Country Risk Assessment

1
Country Risk Analysis

• Cambodia

2
Agenda

• Country Overview
• Basic Data
• Natural and Technical Circumstances

• Country Overview
• Basic Data
• Natural and Technical Circumstances

• Political Legal Circumstance
• Macro Economic Analysis
• SWOT Analysis
• Risk Rating and Assessment
• Conclusion

3
Country Overview Basic Data (1)

• Official Name Kingdom of Cambodia
• Form of State Constitutional Monarchy
• Area Total 181,040 Sq km
• Population 14.2 million (2003)
• Capital Phnom Penh
• Population Growth Rate 1.8 (2003)
• Birth Rate 27.28 births (2003)
• Death Rate 9.26 deaths (2003)
• Labor Force Agriculture 80 (2001)
• Life expectancy 54 Years

4
Country Overview Basic Data (2)

• Literacy rate Total Pop 69.9
• Labor Force Agriculture 80 (2001)
• HIV/AIDS Adult pre. 2.7 (2001)
• HIV/AIDS living with 170,000 (2001)
• HIV/AIDS - Deaths 12,000 (2001)
• Languages Khmer 95, French,
• English
• Ethnic Divisions Khmer 90, Vietnamese 5
• Chinese 1, others 4
• Religions Theravada Buddhist 95,
• Others 5

5
Country Overview Basic Data (3)

• Currency Riel (KHR)
• Exchange Rate (Riel/US) 4,005 (today)
• GDP 10,627.6 bil. riels (2000)
• 10,627.6 riels (2005 est.)
• GDP per capita US 282 (2003)
• US 341 (2004)
• Income per Capita US 260
• Region Southeast Asia
• Geographic Coord 13 00 N, 10 500 E

6
Country Overview Natural (1)

• Coast line 443 Km
• Time Zone GMT 7 Hours
• Provinces 20 Provinces,
• 4 municipalities
• Climate Tropical Rainy, monsoon season
• (May to November) dry Season (December
  to April) little
• seasonal temperature variation
• Natural Resources Timber, Gemstones, some Iron
• Ore, Manganese, Phosphates,
• Hydropower Potential

7
Country Overview Infrastructure

• Airports 21 (2003)
• Ports and Harbors Kampong Saom (Sihanoukville),
  
• Kampot, Krong Kaoh Kong,
• Inland Port Phnom Penh
• Transport Systems
• Railways 602 Km
• Highways 12,323 Km
• Waterways 3,700 Km

8
Agenda

• Country Overview
• Basic Data
• Natural and Technical Circumstances

• Political Legal Circumstance

• Political Legal Circumstance

• Macro Economic Analysis
• SWOT Analysis
• Risk Rating and Assessment
• Conclusion

9
Political Circumstance Key Facts

• Form of State Constitutional Monarchy
• Chief of State King Norodom SIHANOUK
• (Reinstated 24 Sept. 1993)
• Head of Government Prime Minister Hum SEN
• (Since 30 November 1998)
• Latest Election July 2003

10
Cabinet of Three parties with the Prime Ministers
11
Power Structure
Positive influence
Donor country
CPP
(ADB/IMF/WB)

• King Norodom Sihanouk

FDI
NGO
Prime Minister Hun Sen
Opposition leader
Prince Norodom Ranaridh
Negative influence
12
Voice and Accountability
Source World Bank
13
Political Stability
Source World Bank
14
Government Effectiveness
Source World Bank
15
Regulatory Quality
Source World Bank
16
Rule of Law
Source World Bank
17
Control of Corruption
Source World Bank
18
Governance and Corruption Diagnostic

• Both households and enterprises perceive that the
  quality of several public services to be
  relatively poor, especially courts, customs and
  tax authorities, road services, and police.
• Public corruption is perceived as a leading
  problem for citizens and enterprises of all
  types, ranking first or second for all groups as
  the leading constraint.
• Some functions of government, such as the
  judiciary, revenue collection bodies, and bodies
  managing public assets are rated particularly
  poorly, and deserve priority attention in reform
  efforts.
• The judiciary is reported not only to provide
  service of the poorest quality but also to
  require large bribes of those using it.
• Customs, business licenses, police, standard
  inspections, and tax authority provide poor
  quality services and require the largest bribes
  from enterprises.

