Prime Minister Hun Manet held discussions with South Korean ambassador to Cambodia Park Jung-wook on August 13. Manet travelled to South Korea in May of this year to meet with South Korean President Yoon Suk Yeol and other senior officials, as well as several high-level members of the South Korean business community.

Since assuming the role of prime minister, Manet has tried his best to attract foreign investment to Cambodia.

He first travelled to China, and then Vietnam, Thailand, France, Malaysia and South Korea to address his strong commitment to attracting foreign investors and to share Cambodia’s position on various issues that are affecting the global community.

Among the ASEAN nations, South Korea has the strongest relations with Vietnam and Indonesia, with Vietnam having the largest exchange of trade. At present, Cambodia and Laos have less of a relationship with Seoul’s powerful economy.

Following the May visit, Manet and President Yoon Suk Yeol signed off on a strategic partnership, the most recent to be introduced by the Kingdom.

South Korea is very important to Cambodia as it welcomes many Cambodian workers and provides education opportunities for the Kingdom’s students and officials, providing high salaries and excellent qualifications.

During Manet’s August 13 meeting with the ambassador, four main points were discussed, with a view to ensuring they will be beneficial to both sides.

The four agenda items were trade and investment, national defence and security, tourism, and people-to-people exchanges between the two countries.

Cambodia should pay close attention to South Korea, as it represents large business opportunities and is also a strong military power, ranked number five in the world.

The four discussion points that the two sides discussed require serious action by the Cambodian government.

It must take note of the fact that the Kingdom welcomes few Korean tourists, and also that there are far fewer South Koreans doing business in Cambodia than in Vietnam.

The first step is to guarantee the continued safety and security of the South Korean diplomats and businesspeople who are in Cambodia right now, as they will share the circumstances on the ground in the Kingdom, thus ensuring the news reaches their fellow countrymen who may want to visit or run businesses here.

The establishment of a Special Economic Zone for South Korean businesspeople would also be an excellent step, and demonstrate the Kingdom’s strong commitment to attracting Korean people.

South Korean citizens and diplomats should understand that Cambodia desires to have their nation as a good partner, and the two countries should hold more discussions and negotiations to further understand one another.

Recent reporting of possible terrorist attacks by North Korean intelligence operatives on South Korean diplomatic facilities in Cambodia, Vietnam and Laos, as well as some parts of China and Russia, are at the forefront of South Korean foreign policy, and the Cambodian government must prioritise the safety and security it provides to diplomatic staff and their families.

In terms of trade and business, the Cambodian government should study the lessons it can learn from Vietnam. Despite Vietnam being a socialist nation and South Korea a democratic one, the two countries are able to successfully invest in one another, so the Kingdom should take note of the details of their relationship.

Read full article at Khmer Times

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2024, Latest Credit Trends in Cambodia Mean for Retail and Small Business Growth.

Understanding the Role of Credit Bureau Cambodia (CBC)

Credit Bureau Cambodia (CBC) has been at the forefront of providing reliable credit data and insights since its inception in 2012. As the only licensed credit bureau in the country, CBC collects and aggregates credit information from financial institutions, offering a comprehensive overview of Cambodia’s credit landscape. Their data is crucial for both lenders and borrowers, ensuring informed financial decisions and fostering a transparent credit environment. For more details about CBC and its services, visit their official website.

Retail Credit Growth: A Mixed Picture

The second quarter of 2024 brought mixed results for Cambodia’s credit market. According to CBC’s latest reports, retail credit exhibited positive growth despite some underlying concerns.

• Retail Loan Accounts Increase: The total number of retail loan accounts rose by 4.75%, reaching approximately 1.92 million by the end of June 2024. The outstanding balance of retail loans also saw a modest increase of 0.67%, totaling $15.31 billion.
• Mortgage and Credit Card Growth: The primary drivers of this growth were mortgage and credit card applications, which surged by 17% and 15%, respectively, from the previous quarter. However, personal finance applications saw a slight decline of 2%.
• Loan Quality Concerns: Despite the overall growth, there was a slight deterioration in the quality of retail loans. The ratio of loans 30 days or more past due (30+ DPD) increased from 6.03% in the first quarter to 6.22% in the second quarter, signaling a rise in overdue payments.

