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Business in the Kingdom: The year in review

A Hattha Kaksekar Limited Bank branch in Phnom Penh early this year. In September, Thailand’s Bank of Ayudhya finalised its purchase of the microlender in a landmark deal valued at north of $140 million.
A Hattha Kaksekar Limited Bank branch in Phnom Penh early this year. In September, Thailand’s Bank of Ayudhya finalised its purchase of the microlender in a landmark deal valued at north of $140 million. Heng Chivoan

Business in the Kingdom: The year in review

The year kicked off with an announcement that internet television network Netflix launched its streaming service in the Kingdom for the first time – a potential blow to the New Year’s resolutions of many Cambodian couch potatoes.

The Cambodian government, on the other hand, decided to start 2016 with an energetic business coup, taking control of ticket sales for Angkor Wat, the Kingdom’s top tourist attraction. The operation, previously run by local Sokimex Group, was regularly accused of mismanagement, but with the new deal, ticket revenue goes directly into state coffers.

Kampot pepper received official geographical indication (GI) recognition from the European Union, a boon to producers, who stand to benefit from the prestigious award in one of their largest export markets.

The Kingdom’s revellers and holidaymakers received sad news with the announcement that the country’s largest amusement park was shutting its doors. What is more, many were left incredulous when Phnom Penh City Hall announced the park was to be replaced by a gargantuan $1 billion 133-storey building, set to be the tallest in the region.

A new fuel-pricing mechanism was put into place in March, creating price ceilings on the sale of fuel at all the country’s petrol stations. The formula was developed as a means to respond to changes in global oil prices and has since been updated every 10 days.

Also this month, the central bank sought to improve the country’s financial stability by significantly increasing the minimum capital requirements for banks. With the decision, commercial and specialised banks were required to double the minimum amount of capital they must hold, while much larger increases were required of microfinance institutions (MFIs).

Motorists and people pass the sales office of The Bay, a $500 million mixed-used development, on Sothearos Boulevard in Phnom Penh.
Motorists and people pass the sales office of The Bay, a $500 million mixed-used development, on Sothearos Boulevard in Phnom Penh. Heng Chivoan

Just in time for the biggest holiday of the year, Khmer New Year, Royal Railway operated the first passenger train service in 14 years between Phnom Penh and Sihanoukville. After a trial period of daily service over the holiday, operations were reduced to weekend service.

Grand Twins International (GTI) investors and company executives received a shock when second quarter 2015 figures for the Taiwanese-owned garment manufacturer showed a 450 percent drop in profits. It was later revealed by the company that an accounting error was to blame for the staggering figure, a revelation that softened the blow for the company given that profit last year still declined by 70 percent.

The Phnom Penh Special Economic Zone became the fourth company to list on the Cambodian stock exchange (CSX), raising $8.2 million in its initial public offering. The company announced it will use the funds of the IPO to develop a new 53 hectare special economic zone near Poipet.

Also this month, Starbucks Coffee, previously limited to serving coffee in Phnom Penh’s airport, opened its second outlet in the country at Aeon Mall. Meanwhile, it was announced that construction on a second 100,000-square-metre Aeon Mall was set to begin on the outskirts of Tuol Kork.

Cambodia was awarded the title of “World’s Best Tourism Destination” for 2016 by the European Council on Tourism and Trade (ECTT) for the first time in the country’s history.

Not to be outdone, the Kingdom’s gaming industry was name the world leader for growth of VIP gaming revenue by financial firm Morgan Stanley. The gaming industry, led by Phnom Penh casino NagaWorld, continued to place itself as an alternative to Asia’s gaming capital Macau, with VIP revenue expected to grow by 39 percent in 2016.

In a busy month for the country’s exports sector, the World Bank revised Cambodia’s economic status, moving it up a bracket into the lower-middle income category. However, experts warned that the progress in poverty reduction, highlighted by the World Bank’s classification, could potentially be offset by the risk the country faced of losing its preferential trade access to major developed markets and decreased flows of foreign aid from which it benefited as a low-income country.

