The Japan International Cooperation Agency (JICA) will recommend that the Cambodian

government establish a Special Economic Zone (SEZ) in Sihanoukville, following the

completion of a comparative study.

JICA's resident representative, Juro Chikaraishi, said the study would be presented

to the Council of Ministers at the end of this month

"The first step will be to create a very small area as a pilot project with

two parts-a Free Trade Zone and an Economic Promotion Zone," he said.

Land belonging to the Sihanoukville Port Authority has already been earmarked for

the development, which is designed to provide infrastructure for fast and low-cost

production in secondary industries that the country lacks.

Chikaraishi said most of the infrastructure would be provided by the private sector,

but added that Japanese bilateral assistance would probably be available to develop

cheap water and electricity supplies, as well as eco-friendly waste management.

Critics of free trade zones have charged that they help foreign corporations make

profits, but have little impact on the local economy. Chikaraishi said the study

would take that criticism into consideration.

"It brings in Foreign Direct Investment (FDI), but that is not enough. You also

need backward linkages into the domestic market," he said, adding that materials

could be sourced locally to provide a link to the domestic economy.

JICA's strategy envisions the development of a range of industries in the area by

2015. It would also promote supporting industries, such as fruit groves along Route

4 between Phnom Penh and Sihanoukville.

The population of the growth corridor is 4.8 million and projected to reach 7 million

by 2015. The report noted that more than 130,000 people who live in the area will

join the labor force each year, and will need to be absorbed by jobs in secondary

and tertiary industries.

Agricultural and fishery processing, machine and electrical goods assembly, recycling

of used machinery, information technology industries, and the export of beverage

products are among the sectors expected to gain a foothold in the zones.

Both zones would be administered by an independent authority, which would provide

a one-stop service on tax, import-export administration and shipping. Chikaraishi

said the authority would have to operate at arms length from the government.

"Now investors need many stamps and signatures from many government officials.

It takes a lot of time and money without receipts for this," Chikaraishi said

of the problems that foreign investors face.

It is also a key reason why FDI has been in continuous decline since 1998. The

report suggested that FDI could go into import substitution, which is noted as a

primary goal in its executive summary.

"Agro-based commodities, such as processed food, account for 3 percent of the

total import," the report stated. "Mineral products, including cement,

account for 4 percent of the same."

It suggested that those industries could easily be set up in the new industrial zone,

which would help to reduce the country's dependence on imported goods.

Chikaraishi said JICA was not confident that the recently passed Law on Investment

would attract foreign investors. But he felt the SEZ could fill that gap by offering

a more attractive environment.

"We assessed the amended investment law as not suitable for Cambodia, but the

government has expended its energy on this already. It does not want to revisit the

subject," he said.

He added that JICA would seek to have the draft Industrial Zone Law amended in line

with its proposal. The government is planning similar trade zones along the Thai

border.