BUSINESS: Cambodia: The Wild East of Capitalism

By Salil Tripathi

The Good The Bad And The Ugly
Malaysian cowboy capitalists are rushing in where others fear to tread: Cambodia

The Royal Air Cambodge Boeing 737 rolls to a halt at Phnom Penh’s Pochentong International Airport and passengers step out into the Terminal from Hell. On all sides is mayhem. No fewer than five customs and immigration forms have to be processed by slow-motion officials intent on shuffling the documentation ineffectually. Meanwhile, the visa-on-arrival queue degenerates into a scrum of businessmen frantically waving $20 bills.

And then the final insult. Amid the chaos, one group of grinning passengers breezes through, brandishing their passports. We’re Malaysians. We don’t need visas, beams Ibrahim Ismail, a vice president of Technology Resources Industries Bhd. (TRI). We’re the biggest investors in Cambodia.

These days, Cambodia could be mistaken for Malaysia’s 14th state. TRI affiliate Malaysian Helicopter Services Bhd. (MHS) has a 40 percent stake in Royal Air Cambodge, whose fleet, crew included, is on lease from MHS-controlled Malaysian Airline System. A Malaysian-French consortium is spending $250 million to redevelop Pochentong airport. Another TRI subsidiary, TRI Cellular Communications Cambodia Co. (Tricelcam), runs one of Phnom Penh’s cellular-telephone networks. The ever-expanding list of Malaysian investors includes Samling Corp. of Sarawak, which has secured logging concessions in the lush northern forests, and Delcom Bhd., which is prospecting for gold in the land-mine-ridden northern province of Preah Vihear.

Evidently, the difficulties of operating in a fledging economy haven’t deterred the Malaysians, who are leading the Asian investment drive into Cambodia (see chart, page 46). The secretary of state in the Ministry of Economy and Finance, Sun Chanthol, says: When people are only two hours away from Cambodia, they can assess risks better than those who are far away. Asian investors do not see a civil war here. They see a platform to sell to the greater Mekong region. Collectively, Malaysians command 75.6 percent of the $1.97 billion in foreign investment committed making them Cambodia’s biggest investors by a huge margin.

Cambodia is emerging from nearly three decades of war and devastation that began with the U.S. bombing of the Ho Chi Minh Trail and continued through the civil war between Pol Pot’s genocidal army and Lon Nol’s decadent regime, the evil Khmer Rouge years, the Vietnamese invasion of 1978 and the prolonged fighting that followed. Those years have left deep scars, but Cambodia’s leadership, elected in 1993, is desperate to bring new life to the troubled land and catch up with its fast-advancing neighbors. With Vietnam’s inclusion in the Association of Southeast Asian Nations (ASEAN) last year, Cambodia doesn’t want to be humbled by Laos in the race to be accepted as the next fully fledged member of the regional group. Both countries were granted observer status in 1995.

To attract foreign cash, Cambodia has established liberal investment laws. Corporate tax is a low 9 percent, tax holidays are negotiable and foreign-exchange controls are nonexistent. If it is to be another dynamo in Southeast Asia, however, the country must clean up its reputation of being a haven for criminals and money launderers, and encourage job-generating and export-driven industries.

Making money quickly and running the economy like a corporation (critics say like a privately held corporation) are the cornerstones of the new Cambodia. Bangkok-based consultant Christopher Bruton says Cambodia is perhaps the only country whose investment law mentions setting up a one-stop service organization, a catch-all phrase that sounds great to inves- tors but means nothing to a lawyer. Wags say this organization, the Council for the Development of Cambodia (CDC), is actually just the first stop; a bureaucratic paper chase follows.

Cambodian officials are indeed quick to sign memoranda of understanding and approve projects. But investors should beware of unexpected roadblocks such as import duties on items that are supposedly duty-free and the need for multiple permissions from government departments that spring up overnight like the makeshift checkpoints run by teenage toll operators who nonchalantly carry rocket launchers on their shoulders and demand about 20 cents for right of passage. Not surprisingly, traffic ebbs at sundown. A TRI executive says his staff is unwilling to go to Cambodia’s Thai-border province of Battambang after dark, when the Khmer Rouge emerges like a nocturnal army of occupation, shrouding the border regions.

