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Business in the Kingdom: The year in review

Aun Porn Moniroth, the minister of economy and finance, rings the bell at the CSX in Phnom Penh last month during the first day of public trading for shares in PPAP.
Aun Porn Moniroth, the minister of economy and finance, rings the bell at the CSX in Phnom Penh last month during the first day of public trading for shares in PPAP. Heng Chivoan

Business in the Kingdom: The year in review


Cambodia’s business community began the New Year with renewed vigour, with a view to putting behind the overhang of uncertainty created by the political deadlock and garment worker strikes in 2014. State coffers got the country off to a positive start, reporting that the Kingdom collected more than a billion dollars in taxes, increasing the collection by 20 per cent, thereby aiding the government’s ever-expanding spending outlays.

As global oil prices continued to drop, Prime Minister Hun Sen was critical of foreign-owned petrol retailers, who, he said, had yet to reduce their prices at the pumps to reflect global prices. He added that local companies were passing on their savings to consumers in the Kingdom, with foreign retailers saying they would reduce the price but had to consider many factors before making any such changes. This story will continue to make headlines throughout the year.

The Post reported a controversy brewing in the beer sector, with two Cambodian alcohol heavyweights, Attwood Import Export Co Ltd and Cambodia Brewery Limited, quarrelling over the rights to sell Heineken in the Kingdom. While Attwood’s contract to distribute the international beer brand ended in 2014, Heineken’s Asia-Pacific branch decided to partner with Cambodia Brewery, after it had acquired a 100 per cent stake in the brewery earlier this year. Though not legally contested at the time, the Commerce Ministry was forced to intervene, with Attwood saying it expected a consultation process and was caught unawares by Heineken’s decision.


The month didn’t start off too well for the Kingdom’s aviation authority, with the Australian-based Center for Aviation stating in a report that Cambodia’s State Secretariat of Civil Aviation was being audited by the International Civil Aviation Organization. The audit, which was to be held in November and is now postponed to next year, would focus on lax safety regulations and foreign airline ownership rules, which enable startup airlines to get a back-door option to attain an Airline Operations Certificate and access the high-growth Chinese market. If the airline regulator fails the audit, it risks being blacklisted, which would be a major blow to Cambodia’s small, but growing, aviation sector.

The struggling Cambodia Securities Exchange (CSX) went all out this year to attract more listings by promising a 50 per cent tax cut for firms listing on the exchange. The exchange, which at the time had only the Phnom Penh Water Supply Authority and garment manufacturer Grand Twins International as listed companies, also promised to give investors buying or selling stock a 50 per cent discount on taxes paid from dividends they earn for the next three years.

Later in the year, the CSX also promised to allow listed companies to delay payment of their monthly advance tax on profit to the end of the year, as well as establish a new Growth Board, with less stringent listing criteria, in a bid to attract more small and medium enterprises.


The Commerce Ministry released one of its long-awaited big-bang reforms by putting the certificate of origin (CO) issuing system online. Businesses could go online and apply for a CO quicker and cheaper than before. They could verify the origin of exports and get preferential imports to export destinations without having to visit the ministry with reams of paperwork. However, the European Union still requires an actual signature, but Commerce Minister Sun Chanthol made another request that the EU accept the digitally issued e-signatures provided by the new system.

The first major economic projection for the year came from the Asian Development Bank (ADB), which reported that the Kingdom will continue its 7-plus per cent gross domestic product growth in 2015 and 2016. Growth, the ADB said, will ease off to 7 per cent in 2016, down from an average of 7.2 per cent over the last three years, with labour unrest in the garment industry and ballooning credit growth in the property sector posing risks to sustained growth.

The telecom sector saw the acquisition of the country’s fourth-largest operator Beeline by Vietnamese military-owned Metfone for an undisclosed amount. Beeline’s 500,000 subscribers would be automatically transferred to Metfone’s services, adding to the latter’s tally of 9-million-plus customers.

A farmer holds freshly harvested rice in Phnom Penh’s Russey Keo district in January, 2015.
A farmer holds freshly harvested rice in Phnom Penh’s Russey Keo district in January, 2015. Vireak Mai


In a Post exclusive, beverage behemoth Coca-Cola announced that it would invest $100 million in building a new facility in the Phnom Penh Special Economic Zone. The beverage company was looking to triple its output to more than 60 million cases, each containing 24 units, with the new factory expected to produce 42 million cases alone. The company already has an existing facility outside Phnom Penh that dates back to 1993, but was unable to keep up with the Kingdom’s rising demand for aerated beverages. A ground-breaking ceremony was held in August with completion expected next year.

