current’situa+on’of’fdi’’ anditsimpactoneconomic ......2017/03/18 · was in garment and...

3/18/17

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Current Situa+on of FDI and its impact on Economic Development in Cambodia

Presenter: Dr. Ngov Penghuy Date: March 18th 2017 Venue: RULE, Hall G

RULE Special Seminar Series

Table of Contents

I.  CharacterisKcs of Cambodian Economy

II.  Investment into Cambodia

III.  Industrial Development (IDP) 2015-‐2015

IV.  Recent Change in FDI Inflows V.  Conclusion

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I. Characteris+cs of Cambodian Economy

•  Liberalized Economic Regime since 1993 •  Labor intensive manufacturing, especially garment and footwear

•  Heavily Dollarized Economy •  Private Sector-‐ and FDI-‐led Growth •  Key pillars of growth: garment, construcKon, tourism, finance, agriculture

I. GDP and Sectoral Growth Rate

-‐10

-‐5

0

5

10

15

20

25

30

35

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Agriculture Industry Services GDP

Source: ADB, Key Indicators 2016

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I. Composi+on of GDP

Source: ADB, Key Indicators 2016

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Agriculture Industry Services

I. Sectoral Contribu+on to Growth

CAMBODIA

22 INTERNATIONAL MONETARY FUND

Figure 1. Cambodia: Strong Growth with Substantial Risks Economic growth remains strong supported by garment exports, tourism, and real estate.

Garments exports to the EU have been an important driver of growth owing to preferential treatment.

Tourism remains strong, mainly due to the increase in the number of tourist arrivals from China.

While export growth is moderating in line with external demand slowdown, it remains in double digits.

Inflation remains muted, thanks to a decline in food and global fuel prices.

Rapid credit growth, particularly in construction and real estate, is increasing macro-financial stability risks.

Sources: Cambodian authorities; IMF’s World Economic Outlook; and IMF staff estimates.

-4

-2

0

2

4

6

8

10

12

14

16

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Agriculture Garment

Hotels and transportation Trade and finance

Real estate Construction

Other Real GDP

Contribution to Growth(In percent)

Proj

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013 2014

ASEAN USA

EU Japan

ROW Total garment exports

Garment export growth (contribution by destination)(in percent)

-5

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

Tourists arrivals (in percent to total)

year-on-year growth(2014, right hand side)

Tourists arrivals (top ten markets)

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013 2014

Textile Rice

Other agriculture Other

Total exports

Export contribution to growth(In percent)

-30

-20

-10

0

10

20

30

40

50

60

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Headline (end of period)

Food (end of period)

Fuel (end of period)

Headline (12-m moving average)

Inflation(In percent)

0

10

20

30

40

50

60

70

-20

-10

0

10

20

30

40

50

60

Ap

r-09

Sep

-09

Feb

-10

Jul-

10

Dec-

10

May

-11

Oct

-11

Mar

-12

Au

g-1

2

Jan

-13

Jun

-13

No

v-13

Ap

r-14

Sep

-14

Feb

-15

Jul-

15

Private sector credit growth

Real-estate and construction sector credit growth

Credit to GDP (RHS)

Private credit growth (In percent)

Source: IMF Country report, 2015.

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I. Export Contribu+on to Growth

CAMBODIA

22 INTERNATIONAL MONETARY FUND

Figure 1. Cambodia: Strong Growth with Substantial Risks Economic growth remains strong supported by garment exports, tourism, and real estate.

Garments exports to the EU have been an important driver of growth owing to preferential treatment.

Tourism remains strong, mainly due to the increase in the number of tourist arrivals from China.

While export growth is moderating in line with external demand slowdown, it remains in double digits.

Inflation remains muted, thanks to a decline in food and global fuel prices.

Rapid credit growth, particularly in construction and real estate, is increasing macro-financial stability risks.

Sources: Cambodian authorities; IMF’s World Economic Outlook; and IMF staff estimates.

