Rising production costs in countries like China and Vietnam may soon give rise to higher-value manufacturing in Cambodia, as investors are drawn to the Kingdom’s favourable business environment, the International Monetary Fund’s newest resident representative for Cambodia said yesterday.
Investors are showing increasing interest in the Kingdom’s lower costs and growing human capital despite a dreary global economic outlook, said Faisal Ahmed, who arrived in Cambodia two months ago from another IMF post in Washington, DC.
“The investor interest was a pleasant discovery. Some of the investors are actively interested in non-garment manufacturing,” he said, though he admitted it is for now “mainly just interest”.
“Lots of foreign businesses are looking into it,” he said.
The Kingdom exported $2.35 billion of its trademark garments between January and August, a nearly 20 per cent increase compared to the same period in 2010. But in May, Japanese ball-bearings manufacturer Minebea started production in the Phnom Penh Special Economic Zone.
It’s this piecemeal climb up the value ladder – from labour-intensive garments to light industry – that led other regional manufacturing hubs to success, Ahmed said.
Industry experts yesterday agreed, saying there were signs already that higher-skilled manufacturing was slowly revving up in the Kingdom.
Investment from Vietnam in plastics manufacturing is a bellwether of industry transition, Cambodian Institute for Development Studies president Kang Chandararot said yesterday. Products such as plastics that were once supplied by Vietnam are now being produced in the Kingdom.
“Soon, plastics will be a main focus of investment from Vietnam,” he said, adding Vietnamese house-hold appliance manufacturers are also eyeing Cambodia.
While Vietnamese manufacturers face soaring inflation at home – 23 percent, according to government statistics – Ahmed said improving infrastructure and its resultant lower costs are another attractive part of investing in Cambodia.
Several large-scale infrastructure projects are presently underway in the Kingdom, the majority built and funded by China. Shanghai Construction, one of China’s biggest construction firms, recently announced a plan to invest US$700 million in bridges and roads in Cambodia.
In December, the Chinese funded and run Kamchay Hydroelectric dam will start operations. Local garment manufactures have praised the launch as a means of drastically reducing one of Cambodia’s higher costs of business, energy.
The prospect of lower energy and transportation costs should attract more investment and as a result boost domestic employment, Ahmed said.
“When electricity costs are reduced by half or one third, that makes the new cost of manufacturing so much cheaper,” he said. “If you look at the net effect, good infrastructure projects will create jobs for Cambodia.”
That sentiment was shared by Kang Chandararot, who said proposed energy-buying deals with Laos and Vietnam should considerably lower the price of electricity in Cambodia.
He also pointed to the increased labour skill set of Cambodian workers as a result of the growing number of shoe manufacturers.
The product is another higher-level product that will be common in the Kingdom’s manufacturing future, he said.
Cambodia exported US$158 million in footwear in the first eight months of 2011, according to figures from the Ministry of Commerce.