CBC’s CEO, Oeur Sothearoath, commented on the mixed outcomes, noting that while there was a positive trend in retail credit performance, the demand for retail credit decreased in terms of the number and amount of applications.

Small Business Lending: A Declining Trend

In stark contrast to the retail sector, small business lending experienced a noticeable decline in the second quarter of 2024.

• Decline in Loan Accounts: The number of small business loan accounts fell by 1.7%, bringing the total number to around 1.86 million. The overall loan balance barely increased, with only a 0.1% rise, reaching $34.22 billion.
• Decrease in Credit Applications: There was a significant drop in small business credit applications across key sectors, including working capital, asset finance, and construction loans. Applications for working capital fell by 11%, asset finance by 9%, and construction loans by 14.2%. The only positive note was a 2.7% increase in agriculture credit applications.
• Deterioration in Loan Quality: Similar to the retail sector, the quality of small business loans showed signs of strain. The 30+ DPD ratio for small business loans increased from 7.8% in the first quarter to 8.3% in the second quarter. The construction sector was particularly hard hit, with a 15.3% 30+ DPD ratio, indicating increased credit risk.

Regional Variations: Retail vs. Small Business Credit

The CBC reports also highlighted significant regional differences in credit performance:

• Retail Credit: The plateau region saw the highest increase in credit card applications at 46%, while the coastal region led in mortgage applications with a 29% rise. The Tonle Sap area also showed positive growth in retail loan balances with a 2.5% increase.
• Small Business Credit: The plateau region experienced the most substantial decrease in construction loan applications, which plummeted by 65.5%.

Key Takeaways

The credit landscape in Cambodia is showing diverse trends across sectors and regions. While retail credit is growing, driven by mortgages and credit card applications, the small business lending market is facing challenges with declining loan accounts and deteriorating loan quality. Regional variations further complicate the overall picture, suggesting that local economic conditions play a significant role in shaping credit trends.

What do you think about the current trends in Cambodia’s credit market? How do you see these changes affecting the broader economy? Share your thoughts in the comments below, or spread the word by sharing this post with your network.

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The Rise of Foreign Direct Investment (FDI) in Cambodia: A Testament to Economic Confidence and Growth

Foreign Direct Investment (FDI) has emerged as a critical pillar supporting Cambodia’s economic development over the past few decades. The recent surge in FDI flows into the Kingdom not only underscores the confidence that foreign investors have in Cambodia’s economic potential but also reflects the nation’s strides in creating an inviting investment climate. This blog post delves into the factors contributing to the FDI influx, the historical context of FDI in Cambodia, and the implications of this trend for the nation’s future growth.

Historical Context of Foreign Direct Investment in Cambodia

Foreign Direct Investment in Cambodia has a storied history that reflects the country’s economic journey. In the early 1990s, following decades of conflict and isolation, Cambodia opened its doors to the global economy. The country’s shift towards a market-oriented economy, coupled with efforts to stabilize the political landscape, marked the beginning of its FDI journey.

During this period, FDI was initially slow to gain traction due to the nation’s nascent regulatory framework and infrastructure challenges. However, as the government embarked on a series of economic reforms and introduced policies to attract foreign capital, FDI began to pick up. The establishment of the Council for the Development of Cambodia (CDC) in 1994 was a significant milestone, as it became the key agency responsible for promoting and facilitating FDI.

Throughout the late 1990s and early 2000s, Cambodia witnessed a gradual increase in FDI inflows, driven by the liberalization of trade and investment policies. Key sectors that attracted investment included garments, agriculture, and tourism. The garment industry, in particular, became a major recipient of FDI, bolstered by favorable trade agreements such as the Generalized System of Preferences (GSP) with the United States and the European Union.

Factors Driving the Recent Surge in FDI

Fast forward to the present day, and Cambodia is experiencing an unprecedented surge in FDI. According to Sun Chanthol, Deputy Prime Minister and First Vice-President of the Council for the Development of Cambodia (CDC), the country registered 237 investment projects worth over $6 billion in the first eleven months of the new government’s mandate from August 2023 to July 2024. This influx of foreign capital highlights the growing confidence of international investors in Cambodia’s economic prospects.

