H.E. Sok Chenda Sophea
The new Investment Law has reinforced the role of the CDC as the one-stop shop for investors. Could you tell us more about the organisation and the goals of the Council for the development of Cambodia?

In 1993 the first general elections were organized in Cambodia with the assistance of the United Nations and other countries; a government with a multi-party representation at the National Assembly was formed. Very quickly, this government realized that coordination and optimization of the inflow of capital getting into the country was needed. In this context, the government created the CDC (Council for the Development of Cambodia). This structure has two operational arms; one is the CRDB (Cambodian Rehabilitation and Development Board) which is taking care of aid mobilization and aid co-ordination, to sum up, they are in charge of Official Development Assistance (ODA). The second board being set up was the Cambodian Investment Board (CIB). The CIB is an Investment Promotion Agency (IPA), which is quite common in this region; in Thailand and in the Philippines they are called BOI, in Malaysia MIDA (Malaysian Industrial Development Authority), in Singapore EDB (Economic Development Board) and in Vietnam it is the Ministry of Planning and Investment. The purpose of all those IPAs is to facilitate the operation of foreign investors by helping them to sort out bureaucracy, red tape and other procedures and to provide them services.

In 1994, at the same time as the CDC was created, Cambodia promulgated the Law on Investment. Unlike in other countries, where such kind of law is called Foreign Investment Law, in Cambodia we called it Law on Investment to send a strong message to foreigners that we do provide national treatment to all investors. In fact, when it comes to do business in Cambodia, foreigners have the same rights as nationals; you can own and operate 100% any kind of business for instance, and which shows how liberal our investment policy is compared to other countries. The only difference in treatment between nationals and foreigners is regarding the ownership of land; according to the Cambodian constitution, ownership of land is reserved to a national person or a national entity. When we say Cambodian companies, we understand a company with at least 51% of the shares being held by a Cambodian.

Since the creation of the CDC and the adoption of the Law on Investment, the CDC through the CIB is supposed to be the one-stop-shop on matters of private investment. The fact is that since 1994 up to today, this role of one-stop-shop was not effective; during this period the investor had to come to us but also to several other bodies involved in the decision-making process such as Ministries and local or provincial authorities. Now, with the new law, the investor will come to the CDC, present its project and apply to us on the same way. The innovation lies in the role of the CDC to secure, on behalf of investors, all necessary permits, licenses and authorizations from other ministries. For example, in the case of a hotel, the CDC will have to get the building permits from the Ministry of Land Management, Urban Planning and Construction, obtain the authorization from the Ministry of Environment and acquire the authorization from the Apsara Authority in case it is a hotel in Siem Reap. This way the CDC will become a real one-stop-shop.

There is an other important point to underline, in the text according to the new law, the CDC will not anymore review or evaluate submitted applications; the law is already adopted but the implementing sub-decree still need to be adopted and signed. All this information is present on our website; so if you are anywhere in the world and you have a project, you just have to go to this Internet site and by reading that law and sub-decree you will know exactly whether your project is eligible for incentives and how many years of tax holidays you can be granted. If your project meets the requirements of the law, nobody in the CDC can reject it. Somehow, submission of an application at the CDC means automatic approval. The key words are transparency, predictability, and automatism.

Since 1998 the amount of foreign investment and registered companies through the CDC has been decreasing. Nevertheless, the year 2002 is showing an increase. Could you tell us more about the investment climate in Cambodia?

Figures may lead you to the wrong conclusions or wrong analysis. Let me elaborate on this; first, the figures that you are referring to are the figures of projects submitted to the CDC, which do not reflect the whole economic activities of the country. Why? Because people who came to the CDC are dealing with activities that are eligible for special incentives, but there is a list of activities which are not eligible for incentives such as banking activities; insurance; press; wholesale and retail; airlines; travel agencies. So when all those professional services want to operate in Cambodia, they register and ask for licenses or permits to the Ministry they depend on. To conclude, many activities that are booming in Cambodia are not reflected in the CDC figures and therefore these latter are not reflecting the reality of the investment climate in the country.

What has been the evolution of the Foreign Direct Investment in the last 5 years?

