International Business / The Pacific : Cambodia Positioned to Join Economic Boom

One of the world’s poorest countries, Cambodia would seem to offer foreign investors little incentive to reach for their wallets.

Decades of war have left its infrastructure in tatters, and its 8 million people make it one of Southeast Asia’s tiniest markets.

But Cambodia lies at the heart of Southeast Asia, a center of remarkable economic growth. This, together with an investment law hailed as one of the most liberal in the region, has aroused interest from a growing number of corporations.

“We understand our handicaps,” said Commerce Minister Cham Prasidh. “In order to attract people to invest in Cambodia, we have to . . . offer better incentives than our neighbors.”

Three years ago, Cambodia was a businessperson’s nightmare. Socialist policies and a 13-year guerrilla war had impoverished the mostly peasant population. Khmer Rouge Communists, ruling in 1975-78, had wiped out much of the educated and commercial elite.

Today, Cambodia’s leaders are promoting the country’s cheap labor and proximity to the dynamic economies of Thailand, Vietnam and others to attract outside investments.

They are also touting Cambodia’s new foreign-investment law, which offers foreign firms an exemption from corporate tax for up to eight years and the right to import without paying tariffs.

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Still, the government needs to do much more to turn a growing trickle of business into an economic boom. It must also allay investors’ lingering fears about lawlessness, corruption and the chronic struggle against die-hard Khmer Rouge guerrillas.

Foreign investment stood at only $98 million in May 1993, when the United Nations organized elections to cement a peace pact between guerrilla groups and a Vietnamese-backed regime. Since then, investments have increased to more than $2.2 billion, with Caltex Petroleum Corp., Automobiles Peugeot and other well-known companies blazing the trail.

“People’s eyes are now on China, Vietnam and India, but if you look at the investment law that was just passed, I think the environment in Cambodia is very favorable,” said Edgar Chua, who manages local operations for Shell International, a division of Royal Dutch-Shell Group.

A Singapore brewery worth $60 million and five cigarette plants worth a combined $63 million rank as some of the biggest projects underway since the investment law took effect in 1994.

Taiwanese and South Korean garment makers have also shown interest. Cambodia’s clothing industry, financed mostly by foreigners, has grown from two factories in 1993 to 16 this year, Prasidh said. He predicted the number will double by the end of next year.

Investors say Cambodian officials are eager to help them get started here, and the government vows to assess all but the biggest infrastructure projects within 45 days.

By comparison, neighboring Vietnam--a country of 72 million people that has attracted eight times as much pledged investment--is notorious for its red tape and ambivalent attitude toward foreign businesses.

“One thing I hear from investors who come into my office is that doing business in Cambodia is much easier than in Vietnam. I hear this over and over,” said Brett Sciaroni, an American attorney with the Thailand-based law firm Tilleke & Gibbins.

Cambodia expects soon to obtain low-tariff trade status with the United States, helping it attract investors keen to export to the world’s biggest market. And it plans to join the seven-member Assn. of Southeast Asian Nations in 1997, a move that will help burnish its international image.

However, widespread crime and corruption discourage many business people from risking their money here. Others look only for short-term profits, plundering Cambodia’s forests of teak and its hills of gemstones.

Former Finance Minister Sam Rainsy, a leading critic of government corruption, has described Cambodia as “a mafia state” where senior officials share a symbiotic relationship with the illegal logging industry.

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In addition, political violence and the erosion of democratic freedoms since the 1993 election have created a sense of smoldering crisis.

The government has intimidated journalists and outlawed Cambodia’s main opposition party. Some foreign executives, fearful of gun-toting bandits, drive only with armed security guards when they leave Phnom Penh.

Cambodia’s gross domestic product measures just over $200 per capita. That leaves many economists wondering whether the country will be able to support new factories making soft drinks, cigarettes, liquor and various luxury products.