SEZ growth slows as economic crisis hits

Saturday the 21st of March 2009

SEZ growth slows as economic crisis hits Print
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Written by NGUON SOVAN AND CHUN SOPHAL
Friday, 20 March 2009

*With the global downturn hitting Cambodia's manufacturing, the
Kingdom's special economic zones are stalling plans for expansion,
officials say.*

090320_13.jpg
* Photo by: KAY KIMSONG *
The Phnom Penh Special Economic Zone, located 8 kilometres from the
Phnom Penh international airport. Many of the country's SEZ's are
feeling the effects of the slowdown, forcing delays.
DEVELOPERS and officials said Thursday that the global financial crisis
has slowed the development of the country's special economic zones
(SEZs), dealing a new blow to an already struggling sector.

Cambodia's 21 licensed SEZs had trouble attracting investment even
before the economic crisis hit and officials say the recession could
lead to delays or closures.

Larry Kao, managing director of the Manhattan Special Economic Zone in
Svey Rieng province, said the facility is operating far below capacity.

"Before the crisis, there were six investors in the zone, but since the
onset of the crisis, we have seen only one more large factory invest."

Located on the Vietnam border, it was expected to boost bilateral trade.

Development of the Manhattan SEZ began in 2005 and phase one has been
completed, including a main road, sub-roads, public lighting, drainage
and a water system.

The project is now going to phase two, which includes a commercial section.

He said that seven factories have been operating in the zone since 2006,
employing 4,500 workers, producing bicycles, hardware, shoes, garments
and wetsuits.

Kao said that development may have to be moved back by two years from
the original target date of 2010.
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Our main problem is that there are no new investors in our SEZ.

------------------------------------------------------------------------

"Investment in the zone is moving slowly, but it is not at a
standstill," he said.

"We planned to finish the development within five years, but due to the
crisis, it could be up to two years behind schedule."
He said that the zone will be capable of housing 30 factories employing
up to 15,000 workers.

Chieng An, governor of Svay Rieng province, said he expected Manhattan
SEZ would be hit by the slowdown.
"Manhattan SEZ is a foreign investment, so it has branches
internationally. It is inevitable that it will suffer from the crisis,
and it's impressive that it has held up as well as it has."

*Delayed projects*
Duong Tech, general manager of Duong Chhiv Group, which is developing a
US$100 million special economic zone in Takeo province on the border
with Vietnam, agreed that the crisis will slow development.

"The master plan says we will complete the project by 2015, but due to
the current crisis, it will take longer than that," said Duong Tech.

"Our main problem is that there are no new investors in our SEZ. If
there are investors interested in the zone, we will speed up our
development, but if there are no investors, we will be more hesitant."

He said that since receiving government approval in 2006, only 10
percent of the infrastructure has been developed.
Kong Triv, the owner of the SNC SEZ in Preah Sihanouk province, also
said that the crisis has hurt development plans.
The SEZ received its licence in 2002 with an initial investment of $14
million on a 150-hectare plot.

"We have no plans to develop the special economic zone," said Kong Triv,
declining to give additional details.
A senior official at the Council of the Development of Cambodia said
that SEZ development has slowed, but that he expects a swift recovery.

"It is normal that a downturn will affect SEZs - there is always an
impact on investors' budgets, but SEZs should focus on the long term to
position themselves for a recovery," said a senior official in charge of
Cambodia's Special Economic Zones, who asked not to be named.

"Currently, there are 21 special economic zones in Cambodia, but only
six are actively being developed," the official said.

Port traffic down by as much as 30% this year

<https://blogger.googleusercontent.com/img/b/R29vZ2xl/AVvXsEgh8yW8DVBodLPsd3jjZt4ghN6l1kJ_XvRLc7xIt_azwusqraxSo0dXu2weFoURxAxseoyOm4Y3-0MT_IK2t4GLGr1hx4U-CuSD1S24PN-AdmeM7QWKe5wwb6uS4TDNqyNwsGJjLOqVkCWz/s1600-h/Freight+ship+in+PPenh+Port+%28Bloomberg%29.jpg>A
freight ship docks at the Phnom Penh Port awaiting a consignment of
cargo in this file photo. A global slowdown in trade has hit heavily
Cambodia's two main shipping terminals. (Photo: Bloomberg)

Thursday, 05 March 2009
Written by May Kunmakara and George Mcleod
The Phnom Penh Post

30% drop in throughput at Phnom Penh Port
Cambodia's second largest container port has been affected more
heavily than Sihanoukville by the global economic crisis during the
first two months of this year

Global downturn hits trade, with flagging construction imports
accounting for the bulk of the losses since January

CARGO shipments at Cambodia's second-largest port have declined sharply
in the first two months of the year as global trade slows, say port
authorities, adding that hundreds of jobs have also been axed in the
downturn.

The Phnom Penh International Autonomous Sea Port reports a 30 percent
drop in throughput, largely due to falling imports of construction
materials, officials told the Post Wednesday.

"The decline is caused by the global financial storm that started to hit
at the end of last year. This affected not only our ports, but also
others in the region," said Hei Bavy, director general of the Phnom Penh
port.

He said that about 90 percent of goods crossing through the docks are
construction materials. With many of the country's construction projects
stopping or on hold, the port says shipments are in free fall.

"Developers are suspending their imports because they face the credit
crunch," he said, adding that staff had been cut from 700 to 400.

"I do plan to cut more staff, but I have reduced salaries to prevent
more layoffs," Hei Bavy said.

He added that the company is also instituting across-the-board cost cuts
to prevent further job losses.

