Upload
adonia
View
94
Download
3
Tags:
Embed Size (px)
DESCRIPTION
Cambodian Country Risk Analysis. Supervisor: Dr. M.H. BOUCHET Student: Socheat EUNG. CERAM Sophia-Antipolis European School of Business Nice, France August 2006. Content. ► Cambodia’s History ► Country Overview ► Country Risk Analysis Economic Risk Analysis - PowerPoint PPT Presentation
Citation preview
Cambodian CountryCambodian Country RiskRisk AnalysisAnalysis
Supervisor:Supervisor: Dr. M.H. BOUCHETDr. M.H. BOUCHET
Student:Student: Socheat EUNGSocheat EUNG
CERAM Sophia-Antipolis
European School of Business
Nice, France
August 2006
ContentContent►►Cambodia’s HistoryCambodia’s History
►► Country OverviewCountry Overview
►► Country Risk AnalysisCountry Risk Analysis Economic Risk AnalysisEconomic Risk Analysis Financial Risk AnalysisFinancial Risk Analysis Polititcal Risk AnalysisPolititcal Risk Analysis Legal & Judicial Risk AnalysisLegal & Judicial Risk Analysis External Related Risk AnalysisExternal Related Risk Analysis
►► Doing Business in CambodiaDoing Business in Cambodia
►► Conclusion & RecommendationConclusion & Recommendation
IntroductionIntroduction Official name:Official name: Kingdom of Cambodia Kingdom of Cambodia Form of State:Form of State: Democratic with multi- Democratic with multi-
partiesparties Population:Population: 13.9 million 13.9 million Land area:Land area: 181 035 sq km 181 035 sq km Climate:Climate: Tropical Tropical LocationLocation: Southeast Asia: Southeast Asia Currency:Currency: Khmer Riel (KHR) Khmer Riel (KHR) Capital:Capital: Phnom Penh Phnom Penh
Cambodia’s HistoryCambodia’s History During AD: Indianized states of Funan and ChenlaDuring AD: Indianized states of Funan and Chenla 9th to 13th century: Khmer civilisation9th to 13th century: Khmer civilisation By 15th century: Cambodia was a center of the Khmer By 15th century: Cambodia was a center of the Khmer
Empire, capital AngkorEmpire, capital Angkor 1863-1953: Protectorate of France (Independence day on 1863-1953: Protectorate of France (Independence day on
Nov. 9th)Nov. 9th) 1941-1945: Under Japanese occupation1941-1945: Under Japanese occupation 1950s & 1960s: under the rule of King Norodom Sihanouk1950s & 1960s: under the rule of King Norodom Sihanouk 1969-73: Bombing of US on Cambodia due to Vietnam1969-73: Bombing of US on Cambodia due to Vietnam 1970s: Civil wars, esp. Genocide regime(1975-79, >3million 1970s: Civil wars, esp. Genocide regime(1975-79, >3million
killed)killed) 1980s: Vietnames evasion 1980s: Vietnames evasion 1993: The first election under US’s administration1993: The first election under US’s administration 1998 & 2003: Hun Sen was elected as Prime Minister 1998 & 2003: Hun Sen was elected as Prime Minister
Cambodian MapCambodian Map
Country OverviewCountry Overview
Power structurePower structure
The king has no powerThe king has no power
Hun Sen is the most powerfulHun Sen is the most powerful King Norodom Sihamoni
Executive PowerP.M. Hun Sen
Legislative PowerPrince Norodom Ranaridh
Judicial PowerSupremeCouncil of Magistracy
• King is the top of the country, but no power in politics
• All decision in government made by Prime Minister Hun Sen
• Legislative consists of National Assembly and Senate
• Judicial power is namely independent institution, but in fact, it tends to be dependent on executive power
People & CulturePeople & Culture
Ethnic Group Khmer
90%
Other4%Vietnamese
5%
Chinese1%
Age Structure
More than 64 years old 3%
Betw een 15 and 64 years old 61%
Less than 15 years old 36%
Literacy Rate
74%85%
64%
0%20%40%60%80%
100%
Population literacy rate Male among total male Female among total female
Country’s ResourcesCountry’s Resources
Infrastructure:Infrastructure: Two International Two International
