Uncategorized

No.29 (Mar 19, 2021)

Market Industry Trend

CMA MEMBERS RESTRUCTURE $1.4B IN LOANS. Financial institutions that are members of the Cambodia Microfinance Association (CMA) restructured some $1.397 billion in loans for 289,422 borrowers as of February 28 since the National Bank of Cambodia (NBC) issued a circular on loan restructuring during Covid-19. Based on CMA data, the total number of applicants who apply for credit restructuring during the period was 307,875 borrowers. The figures can be translated to an approval rate for loan restructuring of 94%. Small and medium-sized enterprises (SME) account for the greater part of restructured loans. NBC’s loan-restructuring directive was issued to all banks and financial institutions to restructure credit for loans in four priority sectors – tourism, garments, construction, and transport and logistics, which NBC flagged as the most severely affected by the pandemic. This directive will be implemented until mid-2021. (Phnom Penh Post)

KINGDOM JOINS ASEAN SECURITIES PLAN. The Securities and Exchange Regulator of Cambodia (SERC) and its nine capital-market-regulator counterparts in ASEAN had recently signed a new 5 years Action Plan 2021-2025 during the ASEAN Capital Market Forum (ACMF). The action plan sets out three strategic objectives, namely – fostering growth and recovery with sustainability; promoting and sustaining inclusiveness; and strengthening and maintaining orderliness and resilience. The five key priorities that support the strategic objectives are – driving higher levels of transparency and disclosure; continuing with regulatory harmonization; intensifying capacity building; amplifying communication and awareness building, and strengthening cooperation and coordination within the bloc’s financial community. Since Cambodia Securities Exchange (CSX) inception, the companies have raised a combined $253 million as of September 30. The stock index increased 58.37% in 2019 over 2018 but declined 14.93% in 2020. (Phnom Penh Post)

Macro-economy

ECONOMIC FORECAST FOR 2021 PROJECTS 3.5 PERCENT GDP GROWTH. According to the macroeconomic situation report of the Ministry of Foreign Affairs and International Cooperation, Cambodia is forecasted to register a Gross Domestic Product (GDP) growth of 3.5% and will gradually reach 6.9% by 2024. The industrial sector is poised to fuel the bulk of that growth, followed by services, real estate, and business and agriculture. The overall industrial sector is forecasted to grow by 5.9%, the garment segment is expected to grow by 4.6% and the growth for the construction sector is 2.9%. It is projected that the transportation and communications segments will grow by 4.5%, the hotel and restaurant segment will grow by 0.3% and the service sector will grow by 3.4%. The 2021 projection sees the wholesale and retail trade services segment growing by 3.2%, and the agriculture sector is projected to grow by 1.3%. Inflation is projected to rise to 3.1% this year due to an expected increase in international oil prices. The value of the riel against the $US is predicted to drop to 4,065 riels from 4,080 in 2020. (Khmer Times)

EU PLEDGES $510 MILLION TO CAMBODIA IN 2021-2027. Based on a statement by the Council of Development of Cambodia (CDC), the European Union (EU) plans another $510 million in aid for Cambodia to help the country boost its economic development in the 2021-2027 period. The aid will go toward improvements in agriculture, education, and the country’s governance. According to EU ambassador to Cambodia Carmen Moreno, the draft of EU’s Strategy on Development Cooperation for Cambodia in 2021 and the EU Multiannual Indicative Program 2021-2027 have just been finalized and will be submitted for discussion for more input in the discussion meeting between Cambodia, the EU, and the EU’s partners. Since 1992, EU partners, 10 member countries of EU, and the Swiss Confederation have supported Cambodia with $4.2 billion, which is equivalent to 19% of the country’s total cooperation financing. (Khmer Times)

