The Sun Keeps On Rising: Japanese Investment In Cambodia

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With an economy growing at one of the fastest rates in the region, a flourishing middle class, and a ballooning number of multinational corporation setting eyes on the Kingdom and establishing offices, investors are increasingly yearning to get a piece of the action in the Cambodian market.

According to the Council for the Development of Cambodia (CDC), the amount of committed investmentacross all sectorsin Cambodia increased by 18 percent, year-on-year, to reach $4.64 billion in 2015. Of this money, $3.13 billion went into infrastructure, which, together with the industrial sector, has accounted for 76 percent of total committed investment during the last five years.

Japan stands out as one of the biggest investors and donors to Cambodia. Together with Korea, China, the UK and Malaysia, the Land of the Rising Sun was one of the top five investors in the construction and property sector in 2015, according to a report by international real estate agency Knight Frank. Official figures place Japan eighth when it comes to committed investment, accounting for 1.28 percent of all the investment into the country (including local investment).

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The Japanese government recently signed an agreement to rehabilitate the Cambodian-Japanese Friendship Bridge

The private sector

Japan’s private sector is one of the biggest investors in Cambodia’s construction industry. Across all sectors of the economy, in 2015 Japanese companies invested over $56 million in projects as diverse as garment factories, shopping centres or comic book repair studios, according to figures provided by the Japanese International Cooperation Agency (JICA).

Last year, 250 Japanese companies registered with the Ministry of Commerce, a number only slightly higher than the one recorded in 2014, which was 246. The number of Japanese Quality Investment Projects, or QIPs, increased slightly from 2014 to 2015 (from 12 to 13), however, this is a notable drop from 2012, when 22 Japanese QIPs were awarded.

Yasuhara Hiroto, Project Formulation Advisor for JICA, further reminds us the new Aeon Mall is a massive project being built with Japanese capital. Another notable Japanese construction development is Bodaiju Residences, a $134-million condominium project slated for completion in 2018.

Finally, this week we learned that a Japanese national has committed $3 million for the construction of a hospital in Siem Reap, the Angkor Kyosei Hospital, which will focus on treating tourists and locals suffering from general illnesses. Construction of the facility has commenced, but there is no definitive opening date given for the hospital.

The flow of investment is facilitated by ever-increasing connectivity between both nations. “Direct flights from Tokyo to Phnom Penh start this September. This will accelerate Japanese investment in Cambodia,” JICA’s Hiroto says.

The number of Japanese companies registered with the MoC every year keeps on growing at a steady rate

Why Cambodia?

With so many Japanese nationals opting to leave the comfort of their motherland to move and invest in a country that is much less developed, the question arises: Why is Cambodia so attractive to investors hailing from the East Asian giant?

A report put together by the CDC Japan Desk, brings up five attributes that make Cambodia an interesting destination for Japanese investment. First, there is an “abundant young labour force” that works for “lower labour wages”. The reports points out that is difficult to hire workers for “intensive labor” in neighboring countries.

Cambodia’s convenient location, sandwiched in between Thailand and Vietnam, is identified as another advantage, while accessibility to the South Economic Corridor is also mentioned and categorised as “very attractive”.

Furthermore, the reports talks of a “favorable investment regime”, explaining that 100 percent of foreign direct investment (FDI) is accepted regardless of sector, without any limit imposed on foreign remittances.

Two more reasons are given. Under the ASEAN-Japan Comprehensive Economic Partnership (AJCEP), Cambodia enjoys preferential treatment (including reduced tariffs) when exporting to Japan. Lastly, Cambodia, thanks to integration into the ASEAN Economic Community (AEC), has easy market access to other ASEAN economies.

The same report also highlights the difficulties that Japanese manufacturers face in Cambodia: an unstable and pricey power supply, the high cost associated with logistics (including customs clearance), and the need to train workers “to be productive enough”.

Developing the country’s infrastructure

The Japanese government, through its international cooperation agency JICA, has invested heavily into the country’s infrastructure. In 2013, Japan’s total disbursement for development assistance exceeded $15.5 billion. Among other projects, the country has helped to rehabilitate National Roads No 1 and 5, and built the Tsubasa (Neak Leoung) Bridge on the border between Kandal and Prey Veng provinces.

Moreover, the country recently signed a grant agreement with Cambodia for the rehabilitation of Phnom Penh’s Chroy Chang Va Bridge (also known as the Cambodian-Japanese Friendship Bridge), which connects the capital with National Road 6, for over $31 million.

Comparatively, China invested a total of $9.17 billion in the country between 1994 and 2012, according to China News Service. During the same period, Chinese loans and grants to Cambodia reached $2.7 billion, funding that Cambodia has used to build roads and bridges and improve infrastructure.