63 ... ...Literacy rate, adult total (% of people ages 15 and above) ... ... ... ...Population, total (millions) 14 14 14 ...Trade (% of GDP) 105 114 ... ...

Cambodia: selected activity indicators(Year-on-year percent change)

Tourist arrivals, 2008–12(Year-on-year percent change, three-month moving average)

50

40

30

20

10

0

-10

-20

-30

Air arrivals Land and boat arrivals

100

80

60

40

20

0

-20

-40

10

8

6

4

2

0

-2

-42008 2009 2010 2011 2012

20

15

10

5

0

-52004 2005 2006 2007 2008 2009 2010 2011 2012

Contribution to growth, 2004–12(In percent)

OthersConstructionHotels & restaurants

GarmentsAgricultureReal GDP growth (annual percentage change)

Inflation, 2009–12(Year-on-year percent change)

15

10

5

0

-5

-10

-15

-20Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

HeadlineFoodFuel

Jan-

08

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jul-

08

Jul-

09

Jul-

10

Jul-

11

Jul-

12

60

50

40

30

20

10

0

-10

24

20

16

12

8

4

0

-4

Credit to the economy and excess reserves, 2008–12(In percent)

Jan-

09

Jan-

10

Jan-

11

Jan-

12

Jul-

09

Jul-

10

Jul-

11

Jul-

12

Excess reserves to GDP (right axis)Credit growth (3MMA, annualised)

Real effective exchange rate, 2008–12(Index, 2005=100)

150

140

130

120

110

100

90

80

Jan-

09

Jan-

08

Jan-

10

Jan-

11

Jan-

12

Jul-

09

Jul-

08

Jul-

10

Jul-

11

Jul-

12

CambodiaSri Lanka

BangladeshLaos

Vietnam

Sources: International Monetary Fund; the World Bank; United Nations agencies

GDP growth (right axis)Imports of construction materials (3mma)Garment exports (3mma)Tourist arrival (3mma)


CAMBODIA: getting staRted 2013

More information:

American Cambodian

Business Council

amchamcambodia.net

Australian Business

Association of Cambodia [email protected]

British Business Association

of Cambodia [email protected]

Cambodia Federation

of Employers and Business

Associations camfeba.com

Cambodian Chamber

of Commerce ccc.org.kh

China, Hong Kong and Macau

Business Association chkmeba.com.kh

European Chamber of

Commerce in Cambodia eurocham-cambodia.org

French Cambodian Chamber

of Commerce ccfcambodge.org

Garment Manufacturers

Association in Cambodia gmac-cambodia.org

German Business Group adw-cambodia.org

International Business

Chamber of Cambodia ibccambodia.com

Japanese Business

Association of Cambodia locomo.com

Korea Trade Centre [email protected]

Malaysian Business Council

of Cambodia mbccambodia.org.kh

Taiwan Business Association

in Cambodia [email protected]

Thai Business Council

of Cambodia [email protected]

0 10 15 2025

5Percent of responses

Source: d

oing

bu

siness.org

Profit taxStandard rate: 20%Oil and gas, and certain mineral

exploitation activities: 30%Insurance activities: 5%

(on gross premium income. For insurance and reinsurance companies, income derived from other business activities is subject to the Tax on Profit rate of 20%)

Qualified Investment Projects (QIP) recognised by the Council for the Development of Cambodia (CDC) are entitled to a tax holiday and will be exempted from Tax on Profit for 3 to 6 years.

Source: PWC - pwc.com/kh

Tax on salary500,000 riel or less ($125 or less) 0%500,001 to 1,250,000 riel ($125 to $313) 5%1,250,001 to 8,500,000 riel ($313 to $2,131) 10%8,500,001 to 12,500,000 riel ($2,131 to $3,135) 15%12,500,000 riel plus ($3,135 plus) 20%Source: PWC - pwc.com/kh

Construction Dealing with construction permits:

652 days/$324Getting electricity on a new site (including

external connection works, meter installation and final connection):

183 days/$24,636Registering property: 56 days/$101-$111 + 4% of property value (transfer fee)Source: doingbusiness.org

Starting a businessDeposit the legally required

initial capital in a bank and obtain deposit evidence: 1 day/no charge

Check the uniqueness of the company name:

5 days/$10Have an abstract of the company

organisation documents (bylaws, memoranda and articles of association) published in a recognised public newspaper:

7 days/$15Incorporate the company with the

Commercial Register, at the Office of the Clerk of the Commercial Court: 25 days/$105

