The Japan External Trade Organization (JETRO) partners with the Japanese government to promote mutual trade and investment between Japan and the rest of the world. Founded in 1958 to promote Japanese exports abroad, the organisation has shifted its core focus to foreign direct investment from Japan and facilitating world trade and global partnerships. In 2010, JETRO set up an office in Cambodia. Kiyotaka Doho, the chief representative of JETRO-Phnom Penh, sat down with the Post business reporter Chan Muyhong to discuss Cambodia’s investment environment.
Why did JETRO decide to set up office in Cambodia?
As you know before 2010, there wasn’t much Japanese investment in Cambodia. China, Thailand and Vietnam, those countries were very attractive investment destinations for Japanese companies. But by 2010, there were many Japanese manufacturers in Thailand and in China, the price of labour was increasing rapidly and a shortage of labour developed. Japanese companies, especially manufacturers, had to find other destinations.
They looked closely at Cambodia, Laos, Myanmar and Bangladesh. Around 2008 or 2009, there were inquiries being made from the companies about the Cambodian investment climate. Those inquiries reached JETRO itself. That is why in 2010 JETRO set up an office in Cambodia.
Prime Minister Hun Sen had a sit-down with JETRO, and after the meeting Hun Sen talked with the Japanese prime minister about setting up a JETRO office to attract more Japanese investment.
What is the function of JETRO in Cambodia?
JETRO works to gather information in Cambodia to provide to potential Japanese investors. We compile an economic outline, assess the investment climate, locate possible Special Economic Zones, calculate the labour supply, and we have set up a website where we provide updated information about investment opportunities in Cambodia.
Japanese companies need information to compare each country’s investment climates. For example, to compare labour wages, labour supplies, infrastructure, electricity, water, political stability, foreign tax incentives, and so on. They compare each country and then some of the companies, like Minebea, Sumitomo and Ajinomoto, they choose to invest in Cambodia.
How is Japanese investment in Cambodia doing at the moment?
The number of Japanese business registrations in Cambodia was just 19 in 2010. It grew to 86 in 2011, 179 in 2012 and 195 in 2013. So these Japanese companies have registered as sole proprietors, as limited-liability companies, as branch offices and representative offices of the Japanese companies. The rate of Japanese investment is increasing rapidly, I think.
Since JETRO’s founding, how has Japanese investment in Cambodia changed?
One of the main industries in Cambodia is the garment and footwear industry. But Japanese manufacturers bring new industries. There is a small motor manufacturer, a carton box maker, one that produces wiring systems and an automobile parts producer.
These industries also come to Cambodia to produce products. We have Japanese manufacturers in special economic zones (SEZ), including Minebea, Sumi Cambodia and Ajinomoto in the Phnom Penh Special Economic Zone. We have Oji Paper in the Sihanoukville Port SEZ and Yazaki corporation in the Koh Kong SEZ to produce automobile parts.
Now Japanese companies provide new industries and also high value-added industries compared to the garment and footwear industry. I think is also one of the new trends among Japanese manufacturers.
What are the potential sectors that Japanese investors may soon put money into?
For export, labour-intensive industries such as garment and footwear and electricity are very attractive for the Japanese investor, because labour costs in other countries, like China and Thailand, are rising fast. Singapore and Malaysia have already been investment destinations for 30 or 40 years, so wages there are quite steep compared to countries like Cambodia, Laos and Myanmar.
This is the sort of information potential investors need – local wages and other production costs. For example, electricity rates are high compared to other countries, while there is also an electricity shortage, leading to frequent blackouts. This may turn off some investors, but others [may] decide that balanced with lower local wages, the electricity costs won’t eat into profits all that much.
That said, if the Cambodian government found ways to decrease electricity costs for industries while increasing the supply, I think more machinery and processing companies would enter the Cambodian market. I think the key point is, electricity issues are preventing even more investment.
Agriculture is also very attractive. But here too Cambodia needs to invest more to bring in more investment. Cambodia needs to increase spending in processing plants for the agriculture sector.
After we provide as much necessary information as we can to potential investors, another big concern we hear a lot is that foreigners and foreign-owned companies cannot purchase land. Only Cambodian companies can. This makes investment in agriculture a little complicated for Japanese companies. But there are some Japanese companies very interested in investing in plantations or processing agriculture products.
What changes would you suggest to make the Kingdom more of a desirable investment destination?
The Cambodian government has already provided an attractive investment atmosphere with low regulation and few restrictions on foreign investment compared to other countries. Foreign companies can easily invest in Cambodia.
There is only the issue about the land ownership, when investors cannot own a 100 per cent share. There are other issues, like the electricity issue, skilled labour, unskilled labour, a relatively high percentage cannot read or write.
That percentage is huge compared to Vietnam, Laos or Myanmar.
So basic education is very, very important to work for a Japanese company and other factories. Japanese companies have to provide Khmer language skills to workers employed in the factory, because important orders at a factory site are written in Khmer. Some Cambodian workers cannot read the instruction, so that is why the Japanese factory has to provide such education to many Cambodian workers. So, if basic education is sufficient, Japanese companies wouldn’t need to provide this kind of training.
The Japanese Embassy and Japanese Business Association Company meets twice a year. We call it the Public and Private Sector Meeting. The meeting has now been held 10 times already. Every time, the issues raised are the same: electricity costs, trade procedures, strikes and other labour issues. We then raise those issues with the Cambodian government. I understand the government is already well aware of these issues. But the government has a limited national budget; they can’t address every issue, like infrastructure and education, at the same time. They have to prioritise it. It is a very difficult choice for Cambodia.