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Byline: Park Panha

Despite the fact that the garment sector still dominates the Cambodian economy investors are more likely to invest money to produce goods for higher price a sign experts say indicates that manufacturing diversification is gearing up in the Kingdom.

Speaking at a seminar called: Diversification and Development in Cambodia's Manufacturing Sector" Hiroshi Uematsu chief executive officer of Phnom Penh Special Economic Zone (PPSEZ) said that there is an increasing number of manufacturers from a variety of sectors. Beside garment PPSEZ is the home for manufacturers of auto parts earphones rice polishing machinery and animal feed. It is also has a diamond polishing operation.

Through my experience the fact is that there are more and more electronic manufacturing and automotive factories coming to invest here" said Uematsu. Up to now PPSEZ has signed deals to locate 72 factories as their partners to put up shop in the zone and among this 42 factories are from Japan.

Figures from the Ministry of Industry and Handicraft showed that there are 149 factories registered during the nine month period from January to September this year a 21 per cent increase over the same period last year.

The report explained that the each new factory needed smaller number of workers but higher skilled workforce as they are moving into less labor-intensive operations such as food processing and product assembly.

Until now the Kingdom's economy is dependent on a few pillars garments construction tourism and agriculture and experts have warned that the downturns in any of those sectors can have serious impact on the economy as already shown in the recent past. The effects of the global financial crisis in 2008 and 2009 on the Cambodian economy revealed the impacts of a narrow economic base.

While GDP from 2003 to 2007 grew at above nine percent a year during the global crisis in 2008 growth slowed to 6.7 percent and then almost stopped in 2009 with the GDP growing by only 0.1 percent. The rapid downturn showed clearly the need to broaden the economic foundation.

Now manufacturing diversification is at the heart of the government's sustainable growth plan said Mey Kalyan senior adviser at the Supreme National Economic Council (SNEC).

In the past few years we got a lot of new development in the manufacturing sector" Mey Kalyan said adding that Minebea Denso and many other manufacturers from Japan are now coming to invest in Cambodia. Diversification is accelerating and I think it's increasing more and more."

He added that Cambodia is now joining the regional production network so that the manufacturing sector will be gradually diversifying as production in Thailand or Vietnam need to link closely with Cambodia's manufacturing sector for comparative advantage in doing business.

For instance Thailand might produce a car and Cambodia can make the spare parts for the car like brakes tires or air-conditioners" he said. That production network which connects numerous factories across Asia is a great help for Cambodia's manufacturing sector."

There are several reasons behind investors' decision of continued interest Cambodia. The key motive is the young workforce. It is estimated that about 32 percent of the population is under 15 and some 300000 to 400000 young people enter the labor market every year. In addition Cambodian workers are still relatively competitive compared to other countries in the region where wages have been increasing.

A recent survey by the World Economic Forum (WEF) ranked Cambodia 95th out of 144 countries. Though Cambodia was the lowest ranked country in ASEAN Cambodia receives a high note in term of labormarket. The annual study takes into account scores from 12 separate areas including infrastructure health and primary education financial market development business sophistication and innovation. Labor-market efficiency was the only area of competitiveness for Cambodia ranked inside of the top 80 countries with a rating of 29th.

The government's strategy to create special economic zones (SEZs) the geographic areas which are business friendly for investors is also a positive development said In Channy President and Group Chief Executive Officer of ACLEDA Bank. Companies can get help on a variety of business matters in one place. They can also enjoy tax incentives and lower tariffs for imports and exports. We see a flow of more and more factories which is not garment and most are located in special economic zones" he said. We are in the process of setting up our branches in the economic zones to reflect the increasing number of factories there."

The Council for the Development of Cambodia has approved 21 SEZs across the country. However just eight of these are fully operational. The Phnom Penh Special Economic Zone (PPSEZ) is the most active.

Minebea (Cambodia) the biggest factory in the Phnom Penh Special Economic Zone established its production facility in Cambodia in 2011. While the factory employed about 300 workers back then Minebea (Cambodia) is employing more than 6000 workers now said Yasuyuki Inoue vice president of Minebea (Cambodia).

He said that that production in Cambodia has helped the operations of Minebea's parent companies in Thailand and China and now the company is on schedule to enlarge its business in the Kingdom.

After some period of training our workers [we see] their productivity and quality level has improved significantly" said Inoue. That is true. Some products could reach similar level of quality with the mother factories in China Thailand or Malaysia."

Still he said the diversification plan will be challenged as now his company faces difficulties in getting new employees in large numbers and the lack of high skilled workforce.

The most difficult for us is to hire the required number of people regularly and on time" he said.

While PPSEZ continues to attract manufacturers the zone's CEO Uematsu said that Cambodia should plan ahead and need to improve a series of infrastructures for a more attractive investment environment.

More new industries will come" he said adding that many Japanese manufacturers in Thailand are increasingly eying investment opportunities in Cambodia as they want to avoid higher operation cost and the political uncertainty there. But in order to attract new industries Cambodia also needs to improve the capacity of energy supply at a lower cost improve logistics cost and also transparency."
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Publication:Cambodian Business Review
Geographic Code:9CAMB
Date:Nov 30, 2014
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