Several factors contribute to this positive trend:

1. Political Stability and Peace: Cambodia’s enduring peace and political stability have created a conducive environment for investment. Investors are naturally drawn to countries where the risk of political upheaval is low, and Cambodia’s stable government has been a significant factor in its ability to attract FDI.
2. Economic Growth and Stability: Over the past two decades, Cambodia has enjoyed robust economic growth, characterized by macroeconomic stability, controlled inflation, and a stable exchange rate. These factors have helped build investor confidence and make Cambodia an attractive destination for FDI.
3. Improved Investment Climate: The Cambodian government has made concerted efforts to improve the investment climate by introducing a new Investment Law and enhancing regulatory frameworks. These measures aim to make it easier for foreign investors to do business in the country, providing incentives such as tax holidays and streamlined investment procedures.
4. Strategic Geographical Location: Cambodia’s strategic location in Southeast Asia, bordering key markets like Thailand and Vietnam, makes it an attractive hub for investors looking to tap into the broader ASEAN region. The country’s access to major shipping routes also facilitates trade and export-oriented investments.
5. Free Trade Agreements: The implementation of free trade agreements (FTAs) with various countries has further bolstered Cambodia’s attractiveness to foreign investors. These agreements provide preferential access to key markets, enhancing the competitiveness of Cambodian exports and encouraging investment in sectors like manufacturing.

Key Sectors Attracting Foreign Investment

The recent FDI surge has been particularly pronounced in certain sectors, reflecting Cambodia’s evolving economic landscape. According to CDC reports, the manufacturing sector has been the primary beneficiary of FDI, with both garment and non-garment industries receiving significant investments.

1. Garment and Footwear Industry

The garment, footwear, and travel goods industry remains Cambodia’s largest foreign exchange earner and continues to attract substantial FDI. The industry’s growth has been fueled by favorable trade agreements and competitive labor costs. Major global brands have established manufacturing facilities in Cambodia, leveraging its strategic location and efficient supply chain networks.

2. Non-Garment Manufacturing

In addition to garments, Cambodia is witnessing a diversification of its manufacturing sector, with investments flowing into industries such as electronic components, bicycles, auto parts, furniture, leather, and plastic products. This diversification is essential for reducing the country’s reliance on a single industry and creating a more resilient economy.

3. Agriculture and Agro-Processing

Agriculture has traditionally been a cornerstone of Cambodia’s economy, and it continues to attract FDI, particularly in agro-processing industries. Investors are drawn to Cambodia’s fertile land and favorable climate, which support the cultivation of a wide range of crops. The government’s focus on developing value-added agricultural products is also attracting interest from foreign investors.

4. Tourism and Hospitality

Cambodia’s rich cultural heritage, exemplified by the iconic Angkor Wat temple complex, has made it a popular tourist destination. The tourism and hospitality sector has attracted significant FDI, with investments in hotels, resorts, and related infrastructure. The government’s efforts to promote sustainable tourism and enhance connectivity have further boosted investor confidence in this sector.

Recent Developments and Future Prospects

The Cambodian government’s proactive approach to attracting FDI is evident in its ongoing efforts to engage with international investors. In the coming months, a CDC delegation is set to visit China, the United States, Europe, and the Middle East to promote investment opportunities in Cambodia. This outreach is expected to attract even more investors from these regions, further boosting FDI inflows.

Looking ahead, Cambodia’s FDI landscape is likely to be shaped by several emerging trends:

1. Digital Transformation and Technology Investments

As Cambodia embraces the digital age, there is growing interest in investments related to technology and digital infrastructure. The government’s commitment to fostering a digital economy, coupled with the country’s young and tech-savvy population, presents significant opportunities for FDI in the technology sector.

2. Sustainable and Green Investments

With global emphasis on sustainability, there is increasing interest in green investments in Cambodia. The country’s abundant natural resources and commitment to environmental protection make it an attractive destination for investors focused on renewable energy, sustainable agriculture, and eco-friendly projects.

