Cambodia’s First SEZ With Customs Bonded Area

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Charles Esterhoy is the Chief Operations Officer at Kerry Worldbridge Special Economic Zone, Cambodia’s first customs bonded warehouse zone, whose groundbreaking ceremony took place last July.

The Kerry Worldbridge Special Economic Zone (KWB SEZ) consists of a customs bonded warehouse zone and a special economic zone with a total land area of 63 hectares. The project is located in the villages of Damnak Sangke and Prek Rotaing, 17 km south of Phnom Penh center.

B2B: How is KWB SEZ different from other SEZs in the Kingdom?

Esterhoy: Our SEZ project will be the first to have both a licensed, class-A customs bonded area and a SEZ on the same premises. This is a new concept not found anywhere else in the Kingdom and is specifically designed to provide investors with a truly “one-stop” and convenient location for their import/export, manufacturing and trading activities. The concept has been developed to better position Cambodia as an attractive hub for increased trade, manufacturing and logistics in the Greater Mekong Region and the ASEAN Economic Community (AEC). Our One Stop Service Center building (or OSSC) will support both functions simultaneously and will be operational 24 hours a day.

Our customs bonded area is further unique in that it will feature not only traditional warehousing and open-yard facilities but also a series of 13 smaller “bonded showrooms”. These showrooms were originally promoted as being intended for the import automotive industry. However, since introducing the project and concepts at our groundbreaking last July, our plans have widened. Now these smaller facilities are available for other intensive value-added logistics or commercial support activities, such as mini-assembly, secured break bulk activities, time sensitive pick and pack activities and product labelling. They are also being utilised as outlets for higher-value products.

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B2B: When is the project due for completion? Three phases were mentioned in press releases, which one are you now on?

Esterhoy: Our Phase 1 Area (the customs bonded area) is due to be completed in May this year, with plans to start official operations from July. This will include two of the 13 bonded showrooms and a 15,000-square-meter bonded warehouse (fully operational from July). It will also include the OSSC, a 3,000-square-meter building where our offices, shared meeting facilities and the offices for the different ministries will be located. Naturally, all the major infrastructure needed to run the SEZ such as electricity, water, sewage, roads and security services will be in place beforehand.

The initial 24 hectares of the SEZ, or Phase 2 Area is, in actuality, ready now for investors. We have taken a different approach to developing the SEZ: From day one, we have focused on removing all UXO, filling the land to above flood level, and compacting and building perimeter security fences. Essentially, if an investor were to sign a lease today (given he had his permits in order and wanted to start construction next month) we would be ready. Likewise, we can simultaneously provide services to support the investor as he goes through the business registration process, gets his FRC, and deals with other bureaucratic formalities. We opted to invest the money in the SEZ land development now for a couple of reasons: First, we can maintain stable lease prices in the foreseeable future; secondly, we increase investors’ confidence in their decision to commit to Cambodia and our SEZ.

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B2B: The project consists of two parts, the SEZ and the free trade zone (FTZ). What is the difference between these two components?

Esterhoy: Basically, the SEZ is intended for manufacturing activities and offers a specific set of financial incentives to Qualified Investment Projects located in the SEZ. The SEZ is designed and operated to support these activities by providing industrial-grade roads, power and water supplies and other business support amenities within its boundaries.

As mentioned earlier, the terminology “Free Trade Zone” does not officially exist in Cambodia yet. Our class-A customs bonded facilities will be operated and managed up to FTZ standards, and they will offer value-added services up to par to those offered in FTZ in other countries. Kerry Logistics already operates FTZs in other countries in the region; together with Worldbridge Logistics, we have the expertise, systems and experience to  pioneer this model in Cambodia.

The line that separates the definition of a customs bonded area and a FTZ is a fine one. In general, it’s about customer service and efficiency. The bonded facilities in our project will be operated to a standard that will create a more flexible and cost-efficient center for our customers and our SEZ investors’ supply chain activities. Having the FTZ right next to the SEZ will save manufacturers a lot of time and money now spent on the movement of materials, warehousing, logistics and, in some cases, final assembly. When these value-added activities are made available and done within a bonded area, we have an FTZ. Once operational, ours will be the first FTZ in the Kingdom.

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B2B: What are the benefits of bonded warehouses? Are they a novelty in the Kingdom, or can they be found in other SEZs?

