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AVI POLICY BRIEF ISSUE: 2020, No. 02

AVI POLICY BRIEF ISSUE: 2020, No. 02

Belt and Road Initiative and Tourism Infrastructure Investment in Cambodia

ISSUE 2020
No 02
Release 17 February 2020
By Mr. Bora Ly

Introduction: BRI and Cambodia’s Tourism Infrastructure Needs

The Belt and Road Initiative (BRI), officially announced by Chinese President Xi Jinping in 2013, has received great attention and reactions from the international community due to its geo-political and economic implications. The initiative focuses on building a network of international trade routes connecting Asia, Europe, and Africa together through various China- financed infrastructure projects. Infrastructure development projects under the BRI will serve as gateways for cross-border exchanges, trade, transportation and communication. Moreover, the development of global infrastructure and transport links will improve tourism access, increase cross-border tourism demands, and enhance commercial activities, which will together provide direct benefits to tourism industry.

Several studies and reports indicate that Cambodia is in dire need of infrastructure development to improve inter-regional connectivity and reduce travel time and expenses. Based on the Cambodia Highway Master Plan 2014, Cambodia needs USD 9 billion to build 850 km of roads including highways by 2020 and USD 26 billion by 2040. i According to Prime Minister Hun Sen, the country needs between USD 500 to USD 700 million a year to fill the infrastructure development gap. ii However, Cambodia’s tourism infrastructure shortage has remained a challenge, as the country is poorly classified in the Travel and Tourism Competitiveness Index 2019 by the World Economic Forum (WEF): Air Transport Infrastructure ranking at 91, Ground and Port Infrastructure ranking at 111, and Tourist Service Infrastructure ranking at 93. Cambodia’s tourism infrastructure is relatively inadequate compared with its neighbours, affecting the country in terms of destination competitiveness.

According to the report by the World Travel and Tourism Council projection in 2018 of travel and tourism impact for Cambodia, Cambodia’s tourism sector contributed 14.1% directly to the GDP in 2017, and it is expected to grow at an annual rate of 5.9% by 2028. iv According to Tourism Minister Thong Khon, the kingdom is expected to receive 15 million tourists in 2030, which will generate approximately USD10 billion. The Royal Government of Cambodia, therefore, has been actively seeking investment in tourism industry to respond to the increase in the number of international and local tourists.

To improve its tourism competitiveness and to fulfil its political and economic aspirations, Cambodia wishes to take maximum advantages from China’s BRI. Since the launching of the BRI in 2013, Prime Minister Hun Sen has expressed his enthusiasm and openly embraced for it. In 2017, China invested about USD 1.6 billion in Cambodia, accounting for nearly 30% of the total foreign investment, with construction contracts signed at the end of the year reaching USD 17.54 billion.

Cambodia is the at centre of China-funded BRI maritime silk road, which consists of several ports, airports, roads, and coastal city resorts. China has invested USD 4.2 billion in Sihanoukville’s southern coastal area, and USD 1.1 billion was invested in 2017 alone. vi By participating in the BRI, the Cambodian government can gain benefits from the rapid development and ambitious vision of China’s transnational cooperation particularly through having greater access to China’s generous financial support.

However, some foreign observers and scholars are sceptical that the BRI and Chinese investment are a double-edged sword for Cambodia, threatening the country’s sustainable economic development and political independence. Of the several agreements Cambodia has signed with China under the BRI, two major projects are selected for analysis: The Golden Silver Gulf Resort (in Preah Sihanouk province) and the Dara Sakor Seashore Resort (in Koh Kong province).

Cases of BRI-Sponsored Tourism Projects in Cambodia

The Golden Silver Gulf Complex is located in Preah Sihanouk Ream National Park, about 18 km from Sihanoukville city centre and 7.3 km from Preah Sihanouk Ville International Airport. The project is partly a response to the BRI strategy in Cambodia proposed by Tourism Minister Thong Khon at the signing ceremony of a Memorandum of Understanding in 2016. Its anticipated cost is around USD 5 billion and will take 20 years to complete. The construction began in 2014 and was carried out by Yeejia Development Co. Ltd, a subsidiary of the Chinese company United International Investment Group. Covering an area of 3,300 hectares, the project encompasses 28 km of coastline on the Ream Peninsula and the western half of Koh Thmei Island. It includes luxury villas, five-star hotels, exhibition centres, duty-free shopping centres, sanitation facilities, and an international port. The potentials of Preah Sihanoukville and the Golden Silver Gulf Resort have been further enhanced by the signing of a contract worth about USD 1.9 billion between Sun Chanthol, Minister for Public Works and Transport, and Liu Qitao, Chairman of China Communication Construction Company Ltd. (CCCC) to build Cambodia’s first expressway linking Sihanoukville city with Phnom Penh. The construction began in January 2018 and will take four years to complete.

