FIGURES set to be released on February 5 will show that investment rose slightly

last year after several years of decline. The Council for the Development of Cambodia

(CDC), the government's investment body, stated that fixed asset investment reached

$242.6 million, up from $232.2 million in 2001.

But observers shrugged off the 4.5 percent increase, saying fundamental problems

still acted as a deterrent to foreign businesses. Minister of Commerce Cham Prasidh

admitted overseas investment was still below expectations. He blamed the situation

on delayed amendments to the investment law as well as competition from abroad.

"If you look at fixed asset investment in Cambodia there is very little rise

... it is still very low," he said. "Investment is declining despite political

stability and macro-economic stability [because] regulations are not in place for

investors."

Fixed asset investment is defined by CDC as the total figure for all projects approved

by the government within the year, irrespective of whether the project is actually

implemented. However it excludes investors that do not benefit from investment incentives,

such as banks, airlines and insurance companies.

CDC breaks down the overall investment statistics by country. Leading the pack, with

$103.6 million invested, was Cambodia. CDC secretary-general, Sok Chenda, said that

amount referred to Cambodian nationals in partnership with foreign investors, as

well as purely local investments.

That left $138.9 million invested by outsiders, down from the previous year's $161.5

million. South Korea provided the largest sum of $72.6 million, while other significant

investors were China, Vietnam and Taiwan.

CDC figures show that investment in the agricultural sector and infrastructure increased,

but fell for tourism projects and industry (see box).

Sok Chenda said CDC worked on the basis that between 90 and 95 percent of projects

approved within a year would be implemented. He denied that investment had been in

decline since 1998, saying any interpretation of the figures should take into account

new laws passed at the end of 1997.

"Before December 1997 we had high figures because we had a lot of people coming

to invest ... but they never implemented," he said. "From 1998 onwards

when you compare the figure it has decreased. This is because we narrowed the procedure

to eliminate people who come here to do nothing."

But industry experts continually cite significant impediments to foreign investment.

Unfair tax practices, smuggling, a weak legal system, poor infrastructure, and widespread

bribery have all been identified as contributing factors.

And it is clear that those issues remain. One Western economic official said the

government had to tackle particular fundamental problems before overseas businesses

would flock to invest.

"It's no secret to me why the figures go down - it's the complete bankruptcy

of the judicial system," he said. "Clean up the legal system. Why would

you want to invest a few million dollars if you think you can lose it all? I don't

think anyone, from the King downwards, trusts the judicial system, and it doesn't

take businesses a long time to figure that out."

The country head of the International Monetary Fund (IMF), Robert Hagemann, referred

the Post to comments he made at a conference last year. Among the major concerns

was the effect of smuggling.

"Smuggled goods erode the market share of legitimate producers," he said

at the time. "It is critical and urgent that anti-smuggling efforts be effectively

reinforced."

Cham Prasidh conceded smuggling was still a problem, and described the anti-smuggling

team set up in December 2001 as "not efficient". But he maintained that

ambiguities in the investment law remained the key reason why businesses were still

reluctant to invest.

He said that amendments to the investment law, which will mean fewer incentives for

potential investors, are currently with the National Assembly for discussion.

"[Investment] should be shooting up, but people are waiting for the investment

law to be passed so there is some predictability," said Prasidh. Trade agreements

between the US and Africa, he added, were also impairing growth.

Prasidh admitted investment in 2003 might not increase much beyond last year's figure,

but proclaimed 2004 would be the year of foreign investment. By the end of this year

the new investment law would be approved, the general election would be over, and

the country would hopefully have joined the World Trade Organization. Then, he said,

"all the pieces of the puzzle would be in place".

"People are waiting to see if the election goes smoothly," he said. "[When]

it is free and fair and recognized by the whole world, a lot of people will be coming."