WITH recovery from Japan’s earthquake and tsunami estimated at more than US$100 billion, the world’s third-largest economy is expected to withdraw a sizeable portion of its vast wealth from overseas markets to channel into the rebuilding effort. Or so the theory goes.

If Japan is in the process of bringing trillions of dollars invested in the world’s financial market back home, will there be any impact on Cambodia’s economy?

As with any major economic event the possible outcomes are complex, but a look at the ways Japan is linked to the Cambodian economy at least offers some clues on the potential scope and scale of any fallout.

Japan is currently the single largest foreign donor to Cambodia pledging $130 million in June last year for the period up to the end of 2011, or 12 percent of all foreign aid to the Government.

Following the recent disaster, how willing will Japan be to maintain this level of contribution next year?

Within the private sector, the tourism industry is among those with the largest Japanese influence.

Previously the biggest source of foreign tourists to Cambodia, the high-spending Japanese last year ranked fourth with close to 152,000 visitors.

As thousands of people in Japan dedicate their personal financial resources to rebuilding homes – many of which are uninsured due to earthquake risk – foreign travel will surely be off the agenda, at least in the short term.

In terms of Japanese trade and investment the picture is more complex. Hiroshi Uematsu, managing director of the Phnom Penh Special Economic Zone, told The Post yesterday one of his potential investors operates a factory in the northeastern Miyagi Prefecture that sustained damage following the tsunami. However, the unnamed company was still preparing to invest as normal, he said.

Another potential Japanese investor in Sendai, also in Miyagi Prefecture, will still go ahead with a business trip to Cambodia next week despite the disaster, but was due to send a smaller delegation than planned previously. There had therefore been “no significant impact” on their plans for Cambodia despite the disaster.

“In fact, in the middle and long term, the disaster in Japan would motivate Japanese manufacturers to

invest overseas more for the purpose of hedging risk,” he said. The impact on Cambodia’s main export industry garments could be similar. Japan was the highest growing market for Cambodian garments and apparel last year doubling to $56 million.

Ken Loo, secretary general of Garment Manufacturers Association in Cambodia, told The Post this week that far from denting prospects for growth, the disaster could fuel Japanese demand which was already outstripping capacity. Fast Retailing, parent company of low-priced clothing brand Uniqlo, is among Japanese manufacturers that have sought to source more from Cambodia, particularly outer wear, he said.

Given the low-end market position of such products, the disaster is unlikely to curb interest.

“In fact, I wouldn’t be surprised if there was increased demand,” said Loo.

Only time will tell if optimistic forecasts prove correct. Many analysts made similarly rosy predictions for Cambodia at the start of the global economic crisis and were eventually proved wrong. And although not on the same scale, the Japanese disaster could have a similarly indirect impact on the Kingdom should global demand fall.

The size and influence of Japan’s economy should certainly not be underestimated. Whatever the eventual fallout, Cambodian businesses dealing with Japan will need to rethink their strategies. If they do not, the chance of a negative impact on the domestic economy will only rise.