From 1994 to 1998 we had indeed a clear growth and from 1998 a decrease on FDI could be observed, due in part to the Asia financial crisis and other internal crisis. But this picture is not that correct as, even though in the first years we were having a lot of applications, the implementation rate was very low; maybe around 20% of the total pledges were effectively implemented. The adoption on December 29th 1997 of the sub-decree number 88, signed by the Prime Minister, arranged a few administrative matters and within this latter a clause state the following: "In order for the applicant to receive its license, he has to pay a deposit of 1.5 - 2 % of the planned investment, and then, when you have implemented 30% of your project, the CDC will refund this deposit". From that moment on, although the number of applications dropped, the real rate of implementation reached 90 to 95%.

Thanks to this new regulation, we also got rid of the "middleman" as there were people presenting a project and once they obtained the license, they sold it to foreign investors without us knowing anything about it. Another measure we have introduced is that once you pay this deposit and undertake no action for 6 months, the deposit is considered automatically state property. Of course, when a company has a sincere reason of delay, we do not take this amount, there is no intention of speculation. But I think it is a fair measure to ensure the seriousness of the projects.

Last but not least to understand this figures you also have to consider that since 1996, when we signed several agreements with the US and the EU which open those markets to our garments industry, there have been all of a sudden a "mushrooming" of garment factories. Later on, in 1999, garment items from Cambodia were subject to quota; not all items, only twelve, but the key ones were under quota. Cambodia became then less attractive as compared to its previous situation. We can consider that investments in the garment industry have doped these figures for previous years.

What are the main changes in terms of investment procedure and facilities with regards to 1994?

As you know, Cambodia is still relying a lot on foreign assistance and two years ago we realized there was a trend of decreasing ODA. Of course, there are always other countries in need of help like East Timor, Afghanistan or currently Iraq. The government knows that ODA will not be here forever; Cambodia has to rely on other sources and one of those is definitely FDI. The government has been then thinking how, not to attract but to be

How can we compare ourselves with neighboring countries if Cambodia has weak points such as poor infrastructure? Of course there are strong points. When it comes to development the Cambodian economy has several assets. The tourism industry with the entire cultural heritage and a beautiful nature including the seaside; the traditional agricultural sector with abundant land and a surplus of workforce; we also have industrial activities and a strategic location of the country in the heart of South East Asia. Presently, there is no more local market everything is regional or global. So even if the Cambodian market might not be interesting because of its size, it still is interesting to install a production plant here and export regionally or globally. I am convinced Cambodia is able to produce parts of a chain of production for exemple (automotive parts, TV sets, etc.). Then we can ship them elsewhere in Thailand or Malaysia. We can even receive all the parts of a product and assemble them here taking advantage of tariff rates, and then ship them to other markets.

With regards to the agriculture, I am trying to convince everybody in the government that Cambodia, because of its size and its stage of development, has to target a niche market, thinking in terms of high quality. For instance, Organic Food is easy in Cambodia, we are so poor that we don't have money to buy fertilizer, god bless us. I am serious, we don't have money to buy fertilizer, good, let's go for organic. We transform this disadvantage into an advantage. For everything we undertake, we have to go for a niche market and I will work like crazy for this concept. Take a look at rice production; we are between the 1st and 2nd exporters in the world, Thailand and Vietnam, if we do the same rice as them, in terms of export we cannot compete, as we don't have the economy of scale and our price per ton won't be competitive. There is always space for a new product and we have to concentrate on that.

You also have to consider that Cambodia is a young country. We have had just a few years of peace and stability and of course many structures are not in place. Once again I would like to turn this disadvantage into an advantage; this means that we are able to comply easily with rules and legal frameworks from outside (i.e. WTO regulations) as our structure is easily adaptable. This is not the case for other countries that have been developing for a few years now and have more difficulties adapting to new structures.

The man behind the structure also interests us, can you tell us more about your career path?

I was born and raised in Cambodia. I obtained my french baccalaureate at the age of 17, in 1974. In Cambodia, it was already wartime with the Khmer Rouge bombarding every day the city. That same year I went to study to France. In April 1975, when Phnom Penh collapsed and the Khmer Rouge took power, I found myself in France with no nation, no ambassador, no money, no family, nothing at all. I managed to survive and finished my studies of Economics. It was very tough but also a good learning experience. I had never made a decision before but from April 17th 1975 on, my future was in my hands and I started to become a manager; I managed my life and then I managed companies and now I manage the CDC.