Esterhoy: Depending on the definition you use, a number of other bonded facilities exist in the Kingdom, with varying degrees of operational models. Most only focus on the storage of goods and consolidation of cargo. As for as I know, none of them are in SEZs, nor do they compare to our facility when it comes to size and operational model. Kerry Logistics is an internationally recognized leader in logistics and warehousing. It brings decades of experience, value-added services and state-of-the-art inventory management and materials-handling systems never before seen in the Kingdom. We are working closely with the General Department of Customs and Excise (GDCE) to ensure our management systems and theirs work in harmony.

The true benefits of a bonded warehouse are not in the ability to import and export goods duty free and provide storage. The real advantage lies in the fact that the bonded warehouse offers additional services that add value to the investor’s supply chain activities, becoming a significant part of that supply chain. Within the context of AEC integration and given Cambodia’s strategic, central location inside the region, we foresee that manufacturers will be able to expand their production models, operating sites in multiple countries. When a manufacturing site (in the SEZ) is added to the model, even more opportunities arise.   

B2B: Can you detail the services that will be offered to companies at the one stop service centre building (OSSC), and how would it facilitate the process of importing or manufacturing?

Esterhoy: The OSSC lies at the core of the project and, in some ways, it’s like the community center of the SEZ. Naturally, our Administrative, Investor Support and Operations teams will be located in the OSSC alongside officials from the Council for the Development of Cambodia (CDC), the Ministry of Commerce (MoC), the Ministry of Labor and Vocational Training (MoLVT), CamControl and GDCE. We have been working closely with GDCE in planning their offices in the OSSC, ensuring that they and the investors are able to easily meet, access the ASYCUDA system, and discuss and process import/ export documentation. We perceive the import/ export process as a three-way dialogue between GDCE, the investor and the SEZ Operator, and have taken steps to facilitate that interaction.

On the second floor, surrounding a public meeting lounge, there are offices occupied by other ministries. Whenever possible, we hope to encourage joint discussions, as we are aware that oftentimes issues involve more than just one ministry. Finally, and this may be premature to say, I plan to invite other ministries to use our OSSC facilities so that they can meet our investors. If other ministries — such as the Ministry of Environment (MoE) and the Ministry of Land Management, Urban Planning and Construction (MoLMUPC) — are open to this idea, we will prepare a “drop-in” office area for them. Once again, in order to make investment in Cambodia beneficial, we believe we must be a proactive and supportive intermediary between the Royal Government of Cambodia (RGC) and the investor.

B2B: What impact will this project have in the already fast-developing surrounding areas?

Esterhoy: Aside from the obvious impact of bringing improvements to the road, power and water infrastructure, creating new employment opportunities directly in the SEZ as well as numerous investor-oriented support services in the immediate area, we plan to engage the local community in a number of new ways. We include long-term social sustainability in our definition of corporate social responsibility (CSR), and have already started discussions with a number of groups who can help us create and provide activities which enhance the lives of those near our SEZ. Commercial facilities, vocational training centres and good worker housing projects are all part of our master plan.

As for potential negative impacts, we clearly understand what those might be and, more importantly, we know what needs to be done to prevent them. I am happy to say that we have been directly incorporating those measures into our operations model from day one. We do believe that, eventually, some of these measure will be made mandatory by RGC. We are getting a head start which, ultimately, will make it easier for our investors to adjust or comply.     

B2B: What industries will the SEZ attract? Are you actively aiming for any industry in particular?

Esterhoy: The SEZ is targeting those industries and manufacturers that will bring positive, long-term outcomes and benefits to Cambodia and the Cambodian worker. We are talking about those industries that inherently create new skills, require safe working environments and, of course, provide a reliable and favorable income for their workers. We know that these types of manufacturers and industries are already attracted to an SEZ, as this type of facility can provide and support a more sustainable and efficient cost and operating solution.

The next challenge will be to enhance the attractiveness of Cambodia vis-à-vis competing countries in the region. This is one of the reasons we’ve decided to combine our SEZ with an FTZ. It’s also the reason we are striving to make better logistics solutions available. We are also aggressively engaging to find solutions to other problems that beset the Kingdom, such as high electricity costs, worker skill levels and hurdles to the ease of moving materials and products.