airports(Phnom penh & airports(Phnom penh & Siem Reap)Siem Reap)
Roadway (12 323km)Roadway (12 323km) Railway (602km) not Railway (602km) not
upgradedupgraded Waterway (2 400km)Waterway (2 400km)
• Natural Resources:• Metals & mineral
• Hydroelectric Power
• Petroleum
• Forestry
• Timber and firewood
Economic Outlook 2005Economic Outlook 2005
Expected growth: Expected growth: 7%7% Main drivers: Main drivers: textile, tourism, textile, tourism,
constructionconstruction, & agriculture, & agriculture International trade expansionInternational trade expansion Stable fiscal and monetary Stable fiscal and monetary
performanceperformance Inflation: Inflation: 6.7%6.7% GDP per capita: GDP per capita: 441441US$US$
Country Risk AnalysisCountry Risk Analysis
Econmic Risk AnalysisEconmic Risk Analysis
Economic growthEconomic growth
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
9.00%
2002 2003 2004 2005(pr) 2006(p)
Cambodia
Laos PDR
Thailand
Vietnam
→ Keep growing by 2004, at comparable rates to neighbors
→ Expected to lower due to oil price increase, low speed of critical reforms, external factor(VN membership into WTO, etc.)
Economic Risk AnalysisEconomic Risk Analysis
InflationInflation
3.70%
0.50%
6.70%
3.50%
5.60%
0.00%
1.00%
2.00%
3.00%
4.00%
5.00%
6.00%
7.00%
8.00%
2002 2003 2004 2005(pr) 2006(p)
Low inflation rate though increase in oil price,
Not problematic to the country
Economic Risk AnalysisEconomic Risk Analysis
Interest ratesInterest rates
21.10%
17.30%
7.20% 7.00% 6.60%6.60%
18.60%18.70%21%
18.20% 16.70%16.70%
3.70%
4.20%
3.70%
4.00%
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
2002 2003 2004 2005(June)
3.40%
3.50%
3.60%
3.70%
3.80%
3.90%
4.00%
4.10%
4.20%
4.30%
Riel 12-months Deposits Rates Riel 12-months Lending Rates
US$ 12-months Lending Rates US$ 12-months Deposit Rates
►Rates in Riel more than in US$ due to risk from Riel depreciation
►High interest rates discourage private sector
Banking and Financial SectorBanking and Financial Sector
National Bank of Cambodia (NBC) Central Bank
Commercial Banks Specialized Banks Microfinance Institutions
▲NBC, established in 1980, is autonomous central bank. Its roles are:
off-site inspection & on-site inspection of commercial banks Supervision and licensing of commercial banks, specialized banks and
(MFIs).
►However, it is very difficult to access credits
Government BudgetGovernment Budget
11%
17%
-6%
10%
16%
-6%
11%
15%
-4%
11%
15%
-4%
11%
15%
-4%
-10%
-5%
0%
5%
10%
15%
20%
2002 2003 2004 2005€ 2006(p)
Government Budget
Revenue/GDP Expenditure/GDP Deficit/GDP 100%
0%
89.30%
10.70%
100%
0%
100%
0%
100%
0%
0%
20%
40%
60%
80%
100%
2002 2003 2004 2005(e) 2006(p)
Government Budget Financing
Foreign_Financing Domestic_Financing
• Large budget deficit still problematic even reaching target of revenue collection
• Poor public services deliveries
Strongly depending on foreign aids and loans to finance budget deficits
Financial Risk AnalysisFinancial Risk AnalysisBOP AnalysisBOP Analysis
-616
1,659
2,275
-609
1,970
2,579
-712
2,454
3,166
-1,049
2,773
3,822
-1500
-1000
-500
0
500
1000
1500
2000
2500
3000
3500
4000
2002 2003 2004 2005(p)
Cambodia's International Trade (in US$ million)
Trade Deficit Exports Imports
-2.5%
-3.8%
-2.4%
-4.4% -4.1%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
2002 2003 2004 2005(p) 2006(p)
Current Account Deficit to GDP ratio
• Increasing in export due to US & EU restrictions on China’s export
• Increasing in import due to hug increase in oil price
CAD generated by
• Inflation
• Strong economic performane
• Government restrictions
So, it will worsen foreign reserve
Debt AnalysisDebt Analysis
2,492
21
2,740
26
2,976
28
3,180
29
0
500
1,000
1,500
2,000
2,500
3,000
3,500
2002 2003 2004 2005(est.)