3. Infrastructure Development

Cambodia’s ambitious infrastructure development plans, including the construction of the Funan Techo Canal (FTC) and various road and bridge projects, are expected to attract substantial FDI. These infrastructure investments are crucial for enhancing connectivity, reducing logistical costs, and supporting the growth of key industries.

FDI Trends from 2019 to 2024: A Snapshot

To understand the trajectory of FDI in Cambodia, it’s essential to look at the data from recent years. Between 2019 and 2024, Cambodia experienced a steady increase in FDI inflows, with a notable surge in 2023 and 2024. Here’s a snapshot of investment projects during this period:

• 2019: 222 projects with an investment value of $4.2 billion
• 2020: 238 projects with an investment value of $4.7 billion
• 2021: 276 projects with an investment value of $5.3 billion
• 2022: 294 projects with an investment value of $5.8 billion
• 2023: 317 projects with an investment value of $6.1 billion
• 2024: (up to July) 237 projects with an investment value exceeding $6 billion

This upward trend underscores the growing confidence of foreign investors in Cambodia’s economy, driven by favorable investment policies, a stable macroeconomic environment, and the country’s strategic location.

Conclusion: A Bright Future for FDI in Cambodia

Cambodia’s journey with Foreign Direct Investment is a testament to the country’s resilience, adaptability, and potential for future growth. The recent surge in FDI inflows reflects the confidence of international investors in the Kingdom’s economic prospects and its commitment to creating a conducive environment for business.

As Cambodia continues to implement reforms, enhance its infrastructure, and engage with global investors, the future of FDI looks promising. The influx of foreign capital will play a crucial role in driving economic growth, creating jobs, and improving the standard of living for Cambodians.

However, the success of FDI in Cambodia will depend on the continued commitment of the government to maintain political stability, enhance the investment climate, and address challenges such as infrastructure gaps and skill shortages.

Share Your Thoughts

What are your thoughts on the surge of Foreign Direct Investment in Cambodia? Do you believe this trend will continue in the coming years? How do you think FDI will shape the future of Cambodia’s economy? Share your opinions in the comments below!

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Cambodia’s automotive market is a fascinating reflection of the country’s economic development and cultural preferences.

While new cars have their appeal, used cars remain the dominant choice for many Cambodians. To understand why, we need to explore the current state of vehicle imports, the number of used cars on the road, and the ongoing demand for these vehicles.

Cambodia’s Vehicle Import Data and the Used Car Market

Cambodia imports thousands of vehicles every year, with a significant portion being used cars. According to the latest reports from the Ministry of Public Works and Transport, over 70% of the cars on Cambodian roads are used vehicles. This trend has persisted for years, reflecting the preferences of a large segment of the population.

In 2023, Cambodia imported over 60,000 vehicles, and about 80% of these were used cars, mainly from countries like Japan, the United States, and South Korea. This data highlights a strong market for used cars, which continues to thrive despite the availability of new vehicles. The demand for used cars is not just a temporary trend but a deeply ingrained preference that aligns with the financial and practical realities of Cambodian society.

According to Phnom Penh, in response to the proposed ban on used cars in Cambodia, Prime Minister Hun Manet addressed the issue during the groundbreaking ceremony for the construction of the twin flyovers at the intersection of Hun Sen Boulevard and National Road 2 on June 17, 2024, stating that:

Rejection of Ban on Used Car Imports: Prime Minister Hun Manet stated that Cambodia does not need to ban the import of used vehicles, rejecting a suggestion to impose age restrictions on automobile imports.

Proposal for Enhanced Vehicle Inspections: Instead of banning older cars, Manet recommended strengthening the technical automotive inspection system to ensure vehicles meet safety and environmental standards.

Environmental Concerns: Deputy Prime Minister Aun Pornmoniroth had suggested banning the import of cars older than ten years by 2024 and those older than five years by 2030 to address environmental concerns. Manet, however, dismissed this idea.

Economic Considerations: Manet emphasized that many people, including taxi drivers, cannot afford new cars, making used vehicles an essential option. He highlighted the need to balance environmental concerns with economic realities.