For Malaysians, however, the smell of money somehow masks that of danger. Opportunistic Malaysians are everywhere in Cambodia, stung by higher costs at home and spurred by an overseas-investment drive set in motion by the Mahathir administration (see The Malaysian Wave, Asia, Inc., August 1995). The biggest player is Ipoh-born Chen Lip Keong, who in January 1995 committed $1.3 billion to building a casino resort, a power station, sewage-treatment and water plants and a residential, industrial and commercial complex in the southern seaport of Sihanoukville (Kompong Som), which is linked to Phnom Penh by a route so notorious for kidnappings that it is nicknamed The Cannonball Run. Chen’s ability to deliver, however, is being questioned because work has yet to start on any of the projects. Recent legal problems will likely set back development even further.

The physician-turned-businessman may have been overestimating his Midas touch last May when he opened a floating casino in Phnom Penh named Golden World. The 10,000-ton gambling tub has been at the center of a dispute involving the gaming arm of Chen’s otherwise low-profile Ariston Sdn. Bhd. and the vessel’s owner, Unicentral Corp. In January this year, Singapore-based Unicentral terminated the charter of Golden World and sued Ariston for non-payment. Whatever the outcome, the reclusive Chen will have to work hard to restore his credibility.

Ariston, a Kuala Lumpur-based company, won the contract to develop Sihanoukville in an international tender that included Unicentral as one of the shortlisted bidders. Since its victory, however, Ariston has been stalling, complain other investors that are waiting for the company to build infrastructure before they begin their own projects. For instance, Francis Yeoh’s YTL Corp. says it will start renovating the historic Independence Hotel only after Ariston has extended the runway at Sihanoukville’s airport to accommodate larger aircraft. Ariston is like a stone; it does not move, one Cambodian businessman says. Counters an Ariston spokesman: This is a mammoth project. It can’t happen overnight. It can only be developed in phases, over 15 years. We do not want to build a white elephant.

Perhaps lying low is the best tactic, considering the number of complaints that have surfaced since Ariston was awarded the project. It may be just a case of sour grapes, but Unicentral estimates that the Sihanoukville developments should cost only about $400 million. Chen brushes off criticism, however, and says: We had prepared a comprehensive proposal; some bidders had submitted their bid on a single sheet.

In its lawsuit over Golden World, Unicentral accused Ariston of failing to pay the $235,000-a-month rent for six months last year and failing to renew the bank guarantee and insurance. The vessel’s owner says it invoked the bank guarantee of $1.4 million because no rent had been paid by last December, when the bank guarantee and insurance were to lapse. Ariston, however, contends that it had the right to keep payments in abeyance because talks were ongoing over how much the vessel was worth. As the charterer, Ariston had to pay a monthly insurance premium based on the ship’s value, which it estimates is only $10.7 million not $27.5 million as Unicentral contends.

The Cambodia Daily (a foreign-aid-supported and expatriate-edited news-paper) has reported that Ariston also owes $47,000 in back taxes from its casino operations. Unfazed, Chen says: The Cambodian government has yet to draw up the casino law. Once they do, we shall comply and pay any necessary tax.

It may not be that simple, however. The termination of the casino’s charter has led to finger pointing among Cambodian officials who do not want to take responsibility for giving Ariston the go-ahead. Says Ith Vichit, secretary general of the CDC’s Cambodian Investment Board: We didn’t approve Ariston; the Tourism Ministry did. They issued the tender, ask them.

Chen, meanwhile, seems to be in no hurry to move ahead. He says that for safety’s sake, Ariston cannot begin other projects until the Cambodian National Assembly formally adopts the internationally recognized Torrens land title system. Chen isn’t sitting idle, though. He has other interests in Cambodia, among them a lottery, Cambodia Asia Bank in downtown Phnom Penh and one of the three Malaysian-owned Cambodian newspapers, Cambodia Times.

In addition, Chen is president and CEO of Kuala Lumpur-listed First Allied Corp. Bhd. (1995 turnover $102 million), which he wants to build into a regional conglomerate. The company in 1994 joined hands with Composite Technology Research Malaysia Sdn. Bhd. owned by the Malaysian government to build an aerospace park in Malacca. With such wide interests, it’s no wonder Chen seems unperturbed by the criticism the floating casino has sparked. Of Malaysia’s relationship with Cambodia, he says: We are good friends and neighbors and we have no quarrels with each other.