19
Sources of weak governance

• Wage levels and timeliness of payment
• Appropriate match between financial resources and
  assigned tasks
• Personal management practices that are clear and
  transparent
• Information and knowledge that flow efficiently
  within and across organizations.
• Penalty systems that are impartially applied in
  the necessary cases
• Effective complaint mechanisms that are linked to
  penalty systems

20
Political Risk

• Risk is much lower than a year ago
• No religious or ethnic divisions
• Political conflict among political parties
• Political impact
• Corruption High
• Kidnap Low
• Nationalization Very Low
• Confiscation Low
• Expropriation Low
• Crime Medium
• Terrorism Low
• Contract repudiation Low
• Civil war Low

• Martial Law Very Low
• Riots Low
• Dividend remittance constraints Very Low
• Ineffective legal and regulatory systems Medium
• Ideological and cultural opposition Low
• Blocked funds Very Low
• Bureaucracy High
• Weak institutions High
• Pressure groups Medium

21
Challenges for the Government

• Human rights issues and the threat of violence
  will continue to challenge the government, and
  consequently, the countrys relations with the
  international environment remains tense.

22
Agenda

• Country Overview
• Basic Data
• Natural and Technical Circumstance
• Political Legal Circumstance

• Macro Economic Analysis

• Macro Economic Analysis

• SWOT Analysis
• Risk Rating and Assessment
• Conclusion

23
Economic Review (1)

• In spite of recent progress, the Cambodian
  economy continues to suffer from the legacy of
  decades of war and internal strife.
• Per capita income and education levels are lower
  than in most neighboring countries.
• Infrastructure remains inadequate.
• Most rural households depend on agriculture and
  its related sub sectors.
• Manufacturing output is concentrated in the
  garment-manufacturing sector. This sector started
  to expand rapidly in the mid-1990s and now
  employs more than 200,000 workers but faces an
  uncertain future with the end of textile quotas
  at the end of 2004.

24
Economic Review (2)

• The other main foreign currency earner is
  tourism Angkor Wat is one of the countrys
  international tourist attractions. After several
  years of rapid growth, the tourism sector slowed
  in 2002-2003, mainly due to severe acure
  respiratory syndrome (SARS)-related fears.
• The service sector is heavily concentrated in
  trading activities and catering-related services.
• Cambodias real GDP grew at 5.5 in 2002 and 5.0
  in 2003, with almost all of the growth coming
  from the garment sector.
• Inflation mederated from 3 in 2002 to an average
  of 1.3 in 2003.

25
Economic Review (3)

• The national currency, the riel, was relatively
  stable over 2002 but depreciated slightly against
  the U.S dollar in 2003.
• The economy is heavily dollarized the dollar and
  riel can be used interchangeably.
• Cambodia has had trouble attracting foreign
  direct investment (FDI), due in part to the
  unreliable legal environment.
• New FDI levels fell steadily from 199-2001.
• According to the National Bank of Cambodia (NBC),
  which tracks actual monies spent as FDI rather
  than simply the value of approved FDI projects,
  in 2001 there was US 150 million in FDI.
• IN 2002, the NBC recorded US 54 million in FDI.
• In 2003, FDI was also likely under US 100
  million.

26
Economic Review (4)

• The economy also has a poor track record in
  creating jobs in the formal sector, and the
  challenge will only become more daunting in the
  future since 60 of the population is under 20
  years of age and large numbers of job seekers
  will begin to enter the work force each year over
  the next 10 years.
• Total lack of basic infrastructure
• Economic trends in the region are the favorable
  outlook for Cambodia.
• Tourism will continue to contribute to the
  current account and the economy generally.
• Continuous progress in trade reform

27
Economic Review (5)

• Cambodia's economy slowed dramatically in
  1997-1998 due to the regional economic crisis,
  civil violence, and political infighting.
• Manufacturing output is concentrated in the
  garment-manufacturing sector. This sector started
  to expand rapidly in the mid-1990s and now
  employs more than 200,000 workers but faces an
  uncertain future with the end of textile quotas
  at the end of 2004.
• Cambodia's economy is expected to expand in 2004
  and 2005
• More open laws and regulations to permit easy
  access to Cambodian markets.

28
Economic Review (6)

• Economic growth will be fueled mainly by garment
  exports and tourism, but will face tougher
  competition in foreign markets, especially for
  garments.
• Strengthening reforms in the banking sector.
• Improvements in infrastructure and
  telecommunications
• Angkor Wat is one of the country's international
  tourist attractions.
• The maintenance of macroeconomic stability and
  the implementation of reforms in various sectors
  will be the major factors contributing to an
  improved investment climate and sustainable
  economic growth.