Global Practices: The prime minister acknowledged that some countries have banned the import of used cars to boost their automobile industries, but he argued that Cambodia does not need to follow this approach.

Encouragement for Local Automobile Manufacturing: The government encourages foreign companies to build cars in Cambodia, but these companies must offer affordable and reliable vehicles to compete with used car imports.

No Restrictions on Car Ownership: Manet noted that Cambodia does not restrict the number of cars a household can own and is working on transportation solutions that benefit the population.

Demand for Used Cars in Cambodia

The demand for used cars in Cambodia is driven by several factors, including affordability, availability of spare parts, and cultural perceptions. The country’s middle class is growing, but many still find it more practical and economical to buy a used car rather than a new one. This demand is also fueled by the increasing number of roads and infrastructure improvements, making car ownership more accessible and desirable.

Reasons Why Used Cars Remain Popular

1. Affordability: The Economic Reality for Many Cambodians

One of the primary reasons used cars remain popular in Cambodia is their affordability. The average Cambodian’s income level makes purchasing a new car a significant financial burden. According to the National Institute of Statistics, the average monthly income in Cambodia is around $200-$300, which makes the high cost of new vehicles prohibitive for many.

Used cars, on the other hand, offer a more affordable alternative. A reliable used car can be purchased for a fraction of the price of a new one. This affordability makes car ownership possible for a broader segment of the population, enabling many to enjoy the benefits of personal transportation without overextending financially.

2. Availability of Spare Parts at Cheap Prices

Another critical factor contributing to the popularity of used cars is the availability of spare parts at affordable prices. Cambodia has a well-established market for used car parts, with many shops and dealers specializing in importing and selling these parts. The availability of spare parts ensures that maintaining a used car is not only possible but also cost-effective.

This thriving spare parts market is largely driven by the high volume of used car imports. Many of these cars come from countries with stringent vehicle regulations, meaning they are often well-maintained and have parts that are still in good condition. As a result, Cambodian car owners can easily find the parts they need to keep their vehicles running smoothly, further enhancing the appeal of used cars.

3. Perception of Used Cars: A Practical Choice

Cultural perceptions play a significant role in the preference for used cars in Cambodia. Many Cambodians believe that purchasing a used car is a more practical and financially savvy decision. This belief is rooted in the idea that a used car depreciates less quickly than a new one, making it easier to sell later without incurring a significant loss.

For many, the decision to buy a used car is also influenced by the knowledge that they can recoup a substantial portion of their investment when they choose to sell it. This resale value is particularly important in a market where cars are seen as valuable assets that can be liquidated if necessary.

4. High Costs of New Cars: Import Taxes and Service Fees

The high cost of new cars in Cambodia is another reason why used cars remain popular. Vehicle import taxes and service fees significantly increase the price of new cars, making them less accessible to the average consumer.

As of the latest data, the import tax on new cars in Cambodia can range from 30% to 50% of the car’s value, depending on the engine size and type of vehicle. This is compounded by other fees, such as VAT (Value Added Tax), which adds an additional 10% to the cost. These taxes and fees can make a new car almost double the price of its original value when it arrives in Cambodia.

In contrast, used cars, especially those with smaller engines or older models, are subject to lower taxes, making them more affordable. This significant price difference between new and used cars strongly influences consumer behavior, with many opting for the more economical choice.

5. Limited Availability and High Cost of New Car Spare Parts

Another challenge with owning a new car in Cambodia is the limited availability and high cost of spare parts. New car spare parts are often exclusively available through the car’s official dealership or import company, which can make them expensive. The monopoly on these parts by exclusive importers means that consumers have fewer choices and must often pay a premium for genuine parts.

In contrast, the used car market offers a wider range of spare parts at more competitive prices. Many of these parts are available through independent dealers who import them directly from countries like Japan, where they can be sourced at a lower cost. This accessibility and affordability of spare parts make maintaining a used car more practical and cost-effective for many Cambodians.

Conclusion

The popularity of used cars in Cambodia is driven by a combination of economic factors, cultural perceptions, and practical considerations. For many Cambodians, used cars represent an affordable, reliable, and financially sound investment. The availability of spare parts, the perception of value retention, and the high costs associated with new cars further reinforce this preference.

