Cambodia and ASEAN cooperation on investment

Ousaphea Yuok PhD in History Postgraduate student, Department of Theory and History of International Relations, RUDN University 117198, Russia, Moscow, Miklukho-Maklaya str., 6 yuokphea2015@gmail.com Other publications by this author

Introduction

The relevance of the research topic is due to the growing political and economic influence of ASEAN on the world stage, of which Cambodia is an integral part, demonstrating significant economic and political growth. In addition, the increased tensions between the United States of America and the People's Republic of China should be taken into account, which affects both their relations with ASEAN and the situation within ASEAN. This tension led to the acceleration of the creation of the sovereign Association of Southeast Asian Nations. One of the key instruments for the creation of this sovereign association is investment policy and foreign direct investment.

The object of the study is Cambodia's cooperation with other ASEAN countries.

The subject of the study is the cooperation between Cambodia and ASEAN in the field of investment.

The main purpose of the study is to identify the key problems of Cambodia's investment policy within the framework of ASEAN.

To achieve this goal, the author had the following tasks: to study foreign direct investment in the context of the theory of neoliberalism; to study Cambodia's investment policy; to assess the investment climate of ASEAN; to analyze investment cooperation between Cambodia and ASEAN.

This work is based on the theory of neoliberalism in international relations. The key theorist of neoliberal institutionalism is the American political scientist and author of the term "soft power" Joseph Nye. The paradigm of neoliberalism considers the system of international relations as a non-anarchic system with the primacy of international law and trade, limiting the potential of armed conflict.

In the course of this research, the author used the following methods: content analysis, institutional, historical and statistical methods.

The scientific novelty of this study is based on the discovery of an imbalance in investment flows between the Kingdom of Cambodia and other ASEAN countries, consisting in the predominance of incoming investment flows over outgoing ones. Moreover, the author gives practical advice on improving Cambodia's investment climate in relation to ASEAN countries: The Kingdom of Cambodia needs to continue attracting FDI from both ASEAN member countries and outside the Association, but priority should be given to the ASEAN member States. In parallel with the growth of Cambodia's economy, the state needs to reduce the imbalance in investment flows by increasing outbound investments, primarily in the economies of ASEAN member countries. Moreover, the author found that Cambodia's investment regulations are aimed at attracting significant flows of incoming investments, rather than increasing outgoing investment flows to the economies of other countries.

Foreign direct investment (FDI) as part of the theory of neoliberalism

Since the end of the Cold War, the role of foreign direct investment (FDI) has grown significantly. According to Joseph Nye, a key theorist of neoliberalism and the author of the term "soft power", after the end of the Cold War and the disintegration of the Soviet Union, the military power of states became less utilitarian, since its use entails significant risks and losses. J. Nye notes: "Factors of technology, education and economic growth are becoming increasingly important in the context of international power, at the same time geography, population and raw materials are becoming less significant." According to J. In fact, one of the key factors mentioned earlier was foreign direct investment, the use of which can be directed at various actors: "Money is interchangeable in the sense that it is easy to convert it from one currency to another. Power has always been less interchangeable than money, but at the moment it is even less interchangeable than before... international investments create new interests and complicate coalitions in world politics." With regard to developing countries, J. Nye writes the following: "From a traditional point of view, states are the only significant actors in world politics, and only some large states play a significant role. However, at the moment other actors are becoming more and more important" ^[1].

Moreover, American political scientist Robert Keohane notes that in the post-Cold War era, the role of non-state actors, including multinational companies, has increased. Keohane proposed the concept of neoliberal institutionalism, which evaluates the role of non-state actors in the politics of countries, which in turn can lead to strengthening interstate cooperation and reducing the chance of a potential military conflict ^[2].

Thus, after the end of the Cold War, the role of financial capital increased against the background of a decrease in the importance of the traditional power of States. Key theorists of neoliberalism point out that, using financial capital, states build relationships based on mutually beneficial principles, which is also applicable to developing countries.

In order to confirm the role of financial capital and foreign direct investment in the context of the theory of neoliberalism, the author refers to the material of the International Monetary Fund (IMF). In the IMF article "Foreign Direct Investment in developing countries", the authors note that the flow of foreign direct investment in the period 1980-1997 increased by an average of 13% annually. Moreover, they note that the share of developing countries in the flow of incoming investments increased in the previously designated time period from 26% to 37%, and outgoing investments from developing countries increased from 3% to 14% ^[3]. In addition, the World Bank also confirms the increase in the flow of FDI, noting that the global volume of FDI in 1991 amounted to 221 billion US dollars, and in 2000 – 1.4 trillion US dollars ^[4].

