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Look to the long term for meaningful FDI

Look to the long term for meaningful FDI

VIETNAM’S proposed US$1.3 billion investment in the Kingdom over the next two years sounds like a large amount money, but to what extent will the domestic economy actually benefit?

Hanoi’s intentions should serve as a reminder that Cambodia needs to look beyond tantalising figures and start to secure long-term economic benefits from foreign investment including technology transfer and the development of local associated industries.

Although economists regularly queue up to congratulate Prime Minister Hun Sen’s government for its recent rapid economic growth, when it comes to milking foreign direct investment for the country’s longer-term economic gain, the Cambodian Peoples Party has not only appeared short-sighted, so far it has failed.

Vietnamese intentions are mostly focused on the extraction of Cambodian resources for processing back in Vietnam, namely energy and agriculture. In many cases, these same raw materials are packaged and sold abroad, occasionally back to Cambodia.

If the government does not develop oil-refining capabilities to go with the forthcoming energy industry, the likes of Petrolimex – which opened a representative office in Phnom Penh last week – could end up selling processed oil back across the border to Cambodia. The Vietnamese firm already supplies US$350 million of petroleum to Cambodia each year, equal to half domestic annual demand.

Past Vietnamese investments have created a market for Cambodian farmers, a local petroleum retail industry, low-skilled jobs and a means of cheap communication that helps fuel economic activity in rural areas in the case of mobile-phone provider Viettel, but the government should guarantee greater returns.

A German Development Institute report on the impact of Chinese FDI in Cambodia and Vietnam published in late June, the first of its kind, found that most foreign investment did not lead to longer-term benefits such as high-skilled employment opportunities for Cambodians and supply contracts for local firms. That was largely deemed to be the fault of the Kingdom itself for failing to develop the means to exploit such rewards.

When Volkswagen opened its first Chinese factory in Shanghai in the mid-1980s, the Communist government saw an opportunity not only to create jobs and receive large amounts of foreign capital, but also realised the chance to learn from a foreign company that had honed the skills China lacked.

A generation later, China’s automotive industry is among the most advanced in the world, with the likes of Shenzhen-based BYD Auto developing highly evolved electric vehicles. Meanwhile, Volkswagen is by far the most popular foreign car brand in China, now the world’s largest automobile market. In other words, China and the German automaker both benefited hugely from the arrangement.

In Cambodia, we often hear Hun Sen talk of “win-win situations”. But unless the government locks in training, skills and technology transfer and joint-venture arrangements, there will only be one clear winner when the likes of Vietnam propose billion-dollar investments. And it won’t be the Cambodian economy.

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