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Plans to turn Poipet into automotive parts manufacturing hub

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Handcarts ferry household goods across Poipet’s border with Thailand from dawn to dusk. Vireak Mai

Plans to turn Poipet into automotive parts manufacturing hub

Best known for casinos catering to Thais and small-time trade, the border town is now looking to lure Thai and Japanese manufacturers with promises of cheap labour

Economic activity in Cambodia’s northwestern border town of Poipet is traditionally characterised by its casinos and small-scale trade with neighbouring Thailand.

Hundreds of Thai gamblers visit the town’s gaming complex every day, while a steady flow of Cambodian porters ferry household basics – from drinking water to liquid detergent and cooking oil – across the border from morning to night.

Gambling and trade are going nowhere, but economic change is afoot in the Banteay Meancheay province border town. With an eye on an auto-manufacturing supply chain that leads to Thailand, special economic zones in Poipet are ramping up their marketing, attempting to lure Japanese and Thai manufacturers with promises of cheap labour, lower energy costs and improved infrastructure.

“I believe, in the future, Poipet has the potential to be a manufacturing hub … for producing spare parts to export to assembly plants outside of Cambodia,” said Banteay Meanchey governor Kor Sumsaroeut.

Planned improvements to widen National Road 5, which connects Poipet to Phnom Penh, and the long-anticipated refurbishment of the national railway, which links Cambodia to Thailand at Poipet, means that Banteay Meanchey province can play an important role in an ASEAN supply chain, according to Sumsaroeut.

“I believe that Poipet will become the growth engine of Banteay Meanchey province as well as the nation’s economy,” he said.

Phnom Penh Special Economic Zone, Cambodia’s most-developed SEZ, recently entered into an agreement for 53 hectares near Poipet, with plans to build a zone with $15 million in capital raised with a future listing on Cambodia’s stock exchange.

PPSEZ will be competing with two zones already under development near the Thai border.

“Poipet is located in close proximity to Thailand’s major commercial hubs and Leam Chabang international seaport,” said Chhour Vichet, founder and chief executive of Sanco Poipet Special Economic Zone.

“For this matter, the logistics costs and traveling distances between Bangkok, Leam Chabang and Poipet can be shortened and less costly for transportation,” he said.

Sanco, a joint Japanese-Cambodian SEZ, began construction on its zone in 2013 and is situated about five kilometres from the border. Aside from its administration facilities, the 66.5-hectare zone is currently vacant.

But NHK Spring, a car-seat cover manufacturer and Toyota supplier, will begin construction on its factory inside the industrial zone this month. The Thai manufacturer aims to begin operations early next year and eventually employ up to 1,000 workers. Thai steel fabricator, Sam Chai Steel, is another that is not too far behind.

And the SEZ’s management say it will soon confirm several more occupants, who are likely to follow the early adopters in Poipet.

Thanks to a stable energy supply from Thailand, the company says it can offer a slightly cheaper energy rate, of $0.16 per kilowatt, than what manufacturers at the end of longer distribution networks in the capital would have to pay. And at 53 metres above sea level, the Poipet area is flood-proof – an important sales point that SEZs pitch to manufacturers looking to spread their risk after the damage caused by the 2011 floods in Thailand.

The biggest drawing card, however, continues to be Cambodia’s cheap labour.

According to chief executive Vichet, the average monthly worker cost, including wages and allowances, is about $194.80, which compares to $350 per month in Thailand.

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The O’Neang SEZ lacks the infrastructure needed to lure Japanese manufacturers. Vireak Mai

About 10 kilometres northeast of the city centre is the Cambodian-owned Poipet O’Neang SEZ. Beginning its development more than a decade ago, O’Neang was the first SEZ in the area.

But just like its rival Sanco, there is still a lot of work needed at O’Neang.

Aiming to one day develop 500 hectares of manufacturing potential, the SEZ is isolated at the end of a 5km road they say will remain unpaved until an appropriate suitor emerges.

“We won’t finish the road until the big investor comes,” said the zone’s assistant manager, Thanomsak Sorman.

There are just three active manufacturers in the SEZ: two garment factories and a jewellery box maker. According to Sorman, Thai electronics producer Wireform Precision Parts will be setting up shop next year, but when it comes to luring Japanese investors, the assistant manager says the demands are high.

“They want a water treatment plant, a good road, strong electricity, a supermarket, apartments and Japanese food out front,” he said. “We can’t supply it now, but in the future.”

Critical to Poipet’s industrial prospects is the opening of a trade-only border checkpoint that allows cargo trucks smooth passage across the border. The government announced recently that one will be built by 2018 at Stung Bot, 7 kilometres away from the current international checkpoint.

According to the Poipet sales pitch, the economic prospects are bright, but amongst all the posturing there is still a lot to overcome.

The main road that leads to the checkpoint is still heavily congested, and roads leading to industrial estates remain unpaved. Most in the area have lost hope that the railway line will be up and running anytime soon.

When it comes to customs, the Japan International Cooperation Agency, or JICA, have had a hand in reengineering processes, which will likely bring confidence to investors looking to deal with Cambodia’s notoriously corrupt and cumbersome customs department.

But clearance times are still lagging.

Water and electricity prices will need to come down further too if Poipet is to compete with neighbouring countries for investment, particularly for the sought after Japanese manufacturers.

“Also, now Poipet is not an easy place for Japanese staff,” said Suzuki Hiroshi, chief economist at Business Research Institute for Cambodia.

“It would be necessary to develop the middle-high quality residences and authentic Japanese restaurants.”


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