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Understanding Cambodia: Does the Political Unrest Affect my Investment Future & What Does the Election Mean to Me?

Posted by on 25/06/2014
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Believe it or not, the recent political turmoil in Cambodia may bode well for foreign investors interested, once properly understood. The 2013 election season proved eventful, and grew even more so over the past week.  Some investors shy away from politically charged situations and fear change. We believe that Cambodia is a safe investment even in light of the recent parliamentary changes. Fulfilling the requirement for a summary of the current political climate of Cambodia and translation of the recent elections, we have created this publication.

Let’s recap the recent election: On July 28, 2013, the first elections inclusive of the newly formed Cambodia National Rescue Party (CNRP) were held.  The initial results left the current ruling party, the Cambodian People’s Party (CPP), with only 55% of the National Assembly seats, down significantly from the 77% held previously.  The CNRP believes that it won a majority of the vote and has accused the CPP’s election committee of committing election fraud that has potentially denied millions the right to vote.[1]  The CNRP is demanding answers and an impartial investigation into the validity of the July elections. The CPP denies any electoral wrongdoing. The recent protests in Phnom Penh are a result of this dispute.

Though the protests and accusations of electoral fraud certainly deserve our attention, it is important to note that regardless of the outcome, even the disputed election results have restored checks and balances to the National Assembly. For the first time since at least 1998, bipartisan agreement will be required to change the constitution. Indeed, investors stand to gain in that the CNRP’s presence in the National Assembly will mean a focus on the Cambodian youth—a segment of the population all but forgotten by the CPP.

Understanding the political and economic inner workings of Cambodia allows us to better guess what the future holds for the country.  The countries we look to today and acknowledge as fiscally strong had to sort through their own political and social issues before assuming their current positions. The current unrest in Cambodia illustrates that its political system still experiencing growing pains, yet the long-term view of the country’s trajectory shows nothing but forward progress.

 

Cambodian Investment History

Investor interest is hard to gauge prior to 1979 due to shoddy record keeping during the rule of the Khmer Rouge. Owing to the natural progression of developing democratic practices and the process of ridding the country of the remnants of war, it was not until the mid- 1990’s that Cambodia began appealing to investors.  Years of steady progress have paid off and the economy of Cambodia can now rightly be called “open.”

Over the past two decades, Cambodia has seen an extensive financial growth.[2]  One only has to look at the trade agreements Cambodia has signed over the years, the organizations in which Cambodia has membership—the World Trade Organization and the Association of South East Asian Nations (ASEAN) being the most prominent—and evolving investor-friendly policies to understand that Cambodia is actively courting investors. This economic growth is coupled by social growth, as local advocates are increasingly standing up for the rights of Cambodian workers and fighting for humane working conditions. Social and economic growth are symbiotic and imperative to the endurance of a market; in this regard, Cambodia’s future looks promising.

 

How Does the Parliament of Cambodia Work, What Has Changed?

The Cambodian Parliament is governed by a constitutional monarchy where the Royal Head or Monarch is the head of state and the Prime Minister is the head of government.  The Prime Minister is a representative of the ruling party of the National Assembly.  The National Assembly is the lower of two houses in the Cambodian Parliament and consists of 123 seats.

Altering the Constitution of Cambodia requires a 2/3 vote by the National Assembly. Until the July 2013 elections, Hun Sen’s Cambodian People’s Party (CPP) had 90 seats and was able to quorum and change the constitution without the consent of the opposing party. As the results of the July 2013 elections stand, the CPP no longer has the ability to alter the constitution and conduct business without opposition. The Cambodia National Rescue Party (CNRP) now has at least 45% of the seats in the National Assembly and as such will have a substantial say in legislative initiatives. This is good news for investors. Previously enacted laws that have been favorable to investors are in no danger of being unilaterally amended by the CPP.

 

Who Is the New Party and What Are Their Goals?

The first thing to know about the Cambodia National Rescue Party is that they are popular, especially with the majority of adults in Cambodia under the age of 30.  Despite a law prohibiting Cambodians from voting outside of their birth village, the CNRP still managed to win 45% of the seats in the National Assembly—an increase of over 20% from 2008.

The CNRP is the result of the merger of two opposition parties and its success is a promising development for the Khmer people and Cambodia’s future.  The Human Rights Party and the Sam Rainsy Party set aside their ideological and personal differences in 2012 to form a “super” party to grab a majority of the vote.  Separately, the two parties had already attracted approximately 30% of the votes, with the Sam Rainsy Party responsible for about 2/3 of that.  For the new party to be successful, however, it would need to find a platform that would resonate with more voters.

For the 2013 election, the CNRP focused on the 70% of Cambodians under the age of 30 and on tackling the land ownership concerns that have been such a major issue in the country.  Also addressed by the CNRP were the minimum wage, the salaries of civil servants, the availability of important commodities to Cambodians, and compulsory payments to the elderly. Hun Sen claims that CNRP goals will be hard to attain[3], yet the CNRP believes that the reclamation of Cambodia’s assets can pay for the changes they advocate.

 

Didn’t the CPP Make Cambodia Investor Friendly?

There is no arguing the economic success that Cambodia has experienced while the CPP has been in power. Other spheres, however, do not show similar signs of progress—particularly in the area of human rights and land rights.

Human rights issues in the country get considerable attention, yet the issue of land rights is just as prominent. Land ownership concerns plague Cambodians and are an issue that makes investing very difficult for both foreign and local owners. With no true system of accounting for who owns the majority of land parcels in the country, property sales can become complicated. The CPP-led government has taken advantage of this confusion and exercised its right to seize land for the supposed benefit and development of Cambodia without adequately compensating inhabitants, displacing thousands of Cambodians.[4] In 2011 over 51,000 were displaced.[5]

The great economic development has clearly come at a cost, as Hun Sen’s rule has been characterized by a marked disinterest in the welfare of the Cambodian people. Additionally, since many political dealings are corrupt and serve only the interests of the very few, policies benefitting small and medium sized investors have been ignored and corruption has been only lightly dealt with. The good news is that as professional integrity grows and those who work for the government and civil services receive better wages[6], the nuisance of corruption will likely curtail.

Though we can be grateful for Cambodia’s solid economic foundations and future prospects, we should note that Cambodia has outstanding issues that need to be dealt with—for the benefit of Cambodians and foreign investors alike.

 

What Can I Take Away From This?

As of today, the lower house of the Cambodian Parliament consists of 55% CPP and 45% CNRP.  Both parties share the goal of further development, and hopefully we see the CNRP round out the aggressive and sometimes heedless instincts of the CPP. The CNRP’s ability to take the edge off of the CPP is a welcome development for local and foreign investors alike.  Because of this, and despite the protests, we see this election and the emergence of the CNRP as a promising development.

 

[1] The New York Times, Cambodian Opposition Rejects Election Results, July 2013

[2] East Asia Forum, What to expect from Cambodia’s 2013 Election, July 2013

[3] The New York Times, Ruling Party Wins Narrowly in Cambodian Vote, July 2013

[4] East Asia Forum, Cambodia’s Overdue Land Reforms, August 2012

[5] Phnom Penh Post, Cambodia’s ‘worst year’ for land disputes, January 2013

[6] East Asia Forum, What to expect from Cambodia’s 2013 Election, July 2013

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