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A Close Neighbor, Vietnam Increases Investment

Through August this year, Vietnamese companies have invested nearly half a billion dollars, a giant increase in activity that makes the country a top investor, along with China, South Korea and Russia.

Economic conditions and the strong political relationship between the two countries have led to the increase, analysts say.

“There are narrow business markets in Vietnam, with a lot of business people facing high competition,” said Chan Sophal, president of the Economists Association of Cambodia. “Furthermore, they have no free land to make investments. So they see our country as a neighbor with huge free land. It’s a good opportunity for them to invest in.”

Meanwhile, a stall in investment from other countries has given Vietnam a better chance to invest than in past years, Chan Sophal said.

In 2008, fixed investment from Vietnam was just $20 million, according to government figures. That number is just a sliver of the $534 million invested in the first eight months of this year alone.

Since 2005, Vietnamese companies have looked to Cambodia to invest in minerals, hydropower, telecommunications and rubber plantations. But in recent months, these investors have extended their range into banking, an airline and agriculture.

Last month, Vietnam opened a branch of one of its biggest banks, the Bank of Investment and Development of Vietnam, starting with a capital of $100 million. That followed Vietnamese joint investment in the new national airline, Cambodia Angkor Air, with a capital share of $49 million, after negotiations with Indonesian investors failed.

And last week, a Vietnamese delegation signed a $420-million agricultural investment agreement that included plans for rubber plantations and factories for sugar cane, ethanol and power generation.

Chap Sotharith, a senior economic researcher for the Cambodia Institute for Development and Peace, said Cambodia had become an attractive option as a primary investment destination for Vietnam because it could not only help expand a business market but provided a tax and export benefit.

Politics is also a motivating factor, analysts said.

“A historic political relationship between Cambodia and Vietnam, along with confidence among leaders of the two countries, makes Vietnamese investors confident,” Chan Sophal said.

Chheang Meng Heak, a professor of economics and finance at the Royal University of Law and Economics, said Vietnamese investors were confident in coming to Cambodia because they depend on political relationships to secure their businesses.

“Political relationships are seen as a buckle to protect business interests,” he said.

Lee Bien Cuong, commercial councilor at the Vietnamese Embassy in Phnom Penh, acknowledged the political relationship as a main attraction for Vietnamese investors.

The relationship can be traced back to the ouster of the Khmer Rouge by Vietnamese forces, in January 1979 and the decade-long takeover that followed. Many members of the current government were put in place during Vietnam’s occupation.

That political friendship was bolstered recently when Cambodia and Thailand began military tensions over a disputed border region near the temple of Preah Vihear. By comparison, Vietnam has opened six borders with Cambodia to boost trade and investment.

Vietnam hopes to see bilateral trade climb to $2 billion in 2010, from $1.7 billion in 2008.

The investment relationship has its critics.

“Whenever there is political motivation behind investment, it will make a huge [economic] loss, because there will be no more competition,” said Yim Sovann, a lawmaker for the opposition Sam Rainsy Party.

Meanwhile, Sok Chenda, secretary-general of the Council for the Development of Cambodia, said investment depends on investment laws, and no country receives special conditions.

“We make a balance of countries from the West and the East, including socialist countries like Vietnam and China, as well as countries like France and the US,” said Phay Siphan, spokesman for the Council of Ministers.

Economists agree: Any legal investment will provide economic benefits through job creation and tax revenue for the government.