July 8, 2011

The Riel Deal: Ties with Thailand


AS Prime Minister Hun Sen heralds a “new era of cooperation” between Cambodia and the newly elected Puea Thai government, Cambodians can hope the Red Shirt’s electoral victory ushers in a new era of trade and investment from their western neighbour.

Despite promises from both sides that business would continue as usual, even as clashes raged along the border, it was anything but. The most obvious hit was taken by the Kingdom’s tourism industry, as the number of tourists entering from Thailand inevitably took a hit during the fighting.

Although the statistics generally note an increase in visitors over the first few months of 2011, tourists entering through Poipet and other crossings with Thailand doubtlessly would have grown further without the border conflict.

Regardless of past Ministry of Tourism pronouncements, the country’s tourism sector clearly requires Thai support. Although linkages with other ports of entry are increasing, Bangkok is still the main port of entry to Cambodia for hundreds of thousands of visitors each year.

Authorities from both governments have repeated that the bilateral trade relationship continued unhindered, pointing out statistics showed increases in trade during the period. But at times the conflict risked spilling more significantly into the sphere of business.

Thailand, for instance, closed some of its border gates located near the fighting, and Hun Sen responded by threatening to look elsewhere for much-needed imports. Cambodia’s Commerce Ministry also postponed a major Thai trade fair in Phnom Penh, claiming its safety could not be guaranteed.

With the friendly-to-Cambodia Shinawatra family back in power, one hopes this back-and-forth fades quickly. While Thailand imports a significant amount of its agricultural produce from Cambodia, an even larger quantity of consumer goods travels in the other direction. More than that, though, Cambodia could well benefit from Thai investment in the country, particularly in sectors such as services and agriculture.

Proposals from Thailand accounted for just 0.08 percent of all approved foreign investments in 2010, according to the Cambodian Investment Board. And there were no Thai projects among the 42 large-scale investments approved by the Council for the Development of Cambodia during the first five months of this year.

Certainly, it would behoove Thailand to build out the Kingdom’s meager milling capacity in order to take advantage of cheaper labour here. Much of Cambodia’s surplus paddy is currently bought by Thai middlemen, and then milled and exported in Thailand. But a scenario where Thai rice mills set up in Cambodia, taking advantage of lower domestic labour costs and wider market access afforded to domestic exporters, is easy to envision.

This kind of investment would significantly assist the Cambodian government in its goal of exporting 1 million tonnes of high-quality rice by 2015. Vietnam and other foreign investors could play a role here as well. However, Thailand is the world’s largest rice exporter, and has the skills, experience, and capital required to take the lead.

Of course, all of this depends on the Puea Thai government retaining power. Given the history of coups in the Kingdom’s western neighbour, there’s no guarantee that will happen. But even in a scenario where the Yellow Shirts reclaim power, the Cambodian government ought to find a way to work with them.

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