Sunday, August 10, 2008

Temple tantrum

Thais hope rhetoric will cool before business climate sours, writes Umesh Pandey

With border tensions with Cambodia rising, Thai companies that have operations in the neighbouring country are wondering whether nationalistic rhetoric could threaten the closer economic relations the two countries are trying to create.

Cambodia, which only 13 months ago was pitching incentives and opportunities to Thai investors, is now a place where investors may be fearful of participating.

The Preah Vihear temple dispute, initially perceived as an election campaign rallying cry by the ruling Cambodian People's Party (CPP), has not died down. Now the dispute has spread to involve the Ta Moan Thom temple, located in Si Sa Ket near the border.

Tensions in Cambodia are not new. Everyone recalls the hostilities that resulted in major damage to Thai businesses and the Royal Thai Embassy in Phnom Penh in 2003 after Cambodian media erroneously quoted a Thai actress as saying Angkor Wat belonged to Thailand.

Last year, the government of Cambodia assembled an audience of more than 200 investors and declared that nationalistic issues would not be a factor in the future.

"Let's put the past behind us and build the future. That was a political issue and we took responsibility (by paying compensation for the burning of the embassy)," was the response at the time of Kong Vibol, first secretary of state for the government of Cambodia.

"Now we provide a guarantee to Thai investors in order to make them more confident."

Cambodia, he said at the time, was among the freest countries in the region and had set itself firmly on the development path, offering a free hand to foreign investors to set up businesses. They cannot own land but can lease it for 99 years. As well, he said, Cambodia had no foreign-exchange controls on current-account transactions.

However, the temple issue has opened old wounds, and with calls already for boycotts of Thai products, Thai businessmen are feeling the heat, although publicly they do not want to admit it.

"Yes, investing in Cambodia is risky and we knew that before we even decided to put our money in the country the first time around," said one major investor who asked that neither he nor his company be named.

"All I want to say is if the country wants to see funds flow into the country, it will have to avoid look at ways to avoid creating a situation where investors start to fear," he said.

Thai investors present in Cambodia include leading conglomerates Siam Cement Plc, Charoen Pokphand Group, Thai Beverage, PTT, Mitr Phol, Khon Kaen Sugar Mills Plc and more than 100 small and medium-sized companies.

Siam Cement, which only recently opened its cement plant in Cambodia, and CP Group, have both come out to openly state that their operations there are in good shape and are not being affected from the calls for boycott. But Saha Pathanapibul Plc, the maker of Mama instant noodles, is perceived as a possible boycott target.

ICC International Plc, a member of the Chokwatana family empire that includes Saha Pathanapibul, said it was seeing minimal impact in Cambodia so far.

"The impact we have had is very minimal as the business size that we have there is very small and it is our firm's policy to not invest too much in any single country that is new to us," said ICC chairman Boonkiat Chokwatana.

ICC sells a number of its cosmetic and apparel products in Cambodia.

"I must say that we are used to these kinds of downturns as we have experienced them in Burma too. What we do is we wait and see how things shape up and then make a decision," he said.

"They usually last for a short period and things go back to normal."

Despite the problems facing investors in the country, there are those who are brave at heart and are looking to participate in a market dominated by imported products.

With a population of 14.3 million Cambodia is "an interesting market to be present in", says one investor.

"Yes there are risks and we knew it after the 2003 incident, but Cambodia is a market where everything is basically imported and how many markets in this part of the world can you find where there is such a huge potential," he said.

"What we have to look at long-term potential and overlook the short-term issues."

The key, he says, is to look for a business that has potential and one that is less volatile in such situations. In all cases it is critical to keep Cambodian workers happy.

"Today despite all the perceived problems, we are not experiencing anything there, but then our project is not for mass consumption either and it would take years before we start to realise our returns," the executive said.

The key element of doing business in countries that are developing is not just your basic business model but also includes the key element of who you know and who is your local partner. As most SMEs are unlikely to have a risk management in place, seeking a partner who can be helpful in times like this.

Many large companies have good connections to Prime Minister Hun Sen and his allies, but those that don't need reliable local partners. The larger multinationals recommend that those looking to enter the market consult with the Thai Embassy in Phnom Penh.

Despite all the problems, there has been an influx of investment into Cambodia, especially in labour-intensive industries. According to the Ministry of Commerce, exports to Cambodia grew by 71.8% in the first half of this year, the highest growth rate in five years, amid a surge in demand for Thai goods and growing trade relations.

Exports to Cambodia are expected to reach the target of $1.69 billion this year, an increase of 25%.

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