As Cambodia continues to develop and its economy grows, the demand for used cars is likely to remain strong. The affordability and practicality of used cars make them a sensible choice for many, ensuring their continued dominance in the Cambodian automotive market.

We’d love to hear your thoughts! Do you prefer used or new cars? Share your experiences and opinions in the comments below!

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The highly-anticipated and debated Funan Techo Canal project was launched on August 5th 2024 with the ambitious plan to connect Cambodian waterways over the length of 180 kilometres passing through Kandal, Takeo, Kampot, and Kep provinces at a cost expected to be approximately USD $1,7 billion. It’s one of several large-scale infrastructure projects in the Kingdom trying to shape the economic standing of the country.

The project was announced in 2023 following 26 months of feasibility studies and had a targeted completion date in 2028 when it was announced. However, Hun Manet said in a speech in May 2024 that the project might take 5-6 years to complete while other observers have questions if the project is in fact under-budgeted.

The groundbreaking ceremony was held in Prek Takeo village, Samrong Thom commune in Kandal province’s Kien Svay district, which was presided over by Samdech Moha Bovathibodi Hun Manet, Prime Minister of the Kingdom of Cambodia and First Lady Lok Chumteav Dr. PICH. Chanmony HUN Manet and in attendance were deputy prime ministers, senior ministers, and ministers.

The Funan Techo Canal is a significant project aimed at enhancing the country’s logistics and economic capabilities, so can it deliver on its hype?

Cambodia Celebrates The Canal’s Launch

Just days before the ceremony, it was announced that the day would be celebrated as a national public holiday to mark the occasion, and as many as 10,000 people were expected to attend, with the event marked by the sound of bells, gongs and drums across the country at 9:09 AM.

Two large-scale concerts were held, one on Koh Pich in Phnom Penh and another in Kandal’s Takhmao town while the Kandal provincial administration prepared Kun Khmer, Bokator and other forms of martial arts competitions to mark the milestone. There were also fireworks planned to be held in the capital later in the evening.

What Do You Need To Know About This Major Cambodia Infrastructure Project – Cambodian Funan Tech Canal

FTC Length and Structure

The canal is planned to be 180 kilometres long, connecting Phnom Penh to the coastal province of Kep, ultimately reaching the Gulf of Thailand.

Split into three stages, starting in the Takeo Canal of the Mekong River, the project will pass through Prek Ta Ek of the Bassac River, Prek Ta Hing of the Bassac River, Koh Thom district, and onto the sea in Kep province – in total passing through four provinces (Kandal, Takeo, Kampot, and Kep).

1. First Segment (20km): Connects the main Mekong River to the Bassac River.

2. Second Segment (30km): Follows the natural course of the Bassac River.

3. Third Segment (130km): Connects the Bassac River to the Gulf of Thailand through the port of Kep.

The Funan Techo Canal will be approximately 100 meters wide at the top and 80 meters wide at the bottom with a depth of 5.4 meters (navigation depth of 4.7 meters and safety distance of 0.7 meters), with two lanes designed to accommodate vessels to safely travel in opposite directions and with a deadweight tonnage (DWT) of up to 3,000 tons.

• The project was initially said to include three dams/sluices, 11 bridges, and a 208-kilometre sidewalk, as well as provide navigation assistance and other river-crossing infrastructure.

• It is designed to accommodate cargo ships up to 3,000 tons in the Cambodian dry season and 5,000 tons in the rainy season.

Cost and Funding The Funan Techo Canal

The project is estimated to cost around USD $1.7 billion, with funding primarily from the China Road and Bridge Corporation under a 50-year Build-Operate-Transfer (BOT) model. In June 2024, Prime Minister Hun Manet confirmed that a 51 per cent stake would be held by Cambodian investors.

Around 1.6 million people live on either side of the planned canal and will be impacted. The government said “fair compensation” and resettlement with a similar approach taken with the Phnom Penh-Sihanoukville Expressway will be implemented.

Some reports have suggested that the expected cost is too low and potentially the economic rewards too high.