CHINA RATIFIES THE WORLD’S LARGEST FREE TRADE DEAL. The Chinese government has officially ratified the Regional Comprehensive Economic Partnership (RCEP) agreement, according to Chinese media agency Xinhua. It becomes the second nation after Thailand to do so. All 10 ASEAN members and China, Japan, the Republic of Korea, Australia, and New Zealand signed the long-awaited Asia-Pacific RCEP agreement, the world’s largest free trade agreement, in mid-November 2020. Upon full ratification it will be the largest trade deal in the world, creating a market of 2.2 billion people with a gross domestic product (GDP) of close to $26.2 trillion, based on 2019 data. The ratification brings renewed hopes for comprehensive change in the flow of regional trade and investment and the promotion of intra-bloc supply chains capable of bolstering trust among members of the region’s business sector. Another 13 countries, including Cambodia, are still completing internal procedures to enable them to seek ratification. According to the spokesperson for Ministry of Commerce Seang Thay, the necessary documents for ratification are prepared and will be sent to the Council of Ministers for checking and approval before continuing the procedure to seek full ratification from the National Assembly. Cambodia is expected to receive the ratification by the second half of 2021. (Khmer Times)

CAMBODIA’S EXPORT TO VIETNAM INCREASE. Cambodia’s exports to Vietnam rose in 2020 despite both nations imposing strict cross-border movement control to fight the pandemic. Data from the Ministry of Commerce showed Cambodia’s exports to Vietnam rising by 14.8% in 2020 to $385 million. Cambodian imports from Vietnam decreased by 3.1% to $2,633 million. Bilateral trade between the countries amounted to $3,018 million, a year-on-year decrease of 1.13%. Cambodia’s main exports to Vietnam are raw agricultural products such as rice, milled rice, cashew nuts, and rubber. Imports are mainly steel, petrol, garments, and textiles, leather, and footwear. (Khmer Times)

No.28 (Mar 04, 2021)

Market Industry Trend

NBC, IFC TO BOOST SME FINANCIAL ACCESS. The National Bank of Cambodia (NBC) and the International Finance Corporation (IFC) have recently signed the memorandum of understanding (MoU) of the project “Cambodia Supply Chain Finance Market Development”. The implementation of this project is aligned with the key priority of promoting innovative credit products for SMEs set in the National Financial Inclusion Strategy 2019-2025. SMEs only have limited access to obtaining finance due to high collateral requirements from banks or microfinance institutions (MFIs) which is the main barrier for SMEs’ business expansion. The result of this project will serve as a pathway for policy-setting and improving [the] SME finance ecosystem in Cambodia through strengthening regulatory support, enhancing market knowledge and practice, and developing a favorable ecosystem. The cooperation between NBC and IFC will help to expand financial access for Cambodia’s SMEs. (Phnom Penh Post)

EXTENSION OF DEVELOPMENT ASSISTANCE GRANT WILL AID SIHANOUKVILLE PORT PROJECT. The government of Japan has announced the extension of its official development assistance (ODA) grants to Cambodia. The extension amount of $10.8 million is earmarked for the project developing a Vessel Traffic System for Sihanoukville port. The project will establish a Vessel Traffic System (VTS) to improve maritime safety and the efficiency of vessel navigation around the Sihanoukville port. It is expected that safety at Sihanoukville port, the social-economic development of Cambodia, and connectivity within the Mekong region will be improved as a result of this project. (Phnom Penh Post)

Regulation

TAX OFFICIAL DEFOGS CAPITAL GAINS. General Department of Taxation (GDT) has listed some of the assets that would be exempted from capital gains tax once it comes into force on January 1, 2022. Capital gains tax will be levied on taxpayers’ gains from the sale, transfer, or establishment of property rights, or the registration of ownership or possession rights, according to Prakas No 346. Individuals will be required to pay a 20% capital gains tax rate on calculated profits from the sale of certain assets including land, buildings, stocks, bonds, licenses, patents, and currencies. According to the GDT press release, capital assets that are exempted from capital gain tax are:

– Property belonging to state institutions, foreign missions, international organizations, and government technical cooperation agencies.

– Sale or transfer of agricultural land that remains in production and whose owner or operator resides in the same commune as the farmland.

– Principal place of residence of taxpayers of at least 5 years before the sale or transfer.

– Immovable property sales and transfer among relatives as outlined in regulation on stamp duty tax.

– Assets sold or transferred for public benefit as stated in Law on Expropriation.

