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Logo of Phnom Penh Post newspaper Phnom Penh Post - The Malaysian business connection

The Malaysian business connection

Bullish Malaysian firms have signed $1.58 billion worth of investment contracts

in Cambodia in the past five months - and the pace may continue. However, some

are now asking just how sweet and transparent is the Malay Connection? -
Michael Hayes investigates.

MOST people would complain if asked

to spend their birthday on a crowded airplane. Not so for Cambodian Prime

Minister Norodom Ranariddh.

The Prince, an aviation enthusiast who likes

to fly remote-controlled model planes on weekends, celebrated turning 51 by

seeing his long-cherished dream of a new national flag carrier literally take to

the skies.

Joined by a host of Royal government and foreign dignitaries,

Ranariddh jetted off to Malaysia on the Royal Air Cambodge (RAC) innaugural

flight on January 2. Once airborne the visibly elated premier was feted to a

round of "Happy Birthday to You" by everyone on board.

To add a hefty

layer of icing to Ranariddh's birthday cake, the Prime Minister  witnessed in

Kuala Lumpur the signing of a $1.3 billion deal with the Malaysian company

Ariston Sdn Bhd to develop a resort complex in the port city of Sihanoukville -

Cambodia's largest contract to date with a foreign investor. For Ranariddh, the

party could not have been sweeter.

Its no coincidence that RAC's first

flight was to Malaysia or that Ranariddh was joined for lunch by none other than

Malaysian Prime Minister Datuk Seri Mahathir Mohammad. Besides the fact that the

new airline is a $10 million joint venture with Malaysian Helicopter Systems,

RAC's first international airlink with Kuala Lumpur should be profitable as

Malaysian corporate moghals and entrepreneurs have been flocking to Cambodia for

months to explore, negotiate and in many cases sign a variety of investment


Most importantly, the Malaysian government is bullish on

Cambodia with Mahathir taking a personal interest in helping promote the Kingdom

as an ideal investment locale for Malaysian firms.

The numbers are

telling. In the last five months since the passage of the new investment law the

Cambodian government has signed 17 contracts with Malaysian companies valued at

$1.58 billion. If, as expected, the Malaysian company Muhibbah-Masteron gets the

nod to build a new runway and terminal at Phnom Penh's Pochentong airport, the

figure will jump by another $250 million.

Recently approved projects

range from the development of the Kingdom's first racetrack and theme park to

garment factories, petrol stations, palm oil plantations, a power plant, office

blocks, a logging concession, a winery and a golf course.

The budding

economic love affair between Cambodia and Malaysia meets key interests of both

nations. Its also a function of what many observers describe as a special,

long-standing relationship between the two countries.

From the Cambodian

perspective any and all investment is positive. The cash-strapped government is

desperate to lure foreign concerns to help rebuild the country ravaged by more

than two decades of war. The government also rightly says that creating jobs and

boosting living standards of the rural poor is the only long-term solution to

the nagging Khmer Rouge insurgency which still poses a serious threat to

security in many provinces.

But why Malaysian companies to the rescue?

For a start Malaysia is in the neighborhood and Kuala Lumpur is only an 80

minute hop by air across the Gulf of Thailand, enabling executives to come in

and out of the country easily.

Moreover, unlike Thailand and Vietnam,

Malaysia with its relatively small population and no land border with Cambodia

does not pose a threat to the Cambodian job market. Cambodia already wrestles

with the presence of tens of thousands of undocumented Vietnamese workers. The

spectre of waves of job-seeking Thais pouring over the border from northeastern

Thailand is equally nightmarish. Even if the problem of illegal foreign workers

could be solved, there is still the historical antipathy which Khmers feel

towards both the Vietnamese and the Thais. In the case of Malaysia the slate is

clean - to the point where Malaysians are the only foreign nationals who don't

require visas to enter the Kingdom.

From the Malaysian side, fueled by

record GNP growth levels over the last decade, many Malaysian firms are flush

with cash and looking for places to invest. And the Mahathir government is

actively encouraging them to look abroad.

There is also the Chinese

factor. Most firms coming to Cambodia from Malaysia are owned by ethnic Chinese.

They find establishing links with local Sino-Khmer businessmen easy to


As well, given their own government's policy of promoting ethnic

Malays domestically, there is an added incentive to look abroad. "I feel more at

home here in Phnom Penh than I do back home," says one Malaysian ethnic Chinese


More broadly, government officials, diplomats and

businessmen say that the friendship between the two countries goes back decades.

King Sihanouk was always given the red carpet treatment whenever he visited

Kuala Lumpur and FUNCINPEC officials remember Malaysia's longstanding support

for them when they were on the Thai border.

Malaysian ambassador to Phnom

Penh Deva Mohd. Ridzam says that Malaysians understand Cambodia and sympathize

with the country's plight, having experienced an insurgency themselves during

the 50s and 60s. "We haven't forgotten that 30 years ago Cambodia was ahead of

us (economically) and so we have nothing to be arrogant about," he says. Ridzam

also argues that the key to Malaysian corporate success in Cambodia stems from

their entrepreneurial instinct, international competitiveness and their ability

to do things "the Asian way".

