Is Cambodia the perfect frontier market to invest in?

Written by Andrew Henderson

Reporting from: Phnom Penh, Cambodia

The twenty-minute tuk-tuk ride to Phnom Penh’s north end was littered with new restaurants. Every time I’d tilt my head to look somewhere new, an “opening soon” sign – fully in English – grabbed my attention.

As is the case in much of Southeast Asia, but especially here, flashy new structures are being erected next to not-so-flashy residential buildings. On a ride through town earlier this week, my Cambodian friend pointed to a hill of broken concrete sitting on a slab and said: “they tore down that apartment building to build a new store.”

Development is everywhere in Cambodia.

Here on the north end of Phnom Penh, you get a little better glimpse of the real Cambodia. The streets, while paved, are a bit dustier and the landscapes more brown, almost like more worn-down parts of Manila. Shanties line National Road 5 along the river. Away from the tourist element, local merchants ply their trade with other locals.

And amongst it all is Kingdom Breweries, one westerners’ answer to what he believes is Cambodia’s cheap but boring beers. That man is Doug Clayton, who not only started Kingdom just a few years ago but who also runs Leopard Capital, a frontier market private equity firm with multiple positions in Cambodia.

Doug’s success story with Kingdom is just one example of the open market for investing in Cambodia. The government, while not perfect, stays out of the way of business here. Contrary to what most people might think about one of the world’s poorest countries, the tone is rather laissez-faire; certainly more so than it is in neighboring Vietnam or Thailand where the government plays a larger role.

This is a country with nine mobile phone operators. The barrier to entry isn’t that high, which is apparent judging by just how many new places are cropping up to take consumers’ growing disposable incomes.

Unless you’re hoping to get a 99-year lease on one of the islands off the coast of Sihanoukville (the government is “divesting” all of them to developers) or a mining contract, the business approval process is pretty straightforward. Combine that with one of the lowest cost workforces in Asia and you’ve got an attractive climate that a lot of investors have yet to take advantage of.

That’s exactly why Doug’s firm does: find frontier market opportunities in Cambodia that could yield huge returns. The kind that frontier market investor and my former guest Chris Tell says can be 10x or even 20x.

Despite two established beer brands here – Angkor and Anchor – Kingdom has established a decent foothold in the market, especially among foreigners. Imagine taking on Budweiser in the United States on any real level. You might as well jump off the Japanese Bridge just a few feet from my view over the city.

That’s the allure of the frontier market: anyone with a little ingenuity can come in and compete in mass markets. In the west, you’re forced to compete in niches that require a lot of on-the-ground experience. Here, a guy can come in cold and start a successful brewery in a couple of years flat.

I tend to believe more frontier markets than you might think have relatively stable governments. After all, we’re not talking about African countries in the middle of revolution every other month. The government here is relatively stable, and as I reported yesterday, a recent demonstration against alleged voter fraud ended peacefully.

If you’re looking to reduce sources of potential risk, Cambodia’s use of the US dollar eliminates currency risk for American businesses. And while corruption here is technically rated some of the worst in the world, I find that assessment to be overblown by a bunch of “transparency thugs” who think politicians in the United States are squeaky clean.

Yes, there is corruption here, but in certain pockets. The view overall is that the government wants foreign investment and wants to let it do its thing. They realize – thanks to a bloody Khmer Rogue regime just a generation ago – that doing so is the best way to lift the country into greater prosperity.

Being sandwiched between two more developed economies with greater political risk also can’t hurt; in a way, it’s like getting the best of both worlds. The rest of the world is chipping in to lift Cambodia up as well, by helping to fund infrastructure projects that are paving the way for greater prospects to move goods through the (typically wealthier) ASEAN region.

I interviewed Jeff Berwick from The Dollar Vigilante this morning, and we shared the potential for someone to come to a place like Cambodia and start a small “subsistence” business with a few thousand dollars – and potentially even hit it big. But I also believe Cambodia is being overlooked by a lot of higher-end investors.

The cultural learning curve here is shorter than a place like China. After all, Cambodians are often stuck buying foods labeled in English or Vietnamese when some of them can barely read Khmer. The level of pickiness here isn’t as high as in other cultures, yet stability is higher.

The bottom line is that for someone willing to deal with the moderate culture shock of investing in Cambodia, there are real ways to minimize outside and systemic risks.

Andrew Henderson
Last updated: Dec 30, 2019 at 4:11PM

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