The country’s exporters of travel goods, meanwhile, were awarded duty-free access to the United States market, in a move that could lead to a 400-percent increase in exports of specific items such as luggage over the coming years.

It was not all good news for the country’s trade sheet, however, as rice exports fell by 6 percent year-on-year amid a looming drought, pushing the government to provide $30 million in emergency loans to struggling rice millers.

Meanwhile, the IMF conducted its annual review for the Kingdom that rapid credit growth could lead to financial instability unless reined in.

The outlook for Cambodia took a negative turn in August following a report issued by the Basel Institute on Governance, listing Cambodia as the most at-risk nation in ASEAN for money laundering and terrorism financing. The report said the Kingdom, despite marginal progress over the past year, was the sixth most at-risk country in the world, out of 149 countries.

Risky outlooks permeated other areas of the economy with experts divided on whether Phnom Penh was at risk of a housing bubble. Shortly after, the Singaporean developer behind the $500 million mixed-used real estate project The Bay, announced it would halt the residential phase of its project due to unfavourable market conditions.

Timber tycoon Try Pheap (right) stands on the staircase of an oil storage tank in Kampot province. Photo supplied
Timber tycoon Try Pheap (right) stands on the staircase of an oil storage tank in Kampot province. Photo supplied

September saw the largest acquisition in the history of Cambodia’s financial sector, after Thailand’s Bank of Ayudhya, with nearly $50 billion in assets, finalised the purchase of Cambodia’s fourth-largest MFI, Hattha Kaksekar Ltd (HKL). The deal was reported to be valued at upwards of $140 million. September also marked the first-ever direct flight linking Cambodia to Japan, cutting down the travel time between Phnom Penh and Tokyo to six hours.

In other transportation news, the oft-maligned Cambodian flag of convenience was swiftly buried, following many years of international complaints. The country’s long-running scheme had often been abused to mask nefarious maritime activities around the world.

The Axiata group, parent company of Cambodia’s second-largest telecom operator Smart, unveiled plans to divest up to 40 percent of its shares in the subsidiary to divert capital to infrastructure development.

Rival local telecom Cellcard also announced development plans, indicating it would sink some $200 million into upgrading and expanding its 4G network.

The World Bank once again made local headlines following the release of its annual “Doing Business” report which deemed that Cambodia ranked 131 out 190 countries in terms of ease of doing business, a drop of four spots compared to the previous year.

Nebulous plans for a $23.2 billion coastal development in Kampot province were unveiled in mid-October, though little is known of both the project to build a 4,000-hectare resort and the company behind it.

Details of upcoming tax legislation came to light revealing measures to replace a 20-percent flat tax on company profits with a progressive tax system, breaking down taxation into five different brackets for different-sized companies. If approved, the same legislation will benefit the Kingdom’s workers by raising the lowest taxable income threshold to $250, up from $200 currently.

With an eye to improve the state of the country’s struggling farming sector, experts suggested Cambodia look into the possibility of legalised marijuana cultivation. Growing demand, driven in particular by legalisation of the crop’s consumption in parts of the United States, could translate into hefty profits for farmers in the Kingdom, they said.

The Phnom Penh Special Economic Zone finished the year in a strong fashion, unveiling a new $100 million Coca-Cola bottling facility as well as a third factory for Japanese electrical components manufacturer Minebea. The new developments provide a small boost for Cambodia’s efforts to increase the manufacturing of valued-added products in the country.

Prime Minister Hun Sen made clear that for digital data-hungry Cambodia the sky is no limit, as he instructed the country’s biggest conglomerate to push forward on plans to launch the Kingdom’s first satellite.

Investigation into mysterious objects cropping up on land owned by timer baron Try Pheap revealed five newly-constructed oil storage tanks were part of planned 20 in preparation for an oil refinery and special economic zone on the adjacent land in Kampot province.

Closing in on the end of the year, The Post revealed plans for the construction of a new airport in Siem Reap, to be built by state-owned Chinese group, Yunnan Investment Holdings Ltd (YIHL). However, that left Cambodia Airports, the operator of Siem Reap’s existing airport, under a concession scheduled to end in 2040, to settle a compensation package for the government’s change of course.


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