Cambodia, building itself into a logistics hub

Sangeetha Amarthalingam

Kuok (Singapore) Ltd senior advisor George Yeo has had an illustrious career from holding the Brigadier-General position in the Republic of Singapore Air Force

Kuok (Singapore) Ltd senior advisor George Yeo has had an illustrious career from holding the Brigadier-General position in the Republic of Singapore Air Force, Minister for several ministries in Singapore including Trade and Industry, Finance, and Foreign Affairs, to the chairman for Hong Kong-listed Kerry Logistics Network Ltd. He retired from his chairmanship recently but remains in Kuok group’s Kerry Logistics. Yeo, 65, was in town recently to meet with the Cambodian government over the prospects of setting up a logistics hub. In an interview with Capital Cambodia, he shares his frank views on trade and economic issues, his relationship with Cambodia and tips for the Kingdom’s continued growth. Below is the first of a two-part interview:

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CC: What brings you to Cambodia?

Yeo: I have had a long association with Cambodia (beginning) as a Trade Minister when I visited in 1999 when Cham Prasidh was Commerce Minister, and many times since then in both my capacity as the Trade, and Foreign Affairs Minister. After I left the Singapore government in 2011, I  joined the Kuok group and became Kerry Logistics chairman, I helped to develop the business here. I stepped down end of last month and became senior advisor for the group and Kerry Logistics. I am here partly to see how the business can be expanded because I take a bullish view of Cambodia, and meet some old friends including the former Deputy Prime Minister Hor Namhong. It is wonderful to see how each time I come here, life has improved and how beautiful Phnom Penh has become. The streets are better appointed, parks have been beautified, buildings freshly painted, and still many houses being built. It is fabulous. I took many pictures.

In 20 years, I can see incredible transformation, it is almost heartwarming, and with a bright future ahead due to a strange combination of external circumstances. I think the trade war between the US and China will benefit Southeast Asia and Cambodia should be a major beneficiary. It just needs better infrastructure links with its neighbours, and position itself as a logistics hub.

Both Vietnam and Thailand are major economies in the region, and Cambodia sits right in between with no physical barriers, so it is not difficult to build roads and railroads.

CC: How do you see this panning out in Cambodia?

Yeo: Livelihoods have improved and wage rates have gone up. Many years ago, when I visited the textile operations here, I noticed that they were huge, and staffed by mostly young women from the villages. I happened to be there when they were changing shifts and I noticed well-dressed young women squatting by the road and having their meals because there were only few public amenities. There were dormitories and so on then but Cambodia is gradually phasing out apparel (manufacturing) because that will shift to other countries where labour rates are lower, and it intends to shift to higher value-added manufacturing.

However, that depends on the international economy. As it is, President Trump is undermining the World Trade Organisation (WTO) framework, it is almost as if month by month the picture changes, and business people are under great stress having to adapt to a volatile environment. Therefore, what they want is flexibility and the ability to move quickly and shift in response to policy changes, and changes in the global trading network.

Cambodia should provide that kind of switching ability. It should not make predictions over which methods would succeed. Instead, it should build up on its connections, and let businesses decide, not the government. It should reduce looking out for big multinational corporations (MNCs) because they can take care of themselves. Cambodia should provide an ecosystem where small and medium enterprises can flourish by buying and selling within the region, and to MNCs. This would create a more balanced growth, and less income inequality in a country.

CC: Is it the right time to do this?

Yeo: Yes absolutely, it must run (now). The world is changing fast. From Kerry Logistics’ point of view, we are receiving many enquiries from Chinese and non-Chinese companies whether they can do things here because they are anxious of being in the line of fire. On one hand, they want to supply to the US and the other, realising that the Asian market itself is growing. There will be a more complex division of labour among Southeast Asia countries.

Right now, we have consumer products flowing in from China through Ho Chi Minh City to Cambodia, and from Thailand. The return trucks are priced lower because the load is low. How this affects freight flow and fleeting opportunities are decisions business people would make. What we want here is an economic system that facilitates investments which allow people to switch quickly. Cambodia still has relatively high tariffs for certain products, like motor cars. It should find a way to lower tariffs, and create bonded zones, special economic zones (SEZ), and become a processing centre. Imports are parts from elsewhere, which are then modified, packed, labelled and exported for different markets, and this may change every half year. So, these zones can turn into processing and manufacturing centres while providing good employment.

It is a very exciting period. We are not asking Cambodia to do anything new. SEZ and bonded areas are well developed in other countries. Cambodia has to just learn from them, and be set on the rules that make the most sense for the country, and are sensitive to needs of the business community and investors. The wind is blowing, it must set sail.

CC: Malaysian Prime Minister Dr Mahathir Mohamad recently said that if there was a change in the US presidency, the trade war would end.

