April 17, 2011

Cambodia Infrastructure Report Q2 2011

BMI View: The approval of large scale infrastructure projects in Cambodia over the past quarter is driving up our forecasts for the country's construction industry. Real growth for the sector was revised upward to 8.9% in 2011 (previously 6.9%), pushing the nominal industry value to KHR2.93trn (US$711mn). Although we maintain our bullish outlook for Cambodia's construction sector over the medium term, the ongoing border conflict with Thailand and rising inflationary pressures present pertinent downside risks to our forecast.

Key developments contributing to forecasts included:
  • In December 2010, NSRIA Co. - a joint venture between South Korean companies Lees A&A Co. and Camko Airport Co. - won a US$1bn build-operate-transfer (BOT) concession for the Siem Reap International Airport for a period of 65 years. In addition to an international airport with an annual handling capacity of 15mn passengers, the development will also include a 15.4 square mile city and a 'Special Economic Zone' and dry port, which are expected to be operational by the end of 2015, according to Bloomberg.
  • In January 2011, VN International, a subsidiary of state-owned utility Electricity of Vietnam (EVN), received government approval to design and construct one of the largest investments in Cambodia's hydropower sector to date - The US$800mn, 400MW Lower Se San 2 hydropower plant.
Over the medium term, we expect this robust growth in the construction industry to continue. We are forecasting Cambodia's construction sector to average real growth of 11.3% per annum between 2012 and 2015. However, recent developments have also presented a number of risks to our forecast, namely military conflicts over a border dispute between with Thailand; and mounting inflationary pressures.

Cambodia's business environment has a long way to go before it can compete with regional neighbours, never mind developed countries. There are several major factors holding the country back, not least the poor state of existing infrastructure and regulation. A haphazard financial landscape and widespread corruption impinge on future growth rates. However, the country has improved significantly this quarter rising to 36.1, overtaking Pakistan to be placed second from the bottom in BMI's Asia Pacific Region business environment ratings.


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