29
Economic Indicator (1)

• GDP US 4.0 billion (2003)
• Per Capita GDP US 282 (2003)
• Annual growth rate 5.0 (2003)
• Inflation 1.3 (2003)
• Agriculture 33.4 of GDP (2002)
• Industry 26.3 of GDP (2002)
• Industry Type garment and shoe manufacturing,
  rice milling, tobacco, fisheries and fishing,
  wood and wood products, textiles, cement some
  rubber production, paper and food processing.
• Services 34.2 of GDP (2002)
• Services Type Tourism, telecommunications,
  transportation, and construction.

30
Economic Indicator (2)

• Central government budget (2003)
• Revenue US 430 million
• Expenditures US 644 million
• Foreign financing US 207 million
• Trade (2003)
• Exports US 1.683 billion
• Imports 1.73 billion
• Import commodities Fuels, cigarettes, vehicles,
  consumer goods, machinery.
• Export commodities garments, shoes, cigarettes,
  natural rubber, rice, pepper, wood, fish.
• Principal foreign commercial investors Malaysia,
  Taiwan, U.S., China, Korea, Hong Kong, Singapore,
  and Thailand

31
Economic Indicator (3)

• Economic aid received Pledges of US 635 million
  in grants and concessional loans (2002), with
  disbursement rate of 79.
• Major donors Asian Development Bank (ADB), UN
  Development Program (UNDP), World Bank,
  International Monetary Fund (IMF), Australia,
  Canada, Denmark, the EU, France, Germany, Italy,
  Japan, Sweden, Thailand, U.K, U.S.
• According to the Cambodian Government, actual aid
  disbursed was US 500 million in 2003 with
  another US 207 million in budgetary support in
  2003.
• Principal foreign commercial investors Malaysia,
  Taiwan, U.S, China, Korea, Hong Kong, Singapore,
  and Thailand.

32
Trade Policy - Background

• Throughout 2002 and 2003, trade and economic
  development issues became the central focus of
  the Development Issues Project.
• Training activities were conducted in Phnom Penh
  and the provinces to help NGOs better understand
  these issues.
• Building on this past capacity building, a Trade
  and Economic Development project has been
  developed to more actively involve NGOs in
  advocacy on trade and economic development
  issues.
• Capacity Building, especially among provincial
  based NGOs, will also continue to be an important
  feature of the project.

33
Trade Policy Problems (1)

• Two key features of Cambodias National Poverty
  Reduction Strategy are trade liberalization and
  the creation of export processing zones.
• Cambodias recent acceptance into the World Trade
  Organization (WTO) is intended to broaden the
  countrys trade opportunities and economic
  well-being.
• However, little is known about what will be the
  impacts of further trade liberalization in
  Cambodia, especially on vulnerable groups.
• Cambodia producers are ill prepared to benefit
  from access to foreign markets, and face stiff
  competition from imports.

34
Trade Policy Problems (2)

• Young women who leave the countryside to work in
  factories face a variety of social, health and
  economic problems.
• Export processing zones, designed to attract
  foreign investment, may do little to help the
  poor in Cambodia unless labor and environmental
  standards are upheld and there are sufficient
  backward links to the rural economy.
• Tax and customs exemptions in export processing
  zones may reduce revenues available for social
  development, as existing foreign investors shift
  their operations to the new zones.

35
Trade Policy Problems (3)

• The experience of the Philippines suggests that
  small farmers and fishers may become worse off
• Economic development in Cambodia continues to
  favor the urban areas, while rural areas remain
  economically depressed.
• Economic policies tend to favor growth over
  redistribution.
• Cambodia continues to rely on high levels of
  donor support and concessional loans to support
  its development.

