Buyers look at bags of milled rice at Golden Rice (Cambodia) Co in Phnom Penh in 2010. Photograph: Sovan Philong/Phnom Penh Post

For Thai Supachai Verapuchong, Cambodia was the right place for investment.

“To do business in a country, you need to understand the community, beliefs and culture,” said the managing director of Sofitel Phnom Penh Phokeethra Hotel, adding that it helps that Thailand and Cambodia have muchin common.

In Cambodia, building hotels also makes sense, he said, with Cambodia having a rich culture and “the longest history in Indochina.”

With more tourist attractions than Laos, and flanked by long-popular tourist destinations Thailand and Vietnam, Cambodia is an attractive market to Thai investors like Supachai. Despite accounting for only a small share of the Kingdom’s total foreign investment, Thai investment in Cambodia increased last year.

Statistics from the Council for the Development of Cambodia (CDC) show that Thai projects approved by the council in 2010 were valued at $2.04 million. The CDC did not have any figures about approved Thai projects for 2011.

Last year, Thai projects approved were worth $120.9 million.

Peter Brimble, deputy country director at the Asian Development Bank, said according to the official foreign direct investment (FDI) inflow statistics of the National Bank of Cambodia, Thai FDI in Cambodia has only accounted for around 2.7 per cent of total inflows from 2009 through the first three quarters of 2012. But he said Thai FDI inflows have increased from $12 million in 2010 to $36 million to the third quarter of 2012.

“Compared to other lower-income ASEAN countries, Cambodia has a very open trade and investment regime, macroeconomic stability, young and lower cost of labour, and gradual improvement in infrastructure,” said Sothea Oum, an economist at the Economic Research Institute for Asean and East Asia.

Hiroshi Suzuki, CEO and chief economist at the Business Research Institute for Cambodia, said the biggest advantage Cambodia offers Thai investors is the low cost of labour. “The wage in Thailand is more than three times higher than that of Cambodia,” he said.

In January, a new minimum wage went into effect in Thailand, mandating that every worker receives a 300 baht ($10) daily wage. With the cost of labour rising in Thailand, growing numbers of Thai garment manufacturers are looking to Cambodia.

In December, the Bangkok Post reported that TK Garment, a leading original equipment manufacturer for Thai fashion lines, is relocating its largest production site to Cambodia to evade higher wage costs.  

 The company’s chairman, Thaveekij Jaturajaroenkhun, was reported to have said that 10 other garment companies are also in the process of relocating to neighbouring countries – especially Cambodia and Vietnam.

In addition to low labour costs, Cambodia’s location and ease of connection between Phnom Penh and Bangkok is also attractive to Thai investors – in contrast with Myanmar.

“From Phnom Penh to Bangkok, it is only 500 kilometres and well connected by fair conditions on national roads. Yangon is in fact not connected to Bangkok. They have to use the ship,” Suzuki said.

Oum added Cambodia is the centre of dynamic production networks and consumption bases in Bangkok and Ho Chi Minh City along the Mekong-India Economic Corridor, “which are well connected by the ASEAN highway network and facilitated by cross-border transport agreements”.

Thai investors are also looking into other sectors such as agriculture.

“One hears mostly about agrobusiness – animal feed, sugar, cassava processing, and more recently rice milling to escape the high minimum paddy prices imposed by the Thai government,” Brimble said.

Thailand’s second- and third-largest rice exporters have relocated parts of their businesses to Cambodia, Reuters reported. “It also appears that a number of Thai-based Japanese firms are expanding their activities to

Cambodia in autoparts and electronics,” Brimble said. “This is a major driver behind the diversification of the Cambodian manufacturing base beyond garments.”

Challenges ranging from infrastructure problems, high electricity costs and a lack of skilled labour face Thai investors coming to the Kingdom.

“National road No 5 is the most important connection road. It is essential to improve National Road No5,” Suzuki said. “The power sector also needs good investment not only for the volume of electricity but also for decreasing the power tariff.”

According to Supachai, one potential barrier to Thai investment is the “fluctuating” political situation between Thailand and Cambodia. But he was optimistic that tensions – in Preah Vihear, for instance – will be “resolved for sure”.

Oum said high energy costs and a lack of skilled labour continue to be constraints not only for Thai investors but also for all capital and production investments. “Reducing costs in trade clearances and fast investment facilitation are critical to improve the overall business environment to attract more investments,” he said.

Remaining challenges will not deter Supachai from further investment.

Over the next two years, he plans to invest up to $20 million on a Phokeethra golf course, and another $30 million on a three- or four-star hotel, both in Phnom Penh.

To contact the reporter on this story: Anne Renzenbrink at [email protected]

Low Wei Xiang at [email protected]