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Boosting investment in Cambodia

090925_08

Japanese food firm Ajinomoto will begin building a new factory here next month; the company's Cambodia president, Ichiro Nishimura, explains why multinationals no longer fear the Kingdom



CEO TALK
By Steve Finch


Photo by: SOVAN PHILONG
Ajinomoto's Cambodia President Ichiro Nishimura says that although Cambodian officials still demand bribes, in other respects the country is no longer a pariah among foreign direct investors.

It was difficult to convince the Tokyo top management [to invest in Cambodia]....

Ajinomoto has recently signed a deal to construct a packing factory in the Phnom Penh Special Economic Zone (PPSEZ) starting next month. What prompted the company to expand beyond the distribution operation you first set up in 2001?
Cambodia is between Vietnam and Thailand.… We [already] have big business between Vietnam and Cambodia, and between Thailand and Cambodia.

Actually, we import … and sell here, but this country has big potential due to economic progress and stable politics, and most Cambodian people … are young.

According to economic growth, people’s eating habits, [their] lifestyle should change – such as KFC. It has already changed.
So, if we make the decision to invest in Cambodia … we see [the potential for] a suitable factory. Phnom Penh Special Economic Zone has [the necessary] infrastructure and … incentives.

So what incentives has Ajinomoto received to set up at the PPSEZ?
The maximum nine-year tax holiday. And construction materials, free import tax and free VAT – this is on construction, on investment such as machines or steel structures, things like this.

Ajinomoto has already invested heavily in neighbouring Thailand and Vietnam. How do the tax incentives for foreign investors here compare to the Kingdom’s ASEAN neighbours?
I don’t exactly know [the details of incentives] in Thailand and Vietnam, but the Cambodian government supports [us] – especially the CDC [Council for the Development of Cambodia]….

It’s very attractive support – [there is a] one-stop service from the CDC.

Before coming here … [Ajinomoto thought that] Cambodia was very complicated, that there was a lot of under-the-table money, something like that. We were a bit concerned.

But actually when we came here, it was very supportive. The top of the government was very supportive. For example, tax is a very complicated issue, but the top made it very clear … step-by-step.

But the next position [down in the hierarchy] doesn’t understand that policy or rule.… Their thinking method is very old-fashioned.

You mentioned that Cambodia has a reputation for corruption when it comes to foreign investment. Have you seen it at the lower levels of government here?
Yes, before. But actually, in Japan, if you’re talking about our Tokyo headquarters – my boss or our top management in Tokyo – if you ask them, “Cambodia, what do you think of Cambodia”...?

It was difficult to convince the Tokyo top management [to invest in Cambodia]; it took a long time.
But they came here to see the market and to meet the authorities. They found it easy to understand and then dramatically changed their minds.

But are Cambodian officials at the lower level still asking your company for bribes?
Yes, they still are. This kind of experience in most developing countries is a very common issue....
This still exists, but generally if a foreign company invests in Cambodia, they needn’t be afraid of such things as country risk, collapse, no system....
I clearly say there is no need to be afraid [of Cambodia].

Ajinomoto has plans for a packing factory in the PPSEZ that will import raw materials. Are there also plans to begin manufacturing in Cambodia?
According to our plan, we will start from June next year … start test production in June.

It means this company will combine with a new company. Sales activities from the new company will start from September 2010.
Ajinomoto … will import [raw materials] from Thailand or import from Vietnam, or import from other countries.

We are now studying the most suitable supply chain, which country is the most suitable. Anyway, we import from other countries … in bulk, and we will pack for the first stage.

And the second stage, we will make these products [Nishimura displays a sachet of processed food produced by Ajinomoto]…. It will be mixed here and packed here – for the second stage.

Cambodia has routinely been unable to produce the necessary raw materials for its own industries. To what extent is that putting off multinational companies from investing here?
[One factor] is the exchange rate … and another is AFTA, the ASEAN Free Trade Agreement.

Actually, import tax may be [abolished] in 2015, according to the ASEAN Free Trade Agreement.
In 2015, among the ASEAN countries, there will be free trade – it means import tax is zero.

Still, I hear from the Cambodian authorities … [regarding] Cambodian tax, 19 percent comes from import tax and VAT.

So it means that if Cambodia has no import tax, it will cut [the country’s revenue].
But for the next few years it will directly affect our business.

Research by the UN Development Programme, among others, has shown that Cambodian productivity in the work place and vocational skills are a long way behind the likes of Vietnam and Thailand. Does this concern multinationals like you when you are deciding whether to invest here?
Vietnam 10 years ago was similar to Cambodia and was doing very well, so 10 years later we can catch up with Vietnam’s current level.
So, over time … Cambodia’s level [of labour skills] is becoming higher.

There is a lack of marketing data here to help companies like Ajinomoto identify who its likely customers are and how many of them are in Cambodia. How have you been able to say for certain that you want to enter Cambodia and that you have a potential market here?

We have done market research … by myself, and we have a marketing research company. We have data.

If you compare it to Thailand, with the data quality there is a very big difference, but our products are very basic, such as MSG.
Every Cambodian person eats MSG … so we are at the very basic stage.

If we create a higher-level product, maybe we would need more information, but in the current situation it is enough.

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