Cambodia's Public external Debts (in million US$)
Public External Debt Public Debt Service
• Largly depending on foreign boorowing to reconstruct the country
• Needing proper debt management to ensure viability of the country
• Debt forgiveness and rescheduling (US & Russia)
Cambodia starting to pay debt services on last decade loan
More funds needed for debt services
So, scarcity of funds for development unless domestic revenue is substantially strengthened
Financial Ratio AnalysisFinancial Ratio AnalysisSolvency RatiosSolvency Ratios
60%62%
58%
52%
45%
50%
55%
60%
65%
2002 2003 2004 2005(est.)
Debt to GDP Ratio
150%139%
121% 115%
0%
50%
100%
150%
200%
2002 2003 2004 2005(est.)
Debt to Export Ratio
27%27% 27%
29%
26%
26%
27%
27%
28%
28%
29%
29%
2002 2003 2004 2005(est.)
Official Reserve to Debt Ratio
• Debt/GDP ratio was relatively quite high
• Estimated to go down in 2005 & 06 due to IMF’s debt relief
• OR/Debt used to ensure the country’s solvability toward creditors in the future
• OR is in range of 26% & 29%
• In overall, debt/export ratio >100%
• Decreasing gradually year after year
• But large debt make Cambodia insolvent toward creditors
Liquidity RatiosLiquidity Ratios2.9 2.8
2.62.4
0
0.5
1
1.5
2
2.5
3
2002 2003 2004 2005(est.)
Official Reserves (in months of Imports)
0.90%1.00%
0.80%0.70%
0.00%
0.20%
0.40%
0.60%
0.80%
1.00%
2002 2003 2004 2005(est.)
Debt service to Export Ratio
• Nagatively, the ratio decreasing slighly due to much increase in import
• It’d not have enough reserves to compensate a large amount of imports in the future
• From 2003, debt service to export ratio decreasing slighly due to more increase in export than in debt service
Monetary & Fiscal PolicyMonetary & Fiscal Policy
Monetary policyMonetary policy
766
2,001
122
908
2,310
111
1,115
3,079
135
1,205
3,643
162
1,349
4,188
192
0
1000
2000
3000
4000
5000
2002 2003 2004 2005(est.) 2006(p)
Money Supply in Billion Riel
Local currency in circulation Foreign currency deposit Other money supply
1,059
-117
1,947
1,337
-128
2,1201,817
-209
2,722
1,970
-192
3,232
2,141
-176
3,763
-500
0
500
1,000
1,500
2,000
2,500
3,000
3,500
4,000
2002 2003 2004 2005(est.) 2006(p)
Money Demand in Billion Riel
Credit to private sector Credit to public sector Other(*)
• adoption of tight monetary policy and managed floating exchange rate
• Economic growth lead expansion in money suppy & demand
• Money suppy largely stems from foreign currency deposit
• Largely, private sector need credit to finance business investment
• Hovewer, difficult to acess credits
Monetary & Fiscal PolicyMonetary & Fiscal Policy
Fiscal policyFiscal policy Objective:Objective:to maintain a sustainable fiscal balance with gradual increases in budget allocationto maintain a sustainable fiscal balance with gradual increases in budget allocation
to maintain price stability in Cambodia's highly dollarized economyto maintain price stability in Cambodia's highly dollarized economy
to ensure a level of spending that is consistent with macroeconomic stabilityto ensure a level of spending that is consistent with macroeconomic stability
Result in 2004 & 2005:Result in 2004 & 2005:
However, there are distortion in domestic revenue collection and public expenditure due to inadequate operational funds and low salaries of public servants
slightly increased domestic revenue collection public expenditure restraint stability of low inflation rate
Foreign Exchange Risk AnalysisForeign Exchange Risk Analysis
3,9353,980
4,031
4,116
3,800
3,850
3,900
3,950
4,000
4,050
4,100
4,150
2002 2003 2004 2005(est.)
