Hong Kong: Cambodia - Opportunities For Investment - Background

Last Updated: 20 November 1995
Most Read Contributor in Hong Kong, October 2018
Until recently Cambodia has been viewed by most of the business world as an unstable and somewhat dangerous place to visit and certainly a place to avoid from a business point of view.

Conditions in Cambodia are now changing rapidly. Foreign investors are returning to take advantage of Government reforms which provide generous incentives and a fast improving business and legal environment.

Resources

Cambodia is likely to have significant oil and gas fields which so far have been substantially unexploited as well as deposits of limestone, kaolin, tin, bauxite, silver, gold and iron ore.

Geography and Climate

Cambodia covers an area of 181,035 km2 and is bordered by Thailand to the west, Laos to the north, Vietnam to the east, and the Gulf of Thailand to the south. The central plain is one of the most fertile areas for agriculture due to the rich sediments that are deposited by the Mekong River which enters Cambodia from Laos. Approximately two thirds of the population lives in the central plains. The southwest, between the Gulf of Thailand and Tonle Sap Lake, consists of the Chaine des Cardamones Mountains and the Elephant Mountains.

Cambodia has a monsoon climate with distinct wet and dry seasons. The dry season is between November and April. The rain falls mainly in May and June, and September and October. The temperatures range from 21 to 35 degrees celsius with the hottest time of year in March and April. January is the coldest month.

Population

The life expectancy at birth for males is 47 years and for females 50 years. Females make up approximately 64 percent of the population due to the high death rate of males in recent civil wars and therefore, women play an important role in national development. Another important statistic is that nearly half of the population is under fifteen years of age, while the work force consists of approximately 4 million people.

Cambodia is primarily an agricultural country with 88 percent of the people living in rural areas. The urban population tends to fluctuate with the wet and dry seasons with many seeking work in the informal economy. For example, Phnom Penh's population is approximately 1 million in the dry season and declines to about 800,000 in the wet season.

The majority (about 95 %) of the population is of Khmer ethnic origin, with minorities made up of Vietnamese, Chinese, Cham, and Malay Muslims, along with some highlanders from various tribal origins.

Language and Religion

Cambodia's official language is Khmer although French remains important and is still taught in schools and universities. English is becoming widely popular and is the language used in most important business transactions.

Until 1975, the state religion was Thrvada Buddhism. Between 1975 and 1979, the Khmer Rough killed the majority of monks and destroyed most of the wats (temples). During the 1980s, Buddhism was reinstated as the state religion. Hinduism, Islam, and Caodaism are also practised in Cambodia.

Education

Cambodia's formal education system developed during the 1950s and 1960s with the introduction of primary and secondary school. However, all of the early gains made in education were abruptly cancelled during the Khmer Rouge period (from 1975 until 1979) when most schools were closed. Cities were evacuated, libraries and publishing houses dismantled, and the entire urban population forced into farming. It was during this time period that the majority of intellectual and trained people had been killed or left the country.

Post Khmer Rouge governments have had to reconstruct the education system. Today, school begins at kindergarten and ends at university.

Political Background

Cambodia became an independent, sovereign state in November, 1953. The country was ruled by Prince Norodom Sihanouk for 17 years. During the first half of his tenure, the country experienced moderate economic growth and reached a level where industry was beginning to diversify away from agriculture, social services were expanding, and infrastructure was being improved. However, in the 1960, Sihanouk ended US aid and economic growth slowed down.

In 1970, the Sihanouk government was overthrown by a military regime headed by General Lon Nol. This was the first of three government take-overs throughout the decade and the beginning of more than twenty years of civil war between the Phnom Penh government and the Khmer Rouge. As a result, social and economic development was severely retarded. Until recent years, political instability was a constant characteristic of Cambodia.

The communist Khmer Rouge headed by Pol Pot overthrew the Lon Nol regime and established the Democratic Kampuchea from 1975 until 1979. The Khmer Rouge goal was to create a "new agrarian society" so people were evacuated from the cities to work in collectivised agriculture. Most of the economic and social infrastructure that has been put in place was disassembled.

Vietnam invaded Democratic Kampuchea in January, 1979. The Vietnamese appointed government began to reconstruct and renew the infrastructure and the economy, but it was a difficult task given the continued fighting and the international isolation of the country. In 1982, factions opposed to the Vietnam-installed Phnom Penh government formed the Coalition Government of Democratic Kampuchea (CGDK) consisting of the Khmer Rouge, Funcinpec, and the KPNLF. In 1989, the name of the Phnom Penh government was changed to SOC.

International peace negotiations between the fighting parties and members of the international community progressed to the point when in 1990, the CGDK and the SOC agreed to form the Supreme National Council (SNC) as the legitimate authority in Cambodia until a new government could be formed. During the period up until 1993 this interim government brought a measure of stability and introduced a number of important new laws which went some way to encouraging investment and reformed the land law.

Kingdom of Cambodia

The new "Kingdom of Cambodia" government came into power in 1993 in the form of a Constitutional Monarchy. The Constitution, which was adopted September 21, 1993 as the "supreme law of the land," established a judiciary separate and independent from the executive and legislative branches of government.

The Legislative branch is in the form of a unicameral body called the National Assembly. There are 120 members, chosen by three main political parties, based on the number of votes garnered by each party in earlier 1993 elections. No party won a majority of the votes. The three parties with representation in the National Assembly Legislative are FUNCINPEC (the French language acronym for "United National Front for an Independent, Neutral, Peaceful and Co-operative Cambodia"), which obtained the largest number of votes, the Cambodian Peoples Party ("CPP"), a close second, and the Buddhist Liberal Democratic Party, a distant third.

The executive branch is composed of First Prime Minster Prince Norodom Ranariddh, a FUNCINPEC member, Second Prime Minister Samdech Hun Sen, a member of CPP, the Council of Ministers, and Ministerial level government agencies. Under arrangements agreed by the two major parties after the elections in 1993, the top positions in each Ministry are usually divided equally between FUNCINPEC and CPP. Co-operation between the parties to implement coherent and consistent policies has gradually improved.

Structure of Court System

The court system and the judiciary is currently undergoing complete reorganisation and retraining. At present, it consists of a number of Provincial and Municipal courts, one Court of Appeals and a Supreme Court. The Court of Appeals reviews both questions of law and fact, while the Supreme Court only hears questions of law. A Constitutional Council, is likely to be established in due course to decide the constitutionality of laws and regulations.

New Legislation

The new government is in the process of completely rewriting Cambodia's legislative and regulatory infrastructure. The drafters of the new laws and regulations are combining aspects taken from the pre-1975 French based Civil Code, with principles from the common law system and ideas from other Asian legal systems. The National Assembly has adopted 19 laws since it was formed in 1993. The most significant ones for foreign investors include the Immigration Law, the Land Management, Urbanisation and Construction Law; the Investment Law; 1994 and 1995 Financial and Budget Law, Commercial Registration Law, Company Law, Bar Association Law, and the Press Law. A host of other laws touching on nearly all aspects of business activity are being drafted by various ministries.

NOTE: The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

If you would like further advice please contact: David Ellis, Johnson Stokes & Master, 16th Floor, Princes Building, 10 Chater Road, Hong Kong; Tel 2843 4226; Fax no. : 2845 9121. Alternatively do a text search "Johnson Stokes and Master" and "Business Monitor".

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