36
Recent Economic Indicators (1)
Source CDRI
37
Recent Economic Indicators (2)
Source CDRI
38
Recent Economic Indicators (3)
Source ADB
39
Recent Economic Indicators (4)
Source CDRI
40
Recent Economic Indicators (5)
Source CDRI
41
Recent Economic Indicators (6)
Source CDRI
42
Recent Economic Indicators (7)
Source CDRI
43
Recent Economic Indicators (8)
Source CDRI
44
Recent Economic Indicators (9)
Source CDRI
45
Recent Economic Indicators (10)
Private Investment Project Approved, 1996 - 2003
Source CDRI
46
Recent Economic Indicators (11)
Projects Approved of Construction in Phnom Penh
1996 - 2003
Source CDRI
47
Recent Economic Indicators (12)
Exports and Imports, 1996 2003 ( Change over
previous year)
Source CDRI
48
Recent Economic Indicators (13)
Passenger Arrivals in Cambodia, 1996 2003
(Thousands of Passengers)
Source CDRI
49
Recent Economic Indicators (14)
Passenger Arrivals in Cambodia, 1996 2003 (
Change over previous year)
Source CDRI
50
Recent Economic Indicators (15)
Source CDRI
51
Recent Economic Indicators (16)
Source CDRI
52
Economic Growth ()
Source Coface
53
Inflation Rate ()
Source Coface
54
Public Sector Balance ( GDP)
Source Coface
55
Foreign Debt ( GDP)
Source Coface
56
Debt Service ( Exports)
Source Coface
57
Currency reserves (Import months)
Source Coface
58
Gross Domestic Investment/GDP ()
Source ADB
59
Monetary Survey, 1996 2003 (1)
(Bill. Of Riels)
Source CDRI
60
Monetary Survey, 1996 2003 (2)
Net Claims on government (Bill. Of Riels)
Source CDRI
61
Monetary Survey, 1996 2003 (3)
(Bill. Of Riels)
Source CDRI
62
Monetary Survey, 1996 2003 (4)Percentage
change from previous year
Source CDRI
63
Money Supply (M2) Growth
Source ADB
64
National Budget Operations on Cash Basis, 1996
2003 (bill. Riels) (1)
Source CDRI
65
National Budget Operations on Cash Basis, 1996
2003 (bill. Riels) (2)
Source CDRI
66
National Budget Operations on Cash Basis, 1996
2003 (bill. Riels) (3)
Non tax revenue
Source CDRI
67
National Budget Operations on Cash Basis, 1996
2003 (bill. Riels) (4)
Expenditure
Source CDRI
68
National Budget Operations on Cash Basis, 1996
2003 (bill. Riels) (5)
Current Expenditure
Source CDRI
69
National Budget Operations on Cash Basis, 1996
2003 (bill. Riels) (6)
Source CDRI
70
Merchandise Import Export Growth
Source ADB
71
Merchandise Import Growth
Source ADB
72
Exchange Rate (Riel per US 1)
Source ADB
73
Export Partner
Source CIA
74
Import Partner
Source CIA
75
Trade and Finance
Trade and finance 1998 2001 2002
Trade in goods as a share of GDP () 67.6 91.0 94.9
Trade in goods as a share of goods GDP () 100.5 .. ..
Foreign direct investment, net inflows in reporting country (current US in mill.) 242.9 148.1 53.8
Present value of debt (current US in bill.) .. .. 2.5
Total debt service ( of exports of goods and services) 1.1 0.9 0.8
Short-term debt outstanding (current US in mill.) 136.7 223.8 216.5
Aid per capita (current US) 29.3 34.2 39.0
76
Agenda

• Country Overview
• Basic Data
• Natural and Technical Circumstance
• Political Legal Circumstance

• Macro Economic Analysis

• SWOT Analysis

• SWOT Analysis

• Risk Rating and Assessment
• Conclusion

77
SWOT Analysis
78
Regional and System Risk Spill over effect

• Joining with WTO
• Will quicken economic reform
• A member in AFTA
• Import tax reduction
• Higher competition from other countries in the
  region
• Cheaper imported goods gt wider choice for
  consumers
• China with WTO
• Less smuggled goods to Cambodia
• Competition in terms of export and FDI

79
Risk Rating Coface

• Rating D
• The high risk profile of a countrys economic and
  political environment with further worsen further
  a generally very bad payment record.

80
Risk Assessment (1)

• The continuing economic takeoff has been resting
  on the boom in textiles and tourism with the
  later sector, which represents the countrys main
  development potential, only temporarily affected
  by the SARS crisis in 2003.
• The decent performance of the predominant farm
  sector has been bolstering growth, which has
  nontheless been insufficient for one of the
  worlds poorest countries.
• Still remain very dependent on international aid
  to finance the substantial chronic deficit of its
  public-sector finances and external accounts.

81
Risk Assessment (2)

• The country pursuing negotiations on WTO
  admission, the textile sector will have to
  content with increased competition in the North
  American market from 2005 when the Multifibre
  Arrangement expires.
• Reform has been progressing slowly in the service
  and banking areas and on environmental
  protection.
• With the country continuing to face many
  challenges, the inadequacy of the rule of law,
  unrelenting corruption, continuation of illegal
  deforestation and various illicit trading could
  affect the attitude of many donor countries and
  deter many foreign investors.