Cambodia Inc

Bretton Sciaroni, founder and senior partner of the law firm Sciaroni & Associates, discusses Cambodia’s economic transformation and potential as an investment hub

By Tassilo Brinzer and Joana Maria Tacken
You have been here since 1993. Cambodia was a different place then. What economic and social changes have you witnessed?
The most important event in terms of economic development was the end of the war. A lot of investors today forget the fact that for the first decade I was here, this was a country at war – the government hadn’t yet made peace with the Khmer Rouge. The difference between wartime Cambodia and post-war Cambodia was very dramatic, but the government had already laid the groundwork for economic expansion, developing laws and regulations for a pro-free market and enterprise system. The result was rapid economic expansion and strong GDP growth. That, of course, encourages investors, but so do legal and regulatory reforms. Those reforms accelerated with accession to the World Trade Organisation (WTO) in 2004. It’s not a finished product. Many reforms still need to be undertaken and a lot of laws need to be adopted. But the main thing is the commitment of the government to get things right according to international standards – and that is continuing to encourage investment in Cambodia.
Do you think we will see more reform action in this term?
I definitely think so. The reform agenda that the prime minister announced last year after the elections was overdue. It re-energised the government. There are a lot of new faces. There’s a commitment to putting new laws and standards in place. I think what happened during and after the last election was very dramatic. The ruling party won by the biggest margin ever in the previous election, and then suddenly, last year, it was a very close vote accompanied by massive protests. That shook the government out of its complacency. Senior government officials tell me that, in 20 years, they’ve never seen anything like the current pace of change and reform. Of course, it takes time to turn things around, but the government can show the Cambodian people that it’s making an effort to get things right. There are many inequalities in Cambodia and the election last year was in part a protest against that. We also have a burgeoning youth vote. After the election, I talked to members of the ruling party, and they said they campaigned on two pillars – anti-Khmer Rouge and economic progress. The problem with the first issue is that 70% of voters are 30 years of age or younger and don’t necessarily remember the Khmer Rouge. The second issue should have been more of a vote winner. When I came here 21 years ago, Cambodia was clearly a poor country. Why hasn’t the country’s progress won over more voters? In the end, I decided it was for the same reason –many young people have only known prosperity. I think the government has to do more to show it’s actually fostering social progress that will make a difference to the lives of young people in order to win them over.

 
Do you see significant future reforms in any particular areas?
What’s interesting to me is that you have some new ministers who were clearly brought in to shake things up – new people who’ve been given a mandate to make changes. But even among some of the older, long-serving ministers you see a renewed sense of energy. They’re trying to update the laws and create a more a user-friendly environment. It’s not just the ministries where you see this occurring, but also in the business community. The government is committed to amending the Investment Law for the second time. This should take place in the next few months, and should also include a law governing special economic zones.
Can you discuss US interests in Cambodia?
Firstly, we have the most pro-business US ambassador that we’ve ever had here, and he’s doing a lot to promote Cambodia. We’ve also had business missions to the US, to American chambers in Singapore and Bangkok. In the future, we’ll probably go to Hong Kong and China to help promote inbound investment and trade to Cambodia. A lot of positive things are happening. Since the political settlement between the opposition and the ruling party, the government has given us some special tasks – for example, regarding the minimum wage issue. You’re going to see renewed interest from a lot of foreign companies – including US companies – to come here and do business.
Infrastructure and energy are still massive issues in Cambodia, particularly in the context of establishing the Asean Economic Community (AEC). How do you see developments on this front?
Infrastructure is still a nagging concern. Cambodia has four problem areas for potential investment and infrastructure is certainly one of them – to be precise: electrical power. If we can get that right, it makes us much more attractive. The second area is human resources and the challenge of creating a system in which schools teach skills that the private sector needs. The ministries of labour, education and commerce each have a role to play in making this happen. We also have corruption concerns, which hurt potential investment, though the government is making bona-fide efforts to counter these through the Anticorruption Unit. The last problem area is dispute resolution. The National Cambodian Arbitration Centre hasn’t handled any cases – it’s still getting off the ground – but it’s an important initiative.
Continuing on the subject of the AEC, how prepared is Cambodia?
We’re not badly placed. I know of companies that are setting up here with the AEC in mind, because it will be possible to access all Asean markets. Cambodia’s competitive advantage right now is labour costs. For example, Thailand’s raised its minimum wage, making it less attractive for investors by increasing operating costs. If we can reduce the price of electricity, it will give us a huge advantage.
Will wages remain a competitive factor for Cambodia?
It’s an advantage for us right now. For many investors, wages and available labour are crucial. I’ve heard people complaining that they couldn’t get the right workers in China. Also, China has developed a reputation for not being very friendly towards foreign investment. This gives us an advantage. One thing you can say for sure about the Cambodian government is that it’s very friendly to foreign investment and hence  it encourages investment.