Besides, capital gain declared and taxed as ordinary income will not be subject to capital gain tax. This tax will also not be levied on assets sold for breakeven or at a loss. (Phnom Penh Post)

Macro-economy

EXPORTS TO CHINA GAIN MODEST 8% IN 2020. Cambodia’s total export value to China has increased despite the disruption in the supply chain due to the Covid-19 outbreak. Exports to China have surged more than 8% which is equivalent to $1.086 billion in 2020 compared to $1.004 billion posted in 2019, according to the figures from the Ministry of Commerce. By contrast, the value of imported goods from China slumped about 10% in value to just slightly over $7 billion last year.  The Cambodia-China Free Trade Agreement (CCFTA) will a key in the expansion of production capacity and foster future exports of agriculture products under zero tariff rate. According to the ministry undersecretary of state Pen Sovicheat, the working group is evaluating approximately 50 commodities to craft a strategic approach resulting from CCFTA as a model to study for future trade deals. (Phnom Penh Post)

KINGDOM-JAPAN TRADE SLIPS. Bilateral trade between Cambodia and Japan was worth $2.09957 billion last year, a decrease of 8.45% from 2019 based on the data from the Japan External Trade Organization (JETRO). Cambodia exported $1.615 billion worth of merchandise to Japan and imported $484.699 million in 2020. According to the Ministry of Commerce, notable Cambodian exports to Japan were garments, bags, footwear, furniture, cosmetics, paper, office supplies, and leather goods. Imported goods from Japan included machinery, automobiles, electronics, furniture, fabrics, and plastics. The covid-19 outbreak had obstructed bilateral trade between the two countries which lead to a slight drop in trade volume posted last year. (Phnom Penh Post)

AGRI-EXPORTS SURGE 55% IN JAN-FEB. Cambodia exported a total of 1,599,922.37 tons of major non-milled-rice agriculture products in the first two months of 2021, an increase of 569,493.88 tons or 55.27% compared to the same period in 2020, according to data from the Ministry of Agriculture, Forestry and Fisheries. The ministry listed 43 agriculture products for export to 25 countries and territories. Cassava chips, fresh cassava and paddy weighed in at 802,451.56 tons, 154,750 tons and 287,850 tons. Cashew nuts, red corn kernels, fresh bananas, fresh mangoes, fresh chilies, palm oil and rice bran reached 79,473.51 tons, 78,856.14 tons, 75,645.57 tons, 43,680 tons, 32,417.12 tons, 7,176.69 tons, and 6,250 tons respectively. The remaining 33 other products accounted for 31,371.25 tons. (Phnom Penh Post)

No.27 (Feb 19, 2021)

Market Industry Trends

SKYROCKETING SHIPPING COSTS THREATEN EXPORTS. Cambodia’s exporters have expressed deepening concerns about the increase in shipping costs, which could diminish this year’s trade figures. The shipping cost from Cambodian ports to those in other countries has increased twice or thrice comparing to the previous year. The average cost of shipping a 20-foot container from Cambodia to Europe has leaped from $1,250 last year to $3,000 now. In addition to rising cost, there is also a shortage of shipping vessels containers which lead to longer transit time. The sudden surge of international shipping cost and time has become a major obstacle that restricts the number of exports good from Cambodia’s market. (Phnom Penh Post)

Market Deals

FIRMS INK $1.4M IN BUY-SELL DEALS WITH 16 AGRI-CLUSTERS. Ten local companies have recently signed buy-sell agreements and memorandums of understanding (MoUs) with representatives of 16 agri-business clusters to supply 3,400 tons of produce and chicken meat worth approximately $1.4 million. Commodities outlined in the deal include mangoes, cassava, watermelon, and “safe vegetables”, or those with reduced dependence on chemicals that are free of microbiological hazards. The agreement aims to introduce modern agriculture techniques and mechanisms in quality control of agricultural produces to shore up the consumption of safe agricultural products. As of 2020, there were 259 farming communities and 432 farming groups that implement safe vegetable production. The demand for organic local vegetables in agricultural value chains has been rising during the health crisis. This will create market opportunities for local vegetable production. (Phnom Penh Post)

Regulation

LAW ON NON-BANKING FINANCIAL SERVICES. The law for non-banking financial services has come into effect in early 2021. The Non-Banking Financial Service Authority is an independent unit combining all non-banking regulators, which perform duties by integrating management and governance on non-banking financial sectors such as insurance, pension funds, securities, social security, public administration, accounting, and auditing, real estate, mortgages, and guarantees. This law aims to strengthen and ensure the effectiveness of management, govern and development of the non-banking financial sector as well as promote financial technology of non-banking financial institutes in Cambodia.