More pertinently, Malaysians are not Thais, notes Michael Leifer, Southeast Asia expert at the London School of Economics, alluding to the millennia-old rivalry between the Thais and Khmers. Successive Khmer kingdoms ruled parts of Thailand, Laos and Vietnam until the fall of the Angkor civilization in the 15th century. Thai kings won back much of that territory when France ruled Cambodia. In the 1980s, Thailand gave sanctuary to the resistance armies fighting the Vietnam-imposed Heng Samrin regime in Cambodia. Even today, the Thai military turns a blind eye to the Khmer Rouge rebels who conduct a lucrative trade in gems and timber with Thai intermediaries. A Thai-Cambodian irrigation project run by the Thai army in Cambodia’s western province of Koh Kong intends to use the rebels as laborers. Former Thai Prime Minister Chuan Leekpai told a business seminar in 1994: Thai investment [in Cambodia] should be based on mutual interest with no exploitation, a request that went unheeded.

But as Malaysians begin to dominate vital sectors of Cambodia’s economy, some critics question their motives. Eleanor Mannikka, an art historian at the University of Michigan, is appalled by Francis Yeoh’s plan to stage a nightly sound-and-light show at the 12th-century Angkor Wat. Yeoh’s YTL Corp. promises that the show will be the most spectacular in the world, with laser beams, the latest in sound technology and a narrative written by the world’s leading scriptwriters. Mannikka isn’t convinced, however. She wrote recently: Does the government really believe that Angkor Wat has so little to offer that it has to be sold by vaudeville-like shows created by entrepreneurs whose only goal is to make a profit?

Yeoh retorts: As nobody has seen our plans, it’s premature to jump to any conclusion. We will be sensitive. My goal is to put smiles back on the faces of young Cambodian children. Tourist guides in nearby Siem Reap are already smiling as they point out large tracts of land on the way to the temples, saying (Malaysian-owned) Aman Resorts will be here, Raffles International there, Novotel here and Le Meridien there. In addition, the area is earmarked as home to a $1 billion tourism-development zone, again courtesy of YTL Corp. The zone, about 700 meters from the Siem Reap River, is to feature a Khmer-style town square, three hotels, a conference center, a museum, a cultural library, shops and an arts-and-crafts center. TRI Chairman Tajudin Ramli is another investor hoping to reap profits from Siem Reap. His Monomas group has been given the green light to build a five-star, 400-room hotel in the area.

Malaysians also are hungrily eyeing Cambodia’s fast-dwindling forests. Although Indonesian banking giant Panin has the largest individual logging concession, of 1.4 million hectares, Malaysians collectively reign supreme with a total of 1.7 million hectares. Of that, Malaysia’s Samling Corp. has acquired 787,810 hectares. The London-based nongovernmental organization Global Witness released a study last November in which its directors conclude: The current forestry policy borders on the grossly irresponsible. They have sold everything. Only about 35 percent of Cambodia remains forested, the group estimates. Adds Lao Mong Hay, executive director of a local rights group, the Khmer Institute of Democracy: Under the guise of plantation, logging concessions are being given. Ousted Finance Minister Sam Rainsy has called such investors mafia and warned that logging threatens the future of the country in terms of the environment.

A Malaysian timber company that has been criticized for flouting the law is GAT Co., which last year defied a shutdown order from Sihanoukville’s first deputy governor, Khim Bo. I regard the company as illegal, he has said in reference to GAT’s refusal to halt construction of a timber-processing factory and a small seaport 10 kilometers west of Sihanoukville despite the fact that its logging concessions are in another province.

One expatriate aid worker says: Exploitation is the name of the game here. Cambodia is the discount store of the region. Cheap girls, cheap timber, cheap labor take your pick. If you were a businessman without scruples, you’d do quite well here. This place appeals to the worst kind of cowboys, and they are eating Cambodia for breakfast. Many plans sketched on the napkins of breakfast tables may remain just that, however, unless Cambodia figures out how to improve its human resource profile, generate jobs and tame crime.

Pol Pot’S reign drastically altered Cambodia’s demographic profile. Intellectuals and ethnic-Chinese businessmen were particularly targeted. Eva Mysliwiec observes in her 1988 book, Punishing the Poor, that only 7,000 of the 22,000 teachers in 1970 survived the Khmer Rouge years. The director of the Cambodian Development Research Institute adds in the book that only 10 percent of the country’s 450 doctors survived, and half of them left when the Vietnamese marched in.

Today, 46 percent of Cambodia’s population is under 15, and women outnumber men three to two. In some provinces 40 percent of school-age children do not attend school, notes Joan Anderson, Cambodia representative of Britain’s Save the Children Fund. Inevitably, some young Cambodians are working beyond their talent and capacity. Slowly, however, ethnic-Chinese businessmen are returning to their homeland and injecting life into the markets (see box, page 45). In addition, a new wave of mainland Chinese companies is sweeping through Cambodia.

