The 2 nd Mekong Republic of Korea Business Forum Strengthening - - PowerPoint PPT Presentation

CAMBODIA - UPDATING INVESTMENT AND BUSINESS ENVIRONMENT AND OPPORTUNITIES FOR

ENHANCED CONNECTIVITY OF VALUE-SUPPLY CHAINS IN THE MEKONG SUB-REGION

SOK SOKEN

Deputy Director, Private Investment Strategy Analysis Department Cambodian Investment Board (CIB) Council for the Development of Cambodia (CDC) KINGDOM OF CAMBODIA

The 2nd Mekong – Republic of Korea Business Forum

“Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region” Hanoi, VN, 29 March 2014

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Table of contents

• Putting everything into perspective
• GVC, GSC (external forces, trends)
• Regional initiative (ASEAN, APEC)
• Sub-regional initiative (GMS, BIMP-EGA, IMT-GT)
• Current Investment and Business environment
• FDI Policy regimes
• Investment data
• Investment promotion materials (including G-PSF)
• Updates on investment and Business environment
• Supply chain Infrastructure and Cross border infrastructure (CBI)

– (hard [transport and energy] and soft [border administration, etc.])

• G-PSF and outcomes
• Opportunities for enhanced connectivity of value-

supply chains in the Mekong sub-region

• Domestic value chain – downstream (agro processing for

rice, rubber, cassava, maize)

• Domestic value chain – upstream (parts and components

for domestic industry, Fabric production for garment)

• Regional value chain – (miniature motors, wire harness,

ignition parts, INTERMEDIARY goods)

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

I - Putting everything into perspective

GSC & GVC

(80% of global trade, WTO)

Economic trend: emerging markets, BRIC, ROK, Africa (patterns of

• utsourcing and
• ffshoring)

Ecological trend: awareness of env. issues (scarce resource costs and supplies) Regulatory trend: new rules (CSR, sustainability) Natural disasters (disruptions to key component supplies) Demographic trend (demographic structure changes demand preferences) New technological trend (new business models/platforms)

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Source: Chang et al. (2012), APEC Policy Supporting Unit Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

I – Putting everything into perspective – Regional and sub-regional

initiatives

• To enhance scalability and expand market through improving supply chain connectivity

across borders and improve business environment behind the border: cost, time and uncertainties for trade

• Regional
• ASEAN – CBI Development
• Physical Connectivity
• Transport projects - 9 regional transport agreements (air freight, goods in transit…), ASEAN Highway networks [38,400km],

Singapore-Kunming Rail link [7,000km]

• Energy sector projects (ASEAN Power Grid – 14 interconnection projects, trans-ASEAN Gas pipeline – 8 gas interconnection

projects)

• APEC
• Supply Chain Connectivity Framework Action Plan
• Supply Chain Visibility Initiative (reduce logistics and warehousing costs)
• Sub-regional
• GMS
• 10-year Strategic Framework – increase connectivity and competitiveness(11 programmes and 3 economic corridors)
• Cross-border Transport Agreement (CBTA) – facilitates [single stop custom inspection, movement of people, road

standards and signage, transit traffic regimes]

• BIMP-East Asia Growth Area
• IMT – Growth Triangle
• Pan-Asia Infrastructure initiative: Asian Highway
• CHALLENGES to supply chain connectivity
• Gaps in economic and infrastructure development (asymmetric distribution of regional infrastructure)
• Too many different regulatory requirements

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

II – Investment and business environment in Cambodia

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Embracing globalization process – outward looking

economic development strategy

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JOINING WTO JOINING ASEAN Everything But Arms (EBA) ASEAN Economic Community

Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Assessment of FDI Policy Regimes based on legal documents - ASEAN

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+ High score indicates open FDI policy regime + Singapore is very open + The Philippines, Thailand, Indonesia and Cambodia are relatively open + Myanmar, Malaysia, Brunei and Lao, PDR are relatively closed.

Source: Urata and Ando (2010) Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Investment environment in Cambodia

1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 e GDP 9.20 6.50 5.30 5.70 5.00 12.6 9.20 7.70 6.20 8.60 10.0 13.3 10.8 10.2 6.70 0.10 5.90 7.10 7.30 7.60 Inflation 17.9 3.50 10% 9.20 13.3 4.00

• 0.8

0.20 3.30 1.20 3.90 5.80 4.70 5.9% 19.7

• 0.6

4.00 4.90 3.00 4.00

• 5.00%

0.00% 5.00% 10.00% 15.00% 20.00% 25.00% 0% 2% 4% 6% 8% 10% 12% 14%

z

Source: SNEC & MEF

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Rectangular Strategy Phase III - Growth, Employment, Equity and Efficiency

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Encouraged Investment Activities

• Agriculture and agro-industry
• Transport and telecommunications
• Energy and electricity
• Labor-intensive industries, processing and manufacturing;
• Tourism
• Human resource development
• Oil & Gas, Mining
• New high value-added and more creative industries
• Heavy industries
• Assembly, electronics and spare parts manufacturing