"This affected not only our ports, but also others in the region"

Port traffic is falling globally, with Asia bearing the brunt of the
international trade slowdown. Singapore, the world's largest container
port, said container traffic was down 20 percent, and Shanghai, the
world's second biggest, down 19 percent, according to Bloomberg.

Cambodia's ports are reporting similar troubles, with officials blaming
not only a slowdown in the construction sector, but flagging overseas
garment sales as well.

The Finance Ministry in February reported a two-percent drop in garment
exports at the beginning of the year.

Lou Kim Chhun, director general of Sihanoukville International
Autonomous Port, told the Post Wednesday that he is waiting on figures
for February, but that container shipments were down 20 percent due to
the economic slowdown.

"The crisis has impacted our port revenue, which will hurt the
government's tariff and tax income," Lou Kim Chhun earlier told Rasmey
Kampuchea.

Hei Bavy said that the export of agricultural goods have been one bright
spot for the Phnom Penh Port.

"Agricultural exports have been stable, but I expect the crisis to
affect us for a long time," he said, adding that Cambodians should rely
more on domestically produced goods.

"If our people stop using imported products, it will support local
businesses. The crisis could drain our national wealth if people keep
buying foreign goods."

Deficit a risky business during global crisis

Wednesday, 04 March 2009
Written by George McLeod
The Phnom Penh Post

"Cambodia's trade deficit has increased steadily in the past decade
as imports have soared. In 1998, the country recorded a $364 million
trade deficit that has grown each year since except in 2001 and
2003, years that saw a slight dip, National Bank of Cambodia figures
show. In 2006, the deficit for the year climbed to over $1 billion
for the first time at $1.034 billion and since then has escalated at
an increasing rate. In 2007, the deficit was $1.331 billion jumping
to $1.852 billion last year, according to central bank estimates, as
imports reached $11.47 billion." - Steve Finch

Emerging markets expert Vanessa Rossi of Chatham House, the UK's Royal
Institute of International Affairs, warns Cambodia may require a bailout
due to a rising accounts deficit

Asian leaders maintain that the region is in better shape than other
areas of the world. Do you believe that Asia will escape the worst
effects of the crisis?
Asia has two major problems - current accounts deficits are rising and
trade is in decline.... Over the next six months or so, countries with
current accounts deficits will run into problems.... The second issue is
trade. Trade is falling quickly, and Asia has a high percentage of
exports to GDP - with Western demand falling, this is going to hit Asian
countries hard.

The National Bank of Cambodia said the current accounts deficit may rise
from 11.2 percent of GDP in 2008 to 12.1 percent in 2009. Should that
raise concerns?
That rings bells, and it shows that this is not a regional problem - it
is a problem within certain pockets in Asia. Most Asian countries have
[current accounts] surpluses and large foreign exchange reserves, so
they are not as vulnerable to the problems that were seen during the
Asian crisis. But there are some specific spots that are exposed, and
Cambodia is one of them. Cambodia will find it very difficult to fund
these kinds of deficits with private sector capital flows.

"Its worrying, especially with the cambodian central bank coming out
with those figures."

[Investment] has been buoyant in recent years but this year it is
disappearing very fast. Neighbouring Vietnam had similar problems....
It's worrying, especially with the Cambodian central bank coming out
with those figures ... and it might require an eventual IMF bailout.

Running a deficit
Cambodia's current account balance year-on-year:

* 2007: -8.2 percent of GDP
* 2008: -11.2 pc of GDP (E)
* 2009: -12.1 pc of GDP (F)

E-estimate F-forecast
Source: National Bank of Cambodia

What are the options available to Cambodia?
Depending on the scale of the foreign-debt buildup, one of the options
is to be discussing this with the IMF - a number of countries are
already taking pre-emptive action in talking to the IMF about
assistance, possibly the same with the World Bank, to try to be able to
tide over these capital flows.

Other policies to be considered would cut back the import bill because
you very rapidly need to reduce the trade deficit, so the government may
have to impose some kind of trade restrictions, unpopular even if they are.

Cambodia has run a current accounts deficit for years. Why is it only a
problem now?
Because if you have a deficit, you have to have a counterpart to pay for
it, so you have to have capital inflows that cover this, otherwise the
country runs out of foreign exchange reserves. And you have a balance of
payments crisis. In recent years, there have been very buoyant capital
flows, and investment coming into emerging economies. But unfortunately
with this crisis, many of these flows have not just disappeared, but
they have actually reversed. In this case, it will be very difficult to
get those flows to match continuing trade and current accounts deficits.
So the implications are quite severe.

How long can Cambodia hold on before it needs an IMF bailout?
If you look at the foreign exchange reserves, you can see how many
months of cover the country has.

I think most countries aim to have something like five or six months of
cover to protect themselves, but if you start to run this down, you face
an escalating problem of confidence in your economy.

The central banks need to be very attentive to how much reserves they
have, and not just to use up these reserves but they need to take
pre-emptive measures before they get down to two or three months.

Economist Niall Ferguson predicted that Asian economies could fare worse
than the US. How do you respond to that?
Well, there are pockets in Asia that will have to be extremely careful -
Singapore is already announcing a very big loss of GDP and there are
some very serious problems in northeast Asia with Taiwan, Korea and
Japan likely to be far worse than the US. And, of course, there are
pockets like Cambodia and Vietnam that may not be able to resist the
financial problems, as well as the trade problems. In that sense, it's
quite possible, and quite ironic, that the crisis originated in the US,
but may hit hardest in other regions.

I think that many people realise that this wasn't just a US financial
problem, there are genuinely difficulties with the debt situation that
has built up in other areas of the world. Its not the housing market
that's the biggest problem in Cambodia, but certainly this buildup of
external debt and a dependence on capital flows is a huge risk.