Pham Phan Long, founder of the Viet Ecology Foundation wrote, “The Funan Techo Canal will be as long as the (Phnom Penh- Sihanoukville) highway but three to four times wider. The canal structure must be engineered to withstand both water pressure and turbulence from moving merchant ships up to 5,000 DWT. That heavy load requires that the canal have a stronger bed than the expressway.”

He added that according to some experts, particularly from China, that a similar 100km canal in China cost over USD $10 billion to develop.

Cambodian Economic Goals Spurred By Canal Development

The Cambodian FTC aims to reduce Cambodia’s reliance on Vietnamese trade routes, potentially cutting shipping costs by 70 per cent and generating significant revenue from tolls.

By reducing the duration, distance, and cost of current transportation; the peripheral economic construction and economic developments and major job creation at the existing Sihanoukville Autonomous Port, Phnom Penh Autonomous Port, and other ports; the project will serve as a flagship for promoting sustainable urban development; promoting real estate growth and the Kingdom’s economic development.

Deputy Prime Minister Sun Chanthol, First Vice President of the Council for the Development of Cambodia, stated in April 2024 that the canal is expected to generate USD $88 million annually in the first year and $570 million annually by 2050, and create approximately 1.6 million jobs as well as boost agricultural productivity through improved water resource management.

These economic windfalls are based on the Economic Internal Rate of Return (EIRR) and Chanthol added that the Ministry of Economy and Finance (or the World Bank) only provides funding to projects if the EIRR calculation is at least 12 per cent, but in the case of the Techo Funal Canal the estimates are for 30%.

The construction would span such a vast length of the waterways, that the government anticipates residual benefits too. These would include:

• The establishment of trade zones and logistics centres

• Development of new satellite cities/areas

• Expansion of development zones for agriculture, irrigation, aquaculture, and animal farming.

This will continue to open up opportunities in Cambodia’s commercial real estate sector.

Strategic Importance

The Funan Techo Canal is seen as a vital project for Cambodia’s aspirations to become a major logistics hub in Southeast Asia. Positioned to facilitate smoother trade routes, enhance connectivity within the country, and attract foreign investment.

The canal will also link to Cambodia’s Sihanoukville Special Economic Zone, which has been a focal point of investment under China’s Belt and Road Initiative (and an area offering real estate incentives to address the unfinished buildings under the Special Investment Promotion Programme for Sihanoukville).

Environmental and Regional Concerns

The Cambodian government has highlighted the potential benefits, but the canal has raised concerns (notably from Vietnam). They have expressed concerns about the environmental impact on the Mekong Delta and that it could have contravened the Agreement on Sustainable Development Cooperation of the Mekong River Basin signed in 1995 by Cambodia, Laos, Thailand, and Vietnam.

Other entities have expressed concerns about the canal potentially enhancing Chinese naval power in the region, primarily due to the likelihood of a Chinese company being involved in its construction but these have been dismissed by the Cambodian government.

Cambodian Prime Minister Hun Manet previously said, “This project is more special than the other infrastructure projects. No project has so far brought such a strong sense of unity to Cambodian people all over the world. Some people may be objecting to this project. Some have been calling for people to stop believing in this project. But this project represents a strong sense of nationalism as it has gained the support of Cambodian people from all walks of life.”

So what are the issues the Funan Techo Canal has raised?

• Environmental Impact: The canal’s construction may disrupt existing ecosystems and alter water flow patterns in the Mekong Delta, potentially exacerbating flooding and affecting agricultural production.

• Geopolitical Tensions: Vietnam has expressed worries about the canal’s implications for its own port traffic and regional security dynamics.

• Feasibility Questions: Critics argue that the projected costs and revenues may be overly optimistic, with some analysts suggesting that the financial viability of the project is questionable.

The Funan Techo Canal represents a bold step in Cambodia’s infrastructure development and is one of many large projects currently under development or seeking public-private funding.

If the development goes ahead without issues or delay, which includes a complex array of economic, environmental, and geopolitical challenges that will require careful navigation, Cambodia will increase its strategic importance as a logistics hub which will challenge its neighbours and could reap benefits for a range of industries. 

Source: http://www.realestate.com.kh

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