Yeo: I can understand Dr Mahathir’s quote but I am not sure “humpty-dumpty” (in relation to the current global economy) can be put together again. President Trump is not a phenomenon in itself. Trump represents a powerful tendency in the American society that is recoiling from globalisation which is uncontrolled, and an immigration that is uncontrolled. This has shaken the faith of global institutions, and some of these feelings, such as the ones against China cut across party lines. Even if there was a change of president, I don’t think one can go back to the past. It may be a different path from the future but a different future from the path.

How does the Regional Comprehensive Economic Partnership (RCEP) factor in the current equation?

Yeo: Within the region, given the fact that the WTO has greatly weakened, we should create buffers of stability, like inland lagoons for ourselves (that are) less subject to big storms. So, Asean is an immediate circle but Asean is too small and it must be connected to China, India, Japan, Korea, and Europe (making up) Asean + 6 which is RCEP. Initially, we had Japan which wasn’t too enthusiastic but now is, but we have India which has other preoccupations.

I think Dr Mahathir was the one who mooted the idea of moving with Asean+3. Remember there was a time we moved on both (Asean+6 and Asean+3) simultaneously. I think it makes a lot of sense that if some countries are not ready (they can wait) but those who are ready should move first while keeping the door open for countries that are not ready to join now.

Our basic Asean orientation should be inclusive and pro-trade. I see a strong case for moving forward with Asean+3 if RCEP finds it difficult to achieve a larger consensus. India has domestic concerns that are difficult to overcome. It’s a big subcontinent with over a billion people. They have to worry first for themselves and less about the region. Every country thinks of their country first (but) I don’t think india can close in on itself. Although there are some similarities with Trump in putting the country’s interest first, when it comes to trade, I think India’s tendency is to open up further, but in its own time, and rhythm. It has to take into account the complexities of its own domestic politics.

What are Cambodia’s impediments and widening its investments areas?

Yeo: I think Cambodia’s main problem is in two areas. First is connectivity. It needs better links – road and rail to Laos and eventually to China. Sihanoukville Port is growing, and it should aspire to be more than feeder port. I think the airports are doing well. Siem Reap has an open sky policy which has served it well.

The second is capacity. Cambodia needs to develop the full governmental capability to manage an economy that is getting more complicated. It should adopt a set of more sophisticated economic policies, perhaps by issuing lower tariffs, facilitate investment from different directions, and therefore, achieve more competitive positions in terms of value-added, and simplifying custom procedures.

In a sense, Cambodia has an edge over other countries because it’s almost a young country from the view of economic development. It has a frontier atmosphere about it, some people say a little cowboy-ish. There is some good and bad to that. It is good because if you have an idea, you can move quickly.

But, beyond a point, you have to ask if it moved too fast? For instance, the case of the collapsed building in Sihanoukville. The immediate issue is the collapse but emanating from that, is whether the incident is a result of system inadequacy. The country must learn from it and build up the system.

This is what I mean by capacity. Every time you hit a bump on the road, you meet with a problem, you have investors turning away. This should alert the people on system deficiencies and how to rectify it. Therefore, you need a learning organisation and it takes time. The country has improved a lot from 20 years ago but to raise the economy to a higher level of sophistication, you need a corresponding administrative system to manage greater complexity.

Cambodia has a different place in the ecosystem. Thailand and Vietnam have large populations and much larger economies than Cambodia. So Cambodia isn’t trying to be like them but it is trying to be in between them, and benefit from the interaction of larger economies and add value.

To draw a comparison…Singapore is small and it doesn’t have a national economy to talk about but we survive by being of service to others. Cambodia can try to do the same to its neighbours. Of course, Cambodia is much bigger than Singapore and has more natural resources. Don’t take that comparison too far.

Are we our own victim (in terms of bureaucracy), perhaps there should be some standardisation in Asean with RCEP?

Yeo: I think Asean has improved a lot. I came in with a colleague from Hong Kong. I carry a Singapore passport and he has a Hong Kong passport. For me, it was visa-free access to Cambodia but he was given a visa on arrival. If you hold a Singapore passport, you have visa-free access to nine countries in Asean. I noticed there is a counter for Asean passport holders. This is a huge leap from the time i was a Trade Minister. It was only a hope then but it is a reality now. I think Asean has moved a lot.

For Kerry Logistics, our vision in the next five years, is for greater emphasis on Asean because the bloc and China’s economy is increasingly integrated and inter-dependent, with over two billion population.

A large chunk of the global economy is connected via road, air, rail, electronic, and rivers. Both China and Asean also benefit from different climates – China is dry and temperate while Southeast Asia is full of water and tropical.

It is good in terms of complimentarity for agricultural maritime products. You can see durians flowing northwards, and Chinese fruits flowing southwards.

If you cross the border from Lang Son to Pingxiang, and Vietnam to Nanning, it is very interesting. There are two great channels – one for maritime products which flow one way (Southeast Asia to China) and the other, for agricultural products that flow two ways.

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