I remained in France for 17 years where I worked for 5 different companies in 5 different fields. My last job was as General Manager of a French advertising company, from 1987 to 1992. Once the Berlin Wall fell in 1989, I realized that the situation in Cambodia may evolve and it was time for me to prepare myself to come back, as ever since I left Cambodia in 1974 I knew I had to come back. I never asked for French citizenship; and I have only a Cambodian passport, whenever I go to France I have to ask for a visa. In 1991, with the signing of the peace agreement in Paris, I went to my Chairman to discuss about my replacement and one year later in 1992, I arrived in Cambodia. From 1993 to 1997 I was Undersecretary of State for Tourism, and since 1997 I am the Secretary General of the CDC.

As main responsible for the investment in this country, what would be your final message to investors willing to come to Cambodia?

Investors will hopefully login your site, will look at your work and will get interested about Cambodia. People should bear in mind that if you look at Cambodia, you should consider it is within a transitional period. Ten years back I would not be able to speak with you at this moment of the day (6 P.M.) as there was no electricity. Of course there are still shortages but work is in progress. We have a lot to do yet, but what we are doing now is to lay the foundations; infrastructures are being built and human resources are being educated, nothing is obvious, but bear in mind that work is in progress.
HISTORIC

In 1994, the Law on Investment of the Kingdom of Cambodia was passed with the aim of streamlining the investment regime and providing generous and competitive concessions for direct private sector investment. This Law also created the Council for the Development of Cambodia (CDC), a one-stop service organization for investment in Cambodia. The CDC, being the highest decision-making level of the government on private (CIB) and public (CRDB) Investments, it is directly chaired by the prime minister. Its board is composed of all ministers of the Royal Government of Cambodia.

The Cambodian Investment Board (CIB), has been designated as the one-stop service of the government, its main task is to effectively promote and facilitate investment trough a speedy approval procedure and very competitive incentive packages. The final objective of this policy being to create employment, increase national productivity and competitiveness to achieve a sustainable socio-economic development.
GOVERNMENT POLICY

Cambodia is one of the poorest countries in the region and international assistance remains a vital component in overcoming the challenges faced in Cambodia's development. Nevertheless, private sector investment is becoming increasingly important for the country as the private sector assumes its position as the main engine for economic growth in Cambodia. The Royal Government of Cambodia sees private sector investment as vital to the development of a fully democratic and prosperous Cambodia in the years ahead.
INTEGRATION INTO REGIONAL AND WORLD ECONOMY OF CAMBODIA

Cambodia has obtained "Generalized System of Preferences (GSP)" and "Most Favoured Nation (MFN)" status from its major trading partners, including the European Union, the USA, Japan, Canada, and Australia. Cambodia also participates actively in the GMS development and is part of the ASEAN since 1999. Furthermore Cambodia is the first LDC to have integrated the World Trade Organisation in September 2003. The remaining objectives to achieve are the following:

· Integration to the AFTA/CEPT
· AIA
ACCESS TO SOURCES OF FINANCEMENT

Apart from facilitation and support at the national level, attention is also being given by the government to opening up access to international sources of finance for private sector investment. Cambodia is already affiliated to the IFC and MIGA. It has also signed agreements with the ADB, providing private sector investors with the opportunity to obtain funding for their investment projects from this international financing institution.
CDC A ONE STOP SERVICE WITH AN OPEN DOOR POLICY

· Information and Application

· Analysis and evaluation

· Approval

· Customs duty and Tax Exemption

· Visa and Work Permits

· Company Registration

SPIRIT OF THE INVESTMENT LAW

· Job Creation
· Export-Oriented policy
· Free Market System
· Open and Outward-Looking Economy
· Conductive Environment
· Integration into the regional and World Economy

Investor's treatment:

The 1994 Law on Investment provides similar treatment to foreign and domestic investors, with the exception of land ownership, as set forth in Cambodia's constitution. Even in this area, the regulations are generous, with foreign investors able to lease land for a period of up to 70 years.

The government provides investors with a guarantee neither to nationalize foreign-owned assets, nor to establish price controls on goods produced and services rendered by investors, and to grant them the right to freely repatriate capital, interest and other financial revenues.

Investors can set up 100% foreign-owned investment projects and employ skilled workers from overseas, in cases where these workers cannot be found in the domestic labor force.

In addition, the Law on Investment and its related Sub-Decrees grant generous incentives to investors, especially those concerned in investment projects geared towards exports.

Attention is also accorded to private investment in Build-Operate-Transfer (BOT) projects, and private investment in infrastructure, including public utilities such as electricity, water supply and telecommunications, a successful example of this policy is the Phnom Penh and Siem Reap airports realized in partnership with Vinci.

