CHAPTER 5

Cambodia

LAND OF THE EIGHT-HAND MASSAGE

Flying into Siem Reap, Cambodia’s second largest city, was an uneventful one-hour flight from Hanoi. The Vietnam Airlines plane was packed in coach, but only one person sat in the first class cabin. Cambodia is a very poor country, still recovering from the ravages of a civil war that lasted until 1998. It’s a very small country as well, with fewer than 15 million people, 96 percent of whom are under the age of 65. More than 10 percent of the population perished between 1975 and 1998 under the hands of the communist Khmer Rouge government led by the infamous Pol Pot. In 1978, Vietnam pushed into Cambodia and occupied it for 10 years leading up to a civil war that lasted until the country, with outside help, was able to organize elections that finally led to Cambodia’s independence from the Khmer Rouge. The country was left a devastated mess mired in unimaginable poverty. Consider that today the per capita income for a Cambodian is just over $760 per year, ranking it just ahead of Haiti for purposes of comparison. The country produces very little in the way of natural resources—not that it’s a heavy consumer at $760 per head in income. Most cars in the United States consume more that $760 in gasoline per year.

For perspective you must understand the history of Cambodia. The Khmers, the indigenous peoples of the country, once ruled over Cambodia, Vietnam, Thailand, Malaysia, Laos, and Burma (Myanmar). The wealth that was produced as a result of the rule contributed to the building of massive and ornate temple complexes like Angkor Wat in Siem Reap.

Knowing that Cambodia was a poor country, I was prepared to see the type of poverty that exists in the slums of India, Africa, and Central America. Granted, Siem Reap is the destination of choice in Cambodia because of the Angkor Wat temple complex . . . $760 is $760. I had an inkling that I could be wrong about Cambodia, however. That inkling occurred a few weeks prior to my trip when I was applying for visas. On this trip, I spent time in Singapore, Thailand, Vietnam, and Cambodia. I didn’t need a visa for Singapore or for Thailand. For Vietnam a visa is required and it has to specify exact entry and departure dates or you will face a hassle at the airport. You can purchase a Vietnamese visa at the airport, as long as you have applied for it in advance with the consulate but have not received it. However, this, too, will be a hassle at the airport and you should be prepared to grease some official palms upon arrival to expedite the process. Also be ready to be grilled and intimidated. My advice? Get it ahead of time! For Cambodia, and I must admit this truly impressed me about the country, you can get a visa online in 24 hours just by visiting the consular website and sending them a digital photo and a $25 online payment. Alternatively, you can purchase a visa upon arrival from very polite officials for the same price with about a five-minute wait.

I arrived in Siem Reap in the afternoon. The immigration process was quick and painless. The airport was brand new and beautiful. As soon as I landed I was able to access the Internet on my phone. I followed the signs to baggage claim and after a two-minute walk arrived at an area that was enclosed for the baggage but also open air if you wished to wait outside. Outside there were cafe tables with umbrellas and two bars serving beer, cocktails, and snacks you could enjoy while waiting for your bags or to pick up arriving guests. I have never felt so comfortable at an airport. It was mid-January, the so-called cool season. The temperature was 85 degrees Fahrenheit . . . but there was hardly any humidity—just perfect. My hotel had sent a car and within 20 minutes of landing I was being welcomed in the lobby of the Raffles Grand Angkor with a cool drink and scented washcloth for my face and hands.

The road to the hotel was not what I expected. Once we exited the airport property the shops began to appear. Traffic was light, the roads were excellent, the cars were new and instead of tuk tuks, there were new scooters with carriages attached to them. Along the way there were several four-star hotels, a ton of restaurants, and markets everywhere—and it was super clean. Before setting foot in the hotel, I knew that this was a place that I would return to for an extended stay.

Raffles is the high-end hotel chain in Asia. I have stayed at its property in Singapore (where the infamous Singapore Sling was concocted) and now at Siem Reap—both are excellent choices. The hotel occupies prime space across from a park that hosts a mini arts and crafts market, and it also occupies the biggest footprint of any hotel within the city limits. It’s been there for decades and was untouched during the country’s civil war. The facilities are excellent with everything you would expect from a five-star property. The food was excellent and, once again, getting connected to the Internet was painless from anywhere on the property.

What I failed to take into account about Siem Reap and Cambodia in general was that it is for all intents and purposes a brand-new country. Ravaged by war, the country had languished in a primitive state with no modern conveniences or facilities for more than 25 years. So, when Cambodia began rebuilding, it emerged bathed in the newest and latest technology from high-speed Internet access to security cameras and modern transportation systems. The online visa, the new airport, the citywide Internet access—these are just not things that you find in your run-of-the-mill emerging country.