Foreign Exchange (Riel/US$) Dollarization of econmy
►Official use of Dollar in economy
Riel is less volatile against US$, comparing to Thai Bath and VN dong
Depreciation in Riel against US$ due to economic slowdown in rural area where Riel is mostly used, versus in urban
Even depreciation in Riel, current account deficit is wider and wider
Political Risk AnalysisPolitical Risk AnalysisPrince ModelPrince Model
Positive influence
King Norodom Sihanouk
Prime Minister Hun Sen
Opposition leader
Prince Norodom Ranaridh
(ADB/IMF/WB)
Negative Influence
King Norodom Sihamoni
Political SituationPolitical Situation Negative pointsNegative points
Political conflicts: e.g. Government stripped Political conflicts: e.g. Government stripped opposition leader Sam Rainsy of his opposition leader Sam Rainsy of his parliamentary immunityparliamentary immunity
Sporadic civil unrest which can result in Sporadic civil unrest which can result in damage to business, e.g. Anti-Thai rioting in damage to business, e.g. Anti-Thai rioting in January 2003January 2003
Positive pointsPositive points Strong protection agiant expropriationStrong protection agiant expropriation In overall, political stability In overall, political stability Open and liberal investment regime with Open and liberal investment regime with
national treatment of foreign investorsnational treatment of foreign investors
Legal & Judicial Risk Legal & Judicial Risk AnalysisAnalysis
Based on civil law where the rule of law is set as Based on civil law where the rule of law is set as the country’s basis the country’s basis
Seperation of powers: Executive, Legislative, & Seperation of powers: Executive, Legislative, & JudicialJudicial
Negative points:Negative points: Judicial tend to be dependent on governmentJudicial tend to be dependent on government Khmer civil system is ramnent of communist legal Khmer civil system is ramnent of communist legal
theory and under-resoucedtheory and under-resouced Opacity of regulatory system and incomplete legal Opacity of regulatory system and incomplete legal
framework for market economy framework for market economy Corruption is widespread in this sectorCorruption is widespread in this sector
Positive points:Positive points: Significant reforms in the sectorSignificant reforms in the sector Laws is conformed to international standard due to TWO Laws is conformed to international standard due to TWO
accessionaccession No pattern of discrimination against foreign investorsNo pattern of discrimination against foreign investors
CorruptionCorruptionBribes Paid by Domestic Firms to Public Services
39%
15%13%
11%
6%
4%
12%
Business License Authorities Standard and safety Inspection
Custom/Trade License Services Trade Agency/Inspectors
Other Police Traffic PoliceOther
Bribes Paid by Foreign Firms to Public Services
67%
19%
11% 3%
Custom/Trade License Services Business License Authorities Other Police Other
Domestic firms paid unofficially on business licensen authorities, followed by standard & safety inspection
Mostly, foreign firms paid unofficially on custom/trade license services
Cambodian Governance IndicatorsCambodian Governance Indicators
24.86.8
52.47.3
30.624.8 41.7
51.9
18.814.4
65.444.2
44.39.9
51.227.6
17.48.2
51.735.7
13.36.9
49.327.1
0 10 20 30 40 50 60 70
Percentile Rankings in 2004
Voice and Accountability
Political Stability
Government Effectiveness
Regulatory Quality
Rule of Law
Control of Corruption
Aggregate Governance Indicators
Cambodia Laos Thailand Vietnam
Cambodia’s governance is relatively poor, comparing to Thailand, while Laos is the worst. Comparing with Vietnam, Cambodia is better in terms of regulatory quality and voice and accountability
Corruption Perception Index Corruption Perception Index (CPI)(CPI)
7.97.6 7.5
3.8
3.3
2.62.3 2.2
1.7
0
1
2
3
4
5
6
7
8
Iceland USA France Thailand Laos Vietnam Cambodia Indonesia Chad
Source: International Transparency (IT) (CPI score: 10=highly clean, 0=highly corrupt)
Cambodia is ranked at 130th out of 158 countries with the 2005 CPI score of 2.3
Cambodia is one of the worst countries in team of corruption
External Related Risk External Related Risk AnalysisAnalysis
Regional Intergration (ASEAN)Regional Intergration (ASEAN)Cambodia has become ASEAN member on April 30, Cambodia has become ASEAN member on April 30,
1999 with purposes:1999 with purposes: Political cooperationPolitical cooperation Economic & functional cooperationEconomic & functional cooperation External relationsExternal relations
However, Cambodia might face with the However, Cambodia might face with the regional contamination risks, e.g. regional contamination risks, e.g. Asian Asian crisis in 1997crisis in 1997