Make a company seal: 1 day/$15

Have registration document stamped and approved by Phnom Penh Tax Department: 3 days/$49

Register the company for VAT and patent at the Real Regime Tax Office: 13 days/$390

Notify the Ministry of Labour of the start of operations and hiring of employees:

30 days/$250 (8-200 employees)Source: doingbusiness.org

Trading across bordersNature of export proceduresDocument preparation: 14 days/$220Customs clearance and technical control: 3 days/$265Ports and terminal handling: 3 days/$100Inland transportation and handling: 2 days/$170Nature of import proceduresDocument preparation: 15 days/$210Customs clearance and technical control: 3 days/$265Ports and terminal handling: 5 days/$225Inland transportation and handling: 3 days/$200Source: doingbusiness.org

Audit firms in Cambodia (A-Z):Grant Thornton gt.com.khKPMG kpmg.com/khLRS Henderson lrshenderson.comMorison Kak & Associés morisonkak.comPWC pwc.com/kh

Tax or mandatory contribution Payments Statutory tax rate Tax base Total tax rate (% of profit)Corporate income tax 12 20% on profits or 1% on turnover (whichever is higher) Taxable profit 18.9Fuel tax 1 Included in the fuel price 1.3Patent tax 1 Fixed fee (1,140,000 riel/$285) Fixed fee (1,140,000 riel/$285) 1.3Transport tax 1 Fixed fee (774,206 riel/$194) Fixed fee (774,206 riel/$194) 0.9Social security contributions 12 1 Gross salaries 0.1 Tax on interest 0 4.0% Interest income 0.1Value added tax (VAT) 12 10.0% Value added 0

Human resources firms in Cambodia (A-Z):AAA aaa.com.kh HRINC hrinc.com.kh Top Recruitment top-recruitment.com

Market research firms in Cambodia (A-Z):BMRS bmrs-asia.com DKSH dksh.com.kh Indochina Research indochinaresearch.comMSD msd.com.kh

Business law firms in Cambodia (A-Z):BNG Legal bnglegal.com

Bou Nou Ouk bno.com.khBun & Associates bun-associates.comDFDL Mekong dfdlmekong.comHBS Law Firm & Consultants hbs.com.khSciaroni & Associates sa-cambodia.comSok & Heng sok-heng.comSok Siphana soksiphana.com

Special Economic Zones

There are 22 Special Economic Zones (SEZs) located along the border with Thailand and Vietnam (Koh Kong, Poipet, Bavet, Phnom Den) and in Sihanoukville and Phnom Penh. Businesses within the SEZs benefit from a number of fiscal incentives, including income tax, customs and VAT benefits. The SEZs offer a ‘one-stop service’ for imports and exports, with government officials stationed on-site providing administrative services. Applications to establish factories within the SEZs are dealt with on-site, along with administrative clearances including company registration and investment licences, work permits and labour books for both expat and local workers, legal and administrative assistance, investment approvals, customs inspections and clearance and import-export procedures. Investment incentives are:

P Up to nine years’ tax holiday

P 0% VAT

P Full import duty exemption for raw materials, machinery and equipment

P No export tax

P Employment of expat workers allowed for up to 10% of total workforce

P Permanent visa for families of investors

P Corruption .................................................................................21.5

P Inadequately educated workforce ..................................12.4

P Access to financing ................................................................10.9

P Tax regulations ........................................................................5.9

P Inefficient government bureaucracy ..............................11.8

P Inadequate supply of infrastructure ..............................5.8

P Poor work ethic in national labour force ....................4.8

P Inflation .....................................................................................3.9

P Policy instability .....................................................................3.1

P Tax rates .....................................................................................4.1

P Crime and theft .......................................................................2.6

P Poor public health .................................................................3.8

P Government instability/coups ..........................................1.3

P Foreign currency regulations ............................................1.9

P Restrictive labour regulations ..........................................1.2

The most problematic factors for doing business

Source: Ch

am

bers &

Partn

ers

Get up and goWith 100% foreign ownership, competitive wages and tax incentives, Cambodia is primed for business. Here is some information to get your investment rolling

22Special Economic

Zones (SEZs) located along the border with Thailand and Vietnam

To download the pdf version of Focus Asean, as well as

other reports, and to access all back issues of Southeast Asia Globe magazine and its

e-magazine, go to

sea-globe.com

Source: G

loba

l Comp

etitiveness Rep

ortSou

rce: cam

bod

iasez.com


CAMBODIA: euRoCHaM 2013

Power in numbersExports from Cambodia to the EU continued their upward trend last year, reaching $2.3 billion. Sheila Scopis, executive director of the European Chamber of Commerce (EuroCham) in Cambodia, discusses the group’s work in the Kingdom and beyond