-4

-2

0

2

4

6

8

10

12

14

16

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

Agriculture Garment

Hotels and transportation Trade and finance

Real estate Construction

Other Real GDP

Contribution to Growth(In percent)

Proj

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013 2014

ASEAN USA

EU Japan

ROW Total garment exports

Garment export growth (contribution by destination)(in percent)

-5

0

5

10

15

20

25

30

35

40

0

5

10

15

20

25

Tourists arrivals (in percent to total)

year-on-year growth(2014, right hand side)

Tourists arrivals (top ten markets)

-20

-10

0

10

20

30

40

2006 2007 2008 2009 2010 2011 2012 2013 2014

Textile Rice

Other agriculture Other

Total exports

Export contribution to growth(In percent)

-30

-20

-10

0

10

20

30

40

50

60

Jan

-08

Jul-

08

Jan

-09

Jul-

09

Jan

-10

Jul-

10

Jan

-11

Jul-

11

Jan

-12

Jul-

12

Jan

-13

Jul-

13

Jan

-14

Jul-

14

Jan

-15

Jul-

15

Headline (end of period)

Food (end of period)

Fuel (end of period)

Headline (12-m moving average)

Inflation(In percent)

0

10

20

30

40

50

60

70

-20

-10

0

10

20

30

40

50

60

Ap

r-09

Sep

-09

Feb

-10

Jul-

10

Dec-

10

May

-11

Oct

-11

Mar

-12

Au

g-1

2

Jan

-13

Jun

-13

No

v-13

Ap

r-14

Sep

-14

Feb

-15

Jul-

15

Private sector credit growth

Real-estate and construction sector credit growth

Credit to GDP (RHS)

Private credit growth (In percent)

Source: IMF Country report, 2015.

I. Garment Exports from Cambodia

Cambodia Garment and Footwear Sector Bulletin | Issue 4 | 7

Figure 11: Cambodia’s garment and footwear exports, 1995-2015 (US$ million)

Source: Cambodia’s General Department of Customs and Excise

7. New investments, factory openings and closures

a – New investment: Foreign investment in both the labour and capital intensive sectors plays a pivotal role in the Cambodian job market as hundreds of thousands of new job seekers flood into the market every year. ADB’s Annual Development Outlook 2016 revealed that “Cambodia’s large supply of inexpensive, low-skilled labour has attracted substantial foreign direct investment into the production of garments and footwear for export”.22 Inflow of foreign investment to the garment and footwear sector continued to show encouraging signs in the first quarter of 2016, according to official figures of the Cambodian Investment Board (CIB), both in terms of number of new projects and in terms of investment values. Out of 37 total new investment projects that were approved during the first quarter of 2016, 22 projects were in the garment and footwear sector, of which 18 were in garments and 4 were in footwear.23 While a large proportion of newly approved projects are in garment and footwear, projects in the sector only accounted for 9 per cent of new investment in value terms. In the first quarter of the year, there was US$ 955 million worth of new investment in all sectors approved, of which US$ 86 million was in garment and footwear. This ratio was higher in 2014 and 2015, when new investment in the garment and footwear sector represented 28 per cent and 10 per cent of new investment (respectively). In absolute terms, the sector still

22 Asian Development Bank’s Annual Development Report 2016 or it can also be found on ADB’s page (dated 11 May, 2016) http://www.adb.org/news/features/here-comes-cambodia-asia-s-new-tiger-economy 23 These are qualified investment projects only (QIP). Excludes existing expansion projects.