In overall, In overall, the regional integration gives the regional integration gives much more advantages and opportunitiesmuch more advantages and opportunities to to develop country develop country
Cambodia’s WTO Cambodia’s WTO membershipmembership
Cambodia has been a member of WTO Cambodia has been a member of WTO since 13 October 2004since 13 October 2004 with: with:
Advantages:Advantages: Access to international marketsAccess to international markets Capacity buildingCapacity building Good governance buildingGood governance building
Disadvantages:Disadvantages: Difficilt to compete with competitors in Difficilt to compete with competitors in
local & international marketslocal & international markets
Doing business in CambodiaDoing business in Cambodia
Country SWOT Analysis Country SWOT Analysis StrengthsStrengths
Inflation stabilityInflation stability Low currency volatilityLow currency volatility Low labor costLow labor cost Low tax payableLow tax payable Independent Central BankIndependent Central Bank Good recent macroeconomic Good recent macroeconomic
performanceperformance High economic growthHigh economic growth Dollarization of economyDollarization of economy Macroeconomic stabilityMacroeconomic stability Prosperous natural resourcesProsperous natural resources Hard work willingness of Hard work willingness of
peoplepeople Favorable culture for business Favorable culture for business
managementmanagement Liberalized economy and Liberalized economy and
businessbusiness
WeaknessesWeaknesses Poor banking and financial Poor banking and financial
systemsystem High corruption High corruption Inadequate government Inadequate government
bureaucracybureaucracy Low educated workforceLow educated workforce Difficult to access creditDifficult to access credit Inadequate physical and Inadequate physical and
financial infrastructurefinancial infrastructure Weak legal and judicial Weak legal and judicial
institutionsinstitutions
Country SWOT analysisCountry SWOT analysis OpportunitiesOpportunities
WTO membershipWTO membership Regional integration (ASEAN)Regional integration (ASEAN) Emerging marketEmerging market Democratic countryDemocratic country Many reforms in many Many reforms in many
sectorssectors Tourist destination (Angkor Tourist destination (Angkor
Wat...)Wat...) Strong partnership with Strong partnership with
many international many international organizationsorganizations
Large proportion of active Large proportion of active population (61%)population (61%)
Recent political stabilityRecent political stability
ThreatsThreats Political conflictsPolitical conflicts Hug external debtsHug external debts Crime and theft Crime and theft Large government budget Large government budget
deficitdeficit Border conflict with Border conflict with
neighboring countriesneighboring countries
Growth Competitveness Index Growth Competitveness Index (GCI)(GCI)
5.945.81
4.49
4.784.5
3.533.37
2.82 2.8 2.74 2.73
2.37
0
1
2
3
4
5
6
Iceland USA Malaysia France Thailand Indonesia Vietnam Cambodia Paraguay Bernin Guyana Chad
Source: World Economic Forum (score: 1 = the least competitive, 7 = the most competitive)
Cambodia was ranked at 112th position among 117 countries with a relatively low score (2.82 out of 7), assessed in 2005 by World Economic Forum (WEF)
Business Competitiveness Business Competitiveness RankingRanking
CountryCountry BCI rankingBCI ranking
Company Company operations operations
and and strategy strategy rankingranking
Quality of Quality of the national the national
business business environmenenvironment rankingt ranking
USAUSA 11 11 22
SingaporeSingapore 55 1414 55
FranceFrance 1111 1010 1111
MalaysiaMalaysia 2323 2424 3131
ThailandThailand 3737 3030 3737
IndonesiaIndonesia 5959 5050 5959
VietnamVietnam 8080 8181 7777
CambodiaCambodia 109109 103103 108108
BoliviaBolivia 113113 115115 112112
ChadChad 116116 116116 116116
Source: World Economic Forum
10 elements for doing 10 elements for doing Business Business
133
137
140
7984
15455
24
117
127
144
0 20 40 60 80 100 120 140
Rank out of 154 Countries
Ease of doing business
Ease of starting a business
Ease of dealing w ith licenses
Ease of employing and f iring w orkers
Ease of registering properties
Ease of getting credit
Ease of protecting investors
Ease of paying taxes
Ease of trading across border
Ease of enforcing contracts
Ease of closing business
Ranking by Each Element of Doing Business in Cambodia
►The most difficult: getting credits, closing business, dealing with licenses, starting business, enforcing contracts and trading across border.