Based on the previously presented data, it can be concluded that after the end of the Cold War, the influence of developing countries on the world stage increased, and the role of financial capital in developing countries became more significant, which fully corresponds to the theory of neoliberalism.

After the parliamentary elections in Cambodia in 1993, which were won by the National United Front for an Independent, Neutral, Peaceful Cambodia – FUNCINPEC, the "National Program for the Reconstruction and Rehabilitation of Cambodia" was adopted. This program was aimed at attracting foreign investment in key sectors of the Cambodian economy. According to D.V. Mosyakov, a leading Russian expert on Southeast Asia, in the period 1993-2005 Cambodia was able to attract about 5 billion US dollars of investments from the United States and Japan ^[5].

After the admission of Brunei (1984), Vietnam (1995), Laos and Myanmar (1997) to ASEAN, Cambodia became a full member of the Association of Southeast Asian Nations (ASEAN) in 1999 ^[6].

Since Cambodia's accession to ASEAN, the country's economy has been showing significant growth rates. According to the World Bank, Cambodia's GDP grew from 3.44 billion US dollars to 10.35 billion US dollars in the period 1995-2008. It is worth noting that the global financial crisis of 2008 affected Cambodia's economy to a lesser extent, as can be seen from the country's gross domestic product in 2010, which amounted to 11.24 billion US dollars ^[7].

As reported in the World Bank's World Bank in Cambodia report: "Cambodia's economy grew by an average of 7.6 percent between 1995 and 2019, mainly due to tourism, manufacturing, real estate and construction, making it one of the fastest growing economies in the world"^[8].

Having identified the key sectors of the Cambodian economy that bring a significant part of revenues to the state budget, foreign direct investment should be considered, the role of which in the Cambodian economy should not be underestimated. The Open Development Cambodia Agency notes that foreign direct investment has played a key role in the country's economic growth and poverty reduction, and the agency also reports that a sharp increase in FDI inflows into the Cambodian economy began after Cambodia joined the World Trade Organization (WTO) in 2004 ^[9]. The agency's data is confirmed by the World Bank, which notes that in 2003 Cambodia was able to attract about 81.58 million US dollars of foreign direct investment, which corresponded to 1.8% of the country's GDP ^[10], at the same time, the flow of incoming FDI into the Cambodian economy in 2019 amounted to 3.66 billion US dollars (an increase of 44 times), which is equivalent to 13.5% of Cambodia's GDP ^[11].

As for Cambodia's investment policy, it is worth noting that, according to UNCTAD, the first law regulating the country's investment flows was adopted in 1994. The main provisions of this law are:

1. The main provisions;

2. Cambodia Development Council;

3. Investment Procedures;

4. Investment guarantees;

5. Investment incentives;

6. Ownership and use of land;

7. Labor practices;

8. Disputes and termination;

9. Final provisions ^[12].

The next step in creating a legal framework for Cambodia's investment policy was the adoption in 2003 of the Investment Law, which specified many of the main provisions of the 1994 law. Such clarifications include the systematization of dispute settlement, protection from nationalization of property, etc.

In parallel with the development of the Investment Law of 2003, the Cambodia Development Council was established in 2002, whose main task was to "Encourage and facilitate foreign and local investment in order to achieve a healthy private sector in the development of Cambodia." To achieve the previously mentioned objective, the Cambodia Development Council has set itself the following goals:

1. Providing information to potential investors;

2. Consideration of investment applications and grant support;

4. Provision of support services to investors after the implementation of their projects;

5. Creation of a platform for private investors to participate in the political dialogue within the framework of the forum with the participation of government representatives, held twice a year ^[13].

The last investment law in Cambodia was passed in 2021. This law encourages investments in the Cambodian economy by improving the "climate" in which investors carry out their activities: the period for issuing certificates of registration of investors and their projects is reduced to 20 days, the activities of line ministries are audited, the safety of investors and their projects in Cambodia is ensured by observing international law ^[14]. The complexity of this law is indicated by the number of concretized concepts reflected in 12 parts of the NPA itself:

1. The main provisions;

2. Cambodia Development Council;

3. Investment mechanism at the municipal-provincial level;

4. Registration and implementation of investment projects;

5. Investment guarantees and protection;

6. Investment incentives;

7. Acquisition, sale or merger of an investment project;

8. Cancellation of the investment project;

9. Disputes and dispute resolution;

10. Realization;

11. Transitional provisions;

12. Final provisions.

The conducted content analysis of this law demonstrates which lexical units prevail in this NPA:

1. investments;

2. The law;

3. The project;

4. The article;

5. Cambodia Development Council;

6. Cambodia;

7. By-law;

8. Tax;

10. Qualified institutional placement;

12. Municipal-provincial;

26. Industrial;

41. employee;

63. technology, etc.

