Political risks threaten economic gains in Cambodia

Prime Minister Hun Sen’s latest crackdown on the opposition threatens to undermine one of the region’s fastest- growing economies

Phnom Penh, March 3, 2017 1:05 PM (UTC+8)
President of the ruling Cambodian People's Party (CPP) and Prime Minister Hun Sen attends a ceremony at the party headquarters to mark the 65th anniversary of the establishment of the party in Phnom Penh June 28, 2016. REUTERS/Samrang Pring - RTX2ILH9
President of the ruling Cambodian People's Party (CPP) and Prime Minister Hun Sen attends a ceremony at the party headquarters to mark the 65th anniversary of the establishment of the party in Phnom Penh June 28, 2016. REUTERS/Samrang Pring - RTX2ILH9

Politics barely got a mention when Prime Minister Hun Sen delivered his keynote address at last month’s Cambodia International Business Summit, a confab aimed at promoting trade and investment opportunities in the fast-growing and underdeveloped country.

“There’s tremendous potential in [the Association of Southeast Asian Nations] as an economic power hub and Cambodia welcomes foreign investment projects to the region,” he told a packed house gathered at Phnom Penh’s shiny InterContinental hotel. “We will strive to build a better and attractive investment climate for all investors and businessmen.”

While Hun Sen and his ruling Cambodian People’s Party (CPP) claim to be building a more attractive environment for foreign investors, questions are rising about whether his government’s escalating crackdown on the political opposition will start to undermine foreign and local confidence in the economy.

Just days before his speech, Hun Sen’s longtime adversary, Sam Rainsy, resigned as president of the opposition Cambodia National Rescue Party (CNRP) in mid-February. His decision came in response to the government’s plans to introduce a new law that would dissolve political parties led by individuals convicted of crimes, including defamation, that carry non-suspended jail sentences.

It is still unclear if the CNRP may be forced to disband ahead of pivotal commune elections this June and general elections scheduled for 2018. 

Cambodian opposition leader Sam Rainsy stepped down as president of the Cambodia National Rescue Party on Saturday. The exiled politician and his party members have come under rising political pressure ahead of crucial elections. Photo: AFP / Tang Chhin Sothy
Previous opposition leader Sam Rainsy stepped down as president of the Cambodia National Rescue Party in mid-February. The exiled politician and his party members have faced political pressure ahead of crucial elections. Photo: AFP/Tang Chhin Sothy

“At some point, investors will probably ask themselves about the reputational risks of doing business in a country where critics die and the opposition is under threat of being dismantled,” Sophal Ear, a Cambodia expert at Occidental College in Los Angeles, told Asia Times.

There is little evidence to suggest politics is currently hurting business and investor sentiment. The Ministry of Economy and Finance projects 7.1% gross domestic product growth rate for this year, on par with the level in 2016. The World Bank and other independent economic forecasters have made similar 7% predictions for this year’s growth.

“As long as the economy keeps on growing, jobs are being created and reform continues in some of the areas that are most relevant to the daily lives of Cambodians, political stability will continue to form the basis of further economic development,” said Tassilo Brinzer, president of the German Business Group in Cambodia. “Political stability and economic growth go hand in hand. If either one stumbles, the other might, too.”

Last year, Cambodia was selected to host the 2017 World Economic Forum on East Asia, which will take place in May. Indeed, Western governments and donors have been mostly reticent in criticizing Hun Sen’s latest crackdown, as they were for much of last year during similar acts of intimidation against the political opposition and civil-society groups.

Political stability is often rendered as meaning the unperturbed rule of Hun Sen’s CPP, which has ruled Cambodia effectively uninterrupted since 1979. The government’s recent moves against the political opposition were hardly unpredictable; political clampdowns have been for decades a perpetual feature of Cambodian politics.

With Hun Sen’s latest moves, the potential for a backlash is rising ahead of June’s commune election, where some analysts believe the CNRP could make substantial grass-roots gains. If those polls are perceived as unfairly tilted towards the CPP, the political temperature could rise ahead of general elections scheduled for 2018.

A labourer sits on a truck near an apartment under construction side in central Phnom Penh October 19, 2015. High-rise apartments are springing up across Cambodia's capital, part of a property boom led by expat demand, while developers are also betting the country's growing middle class will shed a traditional distaste for "living on top of each other". REUTERS/Samrang Pring - RTX1UGV6
A laborer near a residential project in Phnom Penh in October 2015. Cambodia’s economy is projected to grow over 7% this year. Photo: Reuters/Samrang Pring

Rising risk perceptions could soon begin to dampen the investment environment, analysts and investors say. “I would expect see a slow down in foreign investment, and the economy in general, in 2018 due to election concerns,” said Grant Fitzgerald, country manager of Independent Property Services (IPS) Cambodia, a private real estate company.

In the three-month periods before and after the last general election in 2013, many non-Asian investors took a “wait-and-see approach,” which led to a sharp downturn in investment, Fitzgerald said. He notes that Western investors are more risk-averse than their Asian counterparts, which he says are more used to the “ebb and flow” of Cambodia’s politics.

Cambodian citizens are also sensitive to political risks. ACLEDA Bank, the countrys largest financial institution, saw a record drop in customer deposits and loans during the third-quarter of the 2013 business year. Bank officials attributed the dip to customers withdrawing funds based on fears of post-election turmoil.

As government pressure mounts on the CNRP, which made historic gains at the 2013 polls and hopes to win an outright majority in 2018, those concerns could be revived well ahead of the next general election. Hun Sen has warned that there may not be a peaceful transfer of power should his CPP lose in 2018.

Garment workers hold petrol bombs after clashes broke out during a protest in Phnom Penh January 3, 2014. Cambodian military police opened fire with assault rifles on Friday to quell a protest by stone-throwing garment factory workers demanding higher pay, killing at least three people, witnesses said. Military police spokesman Kheng Tito, however, said only one protester was killed. REUTERS/Samrang Pring (CAMBODIA - Tags: BUSINESS TEXTILE CIVIL UNREST POLITICS) - RTX170K8
Garment workers after clashes broke out in a 2014 protest in Phnom Penh. Prime Minister Hun Sen’s government has accused the opposition of stirring instability. Photo: Reuters/Samrang Pring

In 2015, Hun Sen publicly said that an “internal war” could erupt, led by CPP-aligned chiefs of the military and police, should the CNRP win the next election. He said that “if the opposition thinks I’m going to step down, they’re dreaming.”

He has since warned political opponents who may plan to launch a “color revolution,” reference to the street movements that brought down authoritarian regimes in former Soviet republics and the Balkans in the 2000s, to “prepare the coffin.” Labor Minister Ith Sam Heng insinuated striking garment workers last month were the front edge of such a movement.   

Few analysts believe the government will ease its intimidation of the CNRP and its civil society allies ahead of the pivotal polls. “Whether the upcoming elections will see such a downturn [in the economy] depends on the political developments leading up to them,” said Brinzer, “and these have always been difficult to predict.”

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