Cambodia is a great place to start a high-return business in multiples industries. It would not be an exaggeration to say that the bustling city of Phnom Penh is becoming the new Singapore, with sky-scrapers, residential estates, including luxury-class properties, popping up like mushrooms. The newly released report by CBRE, one of the world’s leading real estate firms operating in ASEAN countries and Cambodia, says that contrary to analyst expectations related to the outbreak of the coronavirus disease the value of investment projects approved by the Ministry of Land Management, Urban Planning and Construction increased 21 percent in the first six months of 2020 compared to the same period in 2019.
Despite the pandemic, infrastructure and real estate development accelerated, while the end of the pandemic in China and its near elimination in Singapore and South Korea triggered a massive return of investors to Cambodia.
The construction sector will be able to absorb any quantity of high-quality materials for many years to come, so it could be a good idea to relocate at least specific production lines, if not entire factories, to Cambodia.
Companies in the food processing and production industry are also in for some challenges. The food processing sector in Cambodia is not highly developed, but the country has a great potential to position itself as the main agri-food supplier for the Association of Southeast Asia (ASEAN) and China. The Cambodian government is set on promoting agricultural production, seeing it as the key to diversifying its industrial base and boosting exports. Businesses that decide to invest more than USD 500 thousand in the processing sector are eligible for a three-year tax relief and duty-free import of machinery.
Cambodia’s strengths for business also include a good supply of labour force: the average age is just 26 years, the minimum wage is USD 190 per month (USD 250-300 in real terms). Most payments in large-scale transactions are made in US dollars, which makes business dealings safer and easier.
“Cambodia entered the 1990s with a new political system, which brought the country to a path of sustainable economic growth at a level of 8 percent for the past 10 years”, says Ludwik Sobolewski, an investor and former CEO of the Warsaw Stock Exchange.
“Cambodia has used the growing interest on China’s part in connection with the new Silk Road initiative, which for the US is a reason for both concern and greater engagement in the region. Cambodia benefitted greatly from joining ASEAN, the Asian equivalent of the European Union, in 1999, and the WHO in 2004. The economy has managed to escape downturns and investment bubbles. Big companies such as Coca-Cola or Amazon have opened their distribution hubs there. It is a great place for investing, also because of the unique combination of fast expansion in certain industries with underdevelopment in others, which translates into excellent investment opportunities. The contrast between modernity and tradition is visible at every turn."
Foreign investors, including Polish ones, have financed many initiatives in tourism. Recent years have seen the rise of modern hotels at the seaside, in Phnom Penh and other attractive locations around the country. It is interesting to find so many Polish hotels around Cambodia. For example, one of Marcin Ługowski’s first projects, Ratanakiri Paradise Hotel, an eco-resort built in 2017, is located in Ratanakiri Province, famous for one of the most beautiful crater lakes in the world. Other Polish hotels can be found in the capital city of Phnom Penh, in Kampot and on the islands of Koh Rong Sanloem and Koh Rong. However, tourism, an important branch of the Cambodian economy, has suffered greatly from the pandemic and has been forced to operate at minimum level.
Agriculture is also an appealing and important sector of the economy that seems to be immune to the global coronavirus crisis. The Cambodian government actively promotes foreign direct investment in the agricultural sector. The Council for the Development of Cambodia (CDC) approved foreign investment projects to a total value of USD 25.9 billion between 2011 and 2016, of which 14.6 percent were agricultural projects.
“Since 2018, our list of potential projects included the start-up of an avocado plantation in Ratanakiri, but we stalled with the decision, focusing on investments in the fast-growing hospitality sector. The COVID-19 pandemic encouraged us to proceed with the avocado project and it has been a big success. The soil and weather conditions in Ratanakiri and Mondulkiri provinces are perfect for avocado production, but the fruit is also popular in home gardens, generating good yields”, Ługowski says.
