Why special economic zones are that so special

Why special economic zones are that so special

Khmer Times’ Sok Chan spoke to Hiroshi Uematsu, chief executive officer of Phnom Penh SEZ, on the role of the special economic zone to attract investment, especially from the manufacturing sector. We focused from creating decent jobs and promoting technical transfers to boosting exports into and out of the Kingdom; especially, exports amid the outbreak of the COVID-19 pandemic.

KT: How important are the roles of special economic zones (SEZs) in promoting Cambodia’s export processing industry?

Uematsu: Special economic zones can play a vital role in accommodating higher value-added manufacturers, so long as the developer manages the zone properly.

KT: How many companies are currently operating in the Phnom Penh SEZ and what is the total investment cost so far?

Uematsu: There are among 108 registered companies, with 88 in operation, 14 in preparation, and six closed. The total investment amount is $667 million.

KT: What kind of industries are located in the SEZs in terms of countries of origin as well as types of industries?

Uematsu: Automobile parts, electrical and electronics, plastics, food and beverage, animal feed, garment including footwear, printing and packaging, paint, sanitary goods, diamond polishing among more from 14 countries such as Japan, China, USA, Thailand, Malaysia, Singapore and a number of other countries.

KT: How many jobs have been created in the Phnom Penh SEZ ? How many new factories are applying for leasing in the zone and how much space is left?

Uematsu: As of May 2020, around 21,000 workers are working in PP SEZ. At present, two new factories are under the registration of new projects. Because less than 10 hectares of land are currently available, we are expanding it.

KT: What is the export value of goods generated from the PP SEZ? What is the percentage of growth year-on-year? What are the export destinations?

Uematsu: The export value was $518 million in 2019, which was as 15.9 percent growth year-on-year. Sixty-eight percent of export products go to Japan, Thailand, China and Vietnam.

KT: What is your return on investments year-on-year? What are the challenges you are facing?

Uematsu: Our return on equity [ROE] after listing in CSX [Cambodia Securities Exchange] was 3.99 percent in 2016, 4.42 percent in 2018, 5.82 percent in 2018 and 25.53 percent in 2019. Everybody is facing the challenge caused by COVID-19 now. This is the biggest challenge ever.

KT: What do you see is the impact of the withdrawal Everything but Arms [EBA] trade deal with the European Union and the current outbreak of COVID-19 to your zone?

Uematsu: We have barely seen a negative impact on the EBA withdrawal because most of our investors don’t export to the EU. As for COVID-19, we might not have new investors until the virus will be contained. On the other hand, some existing companies are doing or preparing for the expansion of their production.

KT: Where do you want to see PP SEZ in the next five years? How effective has the SEZ’s one-stop agency of the Council for the development of Cambodia been in promoting the efficacy of the SEZ?

Uematsu: We want to upgrade PP SEZ to a more environmentally human-friendly zone by introducing solid waste management, a recycling system, rooftop solar power and affordable housing among other developments. We believe that our one-stop service is providing one of the most efficient services in the country and it is corrupt-free.

KT: As of 2020, what do you see the change of PPSP [the stock of the PP SEZ] business in the CSX? What is the trading volume each day for only PPSP? What do you think about the share price so far and EPS – earning per share?

Uematsu: With the new listing of ACLEDA Bank, it appears that the listing has given some life to the CSX. Other counters including PPSP have also been on the radar of some of these investors but it is still early days and hopefully their interests in the CSX can be sustained. For the past month, the trading volume for each day is encouraging with an exceptionally high volume on the days after the listing of ACLEDA Bank. In terms of our earnings per share, this has been steadily increasing over the past few years. The company has good fundamentals but in terms of our share price we feel that our share price is grossly undervalued.

KT: What is your plan for your company in the stock market?

Uematsu: Because of the illiquidity of our shares on the CSX, we hope we can attract and get better exposure with a secondary listing and it is envisaged that with the secondary listing this will also in turn give us better exposure to our investors in the CSX.

KT: Do you foresee both of your SEZs attracting more heavy industries to Cambodia, especially from Japan?

Uematsu: We don’t target heavy industries such as steel, petrochemicals etc. I think that Cambodia is too small to attract heavy industry from Japan. Japanese heavy industry goes to bigger countries with natural resources.

KT: What are the criteria that Japanese investors look for in deciding on Cambodia investment?

Uematsu: In general, I think that Japanese investors want, market potentiality, social and political stability, business-friendly laws and regulations, transparency and consistency of laws and regulation implementation. For manufacturers, an abundant young trainable labour force and low cost of production are critical factors.

Credited: Khmer Times