recorded 20 per cent growth compared to the same quarter of 2015. Investment in the garment and footwear sector is growing at a solid pace, but investment in other sectors is growing even more rapidly, as FDI inflows to Cambodia diversify. The other sectors attracting significant FDI in 2015 were infrastructure, agriculture, telecommunications, and tourism. The pattern of FDI inflows from different economies remains largely similar to that of last year. Investment in the garment and footwear sector continued to be driven by investors from China (37 per cent), Taiwan (China) (12 per cent), Hong Kong (China) (6 per cent) and the UK (6 per cent). Most of the garment and footwear projects approved during the first quarter of 2016 were in the form of sole ownership (85 per cent), with joint ventures accounting for the remaining 15 per cent. b – Opening, closure and operating factories: The Ministry of Commerce maintains a database of factories. This data has been used by the ILO in this and past Bulletins to measure factory openings and closures. During the first quarter of 2016, the Ministry became aware that a number of factories had been inactive for months, and in some cases had closed down, but had not provided official notice to the Ministry and thus had not been recorded as such in the database. The Ministry therefore reclassified 122 garment and footwear factories as being closed or in a temporary closure. As a result of this exercise, the database of the ministry indicated that there were 12 newly opened garment and footwear factories, in the first quarter of 2016, while 122 factories closed down. There was therefore a net closure of 110 factories reported in the first quarter of 2016, of which 100 were garment factories and 10 were in footwear. The total number of garment and footwear factories, by the end of March 2016, stands at 589 factories, down from 699 in 2015. 24 It should be emphasised that this fall appears to be largely a statistical artefact arising from a correction of the record, rather than an increase in the rate of real closures. Export figures and employment figures suggest ongoing growth in the industry. 8. Employment and wages Total employment within the garment and footwear sector continued to increase during the first quarter of 2016, reaching nearly 630,000 people25 representing growth of 5.3 per cent over the first quarter of 2015.26 The total wage bill

24 The number refers to exporting factories that are officially registered with the Ministry of Commerce only. Some sub-contractor factories (which are not directly exporting, nor officially registered) are not included. 25 Average of monthly figures for Q1 2016. 26 This is the average monthly employment size in the first quarter of 2016 compared to the first quarter of 2015

US$ 5,384

US$ 5,960

US$ 6,827

US$

1,549

US$

1,602

US$

1,995

US$

1,681

US$

1,773

$0

$1,000

$2,000

$3,000

$4,000

$5,000

$6,000

$7,000

2001

2003

2005

2007

2009

2011

2013

2015

Q1-

2015

Q2-

2015

Q3-

2015

Q4-

2015

Q1-

2016

Garment exports

Footwear exports

Source: MEF, RGC

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II. CommiCed FDI Inflow by Sector

2011 2012 2013 2014 2015 Agriculture 794.5 556.6 1,128.8 264.7 482.6

Industries 1,340.8 1,489.7 1,106.7 2,835.6 919.3

Infastructure 2,782.3 227.8 2,620.8 353.5 3,129.8

Tourism 845.6 691.5 106.0 479.6 111.9

0.0

500.0

1,000.0

1,500.0

2,000.0

2,500.0

3,000.0

3,500.0

Million USD

Investments by sector (2011-2015)