Following the ADB’s economic outlook in March, the World Bank released its Cambodia Economic Update in April, which projected the country’s GDP growth to fall just under 7 per cent for 2015, with the agriculture sector still a worry for the development bank. While poverty alleviation and stable economic growth were taking Cambodia toward being a low-middle-income country, the World Bank said deceleration in the agriculture sector – caused by low yield and prices – could have an impact on poverty-reduction efforts. However, experts did feel that the development bank’s sub-7 per cent growth estimate was on the lower side, suggesting that it would be a little more than 7 per cent.


Cambodia’s banking sector, which has seen stellar growth in the last few years, was in for some good news, with the National Bank of Cambodia’s Supervision Annual Report 2014 showing that profits for the sector stood at $311 million, a 30 per cent rise from 2013. Acleda Bank led the way with $61.2 million in profits, followed by Canadia Bank, Cambodian Public Bank and ANZ Royal. However, lending saw a sharp increase as well in 2014, with the industry average for loan-to-deposit ratio reaching 95.9 per cent and certain banks exceeding 100 per cent, which bankers said was not prudent or sustainable going forward.

The Attwood-Cambodia Brewery spat escalated to the point where Heineken stocks were depleting at an alarming rate. The escalation caught customers, bars and restaurants unawares by the lack of Heineken on the shelves. A statement from Cambodia Brewery reported that the beer was “currently not widely available in the Cambodia market” and while declining to comment on the reason for the shortage, it said it was working with relevant stakeholders to rectify the issue. Around the same time, an Attwood spokesperson said it was set to sign an exclusive distribution deal with Mexican-made Corona beer.

People walk past a petrol station in Phnom Penh displaying gas prices in December.
People walk past a petrol station in Phnom Penh displaying gas prices in December. Hong Menea


With the onset of the wet season rice planting, government officials and agriculture experts expressed concern over the prolonged effects of El Niño, a Pacific weather condition that causes warmer-than-average temperatures, on paddy production. The months of May and June saw only light rainfall, with the government expecting the rains to pick up in July. While rainfall continued to be below average for most of the wet season, small improvements in October and November had rice millers and exporters optimistic about the paddy output for the year. But they were still concerned about the quality of rice produced, especially the export-sensitive jasmine and fragrant rice.

In a bid to give a fillip to lagging tourist numbers this year, Cambodia and Thailand joined hands to launch the “Two Kingdoms, One Destination” pact that would promote both foreign and inter-ASEAN tourism. The Tourism Ministry said the pact would take advantage of a single visa option for both countries and look to direct tourists via two routes – Bangkok to Sihanoukville via the southern provinces and Bangkok to Phnom Penh via Siem Reap.


After years of deliberation, the Securities and Exchange Commission of Cambodia passed a prakas early July allowing individual investors to apply for the Kingdom’s first derivatives licence. The directive would provide investors the opportunity to trade the complex, at times risky, financial instruments through individual brokerage firms and not the nation’s stock exchange. The move to formalise the niche trading activity came after a mini-crackdown in 2011, which saw five derivatives firms’ activities shut down at once, though derivatives were still available in the market, albeit under the radar.

The Siem Reap economic police raided three stores that were selling counterfeit products of the US-based brand The North Face. After receiving a complaint from company in April, the authorities found three stores that were selling fake backpacks and T-shirts, with one of the stores designed to look exactly like a genuine store would in the United States. The case brought to the fore concerns over trademark protection and enforcement in the country’s garment and footwear sector – a mainstay of the economy. Legal experts said international buyers were worried about their products being copied and sold – a problem not unique to Cambodia – given that it hurt their reputation and brand value.


The government laid out its ambitious “Cambodia Industrial Development Policy 2015-2025”, looking to diversify the country’s industrial base beyond garments and rice. The 21-page document, unveiled by Prime Minister Hun Sen, outlined the government’s commitment to addressing the long-standing issues of high electricity costs, logistical challenges and skilled-labour shortages. One of the challenges for the government will be to “officially register 80 to 95 per cent of SMEs, out of which 50 to 70 per cent will have accurate accounts and balance sheets”.

In mid-August, the Post reported that the Ministry of Economy and Finance’s plan to conduct a meeting to address growing fears about a potential bubble in Cambodia’s real estate sector. The ministry’s spokesman Mey Vann said that as long as prices were reasonable there would be no reason to worry, but was “afraid that the high prices are the result of speculation”. Participants at the meeting, which included the NBC and private developers, were expected to discuss rising debt in the sector, as well as overheating and lack of demand-driven growth. However, after the meeting on August 18, all stakeholders were a lot less cautious and downplayed these concerns, only agreeing to increase monitoring of the sector.

