Corruption and smuggling are driving investors from Cambodia, according to a Japanese investment specialist.

Keiiche Nakane, investment adviser for the Japan External Trade Organisation (JETRO), said the anti-competitive environment was deterring foreign investment here. Nakane is being recalled from Cambodia after seven years as an investment adviser as he said there are no investment opportunities here.

"I have been here almost seven years. There's no investment here because Cambodia is not fair, he said."

Nakane said smuggled goods made it impossible for legitimate businesses to make decent profits. He gave the example of Eastern Steel, a partly Japanese-owned company established in the mid-1990s, whose profits had dropped due to increasing amounts of smuggled corrugated iron. "If they were a small or medium company, maybe they would have dropped out [of the country]."

He said Malaysian company Angkor Beer had similar problems with smuggled beers from other countries hurting profits.

He said Cambodia's political environment offered no promise of improvement in the near future. "Hun Sen will be here for at least another five years. While he's here, nothing can change."

But Dong-Won Wang, director of Korea Trade Centre, did not share Nakane's pessimism and said Korean investors were active in Cambodia. In 2002, Korean investments in Cambodia were valued at over $300 million.

"I agree that the current investment conditions are not so good. But we should think about the next ten years," Wang said.

He pointed out that corruption was endemic in all lesser-developed countries and said he believed Cambodia would offer healthy returns on investment long-term. "The current political leader is a big problem but the younger generation are very brilliant. They are proud of their country and they are dreaming about a new Cambodia. They have a vision."

"Cambodia has the potential to be the most important country in Indo-China," Wang said.

Adam Sack, Regional Manager at the World Bank's Mekong Private Sector Development Facility (MPDF), acknowledged that Cambodia's investment climate lagged behind that of neighbouring countries but said Cambodia had many investment opportunities.

"I would agree that there is some way to go before the many investment opportunities that we see will be realised," he said. "There is widespread acknowledgment amongst the government and the private sector that the climate needs to improve."

Sok Chenda, secretary-general of the Council for the Development of Cambodia (CDC) said he disagreed with the pessimistic view of foreign investment in Cambodia and said foreign investment had remained fairly stable since 1998 with about $300 million being approved each year. He said he continues to receive regular applications from foreign investors seeking to invest in this country.

He also pointed out that last year, existing garment factories requested an extension of their production line in Cambodia.