Agriculture 14%

Industries 35%

Infastructure 41%

Tourism 10%

Investment Capital (2011-2015) Total of USD 22.3 billion

Source: Council for the Development of Cambodia

II. FDI Inflow by Country (Commitment-based)Year 2011 2012 2013 2014 2015

Total $5.7 Billion $2.9 Billion $4.9 Billion $3.9 Billion $4.6 Billion

Rank Country % Country % Country % Country % Country %

1 Cambodia 41.24 Cambodia 42.08 Cambodia 66.80 Cambodia 64.00 Cambodia 69.28

2 China 30.55 China 20.69 China 15.68 China 24.44 China 18.62

3 Vietnam 11.99 Korea 9.89 Vietnam 6.10 Malaysia 2.18 UK 3.0

4 U.K 4.30 Japan 9.15 Thailand 4.37 Japan 1.72 Singapore 2.18

5 Malaysia 4.20 Malaysia 6.04 Korea 1.76 Korea 1.66 Vietnam 1.92

6 Korea 2.91 Thailand 4.53 Japan 1.59 Vietnam 1.26 Malaysia 1.61

7 U.S.A 2.47 Vietnam 2.89 Malaysia 1.04 UK 1.13 Japan 1.28

8 Japan 1.15 Singapore 2.59 Singapore 1.03 Singapore 0.89 Thailand 1.18

9 Australia 0.43 U.K 0.51 UK 0.43 Thailand 0.88 Korea 0.21

10 Singapore 0.28 U.S.A 0.42 France 0.27 Australia 0.51 Canada 0.19

11 Others 0.48 Others 1.21 Others 0.94 Others 1.36 Others 0.52


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Cambodia’s Demographic Pyramid

Investment Incen+ves

  Corporate Tax: 20%

  Tax holidays: 6 years ~ 9 years OR Special Depreciation (Reinvestment of Earning)

  Full Import Duty Exemption

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II. Investment Cost Comparison (Jan. 2015)　 Cambodia Laos Myanmar Vietnam Thailand

Minimum Wage$128 per month

$77 per month na $146 per month $9.09 per day

Nominal Wage Increase

na na na na2011: 7.18 %2012: 11.82%2013: 8.28%

Electricity Tariff for Business

$0.17 - $0.18

(1) $0.08 (less than 5MW)(2) $0.09 (more

than 5MW)

(1) $0.10(2) $0.15

1. Manufacturing(1) $0.04 (off-peak, 22:00-4:00)(2) $0.06 (normal, Mon-Sat: 4am-9:30,

11:30-17:00, 20:00-22:00, Sun:4:00-22:00)

(3) $0.11 (peak, Mon-Fri: 9:30-11:30, 17:00-20:00)2. Distribution and Service

(1) $0.05 (off-peak, 22:00-4:00)(2) $0.09 (normal, Mon-Sat: 4am-9:30,

11:30-17:00, 20:00-22:00, Sun:4:00-22:00)(3) $0.16 (peak, Mon-Fri: 9:30-11:30,

17:00-20:00)

(1) $0.14 per kWh (peak, Mon-Fri: 9:00-22:00)

(2) $0.07 per kWh (off-peak, except (1) )

Corporate Tax 20% 24% 25% 22% (Max) 20%

Income Tax 20% 24% 25% 35% (Max 35% (Max)

Value Added Tax

10% 10% 5% 0%, 5%, 10% (depending on item) 7%

Source: JETRO (2015)

III. Industrial Development Policies (IDP) 2015-‐2025

 To capture regional trends and changes in regional architecture (AEC, China+1, Thailand+1, and RCEP).

 To promote a platform for growth focusing on economic diversification, strengthening national competitiveness, and enhancing productivity. Source: Council for the Development of Cambodia

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III. Infrastructure for Industrial DevelopmentFour key priorities to be achieved by 2018 in IDP

  Improving electricity supply to key industrial areas/estates: reduce the electricity tariff from 18.8 cents/kwh in 2014 to 12 cents/kwh and ensure the stability of the electricity supply.

  Building multi-modal transport and logistic system to connect to 3 keys industrial corridors namely Phnom Penh–Sihanoukville, Phnom Penh - Bavet, and Phnom Penh - Poi Pet.

  Building modern institutions for vocational and technical training / human resources development needed by industries.

  Develop and transform Sihanoukville Province into a multi-purpose Special Economic Zone.


III. Law on Investment: What is New?

-  Pioneer status -  SMEs : supporting activities -  Incentives for provision of:

  Accommodation   Transportation   Canteen   Training


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III. Law on SEZ

-  Promote the establishment of large industrial parks and clusters by enacting the Law on Special Economic Zone by providing incentives and other supporting measures to promote investments in SEZs;

-  Continue developing industrial zones in provinces, aimed at promoting hubs for SMEs and logistics links as well as other incentives and facilitation from the government;


III. Law on SEZ

-  Promote more active participation from the private sector to develop physical infrastructure in government approved.