A plunge in Chinese markets sent jitters across global indices in August, but industry experts here remained cautious over whether there would be any residual impact on the Kingdom. Experts said there would be no major impact on the Cambodian economy, as most of the Chinese’s investment projects were long-term commitments, but small dips could be seen in tourist numbers, foreign investment and construction activity.

Guests look over a scale model of the proposed Coca-Cola factory during a groundbreaking ceremony in August at the Phnom Penh Social Economic Zone.
Guests look over a scale model of the proposed Coca-Cola factory during a groundbreaking ceremony in August at the Phnom Penh Social Economic Zone. Vireak Mai


Petrol prices would make news again in September, with Prime Minister Hun Sen calling for a meeting with retailers to get them to reduce prices given a further dip in global oil prices since February. The Commerce Ministry, which took the lead on the issue, would over the next three months have meetings with each retailer, asking them for their import costs and pricing mechanisms, with the entire process culminating in the creation of a pricing mechanism that is still waiting for the prime minister’s approval.

With close to 20 million SIM cards in the country, telecom operators have seen stellar subscriber growth in the last few years. But a government directive asked operators to ensure that retailers collect the requisite identification documents before selling SIM cards. According to a Ministry of Posts and Telecommunications official, as many as 70 per cent of SIM cards in the country had no ID attached to them, and if documents weren’t submitted in three months time for these SIMs they would face termination. Telco operators told the Post that they have been abiding by these requirements; however in certain cases it was difficult to control third-party sellers.


Despite a boom in lending, the Cambodia Socio-Economic Survey 2014 said Cambodian household saw their debt increase by only 2 per cent. But rural household borrowings to service already existing loans nearly doubled, reaching $1,482, up from the $896 borrowed in 2013. Independent economist Srey Chanthy said rural indebtedness was a vicious cycle, as people would borrow more to service existing loans, especially among farmers. “If this trend continues, farmers could be in serious trouble, and it can affect the microfinance and rural financial sector,” Chanthy said.

In lighter news, Netflix, the world’s biggest internet television network, announced it would launch in Cambodia next year, as part of a global rollout. Once launched, Cambodians will be able to join other Netflix fans in enjoying the streaming service’s popular shows, such as House of Cards and Orange Is the New Black.

A Chinese national is escorted to a plane by a Chinese immigration official in November after he was detained for an online extortion ring in Cambodia.
A Chinese national is escorted to a plane by a Chinese immigration official in November after he was detained for an online extortion ring in Cambodia. Photo supplied


In one of the year’s biggest stories, 168 Chinese nationals were arrested and extradited in Sihanoukville on accusations of operating a transnational telecom extortion scam. Local immigration police and Chinese Interpol agents raided a villa and guesthouse in the coastal town who were accused of using an internet-based telephone system to extort money from victims back in China. The crackdown resulted in Chinese investors, workers and tourists leaving Sihanoukville en masse, causing an outcry from hotel and casino owners who claimed to have suffered major losses from the mass exodus. Owners even met with the provincial governor demanding evidence to prove that the Chinese nationals were part of the scam, adding that the incident had created a cloud of fear over the city.

In a major move on the tax front, the tax department moved to scrap the poorly regulated and grossly inefficient “estimated-tax” regime, moving all business taxpayers to the more stringent and formal “real” regime. Government documents accessed by the Post showed that the estimated regime was a resource hog, using 60 per cent of the state’s tax collectors to collect less than 1 per cent of its total tax revenue. Tax experts said that while it was a step in the right direction, its success would hinge on implementation by tax officials. Small and medium firms, who made up the bulk of the estimated regime, are now required to keep clean accounts, be open to audits and pay profit on tax and value added tax, as opposed to the old system where they would negotiate their taxes upfront with little or no compliance responsibilities.


In a major relief for the Cambodia Securities Exchange, the Phnom Penh Autonomous Port became the third listed company on the exchange, successfully raising $5.2 million. Its success was in part to a strategic decision to have a more rational valuation and generation of strong investor interest, which resulted in the IPO being oversubscribed 1.4 times. Despite the low volume of trading, securities firms said the low volume suggests that shares were in firm hands and investors were looking at the long haul. The CSX is expected to attract a few more listings in the New Year, most notably the Phnom Penh Special Economic Zone.

The year ended with the National Bank of Cambodia issuing a positive, but cautious, note on the economic prospects of the Kingdom. While citing strong growth in 2015, which it credited to comprehensive reforms and economic policies, it said erosion of export competitiveness, Vietnam’s recently-signed Trans Pacific Partnership and a slowdown in China and the EU were challenges that Cambodia needed to navigate.


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