The Dara Sakor Seashore Resort project began in 2008, long before the official announcement of the BRI in 2013 and after the Cambodian government had leased about 40,000 hectares for 99 years to Tianjin-based Union Development Group (UDG). Its construction was accelerated again in March 2016. The project was mentioned in the Belt and Road 2017 Yearbook of the Ministry of Commerce of China as one of the most important projects of the BRI. The project covers an area of more than 98 km, 20% of Cambodia’s coastline. UDG intends to invest US$ 3.8 billion in various projects, consisting of several urban residential areas, casino complexes, golf courses, an international airport, and a deep-water port.

Cambodian Government’s Policy Supporting BRI on Tourism Projects

The Golden Silver Gulf Resort and Dara Sakor Seashore Resort have gained favourable support from the Cambodian government. Based on the 1994 Investment Law of the Kingdom of Cambodia for business ownership and investment incentives, the government allows foreign ownership of local businesses or commercial enterprises in most areas. Sok Chenda Sophea, the Secretary General of the Council for the Development of Cambodia (CDC), told participants in a business forum at the Tianxia Chaoshang Economic Conference in Phnom Penh in August 2018 that Cambodia was the most free and open country in the region, allowing foreign investors to own 100% of their investments in any sector without capital restrictions or profit control. viii The government’s favourable policy has led to a surge in Chinese investment in Cambodia, and Chinese investors are the most active in the country.

According to company representatives and public documents, the Golden Silver and Dara Sakor investors have signed 99-year lease agreements with the government. Regarding the limit of land concession size, Article 59 of the Cambodia Land Code of 2001 stipulates, “Land concession areas shall not exceed 10,000 hectares.” However, the government’s granting of land concession to Dara Sakor Seashore Resort is four times bigger than the limit. Moreover, both projects have been approved to occupy land in the national park areas. Golden Silver Gulf Resort is located in the Ream National Park, while Dara Sakor Seashore Resort is in the heart of Botum Sakor National Park near the Gulf of Thailand. According to Article 56 of the 2008 Cambodia Protected Areas Act, any development project in national park areas must receive approval from the government, who must conduct careful evaluation of environmental and social impacts deriving from the proposed project. Nevertheless, neither an explanation nor a proper assessment report has been made available to the public as to how and why both Chinese projects have been approved in protected areas. The granting of excessive size of land concession and the controversial locations of the projects show that the government is supportive of BRI-projects boosting Cambodia’s tourism development.

Outcomes of Cambodia’s Policy Supporting BRI Projects for Tourism Development Objectively speaking, Chinese investors are the largest beneficiaries of BRI-related policies. The favourable policy measures adopted by the government are: increased investment incentives for foreign investors, promotion of the ease of doing business in Cambodia, especially tourism, and deregulation, or in some cases, exceptions outside the legal framework. As investment from China increased by 80% between 2012 and 2016, China became the biggest source of foreign investment in Cambodia.

Cambodia and China have benefited from the reciprocal relationship in two ways. First, China’s providing of financial and political support has benefited Cambodia’s political stability, and Cambodia’s strengthening diplomatic and political situation has helped Chinese investors get approval and protection from government agencies. Second, the Cambodian government’s policies towards China clearly aim to facilitate Chinese companies doing businesses in Cambodia and to further expand areas of cooperation between Cambodia and China. The Dara Sakor Resort project and the Golden Silver Gulf Resort are both based on opaque agreements between the Cambodian government and the Chinese partners. Although Cambodian Land Law does not allow concessions in public protected areas, the Royal Decree No. NS/RKT/0408/392 signed in 2008 amended the Royal Decree of 1993.

Public concerns about the unusual duration of 99-year lease are growing, and some people argue that the period is too long and that the government is providing territory to foreigners. However, this should not be a problem, since the concession land remains effectively under the jurisdiction of the Cambodian state. In a nutshell, no matter how long the lease period is, the investors are obliged to comply with Cambodia’s law and regulations and pay all relevant fees during the lease period. Land concession do not grant tenants the right to build the territory with a governance system independent of the host country.

Chinese investors also take advantage of the government’s favourable policies to exercise power over local vulnerable groups. From 2014 to 2018, UDG employees and security personnel were reported to have destroyed hundreds of houses and to have cleared away crops of those local villagers in Koh Kong province, who disagreed with the compensation scheme provided by the project developer to them to leave the concession area.