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Council for the Development of Cambodia (CDC)

Investment application

CDC issues a Conditional Registration Certificate (CRC) to the Applicant

 Company Registration / Ministry of Commerce  Relevant licenses, as appropriate / Ministry of Industry and Handicraft  Review and approval of construction plan / local authorities-  Ministry of Land Management, Urban Planning and Construction.  Initial environmental impact assessment / Ministry of Environment  Tax Department Registration / Ministry of Economy and Finance

CDC issues a Final Registration Certificate (FRC) to the Applicant

3 working days

28 working days

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Incentives

Non-fiscal incentives

• No nationalization
• No requirement of local equity

participation

• No discrimination between foreign

and domestic investors (except land

• wnership)
• No restriction on capital repatriation
• Special accelerated depreciation for

reinvestment of profit

• No foreign exchange control
• No price control and quantitative

trade restriction

Fiscal incentives

• Low corporate tax at 20%
• Exemption on import duty and export tax
• Production equipment and Construction

materials imported by Qualified Investment Project (QIP)

• Production inputs imported by Export

QIP

• Profit tax exemption –
• Trigger period 0-3 years + Grace

period 3 years + Priority period 0-3 years determine by Financial Management Law

• Up to 9 years (Agriculture, Heavy

Industry [>5m] and infrastructure [>30m] )

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Accumulated Investments (1994-2013)

9,611 4,405 3,649 2,620 1,524 1,294 1,021 899 870 786 391

• 2,000

4,000 6,000 8,000 10,000 12,000 China Korea EU Malaysia Vietnam USA Taiwan Thailand HongKong Singapore Japan

US$ Million

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Agriculture 10% Industry 29% Service 17% Tourism 44%

Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Investment by Mekong sub-region countries and ROK

2009 2010 2011 2012 2013 Jan-Apr 2014 Korea $120,135,261 $1,063,407,238 $163,249,209 $293,288,856 $85,150,716 $44,085,480 Vietnam $352,085,036 $153,252,238 $690,973,515 $84,754,552 $279,661,413 $2,641,181 Thailand $182,899,276 $2,044,408 $8,207,022 $125,831,610 $216,653,329 $16,699,385 $0 $200,000,000 $400,000,000 $600,000,000 $800,000,000 $1,000,000,000 $1,200,000,000

Investment from Korea, Vietnam, and Thailand in Cambodia

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Rank

2008 2009 2010 2011 2012 2013 $11,420,127183 $6,309,435,594 $3,029,497,634 $7,984,908,645 $2,965,537,652 $3,314,528,763 Country % Country % Country % Country % Country % Country % 1 China 39.45 Cambodia 60.81 Korea 35.10 U.K 30.93 Cambodia 42.08 Cambodia 68.80 2 Cambodi a 36.73 China 14.93 China 28.73 Cambodia 29.76 China 20.69 China 15.68 3

Korea

10.89 Vietnam 5.58 Cambodia 14.91 China 22.05 Korea 9.89 Vietnam 6.10 4 USA 5.59 Singapore 4.81 Malaysia 8.53 Vietnam 8.65 Japan 9.15 Thailand 4.37 5 Israel 2.63 Russia 3.84 Vietnam 5.23 Malaysia 3.03 Malaysia 6.04 Korea 1.76 6 Russia 0.92 Thailand 3.53 Portugal 1.66 Korea 2.10 Thailand 4.53 Japan 1.59 7 U.K 0.59 Korea 2.89 Australia 1.65 U.S.A 1.78 Vietnam 2.89 Malaysia 1.04 8 Austria 0.54 India 1.90 Singapore 1.02 Japan 0.83 Singapore 2.59 Singapore 1.03 9

Vietnam

0.51 Malaysia 1.19 Denmark 0.97 Australia 0.31 U.K 0.51 UK 0.43 10 France

0.50 Japan 0.20 Japan 0.86

Singapore

0.20 U.S.A 0.42 France

0.27 11 Others

1.28 Others 0.32 Others 1.35 Others 0.35 Others 1.21 Others

0.96

Investment Ranking (2008-2013)

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Reasons to invest in Cambodia

• Political stability and open economy
• Sound Macroeconomic Environment
• Competitive Investment Incentives
• Young and dynamic labor force (median age: 24 years old)
• Low Labor Cost
• Strategic Location
• Preferential Trading Status
• Market access to major world markets on duty-free quota free basis

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

III – Updating investment and business environment in Cambodia

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Infrastructure - Improvement of domestic and cross border connections

• Phnom Penh – Ho Chi Minh City

Expressway Plan ( travel time and cost savings, bilateral trade up 40%, border crossing up 53%, special border economic zones creating jobs)

• Bridge

(Nek Leoung Bridge, Cambodia and China Friendship Bridge,…) and road constructions ( National Road number 5, and 6,…) are being built.