But Cambodia is still too small, its systems too fragile, and its market too underdeveloped. Given Cambodia’s population of only 10.5 million and a per capita income of $230 a year, the lack of queues outside the impressive colonial building that houses the CDC is understandable. Despite the problems, however, there is evidence of change in Cambodia, such as the tiny rich class that has emerged overnight one that buys three or four BMWs a month and a budding middle class.

According to International Management & Investment Consultants Ltd., a typical urban household owns $1,732 worth of branded goods. Signs of revived economic activity abound, not least in the vicinity of the bridge across the Tonle Bassac river that was rebuilt last year. After the bridge was completed, one restaurant opened, a fishing-rod shop started, then a classy restaurant came, then a petrol pump, says Craig Martin, general manager of International Management & Investment Consultants. That 18 feet of concrete has injected life across the river. Children play soccer in the fields at sunrise without the fear of land mines, while lovers stroll in the jasmine-scented breeze.

The prevalence of crime, however, casts a pall over Cambodia. Interpol estimates that at least 100 of its most wanted criminals are hiding in the country. Nevertheless, the Interpol liaison office functions without computers, phones or copiers. On top of that many of the 51-member force have to buy their own weapons. The absence of banking regulations has created a potential bonanza for money launderers. No inflows are measured, everything is totally free, says Tioulong Saumura, who resigned as deputy governor of the central bank last September. This is the law of the jungle. Conditions in Cambodia are good for laundering because of total lack of control. Banks are not obliged to report large cash transactions, so you can deposit $10 million and instruct the bank to transmit it and it will be done in a second. Nobody will question it.

Both Saumura and the Interior Ministry have said that the operations of 19 of Cambodia’s 29 banks are a mystery. Ex-Finance Minister Rainsy, Saumura’s husband, maintains that anybody who applies for a banking license gets one. One financial institution the august-sounding Emperor International Bank is involved in futures trading even though Cambodia still lacks regulations on the practice. Emperor stands alongside others with equally splendid names Bank of National Wealth of Cambodia, Global Commercial Bank and Great International Bank vying for respectability in the shadows of Malaysia’s MayBank and Public Bank, Bangkok Bank, Standard Chartered Bank and Banque Indosuez.

Small-time thugs, too, can cause problems, as Tricelcam has discovered. Once, the company disconnected the phone of a businessman because he hadn’t paid his bill. He finally paid up, but only after complaining about loss of face and soothing his bruised ego by brandishing a gun. Gerard Van Dort, a former marketing consultant in Kuala Lumpur, puts it well: You’re in a jungle; follow the rules and you’re OK. Van Dort, who now runs a catering business in Phnom Penh, adds: People will come to your restaurant and sometimes they won’t pay. They will take out a revolver. Ask yourself, ÔIs it worth risking your life over an unpaid drink?’

This Cambodia IS very different from the version the Finance Ministry’s Secretary Chanthol and the Investment Board’s Vichit have presented to the international community. They must have reddened, however, when Chanthol’s father-in-law, Khaou Chuly, was robbed of $120,000 last December by none other than his own bodyguard. That incident took place the same week Chuly had formed a joint venture with Thai and American partners to develop luxury housing and an international school in Phnom Penh at the cost of $94 million. Downplaying the robbery, Chanthol says: That was a fluke occurrence.

Despite such assurances, it’s little wonder some foreigners find it difficult to think long-term about Cambodia. The fact that many dual nationals hold important positions in Cambodia doesn’t help either. Besides Chanthol and Vichit, both of whom have U.S. nationality, many ministers in the royalist Funcinpec party have two passports. They include Americans Pou Sothirak (the industries minister) and You Hockry (the interior minister), and First Prime Minister Norodom Ranariddh, who has a French passport.

But Chanthol prefers to look on the bright side: I challenge any country that has been through an experience like ours to progress like we have. . . . A generation was killed by the Khmer Rouge. People did not have enough to eat. We have started from scratch and rebuilt the nation.

In the relatively peaceful past five years, Cambodia has indeed made remarkable progress. According to one estimate, inflation dropped to 9.6 percent in 1995 from 26 percent the year before, real economic growth was 7 percent last year and foreign aid commitments exceed $800 million, with Japan offering the lion’s share.

