Foreign Investment in Agriculture in Cambodia CDRI Working Paper ...

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Figure 8: Yield of Key Agricultural Products, 2009 (tonnes per ha) 25 20 15 10 5 0 Cassava Source: FAO (2010) 10 Foreign Investment in Agriculture in Cambodia Maize Soybean Rubber Cambodia China Indonesia Laos Malaysia Myanmar Philippines Thailand Vietnam However, several hurdles and bottlenecks to expansion exist, some of which are more binding and protracted than others and require immediate interventions from the government (Table 3). Table 3: Likely Constraints to Agricultural Development in Cambodia Internal/domestic challenges External constraints/factors • High informal export cost • Many major consumer countries • Lack of irrigation infrastructure and low level of technology in farming and processing protect their markets (e.g. Japan, Korea, some ASEAN countries) • High input cost and low quality and capacity of milling/ processing • Few countries offer preferential market access for Cambodia • • • • • • • Inadequate storage and grain silos Lack of low-interest credit Lack of awareness of new and efficient planting techniques and lack of motivation to diversify production Insufficient or absence of trademarks and geographical indications High transportation costs due to infrastructure problems Lack of marketing skills and market information system No brand name • • • Exports rely largely on demand and milling facilities in Thailand and Vietnam Importing countries often require a Special Purpose Ship Safety Certificate, which Cambodia lacks Narrow export markets, i.e. Thailand and Vietnam, mostly for informal exports • Deforestation due to the expansion of certain crops, like soybeans Source: UNDP (2007)
3 Extent and Nature of Foreign Investment in Agriculture in Cambodia After its transition to a free market economy in the early 1990s, Cambodia took steps to promote investment, both private domestic and foreign, through the privatisation of stateowned resources and the promulgation of the Law on Investment in 1995, which provided tax and administrative incentives to and protected domestic and foreign investors. Investment started to flourish, gaining more momentum when Cambodia achieved genuine peace and stability in the late 1990s after the Khmer Rouge collapsed and rebel fighters were incorporated into the government defence forces. Data from the Cambodia Investment Board (CIB) of CDC for the period 2000 to June 2010 indicate upward trends of investment. The critical turnaround in total investment occurred in 2005; it stemmed primarily from considerable engagement from China, Thailand and Korea. Total investment continue to expand into 2008. However, the pace of expansion slowed in 2009 as a result of the impacts of the global economic crisis on the Cambodian economy: total investment in that year fell sharply to twice as low as that in 2008. Rostow (1960), among others cited in Todaro and Smith (2003: 115), indicates that countries able to save or generate investment of around 15 to 20 percent of GDP can grow at a much faster rate than those that save less, and that this growth will then be self-sustaining. However, it is difficult to apply this to the Cambodian case given the absence of data on actual implementation of approved investment projects in the country. Private domestic and foreign investments were about equal between 2000 and 2010 with the average share of FDI in total investment at around 58 percent. FDI showed an upward trend but slowed in 2009 after the global economic crisis hit. Among foreign investors, China stood out, followed by Korea, the USA, Thailand, Vietnam, Malaysia, Singapore and Taiwan, in that order. Traditional investors, like China, Korea, Malaysia and Thailand, have been injecting more funds into the Cambodian economy since 2000, which reflects their growing trust and confidence in the country’s investment environment. Additionally, countries such as Vietnam, Japan and the USA have shown rising interest in the past couple of years. This is a promising sign for overall output growth in the medium and long term, despite the shocks in 2008 and 2009. 3.1. Approved Investment by Sector In terms of distribution by sector, tourism and industry have absorbed a great deal of investment during the past decade, followed by services. Tourism was a champion, with share in total investment averaging 35 percent between 2000 and June 2010, followed by industry (32 percent) and services (25 percent). Investment in agriculture was sluggish during the same period (Figure 9). In terms of accumulation of approved investment, tourism took the lead with 58 percent, followed by services (19 percent) and industry (17 percent), whereas agriculture (6 percent) contributed the smallest share. High capital inflows into tourism are attributable to the government’s 1997 Open Sky Policy, the achievement of peace and political stability in 1998 and the gradual improvement of hard infrastructure, particularly road connectivity and bridges. CDRI Working Paper Series No. 60 11
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22) Chan Sophal & Sarthi Acharya (J
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CDRI - Cambodia’s leading indepen
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