Along the tree-lined boulevards of downtown Phnom Penh, beautifully-renovated villas

now occupy spaces where decrepit houses once stood.

New hotels are springing up everywhere and more western-style restaurants open each

week.

Several foreign banks are even doing brisk business, evidence at least that much-needed

cash is flowing into the country.

Yet despite the apparent turnabout in fortunes and the even bigger turnaround in

claims, big investments in Cambodia are few and far between.

According to the National Investment Committee, 509 projects have received approval

to date with total investment put at U.S. $700 million to U.S. $800 million.

In practice, though, less than 40 percent of these projects are underway with estimates

putting the total investments at a little more than U.S. $150 million.

Indeed, while big investment companies like EAC, Sime, Darbe, and BAT are all putting

their foot in the door, many others are ready to run if the political situation turns

bad.

"Most investments have been in service-related industries, with the average

capital outlay being just four or five million dollars," laments Ouk Chay, director

at the Department of Foreign Economic Relations. "Everyone is awaiting the outcome

of the elections."

One problem has been the lack of clear investment guidelines and an uncertain business

environment. While in principle a foreign investment law has been in place since

July 1989, even the most optimistic foreigners admit that in practice the laws mean

little.

An even greater disincentive has been the cost of doing business with a bureaucratic

system plagued by corruption.

Several enterprises, including the Lotus' luxury motel project, have been put on

hold, while other ventures have also fallen afoul of the authorities. And many businessmen

now talk of the Three B's of doing business in Cambodia: Bribery, Begging and Bureaucracy.

Added to that is the critical state of the economy with inflation that reached 200

percent per year in December, a budget deficit of U.S. $50 million, and a currency

that has depreciated from 500 riel to the U.S. dollar to 2,300 riel to the U.S. dollar

over the last ten months.

"There are still a number of problems on the economic front," admits Roger

Lawrence, senior U.N. economic advisor. "The SOC has taken important steps to

improve the situation but they cannot solve the budget deficit."

Not everyone is pessimistic, though. OMIC, a Hong Kong-based holdings company established

by Asian PR representatives, will officially start a market research operation in

January and is already drawing up reports and conducting analysis for clients around

the region.

Other businessmen see the lack of regulations and the openness of the authorities

as the biggest opportunity in the region.

"It's like starting with a completely blank piece of paper," said one foreign

representative. "You can literally make up your own rules."

Companies like Cambrew-which invested U.S. $84 million in a joint venture to produce

the country's first local beer, Fuldaa-which operates a Bangkok-Phnom Penh shipping

line as well as Asia Flour Mills-which purchased a U.S. $450 million bakery from

the government-are all examples of projects running successfully.

Other ventures in the pipeline include a 500-room hotel to be developed by Hong Kong-based

VINA and a U.S. $60 million investment in electric generators by U.S.-based Intercore.

Even the oil giants are here with Enterprise, Premier and CAMPEX exploring for oil,

and Shell poised to commence a U.S. $5 million program to upgrade and operate petrol

stations throughout the country.

Last month's announcement of a U.S. $67 million loan by the Manila-based Asian Development

Bank-the first in more than 20 years-fueled further hopes that the economic tide

may have turned in Cambodia.

But the fact that the package includes no deficit-reduction measures and that the

disbursements will, for the most part, begin after the elections, means the loan

will do little to provide the necessary short-term boost to investors' confidence.

"The economic problems of Cambodia are critical to the elections and to the

ultimate success of implementing democracy," said Robin Davies, a visiting professor

at the Institute of Economics. "If you don't address those problems, you run

some very major risks."

Nor are the elections likely to be the end of the story. Indeed with an annual per

capita income of about U.S. $150, a population of just 8 million and an infrastructure

(including communications) bordering on the abysmal, big businesses may have to wait

a considerable period of time before they secure a return on capital.

Even labor, which in theory is plentiful, in practice is largely unskilled, with

engineers and technicians hard to come by.

By contrast, neighboring Vietnam and Laos offer comparative business opportunities

with limited political risk.

That is unlikely to act as a dampener on all areas of investment in Cambodia, however.

Demand for basic consumer goods, textiles and service-related industries could remain

high even after the 22,000 UNTAC personnel return home. Tourists could yet turn Phnom

Penh into a favored holiday destination, with wealthy residences and colonial-style

villas and the lure of Angkor Wat drawing visitors from foreign shores.

"Cambodia's population is still three times the size of Singapore," says

John James, manager at Standard Chartered Bank. "If only 20 percent of the people

can afford to buy products, that is a substantial figure."

Even that vision may prove extremely long-term. And while some of the big entrepreneurs

coming here may strike gold, many others could yet see their dreams rapidly turn

to dust if political problems cannot be resolved.