Logo of Phnom Penh Post newspaper Phnom Penh Post - Indirect trade with India unhealthy

Indirect trade with India unhealthy

Indirect trade with India unhealthy

indian chamber of commerce
Manish Singhal, assistant secretary-general of the Federation of Indian Chambers of Commerce and Industry, speaks to the Post in Phnom Penh, Wednesday, March 13, 2013. Photograph: Vireak Mai/Phnom Penh Post

Cambodia's indirect trade and investments with India are possibly worth almost five times more than its direct economic activities, a situation deemed “unfavourable” to the country, an industry expert said yesterday.

Direct trade and investments between the two countries hit a record $112 million last year, 20 per cent more than 2011, said Indian Chamber of Commerce’s (ICC) President, Debasish Pattnaik.

But indirect activities, conducted through a third-party, “could be easily worth around $500 million,” said Manish Singhal, assistant secretary-general of the Federation of Indian Chambers of Commerce and Industry (FICCI).

Both were speaking yesterday on the sidelines of a seminar in Phnom Penh promoting Cambodia’s trade and investment opportunities.

The seminar was organised by the ICC, FICCI, and the Indian Embassy in Cambodia.

Indirect trade occurs, for example, when Indian products are sent to Cambodia through bases in the region such as Singapore, said India’s ambassador to Cambodia, Dinesh Pattnaik, no relation to the ICC president.

This transshipment happens when Cambodian importers cannot pay immediately for certain goods, so they later collect and pay for the goods from middlemen, who buy the goods first, Singhal said.

While India also largely trades indirectly with countries like Myanmar and Vietnam, Cambodia’s ratio of direct versus indirect activities is “very, very unfavourable”, Singhal said.

Without a middleman, there is “greater possibility of business growth”, he said, because importing costs can drop eight to 15 per cent. Also, when problems arise, having direct connections with the exporter would enable better solutions, because “the middleman is not your friend”, he added.

Such indirect activities, said Dinesh Pattnaik, is one reason why India’s direct trade and investments with Cambodia remain low, compared to that with ASEAN, valued currently at about $80 billion.  

Another reason is people in India lack knowledge about Cambodia, and vice versa, which is something he is trying to change, he said.

Debasish Pattnaik said that, while India has been late to enter Cambodia’s markets compared to South Korea and China, “there are still opportunities”.

Indian investors can “value add to whatever is existing now”, such as by packaging Cambodia’s agricultural products for exports or providing textile materials to Cambodia to make garments, he said.

Cambodia has a high trade deficit, which can trigger inflation, he said. According to the Ministry of Commerce, Cambodia’s trade deficit was $2.6 billion in 2012. There is “huge potential” for India to help balance it, by buying Cambodia’s agricultural products, for example, the ICC president said.

Suon Sophal, the deputy director of the investment board of the Council of Development for Cambodia (CDC), said another opportunity lies in the free-trade agreement between India and ASEAN.

The trade agreement has an article on preferential treatment to less-developed countries like Cambodia, so Indian traders can “start to think about” how to help, Sophal said. India also had only four major investments in Cambodia from 1994 to 2012, which amount to $84 million, he said.

But Dinesh Pattnaik said instead of relying on figures to decide whether to expand into Cambodia, investors should look at the opportunities.