• New Phnom Penh Port is built and
• perated with capacity 150,000 TEUs,

will be expanded to 300,000 TEUs by 2015, and 500,000 TEUs after 2017.

• Sihanokville Port has one jetty and

two wharfs:

 The old Jetty have two berths for 10 000

DWT and 7 000 DWT vessels at a time. 18

Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Infrastructure – Special Economic Zone

• From 1994 to 2014: 34

SEZs have been approved which has 92 factories are being operated.

• An informal Bilateral

Meeting

• n

Cambodia- Thailand Joint Special Economic Zone Development Cooperation for the Border areas of Bantey Meanchey-Sa Kaeo and Koh Kong-Trat.

• A new SEZ will be

established near by New Phnom Penh Port, and this project is under preparatory survey by JICA.

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Infrastructure

Power Supply

• By 2013, Cambodia has electricity supply

about 1100MW.

• Cambodia will get power supply from

hydroelectricity dam 584 MW by 2015 and coal power plant 505MW by 2016.

Cross-border transportation

• Royal government signed and ratified to 17

annexes and 3 protocols under Cross Border Transportation Agreement (CBTA).

• Bilateral

agreement with neighboring countries:

• With Vietnam: 500 vehicles ( 98 trucks )
• With Thailand: 40 vehicles ( 4 trucks )
• With Laos PDR: 40 vehicles

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

• In the process of revising the law on investment (1994) and

the law on the Amendment to the Law on Investment (2003)

• Establishing of the law on Special Economic Zone (currently
• nly in the form of sub-decree).
• Drafting on Industrial Development Policy 2014-2020

Policy and regulatory framework

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

• Strengthening harmony in industrial relations between workers,

employees, and employers through adoption of the law on trade union, updating labor law.

• Mechanism for reviewing and setting minimum wages.
• Adopted sub-decree on Cambodian National Qualification Framework.
• Updating the education strategy plan, master plan on ICT in education

and policy on Research Development in Education.

• Enhancing human resource capacity in science, technology and

vocational training, in priority sector: agriculture, industrial, energy, ICT, infrastructure, engineering, and health care.

Labour market

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Business consultation Government-Private Sector Forum (G-PSF)

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Government Private Sector Forum (G-PSF) (Chair by Prime Minister) Sectoral Consultative Mechanism (MEF/CDC) Technical Working Groups:

• 1. Agriculture and Agro-Industry
• 2. Tourism
• 3. Manufacturing and Distribution
• 4. Legislation, Taxation and

Governance

• 5. Services, including Banking and

Financial Services

• 6. Energy, Infrastructure &

Transport

• 7. Export Processing & Trade

Facilitation

• 8. Industrial Relations
• 9. Paddy Rice and Milled Rice

10.Mine and Energy Policy and Strategy Mechanism Steering Committee for PSD (MEF/MOC) Sub-committee of Investment Climate and PPI MEF/CDC (World Bank) Sub-committee of Trade Development and Trade-Related Investment MOC (World Bank/UNDP) Sub-committee

• f SME

MIME (ADB)

Development Partners of PSD Coordination Mechanism (World Bank) Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

Outcomes from the 17th Government-Private sector forum held on March 4th, 2014

• Further reduction of 20% of the scanning fee is approved. Scanning fee for 40ft

container will decline from USD 40 to USD 32 and for 20ft container will decline from USD 25 to USD 20. The Ministry of Economy and Finance will prepare Prakas for implementing this by 1st April 2014.

• An inspection on export goods for risk management will be done to the maximum

at 2% (formerly 5%) of total containers for exporting to trade partners

• Incentives on the import of raw materials for producing luggage, handbag and hat

and similar products for export as provided to the garment and footwear industries.

• Approved on the establishment of Cambodia Rice Federation (CRF)

Business consultation Government-Private Sector Forum (G-PSF)

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region

IV – Opportunities: 3 strategic paths

1.

Upstream value- added

• Bicycle parts
• Fibre, yarn, fabric

production for garment manufacturing 2.

Downstream value-added

• Higher value added

for agro-industry 3.

Involve in regional production chain

• Wire harness
• Motor bike ignition
• Miniature motors

There are 12 out of 92 factories which are focusing on spare-part, assembly, electric, and bicycle in Special Economic Zones.

25 1998 2012

Source: Atlas of Economic Complexity

Type

Cultivated Area (2013) Yield (2013)

• Cult. Area (2018)

Yield (2018) Rubber 328,771 ha (P. estate17%, ECL 41%, smallholder 42%) (Mature: 78,493ha) 85,244 tons >420,000 ha 400,000 tons Paddy 3,052,420 ha 9,389,961 tons 3,34 million ha 10,85 million tons Cassava 377,239 ha 7,933,381 tons N/A N/A Corn 180,327 ha 848,450 tons N/A N/A

Thank you

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Strengthening Value-Supply Chains Connectivity in the Mekong Sub-region