►The easiest: paying taxes, protecting investors, employing & firing workers and registering properties
In overall, ease of doing business in Cambodia is ranked at 133th out of 154 countries
The Most Problematic The Most Problematic FactorsFactors
10%
11%
14%
17%
18%
26%
27%
30%
34%
41%
46%
46%
55%
80%
0% 10% 20% 30% 40% 50% 60% 70% 80%
Percentage of Respodents
Inflation
Foreign currency regulation
Tax rates
Restrictive labor regulations
Crime and theft
Tax regulations
Poor w ork ethic in national labor
Government instability/coups
Policy instability
Access to f inancing
Inadequate supply of infrastructure
Inadequately educated w orkforce
Inefficient government bureaucracy
Corruption
The Most Problematic Factors for Doing Business in Cambodia
The most problematic:
•Corruption
•Inefficient government bureaucracy
•Inadequate educated workfoces
•Inadequate supply of infrastructure
•Access to credits
•Policy instability
Credit RatingCredit Rating
COFACE gives credit rating «COFACE gives credit rating « D D » to » to Cambodia Cambodia
The high risk profile of a country’s The high risk profile of a country’s economic and political environment economic and political environment with further worsen further a with further worsen further a generally very bad payment recordgenerally very bad payment record
ConclusionConclusion & &
RecommendationsRecommendations
ConclusionConclusion
Good macro economic performance after Good macro economic performance after peace establishmentpeace establishment
Good short-term performance, but not Good short-term performance, but not sure for long-runsure for long-run
Some issues remaining: political conflicts, Some issues remaining: political conflicts, poor legal & judicial framework, poor legal & judicial framework, corruption, poor infrastructures, poor corruption, poor infrastructures, poor financial & banking system, large debt etc.financial & banking system, large debt etc.
However, many strengths & opportunities However, many strengths & opportunities to invest in Cambodia even poor to invest in Cambodia even poor international ranking international ranking
RecommendationsRecommendations Cambodian government itself is the key Cambodian government itself is the key
to improve all sectors of the country to improve all sectors of the country with supports of strong willingness of with supports of strong willingness of Cambodian people, along with the great Cambodian people, along with the great international aids & assistanceinternational aids & assistance
Local & foreign investors should take a Local & foreign investors should take a look on to invest in because Cambodia look on to invest in because Cambodia would be profitable business place would be profitable business place
ReferencesReferences Books:Books:
Country Risk AssessmentCountry Risk Assessment – – A Guide to Global A Guide to Global Investment StrategyInvestment Strategy – by M.H. Bouchet, B.Groslambert – by M.H. Bouchet, B.Groslambert and E. Clark, published by Wileyand E. Clark, published by Wiley
Websides:Websides:1.1. International Monetary Fund: www.imf.orgInternational Monetary Fund: www.imf.org2.2. World Bank: www.worldbank.orgWorld Bank: www.worldbank.org3.3. Global Finance: www.globalfinance.org Global Finance: www.globalfinance.org 4.4. Asian Development Bank: www.adb.orgAsian Development Bank: www.adb.org5.5. COFACE: www.coface.orgCOFACE: www.coface.org6.6. World Economic Forum: www.weforum.orgWorld Economic Forum: www.weforum.org7.7. Transparency International: www.transparency.org Transparency International: www.transparency.org
Thanks for your attentionThanks for your attention