Angkor Wat

My schedule permitted me to pay a visit to the Angkor Wat temple complex, about 20 minutes from the hotel. Again, I was impressed by the road to the complex—no potholes. Upon arriving at the complex I was directed to a ticket stall where the agent took my picture and produced a ticket/ID within seconds that had my picture and details of the visit and a map on the back, all attached to a lanyard. Disney could learn a thing or two! Then, it was a short ride to the actual complex.

Angkor Wat is not small. It comprises several buildings spread over 203 acres and it is nothing short of spectacular. The sandstone structures are ornate with miles of carvings throughout. Rising more than 180 feet into the air, the central shrine and its galleries are a masterpiece of construction. Keep in mind the complex was built during the first half of the twelfth century. It is one of the Seven Wonders of the World and a must-see on any trip to the region. Siem Reap is a 45-minute flight from Bangkok and about the same distance from Saigon, as well. My only mistake was not allocating enough time in the area to visit the dozens of other temple complexes. If you are a little more adventurous, you can take brief tours around some of the complexes (not Angkor Wat) on elephant back for a few dollars.

Making Money in Cambodia

If there is such a thing as a pre-emerging market opportunity, Cambodia gets my vote. As of mid-2011, it was still in the planning stages of opening a stock exchange. It will likely happen sometime in 2012. There are companies, of course, that do business in Cambodia, usually with the blessing of the royal family, which rules the country. Among the early-stage companies that are accepting private capital are those in the banking and beverages sectors. One such company, called Kingdom Beer, recently accepted an investment of US$2 million from a private equity group in exchange for a majority stake. (I discuss the company in more detail shortly.) Granted, it’s a small brewer of high-end beers, but it shows you the types of ground-floor opportunities still available.

Banks, power companies, seafood processing plants, real estate, hotels—you name it—Cambodia needs investment in all of these ventures and it is open for business. Most of the business is conducted in Phnom Penh, the capital city. Siem Reap, where Angkor Wat is located, was once a capital city but is now the tourist mecca of the country.

Because of the limited opportunity to invest directly in Cambodian companies through a stock exchange, one has to either invest directly on the ground or invest through private equity groups. I met with one such group and the managing partner of that group, Douglas Clayton. I’m not one to jump into any situation like this without getting a look at the eyes of the person behind any private deal—a lesson I’ve learned through experience. Still, there is no safety net when investing in a country like Cambodia or through any equity group. This is frontier investing at its finest.

I have met with Doug several times. He moved his entire family to Cambodia to focus his efforts on the region. That’s dedication if you ask me. Cambodia is very nice . . . but not that nice. Doug knows the country, the people, and the businesses that he invests in. Still, it’s a 5- to 10-year slog at best before you’ll see the types of monster returns that can occur when you get in this early. Frankly, most people are just not interested in that time frame and risk. Not to mention the fact that you will need to pony up some serious cash to participate—$100,000 will get you in the door . . . if the fund is still open.

If you are interested in learning more about investing in Cambodia with Doug’s company, Leopard Capital, contact him by visiting the website (www.leaopardasia.com). Leopard is also investing in places like Sri Lanka (Tier 2) and Laos (pre-pre-emerging).

Cambodia is an up-and-coming emerging market. It has a ton of upside based on where it is today and where it has come from. It’s like a new country. It’s almost at Tier 3 status. However, it could turn back the clock in a heartbeat if things were to fall apart, not like the days of the Khmer Rouge, perhaps, but to a dictatorial monarchy. I would say that there is a 10 percent chance of this happening. The country is doing well in many ways. Its economic growth and outlook are very good, but like everything else in Cambodia, old memories must be dealt with.

Strengths

A very young population, eager to learn and adapt to a capitalist model. Great telecommunications infrastructure; strong cellular-based technology. Strong “wonder of the world” tourism potential. Angkor Wat and Siem Reap can probably handle two to three times the number of annual visitors they currently attract. Proximity to Thailand, Laos, Vietnam, and China give the country longer term trade potential. Freedom of Internet.

Weaknesses

Early-stage nation building still in effect. Ravages of the civil war will take a long time to heal. Many places in the countryside are still off-limits because of landmines. The government is fond of nepotism and wants a piece of the action on all deals. There is a current lack of publicly traded vehicles for investors. No means to verify the books. Lack of a tax base or tax collecting mechanism outside of the big companies. This will hamper public sector growth and spending on things like roads. Water is not potable.

Opportunities

Tourism development. Infrastructure development. Ground-floor-type opportunities for those with access and capital. Increased trading opportunities with neighbors.

Threats

The country could fall back into dictatorial rule if the economy goes south. Child prostitution and human trafficking need to be addressed. Minefields need to be cleared completely or tourism will not thrive. During the civil war more than 13 million landmines were planted throughout the countryside. Thanks to international efforts, more than 12 million have been found and disabled. My advice would be to stay in the car and not venture too far for a walk.