Based on the previously conducted content analysis, it can be concluded that a key aspect of this law is the attraction and regulation of foreign direct investment in Cambodia through the activities of the Cambodia Development Council. The greatest attention in this document is paid to the protection of investors, attracting investments to the municipalities of the country, etc.

It is also worth noting the key investors in the Cambodian economy:

1. The People's Republic of China;

2. The Republic of Korea;

3. The European Union;

4. Malaysia;

5. Vietnam;

6. United States of America;

7. Thailand;

8. Hong Kong;

9. Singapore ^[15].

Summing up all the above, it can be concluded that the active development of Cambodia's investment policy began in the 1990s after the transition to a market economy. The first law regulating the investment policy of the Kingdom of Cambodia was a 1994 document that laid the foundations for the state's investment policy. The next step in the development of the state's investment policy was the 2003 law, which largely complemented and specified the previous NPA. In 2004, Cambodia joined the WTO, which led to a sharp increase in FDI inflows into the country's economy. The latest investment law was adopted in 2021 after the end of the COVID-19 pandemic. Such a systematic policy to systematize the regulatory framework and attract FDI into the country's economy allowed the country's leadership to achieve an average annual GDP growth of 7.6%.

ASEAN Investment Climate

ASEAN member states are among the main recipients of foreign direct investment: in 2022, the total flow of incoming investments into the economies of ASEAN member countries amounted to 225 billion US dollars, but Cambodia is not a key recipient of foreign investment. The hierarchy of FDI recipients within ASEAN is as follows:

The hierarchy of FDI recipients within ASEAN

It is important to understand that the key investors in the economies of ASEAN member countries are the United States (40.2 billion US dollars - 22.5%), China (18.7 billion US dollars – 7%), Japan (27 billion US dollars), Hong Kong (13 billion US dollars), the Republic of Korea (13 billion US dollars) ^[17][18].

The United States and China compete for foreign direct investment in ASEAN due to a number of factors, the most significant of which is the rapid growth of the Association's population (the population of ASEAN in 1967 was 259.5 million people, and in 2023 – 686.8 million people), which clearly affects the number of workers in the member states of the Association ^[19]. The opportunity to use the labor of such a large number of workers can affect the position of both the United States and China in the international arena ^[20].

The key industries in which the United States, China, Japan, etc. invest their own investments are finance and insurance, wholesale and retail trade, manufacturing, real estate, transport, warehousing, mining and quarrying, electric power, agriculture, fishing, etc.

However, it is important to understand that different countries invest in different ASEAN member states: The United States invests more in Singapore's economy, while Japan invests in the economies of Vietnam, the Philippines, Indonesia and Myanmar ^[21].

Summing up all the above, we can conclude that ASEAN is the most attractive destination for foreign direct investment due to the rapid population growth. The key investors in the economies of the ASEAN member countries are the United States, China, Japan, the Republic of Korea and Hong Kong. At the same time, the key recipients of FDI within ASEAN are Singapore, Indonesia, Malaysia, Thailand and Vietnam. The key industries in which developed countries invest are finance and insurance, wholesale and retail trade, manufacturing, real estate, transport, warehousing, mining and quarrying, electric power, agriculture, fishing, etc.

Cambodia-ASEAN investment cooperation

Cambodia-ASEAN investment cooperation is based on incoming and outgoing investment flows:

Outgoing investments. The Kingdom of Cambodia invests about 150 million US dollars (at the time of 2022), which is 23 times less than the volume of incoming investments ^[22]. The key recipients of Cambodia's investments are the Netherlands, the USA, Germany, Sweden, Estonia and Greece ^[23]. As it is easy to see, the Kingdom of Cambodia invests its own financial capital in states with significant industrial potential or developed port infrastructure. At the same time, it is worth noting that outgoing investments in the economies of the ASEAN member states are insignificant.

