Cambodia - The Little Nation That Could
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If you enjoy a good underdog/comeback story then you will love Cambodia.
To say that Cambodia has been put upon would be an understatement of epic proportions. During the Vietnam War the United States dropped more bombs on Cambodia than were dropped by the Allies in all of World War 2, which was followed by four years of horrific genocide at the hands of the Khmer Rouge. With a lot of help, Cambodia has been on an impressive road to recovery. Infant mortality rates have dropped dramatically and incomes are rising. Tourism is booming, helping to fuel development and infrastructure improvements. English is widely spoken here, especially by the young and urban.
No longer a sideshow
Cambodia’s strategic location at the crossroads of Southeast Asia, once a curse, is now proving to be a blessing. Wedged in between two of Asia’s economic powerhouses, Thailand and Vietnam, and blessed with an abundance of natural beauty, resources, cultural charm, beautiful beaches and the magnificent Angkor Wat, Cambodia is now experiencing something of a renaissance. Cambodia’s infrastructure got a boost in the 90’s with a massive influx of foreign aid and improvements continue as Cambodia’s industry and tourism segments continue to expand. According to the International Monetary Fund, Cambodia's yearly average GDP growth rate over the last ten years ran close to 8%.
The tourism sector alone in 2011 contributed 5.6% ($1.8 billion) to Cambodia’s GDP. Visitors to Angkor Wat made up roughly half of those visiting the Kingdom, totaling 1.6 million, up from 1.3 million the previous year, a figure which has more than quadrupled between 2003 and 2010.
Open season on fashion
Cambodia’s 1994 Law on Investment relaxed restrictions on foreign investment, opening all sectors of the economy to foreign investment, and permitting 100% foreign ownership of businesses in most categories. As a result, Cambodia has become an attractive source for garment manufacturing for brands like J. Crew (NYSE: JCG), Banana Republic (NYSE: GPS) and Levi's. Garment manufacturing currently represent more than 70% of Cambodia's exports, totaling $1.14 billion in Q1 of 2012, a 17% rise over the same quarter of the previous year. Despite ongoing economic problems in Europe and the US, garment exports have risen 34% to those markets, causing the World Bank to raise Cambodia’s GDP Outlook for 2012.
Embracing diversity
Cambodia is making moves to diversify, seeking investment to further develop rubber and rice production. China has stepped in with capital to develop the nation’s hydro-electric infrastructure with the intention of importing energy to its southern provinces. Cambodia recently signed 10 MOU’s with Chinese companies to export 60,000 tons of rubber, 500,000 tons of rice, one million tons of cassava, and 3,500 tons of black pepper. China currently accounts for about half of Cambodia’s FDI.
In a sign that Cambodia’s workforce is developing into more technical, and higher value production, the Japanese precision component manufacturer, Minebea, recently announced it will build a Y5 billion component factory near the capital, and earlier this year Ford Motor Company (NYSE: F) began assembling the 2012 Ford Everest SUV in Cambodia with parts brought in from Thailand, which Ford is selling locally. According to Ford’s Asia Pacific regional manager David Westerman, the company “saw a strategic opportunity where the Cambodian market is growing and we see great potential here.”
The voice of a new generation
One of the consequences of Cambodia’s past is that 50% of the population is under 22, creating a strong youth culture that is open and eager for change and a better life with more choices. These young people are making more money, are more heavily influenced by western and pop culture, and are more consumer-oriented than previous generations. But growth will be unencumbered by the need for an extensive retirement and health management system, very similar to Vietnam’s.
This demand is being met by more and more western brands coming into the market. The ubiquitous Coca-Cola (NYSE: KO) markets the good life to Cambodia’s youth as well as being a major provider of fresh water. Other favorites from the west with a foothold here include KFC (NYSE: YUM) and Swensen’s. Cambodia is regarded as having one of the most open media environments in Southeast Asia. International ad agencies and market research companies have opened shop in recent years as well.
Media matters
Roughly 99% of Cambodians own a television. From the grandest estates to tin shanties in remote villages, the boob tube flickers from every doorway. Internet penetration is low with just 55,000 subscribers, but it is on the rise and projected to grow at 22% annually with the introduction of wireless broadband networks.
Cambodia has surprisingly good access to communications technology, with 3.5g mobile access readily available and reasonably priced. According to Cambodia’s Minister of Post and Telecommunications, So Khun, investment in the nation’s telecommunications infrastructure totaled $1.5 billion in 2010.
Mobile penetration in Cambodia in 2012 was over 85%, or roughly 13 million subscribers. Local and foreign companies are eagerly seeking to expand market share here, and with so many providers, subscribers have a wealth of options at competitive rates.
The mild East
While still a wild frontier, Cambodia is quickly becoming an increasingly integral and relevant player in Indochina. China remains Cambodia’s largest trade partner, with other regional interests like Korea and Vietnam setting up operations in everything from power generation to rubber. Cambodia uses the US Dollar, making it attractive to Japanese investors as the Yen has appreciated more than 9% against the dollar year to date while also making it vulnerable to U.S. fiscal and monetary weakness.
The outlook for Cambodia remains good as efforts continue to diversify the economy and expand regional cooperation. The Asian Development Bank (ADB) forecasts Cambodia's Gross Domestic Product (GDP) will grow 6.5 percent this year. In September 2010 Prime Minister Hun Sen announced plans to build a 555 meter tower on Phnom Penh’s Diamond Island. For those of you keeping track, that would make it the tallest building in Asia, and the second tallest in the world, just behind the Burj Kalifa in Dubai. Yes, you read that right. It remains to be seen whether the project is feasible or whether the announcement was merely a public relations ploy to generate headlines and boost Hun Sen’s image as the man Cambodia needs to realize its dreams for a better future.
PeterPham8 has no positions in the stocks mentioned above. The Motley Fool owns shares of Ford and The Coca-Cola Company. Motley Fool newsletter services recommend Ford, The Coca-Cola Company, and Yum! Brands. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.If you have questions about this post or the Fool’s blog network, click here for information.