How has EuroCham evolved since its incep-tion two years ago? Has it found its voice within the Cambodian and regional business community?I think that EuroCham found a voice within these business communities right after its in-ception. The Ministry of Com-merce and the European Com-mission invited EuroCham to play a leading role in organis-ing the 2nd Asean-EU Busi-ness Summit, which was held in Phnom Penh last year. The forum was chaired by Prime Minister Hun Sen, and more than 300 international busi-ness leaders attended to discuss opportunities, challenges and recommendations to facilitate an improved business environ-ment for the EU, the world’s largest economic union, and Asean, one of the world’s most dynamic emerging mar-kets. Since then, EuroCham has also launched a number of sectorial committees and established participation in

networks such as the EU-Asean Business Council and the Global European Business Organisations.

In which areas can Euro-Cham support and improve the business environment? EuroCham Cambodia offers a range of services that aim to assist businesses at all stages of their establishment in Cambodia. These range from the organisation of trade mis-sions and market research, to business-matching and as-sistance in bureaucratic pro-cedures, such as registration at the various ministries.

In terms of improving the business environment, Euro-Cham’s ultimate mandate is advocacy. Our aforementioned sectorial committees – the Pharma Group, Logistics and Transportation, Green Busi-ness, Real Estate and Construc-tion – provide a platform for its members to identify com-mon issues and present them directly to the Cambodian government.

EuroCham Cambodia was inaugurated in June

2011

Phot

o: S

am J

am fo

r Fo

cus

Ase

an (1

)

As an example of the committees’ activities, some of the Pharma Group’s key objectives are: raising aware-ness among patients of the risk of counterfeit medicines; advocating the interests of pharmaceutical companies to relevant authorities; [and] com-municating the commitment of pharmaceutical companies to high standards of safety to healthcare professionals.

While all of these commit-tees work under EuroCham’s umbrella, they are essentially autonomous – the initiative always comes from our mem-bers, the private sector. In ad-dition to working on position papers, the committees are encouraged to initiate and plan events on behalf of EuroCham. For instance, our Green Busi-ness committee is currently organising a Green Business Forum, which will be held on December 6, 2013.

What is EuroCham’s role in contributing to the Euro-pean Asean Business Council (EABC)?EuroCham Cambodia partici-pates in the EABC together with a number of EuroChams in the region – Singapore, Malaysia, Indonesia, Laos, Philippines, Vietnam and Thailand. The council advocates the interests of European businesses at an Asean level.

Through regional working groups and committees, the EABC identifies key regula-tory issues and barriers that affect European businesses. It then collects relevant infor-mation and develops strategies that seek to reduce such impedi-ments, with a focus on key mar-ket issues with a regional impact and free trade agreements.

EuroCham Cambodia has been directly involved in the rewriting of the EABC’s statute, defining its internal

procedures and outlining its organisational structure in a way that promotes a fruitful dialogue between its mem-bers – private corporations on the one hand and business associations on the other.

How does EuroCham dif-fer from other business organisations such as the International Business Chamber (IBC)? IBC was born as ‘the corpo-rate club’ and still represents a forum for big corporations to speak with one voice, while EuroCham’s base is much broader. We are in the process of forming a committee dedi-cated to SMEs and, in the near future, will implement a num-ber of programmes focused on business development and sup-port services that we hope will attract more European SMEs to Cambodia.

That said, we have always seen IBC as a crucial partner,

rather than a competitor. We have started to work together on a number of initiatives, such as the National Arbitration Council (NAC) among others.

EuroCham’s founding members – the Chambre de Commerce Franco-Cambodgienne (CCFC) and the German Business Group (ADW) – are planning to merge into EuroCham. What effect will this have?

The result will be a big-ger, stronger, more effective chamber that will be in a better position to represent European companies’ inter-ests and interact with the Cambodian government, as well as Asean in general. It will help avoid overlapping in the provision of services, strengthen our sectorial com-mittees and allow us to play a more substantial role in various types of government-private sector dialogues. Z

All smiles: Cham Prasidh, Cambodia's minister of commerce (left), and

Dominique Catry, chairman of Eurocham Cambodia, during

one of the chamber's monthly networking luncheons

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