By Researcher, Sumitro Chair for Southeast Asia Studies
As the U.S. rebalance to Asia gains momentum, the absence of a fully engaged economic and business component is becoming increasingly evident. Nonetheless, the U.S. government has launched several initiatives to bolster economic ties, most recently in Cambodia.
Representatives of several U.S. agencies, including the Department of State and Department of Commerce, visited Phnom Penh in January under the Lower Mekong Initiative to explore opportunities and promote U.S. business. American businesses have made some inroads in Cambodia, and recent government interest in strengthening economic connections is promising.
As Cambodia relies increasingly on China, the time is right for the United States to promote greater commercial engagement with Cambodia, which is expanding rapidly. Prime Minister Hun Sen announced on February 20 that output grew 7.3 percent last year and is forecast to top 7 percent again in 2013. Tourism and garment exports, two of the country’s leading industries, grew by 24 percent and 8 percent respectively. Construction investment surged 72 percent in 2012.
The U.S. Departments of State and Commerce, in addition to the Overseas Private Investment Corporation, the U.S. Trade and Development Agency, and the U.S. Export-Import Bank are promoting an integrated approach in advancing U.S. business opportunities in the region. These steps are positive, but more is needed to strengthen economic relations between the United States and Cambodia. Tariffs on Cambodian goods into the United States were the highest in the world in 2012, at 16.9 percent, while the global average stood at 1.7 percent.
The United States should work with the Cambodian government to help develop the country’s business climate. Cambodia passed an Anti-Corruption law and launched a National Arbitration Center in 2010, though neither is fully implemented. Brett Sciaroni of the American Chamber of Commerce in Phnom Penh says advancing a modern tax code, especially for extractive industries, should be a major priority.
China’s business involvement and influence in Cambodia is growing rapidly. China is the country’s largest investor and donor. China invested $9.1 billion in Cambodia from 1994-2012, a sum eclipsed in January when China Railway Group and Sinomach China Perfect Machinery Industry pledged an additional $11.2 billion The deals, which will extract iron ore and build a rail line, sea port, and steel plant, nearly equal Cambodia’s annual GDP of $14.3 billion.
While Chevron, Ford, GE, and numerous beverage and food companies have made recent deals in Cambodia, the U.S. presence remains largely aid-based. The United States gave $121.3 million to Cambodia last year for initiatives in health, governance, education, and economic growth. Corruption, high operating costs, and human rights concerns, many of which stem from land acquisition disputes, often deter U.S. investors. Garment production and export from Cambodia remains the primary connection between U.S. and Cambodian markets, while infrastructure investments or long-horizon projects remain scarce.
Regional infrastructure links and increasingly integrated markets offer incentives and opportunities for U.S. companies. Cambodia’s infrastructure is woefully lacking, but the demand for improvements is rising. U.S. ventures, which abide by higher labor and regulatory standards, can advance rights and transparency in Cambodia’s business environment. Hong-Phong Pho, desk officer for Vietnam, Laos, and Cambodia at the U.S. Department of Commerce, advises businesses and investors to view Cambodia with a wide angle lens. “Prospective ventures could benefit from seeing Cambodia as part of a larger Lower Mekong region. This is a dynamic and increasingly integrated market.”
China has injected much-needed capital into the Cambodian economy. U.S. companies should explore opportunities to do the same. Cambodia offers untapped and potentially promising business opportunities. The United States government can play a positive role in developing such opportunities for U.S. enterprises, as well as expanding Cambodia’s economic options and promoting the rule of law and the regulatory framework U.S. companies need to invest. This would be mutually beneficial for the United States, Cambodia, and the entire ASEAN region.
This post was prepared by a Researcher in the Sumitro Chair for Southeast Asia Studies.