Incoming investments. According to one of the leading information agencies, FDI Intelligence, the Kingdom of Cambodia is one of the key recipients of FDI, bypassing countries such as Iraq, Kenya, Namibia, Kazakhstan, Azerbaijan, Morocco, India, etc. ^[24]. The main investors in the Cambodian economy were discussed earlier in this article.

Key investors in Cambodia's economy within the framework of ASEAN are Thailand, Singapore and Malaysia ^[25]. Each of the previously designated states invests in various sectors of the Cambodian economy: Thailand – food, tobacco, construction; Singapore – textiles, clothing, shoes; Malaysia – wood, paper, printing ^[26].

One of the key ways to attract FDI into the Cambodian economy are special economic zones – SEZs. Since 2005, Cambodia has had about 54 SEZs, but by 2022 their number has decreased to 22. The creation of special economic zones was aimed at accelerating the country's economic growth by attracting foreign investment ^[27].

List of special economic zones of Cambodia

N/A

Source: ^[28]

Based on the information provided earlier, more than 140 different international companies operate on the territory of the SEZ in Cambodia. The largest registered companies are Phnom Penh, Sihanoukville, Manhattan and Tai Seng Bavet SEZ. It is worth noting that such a clear popularity of these SEZs among investors is due to favorable business conditions, even in comparison with SEZs of other countries within ASEAN, for example, the Philippines: the cost of establishing a company in the SEZ of Cambodia is 16,135 US dollars against 21,850 US dollars in the Philippines, annual costs – 2,300 US dollars against 134,500 US dollars, issued joint stock The capital is $1,000 against $200,000. Moreover, companies registered on the territory of the SEZ in Cambodia are not taxed, while in the Philippines companies are required to pay taxes in the amount of 5% of profits ^[29].

An equally important factor in attracting FDI to the Cambodian economy is its rapid growth: according to the World Bank, the growth of the Cambodian economy in terms of gross domestic product (5.4% in 2023) was higher than the global average and outstripped the economic development of other ASEAN member states ^[30]. Moreover, Cambodia is the leader among ASEAN member states in terms of employment in industrial production: about 79.5% of the country's total working-age population is employed in industry, which is higher than the global average of 66% ^[31].

Based on the information provided earlier, it can be concluded that there is a clear imbalance in the investment relations between Cambodia and other ASEAN countries, expressed in the predominance of incoming investment flows into the Cambodian economy over outgoing ones. On the one hand, a significant flow of incoming FDI has led to the rapid growth of the Cambodian economy and the solution of the country's key economic problems, which include low labor productivity and small nominal GDP. Moreover, within the framework of ASEAN, the member States of the Association invest heavily in the country's industry, which clearly contributes to the development of the Cambodian economy and the reduction of unemployment. However, on the other hand, due to the continuing low nominal GDP, Cambodia is unable at this stage of economic development to invest significant amounts in the economies of ASEAN member countries, investing only in the economies of Western countries, which leads to capital outflow outside ASEAN.

At this stage of economic development, Cambodia needs to further attract FDI from ASEAN member States as a matter of priority for the purpose of mutual and sovereign development, which clearly corresponds to the goals of the Association ^[32]. Moreover, Cambodia needs to reorient incoming FDI into more knowledge-intensive industries, which include education and microelectronics.

Conclusion

The Association of Southeast Asian Nations has demonstrated significant success in the field of economic, political and social development, being the most successful integration association in Asia. One of the reasons for such rapid growth is the policy of non-interference in the internal affairs of other states and the openness of the economy, which attracted significant foreign investment. The key investors in the economies of the ASEAN member countries are the United States, China, Japan, the Republic of Korea and Hong Kong. At the same time, the key recipients of FDI within ASEAN are Singapore, Indonesia, Malaysia, Thailand and Vietnam. The key industries in which developed countries invest are finance and insurance, wholesale and retail trade, manufacturing, real estate, transport, warehousing, mining and quarrying, electric power, agriculture, fishing, etc.

The openness of Cambodia's economy and peaceful foreign policy allowed the Kingdom of Cambodia to attract significant foreign investment into the country's economy at the turn of the millennium, making Cambodia one of the fastest growing developing countries. However, in parallel with the development of ASEAN and the growth of its role in the international arena, the imbalance in investment relations between Cambodia and other ASEAN member States also grew. At this stage of economic development, Cambodia needs to further attract FDI from ASEAN member States as a matter of priority for the purpose of mutual and sovereign development, which clearly corresponds to the goals of the Association. Moreover, Cambodia needs to reorient incoming FDI into more knowledge-intensive industries, which include education and microelectronics.