-  Set a clear standards and guiding principles on environmental protection and production safety for investment projects located in SEZs and other industrial zones;

-  Continue strengthening and streamlining the administrative capacity and institutional framework for managing the operations of SEZs by way of increasing the effectiveness of the One-Window Service mechanism.

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III. Law on Investment: What is New?

-  Streamlining administrative procedures :   Customs extra territory status   Construction permit

  Environment requirement (EIA)   Factory licensing   Worker health control   Tax registration (ID)

  C.O. online

-  Timely provision of basic infrastructures -  Effective development, revocation if no development

Opera+onal SEZs

No. Name Loca+on Number of Factories

Number of Workers

1 Phnom Penh SEZ Phnom Penh 74 33,156

2 Goldfame Pak Shun SEZ Kandal 5 5,186

3 Manhadan (Svay Rieng) SEZ Svay Rieng 36 34,345

4 Tai Seng Bavet SEZ Svay Rieng 22 14,866

5 Dragon King SEZ Svay Rieng 4 2,664

6 Sihanoukville SEZ 2 Sihanoukville 61 34,665

7 Sihanoukville SEZ 1 Sihanoukville 2 130

8 Sihanoukville Port SEZ Sihanoukville 2 510

9 H.K.T SEZ Sihanoukville 1 250

10 Kampot SEZ Kampot 1 247

11 Neang Kok Koh Kong SEZ Koh Kong 5 10,464

12 Poi Pet O’Neang SEZ Banteay Meanchey 5 2,473 Source: Sok Chenda Sophea

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Phnom Penh SEZ Neang Kok Koh Kong SEZ

Kampot SEZ -‐ Manhadan (Svay Rieng) SEZ -‐ Tai Seng Bavet SEZ -‐ Dragon King SEZ

Poi Pet O’Neang SEZ

-‐Sihanoukville SEZ 2 -‐Sihanoukville SEZ 1 -‐Sihanoukville Port SEZ -‐H.KT SEZ

Goldfame Pak Shun SEZ

Cambodia’s Special Economic Zones

IV. Recent Change in FDI Climate

Garment Sector on the rise

Emergence of FDI in Electronic sector by

Japanese Firms

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IV. Case: Minebea (Cambodia) Ltd•  Precision maker •  Oct. 2010: Established in Cambodia •  Apr. 2011: Start operaKon in a rental factory in PPSEZ,

with 300 workers. •  Sept. 2016: 6,500 workers •  Dec. 2016: Opening of 3rd ProducKon Line.

•  Business Model: Import parts from its subsidiary factories in Thailand, Malaysia, and China Assemble in PPSEZ Export to factory in Thailand.

IV. Why Minebea to Cambodia?

•  Proximity with its subsidiary factories in Thailand

•  Cheap and abundant labor •  Strong government supports

•  Good service provided by PPSEZ •  Risk DiversificaKon from concentraKon of producKon base.

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IV. Determinants of FDI Decision

•  Close Proximity with Thailand: – Wage/Skill DifferenKal Division of labor – Thailand on relaKvely high value-‐added producKon, while Cambodia on relaKvely low value-‐added one.

•  ASEAN economic integraKon: – Low or no tariff among ASEAN members –  IntegraKon into the regional producKon chain

Phnom Penh Special Economic Zone

26

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Yazaki (Cambodia)

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V. Conclusion•  DiversificaKon and integraKon into regional value chain network is important.

•  Complementary ProducKon with “Thailand + 1”. •  Need to move up to higher value-‐added producKon. Thus, linkage educaKon-‐occupaKon nexus needs to be well coordinated.

•  In the future, from “industrial development policy” to “industry-specific policy” is needed.

28

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Thank You !

current’situa+on’of’fdi’’ anditsimpactoneconomic ......2017/03/18 · was in garment and...

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