Recent surveys have ranked Cambodia highly on the corruption index and low on investor attractiveness within the ASEAN region. The recent spate of protests are reinforcing the obstacles that Cambodia still has to face to boost its economic development and instate its position as a nation attractive to foreign investors.
The latest protests in Phnom Penh were labeled the largest in 15 years, with numbers estimated between 100,000 and 500,000. The protests are a direct result of the July 2013 election, which many, and especially the opposition Cambodia National Rescue Party (CNRP), deem illegitimate. Led by CNRP leader Sam Rainsy, the protesters call for the resignation of long-time Cambodian Prime Minister Hun Sen and new elections.
Hun Sen, who has ruled as prime minister for the past 28 years, has refused to step down, and has publicly stated that he will not agree to a re-election. Additionally, he has cracked down on the protests, effectively barring political opposition. The latest reports have confirmed several incidents of clashes and violence, with an estimated 20 people injured.
Police said they felt obliged to fire warning shots to ensure control over the situation, leading to a tense atmosphere in the capital. On January 5, the government banned all further rallies and marches in the streets of the capital, citing security reasons. For the moment, the opposition has called off further rallies in response.
The protests have not only been against Hun Sen’s reign. Phnom Penh has been rocked by further protests by tens of thousands of garment workers, who are calling for a higher minimum wage. The garment industry employs about 650,000 people and is a major source of foreign income for Cambodia.
Led by Rong Chhun, the Cambodian Confederation of Unions president, the footwear and textile factory workers initially gathered with the CNRP in Phnom Penh’s Freedom Park, but have also marched throughout Phnom Penh. As last Friday’s talks failed to lead to any resolutions, protestors even blocked a key highway in the capital. Although the government has announced a monthly minimum wage increase from US$80 to US$95, starting in April next year, unions have demanded US$160 beginning in 2014. There is thus still a long way to go until the union and workers’ demands will be satisfied.
The CNRP had vowed to raise wages for workers in Cambodia’s biggest export industry ahead of the elections that took place on July 28. Following elections, the Cambodian People’s Party, headed by Hun Sen, claimed victory. However, the CNRP and others have accused the ruling party of poll fraud, and demanded an independent election probe into irregularities. Election results demonstrate a decrease in support for the Cambodian People’s Party, as its share of votes had been steadily rising since 1993, reaching 58.1 percent in 2008, and falling to 48.83 percent this July.
Recent protests highlight Cambodia’s issues with corruption, which have received increased media attention lately. Many have accused the International Monetary Fund of disguising Cambodia’s problems. Although Cambodia is officially ranked the second most corrupt country in East Asia, second only to North Korea, and the most corrupt country that has formal relations with the IMF, IMF chief Christine Lagarde did not mention the issue on her visit there this month. Cambodia has an overall ranking of 160th of the 177 countries surveyed.
Corruption at this scale has affected Cambodia as a foreign investment destination, gravely deterring investors. Implemented reforms are superficial and have not made any real changes to the situation. Earlier this month, the Phnom Penh Post reported Cambodia to be one of the least-attractive investment destinations in the ASEAN region.
Cambodia is also noticing some changes to its foreign relations, especially within the region. Cambodia has a longstanding relationship with China, relying on its support both economically and politically. However, there has been a shift in relations, , as seen during the Japan-ASEAN summit in Tokyo where Cambodia joined a pledge with its neighbours and Japan to protect freedom of aviation in Asia in response to China’s air defense zone. This has already led to a lot of tension between China and its neighbours, specifically Japan, whose prime minister Shinzo Abe has suggested that China’s announcement of the air defense identification zone over the disputed islands is “unjustly violating the freedom of aviation over the high seas.” The zone itself has also sparked protests from Japan, the United States and South Korea.
Judging by current tensions, Cambodia has a lot of work to do to improve its potential as an investment destination. Its geographical location, cheap labour cost and liberal foreign investment regulations have a lot to offer, but Cambodia also has a lot of competition from its neighbours. Laos, for example, holds large reserves of natural resources, while Myanmar offers even lower labour costs. The garment workers’ protests also affect international companies such as Nike, Gap, and H&M that produce there, and may prove important to watch for other foreign investors. Thus, while the outcome of the protests is not yet clear and may end up changing Cambodia for the better, for the moment they reinforce key obstacles, such as corruption and volatility, that Cambodia has to overcome to improve its attractiveness to foreign investors.
