Japan’s investment in Cambodia continues to grow and its investors are playing a leading role in developing and diversifying the Kingdom’s light industrial sector. The Post’s Hor Kimsay sat down with Yasuhara Hiroto, head of the Japan Desk at the Council for the Development of Cambodia (CDC), to discuss what is drawing Japanese investors to Cambodia, and where they are directing their capital.

Japan was the first country to set up its own department at the Council for Development of Cambodia, called CDC-Japan Desk. Why?

Japanese companies that are interested in investing in Cambodia found difficulties communicating in this country. It is not only the language, but also how to access the correct information about investment laws and the procedures for starting a business. There are also obstacles for getting and submitting the right paperwork for QIPs (Qualified Investment Projects). So, with the Japan Desk, investors can communicate easier.

What is attracting Japanese FDI and where is it being directed?

Japanese companies see Cambodia as a promising market, and that is why we have seen many investments towards the service industry so far this year. Most of this investment is in the second Aeon mall project, the new Starts hotel, an All Nippon Airways (ANA) direct flight between Phnom Penh and Tokyo, as well as a Japanese hospital. However, at the same time, Cambodia is receiving less investment into its manufacturing sector.

What is causing Japanese investment into manufacturing to slow down?

Cambodia used to be considered as a low-wage country, but the minimum wage has been increasing gradually. We understand that higher salary is needed for the people to improve their lives, but at the same time it causes Cambodia to lose its advantage as an attractive place for investment. Plus, there is the high cost of electricity that Japanese investors always complain about and the administrative complexity of the infamous unofficial payment requests that are demanded.

There is also the high cost of logistics that include a forwarding charge and transportation charge. According to new data from Japan International Cooperation Agency (JICA), the forwarding charge of goods in Cambodia totals $540 per TEU (twenty-foot equivalent unit, the size of a standard container), while in Thailand it is just $200 and for Vietnam $250.

Lastly, Vietnam is also a member of Trans-Pacific Partnership (TPP), which has made it quite attractive for Japanese companies.

What are your expectations on the flow of investment for the rest of this year?

I think it will slow down because manufacturing investment is very low. Surprisingly, we haven’t seen any Japanese investment at Phnom Penh SEZ for the first half of this year.

However, I expect that with the rebound of Thailand’s economy, we could see more Japanese investment going to Poipet in the second half of this year.

How are the economic changes in Japan affecting companies that are considering investing Cambodia?

The Japanese yen has appreciated over the last six months, making it more difficult for Japanese-made products to compete in the international market. This could motivate more Japanese investors to explore opportunities overseas, including Cambodia. Cambodia is a dollarised economy, and while the US dollar has depreciated compared to the yen, it makes production costs here lower.

This interview has been edited for length and clarity.