"CEOs fly in here. They discuss contract

details and don't leave it to their boys," says Ridzam. "This is the


One CEO who has already been a frequent flyer to Phnom Penh

is Ariston's owner Dr. Chen Lip Keong. His $1.3 billion deal to develop a

resort/casino complex on Naga Island off the coast from Sihanoukville requires

upgrading the airport there to international standards as well as the

development of a new power station, roads and other facilities.


Chen holding, FACB Berhad, has also been awarded a $90 million contract to build

a racetrack and sports club near Phnom Penh, which will include the construction

of a "mini-Disneyland".

By Cambodian standards, Chen is already an "old

hand" on the business scene here. Arriving in early 1992, he set up the

English-language newspaper the Cambodia Times as well as his own bank - the

Cambodia Asian Bank - one of four Malaysian-owned banks currently operating in

Phnom Penh.

Chen's local patron at the time was the now-exiled - for his

alleged involvement in last July's coup attempt - Prince Norodom Chakrapong, who

in his position as Deputy Prime Minister of the State of Cambodia was dubbed by

one diplomat as the "Chairman of Economics". Chakrapong brokered numerous deals

for foreign investors before the May 1993 elections and sources say the pay-offs

he received for his services were enormous.

But Chen's recent deals and

others signed with Malaysian firms have drawn fire from disgruntled members of

the National Assembly who say the contracts are unconstitutional. On January 20

eight MPs sent a letter to Assembly chairman Chea Sim requesting the government

to explain whether recently-signed deals violate Article 58 (management of state

assets) and Article 90 (state borrowing and financial committments) of the

constitution. The Ariston deal is just one which the MPs want to examine. Says

one MP who requested anonymity: "Its just unbelievable, the (Sihanoukville)

airport is a state asset. How can the government sign it away for so many years

without approval by the National Assembly?"

Another deal which the MPs

want to scrutinize is the logging concession signed with the Sarawak-based

Samling Corporation granting a 60-year logging concession on 800,000 hectares -

about four percent of the entire country. Inked while Ranariddh was in Kuala

Lumpur last August, the deal entails a $110 million investment in sawmills and

related infrastructure.

Critics who've seen a draft copy of the contract

say it is woefully lacking in environmental controls. "No one seriously

concerned about Cambodia's environment would have put their name to a deal which

could cause such vast destruction," says one environmental expert in Phnom Penh.

"Its hard to imagine Cambodia's forests lasting another five years."


asked to comment on the Samling concession, Ambassador Ridzam was non-plussed.

"I take my hat off to them," he says. "They will do selective logging as well as

re-forestation and a-forestation." Ridzam says that Samling is one of the

logging firms cited internationally for its "sustainable forest development


Cambodian Investment Board (CIB) Secretary General Ith Vichet

believes the government is on top of the problem. He says that all

logging-related contracts will require the submission of a master plan and an

environmental impact assessment. Pointing to a half-meter pile of pending

logging proposals in his office, Vichet notes wryly that when the government

imposed a export logging ban in early January, all the requests for logging

concessions became proposals for furniture manufacturing overnight.

"Sawmills are not innocent," says Vichet as an indication that he is

concerned about how to manage what is arguably the Kingdom's most valuable


But with the Samling concession approved by the Council of

Ministers and not the CIB critics argue that key deals are not getting the

attention they deserve. "I'm not angry, I just want to see what's in the

contracts," says one MP who signed the letter to Chea Sim.

Concern has

also been raised over the lack of a transparent competitive bidding process.

"Bidding is locked, it's a joke," says one Asian diplomat in Phnom


A case cited is the Ariston deal. In order to provide some cash

flow until the Naga resort/casino in Sihanoukville is up and running, Chen

signed a separate deal to bring a floating casino to Phnom Penh.

Originally, the Naga Island deal was put up for tender by the Ministry

of Tourism, with a final decision to be announced last November. But sources say

the Cambodian Development Council - the "one-stop-shopping" entity for foreign

investors - went ahead and brokered the floating casino deal before Tourism

Minister Veng Sereywath could complete the tender process. When the ship sailed

up the Mekong, Veng was reportedly outraged, complaining that Cambodia's image

would be damaged internationally. US-based Hyatt International, upon learning

about Chen's floating casino, immediately withdrew from the bidding


The larger issues of concern are whether deals signed will stick

and secondly - assuming they do - whether the investments themselves will

actually materialize. Several earlier contracts have been summarily cancelled -

most notably for Thai-owned Cambodia International Airlines which was given two

days notice to close its doors before the start-up of RAC, leaving ticket

holders stranded all over Asia. And some businessmen and diplomats in Phnom Penh

are sceptical that the larger deals signed will ever take off.

"It seems

like a lot of smoke to me," said one western diplomat referring to the Ariston


But one source familiar with Malaysian investment in Cambodia

says that Mahathir has made it perfectly clear to the Cambodian government that

if deals start collapsing Malaysian firms will pull out across the board.

Even if this is not the case, experiences similar to that of Thai firms

who've had the rug pulled out from under them would send an immediate chill

through the Malaysian investment community shaking what - on the surface - has

the potential to be a profitable long-term relationship for both countries.



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