“We also have a guaranteed sales market. China’s Nanning with a population of 7 million is just 1700 kilometres of road transit away from our plantation in Cambodia’s Banlung (Ratanakiri Province). Currently, China is forced to import avocado from Mexico, Chile and Peru, and maritime transport takes around 30 days. Market experts estimate that China will become the chief global buyer of avocado in the nearest decade. That’s how my adventure with the green gold of Cambodia began."
Avocado’s popularity – and demand – are surging all over the world. Diet experts point to the nutritional and health properties of the fruit, which are reflected in hundreds of new salad, cocktail and other recipes. Avocado plantations in Cambodia emerged a hundred years ago, but were destroyed during the Khmer Rouge Revolution. It is estimated that only 40 hectares of the crops survived, spread over numerous private gardens and orchards. In the Vietnamese province neighbouring with Ratanakiri the crops cover an area of 4,300 hectares, and are still growing, but Vietnam mostly produced the older varieties, which were not eligible for export, so they are sold locally. New plantations of the much popular Hass variety and its hybrids appeared in Vietnam some 7 years ago.
The United States rank as the largest sales market for avocados. Global consumption of avocados has tripled since 2000. According to Rabobank’s summary, supplies of avocados to the USA grew 13 percent in the first half of 2020 while retail sales increased by around 20 percent y/y. In its report on the avocado market and the effects of Covid-19 Technavio expects the global avocado market to rise 5.4 percent in 2020 and continue to grow at an average annual rate of around 6 percent between 2020 and 2024.
What is interesting is that avocados had not been present in China until 2010, with the first shipments arriving in 2011 only. The market is growing rapidly, which means that the entire Cambodian avocado output could be sold there. Other interesting local markets include Singapore and Hong Kong. It should be added that 2020 was the record year in avocado’s history, due to changes in consumer eating habits during the pandemic. All in all, the prospects for the avocado project are optimistic.
“Global sales cover only the Hass variety and its hybrids; other local varieties are converted into oil”, says Ługowski. “When deciding to enter the market, I opted for the Hass variety. I was able to buy some cashew plantations, which were unprofitable during the pandemic, and planted avocado trees instead. This is in line with my approach to environmental protection, especially since I heard about the destruction of tropical forests in Mexico to plant avocado. I started with 7 hectares and imported seedlings from Vietnam, despite the lockdown. During the six months of the pandemic restrictions I was unable to leave Cambodia. I used that time to learn as much as possible about avocado production, both in theory and in practice. I found a great expert, who had worked in Australia for many years. He currently oversees my plantation, which now stretches over 27 hectares. This year, I would like to send three agriculture students to do an internship in Israel, where avocado is produced in much more difficult conditions than in Cambodia". "Ecology is very important to me. In order to maintain the ecological balance, I decided that for every 1 hectare of avocado plantations, we would secure 10% of the area in order to restore the natural ecosystem and rebuild the local jungle, which is the heart of our avocado orchards. The areas of our plantations where we will restore natural ecosystems contribute to greater biodiversity, we expect that wild birds, pollinators and, above all, bees will live there."
What’s next? Further steps will depend on how fast we can find investors, first in Poland, than in Western Europe. The local Ministry of Agriculture sees strong potential in our actions and supports us with regard to consulting, collaboration with universities and finding business partners. I am certain that this project is better than my previous real estate or tourist investments, and the margins are beyond comparison."
How to invest in Cambodia’s avocado? The first model is based on a 25-year lease of a plantation. The partner pays a predefined lease fee and outsources comprehensive management services. After four years, the first crops appear, which grow year by year, exceeding the invested amount. The profit is split up between the company and the partner.
What is important is that project provides for sustainable production, in line with strict standards, using natural fertilizers and... the help of bees kept at the plantation. The plantations are located in areas abundant in water and rainfall, unlike in Peru or Chile, where avocado has a negative impact on water management. The plantations are established on land previously occupied by cassava and cashew nuts, the company also pays attention to biodiversity, planting local tree species etc. The aquilaria crassna is a local endangered species of tree, featured in the Red Book. The company plans to use it to produce the valuable agarwood oil. These activities will be confirmed by the Fair Trade certificate which the company plans to obtain.