Latest investment regulations in Cambodia 2000/2003

Cambodia has approved the latest Amendment to the law on Investment on February 23rd, 2003, which governs all Qualified Investment Projects (QIP) and defines procedures by which any person establishes a Qualified Investment Project.

Our policy is concentrated on seven main points;

1- Continue to develop labor-intensive industries, such as garment, toys and footwear.

2- Promote the development of agro-business by strengthening legal framework for long-term land management. The government will provide incentives to establish factories to process agricultural products, such as cotton, jute, sugar, palm oil, cashew nuts, rubber, cassava and fruits.

3- Develop industries based on the utilization of basic natural resources, mainly by processing the existing natural resources in the country such as fish, meat, cement production, brick and tiles.
4- Promote Small and Medium Enterprises (SME's), micro-enterprises and handicraft. The critical issue for SME's is to provide micro financing, streamline procedures, provide marketing services and supply information on sectorial development.

5- Encourage the transfer of technology and diversification of export products by promoting the assembly of electrical and electronic appliances.

6- Establish an environment conducive to a sustainable development in which the private sector has been identified and entrusted as the engine for growth. The Government will play the role of policy maker and facilitator for an accelerated and expended private sector involvement in the rehabilitation and development of the country.

7- Encourage the corporate sector and SME's as its partners in engineering growth and to be the locomotive to pull our economy on the right track. We aim to take maximum benefit from economic integration and foreign trade by maintaining the current liberal trading regime, which allows Cambodia to integrate economically with the rest of the world.

The adoption of these strategies is meant to attract and promote more investment to Cambodia and further expend international markets for Cambodian products. More importantly, they will also speed up the liberalization and modernization of the national economy and increase its competitiveness to meet regional and international standards.
ADMINISTRATIVE PROCEDURES

1 - Investment Application (Prior Approval)
All investors wishing to obtain privileges and incentives for their investments are required to apply for prior approval from the CDC.

Application Submission
Duly complete application must be signed and submitted by the applicant, or by a representative of the applicant authorized by a certified power of attorney executed in favour of the representative, and submitted to the CDC for review and consideration. A certified copy of any power of attorney must be produced at the time of the submission of the applicant.

Requirements for Application

Application documents: A completed application should include one set of the following documents:

1) A completed application, in the form prescribed by the CDC and signed by a dully authorized representative of the applicant, Whose power of the attorney is attached;

2) A letter stating the intention of the applicant to invest in Cambodia, with a brief summary of the investors, the investment project, the objectives and any special requests to the CDC regarding investment project;

3) The constituent documents of the proposed investment enterprise, such as the Memorandum of association and articles of Association, in accordance with the existing laws of Cambodia;

4) A detailed study of the economic and technical feasibility of the investment enterprise, including an outline of the manufacturing flow
I. Details of the qualifications of the applicant, including:
II. Technical capacity;
III. Marketing capacity;
IV. Human resources and managerial capacity; and financial capacity.
INVESTMENT PROMOTION AND INCENTIVES

· 20% corporate Income Tax
· Tax Holiday up to 8 years
· 5 years Loss Carried Forward
· Full Import Duty Exemption
· No Export Tax
· Free Repartition of Profit
· No Withholding Tax on Dividends
· Land Lease up to 70 year; Renewable
· No Nationalisation and Price Control
WHY TO INVEST IN CAMBODIA?

· Competitive Investment Incentives
· Pro-Business Government
· One Stop Service - Fast-Track Investment Approval Process
· Low Labour Cost
· Access to ASEAN and World Markets
· Preferential Trading Status
· Sound Macro-economic Environment
· Strategic Location to Serve the Mekong 6
TRENDS IN FDI

Investment flows for Cambodia are attributable to 876 projects. Net foreign investment in Cambodia peaked in 1995 with the amount of US$ 1,909,597,365. The average net foreign investment during 1996 - 2001 was estimated to be around 374 million per annum. FDI has been recorded at US$ 139,549,798 in 2001, sharing 70% of the total approved projects' investment of US$ 197,710,415 in 2001. The manufacturing sector, in particular the textile industry, accounts for the largest share of the overall FDI.
Even if there is a decline in FDI in Cambodia the existing investors have managed to expand their projects at a total project cost of approximately US$ 90 million during the period of 2000 to 2002.

Sources of FDI

In terms of major foreign investing nation, the top three sources are Malaysia, Taiwan, and United States of America.

Sectors of Investment