Macro-economy

TRADE WITH EAEU SURGES 18%. Bilateral trade between Cambodia and the Eurasian Economic Union (EAEU) was worth $67.37 million in 2020, marking an increase of 18.22% compared to 2019’s $56.98 million, according to data from the Ministry of Commerce. The figures comprise exports of $52.19 million, marked as a 0.73% year-on-year increase, and imports of $15.18 million, a rise of 193.57% from 2019 figures. EAEU (Armenia, Belarus, Kazakhstan, Kyrgyzstan, and Russia) is home to 184.6 million people and represents a combined gross domestic product (GDP) of $4.778 trillion. The exports to the bloc include agriculture products and textiles while imports consist of machinery, tractors, and spare parts for agriculture machinery. This bloc is expected to provide Cambodia a valuable alternative to the EU as a trade destination and countervail some of the disruptive effects of the withdrawal of the ‘Everything But Arms’ (EBA) trade scheme. (Phnom Penh Post)

TRADE WITH ASEAN UP 22% IN 2020, HITS $11.3 BILLION. The value of trade exchange between Cambodia and other ASEAN member states dramatically skyrocketed in 2020, hitting $11.33 billion even with flight and border restrictions in full force amid the Covid-19 pandemic. According to the Ministry of Commerce, 2020’s total trade value figures increase by 22.42% from 2019’s figures. The neighboring countries, Thailand and Vietnam accounting for the largest share of the trade pie. Cambodia exported $3.723 billion worth of merchandise, representing a sharp 186% increase, and imported $7.607 billion, a slight drop of 4.33% as compared to 2019. The export commodities comprise mostly agriculture products such as paddy, cassava, corn, and rubber and imports generally consist of foods and beverages, diverse consumer goods, and construction materials. Currently, Cambodian importers and exporters can apply for ASEAN Customs Declaration Documents (ACDD) electronically through the ASEAN Single Window (ASW). This paperless process will facilitate trade and customs clearance as well as reducing custom barriers within the region. (Phnom Penh Post)

KINGDOM-US TRADE NEARLY $7 BILLION IN 2020. Bilateral trade between Cambodia and the US amounted to $6.9213 billion in 2020, up 17.89% from 2019, based on the data from the US Census Bureau. The export value of Cambodian goods was $6.5777 billion, a year-on-year increase of 22.79%, while goods imported from the US were worth $343.6 million, a drop of 33.15% from 2019 value. Cambodian mainly exported garments, footwear, bags, and electronic components to the US, while imports made up of automobiles, electronics, and other finished products. Cambodia’s exports to the US market remained positive despite being submerged in the Covid-19 crisis. (Phnom Penh Post)

CASH-CROP EXPORTS 200K IN JANUARY. According to a report from the Ministry of Agriculture, Forestry, and Fisheries, Cambodia exported 203,485 tons of major cash crops such as milled rice, natural rubber, corn, cashew nuts, peppercorn, fresh banana, chilies, and mangoes in January. Milled rice of 34,273 tons was shipped out to 28 international markets and rubber product exports reached 52,711 tons. Cambodia also sold 44,471 tons of corn, 40,956 tons of fresh bananas, 16,252 tons of fresh chilies, 11,637 tons of fresh mangoes, 3,183 tons of cashews nuts, and 2 tons of peppercorn. (Phnom Penh Post)

NBC TO KEEP LOWER RRR UNTIL JUNE 30. National Bank of Cambodia (NBC) has recently announced the decision in maintaining the current reserve requirement ratio (RRR) at 7% until June 30 to ensure liquidity in the banking sector to fund more loans and to crank up economic activity. RRR is central bank regulations that set a minimum amount of cash that financial institutions must hold in reserve. The Cambodian RRR in foreign and domestic currency was set at 12.5% and 8%, respectively. In March last year, NBC had reduced the rate of RRR for both currencies to 7%. The revised RRR allows banks and other financial institutions to have stronger liquidity and increase funds available for lending in response to the market needs. According to NBC’s 2020 annual report, total assets in Cambodia’s banks and microfinance institutions (MFIs) grew to $59.4 billion at the end of 2020, a year-on-year increase of 15.7%. Outstanding loans in banks and MFIs grew by 14.8% to $37.3 billion, while deposits increased by 15.4% to $33.8 billion. (Phnom Penh Post)