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IIST e-Magazine (For the Japanese version of this article)

Series: The Mekong Region and Japan Part 8: Cambodia (2) Japanese Role in Cambodia’s Integration into Regional Economy | Dr. SAR Senera, Personal Assistant to Secretary General, Council for the Development of Cambodia (CDC) [Date of Issue: 30/November/2012 No.0213-0869]

Date of Issue: 30/November/2012

Series: The Mekong Region and Japan Part 8: Cambodia (2)
Japanese Role in Cambodia’s Integration into Regional Economy

Dr. SAR Senera
Personal Assistant to Secretary General,
Council for the Development of Cambodia (CDC)

1. An Overview on Japanese FDI Trend
Following a number of factors, such as wage hike and political tension between Japan and China, Japanese firms have been considering moving their production base to other countries in Southeast Asia. Cambodia has become the most attractive destination in the region. The current trend of Japanese foreign direct investment since 2010 has proven such an attraction. The arrival of Minebea (small size motor manufacturing), Yazaki Corporation (automobile wire harnesses) and AEON (shopping mall) in the following years send a strong signal about Cambodia’s attraction to many other Japanese investors who are currently considering moving out China.

Political stability, steady economic growth (average 10% for the last five years and 6% per annum since 2010), macroeconomic stability, open investment regime (with a few restrictions in specific sectors, such as the exploitation of gemstones, publishing and printing and radio and television) and inexpensive young labor forces make Cambodia a potential destination for Japanese investors. Although Japanese investment is still ranked 10th (see graph 1) following the other big countries in East Asia, China and Korea, it has increased sharply within the last three years (2010-2012).

Approved Investments by Country/Region (1994-2011) The Japanese investment capital registered at Council for the Development of Cambodia (CDC) as of 2011 amounts for more than 300 million US (see Graph 2), while the number is expected to increase up to 400 million by the end of 2012. Most of the Japanese companies locate in the Special Economic Zones.
For example, Minebea, O&M Kogei (leather products), Combi (baby car parts), Sumitomo Wiring Systems (automobile wire harnesses) etc. locate in Phnom Penh Special Economic Zone. Yazaki and Mikasa (sports ball), etc., however, locate in Koh Kong Special Economic Zone, while the others, such as Fuji Industry (precision rubber products) and Nikko Metal (press metal products) are located in Special Economic Zones close to Cambodian borders. Japanese investments in the Zones increase remarkably. As of October 2012, the investment capital in special economic zones accounts for almost 160, 000,000 USD. The administration, one-stop service and available facilities in these special economic zones are ones among key factors that absorb those investments.

Accumulated total of Approved Investments by Country/Region (1994-2011) 2. Japanese Government’s Roles in attracting Japanese FDI into Cambodia

Southern Economic Corridor
The Japanese government assistance in attracting Japanese FDI into Cambodia is indispensable. After the introduction of the economic corridors in 1998 and the initiative of establishing the Southern Economic Corridor (SEC) by Japanese government, the infrastructures of the small country, which is hemmed in by Thailand and Vietnam have been much improved and will soon be ready to achieve what the SEC should be for. For example, the national road No.5 connecting Poipet (Cambodian-Thai border) and Phnom Penh is under upgrading plan of the Cambodian government, while the Neak Loeung bridge that connect Phnom Penh to Bavet town (Cambodian-Vietnamese border) expected to be completed by early 2015 is under construction using Japanese grant aid, while National Road No.1 on the west and the east of this bridge have been upgraded by ADB financing and Japanese grant aid. The completion of the bridge will connect Bangkok, Phnom Penh and Ho Chi Minh where the SEC runs through.

Promoting Investment Environment, Attracting more Japanese Investors
Under JICA Project on Enhancing the Investment-Related Services of Council for the Development of Cambodia (CDC), investment guidebooks, library and websites have been established and updated regularly to ensure that investors get updated information on investment climate in Cambodia. More importantly, a “Japan Desk” has been set up within CDC. Japan desk provides business consultation services and after care services to the Japanese investors. Records provided by JICA expert revealed that investors from 86 companies sought for consultation at Japan Desk in 2011, while the number of the first quarter of 2012 hit the record of 45 companies, while the record of 200 is expected by the end of 2012.*1
Beside the Japan Desk, Japanese government also assists CDC in setting up library, publication of investment guidebooks, creation of websites, carrying out Cambodia investment promotion seminars oversea and other capacity building activities.

Hearing Japanese Investors’ Voices
Cambodia and Japan signed a bilateral investment agreement in June 2007 that contains a special clause—that is the establishment of Joint Committee,*2 whose role inter alias is to discuss investment-related matters. The Joint Committee can hold joint meetings with the private sectors. In practice, the Joint Committee hold meeting in every six months with the attendance of some Japanese investors. Seven meetings have been held so far since the initiation of this Committee. Such a measure is unique and practical, as the investors can raise their concerns and suggestions directly to the Cambodian authorities that involve in investment matters.

3. Cambodia’s Challenges

With such a good performance in attracting Japanese FDI, Cambodia must also be ready to cope with some possible issues in the future.

First, the possible labor shortage resulting from the mismatching. In the 3rd Seminar on Economic Development in Cambodia co-organized by METI and CDC, some Japanese firms operating in Cambodia reiterated that Japanese firms now face the labor shortage. Secretary General of CDC, however, insisted that it is not the labor shortage, but the mismatching between the job seekers and the employers. Regardless of which statement is convincing, the question is whether Cambodia has adequate number of skilled labors to supply to Japanese firms in the long run. Beside the skilled labor supply, Cambodia should be ready to take advantages from the technology transfer of those FDIs. Some big companies still employ medium-management staffs from Cambodia’s neighboring countries. To cope with these issues, the government has form a National Employment Agency (NEA) to match the job seekers and employers, while National Training Board was established to work out on vocational training centers. The effectiveness of these two institutions on coping these challenges, however, need to be assessed.

A part from these, Cambodia, as any other countries in the region, is still struggling with the lack of sufficient and low-cost electricity supplies. It is not any time soon that Cambodia can cope with this issue although some hydro power plants are being constructed. To ensure the sustained growth of inward FDI, the strong policy on other sources of energy such as solar to generate electricity should be considered. With its human resources and know-how, Japan is capable in assisting Cambodia in these areas so as to attract more and maintain the Japanese investors in Cambodia.

*1. The data was provided by JICA expert to CDC during the Cambodia Investment Seminar in Ho Chi Minh city on 2 November 2012.

*2. Agreement Between the Kingdom of Cambodia and Japan for the Liberalization, Promotion and Protection of Investment (14 June 2007), article 23.
(original article : Japanese)

(For the Japanese version of this article)


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