October 26, 2011

Cambodia Infrastructure Report Q4 2011

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The surge in the number of approved construction projects and the approval of several largescale infrastructure ventures in Cambodia over the past year have combined to drive our forecasts for the country's construction industry. Real growth for the sector is set to reach 10.8% in 2011, pushing the nominal industry value to KHR2.86trn (US$693mn). Although we maintain our bullish outlook for Cambodia's construction sector over the medium term (real growth of 8.3% per annum between 2012 and 2015), the ongoing dispute with Thailand on the country's border, declining tourist arrivals, and rising inflationary pressures present pertinent downside risks to our forecast.

Key developments contributing to forecasts included:

.. In July 2011, a feasibility study has shown that a proposed 257km railway that would stretch from Cambodia to Vietnam would cost at least US$686mn, as reported by Vietnam News. The railway is part of a project launched in 2008 intended to develop the intra-Asian railway network. The Chinese government has pledged to contribute US$500mn towards the project. The study is to be submitted to Cambodian Prime Minister Hun Sen for approval.

.. In June 2011, government-approved investment in the Cambodian construction industry grew 87% in the five months ended May 31 2011, according to data from the Ministry of Land Management, Urban Planning and Construction. The government approved 868 construction projects, valued at approximately US$505mn, during the period, compared with 889 projects, worth US$270mn, in the same period a year earlier.

.. In June 2011, Nagacorp, the Cambodian company behind the capital Phnom Penh's only casino, has announced two gaming resort projects worth US$369mn in the country. They are the 15,778 square metre (m2) retail development called City Walk and the TSCLK Complex - a 97,620m2 development with gaming, hotel, retail and conference facilities.

Cambodia's business environment has a long way to go before it can compete with its regional neighbours, let alone developed countries. There are several major factors holding the country back, not least the poor state of existing infrastructure and regulation. Furthermore, a haphazard financial landscape, and widespread corruption impinge on future growth rates. However, the country has improved significantly this quarter with its Business Environment rating rising to 38.3, overtaking Pakistan to place second from the bottom in our Asia Pacific Region Business Environment Ratings.

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