Moreover, tourism looks set to take off, whetting the appetite of investors who are counting on early payoffs. The Tourism Ministry last year cleared projects worth $400 million, in anticipation of 1 million arrivals by 2001. Tourism Minister Veng Sereyvuth talks enthusiastically about the sound-and-light show in Angkor, when, as if choreographed, a blackout occurs. Without missing a beat he describes how the infrastructure will be in place. Problems, problems, so many problems to control, he mutters as the lights flicker back on after 20 minutes. In her bungalow nearby, Saumura shakes her head and sighs: In Cambodia today, nothing is under control. Nothing.

But back amid the anarchy that is Pochentong airport, being Malaysian means you can at least enter and leave the country with a semblance of normality.


Return Of The Chinese
The offspring of Chinese businessmen murdered by the Khmer Rouge are going home to pick up where their parents left off

When Pol Pot's army entered Phnom Penh in 1975, its early targets were class enemies like businessmen, many of whom happened to be ethnic Chinese. In the strange logic of bamboo-curtain politics, communist China was arming an ultra-Maoist organization that was annihilating people of its own blood.

But today children of some of the Chinese victims are back in Phnom Penh, running lucrative enterprises. In addition, about 80 mainland-Chinese companies have made a quiet entry into Cambodia. The Chinese influence goes further. Ethnic-Chinese businessmen recently swept the polls of Cambodia’s Chamber of Commerce, and at present 15 of the 24 members in the chamber are ethnic Chinese who don’t speak English.

Consider 31-year-old Meng Kith. His father, Kith Peng Ike, was a businessman and landlord who died of starvation because the Khmer Rouge decided to make an example of him. Meng, who moved to Australia in 1974, returned to Cambodia in 1990, the year before King Norodom Sihanouk’s return from exile. Soon after, Meng began a small business supplying furniture, bread and office equipment to the 22,000-strong United Nations Transitional Authority that was in Cambodia to prepare and supervise the 1993 election.

Meng’s Royal Group of Companies, which brought the first photocopiers to Cambodia, has assets worth $30 million. The group’s Canon copier franchise, which has an 85 percent market share, recently strengthened its ties with the government by giving Prince Norodom Ranariddh and Hun Sen (the first and second prime ministers) color copiers worth $25,000 each.

Meng who owns a bank as well as businesses in translation, brick-making, construction and paging was also responsible for setting up a Motorola Radio network in 1992 for the government. Pol Pot killed all the smart people, he says. But I’m a Christian, so we have to learn to forgive and forget.

Meng’s ability to put the past behind him is laudable, if not startling, considering his elder brother Sophan Kith, 42, died under mysterious circumstances in January 1994, only a few weeks after he had told Asia, Inc. he felt comfortable being back in Cambodia (see Indochina: Battlefields into Marketplaces, Asia, Inc., February 1994).

Cambodia’s richest and most controversial returnee businessman is Teng Boonma, who declined an interview with Asia, Inc. despite having recently won the Cambodian Chamber of Commerce’s presidential race. Fluent in Chinese, Thai and Khmer, Boonma has interests ranging from a controlling stake in the Inter-Continental Phnom Penh hotel to property and trading. His company, Thai Boon Roong Group, has been reported as Cambodia’s biggest taxpayer. Boonma’s unwillingness to be interviewed is not surprising considering the allegations that have arisen over his background. He was arrested in 1972 on suspicion of opium smuggling, according to the Voice of the Khmer Youth, a newspaper whose editor died mysteriously after the report appeared. Not only has Boonma vehemently denied the allegation, but in January he threatened to sue the Hong Kong-based Far Eastern Economic Review for what he contends was a libelous article alleging that he has been involved in drug trafficking and other dubious activities. Boonma insists that his wealth is legitimate, generated from smart moves made before the upswing in the Bangkok property cycle.

California’s Mr. Donut, Ted Ngoy, is another returnee who has made his presence felt in Cambodia. Despite having been an army major under Lon Nol, Ngoy was able to flee to the U.S. because he was in Bangkok working as a military attache when the Khmer Rouge marched into Phnom Penh. In the U.S., he pumped gas and sold cars before setting up a successful chain of donut outlets and becoming active in Republican Party politics. Ngoy has had two major political setbacks since his return forming a party that lost badly in the 1993 election and failing to win a seat in the Chamber of Commerce. But he appears unfazed. You can’t compare life in America with Cambodia, he says, but the future is here. Today he is tying up with a mainland Chinese state-owned enterprise to bid for an independent power project. Ngoy also runs Phnom Penh’s leading real estate agency; among the sites he is selling is an estate in Orange County, California.