This photo taken on April 17, 2018 shows a showroom of a complex including luxury residence and hotel in Sihanoukville, Cambodia. In the city, construction projects for Chinese people, casinos and hotels are progressing one after another.( The Yomiuri Shimbun )
A showroom of a complex including luxury residence and hotel in Sihanoukville, Cambodia, in 2018 during a construction boom largely financed by Chinese investors. Photo: The Yomiuri Shimbun via AFP

When Japan became the world’s second-largest economy, Akio Morita, co-founder of Sony Corporation, used the terms “10-minute economy” and “10-year economy” to criticize the United States for being too reliant on intangibles such as financial trading and the stock market, which are immediately profitable, while giving less importance to manufacturing, which is more sustainable.

Most Japanese believe that the strength of their country’s economy is sustained by its manufacturing industry, with its advanced technology and robust investment on research and development. When China became the second-largest economy, that was also attributed to its strong manufacturing industry, as China became the factory of the world.

As for Cambodia, it probably needs both the “10-minute economy” and the “10-year economy.”

Although Cambodia is trying to promote manufacturing through the Industrial Development Policy (IDP), its industrial base is still weak, and almost entirely dependent on foreign investment, both in terms of technology and capital.

As a general observation, Cambodian businessmen also want to get rich quick through the “10-minute economy,” especially through real-estate speculation, which does not require investment in factory construction, technology, and human-resource management.

The strong influx of foreign capital occurs only occasionally and it does not happen for a long period of time either. Thus when this high inflow occurs and involves mainly real-estate development and construction, it is difficult to blame Cambodian businessmen for being tempted to focus on land speculation rather than a more tangible manufacturing industry.

Looking back to the 1980s and 1990s, Cambodia used to rely on capital investment from Thailand and Vietnam, but the economy then was very fragile and capital inflows not that significant. It was a postwar economy, and instability ruled.

A major influx of foreign direct investment emerged from South Korea in the early 2000s after the civil war came to a complete end in 1998, but that did not last long because of the financial crisis in 2007.

Korean investment focused mainly on real-estate business with quick profits, and the financial crisis brought the real-estate industry to a standstill and caused the almost complete disappearance of Korean investors from Cambodia. Uncompleted construction like the 42 Gold Tower was a symbol of the Koreans’ unfinished business, which was taken over by Chinese investment in the late 2010s.

Now Cambodia has embraced a large influx of foreign capital again. This time it is from China, which gained momentum especially after 2016, when Phnom Penh and Sihanoukville saw an abrupt increase in high-rise buildings. Some landowners in Sihanoukville, possibly numbering in the thousands, became overnight millionaires.

But one must remember that such significant inflows of foreign capital do not last forever, and such opportunities probably happen only once every 10 years or so. And if it flows in fast, it will flow out fast too, just like during the 1997 and 2007 financial crises. When the “10-minute economy” retreats, then the “10-year economy” must play a role in maintaining stability.

But creating a “10-year economy” is not easy, and based on the experiences in most countries, it must be conducted through state-led industrialization supported by local conglomerates. Examples abound in Japan and South Korea, where conglomerates have supported and participated in government-led industrialization in the early stages to crystalize those countries’ long-term economic success.

In such examples, conglomerates worked closely with government to promote industrial capacity building, create new industries and boost the country’s competitiveness on the international stage. The government also depends on these giants, which in turn also rely on favorable state policies and incentives.

The most recent example is in Vietnam, where the Vingroup conglomerate has been able to develop and produce electric cars thanks to full policy support by the Vietnamese government.

Cambodia’s industrialization effort is still in its infancy, as it has enjoyed uninterrupted peace for merely 20 years and has gradually changed its reputation from a country with a dark history to a country that is stable, fit, and confident for foreign direct investment.

Cambodia used to look like a no-go zone served only by those who conduct humanitarian affairs and adventurous travelers, but the tourists and investors who came to Cambodia in the 2010s were often forced to see that their previous perceptions and prejudices were no longer valid.

The future of Cambodia’s economy requires more attention to the building of tangible industry by local companies with policy support from the government. It is encouraging that Cambodia has started to see some big local companies daring to hire foreign CEOs to provide expertise, to buy technologies from abroad, and also to offer high salaries to Cambodians who have internationally recognized qualifications.

Cambodia needs more of this kind of courage, larger domestic capital investments, higher political commitment and sustainability to mobilize national momentum, to create the sense of national direction, and to create an environment and ecosystem conducive for domestic companies to dare to invest in manufacturing.

Sim Vireak

Sim Vireak is a strategic adviser to the Asian Vision Institute based in Phnom Penh. He has written articles on a variety of topics pertaining to Cambodia's political economy, development and foreign affairs. The views expressed are his own and do not represent those of his affiliation.