Despite the displacement of local villagers, the government insisted that the local communities would benefit after the construction was completed in terms of employment and income opportunities when massive number of Chinese tourists would come to stay at the resort. After land concession was granted for development in Ream National Park in 2008, 1,143 households were ordered to relocate or were affected by the development plan. The local villagers’ income decreased after the relocation, as they mostly depended on irregular and unskilled income sources.

The Cambodian government issued Land Law and Ministerial Order No. 2001. 01BB-2012, which were perceived as benefiting Chinese investors and ignoring the proper implementation of the “leopard-skin policy,” which encourages “concession development through regularization rather than eviction” to reduce the need for relocation and the negative impact of economic land concession on local livelihoods.

In the cases of the Golden Silver Gulf Resort and Dara Sakor Seashore Resort, decisions were made top-down. The concession agreements and benefits were determined by the investors and the government, which to a certain extent neglected the legal framework and the livelihoods of local communities.

Because of limited local participation in the development process, the government’s policy towards BRI-related investment in tourism development gives less direct benefits to local people and put pressure on local tourism As they begin to function, mega resorts such as the Golden Silver and Dara Sakor are attracting more and more Chinese tourists, as has been anticipated by the Cambodian government. Indeed, China has become the largest market for inbound tourists to Cambodia. Although the local people were promised benefits from tourism development in their areas, the Chinese investment has appeared to have negative consequences on their land ownerships, incomes, and livelihood. The local businesses, despite their politically and socially strong status, also faced challenges from the loss of traditional market and more competition from Chinese service providers. Up until the early 2000s, tourists from Western countries such as the United States, the United Kingdom, and France had dominated the Cambodian tourism market. However, the rapid development of Chinese real estate and resorts has caused service prices to skyrocket, making it less affordable to backpackers and local tourists.

Conclusion

The Cambodian government has continued to value comprehensive strategic partnership with China, demonstrating that they are willing to support Chinese investment to address the country’s infrastructure shortage. Since its inception, the BRI has further enhanced bilateral cooperation between Cambodia and China in terms of physical infrastructure development and connectivity. Two big BRI-linked investment cases are the Golden Silver Gulf Resort and Dara Sakor Seashore Resort, which have the potential to transform Cambodia’s tourism infrastructure.

In the process of implementing BRI-related projects, the Cambodian government has formulated a set of law and regulations to facilitate development projects and to promote Cambodia’s business potential to Chinese development partners. The Cambodian government’s willingness to adapt rules and regulations to reduce barriers to Chinese investors is due to strong diplomatic relations with China.

However, local people living in the concession zones did not benefit much from the development because they had to move out of their land and struggle to adjust to their new environment. The development practices have also violated the “leopard-skin policy”, which is intended to protect individual family’s legal ownership of their land. After the tourism development projects became operational, only a small number of local people were employed in the tourism sector. The negative outcomes of the two cases suggest that future BRI-linked tourism development projects in Cambodia need to follow leopard-skin policy and include local people for the inclusive and sustainable tourism development in the country.

The massive BRI’s infrastructure projects will undoubtedly attract more tourists to those destinations and enhance the competitiveness of Cambodia’s tourism. They will also support the overall industrial development and economic growth offered by the new deep seaport and international airport. However, no official announcement has been made to assess the economic, social, and environmental impacts of such projects.

Moreover, the implementation of the projects has marginalised local tour operators as exemplified by the cases of Botum Sakor National Park and Ream National Park. As the competition intensified due to the presence of Chinese service providers and Chinese tourists preferring Chinese service providers, local companies deemed valuable have suffered as their traditional tourist markets have fallen.

The economic and social gains in Cambodia’s tourism sector from approving UDG and Tianjin land concession are ambiguous. Looking from one angle, Cambodia could lose at least 99 years of tourism and coastal industrial development opportunities and revenue generation from more than 20% of the country’s coastline.

Since the interest generated from leasing the land is not restricted by law, the Chinese companies gain exclusive benefits. In addition to the minimum income from land concession, other sources of revenue to the Cambodian government are taxes paid by developers and investment partners when their projects are completed. However, the government cannot impose tax on the two Chinese tourism development projects until the projects complete, which is another 20 to 25 years. Besides, under Cambodia’s Investment Law, investors can receive tax exemption of up to eight years, so it will take a long time for Cambodia to tax these companies and earn income.

Another negative impact resulting from the two projects for Cambodia is the reduction of natural resources because both projects situate right in protected natural areas. The construction of tourism facilities in protected areas damages ecosystem and forest resources, and the relocation of displaced villagers to previously untouched forested areas have caused further negative impact on the environment.

The opinions expressed are the author’s own and do not reflect the views of the Asian Vision Institute.

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