Myanmar's moves toward economic and political reform would not subtract from Cambodia’s regular stream of foreign investment, experts and insiders said – at least not in the short run.
Word of an investor-friendly Myanmar has spread quickly with the US’s partial waiver on trade sanctions in early February, and some of the region’s business players have called the country “ground zero for investment”.
But Cambodia’s more than decade-long claim to political stability should eclipse Myanmar’s piecemeal reform, which a regime change in late 2010 set into motion after nearly 50 years of military rule.
“Political stability is the hot button for Cambodia, where they have gotten it right for foreign investors, and that’s a place where Myanmar can’t really compete yet,” Gordon Peters, manager at Emerging Markets Consulting in Cambodia, said this week.
Myanmar may be turning some heads, but there will not be a flight of investment dollars that were originally destined for Cambodia, he said.
If Cambodia were to lose foreign direct investment (FDI) to Myanmar, it would likely be from the Kingdom’s garment manufacturing sector, worth US$4.25 billion in 2011, or 32.1 per cent of gross domestic product.
“This is a place where you could see some long-term change,” albeit at a slow pace, Peters said.
Some changes in milled-rice investment could occur as reforms in Myanmar progress, but “that’s not going to be a big loss in investment dollars for Cambodia”, he said.
An increase in tourists to Myanmar would inevitably translate into more tourist dollars to Cambodia, Peters said.
Angkor Wat will remain one of the main destinations for tourists in the region, whether travellers land in Yangon or Phnom Penh.
"Far from guaranteed"
Still, Cambodia’s advantages as an investment destination are debatable.
Analysts at US financial services company Standard and Poor’s have called Prime Minister Hun Sen’s hold on power a cause for concern about – rather than a sign of – political stability.
Laws on oil extraction, telecommunications regulation and much of the country’s tax regime remain in the draft phase, with some stagnating for more than a decade.
“Cambodia’s challenges to maintain a strong investment climate are quite well known by now: to address governance and corruption, to improve logistics and transport costs, to build a stronger skill base, and to address the concerns of fiscal space,” Peter Brimble, senior country economist for Asian Development Bank in the Kingdom, said this week in an email.
Any pull Myanmar has on FDI in the region would be temporary, and the country’s emergence will stimulate growth throughout Southeast Asia, Brimble said.
However appealing Myanmar’s recent reforms seem, continued progress is still far from guaranteed, Business Research Institute for Cambodia CEO and chief economist Hiroshi Suzuki said.
“I have concerns about the stability of Myanmar politics. I’m afraid that there could be some backlash from older generations, such as the army, who are not satisfied with the current reform,” he said.
Myanmar’s investment climate may need five to 10 years to catch up with Cambodia, with large holes in law and regulation awaiting repair, he said.
Faith in FDI
Local businessmen in Myanmar have expressed a greater degree of faith in their new government’s ability to attract FDI.
“The new government will be able to amend the laws on investment. They are more and more flexible with businesses interested in Myanmar,” U Hla Maung Shwe, a prominent Yangon-based businessman, said yesterday by phone.
While acknowledging the large discrepancies between investment in the two countries, U Hla Maung Shwe said Myanmar would become a competent source of competition in about two years.
Human capital, he claimed, was more advanced in Myanmar than it was in Cambodia.
Despite other threats such as sustained economic crisis in the West, Cambodian officials have maintained a cool mien on the possibility of a new regional star.
“We’re happy rather than concerned with [Myanmar’s] political and economic reform,” Vongsey Vissoth, secretary general of the Ministry of Economy and Finance, said this week on the sidelines of the 16th ASEAN Finance Ministers’ Meeting in Phnom Penh.
“We see Myanmar absorbing some official development assistance, but I don’t think this will impact Cambodia because we are quite competitive.”